different functional areas in a business whether it is large or small. Tradi- ... Enterprise Resource Planning (ERP) systems can be defined as software infrastructure that ... der processing, purchasing, production planning, financial accounting, man- agement ... management, inventory control and real-time reporting' [20].
Please cite as: Grandhi, S & Chugh, R 2012, ‘Implementation Strategies for ERP Adoption by SMEs’. In Kim, T, Ko, D, Vasilakos, Stoica, A & Abawajy, J (eds), Computer Applications for Communication, Networking, and Digital Contents. Springer, Berlin Heidelberg, pp. 210-216. "The original publication is available at http://link.springer.com/chapter/10.10072F978-3-642-35594-3_30 "
Implementation Strategies for ERP adoption by SMEs Srimannarayana Grandhi 1 and Ritesh Chugh 1 1
Central Queensland University Melbourne, Australia
{s.grandhi1,r.chugh}@cqu.edu.au
Abstract. ERP systems are considered to be mission-critical information systems in the current business environment. The adoption of ERP should not be hindered solely by the size of an organisation. The key aims of this paper are to elucidate the various strategies Enterprise Resource Planning (ERP) vendors have developed to encourage Small to Medium Enterprises (SME) to adopt their products. These strategies focus around solutions such as pre-configured solutions, implementation methodologies and hosting options. In order to meet this aim, this paper utilises two case studies as examples which demonstrate the experiences of companies who have utilised these strategic options. Based on the extant literature, the barriers to implementation of ERP systems in SMEs have also been discussed. Discussion about the implementation barriers is included to explain how organisations can prepare and plan for effective ERP system implementation. Keywords: ERP, Enterprise Resource Planning, SME, Small to Medium Enterprise, Adoption, Implementation, Strategy.
1
Introduction
Large organisations usually have more than one information system to support their diverse business functions. Often these systems have been built around different functions and business processes that do not pass data to each other [1]. The end result is inefficient business processes, redundant data and additional costs to the firm. Enterprise Resource Planning (ERP) systems were introduced to address this problem by ‘providing a single information system for organisation-wide coordination and integration of key business processes’ [1, p.56]. ERP systems can be used to replace an assortment of systems that have typically existed in organisations. ERP systems are considered to be a crucial link for enhancing integration between different functional areas in a business whether it is large or small. Traditionally ERP vendors such as SAP, Oracle, Baan, JD Edwards (now Oracle) and IBM focussed on developing and selling software to Fortune 1000 companies. 70% of these Fortune 1000 companies have an ERP system [2]. There has been a shift towards this focus on larger companies and now ERP vendors are focussing upon Small to Medium Enterprises (SME) due to
changes in the business environment. Undoubtedly SMEs would want to reap the same benefits that large enterprises have been able to gain through the adoption of ERP. Due to the saturation of the high end market [2] and as the majority of larger organizations have already adopted ERPs, software vendors have turned their attention to SMEs. ERP vendors are now offering simplified and cheaper products which can help SMEs to take full advantage of ERP with minimal time, effort and manpower [4]. Most of the current studies on ERP systems have focused on large ERP installations with limited focus on SMEs. The escalating trend of ERP adoption by larger organisations was partly driven due to the inherent high costs of ERP and limited products from ERP vendors that catered to the needs of SMEs. In most cases, SMEs have limited resources at their disposal and in comparison to larger companies, their chances of survival are very slim if an ERP implementation fails. Hence it is important to look at some ERP adoption strategies that can be utilised by SMEs when they are confronted with multiple choices. This paper will provide an insight into these strategies. The paper will also delve into the implementation barriers of ERP systems in SMEs as drawn from the literature in this field. This paper has utilised a case study method that involved an interpretive approach, to demonstrate the experiences of two SMEs who have utilised these strategic options and their successful usage of ERP products. 2
A Brief Insight Into The State of ERP Systems
Enterprise Resource Planning (ERP) systems can be defined as software infrastructure that helps organisations to manage and improve the efficiency of their business processes and achieve business agility [5]. These systems can also be called integrated systems, because this software allows integration of several business functions to achieve process efficiency and enhance profitability [6]. The goal of ERP is to integrate different business functions across an organization into a single platform that serves the needs of each business function seamlessly [8]. Some of the drivers for implementing ERP systems include replacing legacy systems, simplifying and standardising their existing systems, gaining strategic competitive advantage, improving interactions with both customers and suppliers, and restructuring the organisation [7]. An ERP system can help in lowering inventory levels, reducing production cycle time, decreasing operational costs, and providing a strong back up for enterprise resource integration and business process standardization [9],[10].
There are several vendors in the market offering ERP software with different modules to support businesses. Most of these products include sales order processing, purchasing, production planning, financial accounting, management accounting and human resources modules. Some vendors also include additional modules to aid in customer relationship management, supplier relationship management, corporate performance management, product life cycle management and supply chain management [8]. A survey conducted by Panorama consulting group revealed that SAP, Oracle, Microsoft, Epicor Software, Infor Global Solutions, Sage, Lawson Software, Exact Software, IFS and Open Bravo are the most popular ERP software vendors globally [11]. In 2010, Germany based ERP vendor SAP was ranked first with a market share of 24%, followed by Oracle with 18% and Microsoft Dynamics at 11% [12]. 3
Barriers to Implementation of ERP Systems in SMEs
ERP implementations help SMEs to increase their strategic and competitive capabilities [15]; however, there are several barriers too. Despite the many advantages of ERP systems, they do not as yet represent a clear and successful management tool to SMEs or at least they are not easily implementable by SMEs [13]. It is estimated that 50% of all ERP implementations are considered a failure [14]; hence a poorly implemented ERP system can become a heavy liability for SMEs. It is important to delve into the barriers of the implementation of ERP in SMEs so that such costly mistakes can be avoided. Some key barriers to the implementation of ERP in SMEs as gathered from the extant literature follow. Time and cost constraints: Configuring and implementing ERP systems is an expensive task [3]. SMEs either have insufficient resources or are not willing to commit their scarce resources to the lengthy implementation time and high fees associated with ERP implementation [3]. Failure to redesign business process to fit the software: Failure to redesign the process to fit the ERP may cause problems in the implementation process [16]. Therefore, it is vital that current business processes are redesigned so that it is close match to the ERP and vice versa. ERP vendors like SAP are offering industry specific or cross industry solutions to assist SMEs. 43% of costs associated with implementing a new ERP system are reengineering costs [6]. Lack of senior management support: Lack of senior management’s support would lead to abandonment of the project or unsuccessful implementation of the system. Technical and information services staff would perceive
positively, if there is backing of senior management at various levels. For example, if the executive feels implementation of a new system is a high priority, then it is more likely that the subordinates feel the same way too [1]. End user resistance: People are the main focus when new systems are being implemented. The implementation of new technology can generate fear within employees and lead to a resistance to change. ‘Many staff respond with resistance, anger, frustration and confusion’ when new systems are being implemented [17]. The best way to deal with this situation is to clearly communicate the change through the entire organisation and keep the users involved in the design process. Lack of skilled staff: The implementation process includes tuning and configuring the system. Failure to recruit ERP professionals and inadequate staffing may become a barrier in the successful implementation of ERP. Solutions could range from recruiting skilled staff, to identifying and training the existing staff [18]. 4
Background of The Case Study SMEs
Two case studies (Globe Australia and Italricambi) were chosen from the World Wide Web to demonstrate the experiences of companies who have utilised strategic options for ERP implementations. Globe Australia is the leading supplier of products and services to the turf maintenance and pest management industries in Australia [19]. Its headquarters are located in Sydney and its 75 staff supply stock nationally through 10 other distribution locations. According to the CEO of Globe Australia, there was a need ‘to maximise customer service through effective relationship management, inventory control and real-time reporting’ [20]. To achieve this mission, Globe Australia replaced their legacy system with mySAP Allin-One with the help of SAP’s implementation partner Extend Technologies [20]. Globe Australia chose mySAP All-in-One because it is a complete ERP solution that is preconfigured and comes with preinstalled tools to manage keys aspects of their business. Their previous system was not preconfigured and needed skilled personnel to tune the system in order to meet the company’s day-to-day requirements. SAP’s toolset and accelerators including business configuration sets helped them to integrate the old system with the new one and achieve rapid implementation with minimal disruption to the business [20]. As it is necessary to modify the existing business processes prior to the implementation of ERP system to suit the pre-configured system and to improve efficiency [21], some of the existing internal pro-
cesses had to be modified during the implementation process. Staff training was straight forward because of the user friendly interface [20]. Italricambi is an Italy based manufacturing business founded in 1962 that produces steel parts for earthmoving machinery [22]. Around 90% of the company’s sales are abroad. It employs 80 people and its annual revenue is around $16.5 million [22]. Italricambi chose Oracle’s ERP system ‘JD Edwards Enterprise One’ to support existing key business processes and provide transparent interactions with global partners, and more importantly, to reduce delivery times and forecast future demand accurately. Oracle’s partner Alfa Sistemi implemented the new ERP system using rapid implementation tools [23]. JD Edwards Enterprise One is an integrated application suite with about 70 application modules, which supports a range of business operations [24]. Rapid Deployment Tools (RDT) such as Oracle Business Accelerators helped Italricambi to implement the new system in 8 weeks. Pre-configured software, services and hardware for mid-size companies can allow rapid deployment of a new system. The new ERP system helped Italricambi to speed up delivery times through improved logistics. The end result was reduced delivery times and costs, improved accuracy of demand forecasts and improved client support [23]. 5
Analysis and Findings
The strategies that have been developed by ERP vendors are pre-configured solutions, implementation methodologies and hosting options. The utilisation of the pre-configured ERP system has worked well for both companies. ERP architecture whose functions are configured to suit the needs of businesses in a specific industry is defined as pre-configured systems. Preconfigured industry specific solutions not only help reduce the total cost of ownership but also enable rapid implementation in as little as 812 weeks [27]. Many ERP vendors claim their products are widely configurable and support business processes of any organisation regardless of the products or services they offer [25]. One of the major ERP vendors SAP AG offers preconfigured ERP solutions to meet the business needs and operational needs of mid-sized consumer product companies [26]. Oracle offers JD Edwards Enterprise One, which allows the buyer to choose the databases, operating systems, and hardware to build and expand the customised solutions for rapid deployment to meet business needs [24]. The adoption of the right ERP implementation methodologies includes addressing configuration issues, migrating data from the old system to the new
system, building interfaces, implementing reports and pilot testing [7]. Methodology can be defined as proven practices and processes ‘followed in planning, defining, analysing, designing, building, testing, and implementing a system’ [28]. SMEs may not necessarily have the skills to perform these activities themselves. In order to assist SMEs, ERP vendors like SAP and Oracle, as illustrated in the case examples, offered several implementation tools and methodologies to reduce the implementation cost and time. Although, different companies installed similar ERP software in different ways, there are some common methodologies for implementing ERP systems. These methodologies are rapid implementation, modular implementation and process oriented implementation. All these methodologies offer directives, but may not be very useful for SMEs unless they are backed with the right implementation tools. The third important strategy that can be utilised by SMEs is ERP hosting or Software-as-a-service, which is gaining popularity. McKay & Marshall [29] define ERP hosting as ‘commissioning a third party (or a number of third parties) to manage a client organisation’s enterprise resources including IT assets, people, and /or activities to required results’ (p.249). Through this approach companies can avoid heavy capital investments on hardware, software, office space, and skilled personnel [30]. Most importantly, this leaves SMEs with more time to focus on core functions of the business. In addition to these benefits, small businesses can achieve steady cash flow, if hosted solutions are purchased from the ERP vendor, because they provide an opportunity to negotiate more favourable terms on the software licenses and/or implementation services [31]. In order to make this option feasible and more attractive, ERP vendors started removing some of the roadblocks to hosted ERP adoption by introducing Service Provider Licensing Agreement (SPLA) options. SPLA would allow solution providers to rent ERP software to small businesses and users would typically pay a per-user, permonth fee depending on the scope of the applications [32]. 6
Conclusion
The paper has revealed three strategies (pre-configured solutions, implementation methodologies and hosting options) that were introduced by ERP vendors to assist the needs of SMEs. The case studies clearly demonstrate the experiences of companies who have utilised some of these strategic options. Implementation of pre-configured systems is less risky compared to developing a new system from scratch, because these are developed based on common industry standards and encompass a variety of business processes. Implementation methodologies and tools help in accelerating the
implementation process and provide cost benefits too. Hosting is a service offered by some ERP vendors that suits the needs of SMEs who do not want to invest in expensive infrastructure and manage the infrastructure themselves. Generalisability of the findings is not advised due to the nature of case study methodology. Future research can examine other SMEs in order to perform a deeper analysis and comparison. There is also a possibility of identifying the strategies of larger companies’ ERP adoption and comparing them with the adoption strategies identified in this paper. Moving forward, it can be concluded that the adoption of an ERP system, bundled with cost reduction and operational efficiency, may offer an excellent opportunity for SMEs.
7
References
1. Laudon, J.P., Laudon, K.C.: Management Information Systems: Managing the Digital Firm, 9th edn. Pearson Education, New Jersey (2006) 2. Yen, D.C., Chou, D.C., Chang, G.D.: A synergic analysis for web-based enterprise resource planning systems. J. Comps. Stds. & Intfs., 24, 337-346 (2002) 3. Dixit A., Prakash, O.: A study of issues affecting ERP implementation in SMEs. J. of Arts, Sci. & Comm, 2(2), 77-85 (2011) 4. Baki, B., Cakar, K.: Determining the ERP package-selection criteria: The case of Turkish companies. J. Buss. Pro. Mgmt., 11, 75-86 (2005) 5. Turban, E., Volonino, L.: Information Technology for Management: Improving Strategic and Operational Performance, 8th edn. John Wiley & Sons, Inc., USA (2011) 6. O'Brien, J., Marakas, G.: Management Information Systems, 10th edn. McGraw Hill, New York (2011) 7. Sumner, M.: Enterprise Resource Planning. Pearson Education, Inc., New Jersey (2005) 8. Motiwalla, L., Thompson, J.: Ent. Sys. for Mgmt., 2nd edn. Pearson Prentice Hall, New Jersey (2012) 9. Wu, J. H., Wang, Y.M.: Measuring ERP Success: The Ultimate User’s View. International J. of Op. and Prdn. Mgmt., 26 (8), 882-903 (2006) 10. Liang, H., Saraf, N., Hu, Q., Xue, Y.: Assimilation of Enterprise Systems: The Effect of Institutional Pressures and the Mediating Role of Top Management. J. MIS Quarterly, 31 (1), 59-87 (2007) 11. Panorama Consulting Group.: 2011 ERP Report, http://panoramaconsulting.com/Documents/2011-ERP-Report.pdf (2011a) 12. Panorama Consulting Group.: 2011 Guide to ERP Systems and Vendors: An Independent Research Report, http://panorama-consulting.com/Documents/2011-Guide-to-ERP-Systems-andVendors.pdf (2011b) 13. Huin, S.F.: Managing deployment of ERP systems in SME using multi-agents. Int. J. of Proj. Mgmt., 22 (6), 511-517 (2004) 14. Muscatello, J.R., Parente, D.H.: Enterprise Resource Planning (ERP): A Postimplementation Cross-Case Analysis. J. Info. Res. Mgmt., 19, 61-74 (2006)
15. Mareai, B.S., Patil, S.Y.: Taxonomy of Enterprise Resource Planning System. J. Excel J. of Engg. Tech. and Mgmt. Sci., 1 (2), 1-12 (2012) 16. Palvia, P., Zhenyu, H.: ERP implementation issues in advanced and developing countries. J. Buss. Pro. Mgmt, 7 (3), 276-284 (2001) 17. Anderegg, T.: ERP: A-Z Implementer’s Guide for Success. Resource Publishing, USA (2000) 18. Lin, M., Li, S., Chang, I., Huang, S.: Assessing risk in ERP projects: identify and prioritize the factors. J. Industrial Mgmt. & Data Sys., 104 (8), 681-688 (2004) 19. Globe Australia.: About Globe Australia, http://www.globeaustralia.com.au/turf/about.htm (2012) 20. SAP AG.: SAP Helps Globe Australia raise customer service levels, http://www.sap.com/australia/solutions/customersuccess/sme/businessallinone/globe/index.epx (2004). 21. Negahban, S.S., Baecher, G.B., Skibniewski, M.J.: A Decision-making model for adoption of enterprise resource planning tools by small-to-medium size construction organisations. J. of Civil Engg. and Mgmt., 18(2), 253-264 (2012) 22. Italricambi.:Who we are, http://www.italricambi.it/cms/menu/id/17/ 23. Oracle.: Italricambi Consolidates International Position With New Technology Platform, Oracle Customer Snapshot, http://www.ebest.hu/UserFiles/File/Snapshots/italricambi-jde-snapshot.pdf (2008) 24. Oracle.: JD Edwards EnterpriseOne, http://www.oracle.com/au/products/applications/jd-edwardsenterpriseone/index.html 25. Aslan, B., Stevenson, M., Hendry, L.: Enterprise Resource Planning Systems: An assessment of applicability to Make-To-Order companies. J. Comp. in Indst., 63, 692-705 (2012) 26. SAP AG.: Achieve profitable, sustainable growth in a highly dynamic market – with our SME software, http://www.sap.com/solutions/sme/solutions-overview.epx (2012a) 27. SAP AG.: Go live in as few as eight weeks – with the SAP Business All-in-One fast-start program, http://www.sap.com/solutions/sme/erp-business-all-in-one/fast-start.epx (2012b) 28. Microsoft.: Driving Efficiency and Innovation by Consistently Managing Complexity and Change, http://msdn.microsoft.com/en-us/architecture/ff476941.aspx (2012) 29. McKay, J., Marshall, P.: Strategic Management of e Business. John Wiley & Sons Australia Ltd., Australia (2004) 30. Turban, E., McLean, E., Wetherbe, J.: Information Technology for Management, 3rd edn. John Wiley & Sons Inc., USA (2002) 31. Pancucci, D.: ERP Hosting. J. Mfg. Comp. Solns. 17 (2005) 32. Darrow, B.: Microsoft Revises Licenses To Support ERP App Hosting – Enlists partners to counter SaaS plans of Salesforce.com. J.NetSuite, 1219, 12 (2006)
