9. Factors Affecting Erp System Adoption

Factors affecting ERP systemadoption

A comparative analysis between SMEs andlarge companies

G. Buonanno, P. Faverio, F. Pigni, A. Ravarini,D. Sciuto and M. Tagliavini

CETIC Universita Cattaneo – LIUC, Castellanza, Italy

Abstract

Purpose – Proposes providing an insight about enterprise resource planning (ERP) adoption,highlighting contact points and significant differences between the way small to medium-sizedenterprises (SMEs) and large companies approach such a task.

Design/methodology/approach – The research is based on a wide literature review, focused on theidentification of a taxonomy of business and organizational factors influencing ERP adoption. Thederiving research model was incorporated in a questionnaire that was preliminarily tested and finallyprovided to a sample of 366 companies of any size. Responses were collected through personalinterviews made by a dedicated team to a top manager.

Findings – The analysis of the empirical data shows that business complexity, as a composed factor,is a weak predictor of ERP adoption, whereas just company size turns out to be a very good one. Inother words, companies seem to be disregarding ERP systems as an answer to their businesscomplexity. Unexpectedly, SMEs disregard financial constraints as the main cause for ERP systemnon-adoption, suggesting structural and organizational reasons as major ones. This pattern ispartially different from what was observed in large organizations where the first reason for notadopting an ERP system is organizational. Moreover, the decision process regarding the adoption ofERP systems within SMEs is still more affected by exogenous reasons or “opportunity of the moment”than business-related factors, contrary to large companies that are more interested in managingprocess integration and data redundancy/inconsistency through ERP implementation.

Research limitations/implications – The research model is based on the assumption thatbusiness complexity and organizational change are the most relevant variables influencing ERPadoption, and such variables are explained through a set of factors inherently limited by the results ofthe literature review.

Practical implications – The results of the empirical research provide indication to SMEs willingto take into consideration the adoption of an ERP system. The same outcomes could be incorporatedinto the development strategies of ERP software houses.

Originality/value – This paper contributes to enhancing the understanding of the factorsinfluencing the evolution of information systems within SMEs with respect to large companies.

Keywords Manufacturing resource planning, Small to medium-sized enterprises, Organizational change

Paper type Research paper

IntroductionThe capability of enterprise resource planning (ERP) systems to manage a company’sresources efficiently and effectively by providing a total, integrated solution for itsinformation processing needs (Fui Hoon Nah et al., 2001) has persuaded bothpractitioners and managers of the importance of integrated systems, not only for large

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Journal of Enterprise InformationManagementVol. 18 No. 4, 2005pp. 384-426q Emerald Group Publishing Limited1741-0398DOI 10.1108/17410390510609572

multinational organizations, but also for small and medium-sized firms (VanEverdingen et al., 2000).

The evaluation of the contribution of ERP systems in terms of both value creation andeconomic returns is a difficult task, because of the extent of the organizational changes(Lozinsky, 1999; Shtub, 1999; Willcocks and Lacity, 1998) to which their implementationleads, as well as the difficulties in predicting the return on investment (Mabert et al.,2001). The competences required to manage properly the organizational changedetermined by an ERP system implementation is still a debated issue. The most qualifiedliterature has always stressed the importance of change and project managementcompetences as critical success factors for ERP implementation (Davenport, 2000;Mandal and Gunasekaran, 2003; Motwani et al., 2002), hereby indirectly raising the issueof small to medium-sized enterprises’s (SMEs’s) lack of organizational preparation. Sucha situation is mainly caused by the low extent of formalization of people’s roles andresponsibilities that is expressed by with their continuous re-shuffle (Dutta and Evrard,1999). This structural condition makes the identification of ERP implementation’s mainfigures, such as the process owner and the key user (Davenport, 2000), extremely difficultto achieve. Beside this, SMEs generally suffer from a widespread lack of culture, as to theconcept of business process: it is not by chance that the reinforcement of the concept ofbusiness process is often claimed among the critical success factors in ERPimplementation (Beretta, 2002). In particular, the business process concept helpspromoting co-operation and convergence of efforts among managers (i.e. managerialintegration), versus the internal competition induced by the functionally-orientedorganizational models which is typical of SMEs.

One of the most misleading legacies of traditional software project management isthat the company expects to gain value from the use of the software application as soonas it is installed (Al-Mashari et al., 2003). Since the adoption of an ERP system requiresextensive efforts, both for the technological and business aspects of theimplementation, neither information technology (IT) practitioners nor researchershave developed a deterministic method to evaluate the related impacts (Al-Mashari,2002). In spite of the benefits potentially offered by ERP systems (Banker et al., 1998;Davenport, 1998; Gable, 1998; Hicks and Stecke, 1998; Minahan, 1998) the evaluationissue plays an essential role regardless the company size; during the planning phase itis critical for companies to figure out whether a specific ERP system fits their businesspractices. When the features of the software application do not correctly fit thebusiness requirements two possible strategies can be identified:

(1) Change the business processes to fit the software with minimal customization. Onone hand, fewer modifications to the software application should reduce errorsand help to take advantage of newer versions and releases (Fui Hoon Nah et al.,2001). On the other hand, this choice could mean changes in long-establishedways of doing business (that often provide competitive advantage), and couldshake up important people roles and responsibilities (Dewett and Jones, 2001;Koch et al., 1999).

(2) Modify the software to fit the processes. This choice would slow down theproject, could affect the stability and correctness of the software application andcould increase the difficulty of managing future releases, because thecustomizations could need to be torn apart and rewritten to work with thenewer version (Koch et al., 1999). Conversely, it implies less organizational

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changes, because it does not require dramatically changing the company bestpractices, and therefore the way people work.

Although ERP vendors are concentrating on the customization process needed to matchthe ERP system modules with the actual features of existing processes in a number ofdifferent industries, several studies show that configuring and implementing ERPsystems is a complex and expensive task (Van Everdingen et al., 2000; Mabert et al., 2000).

Several aspects related to this twofold approach towards ERP adoption andimplementation become even more critical, for their known specificities, within SMEs(Ravarini et al., 2000; Van Everdingen et al., 2000). Although the effective use ofbusiness information is a strategic goal for companies of any size, nowadays most ofthe ERP systems available on the market are too expensive for the financialcapabilities of smaller companies (Chau, 1995; Gartner Group and Dataquest, 1998,1999). SMEs differ from large companies in important ways affecting theirinformation-seeking practices (Lang et al., 1997). These differences include the:

. lack of (or substantially less sophisticated) information system management(Kagan et al., 1990);

. frequent concentration of information-gathering responsibilities into one or twoindividuals, rather than the specialization of scanning activities among topexecutives (Hambrick, 1981);

. lower levels of resource available for information-gathering; and

. quantity and quality of available environmental information (Pearce et al., 1982).

Chan (1999) asserts that many SMEs either do not have sufficient resources or are notwilling to commit a huge fraction of their resources due to the long implementationtimes and high fees associated with ERP implementation. The resource scarcity, thelack of strategic planning of information systems (IS) (Cragg and Zinatelli, 1995; Levyand Powell, 2000; Zinatelli et al., 1996), the limited expertise in IT (Levy and Powell,2000) and also the opportunity to adopt a process-oriented view of the business areamong the factors that strongly influence, either positively or negatively, ERPadoption by SMEs. Thus it is necessary to find out alternative solutions providing theERP capabilities at an affordable price, including implementation costs (Rao, 2000).Some ERP vendors have taken up the gauntlet and have been moving their attentiontoward SMEs (Gable and Stewart, 1999) by offering simplified and cheaper solutions(Kirchmer, 1998) from both the organizational and technological points of view,pre-configured systems based on best-practices at a fraction of the cost originallyrequired and promising implementation times of 60 days. In spite of such promises,there is not a general agreement on the effectiveness of such systems. As a result, thecurrent ERP systems adoption rate in SMEs is still low. Furthermore, even if ERPimplementation differences between large and small organizations are recognized inliterature (Bernroider and Koch, 2001), their focus is on the decision-making process.Hence, other issues need to be further explored: To what extent SMEs informationalneeds are different with respect to large companies? Are SME peculiarities a realobstacle to ERP adoption? Is it possible to identify a relationship betweenorganizational change and ERP adoption in companies of different size?

This paper studies the factors influencing ERP systems adoption, and discusses towhat extent the differences between SMEs and larger firms affect such factors,

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contributing to the increasing literature on ERP adoption in small businesses. Througha detailed literature review, a set of indicators are identified as variables which couldinfluence the ERP adoption process. These indicators have been tested on the fieldthrough an empirical study carried out on a sample of 366 companies.

Conceptual frameworkThe literature provides different definitions of ERP systems: Rosemann (1999) defines anERP system as a customizable, standard application software which includes integratedbusiness solutions for the core processes (e.g. production planning and control,warehouse management) and the main administrative functions (e.g. accounting, humanresource management) of an enterprise. Gable (1998) defines it as a comprehensivepackage software solution that seeks to integrate the complete range of businessprocesses and functions in order to present an holistic view of the business from a singleinformation and IT architecture. Watson and Schneider (1999) define ERP as anintegrated, customized, packaged software-based system that handles the majority of anenterprise’s system requirements in all functional areas such as finance, humanresources, manufacturing, sales, and marketing. It has a software architecture thatfacilitates the flow of information among all functions within an enterprise. It is built on acommon database and is supported by a single development environment. Previousresearch works (Gibson et al., 1999; Ryan, 1999) suggested how ERP adoption andimplementation could be an highly complex task in which strong managerial andstrategic competences are required to achieve the best fit between the businesspeculiarities and the system itself and to deal with the unavoidable organizationalimpact induced by an ERP implementation. Other studies outlined different adoptionpatterns depending on company size and also observed that smaller companies face onlysubset of the needs and opportunities of larger organizations (Markus and Tanis, 2000).Furthermore, for a long time ERP adoption reasons within SMEs were explained only bycontingency or exogenous factors (Tagliavini et al., 2002). To investigate thesedifferences further, the research model presented in this paper explores to what extentthe business complexity (measured from a set of business factors) and the awareness ofthe organizational requirements (measured by the extent of organizational change) affectthe extent of ERP adoption. Such an effort seems, in fact, feasible for organizationsexperiencing high business complexity and information needs, and expecting, or evenplanning, significant organizational changes.

The methodology contribution of this paper is experimentally proved by testing therelationship between business complexity, organizational change and ERP adoption on300 SMEs through direct, survey-based, interviews. Such an approach, based on astatistical analysis on a high number of respondents, implies that its findings are noteasily comparable to other previous research works that are often based on casestudies on a very small set of companies.

The following sections will detail the two main components of the conceptualframework: the business factors and the organizational change.

Business factorsAlthough the organizational structure of larger firms could be very different from SMEs,it is reasonable to assume that companies of any size, characterized by highorganizational complexity (or “business complexity”), also show a critical need for


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coordination and control of business activities which, in turn, is related to the complexityof the information system (Grinyer et al., 1986; Lorange, 1980; Vancil and Lorange, 1975).Since ERP systems have been very often advocated by researchers and practitioners as“the answer” to manage the complexity of information flows more effectively, this lastinterpretation of business complexity, will be used in the research model to investigate ifthe “the condition” of being a complex organizations (which is measured by a set ofbusiness factors) and a greater extent of ERP adoption are straight related factors. Hence,the model approaches ERP systems as a sort of “black box” and thus their undeniableinner complexity (expressed by implementation and technological issues for instance) istaken for granted, and are therefore considered only an exogenous factor embedded intothe ERP concept itself. In particular, the several issues related to ERP system chartering,development and maintenance (i.e. project and change management issues or culturaland organizational un-readiness) are typical of the “critical success factors” stream ofresearch (Davenport, 2000; Mandal and Gunasekaran, 2003; Motwani et al., 2002) andgenerally refer more to the success of the implementation than to the reasons that bringcompanies to evaluate the opportunity of implementing an ERP system. Therefore, isbusiness complexity the possible explanation?

The assessment of the complexity measures is partially based on previous works(Grinyer et al., 1986; Yasai-Ardekani and Haug, 1997) that have developed andproposed metrics essentially based on size, diversification, and divisionalization. Thispaper neither proposes any new measure nor tests their reliability; instead it studiestheir occurrence in ERP adoption. Since the consistency of these indicators is essentialfor the theoretical validity of the whole framework, a detailed analysis of the ISliterature has been performed in order to identify a set of additional business factors:

. Company size (micro, small, medium, large). Existing literature confirms theexistence of a mutual dependence between size and organizational complexity.Kimberly (1976) stressed the necessity of applying a different approachdepending on the industry the company belongs to: for the services industry thenumber of employees has a better fit, while for manufacturing companies theturnover seems to be a better match. In any case, literature emphasizes size asone of the issues increasing the need for co-ordination and control oforganizational activities (Howard and Hine, 1997; Yasai-Ardekani and Haug,1997). Apart from any organizational or strategic remark, other research works(IDC, 1999) simply suggest a direct relationship between the size of organizationsand the percentage of organizations where ERP has been implemented.

. The market area (local, regional, national, international). Working on a widermarket area requires the management of more differentiated legal and culturalissues, thus introducing a higher level of complexity (Davenport, 1998; Hameland Prahalad, 1994; Prahalad, 1990; Sanders and Carpenter, 1998), as well as thefacing of competitive pressures characterizing the international markets (Bartlettand Ghoshal, 1989; Roth and O’Donnell, 1996; Rumelt, 1974). In addition, ascompanies become more global and develop international supply chains, thelimitations of MRPII have become apparent. Literature has identified theattempts being made by many organizations to expand their IS infrastructurebeyond their organizational boundaries through the development ofinter-organizational business systems. Consequently, this has resulted in thewidespread adoption of ERP solutions (Irani, 2002).

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. The membership an industrial group (either as the holding or as a controlled firm).This variable seems to be strongly related to the co-ordination of dispersedbusiness units, in terms of alignment of processes and procedures both betweenthe holding and the controlled companies and among controlled companiesthemselves. However, if the imposition of common operating processes on allunits could lead to a tight coordination between the controlled companies, in amultiregional context strict process uniformity could be counterproductive interms of flexibility (Davenport, 1998).

. The presence of branch offices (localization and number of branches). Themanagement of information flows is a crucial issue for companies with branchoffices which need to be remotely controlled. In larger organizations thedevelopment of intranets is often characterized by a lack of coordination andsupervision (Horgan, 1997). SMEs face different issues (i.e. the cultural andtechnological levels of the entrepreneur): this is one of the aspects that must beconsidered to comprehend fully the fall-outs in terms of management complexity,organizational impact and required competencies.

. The level of diversification (in terms of products, markets, technologies).Operating in different product-market combinations introduces another level ofcomplexity (Yasai-Ardekani and Haug, 1997). In related-diversified firms, anincrease in the number of businesses adds information-processing demands byincreasing business-unit interdependencies (Hill and Hoskisson, 1987; Kerr, 1985;Michel and Hambrick, 1992; Pitts and Hopkins, 1982). In unrelated-diversifiers,as the number of businesses increases, the information-processing requirementsassociated with maintaining efficient internal capital markets also increase(Jones and Hill, 1988). Moreover, because of the greater need for co-ordinationand control of activities, complex organizations will tend to have specializedplanning departments, employ a larger number of planners and consequentlydevote a substantially larger amount of financial resources to strategic planning(Grinyer et al., 1986; Kukalis, 1989).

. The degree of functional extension (number of activities carried out internally).Many companies prefer to outsource those activities that are not directly related tothe business strategies (non-core processes). The degree of functional extensionrefers to the number of strategic functions directly managed within the company,which should be related to the amount of information to be managed (Price, 1997).

In the light of the identified business factors, it is therefore necessary to verify theassociation between these factors and the use of ERP systems by testing the followingsix main hypotheses:

H1. The company size affects the adoption of ERP systems.

H2. The market area affects the adoption of ERP systems.

H3. The membership of a group affects the adoption of ERP systems.

H4. The presence of branch offices affects the adoption of ERP systems.

H5. The level of diversification affects the adoption of ERP systems.

H6. The degree of functional extension affects the adoption of ERP systems.


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Organizational change factorsEven though business factors play an important role in determining business complexitythey are not considered sufficient to assure the feasibility of ERP adoption. Another issuethat deserves consideration is the organizational impact of ERP systems as they tend toimpose their own logic on company strategy, organization and culture (Davenport, 1998).Thus, the ERP adoption decision affects most of the company business functions anddirectly involves a significant number of people. The project team responsible for ERPimplementation will be challenged to either match the functionality of the application tobusiness practice or find ways to adapt or change current processes and procedures,while the project team could face organizational resistance to changing the status quo(Laughlin, 1999). By providing universal, real-time access to operating and financialdata, ERP systems allow companies to streamline their management structures, creatingflatter, more flexible, and more democratic organizations. On the other hand, they alsoinvolve the centralization of control over information and the standardization ofprocesses, which are qualities more consistent with hierarchical, command-and-controlorganizations with uniform cultures (Davenport, 1998). Are the organizations aware ofsuch a change and then ready to bear and manage it? Is the alignment between thedesired organizational change and the complexity of the IT solution verified? Theseremarks highlight a possible relationship between the extent of organizational changeand the rate of ERP system adoption.

The extent of organizational change represents the degree of companytransformation that the entrepreneur plans as a consequence of a technologicalinnovation. This measure depends on the evaluation of the organizational andeconomic impacts, such as the competence of the internal staff or their expectedresistance to change to the adoption of a new technology. In order to analyze the factorsinfluencing the adoption of ERP systems, we assume that ERP systems could generatelarger benefits if implemented when a high level of organizational change is planned.Venkatraman (1994) classifies five main levels of transformation (Figure 1):

(1) Local automation of existing procedures. This strategy is pursued only forautomation of local, independent procedures. It requires minimal efforts and thecorresponding expected results are enhancements in business processperformance. Benefits coming from this strategy are easily duplicable, as

Figure 1.Levels of businesstransformation related totechnological innovation

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most of standardized solutions. Therefore, it is unlikely to obtain competitiveadvantage by simply automating existing procedures.

(2) Internal integration of existing business processes. It aims at integrating thebusiness processes and the company IS in order to create competitive advantage.The required integration has to be pursued both at the technological andorganizational level: whenever necessary, people belonging to different businessfunctions have to cooperate to reach common objectives. Together with thenecessary automation effort, this strategy requires an integration effort; however,in both cases the business process structures remain unchanged.

(3) Business process reengineering. It involves the partial or complete redesign ofbusiness processes, affecting not only the company procedures, but also itsorganizational structure.

(4) Business network redesign. Changes overcome the boundaries of the companyand could affect the entire network of its external relationships. For instance,electronic data interchange (EDI) can represent the technology chosen to pursuethis strategy, but a great effort has to be put into business process integration,through a continuous information exchange and competence sharing. Underthese conditions each partner can exploit the competencies of the businessnetwork instead of adopting expensive solutions of vertical integration.

(5) Redefinition of company boundaries through the creation of inter-organizationalrelationships. The information communication technologies (ICT) allow theredefinition of the competitive environment through the creation of stronginter-organizational relationships (joint ventures, long-term contracts, licensingagreements).

Therefore another hypothesis to be tested is focused on the matching betweenorganizational issues and ERP system adoption:

H7. The extent of planned organizational change is directly related to the use ofERP systems (the greater is the planned organizational change, the greater isthe rate of adoption of ERP systems).

To develop an effective framework it is necessary to include into the research model (ascontrol measures) both the endogenous and exogenous reasons that may affect ERPadoption. According to the literature (Al-Mashari, 2002), among the reasons that mayaffect ERP adoption, either positively or negatively, it is possible to distinguish operationalreasons (i.e. improving responsiveness to customers and simplifying ineffective orcomplex business processes) and technological reasons (i.e. Y2K compliance requirements,integration of business processes and systems, replacement of older, obsolete systems).For those companies which have stated that they do not make use of an ERP system, weclassified each justification for ERP non-adoption into four main categories:

(1) Structural motivations related to the need for coordination and control of businessactivities, thus to the complexity of information flows (which means that thecompany is not sufficiently complex to need an ERP system to manage the business).

(2) Organizational motivations (the company is not prepared to face and managethe organizational changes related to the adoption and implementation of anERP system).


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(3) Economic motivations (ERP system adoption and implementation would be toocostly for the company).

(4) Other reasons.

In the light of the control measures introduced the whole framework can be representedas shown in Figure 2.

MethodologyBased on the literature review, focused on the identification of a taxonomy of businessand organisational factors, a questionnaire was designed. It comprised three parts: thecompany demographics, the assessment of each business factor and the extent of theorganizational change. Before the complete deployment of the survey a first trial wascarried out on 122 companies suggesting the validity of the proposed approach(Tagliavini et al., 2002). Responses were collected through personal interviews made bya dedicated team to a top manager (possibly the entrepreneur him/herself or the CEO)since the proposed questions required the knowledge of the main business objectives,as well as of the features of the different business activities. The final questionnaire (anabstract is shown in Figure 2) was then proposed to a random sample of about 2000Italian companies of any size and industry, geographically located in northern Italy.Data were finally analyzed with SPSS v11, in particular the hypotheses (from H1-H7)have been tested by means of cross tabulations. Pearson chi-square was used to verifywhether the cross-tabulated groups were different, while p-values measure how thepreviously mentioned difference is statistically significant. Finally, the value ofSpearman’s R is used to evaluate the reliability of correlations.

A preliminary validation of collected data has been performed by cross-tabulatingERP adoption with each of the seven factors corresponding to the seven hypotheses(from H1-H7). Chi-square and p-value tests have been used to verify whether the set ofcompanies using an ERP system is significantly different from the set of the notadopters. Then, the connection existing between each factor and ERP adoption hasbeen assessed through Pearson’s R. A further analysis has been also performed

Figure 2.Theoretical framework

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separating SMEs from large companies to highlight possible differences between thetwo subsets.

Variable measurementAccording to the theoretical framework, the following sets of variables were measured:

(1) The business complexity factors have been evaluated through six indicatorsdetailed in the Figure 3. Respondents were asked to qualitatively assess eachvariable of the set. More specifically:. Diversification has been measured as a synthetic index of business strategy

by offering only two possible responses: diversification and other strategies(including cost-based and differentiation strategies).

. Degree of functional extension, i.e. the number of activities carried outinternally, has been assessed with respect to a set of typical businessactivities. The classical representation of the value chain (Porter and Millar,1985) has been integrated with a more recent measure used to assess theimpact of BPR on manufacturing firms (Guimaraes and Bond, 1996). Thismeasure has been already adopted in author’s previous research (Tagliaviniet al., 2002).

(2) The extent of organizational change which aims at evaluating the level oforganizational change the company is prepared to face in order to achievecompetitive advantage through the use of IT, has been assessed through aquestion suggesting Venkatraman five levels of organizational change. Due tothe academic formulation which undoubtedly characterizes the question in thesurvey, all the organizational implications and characteristics related to eachlevel of the Venkatraman’s model have been thoroughly explained by theinterviewers to respondents, to clearly point out any organizational-relatedissue.

(3) The technological and operational drivers have been assessed using the modelproposed by Al-Mashari (2002) integrated with other drivers which have beenidentified in a previous research (Chau, 1995). Multiple responses were allowed.

(4) The motivations for ERP non-adoption have been assessed by askingrespondents to select items from a check-list (also in this case multipleresponses were allowed).

Research findingsOf the 2,000 contacted companies only 370 accepted to be interviewed yielding aresponse rate of 18.5 percent. Data from this sample were collected and filtered toresolve inconsistencies and correct anomalies, resulting in 366 valid questionnaires.The choice of the direct interviews to collect data is accountable for the low rate ofrejected questionnaires: only four questionnaires were discarded.

Demographic dataThe first part of the questionnaire dealt with companies’ demographics. Firm size(number of employees and turnover) was investigated according to the currentdefinition provided by the European Union (see Table I).


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Figure 3.Measures adopted in thequestionnaire

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Small sized companies represent 43 percent of respondents (18 percent micro, 25percent small) while 42 percent have a medium size. Large enterprises represent 15percent of the sample.

With respect to the industry, the sample can be further categorized into three maingroups: manufacturing (66 percent), services (20 percent) and trade (14 percent). Thisdistribution is highly representative of the economical characteristics of thisgeographic area, where large enterprises and services/wholesaling companies play asecondary role (see Figure 4).

Company size (H1)The analysis of the correlation between company size (as a composite index betweenturnover and number of employees) and ERP adoption shows a very good fit with data.The two groups are significantly different (chi-square equal to 65,166 and p-valuelower than 0.001) while the Pearson’s R (0.401) shows that firms size and ERP adoptionare significantly correlated. In detail, while only 7 percent of companies not making useof ERP systems are large-sized, the value corresponding to those large companiesadopting ERP systems seems even more significant. In fact, despite not constitutingthe most relevant group in absolute terms (medium-sized companies are the 47 percentof the whole sample adopting ERP), in relative terms as to the sample composition (inwhich large companies are only 15 percent) large companies show an interesting result(38 percent). The analysis clearly shows also that the rate of ERP system adoption isquite low among both micro and small firms (3 percent and 12 percent respectively).This reinforces the persuasion that the company size affects the ERP adoption process.

H1: verified.

Membership of a group (H2)The cross tabulation for H2 shows an inverse correlation between membership of agroup and ERP adoption (Pearson’s R ¼ 20:277). Moreover, the 55 percent of companies

CriteriaMicro

enterprisesSmall-sizedenterprises

Medium-sizedenterprises

Maximum number of employees ,10 ,50 ,250Maximum turnover in e million – 7 40Maximum balance-sheet total in e million – 5 27

Source: European Commission (1996)Table I.

SMEs definition

Figure 4.Sample definition by size,

industry and enterpriseapplication


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belonging to a group prefer other management systems rather than ERP (Tables II-IV).A correct interpretation of such result requires considering that distribution of thesample according to this factor as unbalanced (237 firms in a standalone configurationcompared to 53 belonging to an industrial group). Nonetheless, it is reasonable toconclude that, despite what suggested in the existing literature, the membership of agroup seems not to be directly related to the use of ERP systems.

The Pearson’s R index of correlation computed on SMEs (20.169, Tables V-VII) andlarge enterprises (0.060, Tables VIII-X) did not show consistent results.

H2: rejected.

Market area (H3)At a first glance, a wider market area of a company seems to be related to the use ofERP systems. Only a small subset of companies with a limited market area make use ofERP systems, while this value is higher for companies with a national market area (22percent) and even more for those companies acting on international markets (74percent, see cross-tabulation in Tables XI-XIII). Nevertheless, the high percentage ofcompanies with an international market area which do not use ERP systems (68percent) clearly shows that the ERP system is far from being the only solution adoptedas stated in H3. The significant difference between the cross-tabulated groups,

Size

Company size and ERP adoption(whole sample)

Other management system ERP Total

Micro Count 62 3 65% within size 95.4 4.6 100.0% within ERP 23.6 3.3 18.4

Small Count 77 11 88% within size 87.5 12.5 100.0% within ERP 29.3 12.2 24.9

Medium Count 105 42 147% within size 71.4 28.6 100.0% within ERP 39.9 46.7 41.6

Large Count 19 34 53% within size 35.8 64.2 100.0% within ERP 7.2 37.8 15.0

Total Count 263 90 353% within size 74.5 25.5 100.0% within ERP 100.0 100.0 100.0% of total 74.5 25.5 100.0

Table II.Company size and ERPadoption (whole sample)

Value df Asymptotic significance (two-sided)

Pearson chi-square 65.166a 3 0.000Likelihood ratio 65.121 3 0.000Linear-by-linear association 56.552 1 0.000n of valid cases 353

Note: a 0 cells (0.0 percent) have expected count less than 5. The minimum expected count is 13.51

Table III.Company size and ERPadoption (whole sample)– Chi-square tests

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(chi-square ¼ 14:538, p-value ¼ 0:000, Tables XI-XIII), is contradicted by theunsatisfactory value of the Pearson’s R index (0.190), which confirms the lack of acorrelation between market area and ERP adoption.

H3 has also been tested on both SMEs and large companies, pointing out the sametrend (Tables XIV-XVI and Tables XVII-XIX).

H3: rejected.

ValueAsymptotic

standard erroraApproximate

T bApproximatesignificance

Interval by interval Pearson’s R 0.401 0.042 8.197 0.000c

Ordinal by ordinal Spearman correlation 0.405 0.044 8.287 0.000c

n of valid cases 0.353

Notes: a Not assuming the null hypothesis; b Using the asymptotic standard error assuming the nullhypothesis; c Based on normal approximation

Table IV.Company size and ERP

adoption (whole sample)– symmetric measures

Value df

Asymptoticsignificance(two-sided)

Exactsignificance(two-sided)

Exactsignificance(one-sided)

Pearson Chi-square 27.327b 1 0.000Continuity correctiona 25.919 1 0.000Likelihood ratio 25.640 1 0.000Fisher’s exact test 0.000 0.000Linear-by-linear association 27.250 1 0.000n of valid cases 355

Notes: a Computed only for a 2 £ 2 table; b 0 cells (0.0 percent) have expected count less than 5. Theexpected count is 24.85

Table VI.Membership and ERP

adoption (whole sample)– Chi-square tests

Membership of a group and ERPadoption (whole sample)


Member of a group Count 54 44 98% within membership 55.1 44.9 100.0% within ERP 20.4 48.9 27.6

Standalone company Count 211 46 257% within membership 82.1 17.9 100.0% within ERP 79.6 51.1 72.4

Total Count 265 90 355% within membership 74.6 25.4 100.0% within ERP 100.0 100.0 100.0% of total 74.6 25.4 100.0

Table V.Membership and ERP

adoption (whole sample)


adoption

397

Presence of branch offices (H4)According to the literature, the presence of branch offices could be a factor thatpositively influences the complexity of information flows and that, consequently, couldlead to a larger adoption of ERP systems. The empirical analysis shows a correlationbetween the extent of geographical dispersion of the company and the use of ERPsystems. These systems have been adopted by only 15 percent of respondents with nobranch offices and by 42 percent of companies with geographically dispersed offices

ValueAsymptotic





n of valid cases 355


Table VII.Membership and ERPadoption (whole sample)– symmetric measures

Membership of a group and ERPadoption (SMEs)


Member of a group Count 36 17 53% within membership 67.9 32.1 100.0% within ERP 15.2 32.1 18.3

Stand-alone company Count 201 36 237% within membership 84.8 15.2 100.0% within ERP 84.8 67.9 81.7


Table VIII.Membership and ERPadoption (SMEs)

Value df




Pearson chi-square 8.269b 1 0.004Continuity correctiona 7.177 1 0.007Likelihood ratio 7.393 1 0.007Fisher’s exact test 0.009 0.005Linear-by-linear association 8.240 1 0.004n of valid cases 290

Notes: a Computed only for a 2 £ 2 table; b 0 cells (0.0 percent) have expected count less than 5. Theexpected count is 9.69

Table IX.Membership and ERPadoption (SMEs) –Chi-square tests

JEIM18,4

398

(Tables XX-XXII). The evaluation of the behavior of companies making use of ERPsystems confirms this relationship: 62 percent of them have geographically dispersedoffices, while only 38 percent of ERP users have no branch offices to manage. Althoughthis interesting trend, a correlation between the two variables cannot be fully claimed:the empirical verification shows a Pearson’s R value equal to 0.297 that is notstatistically reliable to state that the presence of branch offices directly affects a higherrate of ERP system adoption (Tables XX-XXII).

Value df





Notes: a Computed only for a 2 £ 2 table; b 1 cell (25.0 percent) has expected count less than 5. Theexpected count is 4.66

Table XII.Membership and ERP

adoption (largecompanies) – Chi-square

tests

Membership and ERP adoption (largecompanies)


Member of group Count 15 25 40% within membership 37.5 62.5 100.0% within ERP 78.9 73.5 75.5

Standalone company Count 4 9 13% within membership 30.8 69.2 100.0% within ERP 21.1 26.5 24.5


Table XI.Membership and ERP

adoption (largecompanies)

ValueAsymptotic







Table X.Membership and ERP

adoption (SMEs) –symmetric measures


adoption

399

The empirical verification of H4 on the subsets obtained by separating the companiesby size does not show any interesting result (Tables XXIII-XXV andTables XXVI-XXVIII). In particular, the statistical analysis on large companies(Tables XXVI-XXVIII) does not show any meaningful difference between the twogroups (chi-square ¼ 0:348 and p-value ¼ 0:409).

H4: rejected (weak significance on the whole sample).

ValueAsymptotic





n of valid cases 53


Table XIII.Membership and ERPadoption (largecompanies) – symmetricmeasures

Market area

Market area and ERP adoption(whole sample)


Local Count 19 2 21% within market area 90.5 9.5 100.0% within ERP 7.0 2.2 5.8

Regional Count 25 2 27% within market area 92.6 7.4 100.0% within ERP 9.2 2.2 7.4

National Count 83 20 103% within membership 80.6 19.4 100.0% within ERP 30.6 21.7 28.4

International Count 144 68 212% within market area 67.9 32.1 100.0% within ERP 53.1 73.9 58.4

Total Count 271 92 363% within market area 74.7 25.3 100.0% within ERP 100.0 100.0 100.0% of total 74.7 25.3 100.0

Table XIV.Market area and ERPadoption (whole sample)


Pearson Chi-square 14.358a 3 0.002Likelihood ratio 16.081 3 0.001Linear-by-linear association 13.113 1 0.000n of valid cases 363

Note: a 0 cells (0.0 percent) have expected count less than 5. The minimum expected cost is 5.32

Table XV.Market area and ERPadoption (whole sample)– Chi-square tests

JEIM18,4

400

Diversification (H5)Despite the support provided by the literature for diversification as a factor affectingthe complexity of information flows, the empirical verification does not showmeaningful correlations with the adoption of ERP systems (Tables XXIX-XXXI). Only27 percent of diversified companies make use of an ERP system. Moreover, 55 percentof companies adopting an ERP system pursue another kind of strategy. The lowsignificance of diversification as a factor affecting ERP adoption is also confirmed bythe results of the statistical analysis: the two groups are not significantly different

ValueAsymptotic







Table XVI.Market area and ERP

adoption (whole sample)– symmetric measures

Market areaMarket area and ERP adoption (SMEs)Other management system ERP Total

Local Count 19 19% within market area 100.0 100.0% within ERP 7.9 6.4

Regional Count 21 2 23% within market area 91.3 8.7 100.0% within ERP 8.7 3.6 7.7

National Count 74 13 87% within market area 85.1 14.9 100.0% within ERP 30.6 23.6 29.3



Table XVII.Market area and ERP

adoption (SMEs)



Note: a Two cells (25.0 percent) have expected count less than 5. The minimum expected count is 3.52

Table XVIII.Market area and ERP

adoption (SMEs) –Chi-square tests


adoption

401

(Chi-square equal to 0.261, with a p-value of 0.610) and the very low value of Pearson’sR correlation index (0.027) bears out that no correlation occurs. Accordingly to themethodology, the analysis has been carried out on both SMEs and large companies toverify possible different behaviors in the sub-groups (Tables XXXII-XXXIV andTables XXXV-XXXVII), but no statistical evidence has been found.

H5: rejected.

ValueAsymptotic







Table XIX.Market area and ERPadoption (SMEs) –symmetric measures

Market area

Market area and ERP adoption(large companies)


Local Count 1 1% within market area 100.0 100.0% within ERP 2.9 1.9

Regional Count 3 3% within market area 100.0 100.0% within ERP 15.8 5.7

National Count 4 7 11% within market area 36.4 63.6 100.0% within ERP 21.1 20.6 20.8



Table XX.Market area and ERPadoption (largecompanies)



Note: a Five cells (62.5 percent) have expected count less than 5. The minimum expected count is 0.36

Table XXI.Market area and ERPadoption (largecompanies) – Chi-squaretests

JEIM18,4

402

Functional extension (H6)Even though most of respondents (88 percent) manage all the business activitiesinternally, the functional extension does not seem to affect the rate of ERP systemadoption. For each meaningful value of functional extension (cross-tabulation cellswith more than five companies, Tables XXXVIII-XL), the percentage of companiesmaking use of ERP systems is at most equal to the 26.1 percent. In particular, only 25.9percent of the 321 companies characterized by the maximum level of functional

ValueAsymptotic





n of valid cases 53


Table XXII.Market area and ERP

adoption (largecompanies) – symmetric

measures

Branch offices

Branch offices and ERP adoption(whole sample)


No Count 193 35 228% within branch offices 84.6 15.4 100.0% within ERP 70.7 37.6 62.3

Yes Count 80 58 138% within branch offices 58.0 42.0 100.0% within ERP 29.3 62.4 37.7

Total Count 273 93 366% within branch offices 74.6 25.4 100.0% within ERP 100.0 100.0 100.0% of total 74.6 25.4 100.0

Table XXIII.Branch offices and ERPadoption (whole sample)

Value df





Notes: a Computed only for a 2 £ 2 table; b 0 cells (0.0 percent) have expected count less than 5. themaximum expected count is 35.07

Table XXIV.Branch offices and ERP

adoption (whole sample)– Chi-square tests


adoption

403

extension claim to make use of an ERP system. The unbalanced distribution of thesample undoubtedly challenges the reliability of the analysis; nevertheless SMEs donot consider ERP systems as the solution needed to improve their organizationalperformance yet. The analysis of both correlation and statistical significance withrespect to SMEs and large companies does not show any meaningful change in of themain indexes (Tables XLI-XLI and Tables XLIV-XLVI).

H6: rejected.

ValueAsymptotic







Table XXV.Branch offices and ERPadoption (whole sample)– symmetric measures

Branch offices

Branch offices and ERPadoption (SMEs)





Table XXVI.Branch offices and ERPadoption (SMEs)

Value df





Notes: a Computed only for a 2 £ 2 table; b 0 cells (0.0 percent) have expected count less than 5. themaximum expected count is 16.80

Table XXVII.Branch offices and ERPadoption (SMEs) –Chi-square tests

JEIM18,4

404

Extent of organizational change (H7)Unlike previous factors (from H2-H6), the results of the data analysis on H7(Table XLVII-XLIX) highlights that the extent of organizational change the companywishes to achieve is likely to affect the decision of whether adopting an ERP system or not.Even though the Pearson’s R value (0.306) shown by the whole sample is just acceptable,other considerations support this statement. In particular (Tables L-LII), companiesadopting other management systems reveal a lower mean for the organizational changefactor (1.2) in comparison with those companies which have adopted an ERP system (2.3).

Value df





Notes: a Computed only for a 2 £ 2 table; b One cell (25.0 percent) has expected count less than 5. Themaximum expected count is 3.23

Table XXX.Branch offices and ERP

adoption (largecompanies) – Chi-square

tests

ValueAsymptotic







Table XXVIII.Branch offices and ERP

adoption (SMEs) –symmetric measures

Branch offices

Presence of branch offices andERP adoption (large companies)





Table XXIX.Branch offices and ERP

adoption (largecompanies)


adoption

405

A detailed analysis of the cross-tabulation between organizational change and ERPadoption has pointed out some interesting remarks (see Figure 5):

. Companies seem to privilege the ERP solution when their need to integrate,reengineer or redesign business processes becomes a priority (respectively the17.4 percent, 25 percent and the 16.3 percent). Only 11 percent of companieswhich make use of ERP systems exploit this solution just for local automationpurposes, while the number of companies considering a more advanced solution(business network redesign levels) is quite negligible (8.7 percent).

Diversification and ERP adoptionOther management system ERP Total

Other strategy Count 158 51 209% within diversification 75.6 24.4 100.0% within ERP 57.9 54.8 57.1

Diversification Count 115 42 157% within diversification 73.2 26.8 100.0% within ERP 42.1 45.2 42.9

Total Count 273 93 366% within diversification 74.6 25.4 100.0% within ERP 100.0 100.0 100.0% of total 74.6 25.4 100.0

Table XXXII.Diversification and ERPadoption (whole sample)

Value df




Pearson chi-square 0.261b 1 0.609Continuity correctiona 0.152 1 0.697Likelihood ratio 0.260 1 0.610Fisher’s exact test 0.629 0.348Linear-by-linear association 0.260 1 0.610n of valid cases 0.366

Notes: a Computed only for a 2 £ 2 table; b 0 cells (0.0 percent) have expected count less than 5. Themaximum expected count is 39.89

Table XXXIII.Diversification and ERPadoption (whole sample)– Chi-square tests

ValueAsymptotic





n of valid cases 53


Table XXXI.Branch offices and ERPadoption (largecompanies) – symmetricmeasures

JEIM18,4

406

. A quite unexpected outcome of the analysis is the relevant percentage ofcompanies (21.7 percent) declaring that no organizational change occurred, orhas been foreseen, as a consequence of ERP adoption. This result is even moresurprising in the light of the support given by IS literature to the thesis that ERPadoption both requires and provokes an unavoidable organizational reshufflingof roles and tasks (Dewett and Jones, 2001).

. The comparative analysis of means and distribution for the organizationalchange factor (Table XLVII-XLIX) also shows that the underestimation of the

ValueAsymptotic






Notes: a Not assuming the null hypothesis; b Using the asymtopic standard error assuming the nullhypothesis; c Based on normal approximation

Table XXXIV.Diversification and ERPadoption (whole sample)

– symmetric measures

Diversification and ERP adoption(SMEs)





Table XXXV.Diversification and ERP

adoption (SMEs)

Value df






Table XXXVI.Diversification and ERP

adoption (SMEs) –Chi-square tests


adoption

407

organizational change factor becomes even more relevant among thosecompanies that make use of another management system (50.4 percent).

The previous analysis has been performed also separating SMEs and large companiesin order to highlight possible differences in the behavior of the two sub-groups.Organizational change shows a stronger correlation with ERP adoption in the case oflarge companies (Pearson’s R ¼ 0:386, Tables LIII-LV) with respect to SMEs(Pearson’s R ¼ 0:218, Table LVI-LVIII). To explore the reasons underlying thedifferent correlation shown by the two sub-groups, the previous outcome has been

ValueAsymptotic







Table XXXVII.Diversification and ERPadoption (SMEs) –symmetric measures

Diversification and ERP adoption(large companies)





Table XXXVIII.Diversification and ERPadoption (largecompanies)

Value df






Table XXXIX.Diversification and ERPadoption (largecompanies) – Chi-squaretests

JEIM18,4

408

further investigated by means of the analysis of both frequencies for the organizationalchange factor and ERP non-adoption reasons:

. The evaluation of frequencies (Figure 5) points out that SMEs are more inclined to astrategy of incremental innovation (local automation and internal integration) whenadopting ERP systems, whereas the use of ERP among large companies seems tobe more related to a radical-oriented attitude towards organizational innovation(business process reengineering and business network redesign). As suggested byliterature, an incremental and too prudential approach towards organizationalinnovation could endanger the survival itself of the small organization. This is dueto the mismatches that could occur between the assumptions about organizationalstructure implicitly embedded in the reference models the ERP software makes useof and the actual organization (Kumar and Hillegersberg, 2000). This remark gains

Functional extension and ERPadoption

Number of internallymanaged activities

Other managementsystem ERP Total

0 Count 1 1% within functional extension 100.0 100.0% within ERP 0.4 0.3

3 Count 3 3% within functional extension 100.0 100.0% within ERP 1.1 1 0.8

5 Count 3 25.0 4% within functional extension 75.0 1.1 100.0% within ERP 1.1 3 1.1




Total Count 273 25.4 366% within functional extension 74.6 100.0 100.0% within ERP 100.0 25.4 100.0% of total 74.9 100.0

Table XLI.Functional extension and

ERP adoption (wholesample)

ValueAsymptotic





n of valid cases 53


Table XL.Diversification and ERP

adoption (largecompanies) – ymmetric

measures


adoption

409

even more importance in the light of the 25.5 percent of SMEs adopting ERPclaiming that no organizational change occurred or has been foreseen, comparedwith the only 14.7 percent of large companies.

. The incremental attitude towards organizational innovation shown by SMEs isstrengthened by the analysis of both the reasons justifying ERP non-adoption



Note: a Seven cells (58.3 percent) have expected count less than 5. The minimum expected count is 0.25

Table XLII.Functional extension andERP adoption (wholesample) – Chi-squaretests

ValueAsymptotic







Table XLIII.Functional extension andERP adoption (wholesample) – symmetricmeasures


Functional extension and ERPadoption (SMEs)




6 Count 9 2 11% within functional extension 81.8 18.2 100.0% within ERP 3.7 3.6 3.7



Total Count 244 56 300% within functional extension 81.3 18.7 100.0% within ERP 100.0 100.0 100.0% of total 81.3 18.7 100.0

Table XLIV.Functional extension andERP adoption (SMEs)

JEIM18,4

410

and the stated extent of organizational innovation (Figure 6). In the 58.2 percentof cases (multiple response allowed) SMEs declare their business is not complexenough to justify the adoption of an ERP system (structural reasons), while theorganizational un-readiness (i.e. organizational skills are not sufficient to manage



Note: Six cells (60.0 percent) have expected count less than 5. The minimum expected count is 0.37

Table XLV.Functional extension andERP adoption (SMEs) –

Chi-square tests

ValueAsymptotic







Table XLVI.Functional extension andERP adoption (SMEs) –

symmetric measures


Functional extension and ERPadoption (large companies)







Total Count 19 34 53% within functional extension 35.8 64.2 100.0% within ERP 100.0 100.0 100.0% of total 35.8 64.2 100.0

Table XLVII.Functional extension and

ERP adoption (largecompanies)


adoption

411

the change in the organization induced by an ERP implementation) is cited inonly the 29.5 percent of cases. Despite the emphasis that the literature has alwaysput on the scarcity of financial resource of SMEs as one the most importantfactors affecting ERP non-adoption (Cragg and Zinatelli, 1995; Levy and Powell,2000; Themistocleous et al., 2001; Zinatelli et al., 1996), quite surprisinglyeconomic reasons (15,2 percent) are not as important as structural andorganizational motivations.

. The same analysis performed on large companies (Table LIX and Figure 7)shows a supremacy of organizational reasons (45.5 percent of cases) whereasstructural reasons are mentioned in the 36.4 percent of cases. These results aremerely indicative due to the lack of numerical consistency of the sub-group itself(only 11 valid cases and 12 total responses).

H7: verified (in particular for large companies).

DiscussionThe empirical verification of the framework shows the difficulties in describing therelationship between the growth in business and organizational complexity and ERPadoption: only two measures were considered reliable (Table LX).

The data analysis supports the existence of a strong correlation between company size(evaluated as a composed measure of number of employees and turnover) and ERPadoption. All the other hypotheses regarding possible business complexity measures havebeen rejected. No other studies seem to have tested the relationship between businesscomplexity and ERP adoption on such a relative high number of companies, and on SMEsin particular. The methodology itself differentiates this research from previous efforts,being based on an extensive questionnaire deployed through direct interviews, instead of



Note: Eight cells (80.0 percent) have expected count less than 5. The minimum expected count is 0.36

Table XLVIII.Functional extension andERP adoption (largecompanies) – Chi-squaretests

ValueAsymptotic





n of valid cases 53


Table XLIX.Functional extension andERP adoption (largecompanies) – symmetricmeasures

JEIM18,4

412

Org

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.974

.471

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.158

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2010

1623

158

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14.1

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47.9

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Tot

alC

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t14

239

5648

3613

334

%w

ith

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tal

42.5

11.7

16.8

14.4

10.8

3.9

100.

0

Table L.Organizational change

and ERP adoption (wholesample)


adoption

413

the commonly used approach based on case study. Despite the positive outcomes of suchchoices, one main side effect could be a reduced comparability of the results.

The findings on the relationship between ERP adoption and organizational change(H7) show that companies making use of an ERP system expect a wider extent ofbusiness transformation (business process reengineering and business networkredesign) with respect to companies making use of other software applications. SMEsalways scheduled a limited organizational change in the case of ERP adoption, thusthey seem not to consider ERP systems as a keystone for organizational innovation. Ifthe testing on H7 reveals an incremental and conservative approach to organizationalchange by SMEs, on the contrary, H7 suggests a different innovation strategy by large



Note: a One cell (8.3 percent) has expected count less than 5. The minimum expected count is 3.58

Table LI.Organizational changeand ERP adoption (wholesample) – Chi-squaretests

ValueAsymptotic







Table LII.Organizational changeand ERP adoption (wholesample) – symmetricmeasures

Figure 5.Frequencies fororganizational change andadopted software solution(whole sample)

JEIM18,4

414

Org

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t13

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15.7

7.8

100.

0

Table LIII.Organizational change

and ERP adoption (largecompanies)


adoption

415

companies since they are especially aware of the organizational implications of ERPadoption and, in particular, of the need of more radical changes.

Firms that are planning to change their information system radically are moreinclined to adopt ERP systems due to the expected “integration” outcomes. However,SMEs result to be less inclined to radical change and less aware of the organizationalimpact caused by the implementation of an ERP system. SMEs’ traditional focus onoperations and day-by-day management, coupled with a lack of strategic view of ICT,could be partially accountable for these findings. Indeed, SMEs could simply prefer tocontinue doing business as they are used to, by refusing to adopt solutions that couldchange their “course”. On one hand, this approach has opened up the SME market topersonalized integrated solutions able to respond adequately both to their informationneeds and extreme flexibility, not necessarily provided by the ERP market’s bigplayers. On the other hand, it is a clear sign for ERP big players that the SME marketrequires simplified and less expensive solutions. This has been the way ERP vendorstried to cope with the issues connected to the dualism between business processeschange and software customization issues. In particular, the first answer of ERPvendors was the proposal of products with a range of functionalities on a smaller scaleto lower the overall costs and vertical solutions to achieve a concrete reduction incustomization costs without a dramatic change in the way people currently work.

It is still questionable whether ERP packages are really keeping their promises. Thesubject is still debated but, by looking at vendors’ scenery, there is a general agreementon the role played by company size (H1) as the main clustering variable for the ERPmarket. The ERP market evolution has clearly shown that differences in company sizehave an influence not only on the adoption of ERP systems (H1), but also on the innercharacteristics of ERP packages themselves. In particular, experiences on the fieldseem to confirm that both the extent of business complexity and the sustainable levelof organizational change may dramatically vary according to company size, henceSMEs could be no longer treated by the same standard as large companies. Therefore,


Pearson’s Chi-square 11.582a 5 0.041Likelihood ratio 13.665 5 0.018Linear-by-linear association 7.454 1 0.006n of valid cases 51

Note: a Eight cells (66.7 percent) have expected count less than 5. The minimum expected count is 1.00

Table LIV.Organizational changeand ERP adoption (largecompanies) – Chi-squaretests

ValueAsymptotic





n of valid cases 51


Table LV.Organizational changeand ERP adoption (largecompanies) – symmetricmeasures

JEIM18,4

416

Org

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108

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11.5

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36.4

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37.5

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236

4533

278

271

%w

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45.0

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Table LVI.Organizational change

and ERP adoption(SMEs)


adoption

417

a first wave in the ERP market segmentation occurred: for example, SAP AGintroduced Business One, a solution for small firms, by keeping R/3 for the mediumand large companies. This was only the first wave in the vendors’ strategy: someintrinsic characteristics of medium companies, such as organizational flexibility,availability of financial resources and dynamism, make them a specific and hybrideconomic subject which has to face the typical issues of both large and smallbusinesses. The characteristics of medium companies led to a second wave in theevolution of the ERP systems. Software packages such as mySAP All-in-One should beable to minimize customization costs through an enhanced availability of verticalsolutions, relying on the same technology platform of the traditional ERP systems(such as mySAP Business Suite or Peoplesoft EnterpriseOne) to ensure the scaling upof the ERP package.


Pearson’s Chi-square 14.547a 5 0.012Likelihood ratio 14.291 5 0.014Linear-by-linear association 12.849 1 0.000n of valid cases 271

Note: a One cell (8.3 percent) has expected count less than 5. The minimum expected count is 1.62Table LVII.Chi-square tests

ValueAsymptotic





n of valid cases 0.271


Table LVIII.Organizational changeand ERP adoption(SMEs) – symmetricmeasures

Figure 6.Frequencies fororganizational change andadopted software solution(SMEs vs largecompanies)

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On the other hand, the urgent need for integrating ERP systems with the existinglegacy systems could not only br met by offering vertical and lighter ERP solutions.Thus, a third wave in the ERP vendor’s strategy has taken place, by offeringcomponent-based solutions allowing SMEs gradually to acquire and assemble a lowercost ERP systems, by gradually integrating components that are reasonably

Count Percentage of responses Percentage of cases

Economic reasons 26 15.2 17.8Structural reasons 85 49.7 58.2Organizational reasons 43 25.1 29.5Other reasons 17 9.9 11.6Total responses 171 100 117.198 missing cases; 146 valid casesEconomic reasons 1 8.3 9.1Structural reasons 4 33.3 36.4Organizational reasons 5 41.7 45.5Other reasons 2 16.7 18.2Total responses 12 100 109.18 missing cases; 11 valid cases

Table LIX.Reasons for ERP

non-adoption (SMEs andlarge companies)

Figure 7.Extent of organizational

change

Hypothesis Result Remarks

Company size (H1) Verified Extremely significant for the whole sampleMembership of an industrial group (H2) RejectedMarket area (H3) RejectedPresence of branch offices (H4) Rejected Some significance for the whole sampleLevel of diversification (H5) RejectedDegree of functional extension (H6) RejectedExtent of organizational change (H7) Verified Extremely significant for the whole sample

Table LX.Outcomes of the

empirical verification


adoption

419

customized to their specific needs. This would help reducing the problem of mismatchbetween organizational requirements and ERP solutions and finally migrations shouldbecome more gradual as outdated components are upgraded individually instead of thewhole system (Kumar and Hillegersberg, 2000). The same component strategy marksthe ERP systems for large companies and is based on the composition of large systemsfrom largely independent components that are assembled to meet situation-specificrequirements (e.g. mySAP Business Suite, Peoplesoft Enterprise and Oracle BusinessSuite includes the Customer Relationship Management, Supplier RelationshipManagement, Business Intelligence and Product Lifecycle Management modulesamong others).

The adequacy of the behaviour of ERP big players seems to find a confirmation inthe findings related to company size (H1), organizational change (H7) and ERPadoption. After a period in which ERP packages were generally planned with a greatemphasis on the reduction of the organizational-related costs through vertical and lessexpensive solutions, now vendors seem to have understood that the deployment ofindependent business modules could address the same issues in a different way. Therole of ERP modules has gradually shifted from the automation of specific processes(invoicing and billing, HR management) to a view in which ERP modules manage the“stakeholders-centric” requirements of the company also through the so-calledenterprise portals. In particular, ERPII (or “second generation” ERP) systems are builtin a modular way, thus allowing companies the possibility of acquiring only thebusiness modules needed (instead of a monolithic package) and to ensure also thepresence of the technological platforms (e.g. SAP NetWeaver or Oracle Data Hub)which are needed to achieve an effective interaction between the ERP and the existinglegacy systems.

Impact of technological and operational drivers on ERP adoptionOne of the most interesting outcomes of the analysis on H7 is that SMEs are lessinclined to evaluate and plan the organizational change when implementing an ERPsystem than large companies. Yet, the differences in the approach towards ERPadoption are confirmed by the outcome of the analysis which has been performed onthe technological and operational drivers that affect ERP adoption in 90 of the 366companies the whole sample is made of. The results (Table LXI) show that SMEs stillconsider contingency factors such as the millennium bug (Y2K, 30.4 percent), theintroduction of the Euro (30.4 percent), hardware or software obsolescence (44 percent)as the prevailing reasons leading to ERP adoption, whereas strategic andorganizational drivers (i.e. limited support to decisions, dissimilarity of procedures)are stated as less important. The unsatisfying process integration (30.4 percent) is theonly exception to this trend.

The same analysis has been carried out on large companies and results point out agreater balance between exogenous and endogenous reasons. Large companies seem todevote more attention to endogenous reasons as motivating factors for ERP adoption:the unsatisfying process integration is claimed to be the most relevant factor (44.1percent of cases in comparison with the 30.4 percent claimed by SMEs), while the highrelevance of data redundancy/inconsistency and dissimilarity of procedures (29.4percent and 23.5 percent respectively) seems to highlight a greater attention by large

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companies to both the process management issues and the related information flows incomparison to SMEs (19.6 and only 1.8 percent respectively).

Despite the greater awareness of organizational and information-related issues ifcompared to SMEs, also among large companies the decision regarding the ERPsystem adoption is strongly affected by exogenous reasons. 38.2 percent of largecompanies declare that the ERP system adoption has been imposed by the controllingcompany. In accordance with the outcomes of other studies on the same topic, Euro andY2K issues turn out to be important drivers also for large companies (26.5 percent and29.4 percent respectively).

A further proof of how differently the two sub-groups managed exogenous reasons(such as Y2K and Euro) is given by the analysis of ERP adoption curves for both SMEsand large companies. Figure 8 clearly points out how large companies’ strategy seem toanticipate ERP adoption with respect to the occurrence of external events: in detail, theadoption curve for large companies in years 1999 (Y2K issue) and 2001 (Euro issue)shows a greater gradient in comparison with SMEs’ curve, whereas the rate ofadoption is constantly lower than SMEs upon the occurrence of the external event. It isalso interesting to notice that the ERP adoption curve of large companies is flatteningshowing the difficulties for ERP vendors to penetrate large companies’ market further,while in the last two years SMEs’ market has been showing a steady growth.

Conclusions and further researchThis research has attempted to study the relationship between business complexity,organizational change and ERP adoption. The analysis of the empirical data clearlyshows that business complexity, as a composed factor, is a weak predictor of ERPimplementation, whereas just company size results to be a very good one. In otherwords, companies seem to be disregarding ERP systems as an answer to their businesscomplexity. This outcome could depend both on the validity of this index or the

DriversPercentage of cases

(SMEs)Percentage of cases(large companies)

HW/SW obsolescence 44.6 26.5Euro issue 30.4 26.5Y2K issue 30.4 29.4Unsatisfying process integration 30.4 44.1Unsatisfying order management 26.8 8.8Data redundancy and/or inconsistency 19.6 29.4Limited support to decisions 19.6 26.5Lack of flexibility 17.9 23.5Forced decision (by a controlling company) 16.1 38.2Logistics and transportation issues 16.1 14.7High cost of data distribution 14.3 8.8Other reasons 14.3 11.8Over-dimensioning of stock 12.5 5.9CRM issues 8.9 14.7Unsatisfying time-to-market 3.6 8.8Dissimilarity of procedures (i.e. rules on qualitymanagement) 1.8 23.5Total responses 307.1 341.2

Table LXI.Technological and

operational drivers (90SMEs and large

enterprises adopting ERPsystems)


adoption

421

erroneous perception of SMEs of their business complexity: the reason they cite mostfor discounting ERP systems. However, no large differences in terms of complexitywere found among these two groups. Unexpectedly, SMEs disregard financialconstraints as the main cause for ERP system non-adoption, suggesting structural andorganizational reasons as major ones. This pattern is partially different from whatobserved in large organizations where the first reason for not adopting ERP system isorganizational. These results could imply that SMEs structural peculiarities are a realobstacle to ERP diffusion if and adequate strategy by vendors lacks. Moreover, thedecision process regarding the adoption of ERP systems within SMEs is still moreaffected by exogenous reasons or “opportunity of the moment” rather than onbusiness-related factors contrary to large companies that are more interested inmanaging process integration and data redundancy/inconsistency through ERPimplementation. This paper investigates whether business complexity could influence,and somehow explain, the different extent to which companies of any size adopt ERPsystems. The focus has been largely appointed to a comparative analysis of thebusiness characteristics of the companies themselves, intentionally leaving out ofconsideration a closer investigation of ERP packages. Accordingly to the previoussection remarks, a further research could consider a sort of reverse engineering of thisapproach. In particular, it could be interesting to analyze how vendors interpret theconcepts of “business complexity” and “organizational change” by exploring in detailthe characteristics of the ERP systems they currently offer.

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9. Factors Affecting Erp System Adoption

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