- Enterprise resource planning (ERP) diffusion and characteristics according to the system’s lifecycle: A comparative view of small-to-medium sized and large enterprises Edward W. N. Bernroider, Michel J. Leseure Arbeitspapiere zum Tätigkeitsfeld Informationsverarbeitung und Informationswirtschaft Working Papers on Information Processing and Information Management Nr./No. 01/2005 Herausgeber / Editor: Institut für Informationsverabeitung und Informationswirtschaft Wirtschaftsuniversität Wien · Augasse 2-6 · 1090 Wien Institute of Information Processing and Information Management Vienna University of Economics and Business Administration Augasse 2-6 · 1090 Vienna

Enterprise resource planning (ERP) diffusion and characteristics according to the system’s lifecycle: A comparative view of small-to-medium sized and large

enterprises

Edward W.N. Bernroider

Department of Information Business

Vienna University of Economics and Business Administration, Augasse 2-6, A-1090 Vienna, Austria

Tel: ++43-1-31336 Ext. 5231, Fax: ++43-1-31336-739, Email: Edward.Bernroider@wu-wien.ac.at

Michel J. Leseure

Aston Business School

Birmingham, B4 7ET ,United Kingdom

Tel: (44) 121 204 3153, E-mail: m.leseure@aston.ac.uk

Abstract

This report represents the next step of Enterprise Resource Planning (ERP) related

research at the Department of Information Business at the Vienna University of Economics

and Business Adminstration following previous work on the selection process. Based on

209 datasets originating from a primary, national and industry independent survey, it

provides a descriptive oriented overview of main characteristics of ERP in all stages of the

system’s lifecycle, emphasising differences between small-to-medium sized and large

enterprises (SMEs and LEs). The given research topics in particular comprise software

diffusion, resources allocated, strategic project guidance, investment drivers, considered

and chosen solutions, team structures, selection criteria, information gathering, methodical

support, implementation approaches, acompanying business strategies, implementation

problems, perceived utilisation of ERP benefits, firm level ERP impact, and the role of ERP

systems as technology enabler. Future work based on the gathered data will document

analytical projects undertaken in particular focusing on ERP success, enterprise

integration, organisational fit of ERP, and BPR/BPI related questions.

Keywords: ERP, IS evaluation, IS implementation, Empirical Survey, SME

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Contents

Introduction ___________________________________________________________ 3

Literature Review _______________________________________________________ 3

Relevance of the Undertaken Research_____________________________________ 6

Research Objectives ____________________________________________________ 7

Methodology ___________________________________________________________ 9

Empirical results ______________________________________________________ 11

Sample demographics _______________________________________________ 11

General information _________________________________________________ 12

Adoption Decision___________________________________________________ 15

Acquisition ________________________________________________________ 16

Implementation_____________________________________________________ 19

Use and Maintenance________________________________________________ 22

Evolution__________________________________________________________ 26

Summary and ongoing research _________________________________________ 27

References ___________________________________________________________ 28

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INTRODUCTION

An Enterprise Resource Planning (ERP) system is a software infrastructure embedded

with "best practices", respectively best ways to do business based on common business

practices or academic theory. The aim is to improve the co-operation and interaction

between all the organisations' departments such as the products planning, manufacturing,

purchasing, marketing and customers service department. ERP is a fine expression of the

inseparability of IT and business. As an enabling key technology as well as an effective

managerial tool, ERP systems allow companies to integrate at all levels and utilise

important ERP applications such as supply-chain management, financials and accounting

applications, human resource management and customer relationship management [11].

They represent large, complex, computerised and integrated systems, which can strongly

influence long-term business success.

This study represents the next step of ERP related research at the Department of

Information Business at the Vienna University of Economics and Business Adminstration

following previous work on the ERP decision making process [6, 7]. It provides empirical

information on various stages of the ERP systems’ lifecycle and provides more accurate

details in particular on the different situations in in small to medium sized enterprises

(SMEs) compared to large enterprises (LEs).

LITERATURE REVIEW

The literature overview pertains to the stages in the ERP system lifecycle. According to

[26], the lifecycle covers six different stages that an ERP system passes during its life

within an organisation (see Fig. 1).

Fig. 1. An ERP Lifecycle model [26]

Concerning the stage of adoption decision a need for further research into the planning

phase of the adoption process is expressed by [53]. They also outline some of the

principles that should form the basis of empirical research in this area and provided a

qualitative analysis of ERP adoption within universities. Other researches describe the

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significance of ERP systems with case-based approaches [33]. The question whether data

quality is a reason to acquire an ERP system and other aspects relating to data quality are

investigated in [76]. Based on structured interviews with 10 Canadian government

organisations [44] analyse the ERP adoption as an organisational innovation process and

apply an "ERP System Experience" model, which was originally proposed by [67] and then

adapted by [45] and reflects an organisation's experience with ERP systems from adoption

to success. Therefore [44] also give interesting insights into other stages of the lifecycle

model. But due to the limited number of analysed units, the results are not generisable.

Previously published material in the acquisition area focused on an ERP methodological

acquisition approach [65, 66], frameworks for the selection process [9, 68], purchasing

criteria [12], game-playing behaviour [51] and case studies [71, 72].

A review of the work published in the main information systems journals and

conferences showed that research conducted in the area of ERP systems has

concentrated on issues related to the implementation phase of the ERP lifecycle [25].

Issues attributed to the implementation stage can be classified in implementation

approaches [32, 61], implementation success [10, 23, 34], case studies [29, 47, 70],

empirical surveys [15] and other issues such as the role of consultants [75], information

technology architecture options [17] and change management strategies during

implementation [1, 2].

The attention of scholars in the IS area is much higher in the post implementation

stages compared to the stages prior to implementation. Contributing to the use and

maintenance stage benefits, risks, limitations and factors that affect ERP usage and

organisational performance have been analysed [5, 55, 56, 64].

Scientists have analysed technological aspects such as architectural issues,

maintenance tasks, databases performance, security and fraud prevention [36, 50]. During

the evolution phase ERP applications can act as a technology enabler for ERP extensions

or applications and systems such as SCM [11, 41].

Not all publications on ERP can be directly related to a specific ERP lifecycle phase.

They can consider aspects attributable to the lifecycle as a whole. For example, the

application of decision models during the life of ERP projects was analysed by [63]. [52]

focused on knowledge management across the whole lifecycle of an ERP solution.

Several researchers point to the linkages between ERP and BPR, where the former is

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considered a driving technology of BPR [3, 35, 42]. An important research issue which can

be related to any stage of the lifecycle model are proposals on how to analyse the value of

ERP applications [46]. Although a considerable amount of articles contribute towards

analysing the value of information systems, packaged software solutions or commercial off

the shelf (COTS) products [48, 73] in general, only a few have focused on the special case

of ERP systems.

Some studies investigated certain factors in the ERP context special to smaller

organisations mainly for the area of implementation [28]. Contributing to the acquisition

stage, work was published concerning a methodological approach to the acquisition of

ERP solutions by SMEs [66] and certain specificities in the acquisition process of Austrian

SMEs [7].

In response to the widespread application of ERP systems, academic institutions

introduce ERP system gradually in their IS curriculum [3]. This also originates from the

market demand for highly qualified ERP specialists. ERP vendors provided a special

arrangement that encourages universities to incorporate their ERP systems helps to

integrate the teaching of these emerging technologies into their current education

processes [74]. As a consequence, researchers also focused on the processes and

mechanisms that some universities implemented to introduce ERP into education [4, 31].

Although all major IS conferences dedicate at least a track or mini-track to ERP

systems, the number of publications within the information systems community on ERP

systems appears small compared to the size of the business they generated [25]. As the

widespread application of ERP systems continues, research in the ERP area is still lacking

and the gap in the ERP literature is huge [3]. Considerable research effort has been

directed towards the implementation and to large parts of the post-implementation phases.

The lack of attention especially applies to the stages of system adoption and acquisition as

well as on how to analyse the value of ERP systems and to the special situation faced by

SMEs.

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RELEVANCE OF THE UNDERTAKEN RESEARCH

Enterprise resource planning software solutions have become the central nervous

system for almost any major large company. The effectiveness of these software

applications directly translates to the effectiveness and competitiveness of the firm and its

long term viability. ERP systems promise the development and sustainment of competitive

advantage in the global marketplace through enhanced decision support; reduced asset

bases and costs; more accurate and timely information; higher flexibility or increased

customer satisfaction [20, 21, 55, 59]. A empirical survey reported that two-thirds of the

interviewed IT managers responsible for their organisation’s ERP projects viewed the ERP

systems as their organisation’s most strategic computing platform [69].

The acquisition and implementation of ERP systems are very effort-intensive

processes. An empirical analysis of the implementation process in European companies

revealed mean implementation costs of EUR 5 Mio. and a mean implementation time of

13.5 months [15]. In addition, also high risks are involved in every ERP project. The far-

reaching structural changes following an ERP software implementation can be disastrous

as examples [10, 13, 62] show. A market research company reported that 70% of ERP

implementations fail to achieve their corporate goals [13]. It can be expected that major

mistakes were already made in the early stages of the ERP lifecycle prior to the

implementation process.

Despite the importance of ERP systems, the high effort expended by companies to

implement these systems and the high risks involved, to many questions regarding

different aspects especially in the early stages of the lifecycle of ERP systems remain

unanswered. For example, the relationship between decision approach and

implementation as well as usage success or the area of analysing the value of ERP

systems [46].

The situation faced by small and medium-sized enterprises (SMEs) in their IS/IT

decision processes is different to LEs. They face much greater constraints in terms of

resources that can be commited to the all stages of the system’s lifecycle. In general,

decision making in SMEs features much greater constraints on the ability to gather

information in order to reduce uncertainty about their investment [19]. Nevertheless, the

complexity and amount of IS/IT requirements are often similar to the cases found among

LEs. SMEs more and more experience the need for integration, especially for inter-

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organisational integration, and expecting ERP software to fulfil these needs. The

availability of relatively inexpensive hardware is fostering this situation [28].

ERP vendors are in search for new challenges to generate higher revenues and have

turned to the small and medium-sized market segments. A saturation of the market as

most large organisations have already implemented an ERP solution decreased the

annual ERP market growth [54]. By 1998 approximately 40% of companies with annual

revenues over 1 billion USD had implemented ERP systems [16]. The small and medium-

sized market segment is far from being saturated [54]. The total European midsize market

for IT products and services surpasses 50 billion dollar per year [27]

Due to the pervasive nature of ERP systems, our results should be of interest for a wide

range of professional and scholarly communities (from software engineering to

accounting), apart from the IS field. The results presented should especially help

practitioners (in SMEs) facing the important task to introduce an ERP system to their

company.

Another aspect is that results would also contribute to the development of any e-

initiative (CRM, SCM, etc.) on the basis of ERP systems and to handling decision

problems regarding any other type of enterprise wide standard software package.

RESEARCH OBJECTIVES

This research proposal seeks to close some of the mentioned gaps in ERP research by

providing a holistic overview of the whole ERP lifecycle. To advance the state of the art,

this research report was primarily guided by the following topics. The first category

contains general topics not pertaining to a single stage of the ERP system lifecycle.

(1) General information

(Topic.i) ERP diffusion among SMEs and LEs

(Topic.ii) Diffusion of other software applications

(Topic.iii) Resource allocation

(Topic.iv) Strategic project guidance/characteristics

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(2) Adoption Decision

(Topic.v) Drivers for the decision to implement ERP

(2) Acquisition

(Topic.vi) Considered and chosen ERP packages

(Topic.vii) Composition of project team

(Topic.viii) Importance of decision making criteria (including intangible

costs and benefits)

(Topic.ix) Applied information gathering methods

(Topic.x) Methodical support in particular the use of formal evaluation

techniques

(3) Implementation

(Topic.xi) The implementation approach chosen.

(Topic.xii) Accompanying business strategies such as process

improvement (BPI) or reengineering (BPR) efforts

(Topic.xiii) Accounted implementation problems

(4) Use and Maintenance

(Topic.xiv) The perceived utilisation of ERP benefits

(Topic.xv) Firm level ERP impact

(5) Evolution

(Topic.xvi) ERP as technology enabler

To provide information on these topics, an empirical survey covering a reasonable

share of SMEs and LEs in the Austrian marketplace was undertaken. The methodical

design of this study is given in the next section.

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METHODOLOGY

The methodology employed is an industry independent empirical survey undertaken in

the years 2003 to 2004. The target group was defined as containing Austrian SMEs as

well as LEs. To avoid under representing the large enterprises in the sample, a stratified

and disproportional sample with subgroups according to company size was defined. One

thousand Austrian SMEs and LEs were randomly selected from firms listed in a

comprehensive, pan-European database containing financial information on 7 million

public and private companies in 38 European countries [14].

The questionnaire developed for this study was based on a previously undertaken ERP

related study [6], on a review of the literature and on recommendations of a panel of ERP

experts from two universities in Austria and the UK. Following an empirical design method,

the panel was asked to critique the questionnaire for content validity [22]. According to

their suggestions, the questionnaire was revised and used in Pre-Tests applied in the UK

and Austria. Responses were examined to optimise the formulation of each question and

ensure consistency in the way they were answered. The questionnaire contained a

general section assessing the background information on the company especially IT/IS

related and performance related questions. The assessed topics were structured in four

sections following the ERP system lifecycle: adoption decision, acquisition,

implementation, use and maintenance. Companies were contacted through a multi-staged

procedure. A cover letter, the hardcopy questionnaire, and a self-addressed stamped

return envelope were sent to business management of the 1000 companies. The package

explained the purpose of the study, promoted participation in the survey, assured

confidentiality, and offered an ERP-related collection of material on CD as well as a

summary of the results together with an opportunity to engage in further research activities

with our research department. The questionnaire was also provided in an electronic

version to further strengthen the participation. Two weeks after the initial mailing, follow up

calls were made to all companies that could not be identified as respondents, asking them

for their interest in participating and if cooperative for an email address. Short after these

calls, reminder/thank you emails were sent out. The next round of contact consisted in

reminding 400 randomly selected companies via telephone calls that they had not yet

responded, and again giving them the address and logins for the online questionnaire.

Finally, 209 valid returns were registered, resulting in an above average response rate of

22%. Some companies could not be contacted, because they had ceased to exist, the

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address was wrong or could not be found, etc. These neutral dropouts (49 companies)

were considered in the calculation of the response rate and therefore did not decrease the

return quota. To test for non-response bias, known distributions of variables available

through the used corporate database were assessed. The analysis revealed no significant

different characteristics between non-respondents and respondents. The data was

analysed using a statistical package offering the ability to work on complex samples. It

should be noted that in practice, most scientific papers utilize the default significance tests

generated by software packages based on the assumption of simple random sampling

even if multi-stage, cluster, or other complex sampling designs were employed [18, 40,

43]. To avoid biased estimates, this work uses a SPSS module called Complex Samples

where adjusted tests including chi-square (χ2) are provided. However, since the range of

procedures is limited, analysis was also conducted with the use of sampling weights [58].

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EMPIRICAL RESULTS

After giving sample demographics, this section presents preliminary results contributing

to each of the stated research topics stated in the previous section.

Sample demographics

Following a commission recommendation of the European Communities concerning the

definition of micro, small and medium-sized enterprises [24], this research classified as

SME an enterprises which employs fewer than 250 persons and which has an annual

turnover not exceeding EUR 50 million. Table 1 denotes the firm size and branch

distribution of the data sample. The branch classification was based on the core codes

given in brackets of the North American Industry Classification System (NAICS) which has

replaced the U.S. Standard Industrial Classification (SIC) system in 1997 [49].

Table 1. Firm size and branch distribution

Size

No. of companies (rel. in %)

No. of companies

(abs. unweighted N)

SMEs 92.8 129 LEs 7.2 79 Total 100 208 Branch Trade (42,44-45) 22.6 58 Manufacturing (31-33) 21.0 60 Construction (23) 20.5 20 Services (54) 15.7 30 Transportation and Warehousing (48-49) 7.6 8 Information (51) 4.5 8 Health Care and Social Assistance (62) 1.9 4 Management of Companies and Enterprises (55) 1.4 8 Other 4.8 12 Total 100 208

The observed distribution of management structure is given in Table 2. The traditional

functional management structure was observed in 64.7% of the cases followed by the

project/team structures in 16.1% of the enterprises.

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Table 2. Management structures

Management structure Rel. in % Functional 64.7 Divisional 5.1 Geographic 1.0 Project/Team oriented 16.1 Matrix 7.6 Network (core and periphery) 0.8 Virtual 0.0 Other 4.7

General information

ERP diffusion among SMEs and LEs

ERP diffusion along the system’s lifecycle stages is denoted in Table 3. 15.5 % of all

SMEs have already selected an ERP system, i.e. have reached at least the stage of

implementing the system, comparing to 67.6 % of all LEs. As expected, the observed

differences between SMEs and LEs are highly significant (χ2, p=.00). The company’s

positions in the lifecycle correlate positively with organisational size (corr=.16, p=.03).

Table 3. ERP diffusion among SMEs and LEs

All companies SMEs LEsStage

% cum. % % cum. % % cum. % Consideration 6.6 6.6 6.6 6.6 6.4 6.4 Evaluation .5 7.1 .3 6.9 2.0 8.4 Implementation 1.2 8.3 .4 7.3 10.5 18.9 Stabilisation 1.8 10.1 1.8 9.1 2.0 20.9 Usage and maintenance

13.4 23.5 11.4 20.5 39.0 59.9

Extension 2.9 26.4 1.9 22.4 16.1 76 No ERP 73.6 100 77.5 100 23.9 100

Diffusion of other software applications

Table 4 considers the usage of three specific types of software applications apart from

the ERP context. In terms of CRM and SCM, more SMEs than LEs compared in relative

terms have these specialised software applications in place (not significant, p>.05, χ2).

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This hints at the wider adoption of specialized applications in smaller firms where

requirements in CRM and SCM need to be met.

Table 4. Diffusion of specific other software applications

Software applications in use All (%) SMEs (%) LEs (%) p (χ2)CRM (Customer Relationship Management)

41.6 43.6 28.5 -

SCM (Supply Chain Management) 35.7 37.7 22.6 .08KM (Knowledge Management) 12.9 11.1 24.0 -

Resource allocation

The expended efforts in terms of all assessed variables were lower in SMEs than in LEs

as can be seen in Table 5. In this study, the durations, expended man months, and costs

of both the software acquisition and implementation stages were assessed directly. In

terms of actual costs most organizations were not able or not willing to answer. Only 10

organizations were able to give acquisition costs and 20 their implementation costs. In

terms of durations the number of observations was 68 for system acquisition, respectively

75 for implementation. Based on the experience from the previous ERP study, the new

survey also accounted for an indirect assessment of exploited personnel costs. Expended

personnel efforts were assessed in terms of man months together with information on the

structure of the project team, i.e. the proportion of external and internal assistance Table 6.

Based on salary related publications [15, 30], the costs associated with an external man

month were 23,100 EUR, related to an internal man month 6,000 EUR. By using this

information together with the inquired data the following rough estimation of personal costs

was achieved: Among SMEs, personnel costs for the whole ERP implementation including

decision making in the mean amounted to 153 tsd. €, in the case of LEs to 643 tsd. €.

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Table 5. Resource allocation

Variable All SMEs LEs Spearman Corr

Duration of ERP system acquisition (months) 6.20 5.75 7.58 -Duration of ERP system implementation (months) 9.88 8.38 15.50 -Duration of overall project (months) 16.66 14.88 15.50 -Man months expended for ERP system acquisition 6.27 5.77 8.18 -Man months expended for ERP system implementation

25.48 15.55 56.93 .53*

Man months expended for overall project 28.71 19.47 61.79 .57*Given acquisition costs (tsd €) 20.37 12.75 75.90 .93**Given implementation costs w/o licence costs (tsd €)

328.49 210.81 1,218.75

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Given project costs (tsd €) 89.05 87.97 128.50 .93**Estimated personnel costs for acquisition (tsd €) 50.40 42.84 73.29 -Estimated personal costs for implementation (tsd €) 311.00 193.94 652.94 .56**Estimated personnel costs of overall project (tsd €) 295.00 152.85 643.02 .72***p<.05, ** p<.01; N (SMEs) = max 39, N (LEs) = max 59

Table 6 outlines to what extent external man power was needed for ERP evaluation and

system implementation.

Table 6. Assignment of external man-power

All (%) SMEs (%)

LEs (%)

Spearman Corr

External support from consultants 34.3 27.9 42.9 - Prop. of external man power needed for acquisition 13.5 9.2 26.1 .526* Prop. of external man power needed for implementation

30.6 27.5 39.4 .369

*p<.05, ** p<.01; N (SMEs) = max 39, N (LEs) = max 59

Strategic guidance

Business management has in only 25.8% of all cases explicitly defined their IT/IS

strategy regardless of their ERP utilization. Among LEs only, the rate is 48.2%, still a

remarkable low number. The mean rate of alignment of corporate resp. business

strategies and structures with IT/IS strategies and infra-structures on a scale between 1

(very bad) to 5 (very good) is 3.13 revealing a slightly positive assessment. Selection

criteria were derived from the strategic goals of the company in 65.3% of all cases. Again,

the number increases among LEs, which in general are known to possess a better

developed managerial competence.

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Table 7. IT/IS strategic guidance

All SMEs LEs p (χ2) Explicitly defined IT/IS strategy 25.8% 23.8% 48.2% .00 Strategic Alignment1 3.13 3.11 3.51 .04 Strategic concept driving the choice of selection criteria

65.3% 63.7% 76.9% -

1 Rated on a scale between 1 (very bad) and 5 (very good), *p<.05, ** p<.01; N (SMEs) = max 39, N (LEs) = max 59

Adoption Decision

Drivers for the decision to implement ERP

The enterprises in the sample were asked about the reasons for initiating their ERP

projects. Their answers were clustered in six categories (see Table 8). Business

management was allowed to mention multiple reasons. The reasons for adopting ERP do

not significantly differ between SMEs and LEs. Three variables showed distributions

dependent on the size of the company each with marginal significance. While operational

problems due to multiple systems, interfaces, and databases were given as most

important driver for ERP in LEs (59.5 % of the cases), among SMEs ERP was regularly

initiated to lower costs of operations (55.5 % of the cases).

Table 8. ERP adoption driver

Category Adoption reason All (%)

SMEs (%)

LEs (%)

p (χ2)

Int1 Operational problems due to multiple systems, interfaces, and databases 43.9 40.1 59.5 .06 Internal

integration

Int2

Multiple vendors of legacy systems resulting in too high software licensing and maintenance costs 13.7 14.4 10.6 -

External Integration Ext

Pressure from the value chain (from business customers or partners) 30.7 31.9 25.4 -

Tec1 Low reliability of legacy system 36.9 38.8 29.3 - Technical Tec2 Technical limitation of legacy system 24.8 21.0 33.8 -

Bus1 Lowering costs of operations (higher efficiencies) 52.2 55.5 38.4 .08

Bus2 Strategic reasons (enhanced decision making, support of management style, etc.) 29.0 28.8 30.2 -

Business

Bus3 Missing functionality 30.7 25.8 36.9 - Enforced Enf Guidelines from a controlling company 26.6 26.9 25.7 - Other Oth Other 5.0 3.6 10.6 .09

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Acquisition

Considered and chosen ERP packages

The software suppliers considered for the decision process showed clearly the

dominant position of SAP in the marketplace. The global contenders Oracle and BaaN

show weak representations in Austria. J.D. Edwards and Peoplesoft are seldom

considered, hardly ever chosen. Notable is the strong presence of other, smaller suppliers

hinting at the acceptance of more specialized and less complex systems. The situation

regarding the solutions chosen is similar, although the advantage of SAP is more

pronounced. BaaN and Oracle are the other contenders of larger size while – again –

smaller providers have captured a large market share. The given list of other vendors was

comprehensive; no single provider gained a notable market share.

Table 9. Alternatives (ERP systems) considered and chosen

All companies (rel. in %) SMEs (rel. in %) LEs (rel. in %) System

Chosen Considered Chosen Considered Chosen ConsideredSAP 33.5 46.6 24.3 34.1 59.8 78.8 BaaN 3.0 23.0 2.4 16.6 4.7 37.0 Peoplesoft 0 13.1 0 14.3 0 10.1 J.D.Edwards 0 3.7 0 .6 0 11.7 Oracle 9.5 17.3 12.3 16.4 1.6 19.6 Others 53.9 60.6 61.0 68.3 33.9 41.1 Total 100 - 100 - 100 -

Both the leading position of SAP and the relatively large cumulative market share for

smaller suppliers are in accordance with the findings of a previous study [8], and an

European survey of midsize companies (Everdingen et al., 2000). The analysis confirmed

the significant influence of organizational size on the selected software package as given

in Table 9.

Composition of project team

The area covers the size, structure of the project team, and management commitment

to whole project. For the choice of team structures the study included three different team

formations identified from the mentioned previously undertaken ERP study: (i) project run

under the head office (top management) with the inclusion of external consultants, (ii)

project run under the organisational department with only small participation of other

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internal departments, (iii) participative decision making including members of all or almost

all parties including those later on affected by the implementation of the system chosen.

The results are denoted in Table 10.

Table 10. Defined project team and management role

Variable All SMEs LEs p (χ2)

Size of project team (count of persons) 4.74 3.70 8.86 .00 Dominated by business management 36.9% 41.0% 25.2% - Dominated by IT department 38.6% 44.1% 22.9% .03 Dominated by organisational department 7.1% 6.7% 8.2% - Participative decision making 15.2% 8.1% 35.6% .00 Management commitment to whole project1 3.73 3.76 3.60 .02 1 Rated on a scale between 1 (not important) and 5 (very important), N = max 79

Importance of decision making criteria

Table 11 denotes decision making attributes inquired in the ERP study with their mean

importance ratings and standard deviations as given by the respondents of the survey

differentiated between SMEs and LEs. For both enterprise size classes, the reliability and

functionality of the system were the most important attributes in the evaluation process,

followed by the support offered by the vendor. Only after these system related perceptions,

a number of business related criteria follow, which are concerned with processes and

information integration. The attributes concerned with the enablement of specific

technologies are rated as least important. Since these requirements would not apply to

every company, the resulting position is not surprising.

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Table 11. Inquired decision making attributes with mean importance ratings and standard deviations

All comp SMEs LEs

Attributes1 ME SD ME SD ME SD Systems reliability 4.63 0.79 4.66 0.78 4.55 0.87 Functionality of the system 4.52 0.85 4.54 0.89 4.44 0.82 Vendor support 4.31 0.83 4.41 0.80 4.05 0.91 Business process improvement 4.31 1.05 4.41 1.05 4.03 1.05 Enabler for desired business processes 4.27 1.03 4.42 0.90 3.84 1.30 Integrated and better quality of information 4.23 1.20 4.25 1.26 4.16 1.09

Reduced cycle times 4.22 1.04 4.46 0.71 3.55 1.51 System usability 4.17 0.83 4.29 0.76 3.83 0.98 System flexibility 4.14 0.88 4.31 0.78 3.73 1.02 System interoperability 3.96 1.21 4.34 1.02 3.04 1.19 Improved service levels 3.95 0.99 4.14 0.77 3.43 1.38 Enhanced decision making 3.90 0.98 4.06 0.82 3.49 1.31 Short implementation time 3.89 1.02 4.07 0.82 3.40 1.37 Increased organisational flexibility 3.88 0.99 3.99 0.90 3.55 1.20 Software costs 3.86 1.16 3.94 1.14 3.65 1.27 Organizational fit 3.80 1.04 3.93 0.88 3.46 1.38 Increased customer satisfaction 3.74 0.87 3.82 0.77 3.55 1.13 Vendor's financial situation 3.74 1.05 3.81 1.04 3.63 1.13 Y2K readiness 3.51 1.85 3.68 1.87 3.05 1.82 Connectivity 3.46 1.17 3.89 0.87 2.80 1.31 Availability of a industry focused solution 3.44 1.67 3.67 1.65 2.80 1.62

Internationality of Software 3.37 1.38 3.48 1.31 3.06 1.60 EURO currency conversion 3.37 1.68 3.46 1.68 3.11 1.78 Market position of vendor 3.32 0.90 3.36 0.79 3.19 1.22 Vendor reputation 3.22 1.19 3.15 1.17 3.42 1.30 Improved Innovation Capabilities 3.09 1.26 3.24 1.20 2.61 1.41 Operating system independency 2.98 1.33 3.08 1.27 2.69 1.50 Incorporation of business best practices 2.91 1.15 3.02 1.16 2.63 1.17 E-business enablement 2.78 1.49 2.87 1.52 2.50 1.47 Enabling technology for CRM, SCM, etc. 2.37 1.36 2.18 1.53 2.63 1.12

1 Rated on a scale between 1 (not important) and 5 (very important), N = max 79

Applied information gathering methods

In the mean, 3.5 different methods were employed for gathering information for

evaluating the system alternatives. Eight explicitely named possible approaches were

included in the questionnaire (see Table 12). There is also a trend to employ less

expensive methods to be seen within the group of SMEs: The analysis of a prototype and

an examination by consultants which can be considered as resource intensive were used

19

more extensively by LEs, while other approaches such as presentations by the bidders or

internet search were used more often among SMEs.

Table 12. Information sources used for decision making

Source exploitation given in % All SMEs LEs p (χ2) Analysis of publications, references, studies, etc. 41.0 43.0 34.9 - Meetings with vendors 75.8 74.4 80.1 - Analysis of competitors' ERP choices 34.0 29.9 46.2 - Trainings of key members of project team 33.6 35.7 27.2 - Internet search 27.4 32.7 11.6 .013 System demonstrations by vendors 82.1 87.7 65.4 .014 Analysis of a system prototype 15.5 14.0 19.9 - Engagement of external consultants 31.0 26.3 44.8 .085 Other sources 6.6 4.9 11.6 -

Methodical support

Although ERP decisions are structured along dimensions respectively attributes, a

minority of decision makers in practice apply some kind of multiple attribute decision

making method (41.3% of the cases). This compares to 70.9% of the enterprises that

captured financial aspects by standard financial investment methods. The questions of the

study to assess evaluation models comprised salary savings or profiles (used by 14.6% of

the enterprises), some kind of work study assessments (14.1%), and any other method

applied for evaluation (6.1%). The numbers show that the application of valuation

methodologies in practice remains limited.

Implementation

Implementation approach

Table 13 denotes the assessed characteristics of the implementation process, in

particular implementation approaches. The most cautious approach considering a low

phased-in implementation approach supported by organisational learning is carried out by

28% of the organisations. A pilot project implementing first one module, than all other

modules in a single step, is applied by 16.6% of the organisations. The most aggressive

20

implementation approach is a Big Bang implementation of all ERP software modules at

once, which was followed by the majority of the organisations (55.2%).

SMEs more often rely on slow phased in implementation and pay less attention to pilot

projects than LEs. The latter group achieves to implement a greater proportion of the

desired ERP functionality than SMEs.

Table 13. Implementation characteristics

Item All SMEs LEs p (χ2)

Corr

Slow phased in implementation 28.2% 32.9% 11.8% .01 - Pilot project then remaining modules in one step 16.6% 12.9% 29.4% .04 - Big Bang implementation 55.2% 54.2% 58.8% - - Modification efforts1 3.56 3.58 3.48 - - Programming proportion of overall effort 26.7% 27.4% 21.9% - - Customizing proportion of overall effort 32.6% 31.5% 39.9% - - Employed risk mitigation strategies 65.1% 68.1% 53.4% - - Employment of ERP-controlling 3.4% 2.6% 6.3% - - Implemented % of desired functionality 80.45 79.18 85.00 - .47* 1 Rated on a scale between 1 (very low) and 5 (very high)

Accompanying business strategies

A new supporting or enabling software technology is often introduced in connection with

a new business strategy. Table 14 denotes the inquired business strategies that were

implemented together with the ERP system. It can be seen that business process

reengineering or improvement efforts together with customer relationship management are

among the most often considered strategies, the latter being implemented concurrently

mainly within SMEs.

21

Table 14. Business strategies employed together with ERP

Item All (%) SMEs

(%) LEs (%)

p (χ2)

Business Process Reengineering (BPR) 33.2 32.2 36.1 - Business Process Improvement (BPI) 37.6 39.0 33.5 - Take Over 5.9 3.0 13.4 - Merger 1.5 .0 5.9 .00 Total Quality Management (TQM) 9.2 9.7 7.9 - Supply Chain Management (SCM) 14.5 18.2 3.9 - Customer Relationship Management (CRM) 33.6 43.2 5.9 .00 Just in Time (JIT) 16.6 18.2 11.8 - Agile or lean manufacturing (LM) 7.5 6.0 11.8 - CRM or SCM concurrently implemented 34.6 43.2 9.8 .00

Concurrently with ERP 34.6% of all companies implement either CRM or SCM. This

rate can be attributed mainly to SMEs. Only every 10th LE introduces ERP together with

CRM or SCM.

The chronological order of the ERP implementation and Business Process

Reengineering (BPR) phase can be seen in Table 15. No significant differences were

observed concerning SMEs and LEs.

Table 15. Sequence of BPR

Item All (%) SMEs (%)

LEs (%)

no BPR 66.8 67.8 63.9 BPR prior to ERP 6.0 6.0 6.0 BPR after ERP 2.8 3.0 2.0 BPR and ERP concurrently, yet independently 11.3 9.0 18.1 BPR and ERP concurrently as same project 13.1 14.1 10.0

Implementation problems

The problems that occured while implementing the system are summarised in Table 16.

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Table 16. Implementation problems

Item All (rel. in %)

SMEs (rel. in %)

LE (rel. in %)

p (χ2)

Cost escalation 31.8 28.2 44.6 - Time escalation 61.0 66.2 42.9 .04 User resistance 28.1 26.4 34.0 - System did not work as expected 58.7 65.9 34.0 .01 Availability and retention of skilled people 12.6 6.6 33.8 .00 Challenges of integration with other legacy systems 19.2 15.2 34.1

.05

Not completing implementation by Y2K 2.4 2.5 2.0 - High degree of organisational change just to meet the needs of the software 23.3 22.9 24.7 -

Capability of organisational infrastructure to contend with new technology 16.6 11.6 34.7 .01

Lack of management support 6.0 5.5 8.0 - Other 13.4 14.9 8.0 -

Reported implementation problems were dependent on the size of the organisation in a

number of cases: Time escalations and problems with achieving the intended system

behaviour occurred more regularily in SMEs, while LEs more often reported the lack of

skilled personell, integration problems, and difficulties of the organisational infrastructure to

contend with the new ERP technology.

Use and Maintenance

The perceived utilisation of ERP benefits

Table 17 denotes the perceived utilisation of ERP decision making criteria according to

expectations/targets set prior to system implementation. The expectations of business

management were most likely met in terms of the system related features “Y2K

readiness”, “Systems reliability”, and “EURO currency conversion”. The first and the third

criteria were among the most important drivers for ERP software growth in the last decade.

The expectations of ERP as technology and connectivity enabler were considered as the

least successful aspects. No substantive differences were detected in the perceptions

given by managers of SMEs and LEs.

23

Table 17. Inquired decision making attributes with mean utilisation ratings according to expectations

All comp SMEs LEs

Attributes1 ME SD ME SD ME SD

Y2K readiness 4.58 0.97 4.67 0.94 4.31 1.06 Systems reliability 4.16 0.70 4.18 0.57 4.10 1.08 EURO currency conversion 4.15 1.28 4.12 1.36 4.25 1.06 Vendor support 3.93 1.15 4.00 1.20 3.72 1.04 Advanced technology 3.91 0.69 4.00 0.58 3.62 0.98 Availability of a industry focused solution 3.91 1.16 4.12 1.07 3.22 1.23

System functionality 3.88 0.99 3.98 1.05 3.58 0.75 System flexibility 3.87 1.04 4.08 1.01 3.19 0.89 Enabler for desired business processes 3.84 0.92 3.99 0.90 3.43 0.94 Business Process Improvement 3.77 0.90 3.84 0.90 3.55 0.92 Improved service levels 3.75 0.90 3.90 0.89 3.32 0.88 Integrated and better quality of information 3.74 1.19 3.69 1.34 3.88 0.71

System interoperability 3.68 0.87 3.83 0.85 3.24 0.84 System usability 3.68 1.05 3.80 1.05 3.28 1.02 Organizational fit 3.66 1.17 3.84 1.16 3.09 1.13 Increased Organisational Flexibility 3.63 0.88 3.73 0.85 3.33 0.98 Enhanced Decision Making 3.62 0.95 3.74 0.97 3.28 0.89 Incorporation of business best practices 3.60 1.15 3.77 1.22 3.10 0.81 Reduced Cycle Times 3.48 1.11 3.52 1.18 3.36 0.96 Increased Customer Satisfaction 3.39 0.79 3.45 0.78 3.20 0.87 Short implementation time 3.38 0.98 3.56 0.92 2.81 1.03 Internationality of Software 3.37 1.45 3.35 1.51 3.43 1.36 Software costs (licenses, maintenance, etc.) 3.34 0.86 3.41 0.80 3.12 1.08

Operating system independency 3.24 1.39 3.24 1.43 3.27 1.39 Improved Innovation Capabilities 3.20 1.07 3.36 1.01 2.70 1.18 Connectivity (Intra/Extranet, Mobile Comp.,...) 3.09 0.81 3.08 0.80 3.11 0.90

E-business enablement 2.85 1.55 2.80 1.68 2.99 1.18 Enabling technology for CRM, SCM, etc. 2.49 1.26 2.14 1.38 3.01 0.95

1 Rated on a scale between 1 (not important) and 5 (very important)

Firm level ERP impact

An often mentioned short term effect of large scale software introductions is a decline in

process efficiencies, resp. organisational performance. This was confirmed by data

analysis (see Table 18) and a significant difference was observed between SMEs and LEs

(χ2, p=.00). While the majority of SMEs are faced with short term declines, only a minor

number experience long term problems, and no SMEs has stated that the performance

level prior to ERP were not recovered. The situation is different among LEs where a

24

considerable proportion faced long term performance problems, while a minor, but

nevertheless existing, proportion does not recover to past performance levels.

Table 18. Decline in organisational performance after switching to ERP

Decline in organisational performance All (%)

SMEs (%)

LEs (%)

not noticed 30.7 25.1 52.2 experienced over a short period of time 60.6 69.3 26.8 experienced over a long period of time 8.3 5.6 18.8 experienced and not recovered .5 .0 2.2

The question whether ERP is aiding to the organisation to gain a competitive edge was

answered with yes by 83.1% of all enterprises. The view is clearly more optimistic in

SMEs, i.e. the distribution is significantly depentend on the size of the organisation (χ2,

p=.01). The rate increases to 88.1% for SMEs and decreases to 65% for LEs.

The general success of IT/IS and the general performance of the organisation were

assessed by the figures given in Table 19. In terms of IT/IS success the situation was

regarded as positive on approximately the same level of magnitude among SMEs and

LEs. Overall firm performance was judged slightly better among SMEs. An interesting

question was to analyse possible dependencies between these general measures and the

company’s position in the ERP lifecycle model. With regard to IT success criteria, a

number of correlations as calculated by Spearman Rank correlation were identified: The

position of the organisations’ ERP system correlates positively with the efficiency of IT/IS

supported processes (corr=.26, p=.03), IS/IT reliability (corr=.37, p=.00), and with IT/IS

impacts on goal achievement (corr=.31, p=.00).

25

Table 19. General IS/IT and firm success metrics

All comp SMEs LEs

IT Success Criteria1 ME SD ME SD ME SD Efficiency of IT/IS supported processes 3,57 0.93 3.56 0.93 3.64 0.96 IS/IT reliablity 4,11 0.82 4.11 0.82 4.03 1.07 General value of IT/IS for the organisation 3,86 0.89 3.85 0.89 3.94 1.01

IT/IS impacts on goal achievement 3,68 1.01 3.68 1.02 3.68 1.01 IT/IS contribution to organisational financial performance 3,45 1.10 3.46 1.10 3.26 1.25

Firm performance criteria1 Development of Market Share 3.43 0.66 3.45 0.64 3.07 1.04 Development of Customer Satisfaction 4.01 0.64 4.04 0.62 3.38 0.83 Development of New Product Success 3.65 0.78 3.68 0.76 3.24 1.12 Development of Competitive Position 3.56 0.71 3.58 0.69 3.20 1.16 Development of ROI 3.42 0.69 3.43 0.66 3.24 1.22 Development of general coporate success 3.65 0.88 3.68 0.84 3.18 1.54

1 Rated on a scale between 1 (very poor) and 5 (very good)

In evaluating the performance in the usage stage tradionally two different perspectives,

the financial and the technical view, can be defined. The balanced score card is a well

known approach used for controlling based on multiple attributes aligned along four

different perspectives. It was first proposed in 1992 [37] and soon after applied [39]. The

BSC is a well established measurement method which links strategic objectives and

performance measures. Its application promises strategy mapping between each of the

perspectives. The idea of a BSC is to find a set of measures that maintain a balance

between short- and long-term objectives, between lagging and leading indicators, between

financial and non-financial criterions, and between internal and external performance

perspectives [38, 57]. To assess the performance in system usage, this study has drawn

on suggestions provided in academic literature, mainly on [60] where the BSC was

developed for ERP controlling. Table 20 denotes the four considered ERP controlling

perspectives with attributed measures. Based on the gathered data, the overall conclusion

is that ERP impact in terms of all measured dimensions provided positive effects in SMEs

as well as LEs.

26

Table 20. Performance metrics accross balanced score card perspectives

All comp SMEs LEs

Financial perspective1 ME SD ME SD ME SD

Procurement costs 3.36 0.88 3.33 0.90 3.48 0.85 Inventory holding costs 3.21 0.99 3.14 1.02 3.46 0.91 Transportation/logistics costs 3.16 0.76 3.12 0.77 3.30 0.77 Hardware/Technology costs 2.93 0.80 2.95 0.84 2.87 0.70 IT/IS maintenance costs 2.83 1.14 2.96 1.11 2.39 1.23 Overall IT/IS costs 2.79 0.96 2.94 0.87 2.31 1.13 IT/IS consulting costs 2.67 0.91 2.74 0.85 2.41 1.11 Customer (supplier) perspective Coverage of business processes2 3.94 1.18 4.03 1.12 3.81 1.35 Transactions (deliveries,...) finished on schedule1 3.62 0.71 3.62 0.71 3.64 0.77 Problems with order processing or management1 3.56 1.04 3.61 1.07 3.41 0.96 Communication with supplier1 3.17 0.85 3.06 0.83 3.61 0.84 Internal process perspective2 Availability of ERP services 3.96 0.84 3.98 0.88 3.89 0.77 Average time to upgrade the system 3.31 1.05 3.36 1.07 3.11 1.04 Release levels lagging behind actual level3 1.34 0.76 1.19 0.62 1.54 0.91 Effectiveness/Productivity 3.86 0.70 3.87 0.62 3.84 0.97 Efficiency/Profitability 3.82 0.79 3.84 0.72 3.74 1.05 Financial close cycle 3.55 0.96 3.46 0.94 3.84 1.01 Problems with reports on demand 3.53 0.95 3.55 0.95 3.47 1.01 Problems with warehouse processes 3.41 0.90 3.42 0.91 3.40 0.93 Problems with standard reports 3.37 1.05 3.28 1.06 3.66 1.05 Exploited ERP functionality4 66.16 20.71 61.73 19.02 73.39 23.49 Innovation and Learning perspective5 Training hours per developer 3.24 0.88 3.29 0.86 3.02 1.03 Training hours per user 2.94 0.76 2.93 0.73 2.95 0.96

1 Rated on a scale between 1 (poor rating/higher costs) and 5 (good rating/lower costs) in comparison to the situation prior to ERP adoption

2 Rated on a scale between 1 (poor rating/decreased) and 5 (good rating/increased) according to planned level of support 3 Rated on a scale between 0 (no lag) and 3 (3 levels behind) 4 % of the implemented ERP system functionality 5 Rated on a scale between 1 (increased) and 5 (decreased) in comparison to the situation prior to ERP adoption

In terms of ERP controlling, only 3.4% of the enterprise have implemented an

instrument to control ERP system operation.

Evolution

ERP as technology enabler

The data revealed a differential picture. The previous section “Perceived utilisation of

ERP benefits” showed that the expectations towards ERP as technology enabler were met

27

on the lowest level compared to all other decision making criteria. However, in general,

ERP is being viewed as the backbone for important extensions such as CRM or SCM. This

statement is supported by 95% of the companies across all types of ERP projects.

Companies already acknowledge the enabling function of ERP during ERP

implementation. As mentioned earlier, concurrently with ERP 34.6% of all companies

implement either CRM or SCM.

SUMMARY AND ONGOING RESEARCH

This research report provides a descriptive oriented overview of main characteristics of

ERP in all stages of the system’s lifecycle, in particular emphasising differences between

SMEs and LEs. The given research topics comprise general information such as the

diffusion of ERP and other computer software applications among SMEs and LEs,

resources allocated, or strategic project guidance as well as drivers for the decision to

implement ERP, considered and chosen ERP packages, project team structures, decision

making criteria, applied information gathering methods, methodical support,

implementation approaches chosen, acompanying business strategies, implementation

problems, perceived utilisation of ERP benefits, firm level ERP impact, and the role of ERP

systems as technology enabler.

This report constitutes an intermediate research report giving preliminary results of the

undertaken study. Future work based on the gathered data will document the analytical

projects undertaken in particular focusing on SME specifities, ERP success, enterprise

integration, organisational fit of ERP, and BPR/BPI related questions.

28

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