Kazakhstan Perspectives on ERP System Implementation

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Kazakhstan Perspectives on ERP System Implementation

Ha Jin Hwang

1

and Young Jun Park

2

1

Professor, KIMEP University

2

Executive Director, USKO

hjhwang@kimep.kz, dannypark30@gmail.com

Abstract

The main purpose of this study is to explore what are the critical factors in implementing enterprise resources planning(ERP) system in the Republic of Kazakhstan. Theses critical factors are expected to be utilized in design and implementation of ERP systems in Kazakhstan. The survey has been conducted by distribution of questionnaires focusing on local companies. The respondents were two groups, group A being professionals and managers while group B being end users.

It has been found that most of the respondents are aware of the ERP system while their companies were implementing or had implemented the ERP system. Based on the results of the study it is noted that despite some difficulties in identifying right target for the survey overall positive impression was observed, as most projects were implemented successfully.

The research has limitations as the sample size is only 100 respondents, not randomly selected, and questionnaires were sent by email to people chosen by the convenience. Thus this factor might have affected a lot to generalize the findings of this study.

This study concludes that the ERP system is becoming widespread in Kazakhstan although mainly among large companies, and there are some constraints for the wide implementation of the system such as the cost, lack of commitment from whole organization, education and training and on the perception of implementing ERP as a whole.

Keywords: ERP systems, Critical success factors, Kazakhstan perspective

1. Introduction

Historical background of ERP system comes from development of manufacturing resource planning in the 90s, but increased awareness of its importance not only in manufacturing, but in all spheres, and thus tailoring it to all areas of business activities resulted in the idea of the ERP system. Shortly, this system is about creating one platform for organization by creating network of all stakeholders (suppliers, distributors, clients, etc.,) by integrating complex system of any business, thus making it real one body with parts functioning together and dependent on each other, so contributing to efficient operation and best management solution.

Kazakhstan is the one of the leaders in terms of economic growth among the CIS countries. Enterprises in Kazakhstan are growing and developing in a high pace, however the methods of management are lagging behind such development. For many local companies actual and pivotal task is enhancement of efficiency of business processes, reduction of costs, streamlining supplies procedure, managerial and financial reporting, product quality management and maintenance of equipment.

As Khattak et al., (2012) defined: “ERP system is actually a strategic tool that may help an organization to gain an edge in successfully integrating key business operations as well as properly planning, synchronization an optimization of the available resources in

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development of manufacturing resource planning in the 90s, but increased awareness of its importance not only in manufacturing, but in all spheres led to idea of the ERP system. So this system is about creating one platform for organization by creating network of all stakeholders (suppliers, distributors, clients, etc.,). So, its main function is to integrate complex system of any business, so contributing to efficient operation and best management solution.

This study was focused on finding out what enterprise resource planning system means for Kazakhstan companies, how it is perceived by Kazakhstan businesses, what is the pattern of use, and what vendors are particularly popular. This study outlined some examples of Kazakhstan companies that successfully implemented the ERP system. Then, the research methodology is presented and findings are discussed. The next section analyses and discusses the findings of the research, then the limitations of the research method are provided, and recommendations based on findings are also presented.

2. Literature Review

2.1. Kazakhstan ERP Market

Kazakhstan is one of the economically fast growing countries among CIS countries and in Central Asia region. Enterprises are growing and developing in a high pace, and lately the Kazakhstan government has been stressing the importance of taking actions to facilitate development of business sector, particularly small and medium business, to increase their competitiveness, and to become export-oriented. Karim Massimv, when he was Prime Minister in 2011 stated the importance of the ERP systems during his speech on innovation and competitiveness of enterprises. However, still, the methods of management in most Kazakh companies are lagging behind such development. For many big companies still actual and pivotal task is enhancement of efficiency of business processes, reduction of costs, streamlining supplies procedure, operational obtainment of managerial and financial reporting, product quality management and repairmen of equipment. Overall solution for these problems is installment of ERP systems in enterprises.

1. SAP AG

SAP is the leader among the suppliers of software solutions for managing the business. It operates worldwide. It has the ERP system in which more than 1000 business processes are actualized. It has more than 50 versions in more than 30 languages. In addition they provide solutions to small and medium enterprises with a reasonable price. They also focus on CRM technology and internet orientation of their products. In Kazakhstan the representative organization of SAP AG is LLP “SAP Kazakhstan”.

2. Oracle

Oracle Corporation is the largest supplier of corporate software programs. Oracle – first software company, that developed corporate software program, totally integrated with the internet and mobile networks. Oracle CRM products cover the various sides of interaction of the enterprise with its clients – starting from marketing and sales to service – and provide seamless integration with clients (front-office) and internal business logic(back-end) of the ERP system.

Oracle Corporation in CIS offers a full package of services for sale of Oracle software program, technical support, training, consulting, introducing complex of Oracle E-Business Suite. In Kazakhstan Oracle Niderland BV was opened in 1995. Oracle Corporation does not only introduce ERP system, it also develops partnership network, and assists partners in introducing the system.

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3. Epicor/Scala

The company Epicor/Scala – a company, created as a result of merge of Epicor Software and Scala Business Solutions. It is in the list of 10 largest producers of software programs directed for automation of the enterprises and actually holds leading position in the market for providing software solutions to companies of medium scale. Their products include Epicor Enterprise, iScala, Platinum SQL, Vantage, Clientele, Active Planner and so on.

Nowadays Epicor/Scala in CIS has more than 200 specialists do work, which includes experienced consultants and IT specialists, financial and logistics experts, etc. Epicor/Scala CIS, is popular in the region, has offices in Moscow, Live and Almaty and supports its regional clients through growing network of dealers. In Kazakhstan they have office representing Middle Asia and Caucasus - Epicor/Scala Kazakhstan.

4. Microsoft Business Solutions

As of today Microsoft Business Solutions has 25000 clients all over the world, more than 4500 business-partners. It was in the top five suppliers of ERP solutions in Europe. Its key products include Navision, Axapta, Microsoft CRM.

Since the end of 2002 Microsoft has office in Almaty, and its main task is to develop software programs market, as well as introduction and localization of new technologies in the territory of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. Nevertheless, Microsoft mainly introduces its products through certified partners.

5. Galaktika

The corporation «Галактика» is one of the largest in Russian developers of the integrated solutions in the sphere of automation of industrial, economic and financial activities of the enterprises. Its solutions are addressed to different scale enterprises, companies, organizations and takes into consideration specific needs of small firms, dynamically developing medium size companies, large holdings and corporations. “Galaktika” – ERP system for large and medium enterprises designed to provide complex automation of business-processes. This system is characterized by unique combination of leading western standards of management with mix of Russian features. As a result this guarantees efficient solution of managerial and accounting tasks in a rapidly changing business environment. The system includes advanced tools for decision support and industry-specific tasks, as well as tools for system administration.

To support the management activities of the company managers, holding companies, corporations, the system "Galaktica" may be supplemented by a special solution - Information Systems Manager, which has broad capabilities for implementing tasks of monitoring and analysis of the company. The Company "Galaktika" introduces its product in Kazakhstan through its own representative "Galaktika-Kazakhstan".

It started working in Kazakhstan since 1995. In 1997 the Central office was opened in Almaty – the official resident office in the Republic of Kazakhstan. Now it is dynamically developing ERP systems for loacl companies.

6. Niche market

Each of ERP system providers has their own niche in Kazakhstan. SAP and Oracle systems are mainly used in the large industrial enterprises, banks, telecommunications companies and other companies with large number of transactions. Functionality of their systems can be also applied in the lower level companies, but due to high cost it happens rarely. In this niche mainly leading role is played by Axapta, Scala.

For the majority of companies with low turnover the most popular systems are Navision, Galaktika. Sharp differences in the usage of these systems do not exist.

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Moreover each of the company besides their main products, also offer more light versions, which allows them to compete with lower prices.

2.2. Critical Success Factors(CSF) of ERP Implementation

It has been noted that although the ERP market is rapidly developing in Kazakhstan, it is still not in the same level as in developed countries. The success and failure of an ERP implementation is related to how a company deals with the process and what priority a company tries to implement. In general, there are known to be critical success factors which are very critical in ERP project implementation and could result in ERP success or failure.

ERP implementation is a complex process which includes various organizational and technological activities and changes of these activities in the process of implementation. Pramod Kumar (2010) suggested that ERP Implementation plan should be well developed if organization has decided to implement the system. According to investigation by Michael Umble (2003) there are 9 critical success factors for implementing ERP system: Clear understanding of strategic goals; Commitment by top management; Excellent project management; Organizational change management; A great implementation team; Data accuracy; Extensive education and training; Focused internal measures; Multi-site issues. Nah et al., (2001) noted 11 factors as follows: ERP teamwork and composition; Change management program and culture; Top management support; Business plan and vision; Business process re-engineering and minimum customization; Effective communication; Project management Software development, testing and troubleshooting; Monitoring and evaluation of performance; Project champion and; Appropriate business and information technology legacy systems.

There are other factors identified by other researchers, for instance Huang and Palvia (2001) identified 10 factors. While implementing the system in Kazakhstan there is a need to consider the specifics of local culture, economic and regulations. Taking into account business culture and economic features of Kazakhstan, this study has chosen seven most important factors which can be considered as critical success factors for ERP implementation in Kazakhstan as follows: Clear understanding of strategic goals, Commitment by top management, Excellent project management, Business Process Re-engineering and Customization, Extensive education and training, Data accuracy, Adequate testing.

3. Research Methodology

This research was conducted by applying questionnaire with 17 questions using 5 point Lickert scale. The primary objective was to discover the critical success factors regarding awareness and implementation of the ERP system in Kazakhstan

The questionnaire was distributed to 100 employees of local companies. It was investigated how the system is viewed by local companies, how many of them implementing the system and how successfully and so on. It was taken from employees who were involved in implementing ERP systems in local companies. The survey took more neutral stance, so just to get overall picture of the current situation. For surveying convenience sampling method has been used, and samples were selected because of their convenient accessibility and proximity to the researcher. Questionnaires were sent to people who work for local companies. To investigate research findings, the statistical analysis such as t-test and ANOVA test were conducted.

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Table 1. Profile of Respondents Response category Kazakhstan respondents

Age 20 to 29 30 to 39 40 to 49 50 and over 13 % 81 % 6 % 0 % Gender Female Male 35 % 65 % Computer experience < 1 year > 1 year to 2 years > 2 years to 5 years > 5 years to 10 years > 10 years 2.5% 2.5% 20.6% 45.2% 29.1% Occupation

Full time worker Managers

74 % 26 %

The survey focusing on 100 people who work in different organizations was conducted to find out whether the organization in which they work has implemented the system, duration of implementation, and their understanding of the system. It was highly noticed that without every employee’s understanding the system ERP systems cannot properly benefit any organization. In this regard, critical success factors were main area of investigation. The respondents are categorized in two groups, group A being professionals and managers while group B consisting of end users. The research findings revealed that most respondents were working in the manufacturing industry – 72%, only 18% and 10% of respondents work for education and services providers such as bank, and insurance companies. The survey asked respondents to choose from a list of fifteen factors of CSF which are grouped to three major factors such as managerial, financial and organizational factors.

According to the comparison of two groups by category of critical success factors, group “A” evaluated managerial factors higher than group “B” (4,34 > 4,12). The consultant’s skills is perceived to be most critical in implementing the system among the managerial factors as it shown in below table.

Table 2. Managerial Factors

Managerial factors Group A

Mean

Group B Mean Clear understanding of strategic goals of

implementing ERP system 4,4 4,5

Top management support 4,4 4,3

Project management 4,1 4,4

Vendor support 3,9 3,6

Consultants skill 4,9 3,8

4,34 4,12

Regarding financial factors group B evaluated the financial factors more critical than group “A” as shown in the below table. The data accuracy is turned out to be most critical for group “A” while ERP quality is perceived to be most critical for both group.

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Table 3. Financial Factors Financial Factors Group A Mean Group B Mean Data accuracy 4,8 4,4 Budgeting 3,5 3,6 ERP quality 4,4 4,5 4,08 4,15

With regard to organizational factors group “A” evaluated it more critical than group “B”. Comparing the opinion group “A” evaluated training issue more important while group “B” evaluated task force team competence most critical.

Table 4. Organizational Factors Organizational Factors

Group A Mean

Group B Mean

Task Force team competence 3,7 4,4

Effective communication 4,2 4,3

Internal readiness to changes 4,1 4

Adequate planning 3,8 3,8

Training 4,7 3,9

Business Process Re- engineering 4 3,8

4,08 4,03

In general, group “A” and “B” evaluated all 3 factors similarly. According to t-tests it failed to reject null hypothesis that there are differences in the perception of CSF factors. Therefore, it is concluded that there are no differences between two groups. Summarized t-tests and p-values are shown in below table.

Table 5. Comparison of Two Groups

Factors T-statistics P-value Result

Managerial 0,89 0,19 Not rejected

Financial -0,20 1,94 Not rejected

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4. Analysis of the Survey

It can be seen from the results of the survey that the use of the ERP system in Kazakhstan is becoming widespread, although there are difficulties occurring during the implementation, in the end most of the projects were implemented successfully.

Particularly it can be observed that most of respondents were well aware of the notion and value of the ERP systems and noted that their companies were somehow involved in implementing this. Actually this was a quite surprise, it was not expected before the survey that 60% of respondents will say that their companies are involved. Nevertheless, most of them encountered typical problems in implementing the system as poor team communication, too much involvement of managers in proportion to lower line managers, and not being much able to adapt easily to contingencies. Thus, the timeline of introduction of the system was mainly prolonged and associated additional costs also made companies to slow down ERP implementation a bit.

It can be generally observed that most of the problems are related to organizational parts, and it demonstrates that Kazakhstan mentality is still not much prepared to work as a team, not being really committed to the project, and not to be transparent in providing information to IT company. However, taking into account the fact that approximately 80% noted that the project was successfully implemented provides some good signal and belief of increasing popularity of the ERP system in Kazakhstan in near future.

In fact it is easier to get benefits of such high technologies in Kazakhstan.

Enterprises are ready to make operational quick decisions, and legislation is more

receptive to international standards. Of course, there are some barriers, but still

they are solvable. Moreover, based on IT companies’ comments, the good thing is

that usually Kazakh companies do not terminate the process on implementing ERP

system when they are devoted to this project. According to head of “Korus

Consulting” in CIS countries, Kazakh market for ERP system is really attractive to

international service providers because the market is growing substantially quicker

than markets of other CIS countries, including Russia. Demand for Russian

providers is also increasing, and Russian providers are willing to meet such

demand. Kazakh companies are now taking into consideration not only on the

price of service, but also on the quality criteria. It is really a good indicator that

Kazakh companies are getting really involved in the idea of implementing ERP

system, focusing on high quality. They understand the effect of such service on

their business.

5. Summary and Conclusion

Kazakhstan is still in a developing status, where lots of effort shall be done to ensure that all businesses understand importance of ERP systems and are committed to introducing the system. Considering critical success factors might allow companies to explore a wide variety of opportunities for the successful implementation of ERP systems. The results of this research demonstrated that the ERP system is actually becoming very popular in Kazakhstan. Of course, some problems were noticed with implementation of the system, but overall impression created was good, as most of the difficulties reported can be easily solved. With increasing awareness of the system, the findings of this research will enable Kazakhstan companies to identify requirements for successful ERP implementation. The companies will follow recommendation and hopefully will face fewer problems. As mentioned before, most of the local companies implemented ERP system successfully. In this regard, it is natural to expect that this 60% will grow even more in future, especially with increasing declaration of importance of the ERP system in

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Kazakhstan news websites, forums and in speeches of key authority people. In addition, examples of successful projects will play a role of a facilitator for other companies.

In Kazakhstan’s practice, there is increasing demand for implementation of the ERP system as feasibility of using this system is supported by the necessity to manage business processes in conditions of moderate inflation, and strict tax pressures. Consequently, the ERP system is highly demanded not only by large companies, but also by small and medium enterprises.

It can be concluded that successful ERP system implementation provides a huge number of benefits to companies. Investment for ERP project will be quickly paid back with improved efficiency, operational cost reduction, effective decision making, and better image and reputation. As long as all companies understand its full advantage, more Kazakhstan companies will be using advanced IS technologies. The only essential thing for all companies in Kazakhstan is to understand that there will be some factors arising during the process of implementation, so these factors shall be accurately analyzed and proper solutions to be designed, preventing unexpected results. The ERP system is very effective way of improving global competitiveness of companies in Kazakhstan.

References

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Authors

Dr. Ha Jin Hwang is Full Professor of Operations Management

and Information Systems at Bang College of Business, KIMEP University, Kazakhstan. He received Ph.D. (MIS) from Mississippi State University and taught at Minnesota State University(1989-1991), U.S.A., and Catholic University of Daegu(1991-2010), Korea. He also served as President of Korea Association of Information Systems(2005) and President of Korea Internet Electronic Commerce Association(2008). His research interests include supply chain management systems, e-Business applications, and social networking.

Mr. Young Jun Park is Executive Director at USKO, Inc.,

Almaty, Kazakhstan. He received MBA from KIMEP University, Almaty, Kazakhstan. Prior to joining USKO, he worked for Semitech, Ltd.(1998-2010), Melbourne, Australia as a Accounting and Finance Manager. His research interests include ERP implementation, knowledge management, and logistics and supply chain management systems.

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