2. Review of literature

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A Comparative Study on Critical Success Factors (CSFs) of ERP Systems

Implementation among SMEs and Large Firms in Developing Countries

*1

Majid Aarabi,

2

Muhamad Zameri Mat Saman,

3

Kuan Yew Wong,

4

Amir Hossein Azadnia,

5

Norhayati Zakuan

*1

Department of Manufacturing and Industrial Engineering, Faculty of Mechanical

Engineering, Universiti Teknologi Malaysia, 81310 Johor Bahru, Johor, Malaysia

E-mail: majidnp@gmail.com

2,3,4

Department of Manufacturing and Industrial Engineering, Faculty of Mechanical

Engineering, Universiti Teknologi Malaysia, 81310 Johor Bahru, Johor, Malaysia

5

Faculty of Management and Human Resource Development,

Universiti Teknologi Malaysia,81310 Johor Bahru, Johor, Malaysia

Abstract

The main goal of this research is to explore the difference between the critical success factors (CSFs) of enterprise resource planning (ERP) system implementation in large firms with small and medium-sized enterprises (SMEs) in developing countries. Understanding this subject can help the implementers and users of ERP systems to notice the CSFs of their particular enterprises and to improve the success rate of these systems. The number of seventeen resources of studies evaluating the CSFs of ERP in SMEs and equal numbers of resources were used for the large enterprises. Following an evaluation of each category was conducted to elicit similarities and diversities in CSFs of these two groups. This research shows that there are some significant differences among the CSFs of ERP implementation in SMEs and large firm of developing countries. There was lacking of studies that have been focused on large firm and SMEs separately. The study explored the need for more research that is focused on CSFs studies with regard of distinct separated size of enterprises. By recognizing the differences of CSFs for large organization with SMEs, stakeholders can better develop and use suitable and useful implementation models / frameworks to improve the successful of ERP implementations in enterprises with any sizes. This paper appears to be one of the first studies to focus on comparing of CSFs in implementation of ERP in SMEs with large enterprise in developing countries.

Keywords: Enterprise Resource Planning, Small And Medium Sized Enterprises, Critical Success

Factors, Developing Countries

1. Introduction

Nowadays, information system and technology and in particular, enterprise resource planning (ERP) systems, have an undeniable role in success of global competence for large, medium and small businesses. In recent two decades, firms have been looking forward to facilitate their flexibility and progressing in their productivity with using of the integrated, on-time, adequate and correct information with operating of ERP systems across the whole functional areas in enterprises. With regard to growth of the risky and high expenses processes for implementing of the ERP systems, the success rate of these systems is an important subject. Liang et al. [1] estimated that 40% to 60% of the ERP projects are failed. It can be concluded that ERP system implementation can be risky and perilous. Many studies have been done to survey the critical success factors (CSFs) of the ERP systems implementation and finding their important degree. Regarding to the many structural, organizational and cultural differences between large enterprises and SMEs, it seems that the CFSs and their importance degree are different in large organizations with SMEs.

The purpose of this study is to specify the probable differences of CSFs in ERP implementation among large organizations with Small and Medium-Sized Enterprises (SMEs) in developing countries. The finding of these differences can help the analysts, vendors and implementers of the ERP systems to prepare well defined systems to be more suitable and usable for SMEs and large enterprises and improve the success rate of these complex enterprise-wide systems. In addition, these can help for developing the models and frameworks for

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improving of ERP projects’ success. So, this article can be divided to four parts: first, it tries to specify all the mentioned CSFs of ERP projects implementation and classifies them. Then in second stage, the surveyed the CSFs of the ERP systems in SMEs are reviewed and categorized to find the frequency and importance degree of these factors in SMEs of developing countries. In third part of the research, the CSFs of ERP projects in developing countries' large enterprises and their importance levels are specified. Finally, comparing of the CSFs in large enterprises with SMEs has been done to represent the probable diversities and differences in the CSFs of large enterprises versus SMEs of developing countries.

2. Review of literature

2.1. Enterprise Resource Planning (ERP)

ERP systems are the significant systems that help companies to achieve their business objectives and to increase the productivity and operational efficiency of companies for achieving process improvement and global competitiveness [2]. However, some difficulties and problems affect the implementation of ERP systems.

Enterprise resource planning (ERP) systems are an integrated set of programs that provides support for core business processes, such as production, input and output logistics, finance and accounting, sales and marketing, and human resources. An ERP system helps different parts of an organization to share data and information to reduce costs and to improve management of business processes [3-4] argued that ERP systems aim to integrate business processes and ICT into a synchronized suite of procedures, applications and metrics, which transcends firms’ boundaries. Even though ERP systems were initially thought to run on large-scale enterprises, SMEs are increasingly motivated to introduce ERP implementations [5].

Robbins-Gioia [6] did a survey in 232 companies spanning multiple industries, a total of 36% of the surveyed companies had or were implementing an ERP system. They found 51% of the ERP implementation viewed unsuccessful.

2.2. Critical Success Factors (CSFs)

Several definitions of CSF exist in literature. Expressing one of the most frequently cited definitions, Rockart [7] uses ideas from Daniel [8] in defining CSF as “…the limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organization. They are the few key areas where things must go right for the business to flourish. If results in these areas are not adequate, the organization's efforts for the period will be less than desired”. In a similar statement, Leidecker and Bruno [9] define CSF as “those characteristics, conditions or variables that, when properly sustained, maintained, or managed, can have a significant impact on the success of a firm competing in particular industry”, while Pinto and Slevin [10] believe that CSFs are “factors which, if addressed, significantly improve project implementation chances”.

Since, ERP projects are complex, enterprise-wide and mass-expense projects in enterprises, therefore the surveying and finding of the critical success factors in them are important and were considered among both practitioners and academic researchers. Hong et al. [11] studied the differences of factors influencing IS project quality between large corporations and small and medium manufacturing enterprises. They resulted that the factors influencing IS project quality are not the same between the large companies and small and medium manufacturing enterprises.

Moohebat et al. [12] did a surveyed on the recent studies in developed and developing countries and showed that in developed and developing countries "Change Management" is the most important factor and in developed countries "Country-related functional requirements" factor is less important factor and "Fit between ERP and business/process" is the least cited factor among developing nations. They concluded that national culture of developing countries has an impressive effect on ERP implementation in these countries. In other hand developing countries companies more depend on ERP vendors in compare to developed countries companies. They stated that it seems developing countries

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underestimate business process reengineering (BPR) and fit between ERP and business/process factors in comparison with developed countries.

Laukkanen et al. [13] did a surveyed of 44 companies. Their study indicates that significant differences exist between small, medium-sized and large enterprises in ERP system adoption. Specifically, the findings suggest that small companies experience more knowledge constraints than their larger counterparts in ERP adoption. Further, while being the most prevalent objective for ERP adoption in all the company groups, business development through ERP adoption is considered especially important by the medium-sized and large enterprises. Wang and Hou [14] surveyed on literature, focused on proposing a theoretical model of technological, environmental and organizational factors influencing e-commerce adoption and implementation in SMEs. Their empirical research provided indication to SMEs interested to adopt business-to-business e-commerce, large companies interested to conduct e-commerce transactions with small and medium sized companies and policy makers. Loh and Koh [15], accomplished a comprehensive literature review and interviews with eight SMEs in the UK. They resulted three main categories of critical factors: critical success factors, critical people and critical uncertainties. Within each critical element, the related constituents are identified. They used the process theory approach to link the constituents within each critical element to their specific stage(s) of ERP implementation. They found 10 constituents for critical success factors, 9 constituents for critical people and 21 constituents for critical uncertainties. Their research suggested that the identification and management of the critical elements and their constituents at each phase of implementation are required for having a successful ERP implementation. Jing and Qiu [16] did a study on the factors that influence enterprise resource planning (ERP) systems implementation. They analyzed the 13 critical factors that influence ERP implementation based on the interpretative structural model, and a multilevel stratum structure model for influential factors of implementing ERP. Jafari et al. [17] studied on ERP implementation of Malaysian enterprises. They have investigated the critical factors that cause ERP systems implementation success and evaluated the importance of these factors. Through their comprehensive review of the literature, they’ve found 10 factors to be critical to ERP implementation success. The importance of these factors was investigated within Malaysian companies using questionnaire survey method. “Top management support” and “clear goals and objectives” have been resulted to be the most important factors for ERP implementation in Malaysia.

Al-Mashari et al [18] discussed the theoretical basis of the relation between benefit realization process with ERP systems. They stated a novel taxonomy of the CSFs in the ERP implementation process. They mentioned the CSFs related to the 3 main phases for implementing of ERP systems, named: Set-up, Implementation and Evaluation. Ehie and Madsen [19] studied on the critical factors affecting on the successful ERP implementation. They identified 8 factors that impacted 86% of the ERP implementation. There was a strong correlation between 6 factors of them in successfully implementing ERP. These factors identified as: Project management principles, Feasibility/evaluation of ERP project, Process re-engineering, Top management support, Cost/budget, and Consulting services. Another 2 factors: Human resource development and IT infrastructure were found to be non-significantly correlated to successful ERP implementation. Yingjie [20] stated 6 CSFs and categorized them into 3 categories: Effective project management, Reengineering business processes and Suitability of software and hardware as Tactical factors; Top management support as Strategic factors; Education and training and also User involvement as Operational factors. Snider et al. [21] studied on the critical success factors (CSFs) of enterprise resource planning (ERP) system implementation in 5 Canadian small and medium-sized enterprises (SMEs). Their research was identified the distinct factors that cause the variation between successful and unsuccessful implementations of ERP systems in SMEs. They found these CSFs as the results: Operational process discipline, Small internal team, Project management capabilities, External end-user training, Management support and Qualified consultant.

Upadhyay et al. [22] assessed empirically the most critical factors in the ERP implementation processes in Indian micro, small and medium-scale enterprises (MSMEs). Their research identified 4 critical factors that influence the ERP implementation process in Indian MSME segment. Finally, they summed up under the following factors: project execution competency, product and vendor perspective, organizational climate and technical perspective.

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2.

Research methodology

This research focuses on the ERP systems implementation in developing countries. Since, in recent years there has been an increase in the application of Enterprise Resource Planning (ERP) systems in large companies and government agencies mainly in developed countries. While there is wide adoption of ERP systems in Western economies, developing countries lag far behind. However, due to recent economic growth and increased global competitive pressure, developing countries and especially the small and medium-sized enterprises (SMEs) in these countries are increasingly becoming major targets of ERP vendors. There is an urgent need for understanding ERP implementation issues in SMEs of developing countries, as ERP systems are still in their early stages in these countries. They face additional challenges related to human resource, economic, cultural and basic infrastructure issues. Hence, this research will seek to fill the gap through the finding the priority of the CSFs to relate to proposed practical framework for ERP implementation in SMEs in developing countries as well as to enhance the body of knowledge for the successful implementation of ERP. So, the survey focuses the researches in developing countries and is done in 4 stages as follows:

‐ Step 1: Identifying and Classifying the CSFs

As the first step, the most cited review papers that identified and classified the CSFs of ERP projects were surveyed. Among these resources, four recently published papers are used and surveyed more to find and categorize the most important and most cited issues of ERP projects [23-25].

As the result, the most cited CSFs are summarized in 20 factors, listed in Table 1. These factors and items are used as reference for finding and categorizing of the factors cited in different studies, both for large enterprises or SMEs in developing countries.

‐ Step 2: Collection of Frequency of CSFs for SMEs in Developing Countries

To investigate the probable diversity of the CSFs in ERP systems in large enterprises and SMEs, it was needed to find enough studies and articles that studied about the CSFs of the ERP projects in developing countries. Unfortunately, most of the current exist researches don’t specify the size of their study in aspect of employee number or annual revenue. Some of these studies surveyed the combination of different size enterprises and in spite of, they are valuable research in this field, they can’t be contributed in this survey. The various scientific databases, i.e. Sciencedicrect, Scopus, ProQuest, Sciverse, Elsevier, IEEExplore, Emerald, Springerlink and Inderscience and some search engines like Scirus, Google Schoolar, and Citeseerx are used to find related articles and researches about CSFs of ERP projects in SMEs and large enterprises in developing countries.

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Table 1. The summarized and categorized critical success factors of ERP projects [23-25]

Critical Success Factors (CSFs)

1) Top management support and commitment 2)Project management and evaluation 3) Business process reengineering

4) ERP team composition, competence and compensation 5) Change management program

6) User training and education 7) Business plan and vision

8) Enterprise-wide communication and cooperation 9) Data management

10) Selection of ERP package 11) Project champion

12) Use of external consultant 13) Vendor support

14) Suitability of hardware and infrastructure 15) User involvement

16) Software analysis, testing and troubleshooting 17) Managing of culture

18) Appropriate business and IT legacy systems 19) Proper implementation strategy and methodology 20) Monitoring and evaluation of performance

Different keywords and their combinations are used for the search of resources in these databases. Table 2 shows the used keywords in this search.

It should be mentioned that the combination of these keywords used in the searching of the resources such as:

‐ ERP (AND) CSF (AND) Implementation (AND) SMEs

‐ Enterprise Resource Planning (AND) Critical Success Factor (AND) Implementation (AND) SMEs

‐ CSF (AND) ERP Project (AND) Implementation (AND) SMEs And so on.

Finally, about 450 articles, dissertations and thesis were found. Eventually after reviewing on them, 156 articles, dissertations and thesis that have been done in developing countries were remained.

Table 2. Keywords used for searching the resources

Keyword First Alternative 2nd Alternative 3rd Alternative 4th Alternative 5th Alternative Enterprise Resource Planning ERP ERP Package

ERP System ERP Software ERP

Project Critical Success

Factors

CSFs Success Factor

Critical Factor Risk Factor

Implementation Adoption Adaptation Assimilation

Success Performance Failure Difficulties Effectiveness

Small and Medium Sized Enterprises

SME Small Business

Medium Organization

Large Enterprise Large

Organization

Large Business

As aforementioned above, only a few studies separated their scope and defined clearly on SMEs. The count of them was 17 articles. Then it’s tried to survey these resources to find the CSF frequencies

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of the ERP projects in SMEs and to categorize these factors in the referenced group (that is already shown in Table 1). This step of research results a frequency table of iteration for each factor (Table 3).

‐ Step 3: Collection of Frequency of CSFs for Large Enterprises

With regarding the number of reviewed resources for SMEs, it has been decided to choose equal sources of studies on CSFs of ERP systems of large enterprises in developing countries. The 17 sources were chosen and surveyed randomly to find and categorize their CSFs of large enterprises. The frequency of citation for each factor is shown in Table 4.

‐ Step 4: Comparing of Citation for CSFs of Large firms and SMEs

In fourth step of the research, the results of the previous two steps are analyzed and compared with together (Table 5).

3.

Results and discussion

The purpose of this study is to identify the probable diversities in CSFs of ERP systems implementing for SMEs and large organizations in developing countries and to specify the similarities or differences between these two factors categories. This study shows that there are some undeniable differences between the CSFs of ERP implementation of large organizations and SMEs in developing countries. Citation frequency of the CSFs for ERP system implementation in large enterprises or SMEs counted separately and earned results depicted in Table 3 and Table 4.

In large enterprises, “Project management and evaluation” factor with seventeen and "Top management support and commitment" with sixteen citations are the most popular factors and “Vendor support” and “Proper implementation strategy and methodology” with four citations are known as less quoted factors. But in small and medium-sized enterprises (SMEs) “Top management support and

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Table 3. The frequency of CSFs citation in SMEs Resource Top manag em en t supp or t an d com m it m ent P roje ct management and ev al uat io n Busin es s p rocess reengi neering ERP t eam c o mp osition, co mpetence an d compen sa tion Chang e manag ement pr o gr am User tr ainin g and education B u si n ess p la n a n d v isi on Enterprise-w ide co mmuni cati o n and coo p er ati o n Manag in g of cultu re Vend or supp o rt S o ftw ar e analysi s, testin g and troubl es h o ot in g Proje ct champio n Su itab ility of hardwa re an d in fras tr u cture Sel ectio n of ERP packag e Use of ext er n al con su ltant App ro p ri ate b u siness and IT l eg acy systems Moni to ring an d evalu at ion of perf o rmance User invo lvement D ata man ag emen t P rop er i m pl emen tati o n strateg y and m eth od ology [26]        [20]               [27]       [28]       [15]            [29]          [30]          [31]          [32]              [33]          [34]          [35]             [17]            [36]           [37]      [38]       [39]          Total 14 12 10 12 11 12 14 13 - 6 4 8 4 7 6 1 3 6 9 3

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Table 4. The frequency of CSFs citation in Large Organizations Re source Top m an agement sup

port and commitment

P roj ec t m an age m ent a n d e v al ua ti o n Bu si ness process r een gineerin g

ERP team com

posit ion , comp eten ce and co mpensati on Ch ange managem en t program U ser train ing and ed ucat ion Bu si ness plan and vision Ent er p rise-wid e commu nication an d cooperation Man aging of cul ture V endo r sup p o rt Software anal ysis, testi n g an d trou bleshooti ng Pr o ject c h amp ion Suit abi lit y of har d ware and infr astructu re Select ion of ERP pack age U se of external co nsult an t A p propriate b u sin es s an d IT l egacy s y stems Mo nitor

ing and eval

uat ion o f p er for m ance U ser in vol vem en t D ata management Pr o per implem entat ion st rate g y an d methodo lo gy [40]               [41]               [42]             [43]        [20]        [44]            [18]          [45]         [24]            [46]            [47]             [48]                   [49]         [50]          [51]             [52]           [53]            Total 16 17 14 11 13 14 12 13 6 4 8 8 5 8 6 9 7 7 7 4

commitment” and “Business plan and vision” with fourteen frequencies have the highest ranked factors and “Appropriate business and IT legacy systems” with only one citation is the least popular factor and then “Managing of culture”, “Monitoring and evaluation of performance” and “Proper implementation strategy and methodology” with three citations are less cited factors in SMEs of

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developing countries. There are some differences between these two groups (see Table 5) . In this study, the differences more than two are considered as differences between these two categories of enterprises. “Project management and evaluation”, “Business process reengineering”, “Managing of culture”, “Software analysis, testing and troubleshooting”, “Appropriate business and IT legacy”, “Monitoring and evaluation of performance”, “Top management support and commitment”, Change management program” and “User training and education” in large enterprises are more important than in SMEs.

Some other factors are more important in SMEs than in large organizations, such as: “ERP team composition, competence and compensation”, “Business plan and vision”, “Vendor support” and “Data management”.

This study identifies the iteration frequencies of the related success factors for ERP systems of large firms and SMEs in developing countries. These CSFs can be interrelated to the implementation phases. Figure 1 shows one of the most cited implementation of ERP systems proposed model [54]. The authors proposed model is related to prioritized CSFs of SMEs and large firms in developing countries consequently (Figure 2 (a), (b)). This model, referred to as the conceptual ERP implementation model for SMEs of developing countries to simplify of the system and make easier to understand the ERP requirements and facilitate the implementation and maintenance of the systems for the implementers and users.

4.

Conclusion

In conclusion, regarding the different definitions of CSFs, the critical success factors are the constituents, whether they have been considered in the related stages of the framework/model of implementation of a project or system, then the stakeholders can hope to have a successful project or system as result. Therefore, it can be concluded that if these factors are not be included in the model/framework, the failure rate of them will be increased. There are a lot of studies have done for surveying of CSFs of implementation in ERP systems. Most of them did not separate the large enterprises from SMEs, but some others have been done for large enterprises’ cases and other ones have been done for SMEs cases. There is lacking of study that considers the differences of these two categories of enterprises, specially, in developing countries.

This study is one of the first studies that tried to specify the probable distinction of CSFs in large enterprises and SMEs of developing countries. There are some differences in used words and categorization of the factors in studies done about the CSFs of ERP projects. In this research, it has tried to use the most cited and reputed expressions and words as critical success factors. For this purpose, four of the best, most comprehensive and newest articles are used. The findings of this study accommodate with Upadhyay et al. [55] study. After surveying the literature and by applying the Pareto analysis to choose 80% of the most cited factors that causing more percentage contribution of issues, they have identified 16 important issues as the critical issues responsible for ERP implementation success for large organizations and 15 issues for SMEs for Indian context. They have found some factors to be critical for large enterprises are not found to be critical in SMEs and vice versa. Furthermore, the importance rate of some factors in large organizations are different from SMEs ones.

There are some significant differences in our study with their results that can be briefed as: “Enterprise-wide communication and cooperation” and “Data Management / Data accuracy” aren’t pointed as important critical success factors for large enterprises in their study, but they are important CSFs for large organizations in ours. Besides, the factors such as: “Software analysis, testing and troubleshooting”, “Project champion”, “Suitability of hardware and infrastructure”, “Selection of ERP package” and “Use of external consultant” are not categorized as important CSFs for ERP projects in SMEs in their research, they are mentioned as important factors in our study.

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Table 5. Comparing the Frequency of Citation of CSFs in Large Organizations and SMEs No. CSFs Frequency of Citation in Large Organizations Frequency of Citation in SMEs

1 Top management support and commitment 16 14

2 Project management and evaluation 17 12

3 Business process reengineering 14 10

4 ERP team composition, competence and compensation 11 12

5 Change management program 13 11

6 User training and education 14 12

7 Business plan and vision 12 14

8 Enterprise-wide communication and cooperation 13 13

9 Managing of culture 6 0

10 Vendor support 4 6

11 Software analysis, testing and troubleshooting 8 4

12 Project champion 8 8

13 Suitability of hardware and infrastructure 5 4

14 Selection of ERP package 8 7

15 Use of external consultant 6 6

16 Appropriate business and IT legacy systems 9 1

17 Monitoring and evaluation of performance 7 3

18 User involvement 7 6

19 Data management 7 9

20 Proper implementation strategy and methodology 4 3

Figure 1. ERP Implementation Phases [54, 56-57] Planning & Design

Implementation

Stabilization

Continuous Improvement

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Priority CSFs

1 Top management support and commitment 2 Business plan and vision

3 Enterprise-wide communication and cooperation 4 Project management and evaluation

5 User training and education

6 ERP team composition, competence and compensation 7 Change management program

8 Business process reengineering 9 Data management 10 Project champion 11 Selection of ERP package 12 User involvement 13 Use of external consultant 14 Vendor support

15 Software analysis, testing and troubleshooting 16 Suitability of hardware and infrastructure 17 Monitoring and evaluation of performance 18 Proper implementation strategy and methodology 19 Appropriate business and IT legacy systems 20 Managing of culture

Priority CSFs

1 Project management and evaluation 2 Top management support and commitment 3 Business process reengineering

4 User training and education 5 Change management program

6 Enterprise-wide communication and cooperation 7 Business plan and vision

8 ERP team composition, competence and compensation 9 Appropriate business and IT legacy systems

10 Software analysis, testing and troubleshooting 11 Project champion

12 Selection of ERP package

13 Monitoring and evaluation of performance 14 User involvement

15 Data management 16 Managing of culture 17 Use of external consultant

18 Suitability of hardware and infrastructure 19 Vendor support

20 Proper implementation strategy and methodology

Figure 2 (a). The conceptual model for ERP implementation related to prioritized CSFs of SMEs

Figure 2 (b). The conceptual model for ERP implementation to with prioritized CSFs of large firms Planning & Design Implementation Stabilization Continuous Improvement Transformation Planning & Design Implementation Stabilization Continuous Improvement Transformation

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These differences between the popularity of the factors in large enterprises and SMEs shows that there are some differences on the needs of these two categories of enterprises and can be concluded that the model/frameworks and the important factors relation with the different stages of the implementation of ERP systems in SMEs can be differed with large enterprises of developing countries. It seems necessary for the future studies to focus more on the SMEs in developing countries individually to find their CSFs for ERP implementation projects and developing of an enterprise-wide model/framework for ERP implementation for SMEs. This model should consider the most important CSFs and specify the dependence for the factors and each stage of the ERP implementation in SMEs. It can be used as guidelines to diminish the fault rate of the ERP projects in SMEs of developing countries and improve their success rate.

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