A Comparative Study of Critical Success Factors (CSFs) in Implementation of ERP in Developed and Developing Countries

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A Comparative Study of Critical Success Factors (CSFs) in

Implementation of ERP in Developed and Developing Countries

Mohammad Reza Moohebat, MIT.

Dept. of MIT, University of Payam-e- Nour, Tehran, Iran, moohebat@gmail.com

Asefeh Asemi

1

, PhD

Dept. of Library and Information Sciences, University of Isfahan, Isfahan, Iran,

asemi@ui.ac.ir

Mohammad Davarpanah Jazi

Foolad Institute of Technology, Fooladshahr, Isfahan, Iran, mdjazi@cc.ui.ac.ir

doi:10.4156/ijact.vol2. issue5.11

Abstract

The main goal of this research is to understand is there any difference between ERP implementation's CSF in developed and developing countries? Understanding this subject can help us to implement ERP systems properly in developing nations. This research showed that in developed and developing countries "Change Management" was most important factor and in developed countries "Country-related functional requirements" factor was less important factor and "Fit between ERP and business/process" was the least cited factor among developing nations. In last it 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. In addition it seems developing countries underestimate business process reengineering (BPR) and fit between ERP and business/process factors in comparison with developed countries.

Keyword:

ERP, Implementation, Critical Success Factor, Developed Countries, Developing Countries

1.

Introduction

Nowadays Information Technology has become inseparable part of any activity. But maybe IT has had more intensive effect on business. After come up the IT and Information Systems, business atmosphere changed forever. Production and service grew and quality promoted and in the same time competition between companies increased. In such competitively situation, organizations can survive better that improve quality, keep down costs in their whole supply chain, reduce inventories, diversify their products and services, provide more reliable delivery dates in better way in comparison to rivals. Advent of enterprise resource planning (ERP) system helped many companies and organization to overcome these problems. Today‟s firms are finding that they can become more flexible and productive by coordinating their business processes more closely and, in some cases, integrating these processes so they focus on efficient management of resources and customer service [1]. ERP systems integrate information and information-based processes within and across functional areas in an organization [2].

Despite benefits that earn from ERP, implementation these systems can be very dangerous because of their complex nature. It reported that three quarters of the ERP projects were judged to be unsuccessful by the ERP implementation firms [3]. About 90 percent of ERP implementations are late or over budget [4]. Recently ERP failure rate is estimated 40% to 60% [5]. It has related antithesis statistics about ERP implementation failure rate yet. But it is obvious that ERP implementation is risky. In spite of these threats ERP market is growing sequentially. It has reported that the ERP market worldwide is expected to grow from US$47.8 billion in 2004 to US$64.8 billion by 2009 [6]. When we juxtapose all these facts it will clear how much ERP implementation can be perilous.

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Critical success factors (CSF) define as “factors which, if addressed, significantly improve project implementation chances” [7]. To identify critical issues and bottlenecks and make easier ERP projects implementation, different researchers have tried to recognize the CSFs that have important effect in these projects. Most of these researches have accomplished in developed countries but many developing countries interest to apply ERP systems. But does developing countries encounter to the same critical factors that developed countries had been confronted? What are the differences between ERP implementation in developing and developed countries? What points should vendors and consultants prognosticate in during ERP implementation in these countries?

In this paper was tried to specify CSFs differences in ERP implementation between developed and developing countries. Therefore in the first step all the mentioned CSFs in different papers identified and classified, also developed and developing countries listed and identified, finally different CSFs counted and represented for each group to conclude which CSFs are more important in developing countries versus developed countries and what is the differences.

2. Review of literature

2.1. Enterprise Resource Planning (ERP)

Gartner Institute described ERP as Business strategies and enabling software that integrate manufacturing, financial and distribution functions to dynamically balance and optimize enterprise resources. ERP software suites include integrated manufacturing, distribution and financial applications. ERP can enable enterprises to optimize their business processes and analysis capabilities for improved speed and efficiency [8] ERP systems evolved from MRP II (Manufacturing Resource Planning II) systems but unlike MRP II, which focused on manufacturing, ERP systems serve other businesses, such as distribution and services. ERP systems integrate inventory data with financial, sales, and human resources data, allowing organizations to price products, produce financial statements, and manage human, materials, and financial resources [9, 10]. ERP systems were first implemented in the 1980s. Since then, some success stories in implementing and using an ERP system have been reported [11]. In a survey of 800 U.S. companies almost half had installed an ERP system and these systems were commanding on average 43% of a company‟s application budget. Research into 1000 U.S. Fortune companies also indicated that over 60% had implemented an ERP system. It is estimated that 300 billion dollars were spent on ERP systems during the 1990‟s [12]. However, the implementation of ERP is a complex process, and many adopters have encountered problems in different phases [13]. Robbins-Gioia surveyed 236 companies in 2001, finally revealed that 51% of ERP projects are unsuccessful [14]. With regard to the high ERP failure rate and enormous expenditures of these systems, notice to factors which raise ERP implementation success can be very essential and helpful.

2.2. Critical success factor

The definition of success depends on the point of view of the person who defines it. It became clear early on in the research that people often mean different things when talking about information systems or ERP success [9,15]. In information systems implementation research, there has been a lot of attention given to measuring “success” in implementation [16]. Research on CSF can be traced back to 1961, where Daniel [17] first discussed “success factors” in management literature. In a broad approach, he focused on industry-related CSFs which are relevant for any company in a particular industry [18]. Bruno and Leidecker [19] 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”. Today CFS approach applies in different subjects such as project management, base on Ramaprasad and Williams [20] survey, CSF approach uses in three major area include project management (63.49 %), IS implementation (49.21 %), and requirements (47.62 %). Critical Success Factors (CSFs) approach was first used by Rockhart [21] in IS area [22]. Many researchers have tried to identify critical success factors that affect on ERP implementation [16,23-32]. CSF in ERP implementation is defined as "factors needed to ensure a successful ERP project [22]. "

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Holland and Light [24] in their article under the title of "A Critical Success Factors Model for ERP Implementation" studied 8 ERP systems in different companies and industries. They investigate CSF in three dimensions insisting of strategic, organizational and technical. After that ERP's CSF is divided into strategic (legacy systems, business vision, ERP strategy, top management support, project schedule and plans) and tactical (client consultation, personnel, BPC and software configuration, client acceptance, monitoring and feedback, communication, fault-finding) factors.

Nah and Lau [26] studied prior researches in order to identify the CSFs in ERP implementation. They categorized CSFs based on Markus and Tanis's four stages ERP implementation model. They specified CSF for each phase. Eleven factors are identified, including of: "ERP Team of implementation maker and its composition", "Top management support and championship", "Business plan and vision", "Effective Communication", "Project management", "Project Champion", "Appropriate business and Legacy system", "Change management program and culture", "Business Process Reengineering(BPR) and minimum customization", "software development, testing and troubleshooting" and "monitoring and evaluation of performance".

Jafari et al [33] after review previous researches selected 10 factors and then these factors were surveyed with sent questionnaires to Malaysian consultant, IT sophisticated and ERP users. At last it reveals that "Top management support" and "clear goals and objectives" are more important than other factors in Malaysia.

3. Method

The first stage to do this research was to clarify CSF. In different research many CSFs have cited as Critical Success Factor. But one the best classification of CSF is Nagi et al research [13]. He classified different CSFs into 18 main groups and several sub groups; this classification covers all the cited CSFs in different researches so this classification used in this study again (Table 1).

Table 1. CSF and Sub CSF base on Nagi classification [13]

CSF Sub CSF

Appropriate business and IT legacy systems Business

plan/vision/goals/justifica tion

Justify the project based upon factors of cost and economic scale Business process/rules are well understood

Business Process Reengineering Minimal customization

Change management Change management culture and programme

User involvement

Organizational culture and political structures Commitment to change

Understanding corporate culture Re-train IT workforce in new skills Training and education

Developed clear education and training strategy Education on new business process

Communication Inter-departmental communication

Communicated regularly with all who would be affected Open and honest communication

Data accuracy Data management

Data analysis and conversion Data quality control

ERP strategy and Implementation Regard as a technological, business, and organizational project

Alignment between business strategy and IT strategy Begin process changes first

Strategic alignment of exercise

ERP is treated as a program not a project Phased vs. Big Bang

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Deep understanding of the key issues relating to ERP implementations Select a good methodology

Careful selection of appropriate package Suitability of software and hardware Decision-making process/style

ERP project team ERP teamwork and composition (Personnel)

Steering committee Project team competence Empowered decision makers Selecting the right employees Employee morale (incentives)

Business and technical knowledge of team members and consultants Balanced or cross-functional implementation team

Managing consultants Staff retention

Full-time team members Employee/personnel relations Sparing use of consultants

ERP Vendor Vendor-customer partnerships

Use of vendors‟ customization tools Vendor support

Kept suppliers/customers informed

Monitoring and evaluation of performance Benchmarked implementation progress against clear milestones or

performance metrics

Focused performance measures Client acceptance

Monitoring and feedback

Organizational characteristics Had technology/infrastructure in place

Organizational experience of IT or organizational change projects of a similar scale

Company-wide commitment

Implementation of ERP was not due to competitive pressure

Project champion

Project management Clear and defined project plan (goals, objectives, strategy, scope, schedule)

Smaller scope Avoid scope creep Implementation costs

Realistic deadlines for implementation are set Realistic expectations with regard to ROI and reduced IT/IS costs exist

Management of expectations Total-quality management Interdepartmental cooperation Dedicated resources

„„To-be concept‟‟ as project guideline Knowledge management

Managing conflicts in ERP projects Clear and simple project organization

Software Development, testing, and

troubleshooting Defining the choices of architecture

Integration

Software configuration Troubleshooting

Functional requirements are clearly defined before selecting an ERP product Perceived complexity

Top management support Fit between ERP and business/process National culture Country-related functional requirements

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In order to classify CSFs base on developed and developing countries it was essential to define these countries. The term developed country is used to describe countries that have a high level of development according to some criteria. Which criteria and which countries are classified as being developed, is a contentious issue and is surrounded by fierce debate. Economic criteria have tended to dominate discussions [30]. Different organization has proclaimed various lists of developed countries (UN, CIA, OECD, FTSE and IMF). After review these reports it revealed IMF list is more correspond to this research. IMF specified 34 countries as developed Economies (Table 2) and 149 countries as Emerging and Developing Economies.

Table 2. Advance Economies countries [31]

Advanced Economies Australia Austria Belgium Canada Cyprus Czech Republic Denmark Finland France Germany Greece

Hong Kong SAR Iceland Ireland Israel Italy Japan Korea Luxembourg Malta Netherlands New Zealand Norway Portugal Singapore Slovak Republic Slovenia Spain Sweden Switzerland Taiwan Province of China United Kingdom United States

To investigate probably differences between ERP critical success factors in developed and developing countries it was essential to find enough researches that were accomplished about ERP implementation and its CSF; hence various scientific databases (Sciencedirect, Proquest, IEEE, Emerald, Elsevier, Inderscience, Springerlink) and search engines like Google scholar, Ojose, Citeseerx, Scirus was used to find related researches and surveys about ERP success factors in different countries and finally 400 articles, thesis and dissertations gathered and eventually with review on them repetitive, unrelated sources took away and only 85 sources remained.

After that our sources revealed, with help of MS Access 2007, needed information from each of resources collected and in this way frequency of each CSF in developed and developing countries specified. Finally this information transferred to SPSS 16 and with Descriptive statics our information analyzed.

4. Results

52 researches identified as a representative of developed countries and 33 as developing countries. Among these researches 14 developed and 16 different developing countries identified. USA with 25 and China with 11 researches had most resources in this study respectively between developed and developing nations. In table2 and table3 different countries and number of researches that each one had, has shown.

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Table 1. Developing countries Developing countries Number of research resource Bahrain 1 [32] Chile 1 [29] China 11 [33], [34], [35], [28], [27], [31], [36], [37], [26], [38], [39] Egypt 1 [22] India 3 [40], [41], [42] Iran 2 [43], [44] Jordan 1 [45] Malaysia 3 [33], [46], [47] Mexico 1 [11] Poland 1 [48] Saudi Arabia 3 [49], [28], [50] South Africa 1 [51] Sri Lanka 1 [52] Thailand 1 [53] UAE 1 [37] Venezuela 1 [54]

Table 2. Developed countries

Developing countries Number of research resource Australia 7 [55], [56], [57], [58], [59], [27], [60] Belgium 1 [61] Canada 2 [62], [63] Denmark 1 [64] Finland 1 [65] France 1 [66] Hong Kong 1 [67] Israel 1 [68] Japan 1 [69] Netherland 2 [70], [71] Singapore 1 [39] South Korea 2 [72], [73] UK 7 [74], [75], [76], [77], [78], [79], [80] USA 24 [50], [81], [82], [83], [84], [85], [86], [87], [98], [89], [90], [91], [59], [92], [93], [94], [95], [96], [97], [98], [99], [25], [100],

Frequency of CSF for each of developed or developing countries counted separately and earned result depicted in Table 3. In developed countries, "Change management" factor with 34 frequencies was most popular factor and "Country-related functional requirements" with 6 repetitions was known as less quoted factor. But in developing countries, factor with the name of "Fit between ERP and business/process" was the least cited factor and "Change Management" with frequency of 30 had the highest rank. Table 3 shows and compares the frequency of critical success factors in developed and developing countries and also the whole result from both groups depicted.

With compare these results it will clear that "Change management" identified as most important factor and "Fit between ERP and business/process" as least popular critical factor in ERP implementation in different countries around the world.

To understand what differences exist between ERP critical success factors in these two groups of counties, CSF frequency of both groups drew in one line chart (Chart 1). As it has shown in Chart 1, both of the diagrams almost have a similar pattern. But there are some differences, as it shows in Chart 1 a few factors like "ERP vendor" and "National culture" seem more important for developing countries and in some factors like "Business process reengineering" and "Fit between ERP and business/process" distinction among developed and developing countries is unusual.

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Table 3. compare ERP critical success factors in developed and developing countries CFS Developed countries Developing countries Developed and Developing countries

Appropriate business and IT legacy systems 6 6 12 Business plan/vision/goals/justification 13 14 27

Business Process Reengineering 31 19 50 Change management 35 30 65 Communication 20 19 39

Country-related functional requirements 3 3 6 Data accuracy 9 8 17

ERP project team 31

24 55

ERP strategy and Implementation 24 17 41 ERP Vendor 8 13 21

Fit between ERP and business/process 9

1 10

Monitoring and evaluation of performance 9 7 16 National culture 4 10 14 Organizational characteristics 7 6 13 Project champion 13 6 19 Project management 31 26 57

Software Development, testing, and troubleshooting

13 6

19

Top management support 28

29 57

Chart 1. compare CSF in developed and developing countries

5. Discussion

The purpose of this study was to discover is there any differences between ERP's Critical Success Factors (CSF) in developed and developing countries or not. And if there are any differences, what are

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they? This study showed that in during ERP implementation CSFs are not much different in developed and developing countries but still there are undeniable differences. It seems 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. In addition apparently developing countries underestimate business process reengineering (BPR) and fit between ERP and business/process factors.

There are a lot of studies have done about CSF in ERP implementation. But this is first study that tried to discover probably distinction between developed and developed countries. One of the challenges of this research was that some of the former researcher investigated CSF in multiple companies around the world and in some cases it's not possible to distinguish the exact country and further more it was difficult to find related research in some developing countries some of them could not afford such expensive systems like African nations and in some cases there were not any published researches (for example Russia). Another problem was that CSF classified in 18 groups but these groups were not match completely with cited CSF in other studies and it was necessary to map them to one of these groups.

These findings accommodate with Huang and Palvia study, they after compare ERP implementation in developed and developed countries declared technology faces additional challenges in developing countries related to economic, cultural and basic infrastructure issues [101]. In addition Rajaspakse identified high cost, culture, integration and lack of knowledge as four factors that make ERP unsuitable for many organizations in Sri Lanka and Asia [52]. These cases show cultural issue is very important factor that differentiate developed and developing countries in ERP implementation.

This study revealed that ERP implementation's CSF in both developed and developing countries almost behave in similar pattern. But we should not forget the national culture of developing countries because ERP technology has evolved in developed countries and includes the culture of developed countries implicitly. Then maybe for this reason these countries need more support from vendors to solve their problems. It seems necessary that future studies scrutinize what cultural differences exist between ERP implementation in developed and developing countries and how they effect to ERP implementation and how we can diminish them and why these countries underestimate BRP and fit between ERP and business process.

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