Evaluating Readiness for ERP Adoption in Manufacturing SMEs

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Evaluating Readiness for ERP Adoption in
Manufacturing SMEs

• Louis Raymond
• Suzanne Rivard
• Danie Jutras

Enterprise Systems Research Workshop, SIG-ES,
IFIP Working Group 8.9, 3gERP Project, Montreal,
2007
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Studying ERP in the context of SMEs
cost
Potential for risk mitigation
100 
gt 90 
Cost engendered by decisions
Cumulated expenses
lt10 
time
Implementation
Utilisation and Evaluation
Adoption
study 1 2 3
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ERP impacts - - gt org. performance
ERP readiness ERP adoption process and risk
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Research Justification

• With the advent of globalisation and the
  knowledge economy, many SMEs must become
  "world-class" enterprises, especially in the
  manufacturing sector
• Growing interest of ERP providers for the SME
  market and growing adoption of ERP by these firms
  
• But ERP is complex, entailing significant risks
  for the adopting organisation, be it large or
  small and medium-sized
• Significant differences between SMEs and large
  firms with regard to resources and capabilities,
  and with regard to objectives and constraints of
  ERP adoption
• Thus a critical issue Is the SME capable of
  adopting ERP, is it ready to implement this
  technology ?

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Research Questions

• What constitutes readiness for ERP adoption in
  manufacturing SMEs ?
  (descriptive aim)
• How can manufacturing SMEs be characterised in
  terms of their readiness to adopt an ERP ?
  (prescriptive aim)

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Meta-theoretical framework for the study of ERP
adoption in SMEs (adapted from Boudreau et Robey,
1999)
Theoretical content
Form of change
Incremental
Complexity theory
Radical
Institutional theory
Punctuated equilibrium
Organisational change theory
Alternate form
Diffusion of innovation theory
Life cycle
Dialectic
Dialogic
Teleology
Evolution
Motor of change
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Dialogic in the strategic management of an SME
New value creation
SME
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Dialogics of ERP adoption in SMEs
ERP
S T A N D A R D I S A T I O N
C U S T O M I S A T I O N
D E T E R M I N I S M
E M E R G E N C E
I N T E G R A T I O N
F L E X I B I L I T Y
SME
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Technological context
Organisational/Entrepreneurial context
Environmental context
TOE CONTEXTUALISATION OF ERP ADOPTION IN SMEs
Process improvement

• Reduced costs
• Strategic decision making improvement
• Customer responsiveness
• Multi-site standardisation
• Need for efficiencies and integration
• Business restructuring

Common platform
Reduced operating costs
MOTIVATION FOR ERP ADOPTION (adapted from Parr
and Shanks, 2000, Ross and Vitale, 2000)
Data visibility
Infrastructure (technical)
Capability (operational)
Performance (strategic)
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• Availability of resources
• Operational methods
• Competitive strategy
• Sophistication of existing IT use
• Procurement methods

Organisational Context
Readiness of SME for ERP Adoption
External Forces
Business Processes

• Operational
• Managerial
• Integration

• Business environment
• Power of customers

Perception of ERP

• Complexity/Cost
• Benefits/Strategic advantage
• Desire to implement

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Research Method

• Field study (Stone, 1978) of 11 manufacturing
  SMEs
• Convenience sample
• criterion complexity of the organisation and
  business processes such that ERP adoption would
  be possible a priori
• Semi-structured interviews of top-managers (CEO
  and operations manager)
• data recorded, transcribed and coded
• Interview data completed by the interviewees
  answers to a survey instrument for factual data
• Data analysis
• evaluation of the sampled SMEs by organising the
  data along the four dimensions of the ERP
  readiness framework
• cluster analysis to identify ERP readiness
  profiles

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Field Study Sample
has already implemented the production
management module of an ERP software package
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Process data synthesis form for enterprise A
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Common aspects

• Organisational context
• subcontracting ISO JIT MRP/MRP II
  (except for firm K)
• lack information for decision making
• several competitive strategies, no IT strategy
• External forces
• 20 of customers account for 80 of sales
• pressure from customers to adopt ISO but not to
  adopt ERP
• Perceptions of ERP
• highest expectations process, product and
  information quality improvements
• lowest expectations strategic capability,
  technological infrastructure
• Business processes
• relative mastery of operational processes
• bus. intelligence focusing on competitors and
  technological innovation
• partial integration of operations (interfaces
  between systems)
• emphasis on OD and HRM

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Three ERP readiness profiles
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Group I The committed adopters (B, F, H, J)

• Have already committed or are likely to commit to
  ERP adoption, as explained by
• concern for continuous improvement
• search for better management practices
• desire to improve information quality, quantity
  and accessibility
• Need for real-time information to make better
  decisions (requiring greater systems integration)
• Perceive their competitors as having deployed ERP
  systems
• High expectations with regard to potential
  benefits of ERP
• Lower expectations as to the strategic value of
  ERP

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Group II The uncommitted adopters (C, D, E, G, I)

• Focus on operational rather than managerial
  processes, and on information flows as they
  relate to production
• Expressed need for an improved technological
  infrastructure
• Interest for more advanced, integrated IT (firm E
  excepted), including HRM
• Lack of resources

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Group III The late adopters (A, K)

• Not considering ERP in the short or medium-term
• Firm A has a reactive approach to strategic
  issues
• existing technologies considered effective enough
  to meet its needs
• investment in ERP is too great, given the firms
  size and market share and the potential ROI
• Firm K is governed by a board of directors that
  oversees an entire group (issue of
  centralisation/decentralisation)
• operational and managerial processes must first
  be reviewed
• still uses traditional (non-computerised)
  operational methods
• an ERP project was launched the previous year by
  the group but was "put on hold" given the
  conclusion that the group was not ready for ERP

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Implications and Conclusion

• No role played by external pressures dimension,
  but
• No effect of size and industry, but
• Further study
• more extensive (as a complement to intensive)
  study of ERP readiness
• impact of ERP readiness upon the process and
  outcome (implementation risk) of ERP adoption in
  manufacturing SMEs
• ERP readiness framework as the conceptual and
  methodological core of an ERP implementation
  project

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• Establish strategic objectives
• informational and technological infrastructure
  alignment
• (integration, flexibility,
  cross-functionality)
• Assess ERP readiness
• human, technical, financial resources, and
  training requirements
• motivations and education requirements
• processes to be reengineered
• Plan ERP implementation project
• scheduling and resource allocation
• 4. Implement
• (Evaluate)

EXTERNAL FORCES
ORGANISATIONAL CONTEXT
PERCEPTION OF ERP
BUSINESS PROCESSES
Committed, Uncommited, or Late Adopters
Using the evaluation model to implement ERP in
SMEs