Impact of Adopting Enterprise Resource Planning Systems by ... · listed possible potential...

Impact of Adopting Enterprise Resource Planning Systems by Commercial Organizations in KenyaMustafa Abdullabhai, M.B.A.Computer Pride Ltd., Nairobi, [email protected]

Freddie Acosta, Ph.D.Strathmore Business School, Nairobi, [email protected]

The purpose of our research is to understand the benefits Enterprise Resource Planning (ERP) systems render to commercial organizations in Kenya and to understand the challenges that affect the ERP Implementation process. These benefits and challenges have direct impact on the performance of the business; therefore the study seek to understand the complexity of these two factors. Thirty five organizations participated in our research. We established what kind of benefits were realized by various sizes of organization adopting ERP systems, and the differences that exist among challenges and benefits with respect to the size of the organization and age of ERP System. Lastly, our research also identifies how various benefits and challenges are interconnected and interdependent.

Keywords: ERP systems, implementation, benefits, challenges, Kenyan business environment

DLSU Business & Economics Review 21.2 (2012), pp. 63-86

Copyright © 2012 De La Salle University, Philippines

BACKGROUNDInformation and communication technology

is one of the most instrumental and innovative inventions in the 20th century. It continues to revolutionize human existence and the way we interact and conduct business in the 21st century. It has tremendously improved the information flow between people, thereby creating a completely new society that is well informed, highly interconnected and fully interdependent.

The concept of globalization came into effect after the advent of information technology (IT) and businesses found a tool by which they could interconnect with their stakeholders, irrespective of their location. This allowed

businesses to leverage on the different business environments of the different regions of the globe so as to perform different functions of the organization in their, bid to remain competitive. For example many large organizations have developed sophisticated business models where manufacturing is transferred to countries where cost of production is much lower. Most information technology companies outsource or offshore production to China and India where the costs of material and skilled labor is lower, and the environment is highly conducive to business.

Enterprise Resource Planning (ERP) software is one of the information technology tools

64 VOL. 21 NO. 2DLSU BUSINESS & ECONOMICS REVIEW

that enable an organization to improve its competitiveness in this global arena. The ERP system is an integrated set of programs that provide support for core organizational activities such as: supply, manufacturing, logistics, finance, sales, marketing and human resources (Otieno, 2008). ERP allows an organization to capture its customer needs and relate their needs to their supply end. This allows organizations to have better customer and supplier intimacy, greater operational efficiency and ability to offer quality products and services. An organization like Toyota has developed the Just In Time business model, where customers are given the flexibility to order a customized car and the suppliers are immediately communicated with, to deliver inputs to their assembly units. This flow of information is achieved through its sophisticated ERP systems. Although ERP is an information technology tool, it combines both organizational business processes and the total organization into an integrated system. Kirimi and Acosta (2009) and many other researchers have studied ERP systems and come up with a list of critical success factors for their successful implementation. They also listed possible potential benefits and challenges of ERP systems to the adopting organizations. However, both IT practitioners and researchers are still not able to determine the potential impact of ERP adoption on an adopting organization (al-Mashari, 2003).

ERP systems have traditionally been implemented in the large capital-intensive industries, such as manufacturing, construction, aerospace and defense (Chung & Synder, 2000); they have recently been implemented in small and medium sized organizations as well (Muscatello et al., 2003). Traditionally, the five big vendors of the ERP systems have been the SAP, Oracle, BAAN, JD Edwards and PeopleSoft (Mabert et al., 2000). Recently some of the vendors have been developing a smaller cost-effective version of ERP systems which are appropriate for most businesses in Kenya. Among the leading ERP vendors focusing on the Kenyan market are: SAP with its SAP B/1 software; Microsoft Dynamics

with its Microsoft Navision software; and Sage Pastel with Pastel Evolution.

Statement of the Problem

Companies adopt ERP systems to achieve competitive advantage through integration of various organizational functions; thus resulting in seamless and efficient business processes. The benefits and challenges experienced by different organizations depend on environmental and organizational factors. Kenya’s fast growing economy comprises of businesses of all sizes. Like the large organizations, ERP systems are making their entry into small and medium sized enterprises (SMEs). The need to understand the impact of ERP systems in the Kenyan business environment becomes extremely important so that companies can have a clear understanding of its risks, challenges and potential.

The purpose of this research is to understand the impact of adopting an ERP system; therefore, it established what kinds of challenges were encountered by organizations of various sizes adopting ERP systems.

Research Questions

1. What are the key benefits experienced by companies adopting ERP Systems in the Kenyan business environment?

2. What are the trends of the extent of benefits with respect to the size of the organization?

3. What are the key challenges experienced by companies adopting ERP systems in the Kenyan business environment?

4. What are the trends of the extent of challenges with respect to the size of the organization?

5. What are the relationships between various challenges and benefits during the implementation of the ERP system?

6. What are the trends in terms of realizing benefits and countering challenges with respect to the age of the ERP system?

aBDULLaBHaI, M. aND aCOSTa, F. 65IMPaCT OF aDOPTING ENTERPRISE RESOURCE PLaNNING SYSTEMS

REVIEW OF LITERATURE

Introduction

Increased competition, along with rapid development of new information technologies, has forced more and more businesses to rely on information systems. Information technology based on the computer to support decision-making can be a powerful competitive weapon, especially when its adoption is aligned with a corporate strategy (Baki et al., 2005).

Every company collects, generates, and stores vast quantities of data. In most companies, information is spread across dozens or even hundreds of separate computer systems, each housed in an individual function, business unit, region, factory or office (Davenport, 1998). Enterprise resource planning (ERP) systems integrate the fragmented information to support decision-making. ERP systems are integrated in enterprise wide systems, which automate core corporate activities, such as manufacturing, human resources, finance, and supply chain management. By using this system, companies can achieve many improvements, such as: easier access to reliable information, elimination of redundant data and operations; reduction of cycle times; and increased efficiency, all of which result in reduced costs.

Firms invest in ERP systems because they are powerful instruments for achieving operational excellence and customer intimacy, and for enhancing decision-making. But also because they are powerful in changing the way organization works, they are therefore challenging to implement (Laudon et al., 2006). Many researchers have studied the ERP implementation processes in order to establish the challenges and factors that determine the extent of implementation of the ERP systems and factors that prevent organizations from realizing their motivational objectives of investing in those systems. A number of researchers have identified the benefits of ERP and ranked them according to the level of importance in different environments.

This study does not aim to establish the benefits and challenges but to use the findings of previous studies to establish the extent of benefits and challenges to Kenyan business and industry; and to establish if any relationship exists between various factors of challenges and benefits.

Business Processes and Information Systems

In order to operate, businesses must deal with many different pieces of information: on suppliers, customers and employees; on invoices and payments; and of course on their products and services. Using this information, they must coordinate work activities so as to operate efficiently and enhance the overall performance of their firm. Information systems make it possible for firms to manage all their information in order to make better decisions and improve the execution of their business processes.

Common business processes of a typical organizat ion are sales and market ing, manufacturing and production, finance and accounting, and human resources. These business processes are independent, but are also interdependent; therefore they require a seamless flow of information across various business functions for well-coordinated operations. Information systems enable organizations to automate the many steps in the business processes and to store information, such that many people can promptly access and share this information in a way that is correctly processed through relevant outputs and reports; thereby empowering them to make timely and prudent decisions.

In the past, organizations deployed independent application systems for different functions, such as: sales and marketing, manufacturing and production finance and accounting, and human resources systems. However enterprise systems have recently been developed that makes it possible for information that was fragmented in different systems to be shared across the firm and for different parts of the business to work more closely together. Enterprise systems are a set of functional computer programs that integrate key


business processes of the entire firm into a single software system which enables information to flow seamlessly through the organization. These systems usually focus primarily on internal processes but may include transactions with customers and vendors. (Laudon et al., 2006).

Overview of Enterprise Resource Planning Systems

The following article was printed in the October 2008 issue of Industry Week (industryweek.com) a publication of Penton Publishing. It explains features of a certain ERP software called Enterprise IQ developed by IQMS:

Enterprise IQ version 7.4.1.20 is a single-source ERP software solution from IQMS designed to enable lean operations across total supply chains. The latest version includes over 1,000 built-in reports and 400 enhancements to areas such as quality management, electronic data interchange (EDL), warehouse management system (WMS), product lifecycle management (PLM), security and forecasting. The addition of intricate search capabilities

throughout attached documents allows users to search for key words, phrases, or pictures. Drop-ship functionality has been enhanced between sales order, purchase order and shipping to automatically pass information between modules. The software also now allows production cost calculations by lot number, in addition to existing item number, manufacturing number, sales order number, and production order number (www.iqms.com).

The article explains the purpose and features of typical ERP software. It says that ERP software enables lean management, thereby reducing operational costs. It states that ERP systems provide a huge amount of reports; and this is a key feature in management’s decision-making process. It mentions the interconnectivity features between information systems of suppliers and customers using EDL, the technology that enables data transfer and shares information with all stakeholders. It talks about WMS, a module that helps manage inventory and manufacturing processes, thereby providing controls and efficiency in production and operations. PLM tracks product movement in terms of demand and supply whereby one can know

Manufacturing and Production

Human Resources

Finance and Accounting

Sales and Marketing

Business Process Business Process Business Process

Enterprise- wide Business Processes

Enterprise System

Customers Vendors

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Figure 1. ERP Functional Scope (Laudon et al., 2006, p.61)


which products are moving fast and which ones are moving slowly, thereby forecasting the lifecycle patterns of various products. It also mentions the flow of information and cost calculation; this means it keeps track of the bottom line of the business. Finally ERP systems have a security module which ensures that there are controls at every level, such that users of the systems are given rights according to their roles in using the ERP system.

Some of the popular functions within each module on an ERP system are shown in Figure 2 however, the names and numbers of modules in an ERP system provided by various software vendors may differ. A typical system integrates all these functions by allowing its modules to share and transfer information by freely centralising information in a single database accessible by all modules (Chen, 2001).

The key features of all these systems are that they have centralised SQL database storage system and that all modules are fully integrated. However the software to be used is gauged in terms of its suitability to business in terms of its features and functionality, and other factors, such as: the software’s cost, complexity, customisability, and organizational fit. There are many different ERP solutions that have a number of modules. ERP is a generic solution but every firm is unique. Every solution has special features, but companies should choose the most suitable solution to meet their needs. Companies aiming to gain competitive advantage must choose the best solution that will reflect their strong aspects and support the rest. This can be achieved by using a methodology in the selection process (Baki et al., 2005).

Figure 2. Enterprise Resource Planning: An integrative review (Shebab et al., 2004, p.363)


ERP packages touch many aspects of a company’s internal and external operations. Consequently, successful deployment and use of ERP systems are critical to organizational performance and survival (Markus et al., 2000b). Potential benefits include drastic declines in inventory, breakthrough reductions in working capital, abundant information on customer wants and needs, along with the ability to view and manage the extended enterprise of suppliers, alliances and customers as an integrated whole (Chen, 2001). In the manufacturing sector, ERP implementation has reduced inventories anywhere from 15 to 35 per cent (Gupta, 2000). Among the most important attributes of ERP (Nah et al., 2001; Soh et al., 2000) are its abilities: to automate and integrate business processes across organizational functions and locations; to enable implementation of all variations of best business practices with a view towards enhancing productivity; to share common data and practices across the entire enterprise in order to reduce errors; and to produce and access information in a real-time environment to facilitate rapid and better decisions and cost reductions (Shehab et al., 2004).

ERP Implementation Process

ERP implementation is defined as “the process of developing the initial business case and planning the project, configuring and implementing the

packaged software, and subsequent improvements to business processes” (Shanks et al., 2000, p.537). ERP implementation is considerably different from any traditional information system implementation for many reasons: the integrated nature of ERP applications causes dramatic changes on work flow, organizational structure and the way people do their jobs; ERP systems are not built but adopted, thus involving a mix of business process re-engineering (BPR) and package customization; and ERP implementation is not just a technical exercise but also a socio-technical challenge, as it poses the need for a new set of management procedures.

Given all these, it has become clear that ERP implementation differs from traditional systems development because the key focus has shifted from a heavy emphasis on technical analysis and programming towards business process design and human elements (Gibson et al., 1999a, b).

ERP Implementation Drivers

In order to understand ERP practices around the globe, the following framework of drivers was proposed by Huang et al. (2000a). Their findings suggest that implementation of ERP is affected by two broad categories of factors: national/environmental and organizational/internal, each of which is comprised of five variables (Figure 3).

Figure 3. ERP implementation issues in advanced and developing countries (Huang et al, 2000a, p.282)


Environmental Variables

Economy and economic growth – The economic status of a nation is a broad indicator of its IT/IS development. Rapid economic growth fuels IT/IS development because enterprises are eager to gain competitive advantage. Thus, a sound economic background provides a solid foundation for IT/IS development as well as for ERP implementation.

Infrastructure – IT infrastructure constitutes the basic prerequisite for ERP implementation. ERP cuts across several functions, including the internal operations of the company itself and its suppliers, customers, banks, etc. The soundness of the entire infrastructure is necessary to facilitate complete value chain management enabled by ERP.

Manufacturing strengths – Although these are changing historically, ERP solutions have had greater functionality in manufacturing areas. While service industries have begun to enter this market, firms with traditional manufacturing strengths are more likely to implement ERP.

Government regulations – Governments can encourage IT diffusion; and regulations can encourage or remove barriers to the introduction of IT and ERP systems. For instance, some Chinese government departments are required to use accounting software to replace manual accounting systems for audit. As a result, financial/accounting software has become pervasive.

Regional environment – A country’s regional environment/culture may have an impact on its IT/ERP use. Japan is an example. As a developed country, Japan should be a big ERP market; however, ERP in Japan is in its infancy. One reason is that most large Japanese companies have moved their manufacturing to other Asian countries. In these Asian countries, ERP use is not pervasive. ERP not being a stand-alone system, if partnering countries do not use ERP, Japanese companies are reluctant to use it too,.

Another example is low penetration in countries with massive populations, where the companies prefer to explore methods of increasing human efficiency, rather than replacing humans with integrated systems. (Huang et al., 2000a).

Organizational Variables

Business size – Business size is an important determinant of organizational IT investment and usage. Many big systems started in big companies and ERP systems were initiated by large organizations. Today, smaller organizations are beginning to use ERP due to two factors: first, ERP vendors are putting more efforts on small and middle sized enterprises; and second, small businesses sense the pressure to use ERP to gain a competitive edge.

BPR experience – ERP, as a process management tool, always invokes a need for working flow redesign or process re-engineering (Davenport and Short, 1990; Davenport, 1998). The target of ERP is the whole enterprise; therefore, business process reengineering (BPR) is often needed before ERP implementation. A company which has a richer experience in process management and BPR is more likely to succeed with ERP (Kirimi and Acosta, 2009).

IT maturity – The level of IT maturity can significantly influence an organization’s strategic decision to acquire and deploy IT/IS. IT mature organizations have better understanding of IS implementation; they can collaborate effectively with ERP vendors, and are more likely to succeed in ERP implementation.

Computer culture – Although somewhat related to IT maturity, this refers to the company’s history of computing, employees’ attitudes towards computers, and organizational dependence on computers. A company with a strong computer culture would have a better understanding of application functionality and data management, and would be more accepting of ERP systems.


Management commitment – Given ERP’s complexity and resource requirements, management commitment is key to i ts implementation in both developed and developing countries. However, given the rudimentary status of ERP in developing countries, it might be of even greater importance in such countries. (Huang et al., 2000a).

Challenges to ERP implementation

According to Otieno (2008), ERP projects in developing countries face challenges related to economic, cultural and basic infrastructure issues. He established that ERP implementation in Kenyan organizations face some unique challenges. His study derived the following six composite challenges in ERP systems implementation in Kenya: integration and staff turnover issues; high cost further escalated by extensive customization; poor handling of change management and failure to realize ERP benefits; unreliability of vendors and poor quality of some ERP systems; lack of skills by both users and consultants; and complexity of the ERP system further compromising its security. His findings were corroborated by the study of Omondi and Acosta (2009).

Motivation and Benefits of ERP Implementation

Some analysts and studies have shown that the main reason organizations are investing in ERP solutions lies in the overriding benefit derived from ERP investment, which is the integration of diverse business processes to simplify operations for faster decision-making. Analysts at IDC

recently pointed out four key drivers irrespective of company size: corporate growth; improved customer service; efficient distribution system; and reduced operational costs (Esteves, 2009).

The notion of different stages of ERP implementation is reinforced by Nolan and Norton Institute (2000), which grouped implementations into levels of maturity. They argued that when costs of an ERP implementation are evaluated, the company’s previous experience with ERP systems should be considered. Their maturity classifications were: Beginning –SAP had been implemented in the past 12 months; Consolidating SAP had been implemented from one to three years; and Mature SAP had been implemented for more than three years.

Deloitte (1999) believed that there are a number of phases that occur post-implementation (Table 1). In the “stabilise” phase, companies familiarise themselves with the implementation and master the changes which have occurred. The “synthesise” phase is when companies seek improvements by implementing improved business processes, adding complimentary solutions, and motivating people to support the changes. The final “synergise” stage is where process optimisation is achieved, resulting in business transformation.

Research conducted by Esteves (2009) suggested that that all the ERP benefits dimensions are realised in the second ERP stage (“synthesise”), with the exception of the strategic dimension, located in the last stage (“synergise”).

This implies that organizations adopting ERP systems should expect to realize more benefits with time. As part of the study, the goal would be to see if companies move to the second stage with time or not.

Table 1 Deloitte Second Wave ERP Lifecycle (Esteves, 2009, p.32)

Stages Stabilise Synthesise Synergise

Go Live 3-9 Months 6-18 Months 12-24 Months


Failures in adoption of ERP Systems

According to Beheshti (2006), there is a degree of uncertainty with ERP acquisition and implementation; firstly, because it is hard to estimate the savings; and secondly, it is difficult to anticipate developments because of constant changes.

The failure rates for ERP projects are relatively high and could lead to the bankruptcy of the corporation globally. Similarly, many organisations in Kenya have not been able to reap benefits out of their investment in ERP systems due to unsuccessful or incomplete implementation (Otieno, 2008).

To successfully implement an ERP system, the firm must conduct a careful preliminary analysis and develop a plan for ERP acquisition and implementation. The most important success factors for ERP implementation include: top management support, effective project management, extensive user training, and a view of ERP as a business solution. Factors such as: inadequate technology planning, user involvement and training, budget and schedule overruns, and availability of adequate skills, are considered reasons for ERP failures (Sumner, 2000; Umble and Umble, 2002; Wright and Wright, 2002).

Kenyan Business Environment

Kenya is the leading economy in East Africa. Its strategic location and its well developed business infrastructure make it a natural choice for investors, for which reason many international firms have made it their regional hub. Kenya provides access to the larger regional market of the East African Community, which was formed by its five partner states (Kenya, Tanzania, Uganda, Rwanda and Southern Sudan).

Kenya recently launched an undersea fibre cable that has brought a and cost- effective internet bandwidth to East Africa region. The last mile fibre cable initiative that is driven by public–private partnership, whereby private investors lay fibre cables in the country, is having great impact

on the overall IT infrastructure in the region. (http://www.investmentkenya.com)

Nairobi is considered a business hub for East and Central Africa. Most companies including international organizations and multi-national companies that have operations in this region have headquarters located in Nairobi. Government policies have encouraged business growth and a stable Nairobi economy. Its modernity, state-of-the-art skyline, improved technology, highly educated and trained manpower, and diverse and vibrant market have elevated Nairobi to become the business hub of the region. Nairobi alone contributes 60 percent of Kenya’s GDP. Its companies are both public and private entities, including service based, agricultural and manufacturing industries.

RESEARCH METHODOLOGY

Introduction

This study seeks to determine the impact of adopting ERP systems by businesses in Kenya by outlining the challenges and benefits experienced, depending on the size of the organization and the maturity of the ERP system. The study aims to answer some key questions such as the list of contemporary challenges and benefits that organizations in Kenya which adopt ERP systems experience; and to determine if there was any relationship between challenges and benefits reaped in relationship to timeline. This section explains the methodology and analytical methods used in the study, to include research design, population of the study, sample design, data collection methods, research procedures and data analysis methods. Research Design

This is an exploratory descriptive study where multiple informants were requested to participate in the study. Numbers of commercial organizations that have adopted ERP system were requested by


email to participate in the survey. This was fully technology-based research where an online web based survey was used. Senior officials such as the managing director, finance director and ICT managers from various organizations in Kenya participated in the survey. The instrument used in the survey was an online web based questionnaire; the consent of participants was first acquired by email before a link to the questionnaire was sent to them, likewise by email. The survey was managed directly from the online survey portal – http://www.surveymethods.com. Survey Methods is an online survey tool that provides online survey services on subscription basis. A two-month subscription was taken for this survey.

The survey was structured to obtain information that would answer the research questions. The first part of the questionnaire captured the organizational details; the second part, the ERP systems details; the third part, the challenges; and the fourth part, the benefits. The questions were designed such that it automatically validated the answers. For example, certain questions were mandatory; where questions were likert scale based, radio buttons were used so that respondents could only select one answer. Similarly, a number of critical questions, such as those on size and time period, had a list of answers to select from; this ensured consistency in the way data was captured. The section on challenges and benefits was further validated by giving the respondent a chance to explain in his own words the extent of challenges and of benefits, in a separate dialogue box where the respondent could type in the details.

The advantage of the online survey was that it was easier to manage, deliver and follow up. It was also cost efficient and environmentally friendly. The data could be exported directly to Microsoft Excel software for analysis; this saved on time and also reduced errors.

Population and Sampling Design

PopulationDue to lack of information in Kenya, it is has

been a great challenge to determine the population

size of the companies currently using the ERP systems. In the Kenyan business sector, most organizations still continue to use traditional accounting software. However, a number of them are gradually upgrading to the entry level ERP systems supplied by major ERP vendors such as SAP, Microsoft, Sage and Pastel.

From the list of customers gathered from the local dealers of SAP, Microsoft, Sage, Oracle and Pastel, it was concluded that there are not more than three hundred installations of ERP systems in Kenya, because none of the ERP dealers contacted could provide more than ten implemented sites. Given that there are not more than thirty ERP dealers in Kenya, the maximum number of ERP installations is judged to be three hundred. The reason for the low rate of adoption is that there are few dealers; in addition, with regard to the technical team of sage pastel evolution, it takes about six months to one year to implement an ERP system in one site. Therefore the ERP system sales and implementation process is slow and long.

Sampling FrameSampling frame is a list of elements from

which the sample is drawn; it is a representation of the target population. Since the size of the population is limited and difficult to determine, the best approach was to obtain the list of ERP customers from the network of ERP dealers of Microsoft, SAP, Sage and Pastel.

Sampling TechniqueThe type of sampling used in the survey was

directed random sampling, whereby the list of respondents was obtained through some willing ERP dealers who assisted us by providing us with their customer lists. Some lists of companies were obtained through internet search and through personal networks.

Sample SizeThe study targeted companies using different

types of ERP systems in order to obtain results that are not product-specific but are general to


all ERP systems. The random sample comprised of companies mainly involved in agriculture, trading, manufacturing and service industry. The link to the online questionnaire was sent to 35 participants, and 30 fully completed the questionnaire while 5 partially completed it. The online portal was open for a period of

three weeks; participants were followed on a daily basis to complete the questionnaire. The average time taken by participants to complete the questionnaire online was 20 minutes. The 30 participants who fully completed questionnaire represented about 12% of the population size (Exhibit 1).

Table 2 Distribution of sample size by ERP System

ERP System Total Population % Respondents Actual Respondents

SAP 50 16 8

Oracle 20 10 2

Microsoft Navision 50 10 7

Sage Accpacc 30 10 3

Pastel Evolution 50 10 5

Others 50 10 5

Total 250 12 30

Table 3Distribution of sample size by size of organization

Organization SizeNo. of Employees Total Population % Respondents Actual

Respondents

0-50 100 9 9

50-250 50 12 6

250-1000 50 14 7

1000 and above 50 16 8

Total 250 12 30


Collection Method

The primary data collection method for this research was a structured online questionnaire. It was first designed manually and mapped with the list of research questions so as to ensure that the questionnaire was seeking relevant information that would answer the appropriate research questions. Section 1 of the questionnaire contained organization- related questions necessary to answer research questions 2, 4 & 5, which established the relationship with organization size. Section 2 contained questions related to the ERP software; this captured issues having to do with software maturity and served to answer research question 6. Section 3 contained questions related to challenges; these were core questions of the research and helped to answer research questions 3, 4, 5 & 6. Similarly, Section 4 captured the benefits and answered research questions 1, 2, 5 & 6.

These later sections were designed using the five point likert scale in order to capture the “extent” aspects of challenges and benefits. The questions that were answering the research objectives were made mandatory. The online questionnaire system guaranteed that one could not proceed with the questionnaire unless mandatory questions were first answered. This

ensured proper completion of the questionnaire. There were also open-ended questions intended to obtain further factors that may not have been listed in the likert scale-based questions. These open- ended questions also triangulated the responses, as it captured newer factors that had not been captured in the literature review. Secondly, the respondents could express the challenges and benefits in their own words to support further those explicitly stated in the questionnaire which may not have been clear to them.

Research Procedure

The pilot research was conducted by sending the online questionnaire randomly to some ten companies. The first few responses helped us to understand the benefits and challenges of an online survey system. A few by way of suggestions on grammar were also received from the respondents. The initial approach to send the questionnaire link was changed. The respondents were now first sent a request for their participation by email; upon receiving their consent, an email from the online survey portal was sent to them. The participants were also sent daily reminders to complete the questionnaire. The online questionnaire remained open for a period of four weeks.

Table 4Distribution of sample size by ERP System by timeframe

ERP Systems maturity Total Population % Respondents Actual

Respondents

Less than one year 50 14 7

1 – 2 years 50 8 4

2 – 3 years 50 10 5

Over 3 years 100 14 14

Total 250 12 30


The names of the prospective participants were solicited from the ERP systems business partner, the Internet, and from friends and col leagues. Over 50 par t ic ipants were approached, 45 of which were sent the link to the questionnaire; 30 responded by fully completing the questionnaire. Respondents who participated in the survey came from varied industries. There were 34 percent from trading, 33 percent from manufacturing, and 33 percent from services.

Data Analysis Methods

The first level of data analysis was done using tools provided by the online survey portal of Survey-Methods. However the further detailed analysis using Microsoft Excel was carried out to determine the distribution of extents of challenges and benefits of adopting an ERP system. The distribution of the extent was tested using the five likert scale instrument , where 1 represented “never”, 2 represented “little”, 3 represented “somewhat”, 4 represented “much”, and 5 represented “always”. Although the respondents answered descriptively, the analysis was done numerically in order to determine the average of the extent of these challenges and benefits. This provided results for research questions 1 and 3. These averages were further analyzed using the ANOVA factor methods to establish relationship with size and time. ANOVA factor 1 method was used to determine relationship challenges and benefits against size and time. This provided results for research questions 2 and 4. Finally ANOVA factor 2 was used to determine relationship between challenges and benefits. This provided results for research question 5 and 6.

DISCUSSION OF FINDINGS

Benefits of adopting an ERP System

Benefits were rated extremely high; this

indicated that ERP systems are well implemented and that businesses in Kenya are ready to adopt ERP systems. The top six benefits were rated on average between “much” and “a great deal” which is between 4 and 5 in the likert scale, as shown on Table 5. Table 6 shows that there were no significant differences in benefits as far as number of employees is concerned.

The research finding suggests that organizations adopting the ERP system will end up having a competitive advantage because the ERP system significantly improves: financial management, the decision-making process, speed of service delivery, control and monitoring, business process integration, planning & forecasting, performance management, business growth and corporate culture.

These benefits help develop a better organization in terms of structures, people, tasks and technology, through improved performance, better planning and control, enhanced operational efficiency, improved decision-making, and an improved culture. The economic impact would be that it would help reduce transaction costs and agency costs; this enables organization to expand and grow beyond its borders.

Certain benefits were not rated very high (3 – 4); these were: product differentiation, reduced cost of production, improved profitability, cost leadership, and improved quality of products. These operational and strategic benefits have not been rated high probably because Kenyan organizations have not realized that in order to reap value out of information technology investment, they also need to invest in complementary assets such as a new business model, new business processes, management behaviour, and organizational culture (Laudon et al., 2006).

According to Huang et al . , (2000a) environmental drivers, such as: economic growth, national IT infrastructure, government regulations, and regional environment, are also positive factors that contribute to the success rate shown by organizations in Kenya which adopt ERP systems.


There were some other benefits captured directly from descriptive responses given. These benefits are improved stakeholder relationship and

data integrity. These benefits can be grouped under “Organizational benefits” and “IT infrastructure benefits” in the five- dimension framework.

Benefits of adopting ERP systems versus number of employee in an organisation

Ratings Benefits of adopting an ERP system 0-50 50-250 250-1000 1000-

above Total

1 Financial Management Improved 3.429 4.333 4.571 4.750 17.083

2 Decision Making Process Improved 4.000 4.167 4.429 4.375 16.970

3 Speed of service delivery improved 4.143 4.167 4.286 4.375 16.970

4 Control and Monitoring Improved 4.000 3.833 4.429 4.625 16.887

5 Business Process Integration Improved 3.714 4.000 4.143 4.500 16.357

6 Planning and Forecasting Improved 3.286 4.000 4.143 4.625 16.054

7 Performance Management Improved 3.429 3.833 3.857 4.500 15.619

8 Corporate Culture Improved 3.857 3.333 3.571 4.000 14.762

9 Business Growth Occurred 4.000 3.500 3.286 3.750 14.536

10 Quality of Products Improved 3.286 3.333 3.143 3.857 13.619

11 Cost Leadership Improved 3.571 3.167 3.000 3.750 13.488

12 Profitability Increased 3.143 3.000 3.000 3.750 12.893

13 Cost of Production Reduced 3.000 3.167 3.000 3.375 12.542

14 Product Differentiation Improved 3.286 3.333 2.714 2.875 12.208

Total of Benefits Score 50.143 51.167 51.571 57.107

Table 5Extent of Benefits by size of Organisation (Mean Value)


Challenges of adopting an ERP System

The study reveals that organizations faced challenges; but the extent of these challenges was not very severe. Therefore most rated the extent of challenges as “somewhat” (Table 7). The trend on challenges was that it varied with the size of organization (Table 8). The study finds that key challenges for small to medium size organizations were classified as resource- based challenges, such as: lack of business process re-engineering skills; of project management skills; of vendor capacity; of software functionality; and of IT infrastructure. These challenges reflect on the following facts: that small organizations do not have budgets that enable them to employ high calibre resources; and that the vendors are also small companies and do not have the personnel to engage in in-depth ERP implementation process challenges, such as business process re-engineering and project management. Organizational challenges in small organization are minimal and do not significantly hamper the ERP implementation.

The medium to large organizations have both resource-based challenges as well as organizational-based challenges. These include the following: high staff resistance; and lack of IT infrastructure maturity, of computer culture, of business process re-engineering skills and of software functionality. According to Sawah et al. (2008), the success of an ERP implementation is based on the number of critical success factors, the number one CSF of which organizational fit, which includes business process re-engineering and software functionality:

Organizational fit to ERP package is proven to be the most important determinant of ERP implementation success. Although top management support was always the major success factor in the implementation of large customized systems, organizational fit to ERP (including BPR, minimal customization and careful package selection) has been superior factor in the implementation of packaged systems such as ERP” (Sawah et al., 2008, p.300)

Groups Count Sum Average Variance

0-50 14 50.144 3.581714 0.136398

50-250 14 51.166 3.654714 0.194291

250-1000 14 51.572 3.683714 0.424526

1000-above 14 57.107 4.079071 0.300128

ANOVA

Source of Variation SS df MS F P-value F crit

Between Groups 2.101135 3 0.700378 2.654601 0.058082 2.7826

Within Groups 13.71945 52 0.263836

Total 15.82059 55

Table 6ANOVA factor analysis of benefits by size of organisation


Lack of computer culture and of IT infrastructure, and high staff resistance are inter- related challenges, such that a company with poor IT infrastructure will therefore lack a computer culture. This leads to high staff resistance. All these issues are very dominant in a large organization. Large organizations are complex and the ERP

software for such organizations is also complex. This enhances the two aspects of challenges: one being organizational challenges and the other being technical challenges. According to Laudon et al. (2006) an information system is a socio-technical issue; it involves both technical and human behavioural challenges.

Challenges of adopting ERP systems versus number of employees in an organisation

Ratings Challenges of adopting an ERP Systems 0-50 50-250 250-1000 1000-

above Total

1 Luck of Business Process Engineering Skills 2.750 2.500 2.143 2.500 9.893

2 High Staff Resistance to change 1.875 2.333 2.000 3.625 9.833

3 Lack of IT Infrastructure maturity in your organisation 2.625 1.667 2.429 2.875 9.595

4Lack of Software Functionality in line with your business process

2.875 2.000 2.286 2.375 9.536

5 Lack of Computer Culture in your organisation 2.250 2.000 2.143 2.875 9.268

6 Lack of Project Management Skills 2.375 2.500 2.000 2.375 9.250

7 Lack of Budget due to Increased Costs 2.125 2.000 2.143 2.375 8.643

8 Lack of Vendor Competency in Delivering Solutions 2.375 2.333 1.714 2.125 8.548

9 High Staff Turnover in your organisation 2.000 2.000 1.857 2.125 7.982

10Lack of Management Commitment in driving the project

2.125 1.333 1.571 2.125 7.155

Total of Challenges 23.375 20.667 20.286 25.375

Table 7Extent of Challenges by Organization Size (Mean Value) Extent of Challenges by Organization Size (Mean Value)


Interdependence of Benefits

The study finds very interesting interdependence between various benefits (Exhibit 2). These relationships can help in building balance score card objectives.

For example, our study finds that control and monitoring has a strong positive relationship with decision-making process, planning & forecasting, financial management and performance management. This gives us a more clear understanding of management roles and what the key inter-related success factors for better management are. Financial Management, planning & forecasting, performance management, business process integration, decision-making process, and control and monitoring are interdependent factors; where planning and forecasting is common to all. Speed of service delivery has a strong positive relationship with business growth, profitability and reduction in cost of production. This clearly explains that operational excellence has an impact on the bottom line and the also on cost reduction.

Performance management has a strong positive relationship with planning & forecasting, financial management, decision-making process, business process integration & control and monitoring and quality of products. Apart from the factors earlier discussed more thoroughly, performance management leads to improved quality of products.

Business growth has a strong positive relationship with corporate culture, profitability, cost leadership, speed of service delivery, profitability and reduction in the cost of production. This is clear indication that business growth comes from improved profitability, which is a result of operational excellence and improved corporate culture.

Cost leadership has a strong positive relationship with profitability, reduction in cost of production and business growth. This is an obvious relationship whereby cost leadership is a result of reduced cost of production.

Profitability has a strong positive relationship with cost leadership, reduction in cost of

Groups Count Sum Average Variance

0-50 10 23.375 2.3375 0.107813

50-250 10 20.666 2.0666 0.137022

250-1000 10 20.286 2.0286 0.067254

1000-above 10 25.375 2.5375 0.222396

ANOVA

Source of Variation SS df MS F P-value F crit

Between Groups 1.72744 3 0.575813 4.309294 0.010724 2.866266

Within Groups 4.810366 36 0.133621

Total 6.537806 39

Table 8ANOVA Factor Analysis of Challenges by Size of Organisation


production, business growth, speed of service delivery and product differentiation. Reduction in cost of production has a strong positive relationship with profitability, cost leadership, speed of delivery and business growth. Production differentiation has a strong positive relationship with profitability. These are again operational excellence factors that have direct impact on the bottom line.

This outcome also explains the fact that ERP is a complete system that has the following components: transaction processing system, management information system, decision support system and the executive support system.

Interdependence of Challenges

The study finds very interesting interdependence between challenges (Exhibit 3). Lack of business process re-engineering skills has a strong positive relationship with lack of project management skills and lack of computer culture. This explains that an organization with a lack of computer culture will also have other skills shortfall, such as business process re-engineering and project management skills.

Lack of IT infrastructure maturity has a strong positive relationship with lack of computer culture and high staff resistance. The impact of this relationship was used in explaining challenges of medium to large organizations in the earlier section. An organization that has a lack of IT infrastructure maturity will lack a computer culture. This means that people will be more manual process-based; therefore there will be high staff resistance when implementing the ERP system.

Similarly, high staff resistance has a strong positive relationship with lack of computer culture. Lack of project management skills has a strong positive relationship with lack of business process re-engineering skills and lack of computer culture. Lack of computer culture has a positive relationship with lack of infrastructure maturity, high staff resistance, lack of project management skills, lack of management commitment and

lack of business process re-engineering skills. These are related and arise from lack of having proper investment in complementary assets such as improved business processes, new business model, training, and management commitment.

High staff turnover has a strong positive relationship to lack of budget. This is a very interesting relationship since high staff turnover will occur when organizations do not have the budget to pay employees well.

Organizational and technical issues are inter-related in forming the challenges to implementing ERP systems.

Relationship between Challenges and Benefits

The study finds that challenges such as lack of software functionality, lack of project management skills, lack of management commitment and lack of business process reengineering skills have a clear negative relationship with the list of benefits realized (Exhibit 4). This is in line with the list of drivers of the ERP implementation which includes: BPR experience, management commitment, computer culture, business size and IT maturity. According to Sawah et al. (2008), one of the critical success factors is organizational fit of the ERP package, which means lack of software functionality will lead to shortfall in reaping benefits. Similarly, lack of project management and business process management are part of organizational fit and will lead to a lower success rate in the ERP implementation. Moreover, management commitment is extremely important for successful ERP implementation. All these key success factors mentioned in almost all ERP challenges researches have shown a negative positive relationship with benefits as listed.

Trends of Benefits and Challenges with Time

The finding in this section was intended to establish the findings of Esteves (2009), that ERP benefits are realized in stages. This was established in the ANOVA analysis where the


benefits were significantly different in different years (age of ERP); whereas the challenges were not significantly different for different years. This prompted further frequency analysis of the benefits and the findings. It was revealed that from 0-1 year, the benefits realized were mainly managerial; from 1-2 years, the managerial and operational benefits became stronger; from 2-3 years the managerial and operational benefits had become stronger, with strategic benefits taking a higher position. For the period of 3 years and over, the three benefits were positioned systematically, with managerial benefits taking 1st position, followed by operational benefits and finally, strategic benefits. The pattern confirms the finding that there are stages in realizing ERP benefits, as suggested by Esteves’s study.

CONCLUSION

This qualitative study established benefits and challenges of implementing ERP systems for commercial organizations in Kenya. The results were consistent with the findings in the literature reviewed. The quantitative aspect of the research enabled us to measure the extent of these benefits and challenges; and to rate them, according to such factors as size of the organization and time. The relationships between the challenges and between benefits were also established; these relationships were consistent with many concepts and findings pertinent to management of information systems and business principles.

The key benefits of an ERP system are improved financial management, improved decision-making process, improved speed of service delivery, improved control and monitoring, improved business process integration, improved performance management, improved corporate culture, business growth and improved quality of products.

The key challenges to implementing an ERP system are: lack of business process, reengineering skills, high staff resistance, lack of IT infrastructure maturity, of software

functionality, of vendor capacity, of project management skills, of budget and of computer culture in organizations.

The benefits are interdependent among themselves, and so are the challenges among themselves, too. Finally, challenges have a negative relationship with benefits. Benefits change with the age of the ERP system; while challenges vary with the size of the organization.

RECOMMENDATIONS

These outcomes were derived from the small sample of 35 companies in Kenya which somehow have been successful with their ERP implementation. There may be many unsuccessful companies, but they may not have participated in the survey because the majority of these participant leads were provided by the vendor of the ERP software who, in most cases, would only share with us the names of success cases. This then would result in a bias in responding to the extent of the benefits and the extent of the challenges.

Future research could be done more randomly in order to capture unsuccessful companies as well. Future research could also look at details on how these challenges are resolved and how benefits are realized in more detail. Future research could improve the conceptual model and establish some kind of mathematical relationship between and among benefits and challenges, and between benefits and challenges.

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Exhibit 1 List of Participating Organizations

1. Africa Nazarene University

2. AKAMBA PUBLIC ROAD SERVICES LTD

3. Bamburi & Hima Cement Ltd

4. Brookside Dairy Ltd.

5. C Dorman Ltd.

6. Central Depository and Settlement Corporation Limited

7. Colgate Palmolive (East Africa) Ltd.

8. Comztek East Africa Ltd.

9. Crown - Berger (K) Limited

10. Davis & Shirtliff Ltd.

11. ESRI Eastern Africa

12. Frigorex East Africa

13. GlaxoSmithKline

14. Izon Future Systems Ltd.

15. Kenchic Ltd.

16. Kenol Kobil Ltd.

17. Kenya Ports Authority

18. Metropolitan Life Kenya

19. National Airport Service

20. Nairobi Water Company

21. Oserian Dev Co.

22. Osho chemicals industries.

23. PC WORLD

24. Property Development & Management (K) Ltd

25. Sasini Limited

26. Security Group (K) Limited

27. Syngenta EA Ltd.

28. Total Kenya Limited

29. Urgent Cargo Handling Ltd.

30. One respondent did not reveal the company name


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Impact of Adopting Enterprise Resource Planning Systems by ... · listed possible potential...

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