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ERP Adoption Lifecycle in SMEs

Moutaz Haddara

A focus on cost issues

Lecturer & Research Engineer, Department of Computer Science, Electrical and Space Engineering, Luleå University of Technology, Sweden.

+Agenda 1)  Presentation background

2)  Business Process and functions

3)  ERP Systems overview

4)  Research problem

5)  Research motivations

6)  Research questions

7)  Research results

8)  Future research

9)  Summary

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A little bit about me n  Name: Moutaz Haddara.

n  Country of origin: The land of Pharaohs.

n  Research interests: Enterprise systems, ERP systems, DB, benefits & costs management.

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Photo by Greg White

+Presentation overview

n  This presentation provides:

n  SME definition

n  A brief introduction to ERP systems;

n  An overview of ERP costs and benefits management challenges;

n  An example of research conducted during my PhD study on

Egyptian SMEs.

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+SME defined

n  According to CEC (1996), enterprises can be classified as

SMEs class when they have more than 10 employees but less

than 250 employees, together wit an annual turnover of less

than 50 million euro or 43 million euro on the balance sheet.

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+Single Department Business Process (BP)

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Employee Vacation Request

+Functional Areas

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+Cross-functional BP

Order Fulfillment Process

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Adopted from Laudon & Laudon. (2012), Management Information Systems, 12th ed., Prentice Hall, Essex.

+Enterprise Resource Planning (ERP) System

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Adapted from Laudon & Laudon. (2012), Management Information Systems, 12th ed., Prentice Hall, Essex.

+ES vs. ERP

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+Motivations for ERP adoptions

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Technical Operational Strategic

! Common platform & standardization

! Scattered & incompatible systems

! Database capacity overload and inconsistency

! Data visibility and transparency

! Enhance reporting ! Process

enhancements/best practices

! Improve financial management

! Ensure data security & control

! Partnerships & value

networks

! Facilitate enterprise

growth

! Enhanced decision making

! Globalization

! Compliance with

government regulations

(e.g. Sarbanes-Oxley Act)

! Cost reduction

! Enhance customer

responsiveness

+ERP Lifecycle

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ERP Lifecycle framework. Adapted from Esteves & Pastor, 1999.

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+Arguments for BR

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+ERP expected benefits n  Well-designed ERP system benefits:

n  Increased availability and timeliness of information;

n  Increased data accuracy and improved response time;

n  Enhanced logistics operations;

n  Improved customer satisfaction;

n  Increased employee satisfaction;

n  Improved planning and scheduling;

n  Enhanced supplier relationship;

n  Improved reliability of information;

n  Reduction in inventory costs and cycles;

n  Cuts in labor costs;

n  Reduction in order-to-fulfillment time;

n  Reduction in lead time.

§  Unified database;

+Why ERP in SMEs research?

n  ERP vendors’ focus nowadays;

n  Increasing number of ERP adoptions;

n  SMEs represent majority of enterprises in global economies;

n  Increasing number of alliances and value-webs;

n  In the case of Egypt, around 75% of total employment falls within SMEs category [1];

n  Limited resources;

n  Cost-sensitive;

n  ……

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+Prepare!

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When organizations take the first steps towards

implementing an ERP, they need to think about a lot

of things, foremost among which is cost of adoption.

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n  The ERP adoption has many variables and total cost will depend on:

n  Number of divisions it will serve;

n  Number of modules implemented;

n  Number of licenses;

n  Needed customizations;

n  Amount of integration with existing systems;

n  Existing IT infrastructure;

n  BPR;

n  Business engagement;

n  Etc…

What Does ERP Cost?

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What Does ERP ‘Really’ Cost?

+There is no such thing as a “free lunch”

n  Most of the ERP implementations projects fail because they have exceeded

their estimated budgets or behind their schedules [2], A.K.A exceeded their

estimated budgets.

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+The problem

n  ERP system adoption are very costly.

n  Failures within ERP adoptions in some cases have lead to the plunge of some companies [2,3].

n  Increasing tension between ERP clients and vendors or implementation partners [4].

n  There is an increasing number of law suit cases related to ERP’s erroneous adoption cost estimations [2].

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Source: Panorama Consulting Report 2011

+The problem

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n  Rigorous cost underestimations could happen due to unwarranted

optimism or opportunism in cost and schedule estimations, rather

than project management pitfalls [2,3].

+Research motivation - ERP cost management and estimation challenges

n  Research gap in ERP costs identification and estimation [2,5];

n  ERP adoptions frequently cross their estimated budgets [2];

n  Challenges in cost factors identification [6];

n  Unforeseen costs popup and/or escalate during projects;

n  Non-adequacy of current budgeting methods [5];

n  Misfit of established cost estimation models with ERP settings (e.g. COCOMO II) [2,5.7].

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+It’s all about costs!

“I can make more generals, but horses cost money.”

Abraham Lincoln

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+Publications included in thesis

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Publication Publication outlet

1 Haddara, M. and Zach, O. (2012). ERP in SMEs: An

Extended Literature Review. International Journal of Information Sciences (IJITS), 2,

(6) pp. 106-116.

2 Elragal, A. and Haddara, M. (2010). The Use of Experts

Panels in ERP Cost Estimation Research. Communications in Computer and Information Science

(Vol. 110, pp. 97-108), Springer.

3 Haddara, M. and Päivarinta, T. (2011). Why Benefits

Realization from ERP in SMEs Doesn't Seem to Matter?

Proceedings of the 44th Hawaii International Conference on

System Sciences (HICSS), Kauai, Hawaii, USA, IEEE

Computer Society Press.

4 Haddara, M. (2012). Exploring ERP Adoption Cost

Factors. Journal of Computer Technology & Applications

(JCTA) 3(3) (2012), 250-261.

Journal of Computer Technology and Applications (JCTA),

Vol. 3, 3, pp. 250-261.

5 Haddara, M. and Elragal, M. (2013). ERP Lifecycle: A

Retirement Case Study. Information Resources Management Journal (IRMJ), Vol. 26,

1, pp. 1-11.

6 Elragal, A. and Haddara, M. (2012). The Future of ERP

Systems: look backward before moving forward. Procedia Technology, Vol.5, pp. 21-30, Elsevier.

+Research Questions

Ø  What are the current issues discussed in ERP in SMEs literature?

Ø  What are the common ERP adoption cost factors between SMEs?

Ø  What is the priority of these cost factors? (ordered by cost impact on overall

costs)

Ø  Are the established budgeting methods suitable for ERP cost estimation?

Ø  Which costs unpredictably escalate? And why?

Ø  Whether and why SMEs would adopt formal cost management and benefits

realization practices in connection to their ERP investments?

Ø  How do organizations select their ERP systems?

Ø  How could the state-of-the-art technologies and methods enhance the ERP

adoption experiences in organizations i.e. SMEs?

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+Data Collection & Research Methods

The data collection efforts involved various stakeholders

including: SMEs’ representatives, implementation partners,

consultants and vendors.

n Experts panel (8 participants);

n Multiple case study. Four case studies in Egyptian SMEs (3 medium & 1 small);

n In-depth case study in one SME.

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+Research contributions…

n  Reviewed the current ERP in SMEs literature;

n  Identified and validated a list of potential cost factors that occur in ERP

adoptions;

n  Identified associations & relationship of cost factors with SME-specific

contextual characteristics, and other cost factors;

n  Ranked the influence of cost factors on the ERP adoption total costs;

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+Research contributions…

n  Recognized potential indirect costs;

n  Discussed Egyptian SMEs’ challenges with cost management and estimation;

n  Elaborated on benefits realization practices and issues in Egyptian SMEs;

n  Provided one of the very first ERP retirement cases in literature;

n  Presented suggestions on how state-of-the-art technologies could contribute to

future ERP implementations research.

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Sharing some reults

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+Literature Review

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+Literature Review

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+Literature Review

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+Literature Review

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+ 36

ERP adoption cost factors

+ 37 C

ost f

acto

rs ra

nkin

gs

& a

ssoc

iati

ons

+Benefits realization findings summary

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+Trending technologies/research areas

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+Proposed research integration

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As-Is ERP research

To-be ERP research

Implementation Lifecycle

CSF/PM

Benefits/Costs

History/Development

Social Networks

Cloud Computing

Enterprise 2.0

Decision 2.0

+SMEs re-defined

n  While conducting this study, however, I had difficulty in

classifying Egyptian enterprises according to these standard

classifications and characteristics.

n  For example, in Egypt, employees’ salaries and wages are

generally not high in typical SMEs in Egypt. As a result,

Egyptian SMEs might employ more employees in comparison

with, for example, European companies.

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+Contributions to practice

n  The research results could:

o  Help SMEs to clearly identify and visualize the potential cost factors;

o  Aid SMEs, consultants, and vendors to estimate budgets needed to adopt

ERP systems more realistically;

o  Avoid common adoption pitfalls.

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+Future research avenues

n  Check the validity of the cost factors list in other contexts (e.g. SMEs in

the Sweden);

n  Develop a novel ERP cost estimation model that targets SMEs;

n  Test the applicability of the cost factors and estimation model on large

enterprises.

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+Summary

n  This presentation:

n  Offered an introduction to ERP systems and their adoption in SMEs.

n  Discussed the current challenges with cost identification, management

and estimation efforts.

n  Presented the difficulties that SMEs face in the benefits realization

process.

n  Demonstrated a segment of my research efforts and findings in the

Egyptian context.

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Thank You

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Questions/suggestions?

+References

1.  El Gamal, M. A., N. El Megharbel, et al. (2000). Beyond credit: A taxonomy of SMEs and financing methods for Arab countries. ECES workshop, Mediterranean Development Forum - MDF, Cairo, Egypt.

2.  Jones, C. (2007). Estimating software costs Bringing realism to estimating. New York, McGraw-Hill Companies.

3.  Holland, C. R., & Light, B. (1999). A critical success factors model for ERP implementation. Software, IEEE, 16(3), 30-36.

4.  Haddara, M. (2012). "Exploring ERP Adoption Cost Factors." Journal of Computer Technology & Applications, 3(3): 250-261.

5.  Daneva, M. (2007). Approaching the ERP Project Cost Estimation Problem: an Experiment. Paper presented at the Proceedings of the First International Symposium on Empirical Software Engineering and Measurement.

6.  Irani, Z., A. Ghoneim, et al. (2006). "Evaluating cost taxonomies for information systems management." European Journal of Operational Research, 173(3): 1103-1122.

7.  Al-Mashari, M. (2002). Enterprise resource planning (ERP) systems: a research agenda. Industrial Management & Data Systems, 102(3), 165-170.

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