Critical Success Factors in implementing an ERP system : new insights into Critical Success Factors within a midsized production company

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Critical Success Factors in implementing an ERP

system: New insights into Critical Success Factors

within a midsized production company

Master thesis

Name: Mandy Zwarthoed

Student number: 10003169

First supervisor: dr. B. Qin

Second supervisor: dr. A. Sikalidis

MSc Accountancy & Control, specialization Accountancy Faculty of Economic and Business

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Abstract

Purpose

The purpose of the paper is to contribute to the deeper and richer understanding of Critical Success Factors of ERP system implementations in midsized

companies. This paper will do so by providing information about the differences in perspectives towards CSFs between users and managers, and differences in perspectives about the CSFs in different situations. The paper also provides information about the relation between User resistance theory, Social capital theory and the Organizational learning theory and views about critical success factors.

Design/methodology/approach

The research will take place within a midsized production company. Because the research questions can only be answered with detailed information about the subject in it’s context, qualitative research seems most appropriate. During an internship in the company, in-depth interviews with both users and managers will be conducted.

Findings

There turn out to be differences between perspectives of users and managers about certain critical success factors. Both the User resistance theory and Social capital theory can explain these findings.

Some critical success factors become more or less important in subsequent implementations. Management tends to underestimate some CSFs in subsequent implementations, although the factors remain important. These findings are not immediately supported by the Organizational learning theory, as initially

expected.

Practical implications

The observed data and the outcomes have the potential to help similar

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more knowledge by adding the perspectives of users and changes in importance of CSFs in different situations.

Originality/ value

There are a lot of studies towards Success Factors of ERP system

implementation. However, all these studies focus only on the perspective of management, users are often not included. This study gives a more complete view of the subject.

Secondly, there is no research towards the differences in importance of Critical Success Factors in new implementations (after initial implementation). This is the first research that tries to find useful information about this.

Thirdly, the research setting is unique as well. Little research is conducted in Midsized Production companies. Since they have a relatively small ERP system and less time and expertise available than some huge companies, they will face different problems during implementations. Therefore, this setting will lead to valuable insights for similar companies.

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2.3.5 Conclusion ... 20 3. Methodology ... 20 3.1 Introduction... 20 3.2 Research Questions ... 21 3.3 Method selection ... 21 3.4 Data collection ... 22 3.5 Company choice ... 23 3.6 Conclusion ... 24 4. Organizational background ... 25 4.1 Introduction... 25 4.2 General information ... 25

4.3 The organizational structure ... 26

4.4 The Implementation process... 27

4.5 The period after initial implementation ... 29

4.6 Conclusion ... 30

5. Case findings ... 30

5.1 Introduction... 31

5.2 CSFs in ERP system implementation from management’s and user’s perspective... 31

5.3 CSFs in ERP system implementation in different situations ... 44

5.4 Conclusion ... 56

6. Discussion ... 57

6.1 Introduction... 57

6.2 User resistance theory and Social capital theory ... 57

6.2 Organizational learning theory ... 60

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8. Bibliography ... 66 Appendix 1: Interview Guide ... 68

Figure 1: Research Areas ERP Studies 10

Figure 2: Organizational structure 26

Table 1: Interviewees information 23

Table 2: Oversight opinions of users and managers 43

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1. Introduction

‘The first 90 percent of the implementation accounts for the first 90 percent of the implementation time...The remaining 10 percent of the implementation accounts for the other 90 percent of the implementation time’ (ERP Quotes, 2010).

This quote gives an indication of the overall view on Enterprise Resource Planning (ERP) system implementations. Most large and many medium-sized organizations use ERP systems nowadays to collect, process and store data about their business processes, as well as to provide information reports designed to enable managers and external parties to assess the organization’s efficiency and effectiveness (Romney & Steinbart, 2012).

Although there are a lot of benefits of this system (Kanellou & Spathis,

2013), a lot of companies face problems with implementing it. Aloini et al (2007)

conclude that ERP projects are complex, costly and that there are hidden costs during the life cycle that dramatically increases the total implementation costs. In addition, there is a high failure rate. The implementation could easily result in partial failure or in some cases total desertion (Muscatello, Small, & Chen, 2003).

The success of the implementation relies on several critical success factors (CSFs). A lot of research towards these factors exists. According to

Grabski et al (2011), the most important factors are: Business processes, change management, user education and user acceptance. Other papers come up with some extra factors. For example: a clear understanding of strategic goals (Umble,

Haft, & Umble, 2003), top management support (Gargeya & Brady, 2005),

effective communication, project team, and cultural readiness (Motwani,

Mirchandani, Madan, & Gunasekaran, 2002).

Despite the above-mentioned research in the CSF-area, still a lot of questions remain unanswered. Grabski et al (2011) mention in their research a lot of remaining questions towards Critical Success Factors in ERP system implementation. Most of the existing research focuses on the top management’s view, the individual user’ insights are often missing. A question that can be

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derived from this is: “Does the perception about CSFs differ between top management and individual users?”

Another point is that we don’t know if different CSFs apply in different situations (Grabski, Leech, & Schmidt, 2011, p. 7). Therefore, the second research question in this paper will be: “Do CSFs in a first-time implementation differ from the CSFs for firms with mature ERP systems facing new implementations or updates?”

The focus of this thesis will be on these two questions that Grabski et al (2011) put forward in their paper. By using a case study-approach, insights into these new research areas will be provided.

This paper contributes to literature by extending the available information about ERP system implementation with the differences in

management and users’ view and the differences of CSFs in different situations. Similar companies that face the choice whether to implement an ERP system can take this information into account and increase the likelihood of a successful implementation.

The company chosen for this case study is a good environment to gain knowledge about these critical success factors. This midsized company is chosen because of the accessibility to all people within the organization and the right environment regarding developments in ERP systems. In this way, both perspectives of high level management and lower level employees could be analysed and different situations and stages of ERP system implementation can be compared.

It turns out that there are differences in perspectives towards CSFs between users and managers. The User resistance theory and Social capital theory can explain these differences to a certain extent. It is also found that management tends to underestimate some CSFs in subsequent implementations, although the factors remain important. These findings are not immediately supported by the Organizational learning theory, as initially expected.

This paper is constructed as follows: First, background information of ERP systems is explained. Then, the critical success factors and underlying

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company is given. The findings will be presented in paragraph 5. Followed by the discussion and conclusion in paragraph 6 and 7.

2. Literature review

2.1 Enterprise Resource Planning systems

2.1.1 Introduction

In this paragraph, the Enterprise Resource Planning system will be discussed in detail. The background of the system will be discussed, followed by definitions of an ERP system. Hereafter the advantages and disadvantaged of the system will be covered. And finally, the three research areas of ERP systems are shortly explained.

2.1.2 ERP systems defined

Most large and many medium-sized organizations use Enterprise Resource Planning (ERP) systems. By using this system organizations are able to collect, process, and store data about their business processes, as well as to provide information reports designed to enable managers and external parties to assess the organization’s efficiency and effectiveness (Romney & Steinbart, 2011).

Rosemann (1999) provides in his paper a definition of an ERP system. It can be defined as: “a customizable, standard application software which includes integrated business solutions for the core processes (e.g. production planning and control, warehouse management) and the main administrative functions of an enterprise”.

So it basically means that ERP systems are integrated information

systems that interconnect the different departments of an organization (Knotters,

Boonstra, & De Vries, 2009). An ERP system consists of different modules. These

are mostly:

• System tools: for establishing master file data/for specifying flow of information

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• Human resource and payroll

• Distribution/logistics: includes sales order entry, shipping, purchasing, receipt of inventory, inventory management and warehouse management.

• Manufacturing: includes production scheduling, bill of materials, work-in-progress, and other production-related activities. Because ERP systems integrate so many business activities, they are very complex. Implementation of the system has a huge impact on the whole organization. Considerable training and experience is necessary for the

individual users and management to master the portions of the system relevant to their specific job functions (Romney & Steinbart, 2011).

2.1.3 Advantages and disadvantages

Two major benefits of the ERP system are that it gives a unified enterprise view of the business that includes all functions and departments and that it provides an enterprise database where all business transactions are entered, monitored and reported (Umble, Haft, & Umble, 2003). The implementation of an ERP system could lead to more real-time information, increased flexibility in

information generation, improved decision-making, more accurate reports and the elimination of multiple data entry (Kanellou & Spathis, 2013).

However, there are reasons why not all companies are willing to implement the system. Aloini et al (2007) conclude that ERP projects are complex and costly. Hidden costs during the life cycle can increase the total implementation costs even more. There is also a high failure rate. The implementation could easily result in partial failure or even total abandonment (Muscatello, Small, &

Chen, 2003). According to Trunick (1999) 40% of all ERP installations achieve

only partial implementation, and nearly 20% is scrapped as total failure.

2.1.4 Three research areas in ERP studies

Grabski et al (2011) present in their paper an overview of the main research areas of ERP systems. The existing studies are mostly focusing on either Critical Success Factors, Organizational Impact or Economic Impact of ERP systems.

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Figure 1: Research Areas ERP Studies

Source: (Grabski, Leech, & Schmidt, 2011)

2.1.4.1 Critical Success Factors

Critical success factors can be defined as ‘those few things that must go well to ensure success for a manager of an organization’ (Boyton & Zmud, 1984).

The research towards critical success factors in implementing ERP systems often focused on the identification of the factors associated with

successful implementation. This has been done by either a case study or surveys

(Grabski, Leech, & Schmidt, 2011).

A set of factors that are crucial to the success of ERP implementation can be derived from the outcomes of these researches. These factors will be

discussed in detail in the next paragraph.

2.1.4.2 Organizational Impact

The second research stream of ERP systems is about the organizational impact of the system. ERP systems have a variety of effects on the organization. They could

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be used to help improve decision-making and as a way to restructure the organization (Grabski, Leech, & Schmidt, 2011).

The culture of the organization is an important factor in implementing an ERP system. According to Ke and Wei (2008), the success of ERP systems is dependent on how well the system matches the organizational culture. Organizational culture is seen as ‘the social glue that holds organizational members together and expresses the values, social ideals, and beliefs that members share’ (Ke & Wei, 2008, p. 209). The way people think has a direct impact on their behaviour. When the system conflicts with an organization’s culture, the people in the organization are not willing to accept the system. This could lead to a failure in implementation (Cooper, 1994).

2.1.4.3 Economic Impact

The Economic impact of ERP systems is another extensively researched area. Some studies focus on internal benefits, other studies focus on external benefits. Internal benefits can be measured by the use of the results reported in the organization’s financial statements. External benefits can be measured through the use of stock prices. (Grabski, Leech, & Schmidt, 2011).

Reaching economic advantages with an ERP implementation is the ultimate objective of organizations. The advantages could be cost savings, improved efficiencies, or better decision-making (Grabski, Leech, & Schmidt, 2011)

Hunton et al (2003) examined the impact of ERP adoption on both firm performance and market reaction to ERP implementation announcement. They find out that adopters of the system had better performances and market returns than non-adopters. In fact, the significant differences between non-adopters and adopters were a result of decreased financial performance for non-adopters while it held steady for adopters. This would mean that ERP implementation could lead to competitive advantage over non-adopters.

2.1.5 Conclusion

In this paragraph ERP systems are elaborately explained. Most large and many medium-sized organizations nowadays use Enterprise Resource Planning (ERP)

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data about their business processes, as well as to provide information reports designed to enable managers and external parties to assess the organization’s efficiency and effectiveness.

There is already a lot of research towards ERP systems. These existing research focuses mostly on the critical success factors, organizational impact and economic impact of the implementation.

2.2 Critical Success Factors

In this paragraph, the factors that are crucial for a successful ERP system

implementation will be discussed. First the CSFs that are described in literature will be discussed. The second subparagraph will cover the success factors that are especially important for small or medium-sized companies.

2.2.2 Critical Success Factors in general

There are a lot of Critical Success Factors of the implementation of an ERP system described in literature.

The most important success factors that come forward in the paper of Grabski et al (2011) are: business processes, change management, user education and user acceptance.

Umble et al (2008) add some other factors to this. In their opinion, a clear understanding of strategic goals, commitment by top management, excellent project management, a great implementation team, data accuracy, extensive education and training, and focused performance measures are the important factors for success.

Some other papers think the project team, cultural readiness (Motwani et

al, 2002), business plan and vision, teamwork and effective communication

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Although every research has defined it’s own critical success factors, there are a couple of factors that consistently come forward. These are the following factors, which will be discussed in more detail in the remaining section of the paragraph:

Business Processes

Top management support The implementation team User Acceptance

User Education

Understanding of strategic goals Project management

Business Processes

Implementation decisions determine the extent to which work processes will depart from past practices in favour of redesigned business processes or ‘best practices’. Organizations can customize their ERP system to a certain degree, to fit better in the organization’s practices. But major adjustments are complex and extremely costing (Chen, 2001). So most companies have to force changes in business processes and therefore changes in organizational routines, in order to let the system installation succeed. This is only possible if the people within the organization are prepared and willing to change (Grabski, Leech, & Schmidt, 2011).

Top management support

Successful implementation requires support and participation of top

management. The implementation requires fundamental organizational change. This cannot be accomplished without executive support, so the management should be involved from the beginning till the end of the project (Murray &

Coffin, 2001). The management has to be committed to enterprise integration,

understands ERP, fully support the costs, demands payback, and champion the project (Umble, Haft, & Umble, 2003).

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The Implementation team

In Parr et all (1999)’s study, 80% of the interviewees indicated that a balanced implementation team was ‘a necessary condition’ for a successful ERP

implementation. ERP implementation teams should consist of people with the suitable knowledge (about both ERP and the business processes), skills, past accomplishments, reputation and flexibility. Typically, the team consists of a project team including top management, IS staff, a project leader and key users selected from different departments (Wang, Shih, Jiang, & Klein, 2008). When a team is composed, they should be empowered with the responsibilities for the project (Umble, Haft, & Umble, 2003).

User Acceptance

The commitment of the users towards the system is very important. The

acceptance is based on the social context of the implementation. There appears to be a relative lack of attention to user acceptance, in determining the organizational consequences of ERP systems. This is unfortunate; social factors have been

demonstrated to have the strongest significant effect on ERP system usage (Chang, Cheung, Cheng, & Yeung, 2008)

User Education

Several types of knowledge are needed for adapting to ERP-induced change. For example: component knowledge and architectural knowledge of the interlinking subsystems and interdependencies occurring based on change (Grabski, Leech, &

Schmidt, 2011). User understanding and buy-in is essential and one of the most

important critical success factors, according to Umble et al (2003). Top

management should be willing to spend adequate money on education and end-user training. Reserving 10-15% of the total ERP implementation budget for training and education will give an organization an 80% chance of successful implementation ( (Umble, Haft, & Umble, 2003).

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Understanding of strategic goals

There must be clear definitions of goals, expectations and deliverables. Key people throughout the organization should create this clear, compelling vision of how the company should operate (Umble, Haft, & Umble, 2003).

Project management

In the paper of Ehie and Madsen (2005), project management turns out to be the factor that is most important in ERP implementation. High quality project

management means that there is a clear definition of objectives, development of a work plan and resource plan, and the project process will be carefully

observed. Following the step-by-step phase planning could lead to successful implementation (Umble, Haft, & Umble, 2003).

2.2.3 Critical Success Factors in small or medium sized enterprises

SMEs are defined as “ non-subsidiary, independent firms, which employ fewer than a given number of employees”. This maximum number varies. The most frequent upper limit is 250 employees. Small firms are firms with less than 50 employees. Whether a firm is a SME, can also be determined by financial assets. In Europe, SMEs must have an annual turnover that not exceeds €40 million and/or a balance sheet valuation that not exceed €27 million (OECD, 2000). For small or medium-sized firms a failed implementation can have large impacts. Because of their limited capital, smaller firms are less likely to survive or easily overcome a failed implementation than large companies. So it is important to focus on the specific success factors that could be different for SMEs compared to large firms (Muscatello, Small, & Chen, 2003).

A couple of studies examined if there are differences between the critical success factors of small or medium-sized companies compared to large

companies (Muscatello, Small, & Chen, 2003; Esteves, 2009; Snider, da Silveira, &

Balakrishnan, 2009).

Muscatello et al (2003) stated that small or medium sized companies have a greater need for top management support than large companies. Snider et al

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(2009) add to this that process discipline, high-capability project management and training are important for SMEs. Process discipline is comparable to the ‘project management’ factor described in paragraph 2.2. Companies with good documentation and consistency in the operational processes before

implementing the system, turn out to have more successful implementations. If the operational processes are not consistent, implementing the strict and consistent new ERP system will lead to implementation difficulties. Also a project management with high capabilities appears to be an important factor within SMEs. SMEs could achieve greater implementation success by choosing an external consultant as leader for the implementation project (Snider, da Silveira, & Balakrishnan, 2009).

A clear business plan and vision, top management commitment and support turn out to be the most important factors within SMEs in the research of Ganesh & Mehta (2010).

This paragraph explains the critical success factors in implementing ERP system. There are a lot of different success factors described in literature. However, a couple of factors consistently come forward. These are business processes, top management support, good implementation team, user acceptance, user

education, understanding of strategic goals and project management. There are some differences between large and small or medium sized enterprises (SMEs). For SMEs, especially top management support, clear business plans and vision and project management are important.

2.3 Underlying theories

A couple of theories that can be related to ERP system implementations will be presented in this paragraph. The first theory that will be discussed is the ‘user resistance theory’. Then the ‘social capital theory’ will be explained, followed by the ‘organizational learning theory’.

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2.3.2 User resistance theory

There are a couple of theories that indicate that there could be differences

between management’s perspective and the perspective of the actual users of the system. One of these theories is the ‘user resistance’ theory.

There are different kinds of resistances:

- Resistance to change: Persons within a company are often susceptible to changes. This is in line with the ‘Diffusion of innovation theory’. This theory suggests that every individual does not like innovations. So one person comes with something new, and he has to convince all the people around him. An ERP system can be seen as something the ‘management’ comes up with. After this idea and the development of the plan to

implement the system, the management has to convince the employees within the company of the success of the system. This requires the right approaches, in order to let the implementation succeed (Hornor, 1998). (Ross & Vitale, 2000)

- Intellectual resistance: There could also be resistance based on lack of knowledge about the new system. If you want lasting success with an ERP system, employees need to understand the general business processes very good. Not only the part of their responsibility, but also processes beyond their own activities. If employees know what consequences and meaning their activities have for the other users of the system, they could be more willing to use the system in the way they are supposed to do

(Ross & Vitale, 2000). Intellectual resistance could also be based on

certain characteristics of people within the organization. Age, gender, background, value and belief systems can all influence the attitude of people towards new (ERP) systems (Jiang, Muhanna, & Klein, 2000). - Resistance based on company culture and politics. Users don’t like to be

‘dictated’ by a computer. Management should introduce new systems with a user-friendly approach. Lot of managers talk about systems that

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‘enable’ change, instead of ‘mandating’ change, in order to influence the mood of the users (Ross & Vitale, 2000).

Management usually underestimates the importance of user acceptance (Lim,

Pan, & Tan, 2005). According to Hirschheim and Newman (1988) users

resistance can be seen as the primary reason for failed information systems. There could be resistance because of innate conservatism of people, lack of feeling the need for the change, uncertainty, and lack of involvement in the process of change or multiple other reasons. It is often the case that during the analysis and implementation the resistance is not coming forward (only available on the background) and when the system is running and problems occur the resistance will emerge. For example when the productivity turns out to be lower, lower effectiveness, higher labour turnover etc. (Hirschheim &

Newman, 1988).

2.3.3 Social Capital theory

Social capital theory provides a different insight towards management and users relationships. Based on this theory, there is not necessarily a difference in

perspectives. Social capital theory has been developed to explain social

relationships developed over time and provide the context for social interactions within and between organizations (Nahapiet & Ghoshal, 1998).

This theory can be used to examine the relationship between top

management and lower level users. An increase in social capital means that there will exist improved social outcomes, such as improved collaboration and

knowledge sharing.

The fact that this research is taken within a family company can potentially influence the degree of social capital. Relationships among family members are an ideal environment in which to create social capital. They can set a good example and be the foundation of moral behaviour for the rest of the organization. If family members are not only owners, but also situated in functions throughout the organization, they have the opportunity for social transactions with other members in the company. They can communicate specific information from management to these other people, which lead to an

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increase in knowledge sharing and collaboration. These specific characteristics give family companies the opportunity to have the most enduring and powerful forms of social capital (Arregle, Hitt, Sirmon, & Very, 2007).

So according to this theory, the view towards a new ERP system depends on the degree of social capital within an organization. Whether users of a new system accept the system or not can be explained by the degree of collaboration and knowledge sharing within the company. Because the case study takes place within a midsized family company, there is an increased chance that social capital exists.

2.3.4 Organizational learning theory

The ‘organizational learning theory’ could potentially serve in explaining if and why Critical Success Factors in a first-time implementation differ from Critical Success Factors in following implementations.

According to Scott & Vessey (2000) organizations must continuously learn and adapt if they are to prosper and survive in a business environment that is continually changing. So learning is an important component in order to

survive.

Organizational learning may take place in two ways:

1. Organizations may learn from their own experiences (experiential learning)

2. Organizations may learn from the experiences of other organizations (vicarious learning)

Attewel (1992) describes IT adoption process as a learning process. According to Sitkin (1992) organizations should seek to pursue the strategy of learning by experimentation, rather than seeking to avoid failure. That means that

organizations will sometimes fail, giving them the opportunity to learn from their failures.

He argues that ‘small prior failures’ will mean:

1. Deeper processing of information about potential problems 2. Greater recognition of problems based on past experience 3. Deeper levels of search

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4. An organization that is more flexible and open to change 5. A greater level of risk tolerance

6. A greater variety of personnel and organizational procedures 7. A greater experience available to address future problems.

This could also be translated into the ERP system implementation situation. After the first implementation, the company probably has to deal with implementing updated versions of the system, other type of system, new

implementations with acquisitions etc. Because they have more experiences with implementing a system, they could have learned from their mistakes and have a different perspective towards the new implementation.

In this paragraph theories related with ERP system implementation are

discussed. Based on the ‘user resistance theory’ and the ‘social capital theory’ we can conclude that there is a high probability of the presence of a resistance to change among users of a new system. This resistance is created because management and users have different views towards the system. However, management and users perspectives about the system can be aligned because of a high level of social capital within the company. This can be created by a lot of collaboration between management and users of the system, which seems achievable within a midsized family company.

A different perspective towards success factors in new implementations can be explained by the ‘organizational learning theory’. Organizations with more implementation experience could have learned from their mistakes and approach implementations different nowadays.

3. Methodology

3.1 Introduction

This paragraph covers the ‘what’ ‘how’ and ‘why’ questions surrounding this research. First the research questions will be stated. After that, the research

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method that is used, the way the data is collected, and the reason for choosing this specific company will be discussed.

3.2 Research Questions

Grabski et al (2011) explicitly discuss in their paper what kind of research towards ERP system implementation is still needed. As they say, most of the existing research towards critical success factors in ERP systems is based on top management’s view. The individual user’s insights are often missing.

Therefore, the first research question is: “Does the perception about Critical Success Factors differ between management and individual users of an ERP system?”

In this thesis will be investigated whether such differences in perceptions exist and if the findings are supported by either the ‘user resistance theory’ or the ‘social capital theory’.

Secondly, it is unknown if different critical success factors apply in different situations (Grabski et al, 2011). Therefore, the second research question in this paper will be: “Do CSFs in a first-time implementation differ from the CSFs for firms with mature ERP systems facing new implementations or updates?”

The views about success factors in these later stages will be compared to the views about the initial implementation. If these potential differences can be explained by the ‘organizational learning theory’ will be investigated.

3.3 Method selection

In this research, a qualitative method is used. The research will be conducted during an internship within a midsized production company. This allows me to have in-depth interviews to get a lot of insights into the research area. Because the research questions can only be answered with detailed information about the subject in it’s context, qualitative research appears to be the most suitable research method.

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3.4 Data collection

The interviews were taken with managers and users within the company. In total, 13 interviews were conducted. The management consists of 7 people, of which 5 are interviewed. Since the implementation team consisted of almost the same people as management, there is no distinction made in this. The 1 person that was in the implementation team, but isn’t part of the management team is therefore also marked as ‘manager’. The other 7 interviews were held among users from different departments. Every department will be represented by at least one person.

During the internship I had some unofficial conversations with other members of the departments to check if these people shared the opinion of the representative of their department to a certain extent.

I chose to only interview people that are an employee for more than 7 years. This means that they were in the company from the first initial idea and development of the system until the latest updates.

All interviewees were asked to talk about their experiences with and their views about ERP system implementations. The interviews were recorded on tape (iPhone) and the time of interviews varied from 30 to 60 minutes. After every interview I made a short summary and wrote down my thoughts about how to use the information that I just gathered. Then, all interviews were transcribed in Microsoft Word. After transcribing, the data has been coded, translated and analysed in Microsoft Excel.

Every interviewee got a unique code. This will make it easier to refer to the speakers in the rest of the thesis.

M = person from Management or U = user of the system And the speakers get a number from 1 – 13.

So a user of the system, which is working in the production department, is for instance marked as: U5. In the table below extra information about the

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Interview Number

Function Department Duration in minutes Code 1 Manager Innovation/ IT 39.26 M1 2 Manager Planning 39.12 M2 3 Manager Controlling 43.54 M3 4 User Sales 29.43 U4

5 User Production Seal 27.45 U5

6 User Administration 30.21 U6

7 Manager General Manager 33.08 M7

8 User Production Logistics 44.50 U8

9 User Production Extrusion 30.46 U9

10 User Production Printing 23,43 U10

11 Manager Sales 60.41 M11

12 User Controlling 28.56 U12

13 Manager IT 58.14 M13

Table 1: Interviewees information 3.5 Company choice

The research is conducted in a midsized production company. For companies like this, ERP systems are a relatively large investment. The choice whether to implement an ERP system or not is difficult, since failing would have large consequences.

The company has a system that is called Infor Syteline. This is a system that is specially made for production companies. Most of researches towards ERP system implementation focus on companies that implement SAP. This is a very large system that would be unsuitable and too costly for companies like this. With Infor Syteline it is possible to customize the system to a certain extent to the existing production processes in the company. In theory this would make the implementation easier. However, in practice there appear to be still a lot of problems and difficulties.

The process of implementing is also different for midsized companies compared to large organizations. They have less time, resources and expertise

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leads to other problems in implementation process. For other midsized

companies, research in this area is valuable for gaining extra knowledge about ERP implementation processes.

The research setting chosen is a good environment to come to an answer to the second research question as well. The studied company has an innovative character. Last year, they took over another company. The system had to be implemented there as well. A couple of months before this they had a very heavy update of the system, almost as radical as creating a new system. Everything had to be entered into the system again and all custom-made features had to be adjusted. At last, they are busy with a new project in Kosovo now. Here, a totally new system has to be created from the beginning. This will be a new adventure, where they have to deal with a whole different country and culture. These different circumstances allow me to investigate whether perceptions about ERP system implementations differ in different circumstances.

Finally, this company is interesting from a social capital perspective as well. It’s a midsize family company with a flat organization structure. This flat structure and the presence of family members throughout the organization could be a good environment to create social capital among employees. It’s interesting to see if this influences the perceptions about ERP systems or the attitudes of users.

3.6 Conclusion

In this paragraph the methodology of this research is described. The research questions in this study are:

1. “Does the perception about Critical Success Factors differ between management and individual users of an ERP system?”

2. “Do CSFs in a first-time implementation differ from the CSFs for firms with mature ERP systems facing new implementations or updates?” To come to an answer to these questions, a qualitative method is used. During an internship within a midsized production company 13 persons (both users and managers) will be interviewed. This specific company is chosen because of accessibility to all people within the organization, the typical problems due to

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being a midsized company and because of their innovative character, which led to the subsequent implementations.

4. Organizational background

In this paragraph more specific information about the studied company will be given. First, the organizational background and structure are presented. Then, the implementation process and the period after the first implementation will be discussed.

4.2 General information

The case study organization is situated in the Netherlands. It’s a midsized production company, called ‘Kivo’. The company is founded in 1966. Nowadays, the three sons of the founder govern the company. It didn’t take much time before Kivo became one of the leading companies in plastic packaging materials. They extended their activities further into Europe with the establishment of a network of sales offices throughout Western Europe.

Kivo is now one of Europe’s biggest producers of polyethylene packaging materials. Kivo’s products are used everywhere in Europe and with branche offices, agents and distribution in the Netherlands, Belgium, Germany, France, Poland, Iceland, Denmark, Russia, the Czech Republic and Ireland (Kivo, 2014).

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4.3 The organizational structure

Figure 2: Organizational structure

CEO Sales manager Sales department Planning Production manager Production department Extrusion Printing Sealing Logistics department

Controller _departmentFinancial

IT / Innovation manager

IT department

R&D Purchase

manager department Purchase

HRM Manager HHD Administration department = Management team = Departments = Sub-departments

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4.4 The Implementation process

Implementing the first ERP systems was a project that took a lot of years. The first meetings about ERP system possibilities started in 2005. Nobody in the company had any experiences with such IT systems. They used a very simplistic system without any interconnection between departments and hardly any information was entered into that system. Detailed information about

profitability of different products was hardly available; this was mostly based on averages and subject to judgment.

Management started with brainstorming about what they would like to have in the future. They would like to calculate price and time of delivery of an incoming order immediately. So when a customer calls, the sales person should be able to make an order. If a customer accepts the offer, the order will be put into the system. Cost price, raw materials available and needed and the time and planning of the order should then be determined by the system.

After these initial thoughts, management created a project group that could focus more on this idea. The project team got the task to decide what functions were needed and to describe all business process. The team then consisted of 4 persons from the company. For every department, a person was in the team to represent this department. The sales manager, production manager, IT manager and a controller formed the initial team. They knew what functions were necessary for the processes. The persons in the project team had their own business as usual as well. The implementation was seen as a ‘side project’, with meetings on a regular basis.

The project team started to look for a suitable system for their company. Most important was that the system had to have a good configurator and good planning possibilities. Infor Syteline came forward as the most appropriate one. Syteline is especially made for industrial manufacturing companies. They present themselves as a ‘robust ERP solution that is specifically designed with built-in best practices and highly efficient process flows to help manufacturers improve productivity’ (Infor Syteline, 2014).

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into the system. Took a lot of time. Along the way they found out that the consultants weren’t very qualified. They didn’t know the package well

themselves, since that just started with their job as consultant. Besides that, it was a very new update of the system. There were still a lot of bugs in it. Because the consultants couldn’t help a lot, every mistake and problem had to be

reported to a team in America. This was very time consuming and very

expensive. Every problem took a few months before it was solved. This delayed the process a lot.

It was two years after the first meetings when the project team decided that this wasn’t going to work. They hired a consultant from America that stayed here for a week or two. Then, they finally made progress. It turned out that they used the wrong approach, and had to start from the beginning again. This took another 6 months.

In the meantime, the expected date of starting with the new system was postponed again and again. The company hired an IT person that started to join the project team. His task was to make some reports that were suitable for the company. The initial idea was to hire this person for a couple of months, but the system provided so much IT work that he’s still working in the company now. At a certain point, at the end of 2007, they decided to go live. They had a relatively short period of testing. Every transaction was entered one or two times into the system, to see if it was working. Not everyone in the project team was happy with the decision to go live. Some persons said ‘we just do it, and will see what happens’, while others said: ‘we didn’t test enough, we’re not ready yet’. But because it had taken so much time and money already, management supported the first statement. In November 2007 they started to use the system.

This didn’t go very smoothly. There were a lot of problems in the

beginning, which led to frustration in the organization. The production process had to go on, so everyone had to find a solution to do this. Some departments used the old and the new system at the same time; to be sure data would not be lost. This was seen as a very stressful period. Especially for people in the project team. They had to fix all problems, apart from doing their own work. This led to a lot of overtime for some people; they were working on the details every evening. The adjustments that were needed afterwards did cost a lot of time and effort.

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The system is to a large extent adjusted to the wishes of the company. The initial idea was to use 90% of the standard system, but during the years more and more is customized. Nowadays it’s almost 50-50. This is reachable because the IT programmer that the company hired is able to adjust the system.

4.5 The period after initial implementation

There are three large events regarding the ERP system of Kivo in the years after the first implementation relevant for this research. These are the following:

- Update of the system in 2013 - Take over of another firm in 2014 - New fabric in Kosovo

The second implementation of this firm took place in 2013. There was a large update of the old ERP system. It was especially the project team that was responsible and had to spend a lot of time on the update. Initially they thought this would be a piece of cake compared to the initial update of several years ago. The project group came together again to talk about the update. The update was seen as a ‘on the side’-project. Every group member was very busy with it’s own business as usual. They though the implementation of the update was easy and wouldn’t cause a lot of problems. However, they underestimated this project. Because a change in software, all underlying processes of the system had to be replaced. Everything had to be entered into the system again. The system was customized a lot, so all that hand-made work had to be done again. This meant again a lot of overtime for the project team. Also at the work floor the

consequences were larger than expected. Things were not working anymore, or worked different than before.

The update was an improvement for the sales department. Their system is working faster now. This goal wasn’t reached for production and logistics department. Some even think the old version was better.

In February 2013 Kivo took over another company. This was a plastic production company in Zwolle (Netherlands). The idea was to implement exactly the same system as in Volendam. This system should go live in January 2014. They

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system and place it in the other company, but turns out this was more

complicated then expected. When the deadline was almost there, they decided to change a couple of things. They could have postponed the deadline, but decided to just go ‘live’. A lot of problems (mainly) due to this lack of time were the result. Too less business processes were tested. It also turned out that the people there have had too less education about the new system. They had no idea how to use it. Everything that could go wrong did go wrong. Kivo had to spend a lot of time on solving these problems afterwards.

Now, a project in Kosovo is started. A totally new fabric is built from the ground. This includes the implementation of an ERP system of course. The system of Kivo will be implemented there as well. This is a totally new situation, with new issues compared to the previous implementations. Have to hold into account the bad Internet connectivity, different culture, language barriers, etc. Kivo has planned to go live next year. They already had the first meetings. The partner in Kosovo has an own IT company. He will set one of his employees on the project (full time); which was a shortcoming of Kivo in previous implementations. The plan is to have a longer testing phase now. Management thinks they are better able to handle the implementation. Mainly because they learned from their mistakes and have more experience now, but also because the partner in Kosovo already has a lot of IT knowledge and thus is able to support the project.

4.6 Conclusion

In this paragraph the background information of the case company is discussed. First, the company’s business and the organizational structure are explained. Then, the first implementation of the ERP system and the subsequent

implementations are described.

5. Case findings

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In the next paragraphs the findings of the interviews are described. The

perceptions of the management and users of ERP systems within the company will be explained. Questions that are integrated in the findings are:

- What does management think about the ‘most important’ CSFs described in literature?

- What do users think about the same CSFs?

- Were these factors available in the company at the time of the first implementation?

- Are the same things important in subsequent ERP system implementations?

- Did the organization learn from first implementation?

5.2 CSFs in ERP system implementation from management’s and user’s perspective

In this paragraph the different views about the most important Success Factors regarding ERP system implementation are compared. The goal is to find whether there are differences between the vision of management and the users. At the end of the paragraph the overall opinion of management and users are presented in a table.

Business Processes

The factor ‘Business processes’ covers the extent to which an ERP system fits into your existing business processes. Organization can customize their ERP system to a certain degree to fit better in the organization’s practice, or force changes in the business process to better fit the system (Chen, 2001).

During the interviews and internship I experienced that the ERP system of Kivo is very much customized. They chose the Infor Syteline system, because

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It turns out that the overall opinion is that Kivo has such a complicated production process that it wouldn’t be possible to use the standard system. As one of the persons from management says: ‘you always have the intention to

adjust the processes towards the new system. But this is often not possible. It's a complex system and a complex environment. It will not work when you don't adjust it to the situation of the company’ (M1). The manager of sales department

supports this view. He points out that the company has a lot of different

machines, with all different characteristics. A standard system for this is hard, or even impossible, to find. The possibility to customize the system was also the reason management choses the Infor Syteline package.

But the adjusted system doesn’t mean that it is easy to implement and that everything is working flawless. As a manager says: ‘Getting used to a new

system requires a lot of effort anyway. Although we could adjust it to existing processes, a lot of processes still changed. Users needed to do a lot of extra checks, extra proceedings. And the new system was initially much slower than the old one, because so much information is processed at the same time’ (M2). This quote

indicates that the amount of change in working activities has a great impact on users, which makes the process of implementation always a difficult thing.

About the importance of business processes in implementation successfulness another manager says: ‘I don't think the extent to which the

standard system fits in your processes is the most important issue. You just

determine what you can use from the standard ERP system. And the rest you adjust’

(M3). But not anybody agrees with his opinion. The customized system does also bring some problems with it. Some users express their concerns about this. As a user from production department says: ‘in my opinion, the system isn't stable. It is

too much customized. They customize it with the best intentions, but I think this makes the system less trustworthy. You should find a suitable system and adjust your processes towards the system, instead of the other way around’ (U7).

However, management don’t think users should be concerned about this. The IT-manager says as a response to the previous quote: ‘we modified a lot of

the standard procedures and modules of the system. This is nice for us, but when you have a problem Infor doesn't support it. Therefore, we can always go back to the standard when this would really be necessary. So I don’t really see the danger in

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this’ (M13). Whoever is right in this issue is not something that is of concern for

this study. The point of interest here is only that some users and management have different opinions about the extent of customization of the ERP system.

Another point of critique that is brought forward by a couple of users is that the whole system of Kivo depends too much on the one IT person that can adjust the ERP system. ‘We rely too much on 1 or maybe 2 persons with IT

knowledge. If they would leave the company, nobody understands how the system is built anymore’ (U7). A manager of sales department also says: ‘the reliance on our programmer is a real danger for Kivo. Of course everyone can be replaced when this would be needed, but I think it could cause a lot of damage to Kivo. Maybe we need an extra IT person. The IT department is very busy, a lot of opportunities to improve the system, but there is no time to work on it’ (M11).

The programmer himself doesn’t deny this. ‘That’s true; I’m the only

person that knows how to do some things within the system now. It’s flattering that people say I’m indispensable, but I understand that this is not a good thing for Kivo. I know I have to document all adjustments, so that another person can just read what has been done. We didn’t do this a lot in the past, but I know it’s important so I’m working on it.’ (M13). Since everyone seems to agree on this, it is a point the

company should consider for future practices.

Another point about the fit of the ERP system in business processes that caused attention during the interviews is the difference about the views between users from production and users from other departments.

The production department doesn’t think the system fits into their processes. As one user from production says: ‘the sales department is happy with

the system. But it’s awful for the work floor. Management didn’t think about our processes. I think there should be a system that fits better into the production processes’ (U8). And another worker from production departments says: ‘the system is way too complicated. I’m sure there is a system that is better for production department. We need a system that is simple’. Users from sales and

administration department say that although the system was very slow in the beginning, it did fit their needs and wishes.

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organization. (The users from other departments will further be named as ‘sales department’, since the opinions of these other users are aligned with users of sales.) Management and users from sales department think it’s a suitable system that fits the organization well after lot of adjustments. Users of production don’t agree with this. They think all adjustments made the system less reliable and think that there must be a system that is more simple, worker faster, and is (without tons of adjustments) also aligned to their business processes.

Top management support

Participation and support from top management can be crucial for successful implementation of ERP systems. The implementation requires fundamental organizational change, which cannot be accomplished without executive support (Murray & Coffin, 2001).

At the time of the first implementation the father of the current owners was in charge. He didn’t know much about IT and didn’t see why it was really necessary. But besides this, there was a lot of overlap between people in management and implementation team. So it was management’s choice to implement such a totally new integrated system. The son of the director, head of sales department at that time, could convince his father about the necessity. He says about

management support: ‘my father didn't know why this was so important. He

preferred investing in a new machine. With a machine you invest a certain amount of money, and immediately get revenues from it. With an IT system it isn’t that straightforward. But we thought it was really necessary. And the system brought us a lot of advantages eventually. But if management doesn't believe in this, they won't spend so much money and effort and time on it. So it is really important’

(M7).

All other people in the organization confirm that management really supported the new system. That this is an important factor for success is also consistently confirmed. A manager that was joining the project team as well says: ‘Management totally supported the project. And that is very important; since they

have to invest money, make people available for the project, etc. Without support from them, there is not a change that the implementation will succeed’ (M2). A

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member of the project team adds one remark to this: ‘Management gave 100%

support. But there is one thing that could be blamed to management. At a certain point of time, they kind of forced the project team to go 'live' at a certain point. In my opinion, that was a wrong decision. They didn't want to spend more time on the project, but we weren't ready.

The users don’t doubt the support of management. They all say that

management knows everything about the system and are able and willing to help users in answering questions or solving problems. Although one user says: ‘it can

take a lot of time before we get answer to our questions. Also when we have a request for adjustments in the system, the IT manager is always too busy to help us. Maybe management should hire an extra IT person, in order to give us more

support in solving daily issues’ (U5).

So everyone in the company confirms that management support is important. When management doesn’t support the system, they would never spend so much money and time on the project.

The Implementation team

An ERP implementation team with a lot of knowledge about both ERP and business processes is very important for successful implementation. Typically, the team consists of a project team including top management, IS staff, a project leader and key users selected from different departments (Wang, Shih, Jiang, &

Klein, 2008).

Both management and users are convinced that a good implementation team is important for successful implementation. However, their definitions of a good implementation team differ. With companies as Kivo, projects like this are often seen as side project. Most people of the implementation team had their own business as usual as well. Some people from management and project group themselves say: ‘this is a very important factor. Our implementation team spent

many(!) hours to make the system work. Every process had to be described and translated into a working paper for the new system. Full 100% commitment.’ (M1),

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the test phase. Every department should give feedback. But you can’t test it totally, you don’t see the problems until the system is running and everyone is using it’

(M2). These opinions all confirm that the implementation team did the best they could. But commitment and knowledge about processes in the company aren’t the only factors that should be available in a good implementation team. According to Wang et al (2008) a good implementation team consists of people from management, IS department, a project leader and key users from different departments. In the interviews with users it came forward that they weren’t much involved in the process. Like one user said: ‘we had a team with a lot of IT

knowledge that created and implemented the system. We, as users, didn’t have a say in this. We knew there was a new system coming, but only 1 or 2 weeks before the implementation we saw it and tested it for the first time’ (U6). Another user

says: ‘the logistics department clearly wasn’t represented in the implementation

team. I guess they ‘forgotten’ us. Looked like we were a department that didn’t need much attention; that the implementation in our department would succeed

anyway. But the team didn’t hold anything into account and a lot had to be adjusted afterwards’ (U8).

So users in the company seem to be not involved in the implementation process. Some people say that this is a pity. Other people are indifference about it, like person from sales department that says: ‘the right people were in the team,

I guess. I don't exactly know how the team was built (U4). A person from

administration says: ‘I don’t think it matters that we didn’t had something to say.

They have more IT knowledge then us, so they should decide (U6).

What seems to be an overall problem of the implementation project is the test phase that was too short. Too little processes were tested before going ‘live’. Some people think this is a shortcoming of the implementation team. Like this manager that says: ‘a good implementation team should also know that they have

to spend a lot of time on testing. And although we had a team with lot of expertise, this step was undervalued. Two persons from team tested the system a bit. But they didn’t test it with more than 1 user at the same time, in the departments’ (U3). He

also thinks that a good implementation team is the most crucial factor for successful implementation. ‘If the team is good: they have a good planning, know

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that user acceptance and education is important, know what goals to achieve, etc, etc..’ (U3).

The members of the team assign these shortcomings in testing to ‘lack of time’. This is quite reasonable. Almost all people of the project team had there own business as usual as well. The ERP project was seen as a side project.

General manager of the company and member of team at time of implementation says: ‘it would have been better if project group members were totally focused on

the project. But that's difficult in a relatively small company. We scheduled too less time off for the people in the team. Time is essential for success. People in the project team should only focus on the project, instead of keeping their own daily business as well. We could have a better testing phase then as well. Ours was not good enough’ (M7

So every person in the company confirms that a good implementation team is important. However, the idea of what a good implementation team is and the opinions about if this team was available in the company differ.

User Acceptance

Management appears to have a relative lack of attention to user acceptance, in determining organizational consequences of ERP systems. However, social factors could have significant effects on ERP system usage (Chang, Cheung,

Cheng, & Yeung, 2008).

Most members of the management team admit that they didn’t hold this factor into account while implementing. As one person says: ‘I don’t think this is

important for success. The people in organization don’t have a choice, have to use it’ (M1). Supported by: ‘some people benefit from the system, some don’t. The people who don’t will not like the system. But once the system is there, there is no way back. They have to get used to it’ (M3).

Among users there is a clear distinction between users from production department and from other departments like sales. A sales person says: ‘the

implementation was very time consuming and everything was totally new. We implemented it in the Christmas holidays, because that was a period without many

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customer orders. We had to do a lot of extra work that period. But I didn’t see that as a problem. You have to bite the bullet, before you see the benefits...’ (U4). Other

people at the sales department confirm that there wasn’t a lot of resistance at the time of implementation. They knew that a new system was necessary. And

although the system was very slow in the beginning, it did improve the working processes for sales department.

Users from the production department on the other hand are way more negative: ‘the system was a great deception. Management tried to make us

enthusiast, but for nothing. We have to use it, but I really don’t like the system’

(U5). Or as another user said: ‘Users were not hold into account in designing the

system. Implementation team didn't look from the perspective of people on the work floor. This led to some resistance at first. But we knew that the production had to go on. So you work together to let it succeed’ (U9).

Management didn’t think or still doesn’t think that user acceptance could become an important issue. In this case, the users did the best they could, despite the fact that they hated the new system. However, all production users think that management should have put greater effort in recognising the wishes of users. General manager of the company does acknowledge that they should have paid more attention to this factor. ‘After almost 7 years, there is still resistance at

production department. They are working with it, but call it ‘Shitline’. If we should include people from the work floor in the implementation/designing process, this could lead to more acceptances I guess. If something isn’t working then, it’s

different as when you just confront them with a new system’ (M7). IT programmer

of the company says: ‘People don’t like it to face a system that is totally new. They

don’t know how to use it and when something goes wrong, IT department is always the one to blame. That’s just the interaction between users and developers.

Acceptance is difficult!’ (M13).

User Acceptance is thus approached differently. Management has the opinion that user acceptance isn’t a big issue, since users just have to use it: there is no way back. Users at the sales department do think that an implementation is difficult, but they recognise that it was necessary. Users at production

department were not really happy with the system. They think it’s not working well and would like to have a better system.

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User Education

User understanding and buy-in is essential and one of the most important critical success factors, according to Umble et al (2003). Top management should be willing to spend adequate money on education and end-user training. Reserving 10-15% of the total ERP implementation budget for training and education will give an organization an 80% chance of successful implementation (Umble, Haft, & Umble, 2003).

There was very limited training for users, before the implementation. The idea of management was that the best way to learn it was in practice. One of the

managers says about education: ‘the user has to be able to work with the system,

but I don’t think this is crucial for implementation. Users will learn how to use the system, that happens anyway’ (M1). Another manager acknowledges that more

education could have been better. ‘We said: ‘Now it’s working, let’s implement it!’

But people experienced problems and didn’t know how to approach this, because they had too less understanding of the system’ (M3). The general manager of the

company would do it different now he says. ‘We’re not a very large company, so

our education and test possibilities are limited. But if we had let every person in the company work with the program for one day in order to test and learn to

understand it, the results would have been much better. A better understanding could lead to fewer problems. But not only extra costs due to problems were an issue. Frustration among employees is hard to express in numbers, but a very negative consequence as well. We could have done this better and prevent this by giving more education upfront ’(M7).

The users however, don’t think education is very important. Both users at the production department as users at other department agree upon this. As one person from sales department says: ‘the system was just implemented, and we

would learn by doing. I think that’s the best way. Learning in practice is more efficient than learning in theory. Although there are still people that don’t exactly know what they are doing exactly when they enter something in the system. It would be better if they knew the underlying processes’ (U4). A production worker

Critical Success Factors in implementing an ERP system : new insights into Critical Success Factors within a midsized production company