Master Thesis ERP in the service sector: A review of the implementation and CSFs

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Master Thesis

ERP in the service sector: A review of the

implementation and CSFs

University of Groningen Faculty of Economics and Business

MSc Supply Chain Management

June 23, 2014

THEODOROS RODARAKIS

Student number: 2517019

Email: t.rodarakis@student.rug.nl

Supervisor: Prof. Jan De Vries

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Abstract

Over the years ERP have received much attention in the service sector since organizations are increasingly implementing ERP, a software package that it was first aimed to fulfil the needs of manufacturing companies.Critical success factors of ERP implementation have been widely used and researched in the context of manufacturing. However, there are no studies concerning the critical success factors in the service sector. The purpose of this study is to determine the CSFs in the service sector, present a review of what has been discussed in the literature about those factors, and indicate the influence of CSFs on implementation success of ERP. An extensive literature review was conducted as a research methodology .Data for this study was collected from recognized academic databases and journal articles related to ERP in the service sector. The findings include a review of the 58 selected papers and an analysis of the Strategic and Tactical critical success factors .The results of this study have provided a very useful reference for scholars and managers to identify the relevant CSFs of ERP projects in service settings and to understand the influence of these factors in the implementation success of ERP. Moreover, guidelines are provided, acting as a checklist, for managers interested in

implementing ERP systems in the service sector. Finally, further research is needed concerning the service characteristics.

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1. Introduction

ERP is the single biggest information technology (IT) investment an organization can make (Teltumbde, 2000; Chang et al, 2008). It is a software package that integrates information from all departments and functions of a company into a single computer system that can serve all different departments’ needs (Botta-Genoulaz and Millet, 2006). ERP systems institutionalize the sharing of resources by requiring the consolidation of diverse and decentralized computing platforms, data models, and functional processes in order to improve operational efficiency (McNurlin, 2001). The basic ERP concept of a single-vendor, pre integrated suite of packaged business applications has made headway in non-manufacturing markets such as retail, financial services, and the public sector (Panorama ,2011).Although ERP systems were developed for manufacturing companies, service organizations are implementing ERP systems more and more (Botta-Genoulaz et al., 2006;Nah and Lau,2001;).

While there is substantial evidence that enterprise resources planning (ERP) systems can deliver related improvements, the implementation of these systems is a very difficult and risky

process(Hakkinen and Hilmola,2008).Moreover, the service sector differs from manufacturing as, Karmarkar and Pitbladdo (1995) state that service operations hold a lack of inventories, consumer contact, joint production, customer-specific inputs and intangibility. Verma and Young (2000) argue that the service sector is highly labor-intensive and state that characteristics like labor intensity and customer contact differentiate the procedure of implementation of ERP systems from what has been used in manufacturing sector. While is possible to integrate all departments in a production company, that is no possible for service firms (Boota-Genoulaz, 2006).

Due to the fact that ERP was originally produced to fulfil the needs of manufacturing companies the vast majority of literature researches Critical Success Factors (CSFs) in manufacturing sector. In spite of the explosive growth of ERP and the belief among organizations that ERP systems enhance performance (Hatzithomas, Stamelos, Fotiadis, & Mylonakis, 2007), there are limited studies on CSFs ERP in service sector and the majority of those available are in the exploration phase based on case studies. To the best of our knowledge there is not an extensive up to date study of the CSFs of ERP systems in the service sector and how these factors fit in the service context and influence the implementation success. Finney and Colbert (2007) state that there is limited research that has attempted to produce a collection of CSFs in sectors other than manufacturing. Botta-Genoulaz et al., (2006) stated that ERP in the service sector is a new area and little theoretical research exists on the topic. The same author argued that the need for such studies has become apparent. Moreover, the identification of CSFs is essential for the persistent survival of an organization. ERP systems, if appropriately designed and managed, can lead in meeting organization goals (Trimmer et al., 2002).So, with service organizations increasingly opting to implement ERP systems (Raymond et al., 2005), there is an increasing need to understand the CSFs in that sector. The main objective of this study is to address an integrative and detailed review of the critical success factors and define their influence on the

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6 influence of these factors during the implementation of ERP systems by organizations in a

service context.

In order to fill the theoretical gap concerning the CSFs of ERP implementations in a service context, we formulated the following research question(s) that facilitated us to fulfill the aims of our research. First, an analysis of the critical success factors of ERP in the service sector need to be addressed. As a starting point we posed the following research question:

RQ 1. What are the key critical factors for ERP implementation success in a service context? Following the next question, we continued to investigate how these Critical Success Factors influence the implementation success of ERP systems. As note earlier, studies have reported the influence of CSFs on the implementation success, however, most of them focused on the

manufacturing sector, or, when they incorporated both manufacturing and service organizations, they did not distinguish between the two sectors in the analysis. In order to fill this gap, we posed the second research question as follows:

RQ 2: How these Critical Success Factors influence the implementation success of ERP systems in the service sector?

The third question was focused on examining the relationship between service characteristics, CSFs and implementation success in the service sector. Since, service sector has some

particularities, we expected that these service characteristics influence the CSFs, hence it will also influence implementation success of ERP.

RQ 3: What is the relationship between the service characteristics, CSFs and implementation success of ERP in the service sector?

In pursuance to fulfil our aims and to answer our research questions, the literature on the subject was extensively researched. A literature review was utilized as the methodology to answer our questions. Well known academic databases were picked to act as warrant of the quality of our study. Each of the articles used in this study have been examined in order to ensure that it is content-related to ERP implementation in a service environment. In regard to the theoretical contribution, this research enriches the understanding of ERP implementation and sheds light on the critical factors that affect the success of implementation in the service sector. According to Scoot and Shepherd (2002) the interest of service organizations in ERP systems is high, since 59% of service companies utilize ERP. Therefore, the results of our research will also have practical contribution. Guidelines are provided to act as guidance to stakeholders (managers, IT professionals and consultants) concerning the critical factors which can positively influence the implementation success of ERP. The outcomes of the study may also be beneficial also for managers of manufacturing firms who want to implement ERP, since there is a shift towards servitisation and some of the factors recognized in our study could have an importance to them.

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2. Theoretical Framework

In this chapter, key concepts of the study are introduced and discussed. First, there are the

definitions, benefits and disadvantages of ERP systems.Moreover, there is a discussion about the CSFs, characteristics of the service sector, and implementation success of ERP in the service sector in order to enable the understanding of the constructs utilized in our research.Finally, the conceptual model, which guided our research questions, is presented in the last paragraph.

2.1 Enterprise resource planning systems

Enterprise resource planning(ERP) systems are comprehensive ,packaged software solutions that seek to integrate the complete range of a business processes and functions in order to present a holistic view of the business from a single information and IT architecture (Klaus et al, 2000). Successful implementation of an ERP system can reduce inventory, production, shipping, labor, and IT maintenance costs and thus lead to greater effectiveness and a better competitive edge in terms of improved strategic initiatives and responsiveness to customers (O’Leary, 2000; Sandoe et al, 2001; Bharadwaj et al. 2007). Shehab, Sharp, Supramaniam and Speddings (2004) state that ERP was traditionally applied to capital-intensive industries such as manufacturing, construction, aerospace and defense , but finally systems expanded over beyond manufacturing and introduced to the finance, health care, ,hotel chains, education, insurance, retail and

telecommunications sectors. Dillon (1999) define some functions that can be supported by an ERP system:

Financials Human Resources Operations and

Logistics

Sales and Marketing

Accounts receivable and payable Human-resource time accounting Inventory Management Order Management

Asset accounting Payroll Materials

Management

Pricing

Cash Management and Forecasting

Personnel planning Plan maintenance Sales

Management Cost-element and

cost-center accounting

Travel expenses Production planning Sales planning Executive information system Project Management

Financial consolidation Purchasing

General ledger Quality

Management

Product-cost accounting Routing

Management

Profitability analysis Shipping

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8 Several authors have studied the most important attributes of ERP (Nah et al, 2001; Soh et al 2000).ERP software automates and integrates business processes across organizational functions and locations. Additionally, it facilitates implementation of all variations of best business

practices with a focus on enhancing productivity of the organization. Moreover, it is noted that ERP produces and accesses information in a real-time environment not only to be able to facilitate rapid and better decisions, but also to reduce related costs. Shang and Seddon (2000) provide a unique classification of the benefits of ERP systems. They classified the benefits provided from ERP systems according to 5 dimensions for better understanding. The first dimension is operational benefits which include cost reduction, cycle time reduction,

productivity improvement, quality improvement and customer sales improvement. The second dimension is managerial benefits consisted of better resource management, improved decision making and planning, and improved performance. Strategic benefits are the third dimension which constitutes supporting business growth and business alliance, build of cost leadership and product differentiation and customization.IT infrastructure benefits, as the fourth dimension, includes cost reduction of IT platform and business flexibility for change management. The last dimension proposed by Shang and Seddon (2000) is organizational benefits like employee learning, share common vision across the boundaries of the organization and helping change management to enable organizational changes.

Studies have illustrated that an ERP system is not just a pure software package to be tailored to an organization but an organizational infrastructure that affects how people work and that it “imposes its own logic on a company’s strategy, organization, and culture” (Davenport, 1998; Lee and Lee, 2000). ERP systems have not only advantages but also disadvantages over several aspects. There are always two sides to the story (Nah et al., 2001) Adam and Doherty (2000) state that ERP projects are large, costly, difficult and require vast investment in capital and staff and management time. Shehab, Sharp, Supramaniam and Spedding (2004) define the negatives of the ERP systems according to certain categories. The first category covers costs and

implementation. ERP software is very costly, may be beneficial for large companies only and the implementation process could consume considerable time. The next category considers

functional disadvantages. ERP systems are characterized as dysfunctional for handling earned value, percentage complete, and cost forecasts in determining project progress. Moreover, they miss functionality for handling project work breakdown structures, scheduling and budgeting. With reference to technical disadvantages, the main problem is the non-integration between an ERP and non-ERP systems. There are deficiencies in data interfaces, input, and handling by an ERP system. Another technical problem is when an outside document needs to be managed and processed by an ERP system. On the subject of usability Shehab, Sharp, Supramaniam and Spedding (2004) conferred that the learning curve is too high and user-friendliness exists for occasional user only, input in the system is not always logical and report terminology can be extreme difficult to understand. Finally, the state that the accounting rules are difficult to understand and training is prerequisite.

After discussing the benefits and disadvantages of the ERP systems it is crucial to mention why firms choose to implement them after weighting the pros and cons. The reasons for

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9 Organizations need to increase the demand for real-time information needed for decision making and integration of applications.(Umble et al,2003;Spathis,2006).There is also a need to

implement a new business plan, to reduce costs and to increase sales.(Spathis,2006). Botta-Genoulaz et al. (2006) state that many firms implement ERP systems in the direction of remaining competitive in the market. Additionally, ERP systems may fulfill the need for

integration of all the information scattered throughout various systems within the organization to encourage a corporate culture based on information from a single integrated system (Umble et al, 2003). Finally, many firms implement ERP systems in favor of resembling the most modern international organizations, in terms of management, human resources and production systems. (Sayed, 2006)

2.2 CSFs of ERP implementation

A significant amount of ERP research focused on identifying the factors critical for success in implementing ERP systems. (Akkermans and Van Helden,2002;Markus et al., 2000b;Nah et al., 2001;Umble et al.2003;Ben and Light,1999). Critical factors of ERP are defined as those factors that must go well to ensure success for a manager or an organization and were developed to identify critical areas of concern and provide measures to manage it. (Boynton and Zmud, 1984).The type of problems and issues that arise from the implementation of ERP systems range from specific issues and problems that can come up during the installation of an ERP, to

behavioral, procedural, political, and organizational changes, etc., that manifest subsequent to the installation(Verville and Halingten , 2005). In their study, Verville and Halingten, (2005)

researched the field to establish critical factors during the acquisition of the ERP package. They classified 10 factors and divided them into two groups: a) Factors related to the acquisition: Planned and Structured Process; Clear definition of all requirements; Selection and Evaluation Criteria; Rigorous Process. Accurate information. b) Factors related to the people involved in the process. Clear and unambiguous authority; Selection of Acquisition Team; Partnership

Approach; User participation; User buy-in. A clearer understanding of the critical factors can amount to substantial savings in terms of economics, time, and improved administrative

procedures, and can reduce the risk and uncertainty associated with the acquisition of these types of systems (Verville, 2000). In their research, Akkermans and Van Helden (2002) specify that critical success factors are highly correlated and changes in any one of them would influence the others.

Markus et al. (2000) identified 4 phases which occur during an ERP life cycle. In their study, Nah et al. (2001) used this proposed process theory approach of Markus et al. (2000) to classify the CSFs of ERP implementation across the different phases. The Chartering phase where the decisions leading to funding of the ERP project are taken. Vendors, IT specialists, and company executives are some of the stakeholders that have a vital role in that phase. Important actions are scheduling and project planning. CSFs of this phase: ERP teamwork and composition; Top management Support; Business Plan and vision. Effective communication Project Management, Project Champion, Appropriate Business & IT Legacy systems. Then it is the Project phase where System configuration, system integration and rollout exists. Implementation partners have to work closely. CSFs of this phase: Change Management Program and culture BPR and

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10 important to handle efficiently this activity until the bugs are eliminated. CSFs of this phase: Monitoring and evaluation of performance. Setting milestones and monitoring the procedure of acquisition is essential for its success. In the end there is the Onward and Upward phase. This phase deals with maintaining the system, supporting users, getting results, upgrading the

software and it is responsible for system extensions while Business Vision is the critical success factor of this phase. An overview of what the previous studies consider as critical success factors is used in the conceptual model of this study (Ben and Light, 1999, Nah et al, 2001, Umble et al, 2003, Dezdar, 2012):

2.2.1Strategic Success Factors:They address the larger picture, and involve the breakdown of goals into do-able elements (Pearce, 2004)

 Top management commitment & support: One of the most knowable factors. Leadership, participation and commitment by top management are necessary for a successful

implementation of the ERP(Sherrard,1998)

 Vision and Goals: Vision and goals should be clear before implementing ERP. The firm must define why it utilizes an ERP and what business needs want to address(Travis,1999)  Change Management & Organizational Culture: Sometimes the structure of the

organization is not compatible with the ERP software. A noted critical success factor is the ability to manage change throughout an ERP implementation. This thread’s purpose is not only to ensure leadership commitment to the project and facilitate team dynamics but also develop organizational design and change readiness policies and procedures (Nah & Delgado, 2006; Vagner et al, 2005).

 Project Management:The project scope must be clearly defined at the outset of the project and should identify the modules selected for implementation as well as the affected business processes. (Umble et al,2003)Project Management mainly focuses on the organization and management of the entire project including risk management,

planning, monitoring, communication, budgeting, staffing, and quality assurance (Vagner et al, 2005).

 BPR customization: Minahan (1999) elucidate that there is a need to reengineer key business processes to support the ERP.Equally important is the concept of vanilla ERP which means that organizations should be committed to the idea of implementing the basic version of an ERP with no or minimal customization. (Nah et al., 2001, Shanks and Parr, 2000).

2.2.2Tactical Success factors: They address the various tactical elements that lead to achieving

the goal. (Pearce, 2004)

 Education and training (Ben and Light, 1999, Nah et al, 2001, Umble et al, 2003):ERP implementation requires a critical mass of knowledge to enable people to solve problems within the framework of the system. ERP implementation should be planned carefully (Malhotra, Temponi 2010);

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ERP consultant and maintain good relations with them as part of the implementation team (Trimmer et al., 2002; Motwani et al., 2003). However, as part of this relationship, it is imperative to arrange for knowledge transfer from the consultant to the company (Al-Mashari et al., 2003) so as to decrease the dependency on the vendor/consultant (Finley and Colbert, 2007).Additionally, strategic relationship with ERP vendors and their support through various stages is critical for ERP implementation. Vendors transfer knowledge about the use of system, providing understanding of the business processes within the organization, recognizing best practices, and continuous (Markus et al., 2000;Somers and Nelson,2004)

 Data Quality (Ben and Light, 1999, Nah et al, 2001, Umble et al, 2003): Handling data in a proper way is critical. Educating users concerning data accuracy and correct data entry should be a priority for the organization

2.3 Characteristics of the service sector

Levitt (1972) made the assumption that everybody is in the business of service. Additionally, there is a growing emphasis of the importance of services in the manufacturing sector (Zeithaml and Bitner, 1996). We have to make clear the boundaries of the service sector that we will investigate. Katuzian (1970) divide the service sector to three categories. Category 1 is the new services and includes education, clinical and medical services, hotels and restaurants. Category 2 consists of the complementary services like banking, finance, retail and wholesale trade, and transportation. The last category is the old services like domestic service.

The service sector is characterized by some particularities. To begin with, several differences between the manufacturing sector and service sector need to be explained .The principal role of manufacturing is to turn physical raw materials into tangible products. On the other hand, service firms provide products that are intangible (Botta-Genoulaz, 2006). Karmarkar et al. (1995) mentions that the key difference is the absence of inventory in the Service Organizations as a consequence of intangibility. Manufacturers on the other hand produce physical goods and inventory is needed, which also represents a cost for these organizations. Moreover, the degree of customer participation in the transformation process and the simultaneity of the consumption and production are also mentioned by many researchers (Mersha, 1990). Scheider (2000) illustrate that while manufacturing companies consider ERP as an integrated solution, in service companies this enterprise-wide functional integration does not exist. Furthermore,

Boota-Genoulaz (2006) state the importance of labor in service organizations, where instead of inventory, the ratio labor/budget is always a performance indicator. In the same study, it is also mentioned due to the fact that in service organizations someone cannot separate the front with the back office, it is very important to understand the service delivery process. Moreover, there are differences also between the service organizations. Roth(1999) express that larger

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12 indicators; ensure a second life cycle for managing lost profitable customers and validate service expansions when and if it is required(Saraswat,2009).

ERP systems are implemented in various service organizations and there are numerous studies that illustrate the usage of ERP systems in the board service sector. ERP systems are considered a solution to the growing information requirements within the public-sector (Spano et al.

2009).Also, there is a growing number of Higher Education Institutions worldwide that have implemented or are exploring ERP systems (Rabaa’i, 2009).Another area where ERP is gaining new customers is Health Care where service is patient-oriented and requires continuous

interaction with the customers. Van Merode et al. (2004) states that hospitals in the direction of offering a more homogenous range of health care products are shifting towards greater

integration in health care delivery. This shift towards integration is facilitated by ERP systems (Pare and Sikotte, 2001).According to Ansel and Dyer(1999) the implementation of ERP in restaurant business provide data that helps to track performance indicators, manage human resources and finances ,and improve marketing strategy. Finally, ERP systems are also used in the banking sector. A bank owes to serve a customer to the best of its capabilities for which ERP is a useful aid (Kesharwani, 2005).

2.4 ERP implementation success

Shanks and Parr (2000) defined ERP implementation as the process of developing the initial business case and planning the project, configuring and implementing the packaged software, and subsequently improving the business processes. In order to implement an ERP system, a significant amount of resources, changes and high level of commitment are required. As a result, the issues surrounding the implementation process have been one of the major concerns of the industry. This further worsens because of numerous failed cases including a few fatal disasters which led to the demise of some companies (Moon, 2007).El Sawah et al.(2008) report that ERP implementation is considerably different from any traditional information system

implementation for many reasons like: the integrated nature of ERP applications which causes dramatic changes on work flow, organizational structure and on the way people do their jobs; The fact that ERP systems are not built but adopted, this involves a mix of business process re-engineering (BPR) and package customization; and ERP implementation is not just a technical exercise but it is a socio-technical challenge as it poses new set of management procedures.

There are two different strategic approaches to ERP software implementation. In the first approach, an organization has to re-engineer the business process to accommodate the

functionality of the ERP system, which means deep changes in long-established ways of doing business and a shakeup of important people roles and responsibilities. This approach takes advantage of future ERP releases, benefits from the improved processes, and avoids costly irreparable errors. The other approach is customization of the software to fit the existing process, which will slow down the project, introduce dangerous bugs into the system and make the upgrade of the software to the ERP vendor’s next release extremely difficult, because the customizations will need to be torn apart and rewritten to fit with the new version (Koch et al., 2014).

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13 Markus argued that there are three main categories of success metrics:

(1) Project metrics. Performance of the enterprise systems’ project team against planned schedule, budget and functional scope.

(2) Early operational metrics. How the business operations perform in the period after the system becomes operational until “normal operation” is achieved.

(3) Longer term business results. How the organization performs at various times after normal business operation has been achieved. This involves achieving the strategic goal behind implementation such as rate on investment (ROI) (Markus et al., 2000).

2.5 Conceptual Model

In this paragraph the conceptual model is presented in figure 1. The constructs influencing the implementation of ERP in the service sector are discussed in the previous paragraphs.

FIGURE 1. Conceptual Model including all research questions

The methodology used to explore our conceptual model and answer our research questions is explained in the next section.

Strategic success factors

1. Top Management Commitment & Support

2. Vision and Goals

3. Change Management and Culture

4. Project Management

5. Business ProcessReengineering

Service Sector Characteristics Intangibility Customer Participation Lack of Inventory Highly labor intensive Implementation Success of ERP in the service

context

Tactical success factors 1. Education and Training 2. Communication

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3. Methodology

3.1 Introduction

After discussing the theory related to our study, this section is dedicated to provide a clear understanding of the methodology used for this paper. In order to answer our research questions a rigorous and structured methodology is required. The methodology employed in this study is a literature review. A literature review is a systematic, explicit, and reproducible design for identifying, evaluating, and interpreting the existing body of recorded documents (Fink, 1998). In the direction of reviewing and summarizing the literature on CSFs of ERP systems in the Service Sector and how these CSFs influence the implementation success of ERP, literature review was the most appropriate method. The methodology is divided into two phases. The first phase consists of the search for articles, the criteria for inclusion and the collection of the articles. The second phase concern the classification and further analysis of selected articles. These two phases were conducted from February, 2014 until May, 2014.

3.2 Data collection phase

In this phase, the researchers carried out a thorough search of articles in three databases, EbscoHost (Business Source Premier), Emerald management and Science Direct and a manual search in several top journals. Adhere to Botta-Genoulaz et al (2005) the most recent literature on ERP CSFs was also explored in complementary fields related to ERP systems like

information systems, management and computer science. We selected these databases because: Business Source Premier is the industry’s most used business research database; Emerald Database has a large collection of Journals in the field of management & organization and Science Direct(Elsevier) is a leading full-text scientific database. Moreover, top journals included in the hand searching include: Journal of Operations Management, Sloan Management Review, International Journal of Production Economics, Journal of Information Systems, Journal of Information Technology, and International Journal of Production Research. The literature search strategy was performed with certain criteria, which were created from the researchers in the direction of serving the needs and the aims of the current study. The number of studies has substantially increased during recent years. (Botta-Genoulaz et al, 2005).With this in mind we only used literature published from 2000. Conference papers, books, and unpublished studies were not selected for our study.

The search for related publications was mainly conducted as a structured keyword search. The researchers used multiple combinations of terms to search the literature to collect as many relevant articles as possible. The search strategy used was to identify articles with these keyword combinations as main subject headings or text words in titles and abstracts. These keywords were observed by the researchers in similar studies. Keyword combinations used for database searches:

 CSFs ERP;

 Critical Success Factors of ERP;

 ERP in the service sector;

 Service sector and ERP

 ERP implementation factors;

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 ERP public sector;

 ERP banking sector;

 critical factors enterprise resource planning performance;

 service characteristics and ERP implementation

The selection of articles was based on certain criteria created by the researchers. Inclusion criteria:

 Content of articles strongly related to Enterprise Resource Planning (ERP) systems in the service sector in terms of Critical Success Factors and implementation performance. Studies which discuss ERP in a non-service context have been rejected and papers without these foci were eliminated.

 Document type must be article and publication type should be academic journal.

 Articles must be published and peer reviewed in order to meet the expected standards of the field.

 In all the selected articles, the reference list was checked for other important studies.  The article needs to have free –access to the researchers.

 Publication date of the articles should be between January of 2000 and January of 2014 During the manual search, top journals were searched and researchers also pursued references of references. These articles were also checked if they respond to the inclusion criteria. To increase the reliability of the research, databases and journals were double checked by the researchers. The actual selection of the article for inclusion in the compilation was dependent upon the researcher’s decision after reading the article abstract, title and discussion part. If it would be determined that the article could possibly contain information that would be indicative of ERP implementation success factors in the service sector, then the article was selected for further review. Equally, if it was observed that an article contained information about the

influence/effect of these factors on the success of the implementation or/and information about the service characteristics then it was also selected for further review. All references obtained were entered into the Reference Manager Computer software (20) to be checked for duplication. A big amount of articles were precluded from the final stage of the research since they

underlined our strict criteria, and specifically free access and theme-related content. A database was created by the researchers in March (2014) to facilitate the storage of the selected articles .Finally, the breakdown of sources that contribute to our research is shown in Figure 2.

After extracting papers from these databases, they were reviewed to identify relevant critical success factors, the influence of these factors and relevant information about the relationship between service characteristics, CSFs and implementation success. During the next step, data collection was classified and analyzed.

3.3 Data classification phase

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16 ((2) To which setting of the service sector do these articles refer? (3) How many times are the CSFs of ERP in the service sector cited in the literature? (4) Which studies have empirically tested the influence of the CSFs in the service sector?

In order to answer the first research question we utilized a frequency analysis of the CSFs. They analyzed each article, took notes about the CSFs mentioned in the study and made a table with each factor and how many times it appeared. It is important to mention that many studies used different words to describe the same CSFs and since we wanted to facilitate a better

understanding of the CSFs, some of the factors with similar meaning where classified under the same factor. For example some authors referred to BPR customization and others named it minimum customization of BPR. These two factors were labelled as BPR customization in our results. The final choice of the CSFs categories belong to the researchers and they are based on the whole range of articles reviewed for the needs of the research. In the same fashion, in order to answer the second research question of the study, researchers searched the selected articles for empirically tested results of effects of these CSFs. Since we wanted to clarify the influence of the CSFs only validated results were discussed. Finally, each of the selected articles was examined for containing information about the influence of service sector characteristics on CSFs and on implementation success of ERP. The results of the literature review are discussed in the next section.

8 Papers selected from top journals.

Manual search _{Electronic Search}

3 Databases

Business Source Premier

(EBSCOHOST)-26 papers Emerald

Database-83 papers

Science Direct -16 papers

124 papers-Reference Manager

Inclusion Criteria 74 papers rejected

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4. Results

This section reports the main results of the research. We reviewed 58 papers strongly related to CSFs of ERP in the service sector. We obtained a vast amount of data in this procedure. Thus, it is not possible to present and discuss all the collected information in this study. Only the

information assessed to be important for answering the research questions and fulfilling the aims of the study will be presented. Table 1 presents the list of journals and their number of citations which contributed to the study. As stated previously, only peer-reviewed and published articles were included. It is noteworthy to mention that there is a diversity of journals which published studies after 2000 concerning ERP systems in the service sector. This finding, which is

consistent with other studies in the field (Botta-Genoulaz et al, 2006), illustrates the cross-section importance of ERP in the service sector. Business Process Management Journal has the most citations in our analysis and confirms that this journal includes ERP in the service sector in his main agenda. In addition, as expected many journals are IT-related and belong to the traditional field of information systems.

Journal Papers No. of Citations

Journal of Enterprise Information Management 3

Business Process Management Journal 10

Journal of Information Technology 2

European Journal of Operational Research 1

Harvard Business Review 1

Communications of the ACM 1

ACM Computing Surveys 1

Industrial Management & Data Systems 1

Journal of Marketing and Communication 1

Journal of Business Economics & Management 2

Journal of Transnational Management Development, 1

Journal of Management in Medicine 1

Information & Management 5

Computers in Industry 3

International Journal Production Economics 5

Information Systems 1

Procedia Technology 2

Industrial Engineering 1

Journal of Services Research 1

Journal of Information Systems 1

International Journal of Project Management 1

Management Research Review 2

Information Technology for Development 1

International Journal Production Research 1

Industrial Management and Data Systems 1

Vision: The journal of Business Perspective 1

New technology, Work and Employment 1

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18 International Journal of Software Engineering & Knowledge Engineering 1

Technovation 1

Public Management Review 2

Financial Accountability & Management 1

Total 58

Table 1.Summary of journals reviewed on ERP CSFs in a service context

Moreover, the articles investigating CSFs of ERP and implementation success, had a various mix of types of the service sector as a setting which they referred to. Some studies examined CSFs of ERP implementation in specific industries. Table 2 highlights the authors according to the setting they investigated. In particular, there were studies investigating CSFs only for health care

setting(Trimmer et al,2002; Van Merode et al,2004;Stefanou and Revanoglou,2006),for

publishing(Baray et al,2008) and for education(Rabaai,2009). Qutaishat et al. (2012) researched CSFs for telecommunications sector while other authors (Daneva, 2011; Priyadarshini, 2002) analyzed the CSFs of ERP in the banking sector. A big amount of studies discussed and analyzed the factors of ERP in several settings. Many organizations coming from the tertiary sector

implement ERP systems. This result is consistent with Alves and Matos (2012) who stated that ERP is implemented by many different organizations in the service sector.

Author(s) Setting

Daneva, 2011; Priyadarshini, 2002;Kesharwani, 2005

Financial Services-Banking

Vagner and Antonucci, 2009; Campagnolo,2013

Public sector

Qutaishat et al,2012;Velcu,2007 Telecommunications Trimmer et al. ,2002; Van Merode et al.,

2004;Stefanou and Revanoglou,2006; Azevedo, Romao and Rebelo,2012

Health Care

Baray et al,2008 Publishing

Rabaai,2009; Siau and Messersmith,2003 Education Botta-Genoulaz et al, 2006;Alves and

Matos,2012;Koch et al ,2014

Various forms of Service Sector

Table 2. References of dedicated studies

The findings corroborate studies conducted in several countries of the world. China (Choi et al., 2012), Jordan (Qutaishat et al., 2012), Australia (Pishdad and Haider, 2013) and Canada (Kumar et al, 2003) are some of the countries where CSFs of ERP in the service sector were researched. El Sawah et al. (2008) also researched the CSFs in Egyptian Organizations. No significant differences were observed among these countries about the CSFs. Therefore, our results can easily be generalized and facilitate worldwide coverage of CSFs which refer to ERP in the service sector.

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19 least cited but still critical factor was data quality. Many studies focused only on some factors (Hong and Kim, 2002; Choi, 2012; Maditinos et al., 2012) while others had a more completed analysis (Ram and Corkindale, 2014; Momoh et al., 2010). It is noteworthy to mention that no difference about the nature and criticality of factors were observed among the different types of organizations as it was discussed in the literature. This finding demonstrate that the selection of these factors is relevant in various types of the service sector.

Critical Success Factors Number of instances cited in the literature

Strategic Factors

Top management Commitment & Support 22

Vision and Goals 14

Project Management 15

Change Management & Organizational Culture

13

BPR Customization 19

Tactical Factors

Education and Training 17

Communication 12

ERP vendor support & Consultant Relationship

16

Data Quality 11

Table 3: Frequency analysis of CSFs in the service sector as cited in the literature

With regard to research question 2, we found strong evidence for each of the selected CSFs on the implementation success of ERP in the service sector. Both strategic and tactical factors were found to positively influence the implementation success of ERP, although more studies were found which discuss the strategic factors. In the discussion part, these factors are elaborated further.

CSF empirically tested for their effect on implementation success

References

Top Management Commitment & Support El Sawah et al,2008;Bradford and Florin,2008;Zhang et al,2005; Kansal,

2007;Zabjek et al,2009;Ifinedo,2008;Ehie and Madsen,2005;Somers and Nelson,2004 Clear vision and goals Bradford and Florin,2008,Ifinedo2008;Law

and Ngai,2007

Education and Training Bradford and Florin,2008;Zhang et

al,2005;Kansal,2007;Sun et al. 2005;Pishdad and Haider;2013

Change Management & Organizational Culture

Zabjek et al,2009;Pishdad and Haider;2013; El Sawah et al,2008;Zhang et al,2005 Project Management El Sawah et al,2008;Zhang et

al,2005;Kansal,2007;Ehie and

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20 BPR customization Bradford and Florin,2008;Zhang et

al,2005;Zabjek et al,2009 ; Ehie and Madsen,2005;Law and Ngai,2007;Somers and Nelson,2004

Communication Zhang et al,2005;Akkermas and Van

Helden,2002;Muthusamy et al.,2007 ERP vendor support &consultant relationship Zhang et al,2005;Kansal,2007;Pishdad and

Haider,2013; Ehie and Madssen,2005;Tsai et al,2011; Campagnolo,2013

Data Quality Chien et al.,2007;Zhang et al,2005

Table 4: Empirically tested factors for their effect on implementation success of ERP

Contrary to our expectations, the literature search did not yield any results concerning question 3. We did not find any data from the literature related to service characteristics and how they affect the implementation success of service organizations. The selected studies discussed the CSFs and various issues of organizations but they do not include service characteristics in their analysis. It appears that there are not any studies which research the influence of these

characteristics and under these circumstances, indications about the relationship among service characteristics, CSFs and implementation success cannot be clarified. In the next section, there is a discussion of the results about the CSFs and their effect on implementation success.

5. Discussion

The discussion of findings is not intended to provide detail description of each article. Rather, an attempt to compose a collective summary about each critical factor and their influence is made in this section. The major themes discussed are the strategic and tactical CSFs in the service sector and the influence of these factors on the implementation of ERP system. Each critical success factor is discussed in two ways. First, it is analyzed according to findings of the research and then there is a validation of the influence on the implementation success. In the end of this section, there is a practical implication of the findings.

5.1Strategic success factors

Top Management Commitment & Support. Top management support and commitment was the most frequently cited CSF for ERP implementation in the service sector .Management is not only the requirement for setting the vision and the direction for the business, it is also for providing energy to employees, for enabling business to perform, for implementing concepts such as BPM and for exploiting the several capabilities of an ERP system.(Al-Mashari et al,2003).In the same study it is stated that top management support and commitment does not end with initiation and facilitation, but must extend to the full implementation of an ERP system. From another

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21 Shaul,2013).Top management support positively affects implementation through improving the organizational fit to the package and keeping an eye on effective project management(Bradford and Florin,2008,El Sawah et al,2008).According to Ifinedo(2008) support, commitment

,authority and direction from top management for the ERP system and for the various people affected by the system’s acquisition is necessary in ensuring overall success with the software. Ifinedo (2008) in his empirical research found that overall benefits of ERP systems are low in situations where top management support is lo or non-existent. In the same fashion, Motwani et al(2005) state that top management needs to publicly and explicitly identify the project as a top priority. Organizations which have strong top management support were able to develop a shared vision of the organization and were also able to communicate the new system and structure it more effectively for their employees (Pishdad and Haider, 2013).

Vision and goals. Another important factor is related to business strategies and goals. Extant literature provides evidence that many ERP implementations failed because they did not achieve predetermined corporate goals (Al-Mashari, 2003) Organizations must be aware of why an ERP package should be implemented and which critical business goals it will address(Umble et al,2003) Hence, identifying business goals, determining the strategic business issues and

strategic requirement identification are essential elements of an ERP project prior to initiating the project.(Amid et al.,2012). According to Motwani et al. (2005) a clear business plan and vision to steer the direction of the project is needed throughout the ERP life cycle, and specifically during the implementation process. In his study, successful implementations of ERP systems in the service sector were reported from organizations which had a clear business model and realistic expectations. This finding was also consistent with other studies (Law and Ngai, 2007; Somers and Nelson, 2004).

Change Management and Culture. Change management is a critical success factor for ERP implementations that was built on research in the organizational management and information systems disciplines (Grabski et al., 2011). The ERP products have their specific preferred business model, which dictates the manner of doing business. In order to take advantage of the ERP software, companies need to adapt to the new model and, correspondingly, change

themselves (Teltumbde, 2000).The same author also state that the differential capability of ERP products to enable the regulated change constitutes an important parameter in project tracking evaluation. Many researchers suggest that appropriate organizational culture and leadership strongly facilitate ERP implementation (e.g. Umble et al., Chang et al., 2009). Subjective culture within an organization also influences the users’ utilization of the ERP system (Chang et al., 2008). Boersma and Kingma outlined organizational culture as the primary factor responsible for ERP as a highly demanding technology (Boersma and Kingma, 2005).The adjustment of culture and structure while implementing ERP has raised different opinions even though it is considered to influence the implementation of ERP (Soh et al,2000). It was recognized that human and cultural factors are very often critical in the implementation phase (Botta-Genoulaz et al., 2005).Change Management should carefully deliberate the culture of organization. Organizational fit to ERP package was proven to be very important determinant of ERP

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22 of large customized systems, change management was labeled as superior factor in the

implementation of ERP in the service sector.

Project Management. Many ERP analysts have stressed the importance of project management and planning for successful implementation (Davenport, 2000; Botta-Genoulaz et al, 2005; Curko et al, 2012). Amid et al. (2012) state that the lack of a full time and balanced project team can potentially harm the implementation process.ERP project managers must have knowledge in technical and business issues and be effective in decision-making of the organization (Curko et al, 2012). It is essential to set up a full-time project team with well-defined functional divisions and management levels to facilitate active ownership of the project by all stakeholders(Levis and Shaul,2013) and it is widely suggested that the project team should be balanced, cooperative, cross functional and have key people working on a full time basis(Nah et al.,2001). It should be noted that involving people with both business and technical knowledge into the project team is critical to achieve success(Al-Mashari,2003). Also, project team’s prior experience in large projects can be characterized as another facilitator in ERP projects (Allen et al., 2002). The availability of these elements in organizations or increasing organizational capabilities in acquiring them can help preventing failure in ERP projects.(Amid et al,2012).We found

studies(El Sawah et al,2008;Wang et al,2007) which support that effective project management and company wide support have strong influence on the implementation success of ERP. Specifically, a good ERP project team clearly influences positively an ERP implementation (Wang et al, 2007).Finally, Motwani et al, (2005) pointed out that the composition of the project team is crucial and should represent the main process of the company.

BPR Customization. Business process reengineering is frequently linked with ERP

implementations as ERP systems embed business processes, thereby restricting and enforcing organizational routines (Nah et al., 2001). Wenrich and Ahmad (2009) state that ERP

implementation decisions determine the extent to which work processes will depart from past practices in favor of redesigned and more efficient business processes Business processes are a key element in a well-rounded change management strategy that should broadly consider diverse areas in ERP implementation, along with strategy, structure, culture, information technology, and managerial systems (Al-Mashari,2003) and is a promising approach to anticipate longer-term impacts on ERP implementation performance(Grabski et al,2011).Nah et al. (2003) asserted that companies should keep the ERP package “as is” as much as possible and reengineer their

business processes to conform to the package. Minimum customization was the reason for many companies to implement the “vanilla” ERP. According to Finney and Colbert (2007) many organizations were committed to a “vanilla” implementation in order to avoid ERP software modifications which were perceived as slowing down the project. Finally, as implied by Law and Ngai (2007), ERP implementation success is strongly affected by BPR.

5.2Tactical Factors

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23 critical success factor many firms often fail to provide adequate user training. New education methods are needed due to the complex, integrated, and dynamic nature of ERP systems. (Grabski et al, 2011).For this purpose academics and leading ERP vendors have begun to develop ERP-specific training materials and to utilize innovative teaching methods. (Choi et al., 2007). Bradley (2008) tested the education and training factor in his research and concluded that training was regarded very important by both successful and unsuccessful projects. Importance on training was shared by all projects, but successful projects rated training quality higher and spent more time on it (Bradley, 2008). Pishdad and Haider (2013) posited that ERP users and employees must be trained and educated on the features of the system in order to use it and to continue their day-to-day operations. Moreover, top management must be fully committed to spend money on education and training. All stakeholders must be well-trained to retain knowledge on how the business processes are implemented in the ERP system to fully exploit the system functionalities (Levis and Shaul, 2013).

Communication .Effective company-wide communication is essential for implementing the ERP system. Nah et al, (2003) believed that effective communication of requirements, direction, mission, plan, user input, feedback and changes is critical to all stages to ERP implementation Moreover, communication plays an important political role throughout the implementation process(Allen et al.,2002).According to Muthusamy et al,2005,communication helps the

dissemination of new information, and provide challenges or opportunities to all parties involved .Dezdar(2012) in his research, underlined that communication across the different levels and functions of an organization is necessary for success in ERP implementation.

ERP vendor support &consultant support .ERP systems, a lifelong commitment for many organizations, require continual investment in new modules and upgrades to achieve better fits between business and system, and realize their strategic value. Consequently, organizations implementing ERP should supplement the skill sets of their internal teams with implementation resources from a software vendor or consulting firms that offer the requisite skills and

knowledge (Dezdar, 2012).In view of the expected longevity of ERP products, the commitment of the vendor to the product, his capacity to support it and his support of the infrastructure constitute vital parameters. Trust is very important aspect of this factor. Koch et al (2014) state that the collaboration with the vendor is determined mainly by the development of trust. Vendor support infrastructure and her/his service track record in the relevant country also constitute critical factors. (Teltumbde, 2000). Motwani et al (2003) found in their case studies, that project teams worked very closely with vendors to obtain inter organizational linkages and this

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24 Data Quality. Data quality is a requirement for implementing and using the ERP system. (Umble et al, 2003). Ehie and Madsen (2005) discussed that employees using the system and those influenced by it must go through education and training in order to understand how data flows through the system and how the system is operated at each point in the supply chain. Moreover, in the same study is stated that data robustness (no loss of data) between the business processes and data accuracy (no change of data) between the business processes influence positively the implementation procedure. In other studies, it was found that data relevance and quality of information enable a soft implementation (Chien et al, 2007) and that lack of data integration can harm the implementation success of ERP in the service sector (Zhang et al, 2005).

During our search we found some CSFs which were not included in our initial conceptual model. We strongly believe that it would be beneficial for our study to discuss also some of these factors which are critical in the implementation of ERP packages. Political and government pressure can influence the procedure of the implementation of the ERP systems .Allen et al.(2002) stated that many public sector education institutions implement ERP because the need for more effective management information systems was reinforced by the need to become more efficient in light of the financial forced by government policy. Moreover, the fit between the IT and the strategy of organizations is very important. Many firms redesign their IT architecture to support their ERP systems (Kumar et al. 2003).ERP products are expected to have a functional fit with the

company’s business processes. Kesharwani (2005) also stated that the ERP system should be integrated within other similar organizations. Bradley (2008) assessed the impact of IT integration and clarified that higher level of IT integration leads to project success and that management can realize the potential or actual contribution of IT to the implementation success of ERP. Many studies consider ERP system selection as a critical factor. The selection of the ERP software requires careful consideration and attention (Somers and Nelson, 2004; Rabaai, 2009; Al-Mashari et al, 2003). Grabski and Leech (2007) clarified that a detailed specification of the requirements for ERP software selection will increase the probability that the ERP system will meet the organisation’s requirements and support the redesigned operational processes. Given that, it is important that the selected ERP package fits with the organizational

needs(Verville et al,2005) and supports the organisation’s business processes(Rabaai,2009).

5.3 Practical applications of findings

Table 6 provides guidelines created from the authors to enable a better understanding of the dimension of each critical factor. These guidelines are provided for managers, project teams, consultants and each individual who is interested in implementing the ERP system in a service setting. Following these guidelines may maximize the chances of effective ERP implementation and minimize the costs in case of an ERP failure. That guideline structure, in Table 6, enables the manager and the whole service organization to address efforts and resources in their decisions to carry out the result according to the available resources of the organization. For instance, if it is detected that the organization is weak with respect to one factor (say Data Quality), then it could emphasize its strategies, efforts, and actions for the support of that section looking for an

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CSFs Guidelines

Top Management Commitment & Support Top management Commitment & engagement; should be involved in each step of the

implementation;Management has to define the strategy; Continually manage resistance and change during the implementation; monitor progress ; Clear vision and goals Establish a clear realistic view and scope of the

implementation of ERP;define clearly the critical business values of the system; measurable and well-understood goals across the organization;

Education and Training Stakeholders, project team and users of the ERP system should be educated and trained about the system features; Training of business practices and processes; Allocate money, time and resources to training to training; Training should have a structure plan and education should be well-documented to get the most out of them.

Change Management & Organizational Culture Culture of shared values; Should be together with project management; Learning and development culture; tolerance of conflicts and managing risk; effective change management from the top; building cooperation; Manage expectations concerning the system’s functionalities.

Project Management Have a detail project plan; Clear project goals ; project team empowerment;careful tracking of project progress; Assign a full-time project manager ; BPR customization Redesign of business processes with minimum

customization.; Alignment of the business with the

new system; the organization has to change its processes to conform to the ERP system; minimum customization leads to minimum costs;

Communication Wide-company communication. Effective

Communication with partners, vendors, consultants and customers; Communication plan is essential in all phases of implementation; Centralize information for a common understanding of decisions.

ERP vendor support &consultant relationship Selection and management of consultants;Credibility and trustworthiness among the partners; adequate technical support from vendors; Top management input is important to select a suitable vendor.

Data Quality Accurate data should be available to stakeholders and project team; users should be trained how to deal with data in all phases of the implementation of the project; Sharing an control of information;

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6. Conclusion, limitations and future research

Critical success factors (CSFs) of ERP implementation have been widely used and researched in the context of manufacturing. However, there are no studies reviewing literature about the critical success factors in the service sector. This research was set out to review the literature about critical success factors of ERP in the service sector, in order to address an integrative review of the critical success factors, analyze empirical results of studies concerning the

influence of CSFs on the implementation success and discuss the relationship among the factors, the service characteristics and the implementation success .In that direction, 58 peer-reviewed articles were analyzed and discussed. The results enhance the understanding of the nature and dimensionality of critical success factors for ERP systems in the service sector and the effect of those CSFs on the implementation success.

Strategic and tactical factors were identified as CSFs of ERP implementation in the service sector. Strategic factors consist of: top management commitment and support, clear vision and goals, change management, project management and BPR customization. It should come as no surprise that top management commitment and support is the most cited critical factor for ERP implementation in the service sector, as the majority of papers underlined the importance of that factor during the implementation of ERP. Moreover, education and training of the personnel, wide-cross communication, the relationships with vendors and consultants, and data quality form the category of tactical factors. The least cited factor was data quality, but no significant

explanation was observed. Tactical factors were also depicted in the literature as vital for the implementation of ERP systems. It is noteworthy to mention that no differences were observed among the different types of organizations as it was discussed in the literature. This implies that the selection of these factors is relevant in various types of the service sector.

Concerning the second research question, we argue that both set of factors influence the

implementation success of ERP in the service sector. By examining empirical results of previous studies conducted after 2000 in various organizations in the service sector, strategic and tactical success factors were found to affect the implementation success of ERP systems. Despite the fact that more studies focused on the strategic factors, no variation was detected about the level of influence on the implementation success between the two categories of factors. In contrast, regarding to the third research question expectations were not fulfilled. It appeared that there is no research investigating the influence of service characteristics on CSFs and on implementation success of ERP in the service sector. In consequence of this, the examination of the relationship between the service characteristics, CSFs and implementation success remains uncovered.

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27 both set of factors examined in this study influence the implementation success in the service context. In addition, no differences were observed among the various forms of service

organizations. Finally, this research points out the need of research on the service characteristics and their influence on CSFs and implementation success. In the matter of practical contributions of the present study, the extensive analysis of the CSFs will assist the different stakeholders during the implementation of ERP. Moreover, guidelineswere provided for managers, project teams, consultants and each individual who is interested in implementing the ERP system in a service setting. These guidelines may be beneficial for increasing the chances of effective ERP implementation and minimize the costs in case of an ERP failure. Since the review contained articles from various forms of the tertiary sector, the discussion of the CSFs and the guidelines are relevant in all the forms of the service sector.

6.2Limitations

However, the findings of the study need to be interpreted cautiously because there are some limitations. These limitations may also form the starting point for further research. First, the methodological choice was based only on secondary sources, including 58 articles of recognized databases and journals, which limits the degree of validity and reliability in the paper. Although we believe we had a sufficient level of validity, there is still room for improvement. Second, there was a big amount of papers which were rejected due to the constraint of free-access. We cannot clarify if those papers could influence the results of the study. The next limitation is that implementation success was validated through empirical studies. These empirical studies utilized different constructs to measure the implementation success.

6.3Future research

Future research has many directions and is required to address the mentioned limitations. First, the researchers suggested that there is a further need for other research approaches, including case and survey studies, which may provide deeper insights concerning the CSFs. With the assistance of other research methods, future researchers could define the relationship between service characteristics, CSFs and implementation success. Second, future studies could also research the CSFs of service sector for the post-implementation period and also for the

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Master Thesis ERP in the service sector: A review of the implementation and CSFs

Master Thesis

ERP in the service sector: A review of the

implementation and CSFs

Abstract

Table of Contents

1. Introduction

2. Theoretical Framework

3. Methodology

4. Results

5. Discussion

6. Conclusion, limitations and future research

References