ERP adoption in small and medium sized enterprises

University dissertation from Stockholm : KTH

Abstract: Enterprise resource planning (ERP) is established among a majority of small and medium sized companies in Kista Science City and seems to have a positive effect on organizational effectiveness. Kista Science City is Sweden’s largest corporate centre, with more companies and employees in a limited area than anywhere else in Europe. This study looks at the level of adoption of ERP functions, perceived organizational effectiveness and critical success factors. The most common use of ERP is for financial control and reporting, followed by order entry and purchasing. A significant relationship between the level of adoption and organizational effectiveness was found.Although Enterprise Resource Planning has become an established phenomenon the investments in ERP software are far from fully utilized. Most companies have started to use ERP to integrate functional areas but few companies have moved to extended ERP (ERPII). The adoption of functionality for customer relationship management seems to have started, but the use of e-commerce, business intelligence and supply chain management is very low. Different reasons for the low level of adoption are discussed and it is suggested that the interrelationship between SMEs and ERP-consultants be investigated further. ERP-consultants are important change agents and knowledge transfers for ERP and one way to interpret the data is that ERP-consultants are caught in a negative spiral where they focus on installations and technical maintenance of core ERP, which prevents them from developing new, extended ERP competence.An analysis of critical success factors showed that although technical competence was important socially oriented factors such as project teamwork and composition as well as communication had a greater effect on organizational effectiveness. Surprisingly enough, project management did not have any effect on organizational effectiveness. Common implementation methods for ERP focus on project management. It is suggested to further analyse if these methods could be improved by an increased adaptability to differences in company settings and requirements as well as through a better use of critical success factors. Organizational effectiveness can be measured in many ways and it was found that the success factors varied in terms of how they correlated with different measures.In the next step, the doctorial thesis, it is suggested that a prototype environment is developed to stimulate an increased use of extended ERP among small and medium sized companies. Several actors, such as SMEs, consultants, vendors and students would be involved. The prototype environment could facilitate enhancements of implementation methods and reduction of implementation costs through the development of reusable objects such as add-on solutions, process maps and system configurations. It could also help small and medium sized companies to investigate the business benefits of ERP by increasing involvement and familiarity while on the same time decrease costs and risks.