ERP Adoption

Several research studies have investigated the ERP risks and have attempted to classify them in various ways. Six main dimensions of risk in ERP implementation have been identified by P. Poba-Nzaou (2008) are organizational, business-related, technological, entrepreneurial, contractual and financial risks. Organizational risk derives from the environment in which the system is adopted. Business-related risk derives from the enterprise's post-implementation models, artifacts, and processes with respect to their internal and external consistency. Technological risk is related to the information processing technologies required to operate the ERP system. For example the operating system, database management system, client/server technology and network. Entrepreneurial or managerial risk is related to the attitude of the owner-manager or management team, while contractual risk derives from relations with partners and financial risk from financial difficulties, resulting in an inability to pay license fees or upgrading costs, for example. (P. Poba-Nzaou, 2008) In the research of Sumner (2000), following six risk categories have been presented:

1. Organizational fit: failure to redesign business processes
2. Skill mix: insufficient training and re-skilling
3. Management structure and strategy: lack of top management support
4. Software systems design: lack of integration
5. User involvement and training: ineffective communication
6. Technology planning/integration,: inability to avoid technological bottlenecks.

The following ERP risk factors are summarized by D. Aloini (2007). Inadequate ERP selection, poor project team skills, low top management involvement, ineffective communication system, low key user involvement, inadequate training and instruction, complex architecture and high numbers of modules, inadequate business processes, bad managerial conduction, ineffective project management techniques, inadequate change management, inadequate legacy system management, ineffective consulting services experiences, poor leadership, inadequate ICT system issues, inadequate ICT system maintainability, inadequate ICT supplier stability and performances, ineffective strategic thinking and planning, and inadequate financial management. Instead of using abovementioned ready-made risk lists, a company might consider identifying their own, company-specific ERP implementation risk list. These risks could be complemented by common risk lists.

To minimize the risk of the ERP project, M.L. Markus (2000) have recommended the application of a risk management plan at different ERP implementation project stages; selection, implementation, and usage. A planned and systematically adopted risk management procedure throughout the ERP project reduces the possibility to risks occurring. Consequently, the major mistakes are made in the early stages of the ERP project, even prior to the implementation process. However, Kliem (2000) emphasizes the efficiency of risk management when it is introduced at the earliest possible opportunity in the life cycle of the system in question, when planning issues are most important and the criteria for system selection are determined.

The ERP project should not be viewed merely as a project of acquiring and implementing a new information and communications technology system but as a framework project for the company's all business processes. According to McAdam & Galloway (2005), two approaches should be taken for ERP projects. First, change the business processes to fit the software with minimal customization. On one hand, fewer modifications to the software application should reduce errors and help to take advantage of newer versions and releases On the other hand, this choice could mean changes in long-established ways of doing business (that often provide competitive advantage), and could shake up important people roles and responsibilities. and, second, modify the software to fit the processes. This choice would slow down the project, could affect the stability and correctness of the software application and could increase the difficulty of managing future releases, because the customizations could need to be torn apart and rewritten to work with the newer version. Conversely, it implies less organizational changes, because it does not require dramatically changing the company best practices, and therefore the way people work.

SME companies usually have great difficulties in their ERP through. The most common risk that may entail project failure is the lack of resources and IT skills or the company employee (Cereola, 2006). ERP systems are typically designed for large companies, and the ERP suppliers do not necessarily understand the characteristics and operational processes of small companies. The success of an ERP project also largely depends on how well SMEs can manage changes in their business and how well personnel can adopt new way of operations. This change process is best to start already in the early phase of the ERP project, because many risks can be eliminated before the ERP project system starts. The SMEs can hire temporary staff to perform the routine operations so the key persons get more time to concentrate on the ERP system characteristics and new work.

The most potential risks can be divided in the following categories; the ERP supplier, the ERP system, and the customer company. The most potential risk related to the ERP supplier is simple to choose the wrong supplier, which doesn't understand the company's special demands, or are not interested enough to committed to the ERP project of small customer. Also, the high potential risk is that the ERP supplier chosen ends the development and/or support of the system. Most potential risks related to the ERP system are depended on its technical and functional performance and features, or how well the system can be implemented, configured, parameterized, and integrated.

Moreover, most potential risks related to the company are connected with the factors of company employee and company top management; their skills, knowledge, and experience. Also, resistance to change is a typical potential risk factor. Employee may not see the benefits of the system in their own work and, thus, are not committed to the new business model, and don't use the system in a disciplined manner. Normal business also disturbs the ERP implementation, and employee may be unwilling to put time or effort to the development work. Top management support to the project is the most important success factor for the ERP project (King & Burgess, 2006).

Critical Success Factors: Critical success factors are widely used in the information systems arena. Critical success factors can be understood as the few key areas where things must go right for the implementation to be successful. Past studies have identified a variety of Critical success factors for ERP implementation, among which context related factors consistently appear. Following are the commonly identified Critical success factors identified by several researchers and are relevant for the success of ERP implementation project.

Project Management: Project Management involves the use of skills and knowledge in coordinating the scheduling and monitoring of defined activities to ensure that the stated objectives of implementation projects are achieved. The formal project implementation plan defines project activities, commits personnel to those activities, and promotes organizational support by organizing the implementation process.

Business Process Reengineering:(Yakovlev, 2002) Another important factor that is critical for the success of ERP implementation is the Business Process Reengineering. It is defined by Hammer & Champy (1993) as the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance, such as cost, quality, service and speed. Organizations should be willing to change their businesses to fit the ERP software in order to minimize the degree of customization needed. The implementation of ERP requires examination of many business processes, which believed to be one of the important and beneficial results of the implementation of ERP system.

User training and education: (Somers & Nelson, 2006) In ERP implementation process many projects fail in the end due to lack of proper training. Many researchers consider users training and education to be an important factor of the successful ERP implementation (Esteves & Pastor, 2001). The main reason for education and training program for ERP implementation is to make the user comfortable with the system and increase the expertise and knowledge level of the people. ERP related concept, features of ERP system, and hands on training are all important dimensions of training program for ERP implementation. Training is not only using the new system, but also in new processes and in understanding the integration within the system or how the work of one employee influences the work of others (K. & Hillegersberg, 2000).

Technological infrastructure: (Somers & Nelson, 2006) It is clear that ERP implementation involves a complex transition from legacy information systems and business processes to an integrated IT infra-structure and common business process throughout the organization. Hardware selection is driven by the firm's choice of an ERP software package. The ERP software vendor generally certifies which hardware and hardware configurations must be used to run the ERP system. This factor has been considered critical by the practitioners and as well as by the researchers.

Failure Factors: According to The Gartner Group, 70 percent of all ERP projects fail to be fully implemented, even after three years (Gillooly, 1998). Typically, there is no single culprit responsible for a "failed implementation", and no individual reason to be credited for a successful one. Even the definitions of failure and success are gray areas, lending to interpretation. There are generally two levels of failure: complete failures and partial failures. In a complete failure, the project either was scuttled before implementation or failed so miserably that the company suffered significant long-term financial damage. Those implementations considered partial failures often resulted in tenuous adjustment processes for the company; creating some form of disruption in daily operations.

Based on the result from many researches, they find that some projects that were considered a failure at one stage could be considered a success at another stage. This held true in both directions. In other words, some projects that were considered a failure at the project phase were rehabilitated and became successes in the later stages. Likewise, some projects that were considered successful in the early stages were later described as failures. Themistocleous, Irani, & O'Keefe (2001) used an internet based survey, identify four major management problems faced by companies during the implementation process: project delays and cost problems, conflicts with external entities, internal conflicts, and conflicts with business strategy. They also identified a number of technical issues including customization problems and integration with other systems.

Umble & Umble (2003) using a case study approach identify ten categories of reasons why ERP implementations fail: strategic goals are not clearly defined, top management is not committed to the system, implementation project management is poor, the organization is not committed to change, a great implementation team is not selected, inadequate education and training, data accuracy is not ensured, performance measures are not adapted to ensure that the organization changes, multi-site issues are not properly resolved, and technical difficulties can lead to implementation failures.

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