Implementation of enterprise resource planning in ...

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Technovation 26 (2006) 1324–1336 www.elsevier.com/locate/technovation

Implementation of enterprise resource planning in China Yahaya Yusufa,, Angappa Gunasekaranb, Canglin Wua a

Business School, University of Hull, Hull EX4 4QJ, UK Department of Management, University of Massachusetts-Dartmouth, 285 Old Westport Road, North Dartmouth, MA 02747-2300, USA

b

Abstract ERP implementation is a ‘Triple Play’ that combines people, technology, and processes. It embodies a complex implementation process, especially in developing countries like China, often taking several years, huge amount of fund and involving a major business process reengineering exercise. In this paper, an attempt has been made to identify some Chinese-specific difficulties in the implementation process and provide solutions to implement ERP system successfully through questionnaire survey, interviews, and secondary data. On the basis of analysis of questionnaire results, some common difficulties have been explored by authors, such as support of top management, costly and time-consuming, cultural differences, technical complexity, lack of professional personnel, and inner resistance. The difficulties are largely due to the nature of enterprise’s ownership and size. Suggested solutions to overcome these difficulties: ERP software packages selection, ERP implementation team, BPR, Training, and Outsourcing-Application Service Provider. These solutions can effectively solve ERP difficulties. r 2006 Elsevier Ltd. All rights reserved. Keywords: ERP; China; Implementation issues and challenges

1. Introduction Today no one would dispute that information technology (IT) has become the most important cornerstone of an enterprise’s ability to successfully compete in the global marketplace. As IT power and presence have expanded, companies have started viewing it as a competitive advantage rather than costs, even more critical to their success. ERP software package, as one of the most important IT systems, is now gaining the universal attention from most enterprises worldwide. Market researcher International Data Corp (IDC) predicted a compound annual growth of 11% for the worldwide ERP market from 2001 to 2006, reaching US$39.6 billion at the end of the forecast period. In a report dated 4 June 2000, First Union Securities stated that SAP installed 44,500 R/3 packages worldwide. There are several failed ERP cases, and companies lost not only the capital invested in ERP packages and millions

Corresponding author. Tel.: +44 1486 464272; fax: +44 1482 466216.

E-mail address: [email protected] (Y. Yusuf). 0166-4972/$ - see front matter r 2006 Elsevier Ltd. All rights reserved. doi:10.1016/j.technovation.2005.12.003

paid to outside consultants but also a major portion of their business. Recently, Unisource Worldwide Inc., a $7 billion distributor of paper products, wrote off $168 million in costs related to an abandoned nationwide implementation of SAP software (Stein, 1998). FoxMeyer Drug, a former $5 billion drug distributor, went bankrupt in 1996 and has filed a $500 million lawsuit against SAP. FoxMeyer charged the ERP giant that its package was a ‘‘significant factor’’ that led the firm into financial ruin (Tiazkun, 1998). Dell Computer has recently abandoned a much-publicized SAP implementation following months of delay and cost overruns. Dow Chemical, after spending half a billion dollars over 7 years of implementing SAP R/2, the mainframe version, now has decided to start all over again on the new client/server version (R/3) (Bingi et al., 1999). Bingi et al. (1999) suggest that implementing an ERP system is a careful exercise in strategic thinking, precision planning, and negotiations with departments and divisions. It is important for companies to be aware of certain critical issues before implementing any ERP package. Careful consideration of these critical success factors (CSFs) will ensure a smooth rollout and realization of full benefits of the ERP solution.

ARTICLE IN PRESS Y. Yusuf et al. / Technovation 26 (2006) 1324–1336

Stand-alone or individual computing systems are no longer able to meet the ever-increasing needs of the organizations. According to Milling (1997), many enterprises have responded to these challenges and still do by implementing computer-based tools and sophisticated systems for production planning and control. Information systems must be tightly integrated with business objectives to compete in the changing environment. Salaheldin and Francis (1998) said manufacturers found themselves in a totally changed environment, so they must improve both their products and their productivity, namely making their processes more efficient and effective to remain competitive as a matter of survival. As it has seen in the recent past, companies not only compete just with quality and cost of their products, but also compete on new parameters like time to market and meeting individual customers’ needs through customized products. These parameters have become entry tickets to the market place. The competition in future is going to be more intense. Organizations are facing immense pressure to transform their traditional enterprises to new economy enterprises—to be more efficient, control costs, and improve quality, while doing more with less. To be successful, these organizations must have an ERP system in place that optimizes their operation in all aspects. This is why more and more enterprises are eager to embrace ERP systems than before. It is the matter of survival rather than a show. In this paper, we intend to find out some Chinese-specific difficulties of ERP implementation in Chinese context based on other researchers’ findings and a small-sized questionnaire survey conducted. After clarifying these difficulties, the paper offers some solutions to address them. Performance of enterprise, after implementation of ERP system, is an important issue. Section 2 presents the status of Chinese enterprises. Research purpose and questions are presented in Section 3. A literature review on the implementation of ERP is presented in Section 4. Section 5 deals with the research methodology employed in this project. The findings of the survey by using the questionnaire survey and interviews, suggested solutions are described in Section 6. Section 7 concludes the paper.

2. Status of ERP in Chinese enterprises In general, most of SOEs are large-scale companies, while quite high percentage non-SOEs are small- and medium-scale companies, except some big international joint ventures and few private giants. As companies display a great variety of ownership structures in China, such as state-owned, joint venture, foreign-owned, and private firms, the role of ownership is considered in relatively greater depth than other countries in this research because we found it had a quite strong impact on ERP implementation. While it turns out that ownership is strongly associated with implementation process characteristics, the

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association of ownership structures with implementation results is much less pronounced (Martinsons, 2004). Although there are some commonalities in two kinds of enterprises, Reimers (2003) also found some fundamental differences in ERP implementations between Chinese SOEs and non-SOEs. Despite implementing the same ERP package in every case, Martinsons (2004) also discovered fundamental differences between the two types of organizations, in terms of both the process and the outcomes of implementation. Non-SOEs contributed comparatively more to the success of ERP systems than their SOE counterparts. Chinese organizations have invested billions of dollars in ERP. More than 1000 Chinese sites had an ERP system by the end of 2001. According to scenarios and forecast data provided by the Gartner Group and IDC, nearly 300 of these deployed SAP’s R/3 software package (Martinsons, 2004). China’s demand for ERP applications has grown at a fast pace in the past decade. In the next 5 years, both production and demand will continue to grow at an unbelievable speed. Behind the huge demand for ERP, the survey data are frustrating. According to Xiong and Wu’s (2003) findings, until now, only 2.9% Chinese enterprises implemented ERP system; but in these enterprises, only 30% enterprises accomplished to implement ERP systems and 10% enterprises benefited from ERP projects. From these data, it shows most of Chinese enterprises fail to implement ERP systems due to various reasons and difficulties they are suffering, although they expected to gain great promotion from the implementation. There are two kinds of ERP vendors in China. Some are the international giants, such as SAP, ORACLE, and PeopleSoft. Others are national vendors, e.g., UFSoft, Kingdee, etc., SAP, the world’s largest ERP manufacturer, dominates the ERP market in China with 30% market share, indicated by IT research firm IDC. To date, SAP has more than 300 clients in China. SAP signed contracts for its ERP solutions with some large SOEs recently, such as Beijing Telecom, pharmaceutical firm Juhua Group, steel manufacturer Jianshu Shagang Steel Group and air cargo firm Emery. SAP’s traditional ERP solution named R/3 is now part of mySAP.com and provides ERP functionalities, which help businesses, manage areas, such as product planning, purchasing, warehousing, transportation, and human resource. Although local firms like UFSoft and Kingdee Software are gaining market share, SAP CEO and Co-Chairman Henning Kagermann stated his company had consistently achieved 50% annual revenue growth over the last few years in China (Tham, 2002). Since 2003, most ERP manufacturers have started to pay attention to the long-neglected small- and medium-sized companies. The existence of a vast number of medium and small enterprises in China, which do not run efficient business process, is a huge opportunity to both local and international ERP vendors. SAP officials predict that the market for small and medium businesses this year will reach 1.8 billion Yuan (US$218 million), and by 2005 climb

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to 5.3 billion Yuan (US$640 million). Implementation of ERP in small- and medium-sized companies is becoming a focus concerned by Chinese domestic ERP manufacturers. Competitions in the Chinese ERP market will come to a new depth. Owing to the increase of Chinese domestic ERP manufacturers, overall cost of implementing ERP declines sharply, and ERP products with reasonable prices begin to appear in the market. Manufacturers make big breakthroughs in product maturity and service capability, which further reduces risk of implementing ERP.

ance (Wolfenden, 1994) that do not encompass in MRPII. It is the planning of the four Ms of an enterprise—Men, Money, and Materials & Machines to their best synergetic value. ERP helps an organization in addressing needs like reduced cycle-time, customer focus, and sharing information seamlessly across the enterprise globally. Companies, which have implemented ERP, have made improvements in cross-functional co-ordination and improved business performance at various levels. According to Waters (1996), the followings are some of the benefits of using an ERP package:

3. Research purpose and questions

ERP is an important software system in operations management, but ERP implementation includes the people and technologies. Although ERP system is popular, it faces some serious difficulties and challenges as well. In this paper, we intend to find some real reasons for why enterprises cannot benefit from ERP in terms of management and technology. This topic is a popular issue argued for long time, but most of researchers discussed this topic in Western countries’ context, and only few academicians studied this field in Chinese situation. Thus, the aim of this study is to focus on the topic in Chinese environment and unveil the difficulties in implementation of ERP, suggested solutions and measurement metrics to identify their promotion after implementation. In this paper, an attempt has been made to address three main questions not commonly addressed in other studies on ERP implementation. 1. What are the Chinese-specific difficulties of ERP implementation in Chinese enterprises? 2. Which solutions can solve these major difficulties effectively? 3. How to measure the enterprise performance’s promotion after ERP implementation?

Reduced stock and inventories, lower stock levels, with saving in capital, space, and warehousing. Higher stock turnover, reduced cycle-time, and increased productivity. Better communication with customers and suppliers. More reliable and faster delivery time. Higher utilization of facilities, as materials are always available when needed. Better control over business.

There is an increasing move towards corporate strategies that include the use of comprehensive information systems, such as SAP/R3 system. According to a recent survey conducted by the Fortune magazine (July 1997), there are over 7000 companies in 50 different countries, currently using the SAP/R3 system. The survey results indicated that a high percentage of the most successful and profitable companies has been using the SAP/R3 ERP System. Convergence of ERP, customer relationship management (CRM), and supply chain management (SCM) modules is the order of the day. Also SCM and CRM vendors are also expanding functionalities, encroaching on the area traditionally inhabited by ERP vendors. This customer mandate for broader ERP reach involves extending and expanding the core functionality of vendor products beyond ERP into the so-called ‘‘post-ERP’’ applications that offer comprehensive state-of-the-art solutions in two main areas:

4. Background for the research

Enterprise resource planning (ERP) is a multi-module application software system that allows a company to manage its business with potential benefits of improved process flow, reduced inventories, better data analysis, better customer service, and improved profit margins (Fan et al., 2000). ERP aims to integrate functional-area information systems within a firm into a coherent, enterprisewide, and web-enabled network (Palaniswamy and Frank, 2000). Enterprise resource planning (ERP) is a way to extend MRPII and includes with many additional functions of integration, such as Human Resource Planning, Decision Support Applications (Ricciuti, 1992), Distribution and Management Supply Chain, Maintenance Support, Quality, Regulatory Control, and Health and Safety Compli-

CRM: Automating cross-functional aspects of identifying, attracting, servicing, and retaining customers. SCM: Governing the flow of product- or servicesproducing processes to, and from, partner organizations.

ERP, CRM, and SCM systems are the E-Enterprise main information system architecture. E-Enterprise information system architecture is shown in Fig. 1. ERP has evolved originally from the famous MRP systems. MRP then evolved into MRPII by incorporating few other important aspects of business ERP and Supply Chain solutions that help to streamline and integrate EEnterprise, from internal purchasing and payroll to global supply chain collaboration. E-Enterprise’s competitive advantages benefit from the seamless integration between


Customers

Selling Chain Management

CRM

ERP

Supply Chain Management

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Suppliers

Fig. 1. E-Enterprise information system architecture.

ERP and SCM, which are built on the Internet technology. E-Enterprise will have a brighter future than normal enterprise due to the advantages attained from ERP and SCM. Quite a lot literature on ERP frequently mentioned CSFs (Rockart, 1979), which need to be identified to enable project managers and management board to improve the percentage of success of ERP implementation projects. CSFs are causally linked with a successful project outcome (Rockart, 1979). Some articles referred to the CSFs for ERP implementation. Table 1 briefly introduced findings on main CSFs from influential researchers (Reimers, 2003). From the literature survey (Austin and Nolan, 1998; Cameron and Meyer, 1998; Holland and Light, 1999; Bingi et al., 1999; Parr et al., 1999; Somers and Nelson, 2001; Sumner, 1999), it is clearly shown that most researchers have similar findings on CSFs in ERP issue, such as top management support, project team configuration, skilled personnel, project management, consultants, business vision, business process reengineering, and training. These factors must be considered by ERP participators before ERP implementation. On the basis of two case studies, Shanks et al. (2000) compared CSFs between two cultural and institutional contexts, China and Australia. They found no differences in top management participation, support, and project team composition. In the Chinese Joint Venture, three factors seemed to be critical, which were not in the Australian context, and they are external expertise, project management, and data quality. According to Davenport and Short (1990), business process is ‘‘a set of logically related tasks performed to achieve a defined business outcome’’. BPR has long been considered one of the key success factors in implementing major IT projects, such as ERP, especially in firms that have a strong corporate culture or that rely on legacy systems (Grover et al., 1995). ERP is a systemic project of enterprise management unlike the other information system projects. Because the whole management system is not only based on the concept of ERP, system project, and IT but also essentially indicates the necessity of ERP implementation for conducting enterprise management innovation, change, and reengineering along with enhancing the competitiveness of enterprise.

Table 1 Questionnaire response rate

Questionnaires sent Questionnaires received Valid responses Rejected responses Non-responses

Number

Percentage

56 48 45 3 8

100 86 80 5 14

E-Mail and interviews via face-to-face, telephone, and Internet, and other data are collected from second-hand sources, such as websites, journals, conferences, books, etc. Zikmund (2000) states that research design is a master plan specifying the methods and procedures to collect and analyse the available data. Punch (1996) divided data into two categories as quantitative and qualitative. The former is data about some aspect of the world in number format while the latter is data, which are not described by numbers. Quantitative data tend to be highly structured at the point of collection as questionnaires are often used to collect this kind of data. Qualitative research methods are more diverse than quantitative methods. Data are collected through observation, interview, and searching documents. In this research, the sample of the questionnaire survey is from people who are engaged in IT relevant jobs and other management jobs, such as IT consultant, ERP executives, senior managers, ERP salesperson, programmer, etc., in China. We select these representatives’ reasons. 1. It is currently difficult to find out other better candidates for the survey within less time and without any support. The best target respondents are the direct ERP implementation participators who have enough experience and better ideas for the questionnaire, but they could not be found in a short time. Friends and former colleagues are easy to find; moreover, these selected candidates have some experience on ERP or IT. They would like to give a hand to us and answer questions seriously rather than amusing. 2. The group of respondents is strictly limited to professional people who are familiar with ERP, at least IT, in order to insure the validity of result.

5. Research methodology Appropriate methodologies are vital part of the process of research, because it directly influences the result of research (Collis and Hussey, 2003). In this research, firsthand data are mainly found from questionnaire survey via

Questionnaire1 design is concerned with the type of questions, their wording, the reliability, and validity of responses. Designing questions is a crucial element of 1

Available from authors upon request.



questionnaire survey. Questions may be described as open questions, where each respondent can give a personalized answer in their own words. Other questions are closed, where the respondents have to select the answers from a number of predetermined alternatives. It often allows respondents to give responses that are more discriminating and to state if they have no opinion, by providing them with some form of rating scale. This allows a numerical value to present the respondents’ opinions. One of more frequently used types of scales is the Likert scale. It turns the question into a statement and asks the respondents to choose a number, which indicates their level of agreement with the statements. It is simple for the respondent to complete and easy for researcher to code and analyse. Because of its advantages, there are a large number of Likert-scale questions in our questionnaire. According to Newell (1993), it is the best way to use mainly closed questions, such as multiple-choice questions, rather than open questions when large number candidates are to be asked by the way of self-completion questionnaires. The simpler the questions, the lesser the misunderstanding and more the respondent rate. In other word, uncomplicated sentences, self-completed, and ‘‘tick-box’’type questionnaires are incorporated throughout this survey designing approach. In our questionnaire, the majority of questions are closed questions. Cost is often more important factor when researchers decide on the best method to distribute their questionnaires and the size and location of sample should be considered as well. Considering the cost and time, we decided to send questionnaires via E-Mail. Because all of our friends have EMail box and they check E-Mail everyday, E-Mail questionnaires do not affect the respondent rate at all. The questionnaire’s questions are formatted in Microsoft Word file so that the respondents can edit the document directly to answer these questions. After completion, respondents sent the document back via E-Mail as well. Owing to the E-Mail convenience and rapid reply, it saved us a lot of money and time without expense of quality and reliability data. In order to increase the respondent rate, we took a number of measures. (1) Clearly explain the questionnaire’s importance for our research in E-Mail body text. (2) Give the respondents reasons for why they are selected in this survey. (3) Promise to send copies of result if respondents are interesting. (4) Guarantee to keep respondents’ personal details and sensitive data anonymous and confidential. (5) Carry out the pilot test before sending to every candidate. Two people pilot test was conducted in advance. After pilot test, questionnaire was mended. (6) Send out the second E-Mail if we failed to get reply from candidate within first week. (7) Make the questions to understand and answer easily. Closed questions and simple sentences are mainly used

in the questionnaire. Questionnaire does not take more than 15 min to complete. (8) Ensure the questionnaire in Word format is well laid out and easy to edit. Interview is a feasible research method for our research because one of the authors used to be a computer programmer and has some friends who do ERP relative jobs. An interview schedule was arranged during this research. Structured and unstructured interviews were blended together for getting first-hand data. Structured interview is arranged to ask respondents some important pre-established questions, and unstructured interview gives respondents a chance to provide in-depth open-ended information. Historical and the latest documentary data are useful method to prevent personal bias, and examine what interviewee tells you. During the conversation, we should consider ethical issue and promise to keep interviewees’ important business information secret that are not allowed to be published in this paper. Validity has to be considered during these interviews. Validity is a complex and important issue. Due to our personal relationship with interviewees, interview is the appropriate way to find out the proper information. Because one of us has worked in IT industry for 4 years in China, and has many friends who are engaged in ERP project, it is easy for us to get reliable first-hand data from candidates. Although this method has some disadvantages, such as interviewee bias and our subjectivity, we intend to collect information that is more objective from different perspectives, such as top managers, ERP executives, ERP vendors’ view, etc., to avoid its weakness. In this research, interviews were conducted through faceto-face, telephone, and Internet. When one of the authors was in China, face-to-face interviews were carried out. When the author returned to UK, telephone and Internet interviews had to be employed due to the far distance. Authors tend to use interviews to find out some complex issues, which questionnaires cannot get, such as the solutions for ERP implementation and performance measurements. Unstructured interviews are the main kind of interviews in order to get interviewee’s real and in-depth ideas under a relaxed atmosphere. We have used a spreadsheet to summarize the statistics of responses obtained from the questionnaire. Considering the nature of data we have collected, it was felt that no formal statistical software is required. 6. Research findings While ERP aims at integrating functional-area information systems within a company into a coherent, enterprisewide, and web-enabled network, its implementation is especially challenging for Chinese enterprises because of high implementation costs, technical complexity, lack of IT infrastructure, lack of well-trained employees, lack of


incentives to state-owned enterprises, and a corporate culture different from that in the West (He, 2004). The questionnaire survey research was conducted during June and July 2004 on a group of Chinese candidates. Authors sent 56 questionnaire E-Mails. After 1 week, 32 respondents answered these questions. After follow-up EMail, other 16 replies arrived during the second week. Answers were then coded and extensively checked for validity. Some answers whose validity seemed dubious were discarded. Totally, 48 responds of 56 were received after 2 weeks, but there three answers were rejected as they were not finished completely or they chose more than one answer in multi-choice question. In the end, authors received 45 valid questionnaires, yielding a very good response rate of 80%. This response rate is a lot higher than that of other researchers’ reports because authors carried out some effective measures mentioned in previous sections to increase response rate and carefully selected sample. After the questionnaire survey, authors rang these non-respondents for the reasons. Two of them were too busy to complete the questionnaires, and five nonrespondents were not familiar with ERP issue. Only one person said he never received authors’ E-Mails. Of 56 questionnaires sent out, 48 replies were received, giving a response rate of 86%, which was regarded as very high. Of the 48 replies, 45 respondents—80% were usable. Rejected questionnaires were only 5%. Non-response rate was quite small, 14%. These rates are shown in Table 1. From Table 2, the responses we obtained from this survey are clearly not representative of the total population of Chinese companies because it is heavily tilted towards large-size companies, which made up of 38%, while in Chinese medium- and small-size enterprises are absolutely the majority. This paper has two limitations. First, it has a relatively small sample size due to the limited time and no fund support. It is based upon a questionnaires survey of 56 candidates in China with 45 usable returns. Thus, the resulting of questionnaires could not represent all companies in China. Second, as they are derived specifically for enterprises in China, it could not be applicable to firms in other nations. As a result, these difficulties and solutions in China could not be similar with other different countries. This study has two limitations. The total sample size is rather small. In order to obtain more reliable results, it should require a large-size sample, at least several thousands respondents. Perhaps, even more important is the problem of missing values because these values might be a source of significant respondents’ bias in this result. To avoid the potential bias inherent in this approach, one would wish to use more powerful statistical procedures and require a significantly larger sample size. It is recommended that future research may focus on: (i) verifying the research findings with large sample size; (ii) expending the studies to include various countries or for a multinational comparison.

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Table 2 Respondents’ enterprise scale distribution Large

Medium

Small

Total

SOEs Non-SOEs

7 10

3 12

2 11

12 33

Total Percentage

17 38

15 33

13 29

45 100

In this question, because different enterprises have different criteria to judge their scale, it is difficult to deploy a uniform standard to identify. Respondents decided their enterprises’ size compared with other same industry enterprises. Respondents’ occupation distribution is shown in Table 3. More than half percentage of respondents, 57%, is from IT industry. Others occupations only made up 13%. Thus, most of respondents are from the target population. These candidates ensure to get the rich and reliable result from their replies. Table 4 indicates only eight companies, which occupied 18%, completed the ERP implementation projects at the time of survey. From these data, Table 5 further reflects on the fact that most users of MRP systems are in medium- to large-scale manufacturing in spite of SOEs and non-SOEs. Only two small-size enterprises have the plan to run ERP systems. In the future, 18% enterprises plan to implement ERP, and 64% firms have no idea about ERP, so there is a huge potential market in China for ERP vendors, especially in small- and medium-sized enterprise target market. The further analysis of the data on ERP difficulties was limited to simple correlation analysis, building several independent and dependent variables, such as enterprises’ ownership and scale. Five interviewees were selected from various jobs in order to eliminate objective opinions. Each job chose one candidate for interview. These interviewee occupations’ distribution is shown in Table 5. From Table 6, it is undoubted that the absolute majority of respondents, 95%, who thought ERP systems were more than moderate agreed their effectiveness. Only two people, 5%, held the opinion that ERP was minor effective. Most of them deemed ERP was an effective system to promote enterprise performance at a great degree. Table 7 shows respondents’ opinions on ERP implementation difficulties in Chinese enterprises. Most of respondents thought ‘‘Support of top management’’ was the most important issue to decide implementation’s fate, ranked No. 1. ‘‘Costly and time-consuming’’, ‘‘Cultural differences’’, ‘‘Technical complexity’’, and ‘‘Lack of professional personnel’’ were also ranked as very serious problems. Only ‘‘Inner resistance’’ was identified as a moderate trouble by respondents. The further analysis of these difficulties was discussed in Section 6.1.


1330 Table 3 Respondent occupations’ distribution

Table 6 Interviewees’ opinion on ERP’s effectiveness

Respondents occupation

Respondents number

Percentage

IT professional ERP vendor or consultant Employee Others Top manager

15 11 8 6 5

33 24 18 13 11

Total

45

100

Table 4 ERP implementation’s distribution Implemented

Interviewee number

Percentage

A great degree A moderate degree A minor degree Not effective

32 11 2 0

71 24 5 0

Total

45

100

Table 7 ERP difficulties results by order

Plan to implement

No implementation

Total

SOEs Large Medium Small Total

2 1 0 3

1 1 0 2

4 1 2 7

7 3 2 12

Non-SOEs Large Medium Small Total

3 2 0 5

3 1 2 6

4 9 9 22

10 12 11 33

Total Percentage

8 18

8 18

29 64

45 100

Table 5 Interviewee occupations’ distribution Interviewee occupation

Interviewee number

Interviewee name

ERP project manager ERP vendor ERP consultant IT department manager Top manager

1 1 1 1

Mr. Mr. Mr. Mr.

1

Mr. Wang

Total

5

Dai Lee Zhang Huang

Percentage

20 20 20 20 20 100

6.1. Difficulties of ERP implementation in Chinese enterprises In the questionnaire, some facts on ERP difficulties were unveiled based on statistics methods. 6.1.1. Cultural differences The main obstacle of ERP in China is different culture. An awareness of cultural differences is critical to ERP success. The evidence from questionnaires supports this view. From the result of questionnaires, non-SOEs tend to have less trouble in culture difference than SOEs counter-

Support of top management Costly and time-consuming Cultural differences Technical complexity Lack of professional personnel Inner resistance

Total

Mean

Rank

201 193 191 185 180 172

4.47 4.29 4.24 4.11 4.00 3.82

1 2 3 4 5 6

parts because non-SOEs are deeply affected by Western cultures and easy to adopt new and advanced management thinking. From Table 8, SOEs respondents more worried about the culture difference than non-SOEs respondents did. It has no relevance with enterprise scale. The result is due to the following reasons based on interviews and second-hand documents. Vision is different between SOEs and non-SOEs. Top managers in non-SOEs are more actively involved in ERP projects than their SOE counterparts. Non-SOEs leaders envision ERP as a betthe-business initiative and view their own clearly demonstrated commitment as a CSF. In contrast, top SOE managers are commonly reluctant to become directly engaged in the ERP projects. This reluctance can be attributed to the prevalence of hierarchical authoritarianism and autocratic leadership in Chinese societies. Top managers enjoy status and power primarily because they are greatly respected by their subordinates. This respect would be compromised if they demonstrated unfamiliarity or lack of competence with an ERP system. By delegating ERP responsibilities to middle managers, they implicitly signal that the ERP project is not that critical to their organization and avoid burdening the risk of implementation failure. Moreover, most SOE executives under centralized economic environment in China tend to think ERP as more of a pure computer software package than of a unique business opportunity, and ERP project is less relevant with top management than IT department. In addition, for quite a few SOEs top managers, there are unrealistically high expectations of ERP programs. They think that ERP is some sort of panacea to improve enterprise management. Markus (2001) argues that ERP is more than a software package, suggesting it represents a


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within a particular country. On the other hand, enterprises also need brace changes to adopt advanced ERP systems.

Table 8 Cultural differences Number of firms

Total

Mean


7 3 2 12

32 13 9 54

4.60 4.33 4.50 4.50


10 12 11 33

41 50 46 137

4.10 4.17 4.18 4.15

Total

45

191

4.24

specific paradigm or mind-set. The business models underlying ERP packages reflect European or US industry practices (Soh et al., 2000) while the ERP concept fits the management mind-sets and organizational behaviours commonly found in Western economies rather than in Chinese situation. Decision-making is different between Chinese SOEs and non-SOEs. According to these interviews with candidates, almost every non-SOE has a cross-functional steering committee. This committee met frequently and made decisions based on a majority vote or less commonly through a group consensus. Resistance is reduced dramatically by getting users involved early in the project and providing significant rewards for meaningful contributions. On the other hand, SOEs had a much more centralized management structure. A small group of senior managers, usually the oldest rather than the most competent, tend to control rather than supervise the ERP project. Crossfunctional conflicts and user resistance are often suppressed rather than resolved. Language problem is also suffered by all Chinese enterprises. Most of the international ERP providers are from USA and Germany, so English is dominating. Translation is the necessary step to implement foreign ERP systems. Deviation of original meaning and misunderstanding are unavoidable. Culture differences indicate a poor fit between ERP and the Chinese SOE context. The misfit between ERP and traditional Chinese management systems (Martinsons and Hempel, 1995) is a fundamental incompatibility. Such an incompatibility would sustain the distinctive pattern of IT application in the Chinese business context (Martinsons and Westwood, 1997). More generally, it raises challenges about the adoption of Western business practices by Chinese SOEs. Based on above reasons, it is not difficult to understand why SOEs worry about the different cultures and non-SOEs has much more successful implementation rate than that of SOEs. Due to these reasons, ERP developers and consultants have to adapt their products and services to specific national contexts, and to different types of organizations

6.1.2. Technical complexity of ERP implementation ERP is too complicated to implement for most Chinese enterprises. Existing IT applications are restricted to financial accounting and very basic inventory control. A prerequisite need to consolidate activities across-functional areas inhibited the streamlining of entire processes. As a result, their ERP efforts aim to increase consistency and reduce costs like overhead. Non-SOEs have comparatively higher existing levels of IT application. Online databases for customers and materials are common. Their ERP implementations are thus able to build upon a solid foundation of semi-standardized and partly automated processes. Further enhancing standardization and automation is a common aim. However, non-SOEs leaders typically perceived ERP as part of a comprehensive and continuous effort to enhance their SCM and adopt the best business practices. From the survey (see Table 9), it was found that the degree depended on the scale of enterprise rather than the type of enterprise. The larger the enterprises, the lesser the trouble they faced. Large-size enterprises have in-house IT department, where there are some professional IT experts to deal with technical matters, whereas medium- and smallsize companies only have few people or nobody who are in charge of IT issues. Moreover, large-size companies can afford outside expertise to solve technical complexity; on the other hand, other enterprises have very limited budget to hire enough consultants, so they face more serious challenge in technical matter than their large counterparts. 6.1.3. Costly and time-consuming ERP is too expensive and time-consuming for Chinese enterprises. ERP implementation requires considerable financial and personnel resources. Based on data from Mabert et al. (2000) survey in US firms, large firms typically spend 5.6% of their annual revenues, whereas smaller firms spend up to 50% of their annual revenues on an ERP project. The data of Table 10 show the more obvious gap between large companies and medium and small companies in ‘‘Costly and time-consuming’’ difficulty. Cost and time are very crucial factors to affect medium and small companies’ opinion. They cannot afford expensive ERP software package and implementation costs. For ERP vendors, the result provided them an implication that developing an easy installation and affordable packages for medium and small market share is imperative. 6.1.4. Support of top management Top managers’ participation is most broadly associated with implementation success. Many companies entrust running the ERP implementation to the head of IT department. Mr. Zhang, one of the interviewees as IT consultant, opposed strongly this practice. He said that


1332 Table 9 Technical complexity

Table 11 Support of top management Number of firms

Total

Mean

Large SOEs Non-SOEs Total

7 10 17

26 37 63

3.71 3.70 3.71

Medium SOEs Non-SOEs Total

3 12 15

13 50 63

4.33 4.17 4.20

Small SOEs Non-SOEs Total

2 11 13

9 50 59

4.50 4.55 4.54

Total

45

185

4.11

Table 10 Costly and time-consuming Number of firms

Total

Mean

Large SOEs Non-SOEs Total

7 10 17

28 39 67

4.00 3.90 3.94

Medium SOEs Non-SOEs Total

3 12 15

13 51 64

4.33 4.25 4.27

Small SOEs Non-SOEs Total

2 11 13

9 53 62

4.50 4.82 4.77

Total

45

193

4.29

ERP did not aim to address a purely technical issue, nor a purely financial problem. ERP implementation was more the design of the whole business process and organizational structure at a high position. The role played by IT department was merely to turn management practices into computer language. Table 11 shows that all respondents expressed their strong concern about top management support in spite of the enterprises’ size and ownership. In China, if the project gets the strong support from top managers, it means the project can get enough material, people and financial resources and it is unnecessary to worry about other difficulties. Therefore, it is No. 1 difficulty in China, maybe in all other countries too. Literature has clearly demonstrated that for IT projects to succeed top management support is critical. ERP should be a project pushed by senior management, and headed by someone with a broad view. Understanding ERP is an

Number of firms

Total

Mean


7 3 2 12

32 13 9 54

4.57 4.33 4.50 4.50


10 12 11 33

45 54 48 147

4.50 4.50 4.36 4.45

Total

45

201

4.47

integral part of the tool kit of a qualified ERP project manager (He, 2004). Bingi et al. (1999) also found that top management support, e.g., is particularly important throughout the entire project life cycle. If ERP is a ship, enterprises need appropriate captain navigate it to the Promised Land. There is an important reason for the insistence that a senior manager with a broad perspective should navigate the ship of ERP. Implementation of ERP demands collaboration between various units, whose direct benefits from the project can vary greatly. Some units may lack the motivation to implement ERP and may therefore need to be pushed from top. In contrast, disputes between functional managers emerged frequently in IT-initiated projects. Even the top IT manager in a Chinese organization seldom had the political influence and extensive business knowledge to resolve these disputes and make ERP a success. Head of IT normally cannot accomplish the task. As a result, in the actual implementation process, top management needs to align lines of authority and responsibilities. When ERP is up and running, top management has to ensure that a system is in place to guarantee its smooth functioning. In reality, it is common for the implementation and operation of ERP to have been interfered with due to conflicts between different departments. Certainly, not all conflicts can be resolved smoothly; indeed, some call for coercive measures. However, decisions on changes to business process, especially in organizational structure, such as restructuring departments and downsizing, need strong support from top management. ‘‘After ERP implementation, some departments will unavoidably disappear, while others will undergo restructuring and job positions will be cut. These decisions need to be made by the head of an organization rather than some else. The key role that top management plays in ERP implementation is to support it unreservedly.’’ says Zhang. Projects initiated by IT as IT manager were much less likely to be successful than those ran by top management, the big boss in the hierarchical Chinese organization. Based on Martinsons (2004) survey, top management initiated


ERP projects in five of the eight cases. Four of these were successful implementations. In contrast, all three cases initiated by IT managers were failures. So successful ERP implementation in China, in spite of SOEs and non-SOEs, tends to be supervised by top management, planned ahead of feasible time, and tightly controlled during implementation. 6.1.5. Lack of professional personnel The one obstacle of ERP in China is lack of well-trained professionals. Because the ERP market has grown so big and so fast, there has been a big shortage of competent professional personnel. The skill shortage is so deep that it cannot be filled immediately. Finding the right people and keeping them through the implementation is a major challenge. ERP implementation demands multiple skills, functional, technical, and interpersonal skills. Moreover, ERP implementers with specific industry knowledge are fewer in number. There are not sufficient implementers with all the required skills in the world, especially in developing countries, such as China. SOEs tend to need more professional experts than nonSOEs shown in Table 12. Non-SOEs are more likely to outsource, hiring consultants, and their external contractors who have considerable experience to solve the lack of professionals. These consultants demonstrated an ability to guide ERP projects forward at critical junctures by drawing upon their expertise to resolve problems and conflicts, and the degree of consultants’ experience is broadly associated with more satisfactory implementation results. SOEs had limited experience with consultants. SOE management worried their competence would be questioned and authority undermined if they hired consultants. They rarely engage outside help, and tend to rely on their in-house IT personnel who are IT generalists rather than ERP experts. Although ERP software package is a lot, more complex than former IT systems and its implementation is challenging and sticky, firms may solve technical complexity by hiring outside brains, third-party IT professionals and consultants. 6.1.6. Inner resistance Many SOE employees worried about their job security, particularly after the ERP system was implemented. Their priority was to continue employment at the SOE, or finding a new job, rather than making the IT application work. According to Davison and Martinsons (2002), SOE employees are also reluctant to assume responsibilities associated with empowerment. The fixed mind-sets of SOE managers and workers are identified as a major obstacle to fully realizing the potential benefits of ERP. Compared with SOEs employees, non-SOEs staff would like to adopt the new technology and face challenges. Table 13 data are consistent with above views. People have a natural tendency to be comfortable with the status quo and may be fearful of changes brought

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Table 12 Lack of professional personnel Number of firms

Total

Mean


7 3 2 12

29 13 9 51

4.14 4.33 4.50 4.25


10 12 11 33

39 48 42 129

3.90 4.00 3.82 3.91

Total

45

180

4.00

Number of firms

Total

Mean

Table 13 Inner resistance


7 3 2 12

30 13 9 52

4.29 4.33 4.50 4.33


10 12 11 33

36 44 40 120

3.60 3.67 3.64 3.64

Total

45

172

3.82

about by any new system, especially one as pervasive as an ERP system. They may fear that the new system will make their jobs more difficult, reduce their importance, or even cost them their jobs. Wang, one of the interviewees as a senior manager in SOE, gave a good case for the point. Corruption is prevalent in the purchasing function of domestic companies. After ERP implementation, however, many functions in the old purchasing departments might become redundant, such as automated procurement plan, logistics managed by suppliers. The key roles of purchasing departments change to suppliers’ selection according to procedures, certifications of product quality, and the like. Vested interests in the purchasing departments run away. In addition, there is no longer a requirement to keep so many staff. Therefore, from the beginning of ERP implementation, the complete purchase of department, from department manager to normal clerks, was against the ERP. Until sacking the department manger and other main opponents, ERP implemented successfully without their resistance. He also advised that employee participation and sufficient training might lead to a better understanding of the nature of the project, and thus resulted in less resistance.



6.2. Key measurements to assess ERP performance Companies evaluating the success of deploying the manufacturing module cited two metrics most often: improved inventory turnovers and reductions in inventory levels. Other metrics employed by some companies include on-time delivery to the customer, material velocity, reduced returns, better order-fulfilment rate, cycle-count accuracy, reductions in IT costs, and working capital excess. Benchmarking is another useful component in the valuemeasurement process. Half of the companies that measure the value of their ERP use some form of benchmarking, although the type varies from company to company. Most companies benchmarked against themselves, such as preimplementation versus post-implementation. Others compared their results to industry averages, direct competitors, and comparable installations, for example implementations conducted by companies within the same industry and/or similar sizes. We found some difficulties in China enterprises in implementing ERP system, through questionnaires and interviews. The result of questionnaires showed that there was still huge potential ERP market in China, and most of respondents thought ERP was a very effective system. Top management support is No. 1 difficulty. Costly and timeconsuming ERP implementation challenges medium- and small-size companies more than large-size companies. An awareness of cultural differences is critical to ERP success. SOEs more worry about the cultural differences than their non-SOEs counterparts do. ERP is too complicated for most Chinese enterprises. The smaller the firms, the more the difficulty they face. SOEs tend to need more professional experts than non-SOEs due to the shortage of professional personnel. Inner resistance is less serious difficulty than others in China. SOEs employees are likely to oppose the new technology because they fear new challenges. After ERP implementation, the benefits are coming in spite of initial waves of frustration. Some financial and non-financial metrics are employed to valuate enterprise’s performance, such as inventory turnovers, reductions in inventory levels, on-time delivery to the customer, material velocity, reduced returns, better order-fulfilment rate, cycle-count accuracy, reductions in IT costs, and working capital excess. 7. Conclusions Realizing the importance of emerging economies such as Brazil, China, and India, and their organizational competitiveness through the implementation of ERP systems, an empirical study has been reported in this paper to highlight the implementation issues of ERP in China. The results of the study are hoped to be helpful to companies in both developed and developing economies with reference to developing and implementing ERP systems in their organizations. This empirical research is based on the data

collected from Chinese companies by using a standard questionnaire. Through the statistics and analysis of questionnaires and interviews from Chinese respondents, some findings have been explored by the authors. Difficulties in ERP implementation in order of importance: Support of top management, Costly and time-consuming, Cultural differences, Technical complexity, Lack of professional personnel, and Inner resistance. Inner resistance is less serious than other five difficulties in Chinese context. Some difficulties are affected by enterprise’s ownership and size: Suggested solutions to overcome these difficulties, ERP software packages selection, ERP implementation team, BPR, Training, and Outsourcing-Application Service Provider.

Acknowledgements The authors are most grateful to anonymous reviewers and the Editor-in-Chief, Dr. George Hayward, for their constructive comments that helped to improve the presentation of the paper considerably.

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Yahaya Yusuf is a Senior Lecturer in Operations Management in the Business School, University of Hull. Prior to that, he was Lecturer, School of Engineering and Computer Science, University of Exeter. He was also a Research Fellow at Brunel University working on the role of Agile Manufacturing in the UK aerospace industry. Dr. Yusuf holds a First Class degree in Mechanical Engineering. He worked in industry, as a production engineer, before commencing a Ph.D. programme in Liverpool University Department of Engineering. He has published in the

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International Journal of Operations and Production Management (IJOPM), International Journal of Production Economics (IJPE), Journal of Intelligent Manufacturing, International Journal of Manufacturing Technology Management (IJMTM), Leadership and Organisation Development Journal and European Journal of Operational Research. He has worked on a number of projects funded by EPSRC and DTI. He is the Editorin-Chief of the International Journal of Agile Systems and Management. He is also on the editorial board of the journal, Benchmarking: An International Journal, and the International Journal of Modelling, Identification and Control as well as the International Journal of Logistics Systems and Management.

Angappa Gunasekaran is a Professor of Operations Management in the Department of Management at the Charlton College of Business, University of Massachusetts, Dartmouth. Dr. Gunasekaran has held academic positions at Brunel University (UK), Monash University (Australia), the University of Vaasa (Finland), the University of Madras (India) and the University of Toronto, Laval University, and Concordia University (Canada). He is teaching undergraduate and graduate courses in operations management and management science. Dr. Gunasekaran has received Thomas J. Higginson Award for Excellence in Teaching (2001–2002) within the Charlton College of Business. He has over 180 articles published in 40 different peer-reviewed journals that include Journal of Operations Management, International Journal of Operations & Production Management, International Journal of Production Research, Production and Inventory Management Journal, European Journal of Operational Research and Computers & Industrial engineering. He has presented about 50 papers and published about 50 articles in conferences and given a number of invited more talks in about 20 countries. He has received an Outstanding Paper Award from Managerial Auditing Journal for the year 2002. Dr. Gunasekaran is on the Editorial Board of over 20 journals that include Journal of Operations Management, International Journal of Production Economics, International Journal of Computer-Integrated Manufacturing, International Journal of Production Planning and Control, International Journal of Operations & Production Management, Technovation, and Computers in Industry: An International Journal. Dr. Gunasekaran is involved with several national and international collaborative projects that are funded by both private and government agencies. He has organized several international workshops and conferences in the emerging areas of operations management and information systems. Dr. Gunasekaran has edited a couple of books that include, ‘‘Agile Manufacturing: The 21st Century Competitive Strategy’’ (Elsevier) and ‘‘Knowledge and Information Technology Management: Human and Social Perspectives’’ (Idea Group Publishing). Dr. Gunasekaran is the Editor of Benchmarking: An International Journal and the North-American Editor of Supply Chain Management: An International Journal. He has edited special issues for a number of highly reputed journals and some of them include: Decision Support Systems, European Journal of Operational research, Business Process Management Journal, Information Systems Journal, Logistics Information Management, International Journal of Operations & Production Management, International Journal of Production Economics, and Journal of Operational Research Society.



Canglin Wu is a certified free-lance SAP BW consultant in Canada. He worked for Samsung China and Chinese Academy of Science and was involved in some SAP projects in China. He held an MBA degree from University of Hull, UK and a Master of Science degree in Computer Science from University of Northeast, China. He has presented about 10 papers relating with computer science in professional journals and international conferences.