Free Essay: Success Factors in the Implementation of the Enterprise Resources Planning (ERP) System in SME in Iraq

Chapter 1

Introduction

The global economic setting has undergone dramatic change due to financial adversity, political unrest, or natural calamities. As a result, businesses that are majorly affected by such unwarranted situations conduct strategic initiatives to have sustainable competitiveness. The adopted strategies help organizations to improve their business procedures and practices (Shaul and Tauber, 2013). Because of this, organizations have been moving towards upgrading to increase their capability to communicate the needed information accurately and on time. As a tool for change, enterprise resource planning (ERP) system integrates information and communication technology (ICT) in organizations for them to join the rest of the global market (Almgren & Bach, 2014). The ERP systems are capable of planning resources integrating multiple units and corporate functions in an integrated computer system to meet certain requirements. The integration involves multiple subsystems within the organization where the modernized technologies from information technology (IT) are applied.

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Small and Medium Enterprises (SMEs) face multiple challenges attributable to their lower budget allocation. This is despite them having the same demands and expectations as large companies that call for their enhanced level of services to meet business goals. In Iraq, the business environment for SMEs has significant changes over the past few years. This requires them to ensure that customers’ satisfaction is achieved alongside providing flexible services (Baker, 2012). SMEs are adopting the implementation of ERP alongside other approaches to enhance their business operations through business model innovation, job automation, and improved client services. The ERP implementation by SMEs has led them reap the benefits of an integrated working environment, operational benefits, and standardized process (Klaus et al. 2000). However, as most SMEs become willing to adopt the ERP system to increase their computing resources, the expensive solutions have hindered this technological advancement. The current research investigates the success factors that contribute to the ERP implementation among the SMEs in Iraq markets.

Background Information

Since the 1980s, there has been a significant growth in business that has been catalyzed by the adoption of the ICT bases applications. With ICT applications, firms become capable of enhancing the flexibility of their businesses, improve the information flow, streamlining the operations of the business, and integrating functionalities (Lecic & Kupusinac, 2013). If ICT is successfully adopted, it helps the firms to achieve economic progress. In recent times, ERP is among the profound used ICT applications.

The evolution of ERP started way back in the 1960s when inventory control was the reason behind the manufacturing of systems (Shaul and Tauber, 2013). By then, many companies were struggling to survive through meeting the demand of customers and remaining at the pace with the competition. The major challenge that companies faced was how to efficiently manage large volumes of inventory since the available packages handled inventory traditionally (Bingi et al. 1999). Material requirements planning (MRP) became the first solution developed by firms to ease the problem of inventory and a massive boost towards the materials planning process. Similarly, improvements were experienced in productivity and quality since companies could systematically and efficiently schedule multiple parts with the inclusion of the techniques for capacity planning.

Further developments led to a closed-loop MRP in which tools that supported customer order promising, forecasting, high-level resource analysis, planning of production levels, and aggregate sales were developed. The need development was facilitated by the incorporation of the techniques for scheduling of the MRP systems factory floor and supplies of the essential services (Katerattanakul et al. 2014).

At a later stage, MRP II for manufacturing resources planning emerged. The new technology incorporated the systems of financial accounting and the system of financial management. This was enhanced by the systems of material and manufacturing management, allowing companies to integrate their business system (Leyh, 2014). The new plan could include areas such as communication systems, capacity and material planning, finance, human resources, and project management (Garg & Chauhan, 2015). As a result of the increased scope of planning, ERP emerged to include all companies that intended to enhance their competitiveness.

ERP is part of the integrated information system adopted by the organization to support their resource management and business processes. ERP systems segment was the fastest growing in the software market during the last decades and have become essential development in IT. The ERP market is fragmented, leading to the increased availability of ERP systems with multiple philosophies and technologies (Shaul and Tauber, 2013). Through ERP, organizations improve their effective and efficient ways of using resources such as capital, human resources, and materials, among others. The business units of the organization are integrated, supporting the operations of the company, which then provides the optimum benefit to the company.

Implementing ERP projects by an organization requires a significant amount of time and resources. ERP systems have experienced growth in many corporations, including SMEs, subsequently leading to high financial and human resources expenditure if the successful implementation has to be realized (Arnold et al. 2006). The increase in the ERP systems is because of attempting by the firms to optimize the processes of a firm, integrates the information from the firm, and offers real-time information to the managers. They comprise of a central database and integrated software modules that facilitate a firm to increase the efficiency and the effectiveness of the use of resources (Dumitru et al., 2013). Similarly, ERP systems have been common in SMEs and multinational organizations over the last decade as the technology industry is growing, and ERP systems have become more affordable.

The growth in the adoption and implementation of the ERP system has attracted multiple numbers of suppliers. These groups have adopted the use of innovation to improve on the system software that clients want. Some of the ERP vendors that businesses are sourcing the systems include Microsoft, Oracle, Baan International, People-soft Inc., and SAP. The ERP systems benefits include improved quality, profitability, productivity, increased efficiency, and timely information generation and communication. They are useful in accounting because they minimize the time and cost of financial reporting and accounting, minimizes plays, and improves employee productivity due to their integration and analysis of data (Ahmadi et al., 2015).

The advantages that come with the adoption of ERP systems have lured firms into implementing them to achieve a competitive global environment. The ERP system haave the main components which include modules such as inventory control, parts purchasing, product planning, human resource, and order tracking. There are hardware and operating systems, including UNIX, Linux, and Windows NT, that are important in business processes. The ERP system implementation determines a firm’s success or failure hence needs to be appropriately analyzed to avoid financial and time loss in case the system fails to meet the objectives of the firm.

Today, many companies have invested in ERP systems despite the existence of different business information integration alternatives for various reasons. The underlining reasons range from technical to business gains such as legacy systems replacement and operational efficiency and performance improvement. The technical reasons behind the adoption of ERP by firms are to have a disparate system replaced into a single integrated system. In the 1990s, it was essential to replace the boom of ERP because many businesses had the desire of replacing their legacy systems in the period of 2000s (Juell-Skills, 2006). Through ERP, firms can test the basis of their system security to ensure the security standards of the organizations are maintained, and data is secure (Shaul and Tauber, 2013). The business reasons include reengineering the processes and procedures of the business, automation, availability of better information, and better operations and management. Firms also look forward to improving teamwork and cooperation among employees in an organization.

Factors SME’s Focus on when Implementing ERP System

From the background information, the process of implementing the ERP system is essential in any business. Technology Organization Environment theory is used to describe the factors that influence the adoption of technology by an organization (Baker, 2012). In this framework, three aspects is identified to have the influence on the process through which organizations adopt and implement novel technologies. These aspects include the organizational context, the technological context, and the environmental contexts. The technological context encompasses the technologies that are relevant to the organization. The organizational context refers to the resources and characteristics of the institution such as its size, the degree to which it is centralized, the composition of its human resources, and its managerial structure, on the other hand, the environmental context constitutes of the size and the structure of the industry in which the organization operates in. It also constitutes the macroeconomic environment, its competitors, and the regulatory environment.

Many researchers including Agaoglu, Yurtkoru, and Ekmekci (2015) have conducted their studies to identify multiple success factors and how they impact on the implementation of ERP in a multinational consumer goods firm. Some of the factors identified include but not limited to vendor support, user training and user involvement. There are those who have focused on identifying the interrelationships of critical issues that are involved in the implementation of ERPs in Small and Medium Enterprises (SMEs) such as Ahmad and Cuenca (2012). This researcher identified about 33 success factors in groups of operational, neutral and organizational factors. The factors that were studied by the researcher include software customization, vendor support, training on software interdepartmental communication and monitoring and evaluation progress. There are those who mentioned success factors such as Chiasson and Davidson (2005). These researchers researched the life cycle, level of organization, technology, vendor, integrated components, level of the country and the end user. Success factors such as centralized payment, closed inventory, use of ERP’s consultants, user participation, and legacy systems knowledge among others were identified by Gajic et al. (2014).

It is important that ERP implementation gets support from all of the functional areas of an organization through the companywide commitment. This is an important success factor that is determined by the employees and head of departments since an organization needs to ensure that they are committed to the process of implementation. Another factor that SME’s focus on when implementing ERP systems is the suitability of the hardware and software components. SMEs also focus on attaining top management support while implementing ERP systems.