CRITICAL SUCCESS FACTORS FOR THE IMPLEMENTATION OF ENTERPRISE RESOURCE PLANNING SYSTEMS IN MALAYSIA

Transcription

1 CRITICAL SUCCESS FACTORS FOR THE IMPLEMENTATION OF ENTERPRISE RESOURCE PLANNING SYSTEMS IN MALAYSIA By SEYED MOHAMMADBAGHER JAFARI Thesis Submitted to the School of Graduate Studies, Universiti Putra Malaysia, in Partial Fulfilment of the Requirement for the Degree of Master of Science October 2006

2 In dedication to: My dear parents, and my beloved brother and sister For all their encouragement, patience and support With love and gratitude ii

3 Abstract of thesis presented to the Senate of Universiti Putra Malaysia in partial fulfilment of the requirements for the degree of Master of Science CRITICAL SUCCESS FACTORS FOR THE IMPLEMENTATION OF ENTERPRISE RESOURCE PLANNING SYSTEMS IN MALAYSIA By SEYED MOHAMMADBAGHER JAFARI October 2006 Chairman : Ir. Mohd. Rasid bin Osman Faculty : Engineering Enterprise resource planning (ERP) systems as the last version of Manufacturing Resource Planning (MRP II) can be considered as the most important development in the corporate use of information technology and is beginning to be the backbone of organizations. The difficulties and high failure rate in implementing ERP systems have been widely cited in the literature. Factors affecting ERP implementation are complex and abundant. Numerous authors have identified a variety of factors that can be considered to be critical to the success of an ERP implementation. The objective of this research is to identify and evaluate the critical factors that affect ERP systems implementation success in Malaysia. The importance of these factors and the measures of a successful ERP system implementation have been investigated. These critical success factors (CSFs) were derived through a process that involved identification and synthesis of those critical requirements for implementation that have been recommended by practitioners and academicians iii

4 through an extensive review of the literature. Through this comprehensive review, ten factors were found to be critical to ERP implementation success: top management support, clear goals and objectives, communication, effective project management, business process reengineering, data accuracy and integrity, suitability of software and hardware, vendor support, education and training, and user involvement. By using questionnaire survey method, these factors were investigated in Malaysian companies in order to know their importance. A questionnaire including these criteria was formed to secure data from companies. To measure the importance of various critical factors, a five-point Likert scale was used in the questionnaire. Statistically the importance of the identified CSFs has been determined between Malaysian firms. Top management support and Clear goals and objectives have been shown to be the extremely important factors for ERP implementation in Malaysia. Case study review was conducted as a supplementary work to enhance the results of the survey. Data analysis showed that CSF is vital to ERP implementation and more awareness of CSFs leads to a more satisfied and successful ERP implementation. Moreover, the data analysis confirmed that more awareness of CSFs leads to more outcomes of ERP systems. This study proves the significance of CSFs in ERP implementation. The practical implications of this study are useful information about ERP systems situation in Malaysia. Recommendations from this study are useful for ERP vendors, iv

5 consultants and Malaysian companies that are implementing ERP or expecting to implement it to make certain their success. v

6 Abstrak tesis yang dikemukan kepada Senat Universiti Putra Malaysia sebagai memenuhi keperluan untuk ijazah Master Sains FAKTOR-FAKTOR KRITIKAL BAGI KEJAYAAN PELAKSANAAN SISTEM PELAN SUMBER KEUSAHAWANAN DI MALAYSIA Oleh SEYED MOHAMMADBAGHER JAFARI Oktober 2006 Pengerusi : Ir. Mohd. Rasid bin Osman Fakulti : Kejuruteraan Perancangan Sumber Perusahaan (ERP) sistem sebagai versi terakhir di dalam Perancangan Sumber Pembuatan (MRPII) boleh dianggap sebagai perkembangan terpenting di dalam penggunaan teknologi maklumat di sesebuah koporat dan merupakan tulang belakang bagi sesuatu orginasasi. Kadar kegagalan dan kesukaran yang tinggi di dalam memperkenalkan sistem ERP telah diperkenalkan di dalam literatur. Faktor yang mempengaruhi di dalam pelaksanaan sistem ERP adalah kompleks dan membebankan. Ramai penulis telah mengenalpasti pelbagai faktor yang boleh dianggap sebagai kritikal di dalam kejayaan bagi pelaksanaan sistem ERP. Objektif bagi kajian ini adalah untuk mengenalpasti dan menilai faktor- faktor kritikal yang mempengaruhi kejayaan di dalam pelaksanaan sistem ERP di Malaysia. Kepentingan faktor-faktor tersebut dan penilaian bagi kejayaan untuk pelaksanaan sesuatu sistem ERP telah juga dikaji. Faktor-faktor kritikal bagi kejayaan (CSFs) telah diperolehi melalui satu proses yang melibatkan pengenalpastian dan sintesis vi

7 keperluan kritikal bagi memperkenalkan faktor yang telah disyorkan oleh para akademik dan pengamal melalui kajian literatur yang menyeluruh. Melalui kajian ilmiah terperinci, sepuluh faktor kritikal dalam kejayaan pelaksanaan Sistem ERP telah dikenalpasti: Sokongan pengurusan atasan, matlamat dan objektif yang jelas, komunikasi, pentadbiran projek yang berkesan, proses kejuruteraan kembali perniagaan, integriti dan ketepatan data, kesesuaian perisian dan pekakas, sokongan pembekal, latihan dan pendidikan dan penglibatan pengguna. Melalui kaedah borang selidik, faktor-faktor berkenaan telah dikaji di dalam syarikat- syarikat tempatan bagi menentukan kepentingannya. Borang soal selidik tersebut mengandungi elemen kriteria berkenaan telah dibentuk untuk mendapatkan data daripada syarikat berkenaan. Bagi menilai kepentingan pelbagai faktor kritikal tersebut, satu skala Likert lima-mata telah digunakan di dalam borang soal selidik. Melalui kaedah statistik, kepentingan CSFs telah dikenalpasti di antara firma-firma Malaysia. Sokongan pengurusan atasan dan matlamat dan objektif yang jelas telah dikenalpasti sebagai faktor yang terpenting di dalam pelaksanaan ERP di Malaysia. Tinjauan semula kes penyelidikan telah dilaksanakan sebagai kerja tambahan untuk mempertingkatkan mutu hasil-hasil kajian. Analisis data menunjukkan bahawa CSFs sangat penting dalam pelaksanaan ERP dan kesedaran yang lebih banyak dalam CSFs akan membawa kepada kepuasaan dan kejayaan yang tinggi dalam pelaksanaan ERP. Selain itu, data analisis mengesahkan bahawa jika lebih banyak perhatian diberi kepada CSFs akan membawa kepada kejayaan pelaksanaan sistem ERP yang lebih tinggi. Kajian ini telah menunjukkan kepentingan CSFs di dalam pelaksanaan ERP. vii

8 Implikasi secara praktikal daripada kajian menunjukkan maklumat penting mengenai situasi sistem ERP di Malaysia. Cadangan daripada kajian ini sangat berguna bagi pembekal ERP, perunding dan syarikat di Malaysia yang sedang melaksanakan ERP atau bercadang untuk melaksanakan sistem ini bagi membantu kejayaan syarikat mereka. viii

9 ACKNOWLEDGEMENTS All the praise to Allah the Al-Mighty for his blessing and benevolence I wish to express my sincere gratitude and appreciation to the numerous individuals who have contributed towards the completion of this thesis: To my supervisor, Ir. Mohd. Rasid bin Osman, and other members of the supervisory committee: Associate Professor Dr. Rosnah Mohd. Yusuff and Dr. Tang Sai Hong, for their invaluable advice, supervision and assistance during this research. Their encouragement, moral and technical support made this work possible. To SMIDEC, Malaysian companies and all other individuals that contributed directly or indirectly in this research. To all staff in the Department of Mechanical & Manufacturing Engineering, UPM. To all my friends in UPM and in Malaysia for all their moral support. To all of Iranian and overseas students who involved directly or indirectly towards the success of this research. To my dear parents and my beloved brother and sister, for their warm encouragement, patience, love and support. Thank you for all your contributions. May Allah bless you all. ix

10 I certify that an Examination Committee has met on 6 th of October 2006 to conduct the final examination of Seyed Mohammadbagher Jafari on his degree thesis entitled Critical Success Factors for the Implementation of Enterprise Resource Planning Systems in Malaysia in accordance with Universiti Pertanian Malaysia (Higher Degree) Act 1980 and Universiti Pertanian Malaysia (Higher Degree) Regulations The Committee recommends that the candidate be awarded the relevant degree. Members of the Examination Committee are as follows: Shamsuddin Sulaiman, PhD Associate Professor Faculty of Engineering Universiti Putra Malaysia (Chairman) Wong Shaw Voon, PhD Associate Professor Faculty of Engineering Universiti Putra Malaysia (Internal Examiner) Ir. Mohd. Yusof Ismail, PhD Associate Professor Faculty of Engineering Universiti Putra Malaysia (Internal Examiner) Haji Baba Mohd. Deros, PhD Lecturer Faculty of Engineering Universiti Kebangsaan Malaysia (External Examiner) HASANAH MOHD. GHAZALI, PhD Professor/ Deputy Dean School of Graduate Studies Universiti Putra Malaysia Date: x

11 This thesis submitted to the Senate of Universiti Putra Malaysia and has been accepted as partial fulfillment of the requirements for the degree of Masters of Science. The members of the Supervisory Committee are as follows: Ir. Mohd. Rasid Osman Lecturer Faculty of Engineering Universiti Putra Malaysia (Chairman) Rosnah Mohd. Yusuff, PhD Associate Professor Faculty of Engineering Universiti Putra Malaysia (Member) Tang Sai Hong, PhD Lecturer Faculty of Engineering Universiti Putra Malaysia (Member) AINI IDERIS, PhD Professor/Dean School of Graduate Studies Universiti Putra Malaysia Date: 16 JANNUARY 2007 xi

12 DECLARATION I hereby declare that the thesis is based on my original work except for quotations and citations, which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other degree at UPM or other institutions. SEYED MOHAMMADBAGHER JAFARI Date: xii

13 TABLE OF CONTENTS Page DEDICATION ABSTRACT ABSTRAK ACKNOWLEDGEMENTS APPROVAL DECLARATION LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS ii iii vi ix x xii xvi xviii xix CHAPTER 1 INTRODUCTION Introduction Problem Statement Research Objectives Significance of Study Layout of Thesis 9 2 LITERATURE REVIEW ERP ERP Systems Modules The Evolution of ERP ERP Systems Software Strategic Reasons for ERP Systems Implementation ERP Systems Implementation Models The Parallel Approach Big Bang The Phased Approach ERP Systems Implementation Issues Critical Success Factors Method ERP Implementation Process ERP Systems Success Measures Proposed Critical Success Factors Top Management Support Clear Goals and Objectives Communication Effective Project Management Business Process Reengineering Data Accuracy and Integrity Suitability of Software and Hardware Vendor Support Education and Training User Involvement Conclusion 72 xiii

14 3 METHODOLOGY Introduction Identify Success Measures and Critical Success Factors Design of Survey and Questionnaire Instrument Validity and Pilot Test Survey Population Distribution and Collection of Questionnaires Survey Data Analysis Case Study Implementation of Case Study Case Study Data Analysis Conclusion 83 4 RESULTS AND DISCUSSION Survey Response Rate Instrument Validation Content Validity Reliability Section A: Company Background Company Name Category of Company Type of Industry Number of Employees Respondent s Position Section B: ERP System Specification Implementation Stage ERP Software Installed Modules Implementation Duration Section C: Implementation Specification Planned Time Planned Budget Overall Satisfaction Original Expectations General Outcome Section D: Critical Success Factors Top Management Support Clear Goals and Objectives Communication Effective Project Management Business Process Reengineering Data Accuracy and Integrity Suitability of Software and Hardware Vendor Support Education and Training User Involvement Total Ranking Case Study Results Background of the Case Companies 114 xiv

15 4.7.2 Cross Case Examination on ERP Implementation 116 Aspects among the Case Companies Cross Case Examination on CSFs among the Case Companies Discussion ERP Implementation Process and Success 125 Measures The CSFs Importance Degree The Comparison between CSFs Importance Degree 132 and their Ranking The CSFs and Satisfaction Rate The CSFs and General Outcome Conclusion CONCLUSIONS AND RECOMMENDATIONS Conclusions Recommendations for Companies Implementing ERP 139 Systems 5.3 Recommendations for Future Research 140 REFERENCES 141 APPENDICES 149 BIODATA OF THE AUTHOR 158 xv

16 LIST OF TABLES Table Page 2.1 The revenue of ERP systems vendors in 2003 and ERP success measures mentioned in the literature Critical success factors mentioned in the literature Reliability analysis Type of industry Implementation project stage ERP software implemented Category of company vs. ERP software Installed modules Installed modules vs. category of company The duration of implementation project The duration of implementation project vs. category of company Implementation project on-time situation Implementation project expenses situation Overall satisfaction Original expectation of ERP implementation General outcome of ERP implementation Top management support Clear goals and objectives Communication Effective project management 107 xvi

17 4.18 Business process reengineering Data accuracy and integrity Suitability of software and hardware Vendor support Education and training User involvement Total CSFs ranking Background of the case companies Comparison on the major aspects of ERP system implementation by each 117 case company 4.27 Over time implementation vs. satisfaction rate Over budget implementation vs. satisfaction rate Average rating of CSFs by degree of importance The coefficient of variance of CSFs Comparison between the mean of CSFs importance degree and ranking Correlation coefficient between CSFs mean and satisfaction rate Correlation coefficient between CSFs mean and general outcome CSFs average by degree of importance 138 xvii

18 LIST OF FIGURES Figure Page 2.1 An ERP System s Modules Production Planning within MRP II Conceptual Framework of ERP II ERP Evolution The ERP systems vendors market share revenue in The Parallel Approach Big Bang Approach The Phased Approach The Summary of ERP Systems Investment The ERP Implementation Process Flowchart of the Research Category of Companies Number of Employees Respondent s Position Number of Installed Modules Order of CSFs by Degree of Importance CSFs Mean vs. Satisfaction Rate CSFs Mean vs. General Outcome 136 xviii

19 LIST OF ABBREVIATIONS AI APICS BPR B2B B2C B2E CIO CV CPM CRM CSF DW EAI EIU ELM ERP ICT IS IT MIS MITI MPS MRP MRP II Artificial Intelligence American Production and Inventory Control Society Business Process Reengineering Business-to-Business Business-to-Consumer Business-to-Employee Chief Information Officer Coefficient of Variance Corporate Performance Management Customer Relationship Management Critical Success Factor Data Warehousing Enterprise Application Integration Economist Intelligence Unit Employee Lifecycle Management Enterprise Resource Planning Information & Communication Technology Information Systems Information Technology Management Information Systems Ministry of International Trade & Industry Master Production Schedule Material Requirement Planning Manufacturing Resource Planning II xix

20 PLM PSA RFID SCM SME SMI SMIDEC SOA SPSS SRM Product Lifecycle Management Professional Service Automation Radio Frequency Identification Supply Chain Management Small and Medium Enterprise Small and Medium Industries Small and Medium Industries Development Corporation Service-Oriented Architecture Statistical Package for Social Science Supplier Relationship Management xx