CRITICAL FACTORS EFFECT USER SATISFACTION AND IMPACT OF ERP SYSTEM

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1 Proceedings of the 11th Annual Conference of Asia Pacific Decision Sciences Institute Hong Kong, June 14-18, 2006, pp CRITICAL FACTORS EFFECT USER SATISFACTION AND IMPACT OF ERP SYSTEM Li-Ling Hsu & Yu-Te Weng Dept. of Information Management National Kaohsiung First University of Science and Technology 2, Juoyue Rd., Nantz District, Kaohsiung, Taiwan, R.O.C. Tel: (07) #4123, Fax: (07) ABSTRACT Small and medium sized enterprises have been playing a vital part in Taiwan s economic development. Over the recent years, the benefits of ERP systems have appealed to not only large firms, but also small and medium sized firms. However, implementation of ERP systems requires a considerable investment in time, money and resources, especially to SMEs. Its high failure rate can be devastating to SMEs. With user satisfaction as the measurement instrument, this study evaluates the success factors that affect ERP user satisfaction and the impact of ERP success on individuals and organizations. However, implementation of an ERP system always requires considerable investment in time, money and resources. Its high failure rate may also arouse employees resistance to the adoption of ERP. Keywords: Enterprise Resource Planning, Innovation of Diffusion Theory, IS Success Model, User Satisfaction INTRODUCTION ERP systems have become increasingly prevalent over the last 10 years, which appeal to not only large firms, but also small and medium sized firms. In 2003, the Taiwan s magazine IT and PC, a magazine for IT application for management, found in a survey of the e-business status of small businesses, a large number of SMEs utilize ERP systems, as the system captures the future gains that will accrue to them. Nevertheless, ERP implementation has yielded more failures than successes (Voordijk et al., 2003)[9]. It is widely recognized that implementation of ERP systems has been increasingly prevalent over the recent decade, as they are able to disseminate timely and accurate information also enables improved managerial and worker decision-making for both large and small and medium sized firms. However, there is little study with regards to factors that lead to the system success. Thong (1999) argued that past IS literature focuses on the performance of IS implementation, instead of the factors that affects the performance of the system[8]. There are also researchers who postulated key elements that affect the implementation of ERP systems for large businesses may not be effective to SMEs (Premkumar & Robert, 1999)[6]. In comparison with the large firms, SMEs finite resources is the main reason that keep them from implementing IS (Welsh & White, 1981)[10]. Implementation of ERP systems requires a huge investment in time, money and internal resources (Bailey, 1999; White et al, 1997)[1][11]. With the IS Success Model and Diffusion of Innovation theory as fundamentals, we attempt to investigate: 1. The impacts of user innovation attributes and organizational attributes on ERP implementation. 2. The impact of user satisfaction on individuals and organizations. 3. Individual impacts on organizational impacts, say, the impact of individual performance on organizational performance. LITERATURE REVIEW ERP systems offer enterprises an integrated solution by automating operations from human resources, cost accounting, manufacturing scheduling and production, distribution, or any other business activities (Bingi et al, 1999). Multi-firm ERP implementations serve enterprises in an integrated manner, providing core processes, timely and reliable component functions that enable improved managerial and organizational performance. Over the past decades, users have played an important role in the development of IT systems (Lin & Shao, 2000;

2 CRITICAL FACTORS EFFECT USER SATISFACTION AND IMPACT OF ERP SYSTEM 235 Mahmood et al., 2001).[4][5] Bingi et al (1999) pointed out ERP systems are packaged software applications[2]. User education and training are necessary in order to avoid failures of system implementation. In other words, user participation is an enabler for the success of IS. Rogers (1995) defined innovation of diffusion as the process by which an innovation is communicated through certain channels over time among the members of a social system [7]. It can be an idea, practice, or object that is perceived as knew by an individual or other unit of adoption (Thong, 1999)[8]. Cooper & Zmud (1990) postulated IT deployment is defined as "an organizational effort directed toward diffusing appropriate information technology within a user community[3]. IT is generally known as new technologies; it can be computers, hardware, or software. Therefore, ERP systems can be seen as information technology innovation. The proposed research model is shown in Figure 1. RESEARCH METHODOLOGIES User Attributes Computer Anxiety(-) User Participation (+) Training (+) H1~H3 Individual Impacts Perceived Attributes of Innovation H11 Compatibility(+) Complexity(-) Observability(+) Trialability(+) H4~H7 User Satisfaction H13 Organizational Attributes H12 Top management support(+) Centralization(-) Formalization(+) H8~H10 Fig. 1: Research Model Organizational Impacts Our base hypotheses are thus: H1: Low levels of computer anxiety increase user satisfaction. H2: High levels of user participation increase user satisfaction. H3: High levels of training experience increase user satisfaction. H4: High levels of system compatibility increase user satisfaction. H5: High levels of system complexity reduce user satisfaction. H6: High levels of system observability increase user satisfaction. H7: High levels of system trialability increase user satisfaction. H8: High levels of top management support increase user satisfaction. H9: Centralization is negatively related to user satisfaction in ERP implementation. H10: Formalization is positively related to user satisfaction in ERP implementation. H11: High levels of user satisfaction have a positive effect on individual impacts. H12: High levels of user satisfaction have a positive effect on organizational impacts. H13: High levels of individual impacts have a positive effect on organizational impacts. DATA ANALYSIS The study was carried out in two separate groups that were implementing an ERP system. A total of 504 suppliers selected from 13th annals TAIWAN SME NATIONAL AWARD and the 8th Research Innovation Award given by the Ministry of Economic Affairs (MOEA) were the sample source of this paper, 504 questionnaires were mailed to each company on Jan. 24, A total of 130 usable and valid questionnaires were collected, with response rate at 25.79%.

3 236 LI-LING HSU, YU-TE WENG Table 1. Business Type and Registered Capital Type % Registered Capital (NT$) % IT Electronics 28.46% <=12 millions 4.62% IT Service 3.08% 12~29 millions 10.00% Mechanical & Electromechanical 24.62% 29~46 millions 4.62% Process & Materials 11.54% 46~63 millions 5.38% Service 3.08% 63~80 millions 5.38% Others 29.23% >=80 millions 70.00% Table 2. ERP Implementation Time and Modules Implementation Time % ERP Modules % <=2 years 35.83% Distribution Control 66.92% 2~4 years 33.33% Finance & Accounting 90.77% 4~6 years 15.00% Human Resource 36.15% 6~8 years 7.50% Manufacturing 90.00% >=8 years 8.33% Others 8.46% Table 3. ERP System Integrator ERP SI % ERP SI % Data Systems 26.92% J.D. Edwards 0.77% Fast Technologies, Inc. 0.77% Baan 1.54% Proyoung 3.85% Microsoft 5.38% SAP 2.31% Others 53.85% Oracle 4.62% Table 4. Results of Independent Samples T-Test (National Award vs. Research Innovation Award) Constructs National Award (n=49) Research Innovation Award (n=81) Means Std. Dev. Means Std. Dev. T-value P-value Computer Anxiety User Participation Training Experience Compatibility Complexity Observability Trialability Top management support Centralization Formalization User Satisfaction Individual Impacts Organizational Impacts Table 5. Summary of Factor Analysis per Category Variables KMO Value Variance Explained Eigenvalue Cronbach s α Computer Anxiety User Participation Training Experience Compatibility

4 CRITICAL FACTORS EFFECT USER SATISFACTION AND IMPACT OF ERP SYSTEM 237 Complexity Trialability Observability Top management support Centralization Formalization User Satisfaction Individual Impacts Organizational Impacts CONCLUSIONS In this study, we examine the key factors for system success by adopting the diffusion of innovation theory and IS success model. This study contributed by a new belief by considering ERP implementations as the necessity for small and medium sized enterprises for improved productivity and competitiveness. Second, the study considered three important factors in ERP implementation environment: user, system and organizational attributes, user satisfaction, individual and organizational impacts. Third, the study contributed by investigating and testing IS success model and diffusion of innovation theory in an ERP context. In this study, we have found positive evidence of the effects of user training and attitude toward the effects of ERP systems. Training can teach employees how to use the ERP system, familiarize them with the component functions of the applications, which may contribute to improved satisfaction with the system. Top management s attitude toward the adoption of ERP is also an important factor for the system success. It is advised that managers should encourage employees to participate in the ERP planning, providing them the opportunity to express their needs, so that the system can meet their needs. Before implementing an ERP, SMEs should review the existing IT capabilities, including hardware and software, and business processes, and choose a system that can adapt to their capabilities and processes, and is the simplest and easy to use, accessible to users. Since ERP implementation is a cross-functional task that involves reengineering of business process, top management s support is especially important. Effective communication trough training among departments can make information easy accessible and resources disseminative, and change users attitude to the system, and finally promote their satisfaction with the system. The value of an ERP system lies in effective usage, which determines the extent to which users are satisfied with the system. REFERENCES [1] Bailey, J. Trash haulers are taking fancy software to the dump. Wall Street Journal, June 9, [2] Bingi, P.; Sharma, M. K. & Godla, J. K., (1999) Critical Issues Affecting an ERP Implementation, Information System Management, Vol.16, Iss.5, pp [3] Cooper, R. & Zmud, R., (1990) Information Technology Implementation Research: A Technological Diffusion Approach, Management Science, Vol.36, No.2, pp [4] Lin, W. T. & Shao, B. B. M., (2000) The Relationship between User Participation and System Success: A Simultaneous Contingency Approach, Information and Management, Vol.37, No.6, pp [5] Mahmood, M.; Hall, L. & Swanberg, D., (2001) Factors Affecting Information Technology Usage: A Meta-Analysis of the Empirical Literature, Journal of Organizational Computing and Electronic Commerce, Vol.11, No.2, pp [6] Premkumar, G. & Roberts, M., (1999) Adoption of New Information Technologies in Rural Small Business, Omega, Vol.27, No.4, pp [7] Rogers, E. M., (1995) Diffusion of Innovations (4 rd ed), Free Press, New York. [8] Thong, J.Y.L., (1999) An Integrated Model of Information Systems Adoption in Small Business, Journal of Management Information Systems, Vol.15, No.4, pp [9] Voordijk, H.; Leuven, A. V. & Laan, A., (2003) Enterprise Resource Planning in a Large Construction Firm: Implementation Analysis, Construction Management and Economics, Vol.21, Iss.5, pp.511. [10] Welsh, J. A. & White, J. F. (1981) A Small Business is Not a Little Big Business, Harvard Business Review,

5 238 LI-LING HSU, YU-TE WENG Vol.59, No.4, pp [11] White, J., Clark, D. and Ascarelli, S. (1997) This German software is complex, expensive and wildly popular. Wall Street Journal, p. 1, March 17. References available upon request from Dr. Li-Ling Hsu