Available online at www.sciencedirect.com Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 International Conference on Leadership, Technology and Innovation Management Identifying and ranking the effective factors on selecting Enterprise Resource Planning (ERP) system using the combined Delphi and Shannon Entropy approach Manouchehr Behboudi Asl a, Amir Khalilzadeh b Hossein Rahmany Youshanlouei c, Mohammad Mirkazemi Mood d, a *, a,b Islamic Azad University,Salmas Branch, Iran c Young Researchers, Club of Islamic Azad University, Salmas Branch, Iran d University of Tehran, Management Faculty Abstract Despite the fact that during the last decade, many of the ERP proects have led to considerable tangible and intangible development in different areas and also to attain competitive advantages for organizations, there are a variety of stories of organizations failure in performing the ERP. One of the most important causes of failure is the organizations indifference in identifying the most important criteria of an appropriate system and therefore the insufficiency of selecting phase of the system. The present article tries to identify the most important criteria of ERP selection that organizations should put into account in the process of their selection, through a complete study on the past literature and researches and also including the exports view- points. Therefore, we have used a combined approach in this study. After a thorough review on literature and extracting all the identified criteria through the previous valid studies, using Delphi method, the following factors: cost, software quality, vendor and software capability were identified as the main factors which should be considered by the organizations. These criteria were, then, ranked using Shannon Entropy technique and the vendor was identified as the most important criterion. Key words: Enterprise Resource Planning, Selection Phase, Delphi, Shannon Entropy; 2012 2011 Published by Elsevier Ltd. Selection and/or peer-review review under responsibility of of International The First International Conference Conference Leadership, on Leadership, Technology Technology and Innovation and Management Innovation Management Corresponding author. Tel. + 98-914-143-7296 fax. +98-443-522-5550 Email address: m_behboodi@iausalmas.ac.ir 1877-0428 2012 Published by Elsevier Ltd. Selection and/or peer review under responsibility of The First International Conference on Leadership, Technology and Innovation Management doi:10.1016/.sbspro.2012.04.063
514 Manouchehr Behboudi Asl et al. / Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 1. Introduction Performing the ERP system is one the most difficult investment proects, because of the complexity of high expenses and compatibility risks. Companies expend millions of dollars and devote many working hours on starting the ERP software systems. Therefore, the exact selection of software and choosing a conforming product with the organizations need will lead to a decrease in the time and cost of performing the system and will increase the success of organizing the system [1]. Whatever causes the failure of the ERP is the fact that most of the proect managers for performing the system, pay attention only to the technical and financial aspects of the proect and ignore the other aspects. The exact selection of a suitable choice is of great importance to authorize a vast system like an organization since it has an intensive effect on acceptability, usefulness and creating cooperation in the organization. The organization should choose the most appropriate ERP system according to predefined and rational evaluating criteria. This process should follow the policies and procedures of the organization to achieve the final goal. According to the results of the study, the studies of fast execution are not estimated in these proects and as a result, excessive expenses have imposed to investing companies. On the other hand, these failures have led to an increase in the market risk of these products and to the pessimism of managers and investors towards them. Recently, this issue and recognizing one of the important factors of proect failure, i.e. lack of appropriate criteria, has caused the researches to identify the effective Criteria in choosing these proects become vital and important. Since there is an emphasis on special criteria in each of the researches, a complete account of these factors has not been presented. Also, the high and different numbers of the suggested Criteria by a variety of studies, causes a kind of confusion in the experts and managers who intend to use the experiences of real cases and findings of the studies. The high number of Criteria may also cause the selection process be a time and money-consuming which can make a problem especially in medium and small organizations. So, it seems necessary to do a thorough research on effective criteria in choosing the ERP so that most of the factors and Criteria of selection be identified and then the most important factors specified from among these criteria. 2. Literature review: Making decision on choosing a suitable ERP software package from a right vendor is one of the important decisions which is done through a correct and well-organized estimation of the producers and vendors of these software in ERP market. In choosing a suitable ERP system for the organization many parameters and factors are involved. If these factors are not studied well, performing the ERP will confront serious difficulties and may lead to the proect's failure. Hecht [2] was one of the first researchers who presented some criteria to choose and estimate the ERP systems. Siriginidi [3], also mentioned the following factors: the stability and history of the ERP supplier, last 12 month track record of ERP sales, implementation support from suppliers and improvement in ERP packages as the most important factors of selection and estimation of ERP system
Manouchehr Behboudi Asl et al. / Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 515 from the customer s perspective. Sprott [4] identified 4 criteria: applicability, integration, adaptability, and upgradeability as the main criteria to choose an ERP system. But, for the first time, Rao [5] identified the following criteria according to the difference between the selection criteria and estimation of the ERP systems in small and medium organizations with the large ones as the most basic criteria which are influential on small and medium size organizations in selecting an appropriate ERP system. The criteria include: affordability, domain know ledge of supplier, local support, technical upgradeability and incorporation of the latest technologies. In addition to this, Bernroider and koch [6], after doing a thorough research over Australian companies, also discovered that the selection criteria among small, medium and large organizations are different. They identified 29 criteria that from among them only 12 criteria had a strong relation with the size of organization. They also realized that the acceptance and flexibility of the software and the short time of performance and the low expenses are the most important factors that small organizations take into account in selecting ERP. Stefanou [7], emphasizing the importance of selecting a suitable ERP in an article, suggested a conceptual framework for the estimation of ERP software. He believed that we should present a framework for the whole organizations with any kind of activity so that they can make correct and scientific decisions. According to Stefano, to estimate and select ERP, two groups of strategic and operational criteria should be taken into account. Somers and Nelson [8] suggest that the organization, to select an ERP package, should make important decisions in relation with budget, time period, goals and deliverables that from the whole proect. Verville and Halingten [9] identified, in a general classification, the vendor's estimation and technical and functional aspects of software as the main criteria in a suitable estimation and selection of ERP system. The vendor's estimation criteria include some sub-criteria such as size, financial stability, vendor's fame, and functional criteria including some sub-criteria such as software specifications, user phobia etc. Technical criteria, also, include some sub-criteria such as systems architecture, solidarity and functionality. In another research by Kumar [10] the vendor's selection criteria was identified as a software package in a form of factors by asking the opinions of Canadian companies using these ERP systems. Wei and Wang [11] presented a complete framework to select an ERP system. In this study, they identified three groups of factors to evaluate and select a suitable ERP system. These groups include: proect factors, software system factors, and vendor factors. Doing a research in Turkey, Alanbay [12], to estimate and select the planning system of the organization resources, identified a series of estimation criteria through field study and observation. He classified them into three groups: vendor s criteria, users' criteria, and technical, technological criteria. In the same year, Baki and Cakar [13], doing a study on the Turkish manufacturing companies, identified 17 selection criteria for the process of ERP selection on the basis of literature review and interview with the managers. They also found out that from among these 17 criteria parent/allied organization systems, cross module integration, compatibility with other systems are the most important selection and evaluation criteria of ERP systems. Ziaee et al [14] like Wei and Wang [11] classified selection
516 Manouchehr Behboudi Asl et al. / Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 and evaluation criteria of ERP systems into three groups: software system factors, vendor factors, and proect factors with the difference that first of all they presented a high number of criteria for each class and secondly their used criteria for small manufacturing enterprises have been identified. Lien and Chan [15] suggested a 5-layer model of decision-making for the evaluation of ERP systems in retail industry. The first layer is the goal of the proect which is selection and evaluation criteria of ERP systems. They introduce two groups of Criteria in the second layer of evaluation, i.e. software and proect Criteria. Sub-Criteria of these two groups form the third layer of the model and each of them include some sub-criteria which form the fourth line of the model. The fifth layer of the model consists of the choices the organization is interested in. Unar and Guner [16] in a study over the Turkish clothing companies, to select the ERP system, used only some criteria for the evaluation of the vendor. The criteria used by them include: functionality, implementation approach, support, costs, organizational credibility, experience, flexibility, customer focused, and future strategy. Karsak and Özgül [17] in a case study to select and evaluate the ERP system in a car spare-parts manufacturing company identified the followings as the selection criteria of ERP package: total cost of ownership, functional fit of the system, user friendliness, flexibility, vendor's reputation, vendor's total revenues, service and support quality. In the same year, Cebeci [18], through a study over Turkish weaving companies, in order to present an approach to select a suitable ERP system defined three groups of Criteria. He used some Criteria for the evaluation of the vendor, factors related with the investment, and the specifications of the system in his decision-making approach. Also in a comprehensive study Feili et al [19] suggest 40 sub-criteria to ERP selection. They clustered them in 7 group including: General Features, Implementation Costs, Price, Vendor, Software capabilities, Implementation and Proect Management, Software Quality 3. Delphi process Delphi method is used to collect the most important factors which affect the selection of planning system of organizational resources and the specialists and experts agree on it. This method was the outcome of a series of studies done by RAND company in 1950's. The purpose of these studies was to create a method to gain the most confident viewpoint of a group of experts. We used a main panel including the experts and the counselors of planning system of organizational resources. The experts were indexed on the basis of their experiences in the planning system of organizational resources and informational technology section, i.e. the managing directors of the companies active in the informational technology section were asked to introduce their experts working in their companies or somewhere else. From among 40 informants we contacted, 25 informants accepted to cooperate with us to answer the whole questionnaires. 10 people out of 25 experts of the study were the experts of performing the system and the rest were the experts of the informational systems and the counselors of the planning system of organizational resources. The average age of the performing specialists in this study was 34 and their average ob record was 12 while the average age of the experts of
Manouchehr Behboudi Asl et al. / Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 517 informational systems and the counselors was 43 and their average ob record was 18. The following table shows the steps of Delphi process. First questionnaire: gathering critical success factors of implementing KM Third questionnaire: selecting the most effective factors Fourth questionnaire: scoring the factors Selecting Delphi method Selecting experts Brainstorming and identifying important factors Reducing the factors Weighting the factors Scoring the affecting factors resulted from Delphi method Determining the score of affecting factors Second questionnaire: approving the factors exploited by the first questionnaire Figure 1: Delphi method process (Ansari et al[20]) In the first questionnaire, the members of the panel were asked to mention the factors which affect the selection of ERP along with a brief explanation about each factor to help classify the factors much better and get to a consensus of opinions. 23 Criteria were collected in this questionnaire. Then, the extracted Criteria are classified into 4 groups of factors, according to the literature and the experts' opinion. The factors are as follows: software capabilities, vendor, product quality and the cost. In the second questionnaire, we put the Criteria in conformity with the classifications and sent them with a copy of their answers along with the first questionnaire to each expert. Then, we asked the experts to confirm or change their answers according to other experts' ideas and reasons and correct the presented classification of factors if necessary. According to "Schmidt" without passing this step it cannot be claimed that a valid and accreted list has been provided. 14 Criteria out of 23 preliminary Criteria, were identified as "effective Criteria in selecting a ERP system" by more than 81.5 percent of experts. In the third questionnaire, we asked the experts to present at least 10 Criteria (out f 4 presented classes of different factors) which are of the most influential factors in their opinion in selecting the planning system of organizational resources (without giving scores). We did this step in two rounds. The consensus condition to choose the final factors in this step specified as such that factors which have been voted by 25 members (%50 of votes) or more in two successive rounds or factors that devoted more than %80 of the votes to themselves in each rand be selected. Finally, 14 Criteria were the outcome of this step. It is important to take into account that the conditions to achieve consensus in Delphi method are specified by the researchers of that study and there is no specific rule for its different kinds, but the higher the number of rounds and the heavier the conditions of consensus, the more valid the outcomes of Delphi will be. Therefore, the final Criteria along with the factor are observable in the following table.
518 Manouchehr Behboudi Asl et al. / Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 Table 1: The most important factors and Criteria identified by Delphi method Factor Cost Product quality Vendor Software capabilities Criteria Price Infrastructure cost Consulting cost Functionality User friendliness Error avoidance Vendor's fame Technical and financial ability Background and skills Supporting service presentation Modules fitness Improvement and development in localizing capabilities Learning capabilities 4. Ranking the factors Entropy has a special concept in physical science, social science and information theory such that it shows the amount of the present insignificance of the expected informational content of a message. In other words, Entropy in information theory is a criterion for the stated insignificance through a scattered probability distribution. In many research proects, open descriptive questions in a questionnaire or an interview may be used. To specify the importance of key words (or sentences) Shannon Entropy method may be used according to the redundancy and the repetition of these words. There are different methods to specify the weight of Criteria. Shannon Entropy is one of best among these methods. For its unique specifications, Shannon Entropy is one of the current methods to specify the weight of Criteria. To use the Shannon Entropy Algorithm, First, the message should be counted according to the categories in conformity with each replier in a redundancy framework like the following table. Table 2: Redundancy of categories on the basis of replier Category x 1 x 2 x n Replier 1 F 11 F F 1 n 12 2 F 21 F F 2 n m F m1 m2 22 F F mn According to the achieved data of this table, the steps of this algorithm are as follows: step1) we normalize the matrix of the achieved redundancy, using the equation (1).
Manouchehr Behboudi Asl et al. / Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 519 P i m F i 1 i F i,( i 1,..., m),( 1,..., n) (1) Step2) the amount of insignificance of each category m pi.ln Pi, ( 1,,..., n) E will be estimated using equation 2. 1 E k where k (2) i 1 ln m Step3) using informational load of categories ( 1,..., n), the significant coefficient of each category can be estimated using equation 3. W n E 1 E,( 1,2,..., n) In this study, the experts were asked to write their opinions about influential factors on ERP selection. Then, each of their concepts and written phrases was classified according to 4 identified factors. Coding each of the factors was done on the basis of redundancy. Then, using a conventional method which is based only on comparing the redundancy, and also the Shannon Entropy method, we measured the significance of effective factors on selecting the planning systems of organizational resources resulted from the content of the message. The results of either methods are illustrated in the following table. Table 3: The results of content analysis by conventional and Shannon Entropy methods Category Cost Product quality Vendor Software capabilities Shannon Entropy method 0.248 0.336 0.249 0.248 Conventional method 0.191 0.276 0.331 0.201 Redundancy analysis by a conventional method shows that the most important factor in this statistical community is the vendor which has the significant coefficient of 0.331 and after that product quality (0.276), software capabilities (0.201) and cost (0.191) are important, respectively. But the analysis of content according to Shannon Entropy method, shows different sequences and significant coefficients to select the planning systems of organizational resources. According to this method, the most important factor is product quality (0.336), and then the vendor, and finally software capabilities and cost are placed at the third grade. 5. Discussion and Conclusion The exact and correct selection of an ERP system caused the costs and risks resulted from the performance of ERP proects reach its minimum level. The correct selection happens when the intended needs and Criteria of an organization are specified and the best choice which meets the needs of organization is selected. In this study, we used a combined process which had the advantage of both experts opinions and skillful people and the results of past studies to identify the most important criteria of ERP selection. Using the findings of real studies and experiences of the past helped the study in a way that it would be able to consider all the applied criteria in organizations with different aspects and industries and identify criteria which have a suitable (3)
520 Manouchehr Behboudi Asl et al. / Procedia - Social and Behavioral Sciences 41 ( 2012 ) 513 520 generality. Delphi process also helped to evaluate the Criteria correctly and lead to an appropriate classification of Criteria in 4 groups, i.e. software capabilities, cost, price and software quality. These findings confirmed the results of valid researches such as Cebeci [18], Ziaee et al. [14], Wei and Wang [11]. Finally, Shannon Entropy method created a suitable Ranking of the criteria by reviewing the literature and findings of Delphi process again. According to the achieved Ranking, first, software quality and then the vendor were identified as the most important criteria which have to be studied for ERP selection. This result confirm the research findings of Kumar et al [10] and Baki and cakar [13] which emphasized a lot on some of the Criteria of software quality such as functionality, and also confirm the studies like Unal and Guner [16] which look for the best vendor or supplier to select the most appropriate system. The study faced some limitations, for example, although the presented research followed the results which had suitable generalization capabilities, considering cases such as organization size or studying in a special industry could lead to more exact results. For example, among all the factors, cost achieved the lowest rank which is completely ustifiable in large organizations [6]. But cost could be effective as the main factor or even as the most important factor in the selection process of small and medium size organizations. References [1] Yusuf, Y., Gunasekaran, A., Marks, A. Enterprise information systems proect implementation: A case study of ERP in Rolls- Royce. 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