Yvonne van Everdingen,

Jos van Hillegersberg,

and Eric Waarts

ERP ADOPTION
B
Y

EUROPEAN

MIDSIZE

COM PANIES
JEAN-FRANCOIS PODEVIN

Searching for ERP systems offering a perfect fit.

ntil recently, the major

ERP vendors (SAP, Oracle, Peoplesoft, JD
Edwards, and Baan)
were mainly targeting
the high end of the market (companies with
more
than
1,000
employees), but this
market comes close to saturation. Many large companies have already adopted ERP systems and are
planning the next step of how to use the installed
ERP infrastructures as foundations for e-business [1,
2]. Most of the small- and medium-sized companies
still have to make the decision to deploy ERP. The
midsize market is an interesting market, for example, the number of midsize companies (501,000

employees) in Europe is estimated to exceed

100,000. Data from our research shows that with
average annual IT budgets of more than $500,000,
the total European midsize market for IT products
and services surpasses a staggering $50 billion per
year. This market as a whole is very attractive for the
major ERP vendors. However, since the wave of
adoption by midsize companies is in its early stages,
little is known about developments and drivers that
form the basis of ERP adoption decisions. The purpose of this article is to understand developments in
ERP adoption within the European mid-market.
Our empirical information is based on a large-scale
European multicountry/multi-industry survey conducted in mid-1998. Based on the survey data, we
will address various issues, such as: How did ERP
penetration in the mid-market develop until 1998
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27

and what can be expected in 2000? Furthermore, we

explore criteria used by European midsize companies
for investing in ERP systems and for choosing an
ERP supplier.

ERP software our estimations are based on investment indications by the respondents. Among the
firms that did not have ERP software installed in
1998, about 40% indicated intention to invest in
ERP before mid-2000, yielding an expected average
ERP Penetration Development
penetration level of 56% over all countries and indusThe survey included questions both on current tries. If we consider average market prices for ERP
(mid-1998) adoption of ERP and planned adoption software, the total European ERP mid-market can be
within two years (mid-2000). In 1998over all roughly estimated to exceed $5 billion per year for
countries and industriesalready 27% of the Euro- 1999 and 2000. It must be borne in mind that investpean midsize companies had ERP software installed ment intentions are not necessarily equal to actual
in one or more functional areas. The functional behavior, but one may cautiously estimate that during
this year, a majority of all European midsize companies will
Figure 1. Penetration development across countries (n=2647).
embrace ERP.
Percentage of companies
Weve shown average penetraERP Penetration 1998
tion percentages across all coun90.0
Expected ERP Penetration 2000
tries and industries. However,
80.0
the data also reveals some inter70.0
esting differences between European countries and industries.
60.0
Figure 1 shows the penetration
50.0
developments for each country.
40.0
In 1998, Sweden, Denmark, and
The Netherlands were far ahead
30.0
with penetration rates of 45%
20.0
and higher, while U.K. and
10.0
Spain were lagging behind with
penetration rates less than 20%.
0.0
Norway
Finland
Italy
Netherlands Belgium
The data also shows the penetraDenmark
France
Spain
tion of ERP software is expected
U.K.
Sweden
to grow, especially in countries
that showed low 1998 adoption
areas included in the interview were purchase and figures. Nevertheless, the expected penetration rates
sales order management, inventory and materials in 2000 still are especially high in the Northern Euromanagement, production and assembly, transporta- pean countries: Norway, Finland, Sweden, Denmark,
tion, service and maintenance, marketing and sales, and The Netherlands. This is an interesting phenomwarehouse management, financial accounting, and enon, which may be related to certain cultural factors.
human resource management. Interestingly, a Cross-cultural research by Hofstede reveals four
minority (13%) of the adopters used ERP software dimensions of cultural characteristics of a country
in just one functional area, while most companies that can be used to group European countries into
(70%) used it in more than three functional areas. three clusters [3, 5]. One of these clusters includes the
Thus, companies clearly aim at using ERPs main four Scandinavian countries and The Netherlands,
strength: integrating several functional areas. The which are characterized as having a low level of uncerdata further reveals that in nearly all companies, the tainty avoidance, a high level of individualism, a small
various functional areas are automated using ERP power distance, and a low level of masculinity. This
software of a single vendor. Hence, difficulties in cluster is recognized as the most innovative cluster
integrating ERP software from different vendors with relatively weak resistance to new products and a
often seen in large companies are not yet an issue for strong desire for novelty and variety. There is no solid
midsize companies. This may change, as midsize proof of a causal relationship here, but these general
companies will increasingly integrate their supply cultural characteristics of the Scandinavian countries
chains, and thus communicate with suppliers that and The Netherlands may have led to a higher level
are likely to have adopted different ERP solutions.
of ERP trial and adoption. The relatively low ERP
With respect to expected further penetration of penetration in Great Britain could similarly be
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April 2000/Vol. 43, No. 4 COMMUNICATIONS OF THE ACM

Figure 2. Penetration development across industries (n=2647).

Percentage of companies
70.0

ERP Penetration 1998

Expected ERP Penetration 2000

60.0
50.0
40.0

show, however, that the former

industries will make up arrears
since many firms in these sectors
are planning to implement ERP
in the near future. Interestingly,
Electronics is expected to become
the leader in ERP implementations, with an adoption percentage of nearly 70%.

Information Systems
Selection Criteria
20.0
When companies consider buying a new product, the perceived
10.0
characteristics of the product
0.0
play an important role in the
discrete and
food and
wholesale
final decision to start using that
automotive
beverage
new product [6]. Thus the charelectronics
project industry
process industry
acteristics of the ERP software
Industry
have to match the criteria used
by companies to select an information system. In the survey,
Figure 3. Criteria for information systems selection (n=2401).
respondents were asked to indicate the three most important
criteria for selecting their current
Support
information system (lowest cost,
user-friendliness, fit with busiScalability
ness procedures, scalability, support, and training). The results
Usershow the most important critefriendliness
rion used in selecting an information system is the best fit with
Cost
current business procedures (see
Figure 3). About one-half of the
Flexibility
respondents have mentioned the
best fit in the top three criteria
Fit
ranking, while more than onethird mentioned it as the single
most important one. Hence,
Relative importance
compatibility with the business
procedures is the major issue for
explained by the fact that Great Britain (together companies to decide on a new system. Although
with, among others, Ireland), belongs to a cluster that ERP vendors have given much attention to allow
is described as a fairly risk-averse market. This indi- easy configuration of their packages to match existcates companies from these countries tend to wait to ing business processes, several studies have shown
adopt a new product until a large group of other com- that configuring and implementing ERP systems can
panies has already adopted it.
be costly, and may even require reengineering entire
In addition to country differences, the data shows business operations [4], (see also other articles in this
different penetration rates between industries in 1998 special section, for example [7]). Given the large
(see Figure 2). They run from about 20% in the potential of the midsize market and the limited budProject industry and the Wholesale industry up to gets of midsize companies, there is much potential
nearly 40% in Discrete and Automotive. The fact that for an ERP package that succeeds in meeting this
ERP has its roots in manufacturing is likely to explain main selection criterion. Other important selection
these differences. Expected penetration levels for 2000 criteria are flexibility, cost and user-friendliness of the
30.0

COMMUNICATIONS OF THE ACM April 2000/Vol. 43, No. 4

29

is a market leader, an international

oriented company, or a company
with a superior corporate image.
Companies predominantly look at
the functionality and quality of
the products and services for evaluating ERP suppliers, which has
been found across all lines of business and all countries (see Figure
Importance
4). To a somewhat lesser extent,
the speed of implementation, the
possibilities of the product for
interfacing with other applications, and the price of products
and services also are important
Corporate
Price
Functionality Implementation
supplier selection criteria.
image
speed
product
Supplier selection brings us to
Quality
International
Market
Interface
product
orientation
leadership
other systems
the final issue in this article, regarding the market positions of the varCriteria
ious ERP suppliers. The data
provides information about the
Figure 5. First considered future ERP
awareness
of
the
various
ERP vendors among the midsupplier (n=1574).
size companies in Europe (circa mid-1998), their share
of the market, and their nomination as preferred sup39%
25%
plier for future investment. It should be noted, however, that since the time of the survey market positions
may have changed substantially due to various circumstances. For instance, Baan has had significant negative
publicity over the past two years, which may enhance
the companys awareness level, but also may have wors12%
ened their position as preferred future supplier.
1% 5%
18%
At the time of the survey, the penetration of the
five major ERP vendors (SAP, Oracle, Peoplesoft, JD
SAP
Baan
Oracle
JD Edwards
Edwards, and Baan) in the European midsize market
Peoplesoft
Other
was rather modest. Obviously, the penetration of ERP
at that time was in its early stages. About half of comsystem, and to a lesser extent scalability and supplier panies still preferred their in-house developed, tailorsupport. The importance of criteria is very similar made information systems to the standardized systems
across all industries, but some differences between of the large ERP vendors. Among the adopters of ERP,
countries were found. For example, Italian and the combined market share of the big five vendors was
Swedish companies focus relatively more on user- slightly more than 20%. Regarding specific vendors,
friendliness, while Spanish companies score the high- SAP had both the highest awareness (that is, it was the
est on flexibility. Companies from The Netherlands most often spontaneously mentioned supplier by
judge the total cost of implementing an information respondents) and highest share in the European midsystem as important as the fit with current business size market. Roughly 11% of the companies had SAP
procedures.
installed. The European-based ERP vendors (SAP,
Germany; Baan, The Netherlands) clearly had a
ERP Supplier Selection Criteria
higher level of awareness among the European compaIn addition to criteria to select a new system, other cri- nies than U.S.-based ERP vendors. SAP and Baan
teria may be used to select the supplier of a new infor- were mentioned spontaneously by 60% respectively
mation system. The data shows that European midsize 50% of the companies, followed by JD Edwards
companies tend to focus on product characteristics (33%), and Oracle (28%). Peoplesoft was hardly
rather than on characteristics of the ERP supplier of the known in 1998 and had a negligible share of the marproduct. It makes little difference whether the vendor ket. Based on the respondents indications concerning
Figure 4. Criteria for supplier selection (n=2623).

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April 2000/Vol. 43, No. 4 COMMUNICATIONS OF THE ACM

preferred suppliers for future investment in ERP systems (see Figure 5), it can be expected that the combined share of the big five vendors will sharply increase
to over 60%. SAP is expected to be the most preferred
ERP supplier among the European midsize companies; Oracle is expected to strengthen its position.

Conclusion
While ERP has been adopted by most of the large
companies, the midsize market is now catching up.
Given the large number of midsize companies, this
adoption wave represents a huge number of ERP
implementation projects that have been recently completed, are in progress, or are about to begin. These
projects will raise mid-market ERP adoption from our
measured 27% in 1998 to the expected 56% this year.
Both industries and countries that showed low ERP
adoption in 1998 will decrease the gap considerably.
This, of course, constitutes a very interesting market for ERP vendors to penetrate. A number of issues
emerge from our study that are critical for the development of this market. From the viewpoint of clients,
the fit with current business processes is the most
important selection criterion for a new system. At the
same time, companies within the mid-market rate a
low price and short implementation times as highly
important. Some of the current ERP vendors are
attempting to satisfy these requirements by offering
accelerated implementation methods. However,
these methods are usually based on offering a minimal
fit, thus ignoring the number-one wish of small and
medium enterprises. Therefore, vendors aiming to
penetrate in this market should offer a new generation
of ERP systems that is flexible enough to easily handle a wide variety of business procedures. Furthermore, they should have sufficient interfacing
capabilities in order to reduce the risk of vendor lock-

in and cost of switching. Finally, vendors should take

into account that the European midsize business market is not homogeneous. This study shows that significant differences exist in selection criteria among
countries. However, for ERP vendors succeeding in
satisfying these various requirements, the huge midsize market will be rewarding. c

References
1. Foley, J. ERP and E-Business: Perfect Together?, www.informationweek.com, (Sept. 13, 1999), 169.
2. Gilbert, A. and J. Sweat, Reinventing ERP, www.informationweek.com,
(Sept. 13, 1999), 1520.
3. Hofstede, G. Cultures consequences: International differences in work
related values. Beverly Hills, Sage, 1997.
4. Jarosh, T.J. AS/400: The high scorer in ERP. Midrange Systems (Apr.
1999), 3637.
5. Kale, S.H. Grouping euroconsumers: A culture-based clustering
approach. J. International Marketing 3, 3 (1995), 3549.
6. Rogers, E.M. Diffusion of Innovations. The Free Press, a division of
Macmillan, 1995.
7. Soh, C, Kien, S.S., Tay-Yap, J. Cultural fits and misfits: Is ERP a universal solution? Commun. ACM 43, 4 (Apr. 2000).

Yvonne M. van Everdingen (yeverdingen@fbk.eur.nl) is

a member of the faculty in the Department of Marketing
Management, Rotterdam School of Management, Erasmus
University, The Netherlands.
Jos van Hillegersberg (jvh@acm.org) is a member of the
faculty in the Department of Information and Decision Sciences,
Rotterdam School of Management, Erasmus University, The
Netherlands, and a component manager at AEGON Bank.
Eric Waarts (ewaarts@fbk.eur.nl) is a member of the faculty in
the Department of Marketing Management, Rotterdam School of
Management, Erasmus University, The Netherlands.
The survey was conducted at the request of one of the major ERP vendors, but was carried out independently of that company. We are grateful to this vendor for their support of this research.
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2000 ACM 0002-0782/00/0400 $5.00

How the Survey was Conducted

he survey was performed using a prestructured

questionnaire that covered questions about
ERP adoption decisions, general company policies
concerning IT, and investment planning. Because
various European countries were included in the
survey, the questionnaire was translated into local
languages by translation agencies. Subsequently,
telephone interviews were performed with IT
managers and financial managers responsible for IT
decisions. The interviews were carried out by
professional call centers. In total, a substantial
sample of 2,647 companies were interviewed from
10 European countries (Finland, Sweden, Norway,

Denmark, the Netherlands, Belgium, France, Spain,

Italy, and the U.K.) in six industry
sectors (discrete and automotive industry, project
industry, electronics industry, process industry,
food and beverage industry, and wholesale
industry). The countries and industries were
selected in cooperation with the sponsor of the
research. For each country/industry combination
an average 45 companies were interviewed. They
were randomly selected from local industry
databases. This procedure ensures that for each
country the total sample size exceeds N=200, and
for each industry the sample size is over N=300. c

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