Critical Success Factors in ERP

Critical Success Factors in ERP
Implementation in Finland
Jiang Yingjie
M.Sc. Thesis In Accounting
The Swedish School of Economics and Business Administration
Supervisor: Anders Tallberg
2005
Institution
Swedish School of Economics and Business M.Sc Thesis
Administration
Author
Feb 10, 2005
Jiang Yingjie
Title
Critical Success Factors in ERP Implementation in Finland
ABSTRACT
Organizations look to enterprise resource planning (ERP) as a significant strategic

tool of competition. ERP plays an important role in today’s enterprise management
and is beginning to be the backbone of organizations. Although ERP has been
recognized as a useful tool, in practice, there are many difficulties in compelling
people to implement it effectively. In this case, how to help ERP’s future effective
implementation has already attracted some researchers’ attention. The core research
developed is focused on critical success factors of ERP implementation.
In this paper, six general accepted critical success factors (CSF) are identified based
on the relevant literature: top management support, effective project
management, business process reengineering, the suitability of software and
hardware, education and training, and user involvement. A survey of ERP
implementation in Finnish firms was conducted concerned with critical success
factors and other firm issues.
Data analysis shows that CSF is vital to ERP implementation. CSF may keep the
implementation on schedule, within budget, satisfactory to the user, and so on.
KEY WORDS
Critical successful factors (CSF); Enterprise resource planning (ERP);
Questionnaire survey; Finland.
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CONTENTS
1.Introduction ........................................................................................................................... 4
1.1Background ....................................................................................................................... 4
1.2 Research objective ....................................................................................................... 5
2. ERP ............................................................................................................................................ 5
2.1 Definition .......................................................................................................................... 5
2.2 ERP evolution ................................................................................................................. 6
2.3 ERP implementation ................................................................................................... 8
2.4 Why EPR implementation’s success is critical ............................................ 10
3. Literature review............................................................................................................ 11
4. Critical success factors in ERP implementation ................................... 23
A. Top management support ......................................................................................... 24
B1. Project management ................................................................................................. 25
B2. Business process reengineering (BPR) ........................................................... 27
B3. The Suitability of Software and Hardware .................................................... 29
C1. Education and Training ........................................................................................... 34
C2. User Involvement....................................................................................................... 37
5. Data and Research Methodology ...................................................................... 38

6. Conclusion .......................................................................................................................... 58
References................................................................................................................................. 60
Appendix.................................................................................................................................... 66
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Acknowledgements ........................................................................................................... 71
1.Introduction
1.1 Background
Since the latter part of 1990s firms have rushed to implement enterprise resource
planning systems (ERP). One study found more than 60 percent of Fortune 500
companies had adopted of ERP systems (G. Stewart et al 2000). The appeal of the ERP
systems is clear. Although most organizations typically have software systems that
performed much of the component functions of ERP, the standardized and integrated
ERP software environment provides a degree of interoperability that was difficult and
expensive to achieve with stand-alone, custom-built systems (M. Wheatley 2000, G.
Stewart et al., 2000).
ERP systems hold the promise of improving processes and decreasing costs.
Furthermore, two important new frontiers for ERP are electronic business (e-business)
and supply-chain management (Wang and Nah, 2001). The systems can connect with
suppliers, distributors, and customers, facilitating the flow the product and information.
In reality, ERP implementation is costly and complex. In many cases, ERP is the largest
single investment in any corporate-wide project. The software is expensive, and the
consulting costs even more. Meta Group found that the average ERP implementation
takes 23 months with total owners’ cost of $12 million (G. Stewart 2000). The ERP
implementation is the process where business process and ERP system match each other.
Usually the firm has to change the business process per ERP systems. Sometimes most
positions have to be redesigned according to the ERP systems. Thus the difficulties and
high failure rate in implementing ERP systems have been widely cited in the literature
(Davenport, 1998), The failure percentage of ERP systems was determined by one study
as ranging from 40 to 60 percent and from another study as between 60 and 90 percent
(G. Langernwalter 2000, C. Ptak and E. Schragenheim 2000).
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With the development of ERP, it becomes more and more powerful with high risk. All
of the vendors, users and academic researchers wish to find some successful experience
or mode. The success factors are critical to generalize the experience. With this
background, some research on critical success factors (CSFs) in ERP implementation
presents itself. The study of CSF is beneficial in all aspects, which is the reason why I
study the subject.
1.2 Research objective

The object of the thesis is to use the data of Finnish firms to evaluate some CSFs and
determine the inherent relations among these factors. The interesting relation between
CSFs and a company’s characteristics is also researched.
2. ERP
2.1 Definition
ERP has been defined by various authors but with few differences. Kumar et al (2000)
define enterprise resource planning (ERP) systems as “configurable information
systems packages that integrate information and information-based processes within and
across functional areas in an organization”
The basic architecture of an ERP system builds on one database, one application, and a
unified interface across the entire enterprise. According to O’Leary (2000), ERP
systems have the following characteristics:
1. ERP systems are packaged software designed for a client server environment,
whether traditional or web-based.
2. ERP systems integrate the majority of a business’s process.
3. ERP systems process a large majority of an organization’s transactions.
4. ERP systems use an enterprise-wide database that typically stores each piece of data
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once.
5. ERP systems allow access to the data in real time.
In some cases, ERP calls for an integration of transaction processing and planning
activities (e.g., production planning)
Support for multiple currencies and languages (critical for multinational
companies)
Support for specific industries (e.g., SAP supports a wide range of industries,
including oil and gas, health care, chemicals, and banking)
Ability to customize without programming
2.2 ERP evolution

In order to satisfy customer demand and stay competitive companies in 1960s retained
large amount of inventory while at the time the organizational systems focused on
inventory control. Most software packages (usually customized) were designed to
handle inventory based on traditional inventory concepts.
In the 1970s more and more companies realized that large volumes of inventory was a
luxury and unaffordable. This led to the introduction of material requirements planning
(MRP) systems. MRP had been a great improvement in the materials planning
process. The computer can be used to calculate gross material requirements, since
there is a master production schedule, supported by a bill of material file that identified
the specific materials need to produce each finished item. In MRP net material
requirement can be determined by accurate inventory record files, the available quantity
of on-hand or scheduled-to-arrive materials, which prompted further improvements in,
for instance, new order placement, canceling of existing orders, or modifying the
existing order. The ability of the planning system to systematically and efficiently
schedule all parts was a tremendous step forward for productivity and quality.
With the passage of time, capacity planning was included into the basic MRP systems,
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since traditional production priorities and materials planning are only part of the
problem in manufacturing. Some new tools were developed such as sales and operations
planning, master production scheduling, and demand management. These developments
resulted in the next evolutional stage that became known as closed-loop MRP (H.Oden
et al 1993).
In the 1980s more affordable and available technology was coming. Companies coupled
the movement of inventory with the coincident financial activity. Manufacturing
resources planning (MRPII) systems is a method of planning all resources for a
manufacturer. MPR II was expected to incorporate all resource planning for the entire
enterprise. For instance order processing as in MRP, business planning, sales and
operations planning, and production planning. This gives companies the ability to have
a more integrated business system that derived the material and capacity requirement
associated with a desired operations plan, allowed input of detailed activities, translated
all this to a financial statement, and suggested a course of action to address those items
that were not in balance wit the desired plan (C. Ptak et al 2000).
In the early 1990s the contribution of technology improvement permitted more and
more areas to be included into MRPII, such as product design, information warehousing,
materials planning, capacity planning, communication systems, human resources,
finance, and project management. There is a tendency within the operations
management field to consider ERP as a natural extension of MRP II. Manetti gave the
American Production Inventory Control Society (APICS) definition of ERP as “a
method for effective planning and control of all resources needed to take, make, ship,
and account for customer order” (J. Manetti).
But ERP systems benefit more than manufacturing companies; it is practical in any
company that wants to compete, including chemical facilities and universities.
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2.3 ERP implementation
The basic elements of an ERP implementation include the core transaction system,
packaged decision support applications provided by the ERP vendor, in-house or third
party extended application, and a collection of tools for managing various aspects of the
system.
Markus and Fenema et al. (2000) found five ways to arrange relationship among
business units, four ways to configure software, and two ways to accomplish execution
of an ERP system in multisided implementation as the following table:
Table2.1 Multi-site ERP implementation Areas and Options

Technical Management
Control strategy Software Configuration
Platform Execution
Total local autonomy Single financial/single operation Centralized Big bang
Phased
Headquarters control-financial only Single financial/ multiple operation Distributed
rollout
Headquarters coordination Multiple financial/ single operation
Multiple financial/ multiple

Network coordination
operations
Total centralization
There are some ways to execute ERP systems. One extreme is the big-bang deployment
where at once all the old systems are upgraded to the new one. A classic example,
Quantum Corp., closed its operation worldwide for eight days to switch systems. The
other extreme is phased rollout where the system component is brought on-line serially
and operated and observed before moving on to implementation of the next phase. For
example BICC Cables which took a lengthy process to build it s global operation.
Both Big Bang and Phased implementation have advantages and disadvantages
(O’Leary 2000). Please see the generalized factors in table 2.2.
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Big Bang Phased
Advantage Advantage
Peak resource requirements are less

No need for temporary interfaces
than with Big Bang
Limited need to maintain and change More resource can be devoted to a
legacy software particular module
Low risks Lower risks
Functionality linkage Legacy system can be returned
Personnel gain knowledge in each

No going back
phase
Project manager can demonstrate a

Shorter implementation time
working system
Time between development and use

Cost-low
is reduced
Disadvantage Disadvantage
Huge peak resources may be required Heavy use of temporary interface
Fewer resources will be available in Need to maintain and revise legacy
particular module software
The risk of total system failure may Higher risk of uninvolved and
be higher uncoordinated personnel
Cannot readily go back to legacy Higher risk of losing personnel to
systems turnover
Personnel have fewer hands-on May not be enough modules
opportunities to gain knowledge implemented to achieve functionality
Project managers can’t show that it Operative legacy system constitutes
works until the system is entirely installed fallback position which my derail new
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implementation
Time between development and

Longer duration to install
implementation may be longer
Higher total cost
Table 2.2 the advantage and disadvantage of Big Bang and Phased implementation
V. M. Marber et al. (2000) believed that although the big bang method is dangerous it
made sense in the context of ERP. The alternative, phased rollout, makes sense for
larger groups, and it is also widely used in this data. The time span varies greatly
depending on the installation strategy. A rollout strategy lasts longer. The duration is
also related to the company size. The smaller companies are likely to take big-bang
approach which require less time.
2.4 Why EPR implementation’s success is critical

The definition and measurement of success are thorny matters. First, success depends
on the point of view from which one measures it. Even within a single company people
will have different ideas. For example, implementation specialists (e.g. project
managers and implementation consultants) often define success in terms of completing
the project plan on time and within budget while the user and adopter tend to focus on
the transition from old systems and stable operation. Of course, the business objectives
should be met such as inventory reduction and more decision support capabilities.
Briefly, ERP systems are commercial software packages that enable the integration of
transactions-oriented data and business process throughout an organization. Beginning
with the manufacturing and financial systems, ERP systems may eventually allow for
integration of inter-organizational supply chains. Because these systems touch so many
aspects of a company’s internal and external operations their successful deployment and
use are critical to organizational performance and survival. (Markus and Tanis, 2000)
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Implementing an ERP system is not an inexpensive or risk-free venture. In fact, 65% of
executives believe that ERP systems have at least a moderate chance of hurting their
business because of the potential for implementation problems (S.Cliffe, 1999).
Most organizations have extensive experience managing traditional MIS projects but
these new ERP projects may represent new challenges and present new risk factors that
must be handled differently.
3. Literature review
Critical Success factors have been cited in IT research. There are a great number of
articles on CSF. In this literature review section the only focus is on the CSF in ERP
implementation. The difficulties and high failure rate in implementing ERP systems
have been widely cited in the literature (Davenport, 1998), but research on critical
success factors (CSFs) in ERP implementation efficiency is still fragmented. Most
literature combines the CSFs with different ERP characteristics. Here I choose some
classic literature examples and review them by chronology.
Larsen and Myers (1997) found that an ERP experience could be an early success and a
later failure. This result is supported by a case study - a BPR project involved
redesigning the main accounting process within one organization in the New Zealand
financial services industry. The following two factors would lead to failure:
1. Inappropriately cutting project scope
2. Cutting end-user training
Their finding show the different measures of success are appropriate at different points
in the ERP experience cycle and that the outcomes measured at one point in time are
only loosely related to outcomes measured later. This occurs because the experience
cycle is a process (actually a set of processes) and not a mechanical connection between
starting conditions and final results. Some suggestions on implementation are proposed
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such as the decomposition of the project into manageable parts, the level of budget to be
allocated to the project and shakedown phases of each part, an appropriate project leader
and/or implementation partner, and so forth.
Bancroft et al. (1998) provided critical success factors for ERP implementation
including top management support, the presence of a champion, good communication
with shareholders, and effective project management. This is derived from discussions
with 20 practitioners and from studies of three multinational company implementation
projects.
Before implementing ERP it is important to develop key IT capabilities. According to

Feeny and Willcocks (1998) there are nine core IT capabilities required for successful
ERP implementation.
Table 3.1 Core IT Capabilities Needed for ERP implementation Success
Capability Impact
IT leadership Develop strategy, structures, processes, and staff
Business systems thinking Adopt systems view
Relationship building Cooperate with business user
Architecture planning Create needed technical platform
Technology fixing Troubleshoot
Informed buying Compare vendor sources
Contract facilitation Coordinate efforts
Contract monitoring Hold suppliers accountable
Supplier development Explore long-term mutual benefits
A competent internal IT group is established along with a systems view of organization.

This view makes it easy to understand BPR. These core capabilities are based on skilled
employees. Willcocks and Sykes recommend hiring the required skills rather than
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relying on long-term consultant relationships unless the need is very short-term.
Parr et al. (1999) observed that ERP systems are more complex than packages because
users are involved in the re-engineering process and factors associated with project
success from the literature (management support and a champion) are important because
of the substantial re-engineering which take place.
Holland and Light (1999a) performed their research by a company case, although they
did not mention CSFs directly, when the analyzed the case. Elements include IT legacy,
business legacy, IT strategic review, project management strategy, business process
reengineering strategy, and IT strategy. In their paper, besides the previous business and
management factors, the IT factors are emphasized, though these IT factors are different
from later researchers’ views. Since Holland and Light only noticed that the legacy
system are no longer efficient, the systems are fragments and need to be combined and
improved to meet new business necessary. They did not comment on the impact of
legacy system to implement new ERP systems. Later Holland and Light (1999b) design
a model to group the CSFs into strategic and tactical factors as shown in this figure.
ERP implementation process
Strategic Tactical
• Legacy systems • Client consultation
• Business vision • Personnel
• ERP strategy • BPC and software configuration
• Top management support • Monitoring and feedback
• Project schedule and plans • Communication
• Trouble shooting
BPC: Business Process Change
Figure 3.1 a critical success factors model with strategic and tactical factors
They also emphasized that most implementation models ignore legacy systems and
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underestimate their importance on the choice of ERP strategy. Although the focus is on
legacy systems, BPC is also analyzed in this model. In actuality, there is no difference
between BPC and BPR. Several detailed approaches are added to the model, such as
Troubleshooting.
Sumner (2000) held an interview with the senior project managers responsible for
planning and implementing enterprise-wide ERP systems in seven large organizations
with sales ranging from $1 billion to $15 billion annually. The interview questions cover
several aspects of project. His study shows that IT management is regarded as one
important risk of enterprise-wide/ERP projects. The unique challenge in ERP
implementation lies in acquiring the necessary skills. Insufficient training and skill of
the IT workforce in new ERP technology, without enough ‘internal’ expertise, and
failure to combine internal and external expertise will lead to ERP failure. The writer
recommends investing more in recruiting and retraining IT professionals who combine
technology and business skills which keeps the professionals from moving to consulting
firms with higher salaries.
Willcocks and Sykes (2000) propose several scenarios and use cases to prove these
scenarios. Unlike the development of new simple software applications the main target
of ERP is to fulfill BPR (business process reengineering). Many companies failed on
this aspect of ERP implementation. This failure was driven by the need for major
change in human, culture, and organization relationships. The following table displays
three factors associated with ERP failure.
Table3.2 Factors in ERP implementation failure
Scenario CIO/IT focus Typical Outcome
Technological determinism Technical Failure to gain business benefits
Supplier/consultant driven Disregarded Cost overruns
Outdated relationships & capabilities Insufficient talent Chaos
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Willcocks and Sykes emphasize Feeny and Willcocks (1998) nine core IT capabilities
and believe these nine core IT capacities must be retained in-house, since in come cases
the companies have to outsource human resources to work closely with the in-house
team and ensure that a transfer of learning takes place. In order to obtain necessary IT
capabilities, Willcocks and Sykes suggested some strategies to manage the ERP
implementation:
1. User versus technology
With business requirements changing rapidly, further learning and innovation is
required. As IT becomes more organizationally pervasive, development will not
rely on IT specialists or external IT suppliers. Users themselves will approach IT
through multifunctional teamwork, personal relationship, and business goals.
2. Governance and staffing
Effective business innovation requires high-level support and a project
champion. An efficient team combination is recommended including:
Full-time, high-performing users
In-house IT specialists
People with bridge-building interpersonal skills
Fill-in external IT staff and knowledgeable users/managers
3. Time-box philosophy
They recommend decomposing implementation into smaller projects. This
approach can help reduce project risk. This is also known as converting “whales”
(large unmanageable projects) into “dolphins” (smaller and more manageable
projects).
4. Supplier/ consultant role in ERP
First, consultants fill in the in-house shortage of skills. Secondly, the company
may choose to outsource the entire IT project to decrease the risks.
Nah, Fiona Fui-Hoon, et al. (2001) propose 11 factors as being critical to ERP
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implementation success: ERP teamwork and composition, a change in management
program and culture, top management support, business plan and vision, business
process reengineering with minimum customization, project management, monitoring
and evaluation of performance, effective communication, software development, testing
and troubleshooting, project champion, appropriate business and IT legacy systems (see
Figure 3.1).
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Figure 3.1 Classification of CSFs of ERP implementation into Markus and Tanis’ (2000)
process –oriented ERP life cycle model.
17
18
They classify these factors into their respective phases (chartering, project, shakedown,
onward and upward) in Markus and Tanis’ ERP five-cycle model. According to
Markus and Tanis (2000), there are four phases in an ERP life cycle.
1. Chartering – making decisions defining the business case and solution constraints
2. Project - getting the system and end users performing
3. Shakedown - stabilizing, eliminating “bugs”, returning to normal operations
4. Onward and upward - maintaining systems, supporting users, getting results,
upgrading, system extensions.
Nah, Fiona Fui-Hoon, et al. believe teamwork and composition is a key factor for CSFs
in the ERP implementer-vendor-consultant partnership. There should be good
communication and coordination between implementation partners. Since a wide range
of functional areas are included in ERP it is necessary to have a cross functional ERP
core team. ERP requires changing management programs and culture. If the employees
are open to sharing common values and goals and accept the change, it will be likely
successful. Furthermore, user training, education and support should be available and
highly encouraged.
In order to measure ERP implementation success, there are two indicators of the
dependent variable. From Delone & McLean (1992) the success model includes six
dimension or categories of information systems success: system quality, information
quality, use, user satisfaction, individual impact, and organizational impact. While this
approach has some disadvantages when use of the systems is mandatory, the measure of
system quality, information quality, and use become less useful. Whether the system is
good or not, and whether the user likes it or not, there is no choice. Conclusions about
individual impact and organizational impact are also difficult to determine. User
satisfaction was a widely accepted measure until now, since it is more obvious and
direct, but Zhang L. et al (2002) use user satisfaction and White’s ABCD classification
method to judge whether an ERP system implementation is a success or failure.
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The researcher classified the hypothesized factors into five categories: organizational
environments, people characteristics, technical problems, ERP vendor commitment, and
cultural impact (see Figure 3.2)
Figure 3.2. Conceptual research model of ERP implementation success in China
Organizational culture becomes a CSF here. It is emphasized that the researcher’s study
occurred in another country, China, whose culture is different from traditional ERP
implementers. Most ERP vendors come from Europe and America. The difference of
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cultures between Western countries where the ERP systems are developed and China
makes culture an important factor.
Their empirical data analysis has shown that top management support, business process
reengineering, effective project management, education and training, suitability of
software and hardware, and data accuracy has a significant impact on ABCD
classification. Business process reengineering has the biggest positive impact.
Majed Al-Mashari, et al (2003) discuss the theoretical basis of ERP systems in relation
to the benefits realization process. This paper presents a novel taxonomy of the CSFs in
ERP implementation process. Set-up, implementation and evaluation are the three main
phases. Figure 3.3 shows the inter-relationship between core business strategy aspects
and the role of IT and associated systems.
Figure 3.3 Taxonomy for ERP critical factors
In this model the evaluation is attractive. In order to measure and improve ERP systems
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several techniques have been developed to calculate the cost. McKinnon and Brus (1992)
have suggested that management accountants should have responsibility to measure the
performance. Kaplan and Norton (1992) propose a “Blanced Scorecard” with five
perspectives: strategic planning, financial, customer, internal business, and innovation
and learning. This approach become more popular and spread all over the world.
According to Majed Al-Mashari, et al the measuring and evaluation of performance are
very critical factors in ensuring the success of any organization. It is suggested in the
taxonomy that measurement take place in a balanced perspective and for the purpose of
proving useful information that can facilitate the decision making process, deliver the
corporate objectives and forward the business competitively. To obtain this system, the
authors advise that regular auditing and benchmarking should be considered for
optimization of the potential available to all aspects of business. Furthermore, external
benchmarking may bring new ideas, knowledge and better practices on dealing with
deficiencies in ERP systems, de-bottlenecking, streamlining the processes, optimizing
and redesigning for more extensive benefits (Al-Mashari, 2002)
Elisabeth J. Umble, et al (2003) point out that commercially available software

packages promise seamless integration of all information flows in the
company-financial and accounting information, human resource information, supply
chain information, and customer information. However, managers have struggled, at
great expense and with great frustration, with incompatible information systems and
inconsistent operating practices.
They divide CSFs into 10 categories:

1. Clear understanding of strategic goals.
2. Commitment by top management
3. Excellent implementation project management
4. Great implementation team
5. Successfully coping with technical issues
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6. Organizational commitment to change
7. Extensive education and training
8. Data accuracy
9. Focused performance measures
10. Multisite issues resolved
4. Critical success factors in ERP implementation

A critical success factor is something that the organization must do well to succeed. In
terms of information system projects, a critical success factor is what a system must do
to accomplish what it was designed to do. The proposed methodology of studying CSFs
behind ERP implementations is very similar to the approach used in a variety of studies
in Information Technology (IT) implementation research. Some of these proposed
factors are the one that have been found to be significant in other IT implementations.
Three factors consistently appear as critical success factors for information systems
projects: top management support, client consultation (user involvement), and clear
project objectives (Olson, 2001).
Referring to the previous research, I generalize 6 CSFs into 3 categories: strategic

factors, tactical factors, and operational factors.
A. Strategic factors:
Top management support – earlier studies (Sumner (1999), Mabert et al (2001))
have shown that the ERP implementation was in general a top-down decision,
and the success of such an implementation depended on the alignment of the
ERP adoption with strategic business goals.
B. Tactical factors:
Effective project management – in order to successfully accomplish the decision
to implement an ERP system, the effective project management comes into play
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to plan, coordinate and control such an intricate project
Re-engineering business processes – it is very important to consider the extent to
which the company needs to re-engineer its current business processes in order
to be compatible with the ERP software.
Suitability of software and hardware – management must make a careful choice
of an ERP package that best matches the legacy systems, e.g. the hardware
platform, databases and operating systems.
C.Operational factors:
Education and training – when the ERP system is up and running it is very
important that the users be capable to use it, hence they should be aware of the
ERP logic and concepts and should be familiar with the system’s features.
User involvement – participating in the system development and implementation,
the users go through a transition period that gives them time to better understand
the project’s consequences.
A. Top management support

Duchessi, et al. (1989) concludes that commitment from top management and adequate
training are critical success factors for implementation.
The commitment of top management should be emphasized throughout an organization.

In particular, no more important factor than the support of the management is critical in
the project’s life. The roles of top management in IT implementation include developing
an understanding of the capabilities and limitations of IT, establishing reasonable goals
for IT systems, exhibiting strong commitment to the successful introduction of IT, and
communicating the corporate IT strategy to all employees (McKersie and Walton 1991).
Senior management must be involved, including the required people and appropriate
time to finish and allocate valuable resources to the implementation effort.
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The shared vision of the organization and role of the new system and structures should
be communicated between managers and employees. Policies made by the manager will
come with the new systems in the company. In case of conflict, the proper mediation
will be based on that standard (Carol Brown and Iris Vessey 1999).
Two types of top management support roles have been associated with systems
implementation projects (Martin et al. 1999):
1. The project sponsor
2. The project champion roles
The project sponsor is responsible for budgetary support and ensuring that key business
representatives play a role on the project team. The project champion may or may not be
a formal member of the project team, but can pay a key role in change.
B1. Project management

Project management is the application of knowledge, skills, tools, and techniques to
project activities to meet project requirements. Project management is accomplished
through the use of the processes such as initiating, planning, executing, controlling, and
closing (PMBOK Guide 2000).
Project management goes beyond one single factor because management is required
through all the implementation. If we look at the ERP as a large project, we have some
areas that we should consider, such as integration/plan, scope, time, cost, quality, human
resource, communication, risk, and procurement. Usually if we balance and control all
the factors correctly, the project will be successful.
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2.Scope 3.Time
4.Cost
1.Plan
5.Quality
Project Management
9.Procu
rement
6.Human
8.Risk 7.Comm Resource
unication
Figure 4.1 the areas of Project Management
Project management activities span the life of the project from initiating the project to
losing it (J.A. offer, 1998). One expert or a group of experts should be assigned to
manage the project and drive success throughout project management.
A plan with goals and objectives is the initial phase of any ERP project. Sometimes the
ERP fails since it is unable to meet the stakeholder groups’ expectations. When
proposing the goal, this expectation should be carefully thought-out to guarantee this
expectation is within the ERP’s ability. In order for the ERP system to progress it is
critical to clarify the ERP project’s and every participators’ scope and ensure
consideration of all the required work. The schedule and cost budget cause trouble for
most implementing firms. These are two contrary factors since more investment in
resources such as consultants can propel the progress, but this also leads to extra
expense. People always wish the ERP implementation could be finished sooner while
maintaining a limited budget. In fact this time and cost may be estimated during the
beginning plan phase. The control of time and cost budget depends on the project
management. Human Resources is always vital for the implementation. The company
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must express their requirements to the implementing consultants clearly and timely in
every step. On the contrary, the consultants also inform the company of their situation
and ability. Particularly in BPR communication is quite necessary among different
aspects of the project.
B2. Business process reengineering (BPR)

A process is a logical set of related activities taking input, adding value through doing
things, and creating an output (H.J. Harrington et al, 1997). There are many ways to
complete the job in business. Information systems are significant in collecting data,
storing it efficiently, generating useful report to the management, and archiving data for
future reference. There are two kinds of business process: operational and infrastructure.
Operational processes help accomplish typical business functions including product
development, order management, and customer support. Infrastructure processes are
more administrative such as establishing and implementing strategy and managing
many aspects of the organization including human resources, physical assets, and
information systems (Olson, 2004).
Business process re-engineering (BPR) is defined by Hammer and Champy (2001) as

“the fundamental rethinking and radical redesign of business processes to achieve
dramatic improvements in critical, contemporary measures of performance such as cost,
quality, service and speed”. BPR analyzes the process of an organization’s business in
order to identify the best way of doing things.
BPR came earlier than the popularization of ERP. In the 1980s firms hoped to find a
more efficient way to do business. Re-engineering has continually reduced workforce
size and other created other short-term cost saving, with less impact on developing
computer-based automation. It is ERP that rescues the idea of BPR and forces the
company to redefine and design work flows to fit the new software.
27
BPR has some implicit risks. Sutcliffe (1999) proposes the following difficulty of
implementing BPR:
Employee resistance to change
Inadequate attention to employee concerns.
Inadequate and inappropriate staffing
Inadequate developer and user tools
Mismatch of strategies used and goals.
Lack of oversight
Failure in leadership commitment
O’Leary (2000) offers two kinds of basic way to implement reengineering: clean slate
and technology-enabled BPR. They are extreme concepts of implement possibilities.
(1) Clean Slate Reengineering

As the name of the approach, in clean slate reengineering everything is designed from
scratch. After selecting software which best supports the new system design the firm
can identify the organization’s needs and requirements. This approach is the most likely
to create the optimal system for the organization; however, this approach is more
expensive than technology-enabled reengineering. It is also slower and harder to apply
than the technology-enabled approach to implementation. This approach can involve
significant changes in the way the organization does business, but the previous business
practices may also remain, so the impact may be less than the technology-enabled
approach.
(2) Technology-Enabled Reengineering

O’Leary refers to this approach as constrained reengineering, which means the
reengineering process is constrained by the selected systems. Since the systems are
ready and it is not necessary to change them, this approach is faster and cheaper than
clean slate reengineering, and is the most dominant in practice now. On the negative
28
side, it also requires a lot of change and training within the organization.
Generally speaking O’Leary believes that the clean slate reengineering fits for large
firms with enough funds. These large firms, which can draw on their own business
experience, hold a strategic advantage. Firms that have budget or time constraints can
use the technology-enabled reengineering.
Almost every analyst of the ERP implementation process strongly advises companies to
avoid modifying the software. Companies are advised to maintain existing ERP
functionality and to change their procedures to adapt to it (M.Lynne Markus et al 2000).
To gain full benefit of ERP systems, it is imperative that business processes are aligned
with the ERP systems, since both reengineering literature and the ERP implementing
literature have proven that the ERP itself can not improve the firm’s performance unless
the firm reengineers the business process per ERP systems. Modification of the software
causes problems, such as code errors and difficulty upgrading to new versions. Each
company needs customized software, but the organization must keep customization to a
minimum, since any modification will lead to higher related cost.
B3. The Suitability of Software and Hardware

Today there are many ERP vendors in this market, including traditional large vendors
called the BOPSE group (the initial letters of the five vendors). Now BOSPE has
become BOS, since Peoplesoft recently acquired J.D. Edwards, and was then merged
into Oracle.
29
Table 4.1 Major ERP vendors in today’s market
Vendor Origin Comment
BAAN Holland An early ERP vendor
A newcomer, but gaining

Oracle (Peoplesoft, J.D. Edwards) United States
a market share quickly
The pioneer and largest
SAP Germany
vendor
Besides these giants, there are more and more newcomers who fit better for certain
countries and cultures, since they would have to think about localization problems when
dealing with a multinational company wanting to implement an ERP system. A complex
software package, ERP systems integrate all information processing to support business.
The following table shows us the business function modules in SAP R/3.
Financial Applications Human Resources Applications Logistics Applications Cross Application Modules
FI: Financial accounting PA: Personnel administration LO: General logistics SAP Business Workflow
CO: Controlling PD: Personnel development MM. Materials management SAP Office
EC: Enterprise controlling PM. Plant maintenance SAP Archive Link
IM: Capital investment PP. Production planning
management
TR: Treasury PS: Project systems
QM: Quality management
SD: Sales and distribution
Table 4.2 Business module of SAP R/3
Finding a suitable software package is a vital step for ERP implementation. Since they
do not have enough professional expertise or experience in developing ERP systems
in-house, many companies opt to buy off-the-shelf systems. Today’s vendors can supply
very complex software packages like the above SAP R/3 package, while the
off-the-shelf systems cannot meet the company’s requirements fully, especially when
30
the company’s business process itself is unique. Some vendors provide very specific
solutions to niche industries based on the characteristics of the operations environment
(i.e. process and business) and enterprise size. For instance, an ERP vendor can offer
decision support functionality for supply, manufacturing, and distribution planning at all
enterprise levels.
Most vendors will also offer add-ons. The implementing firm can forego the
functionality of standard ERP and change to a new function, one developed either
in-house or procured from third party software vendors. Lucas, et al. (1988) suggested
that package implementation is different from customer implementation because the
user may have to change procedures in order to work with the package, but the user is
likely to want to change some programs in the package to fit the company’s unique
needs, at which point the user becomes dependent upon the vendor for assistance and
updates. In this way, the company has to consider the synchronization between systems
and the software package. Different ERP vendors use different hardware platforms,
databases, and operating systems, and certain ERP packages are compatible only with
some company’s databases and operating systems. Although most vendors do not like to
offer connections with other vendors, sharing is becoming a new trend.
Which one should be changed more, the business processes or the ERP software?
This question troubles most companies. The probability of success is higher when there
is only a minimal need to change business processes and ERP software. This does not
mean the company should choose the software with least required change, but they
should choose the software such that implementation is most likely to be successful. If
many changes happen in organizational process, then some risks arise, such as the lack
of organizational adaptability, incorrect choice of the appropriate practices to implement,
or a resistance to change among other factors. Alternatively the most changes can be
made in the software, but often the organization has no ability to implement such large
IT projects, which leads to failed implementation. Finally, large changes in both the
31
organizational process and the software can strongly affect the probability of success.
See related (O’Leary 2000).
Potential Project failure

Potential Project Failure
Extent of Change to Organizational Processes
because of Process Changes

because of Process Changes
Extensive
and IT Changes to Software
Potential Project Failure

Highest Probability of
because of IT Changes to
Successful Implementation
Software
Minimal
Figure 4.2 Change to software and change to organization
Below is a model of the ERP acquisition process known as MERPAP put forth by
Jacques, et al (2003). The MERPAP model consists of six distinct and iterative
processes: planning, information search, selection, evaluation, choice, and negotiation.
Figure 4.3 MERPAP

The structure is as follows:
1. MERPAP begins with planning
32
2. MERPAP ends with negotiations
3. MERPAP is nonlinear
4. Some of the processes are done concurrently
5. Some of processes are embedded
6. All of the processes with the exception of “choice” are iterative
7. All of the processes with the exception of “choice” are recursive
8. Each process is causal and results in products (deliverables) that are used by
another process.
In this diagram, the dotted lines indicate the flow of information during the process. The
solid recursive arrows between planning and the other processes indicate the ongoing
nature of activity, feedback, adjustment, and input between them. Like other models, the
MERPAP is not perfect, but it gives a company a kind of reference when selecting ERP
software packages.
Rao (Rao, S. 2000) uses a decision tree model as a guide for selecting suitable ERP
systems. For small and medium companies, Rao chooses five criteria important for
selecting an ERP package including affordability, domain knowledge of suppliers,
level of local support, and ease of software upgrades and use of latest technology.
33
Figure 4.4 Decision tree model for selection of an ERP software package
C1. Education and Training

In ERP implementation process many projects fail in the end despite of millions of
dollars and hundreds of hours due to lack of proper training. Usually the end-user can
get used to the ERP system within one year. One of the earlier researchers, Ang, et al.
(1994) found that lack of training led to difficulties in MRP systems implementation. A
thorough training program is necessary to make the user comfortable with the system.
This factor is too often ignored. It is a challenge for a company implementing such a
system to find an appropriate plan for the training and education of the end-user. In
most cases, consultants are included during implementation process, and while all the
aspects of the system should be explained and transferred the end-users, the main goal
of ERP training is that the users understand the various business processes behind the
ERP application (Majed Al-Mashari, et al 2003).
Generally speaking new employees of company may find ERP implementation easier.
34
Employees with many years of experience may need more time to change their habits.
Another problem is time limit. Sometimes firms rush to finish the ERP project within a
certain time period, and have no time to completely change the organization’s culture.
Training new users of the ERP system also has some difficulties, including the diversity
of the users, the complexity of the new systems, and the variety of training methods
available. New ERP systems change nearly all of the organizational business processes,
meaning all kinds of users in all aspects of the business will be impacted. Since all
kinds of factors should be considered, the training fee can be quite expensive, ranging
from 10 to 20 percent of the total implementation cost (Mabert, et al 2001). More and
more companies are joining in the ERP training market. Basic training forms are as
follows (Olson 2004):
Web-based virtual training
Computer-based training
Video courses
Self-study books
Pop-up help screens
Most universities and training institutions use case studies and models to teach complex
situations and analyze relevant scenarios. This approach focuses on specific questions.
The students are asked to analyze the situation and find the internal relationship among
various factors. Based on these factors and constrains, trainees develop a sound solution
or plan of action. However, the limits of case studies are obvious here, as planning is
only part of management responsibility. Implementing the solution and monitoring the
implementation are equally important parts of the process. Unfortunately, the dynamic
nature of the implementation process is rarely evident in case studies. In other words,
cases are static and real situations change over time.
An alternative approach involves modeling real problems based on simplified
35
assumptions, analyzing the models, and identifying appropriate solutions. This approach
is a cornerstone of operations research. However, in ERP implementation the problems
and factors are usually outside the model’s scope, since these factors are dynamic.
ERP, a complex software system, includes functions which touch upon almost all
aspects of business processes throughout the organization. It supports data drill down
and harmonizes functions in the entire supply chain. To demonstrate this function, some
training institutions utilize real systems, specifically the installation of a commercial
ERP system. This is a workable option, especially for users with only basic needs. This
approach is an ideal way for the end-user to begin using the ERP system.
Avraham Shtub (2001) proposes a training framework which includes the Operations
Trainer (OT) as an important part. The OT is a teaching aid that integrates the case
study and modeling approaches into a dynamic teaching environment. It combines a
simulation of a specific process (a scenario or a case study of a specific order fulfillment
process) with an ERP-like information system. Different scenarios (or case studies) can
be taught with the OT. Chart 4.1 shows the fulfillment process in OT.
36
Chart 4.1 Operation Trainer (OT)
Not only does the system user need training, but the implement consultant does as well,
meaning those in the firm responsible for implementation also must receive appropriate
training. This is especially important for those companies that want to implement ERP
in-house. Those implementing the ERP system should receive training so that they
understand how to design processes and configure the software.
C2. User Involvement

User involvement referrers to participation of the user in the process of ERP
implementation. The functions of the ERP system rely on the user to use the system
after going live, but the user is also a significant factor in the implementation. There are
two areas for user involvement (Zhang, et al. 2002):
1. User involvement in defining the company’s ERP system needs and
2. User participation the implementation of ERP systems.
37
Resistance to new ERP system may be involving the user early on while the project is
still being defined, since the user has then also contributed to this decision. By
participating in the ERP implementation, the user can understand the new system sooner
and give feedback from his or her own point of view. This method can shorten the gap
between the old and new systems and make easier for the user to cope with the new
system. Since the user understands some of the ideas sooner, the training is more easily
accepted. The experienced users who take part in implementation can also communicate
with the newcomers. Another benefit of involving some users early on is that it
facilitates in-house expert training. In the long-run the company may not be willing or
able to rely on consultants or vendors because of the expensive consulting cost. Early
users are a good resource if it becomes necessary to train experts in the future.
5. Data and Research Methodology

In order to examine the relationship between the hypothesized CSFs that were collected
from previous research, we (Oana Velcu and the author) took a survey of Finnish
companies. This survey used mail and email with a website containing a questionnaire.
The questionnaire is divided into two major parts: one part collects data regarding the
success of certain ERP measures such as time, budget, and the system’s functionality,
and the second part identifies the respondents’ perception of the importance of some
critical success factors in the ERP implementation process. The questionnaire does not
include questions which could identify the company.
The questionnaire was mailed to a total of 676 companies in Finland, together with
separate, prepaid envelopes. The companies’ contact information was extracted from the
Blue Book’s company database. Blue Book is a provider of business contact and
marketing information of Finnish companies. The target respondent group is the CFO of
the company. For 286 companies, the questionnaire was sent to both the CFO and the
CIO. At the beginning of November 2004, the survey with a cover letter and prepaid
38
return envelope was sent to the 676 selected companies, and 142 responses were
received. Because this paper focuses on CSF, 84 useful responses were selected. There
was a total response rate of 21 percent. The included cover letter was in Finnish while
the questionnaire itself was in English. All the questions were evaluated carefully. We
reviewed scholarly literature and then selected the most prominent critical success
factors. Furthermore, some basic questions on the company’s background were also
included in the questionnaire. In this paper I looked for the inherent relationship
between the CSFs and related ERP implementation issues, so the most significant
related factors were chosen.
Question 11. Top management support refers to the fact that the ERP project needs to
receive approval from top management.
This is the first step of ERP implementation. Without top management approval, no
further ERP project would progress. Top management support does not solely deal with
early approval but also support during and after the ERP implementation. This support
can provide time, money and human resources. At the same time, this support is backed
by management’s understanding of ERP. Sometimes the project is over-budget or
behind schedule. When this happens the top manager’s attitude is usually significant to
the continuation of future work. This attitude may be divided into: very positive (5P),
positive (4P), neutral (3P), passive (2P), very passive (1P) and N/A (0). N/A is
considered that this factor is unimportant, and this answer will be still counted in
calculation in this paper. These are the possible responses corresponding with the
questionnaire question. If the active manager understands the status and discovers
problems and encourages or invests more, the project may be ahead of schedule or
within the budget. On the contrary, a passive attitude will lead to a passive atmosphere
throughout the company or implementation team. Employees will hesitate to go along
with the ERP implementation. Initially some will reject ERP. When the top managers
feel pessimistic, the implementation situation will be much worse.
39
Based on the above apparent reasons, the factor of top management support is never
ignored by research. In this paper you will find interesting relationships between this
factor and others.
Question 12. Effective project management refers to the effective planning and
execution of the implementation process.
A project is temporary endeavor undertaken to create a unique product or service. A

project is a temporary, unique, and progressive elaboration (PMBOK Guide 2000). ERP
implementation is very typical project. When working on a project, the management
cannot be ignored. In this case it should be managed in the form of project
management. As previously mentioned, ERP implementation projects incorporate all
aspects. This question focuses on planning and executing of the project. Other aspects
such as budget and schedule are asked separately. Communication is also mentioned in
other research. In this paper, communication is not listed separately since it is very
general and difficult to compare. Some other similar factors in same situation are
defining clear goals and objects, project champions, inter-department cooperation, and
so on.
Question 13. Business process reengineering (BPR) refers to aligning the company
business processes with the ERP software to be implemented.
BPR may be considered the core of ERP implementation. It makes ERP different from
other software or MIS. It promotes ERP from a systems level to the management level.
ERP gives the company an opportunity to promote BPR. More and more mature
experience is added in the ERP systems to guarantee a successful model. In this case the
implementation process is also a channel for the company to take advantage of the best
practices. Thus BPR is an important issue in ERP implementation since it impacts all
40
business processes and positions. Then it is not difficult to understand that a failure of
BPR will lead disaster in ERP implementation. Change may happen in both software
and the company itself. Although depending on the company’s specific situation, most
organizations greatly re-engineer. There are also some extreme samples where the ERP
systems are modeled on the companies’ own process. In this study, the survey is based
on Finnish mid-size firms. All the companies have the BPR. To some extent, the success
of the company’s BPR will determine ERP’s potential effect. Culture factors have been
mentioned in some research papers. Culture, not only among different countries but also
different organizations, has to be considered in the BPR. Although the ERP vendors
have become increasingly global, solutions are particular to certain geographical and
political areas. For example, the accounting system has to obey local accounting
principles.
BPR will change the organization’s original structure, and the organization has to select
the proper module or function carefully. This will be discussed in the next question. We
see there are some obvious relationships among these factors.
Question 14. The suitability of software and hardware refers to the fit between the
selected ERP system and the hardware.
The suitability of software is significant for many reasons, e.g. BPR. The ERP vendors
market has been centralizing due to mergers of the top companies; however, at the same
time, there has been an increase in the number of smaller, local vendors. In this survey
some unfamiliar smaller vendors have been included as well. Along with the selection
of software and hardware, the coordination between software and hardware is also taken
into consideration. The software vendor usually makes recommendations of hardware.
The organization has to plan for the long run since the software will require upgrades
and the organization will theoretically grow in the future. The appropriate hardware
needs to be balanced between budget and function to prevent future limitations. Legacy
41
systems may need to be removed. This factor was noticed several years ago in the
research field. O’Leary believes a legacy system is a general technical risk. The
company has to decide how much legacy hardware should be kept. Some big ERP
vendors can develop special tools to help the firm transfer data from the legacy system
to new ERP systems. This confronts the users with new operating systems, and the firm
often has insufficient expertise and personnel for the new environment, therefore
training is necessary.
Question 15. Education and Training refers to the introduction of the ERP concepts to
the future users, and to providing training with regard to the features of the ERP
software.
ERP is a completely new concept for its users. Top managerial users are required to
master ERP, but for other users the correct general idea will be enough for their position
in the firm. Because the ERP systems sometimes make work more complex, some users
may not want to accept it, however when users understand where their input data goes
and the significance of this data, they will be more cautious with the input. Many
researchers emphasize the significance of data accuracy. Once again, training may help
solve this problem. Obviously more detailed training is required for certain positions.
As previously stated, training enables users to accept new systems more easily and
gives a more stable transition from legacy systems. An excellent ERP system without
skilled users means nothing. The systems must be well-operated in order to achieve
optimum performance. The basis of ERP is still human. Many studies have shown that
ERP needs well-performing users and IT specialists. Education and training can back up
this need.
Question 16. User Involvement refers to the users participation in the development and
implementation of the ERP system.
42
This approach is very practical. Feedback from users is almost always more exact than
that from anyone else. Users’ involvement in the early stages of implementation makes
it easier to understand the requirements, choose right package and plan the
customization. During the implementation users’ timely involvement will also help
correct mistakes. After implementation the firm needs the users’ involvement to modify
and upgrade the software package. Because they are involved, the users become
accustomed to ERP. The most frequent participants then become experienced users and
are easier to train as in-house experts. Questions 15 and 16 cover the human issues in
ERP implementation.
The results presented in this section are based on the firms that have implemented or are
implementing an ERP system.
The critical success factors to the implementation of ERP were based on a 5-point scale
with preset response possibilities. The following list of 6 CSFs have been scored by
response. The answers are rated by level of agreement, including irrelevant, and very
unimportant (disagree) to very important (agree). The distribution of these weights is
given for each aspect. (See Table 5.1). 44 of 84 companies believe “Top management
support” is very important or important. 43 of 84 companies hold the same opinion of
“The Suitability of Software and Hardware”. According to these responses, over half of
the companies believe these CSFs are important, as shown in Table 5.1 on the following
page.
43
Table 5.1 Distribution of importance
Very Very
Importa Neutral Unimpo Irreleva
importa unimpor
CSF nt (4 (3 rtant (2 nt (0
nt (5 tant (1
points) points) points) points)
points) point)
Frequency 8 36 24 11 5 0
Top management support
Percentage % 9.52 42.86 28.57 13.10 5.95 0.00
The effective project Frequency 9 20 28 15 9 3
management Percentage % 10.71 23.81 33.33 17.86 10.71 3.57
Business process Frequency 11 13 30 17 10 3
reengineering Percentage % 13.10 15.48 35.71 20.24 11.90 3.57
The Suitability of Frequency 9 34 30 7 4 0
Software and Hardware Percentage % 10.71 40.48 35.71 8.33 4.76 0.00
Frequency 9 17 32 19 5 2
Education and Training
Percentage % 10.71 20.24 38.10 22.62 5.95 2.38
Frequency 8 26 30 13 6 1
User Involvement
Percentage % 9.52 30.95 35.71 15.48 7.14 1.19
After calculating the total value and average value of each CSF, the order of importance
can be seen in the following table. “The suitability of software” and “Top management
support” are the top two CSFs with an average value of 3.80 and a total value of 319.
Another commonly cited factor is “User Involvement”. The factor of BPR which was
often cited in other research papers is at the end. Differences in the weights attributed to
these CSFs are explored in Figure 5.1. This is a general picture; more breakdowns will
help us analyze the CSFs from different points of view.
44
Table 5.2 Total and Average ranking of CSFs by degree of importance in ERP
implementation
CSF Total Average
1.Top management support 319 3.80
1.The Suitability of Software and Hardware 319 3.80
3.User Involvement 302 3.60
4.Education and Training 282 3.36
5.The effective project management 278 3.31
6.Business process reengineering 259 3.08
I mpor t ance
6
5
CSF
4
3
2
1
0. 00 1. 00 2. 00 3. 00 4. 00
Scor e
Figure 5.1 Rank of CSF
In Part 4, these CSFs are grouped into strategic, tactical and operational factors. This
approach aims to offer some useful direction for ERP implementation. Table 5.3
presents the average of the three groups. The strategic factor is rated higher than other
two. We can see that the averages in tactical and operational factors are almost same.
45
Table 5.3 Average of Strategic, Tactical and Operational Factors
CSF Class Average
Top management support Average in Strategic factors 3.80
The effective project management Tactical factors 3.31
Business process reengineering Tactical factors 3.08
The Suitability of Software and Hardware Tactical factors 3.80
Education and Training Operational factors 3.36
User Involvement Operational factors 3.60
Average in Strategic factors 3.80
Average in Tactical factors 3.40
Average in Operational factors 3.48
Table 5.4 presents the average value of the CSFs for each responding company. Out of
the 84 answers received, 3 questionnaires (or 3.57%) averaged five points (5P). The
largest portion of the remaining questionnaires (36 questionnaires or 42.86%) averaged
four points (4P) and 29 (34.52%) companies averaged three points (3P), showing that
most companies evaluate these CSFs at a high level.
Table 5.4 Distribution of Importance by Average Value.
Average CSF 5P* 4P* 3P* 2P* 1P* N/A
Frequency 3 36 29 6 1 8
Percentage % 3.57% 42.86% 34.52% 7.14% 1.19% 9.52%
*Average CSFs represented as integer only
This paper examines whether the degree of CSFs is different among different companies.
Previous theory and research evidence indicates that the significance of the CSFs is
affected by all kinds of company characteristics. In accordance with this general idea,
46
detailed hypotheses are further developed in the upcoming section.
Hypothesis 1: Recent (early) implementers of EPR are more aware of the CSFs than
later users.
The year 2000 was a significant time for IT. Per previous research, many companies
updated their MIS to ERP for fear of the Y2K problem. Here the companies are divided
into those who implemented ERP before the year 2000, and those implemented it later.
The later users (46%) and early users (52%) are then evaluated separately. From the
average weight, the early users believe “The Suitability of Software and Hardware” is
the most important CSF, while the later users choose “Top management support”.
Unlike the hypothesis, there is relatively little difference in order of CSFs, however, the
table (as calculated by ANOVA) shows that the weights of individual CSFs vary a little.
These differences have been described by P-values in the table. The P-value of “Top
management support” is the weakest. Later uses pay more attention on “Top
management support”.
Ear l y and Lat e User s
N/ A
2%
Ear l y user s
Lat e user s Ear l y user s Lat e user s
46% 52%
N/ A
Figure 5.2 Early and Late users
47
Critical Success Factors Early Late F P-value F crit
Top management support 3.63 4.18 3.20 0.08 3.96
The effective project management 3.42 3.36 0.03 0.86 3.96
Business process reengineering 3.28 3.03 0.58 0.45 3.96
The Suitability of Software and Hardware 3.84 3.95 0.12 0.73 3.96
Education and Training 3.47 3.41 0.03 0.86 3.96
User Involvement 3.67 3.69 0.00 0.95 3.96
Table 5.5 CSF on early and late users
Hypothesis 2: A company that implements ERP on-time recognizes CSF more than a
company that implements ERP late.
To evaluate the impact of the CSFs, the companies were first separated into two
categories, “on-time” and “late”, based on the questions: (1) How many months was the
ERP implementation planned to take, and (2) How many months did the implementation
actually last. Separating the companies into these categories provides an easy but useful
way to determine if there is a relationship between CSF and whether the project was
completed on time or late. The results are summarized in Figure 5.3. From the responses,
52% had late implementation and 37% on time implementation; 11% did not answer for
various reasons.
N/ A
11%
On Ti me
37% On Ti me
Lat e
N/ A
Lat e
52%
48
Figure 5.3 Distribution of on time and late
The values of the CSFs differ substantially between on-time and late companies. In
Table 5.6 the values for the on-time companies are clearly higher, and there is some
positive association in combination with the P-value, and both “The effective project
management” and “The Suitability of Software and Hardware” have the weakest
P-value of 1%. The on-time companies also recognize “The effective project
management” significantly more than late companies. In some sense, this supports the
idea that project management is a vital factor in keeping ERP implementation on time.
There is one exception; on-time implementation companies did not find “Business
process reengineering” to be as important as did late implementation companies.
Generally, however, the data supports the hypothesis.
Table 5.6 CSF on on-time and late implementation
CSF On Time Late F P-value F crit
Hypothesis 3: Positive correlation between CSF and within-budget implementation
49
I mpl ement at i on Wi t hi n Budget
N/ A
7%
5P
1P 21% 5P
10% 4P
2P 3P
14% 2P
3P 1P
7% 4P N/ A
41%
Figure 5.4 Implementation within budget
The results evaluating if the ERP implementation was completed within budget is
displayed in above figure. 41% of companies give four points, which is the largest
percent of total samples. To probe the relation with CSF, two sample groups are chosen,
18 of 84 with 5P and 26 of 84 with 2P or 1P, according to their response to this question.
Separating the companies into these categories provides a useful way to determine if
there is relationship between these two factors.
CSF 5P 2P and 1P F P-value F crit
Table 5.7 CSF of two groups by budget
The interpretation of the sample statistics in Table 5.7 is as follows: the companies that
were on-budget (5P) grade higher than the others (2P and 1P). Particularly “The
50
effective project management” shows the difference clearly, especially according to the
reported p-value, and it also indicates the positive correlation between CSF and staying
within budget. Overall, these results indicate that the companies that are within budget
recognize the CSFs more, and they support the hypothesis.
Hypothesis 4: Positive relationship between CSF and current satisfaction
When the sample companies were asked to evaluate if the ERP system is successfully
used at the present moment, four and five points accounted for over half of the total
samples. This means most companies are satisfied with their ERP utilization generally,
but it is not perfect, since four points accounts for 43%, which is the largest percentage.
According to the degree of satisfaction, the sample companies were classified into the
following groups: five points, four points, three points, two points and N/A. The weight
of CSF in these groups has been distributed in Table 5.8.
Successf ul Use
N/ A
12%
2P 5P
6% 29% 5P
3P 4P
10% 3P
2P
N/ A
4P
43%
Figure 5.5 Successful Uses
51
CSF 5P 4P 3P 2P
Top management support 4.60 4.00 3.57 3.50
The effective project management 4.40 3.10 2.43 3.25
Business process reengineering 3.90 3.28 2.29 2.50
The Suitability of Software and Hardware 4.70 4.21 3.00 3.75
Education and Training 4.20 3.59 2.43 3.25
User Involvement 4.30 3.86 2.86 4.00
Table 5.8 CSF on Successful Use
The above table shows something interesting. Companies with more successful ERP
implementation recognize the CSFs more. As in the hypothesis, there is a direct ratio
between these two factors. A clear trend appears. This conveys the significance of CSFs
in ERP implementation. The CSF appears to lead to success directly. However, we have
to consider one other situation: unsuccessful or dissatisfied users are disappointed with
ERP systems and ignore these CSFs accordingly. Further research may need to be done
in this area.
The companies were separated into two groups: very successful ones (five points) and
others (three points and two points). The weak p-values indicate the huge difference. All
the p-values are below 5%, particularly “The effective project management” and “The
Suitability of Software and Hardware”.
CSF 5P 3P and 2P F P-value F crit
Table 5.9 Very Successful Companies (5P) and Others (3P and 2P)
52
The above results give powerful support to the fourth hypothesis. The success rate rises
with the significance of the CSFs. In this classification an obvious gap appears, and it is
easy to see that successful users evaluate the CSF higher.
Hypothesis 5: Positive relationship between CSF and fulfillment of ERP function
Figure 5.6 depicts the responses to the question that asked if the required functionality
of the ERP system has been fulfilled. 37 percent of the organizations agree that the
function of ERP has been fulfilled very well (five points), and 36 percent of companies
rate four points, so 73 percent of the total responding companies are pleased with their
ERP system. Some companies, however, are not satisfied with how well the ERP system
meets the demands, including nine percent of companies who responded that it had not
been well fulfilled (under three points).
CSF and Ful f i l l ment of Funct i on
2P 1P N/ A
3P 8% 1% 10%
8% N/ A
5P
4P
5P 3P
37%
2P
4P
36% 1P
Figure 5.6 Fulfillment of Function
Akin to hypothesis three, higher satisfaction comes with higher value of CSFs. The
results for these phenomena are tabulated in Table 5.10.
53
5P 4P 3P 2P 1P
Table 5.10 CSF on Fulfillment of Function
The proportions of 4P and 5P are close, 37 percent and 36 percent. However, all
P-values are quite high. Overall, the companies with 5P evaluate higher score of CSFs
than the ones with 4P. Some extra cases have to be mentioned here, for instance “User
Involvement”. The companies with 4P believe “User Involvement” is more important
than the companies with 5P and cannot ignore the high P-value (0.65). Another example
is “Education and Training”.
CSF 5P 4P F P-value F crit
Table 5.11 5P and 4P
According to the above analysis, hypothesis 5 is reasonable, while it is not very obvious
between close groups. Generally, we can find the trend as hypothesis 4.
Hypothesis 6: SAP users have a different view of CSF from others
54
The data show that many brands of ERP have been implemented in the Finnish market
such as SAP, BAAN, SCALA, LEAN, and IFS. A total of 19% of 84 sampled
companies are SAP users. SAP has the largest market share. Further analysis will be
done to see the different CSF between SAP users and others. From this table, both SAP
and other users rate “Top management support” and “The Suitability of Software and
Hardware” as the top two CSFs. The smallest P-value is 0.50 on “The Suitability of
Software and Hardware.” The rate and P-value show that there is not a difference
between SAP users and other users. Hypothesis 6 cannot be supported.
CSF SAP Others F P-value F crit
Table 5.12 SAP and Others
Hypothesis 7: There is a relationship between “Top management support” and other

CSFs
Top management support 5P 4P 3P 2P
The effective project management 4.06 3.42 2.91 1.60
Business process reengineering 3.67 3.46 2.00 2.40
The Suitability of Software and Hardware 4.50 3.96 3.64 3.40
Education and Training 3.97 3.67 2.55 2.60
User Involvement 4.06 4.29 3.09 2.00
P-value 0.004 0.010 0.204 0.516
Table 5.13 Top Management Support
55
Top Management and ot her CSFs
5. 00
4. 00
5P
3. 00 4P
2. 00 3P
2P
1. 00
0. 00
1 2 3 4 5
Figure 5.7 Relations between between Top Management and other CSFs
Table 5.13 and Figure 5.7 indicate that there is no direct relation between “Top
management support” and other CSFs. However, an interesting phenomenon was
noticed: If the responses for “Top management support” was high, the responder offered
high scores for the rest of the five CSFs. The almost-horizontal line in Figure 5.7 for 5P
is prominent. The remaining responses to CSFs vary greatly, which is demonstrated by
the weakest P-value and zigzag line in Figure 5.7.
H8: The average CSF value of each company will impact successful utilization
Table 5.14 Average of CSF and successful use

Class of Average CSF Average Value of CSF Successful Use F P-value F crit
5P 5.00 5.00 65535.00 N/A 7.71
4P 4.32 4.03 1.81 0.18 3.98
3P 3.55 3.79 1.60 0.21 4.01
2P 2.58 3.33 4.69 0.06 4.96
1P 1.75 2.50 0.25 0.67 18.51
56
Mean CSF and Successf ul Use
6. 00
5. 00
Mean Value
4. 00 Mean Val ue of
CSF
3. 00
Successf ul Use
2. 00
1. 00
0. 00
5P 4P 3P 2P 1P
Cl ass of Mean CSF
Figure 5.8 Relations between Average CSF and Successful Use
Figure 5.8 shows that there is a clear trend between Average CSF and Successful Use.
The data in Table 5.14 give us more exact evidence. Two matched points occur where
the two factors almost meet at 5P and 3P. On these two points, the degree of successful
use is similar to CSF. This leads to the conclusion that if the responding companies rate
CSF highly, they also hold the idea that the ERP systems have been successfully used.
In this way, CSFs is directly correlated with ERP’s successful use. Both Table 5.14 and
Figure 5.8 prove hypothesis 8.
Hypothesis 9: High CSF mean will lead to more satisfied fulfillment
Table 5.15 Average CSF and Fulfillment of Function

Class of Average
Average Value of CSF Function Fulfillment F P-value F crit
CSF
5P 5.00 5.00 65535.00 N/A 7.71
4P 4.32 3.97 2.20 0.143 3.98
3P 3.55 4.14 11.09 0.002 4.01
2P 2.58 3.00 0.63 0.446 4.96
1P 1.83 2.00 0.06 0.827 18.51
57
Mean CSF and Funct i on Ful f i l l ment
6
5
4 Mean Val ue of
Value
CSF
3
Funct i on
2 Ful f i l l ment
1
0
5P 4P 3P 2P 1P
Cl ass of Mean CSF
Figure 5.9 Average CSF and Fulfillment of Function
The method used is same as for hypothesis 8. The tendency is also quite similar, except
that there is no meeting point between the two factors. Generally speaking a higher CSF
average relates to a higher satisfaction of function fulfillment, as expected by hypothesis
8. However, in the class of 3P, the average of CSF is only 3.55. When compared with a
function fulfilled value of 4.14, the difference is huge and also has the weakest p-value.
Hypothesis 9 is fully supported.
6. Conclusion
This study aims to improve understanding of critical success factors affecting ERP
implementation in Finland. Critical success factors may ensure effective ERP
implementation and a realization of the promised benefits. Factors affecting ERP
implementation are complex and abundant. A total of 6 critical success factors for ERP
implementation have been identified based on a review of the related literature. The two
variables of “Top management support” and “The Suitability of Software and
Hardware” have been proven to be the extremely important factors in ERP
implementation in Finland by the empirical data. The results of hypothesis are
summarized in Table 6.1.
58
Table 6.1 Hypotheses
Hypothesis Supported
H1: Recent (early) implementers of EPR are more aware of the CSFs than later users. No
H2: The company of On-time implementation recognizes CSF more than

Fully
will be than one of Late implementation.
H3: Positive correlation between CSF and within-budget implementation Fully
H4: Positive relation between CSF and satisfaction of currently use Fully
H5: Positive relation between CSF and fulfillment of ERP function Partially
H6: SAP users has different view on CSF from others No
H7: There is a relationship between “Top management support” and other

No
CSFs
H8: The average CSF value of each company will impact successful
Fully
utilization
H9: High average of CSFs will lead to more satisfaction of function

Fully
fulfillment
The data analysis proves the significance of CSF in ERP implementation. According to
the proven hypotheses, CSF can facilitate on-time implementation and keep the
implementation within-budget. The data also shows that CSF may lead to satisfaction of
use and function fulfillment.
However, due to the small sample size in the survey there are some limitations in the
generalizations of the research results. This was due to the necessity of short survey
questions and the difficulty of extracting information from the participating
organizations. At this point, there are six major critical success factors; however, in the
future more CSFs relevant to successful ERP implementation may be determined.
Future research could focus on how these critical success factors differ among various
implementation partners such as managers, IT specialists, vendors, and consultants.
59
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Appendix
1 Summary of Literature Review
Research
Authors Title Publication Research objective Database Contribution on CSF
method
Larsen, M.A. and BPR success or failure? A In Proceedings of the Study the process of BPR, Interpretive Interviews and Possible to early success and later
Myers, M.D. business process International the internal and external research, one documentary sources. Ten failure. Vice versa.
reengineering model in the Conference on “factors” or issues that case study semi-structured interviews
financial services industry Information Systems influenced the process, the were conducted with all of
1997 outcomes of the process, the key players in the BPR
and participants’ project.
evaluations of the project.
Bancroft, N., seip, Implementing SAP R/3 2nd edn (Manning N/A Case study Discussions with 20 Generalize CSF including top
H. and Sprengel, Publications, practitioners and from management support, the presence
A. Greenwich, CT) studies of three of a champion, good communication
1998 multinational company with shareholders and effective
implementation projects. project management.
C. Holland and B. Global Enterprise 32nd Annual Hawaii Demonstration of the Case study Top person interviews IT legacy is systems are focused
Light Resource Planning International organizational and supplemented by

Implementation Conference on System technical complexity of documentary evidence
Sciences, Maui, ERP implementation and collected over a three-year
Hawaii, 1999 identifies the factors that period.
determined the total cost
of the system
C. Holland and B. A Critical Success Factors 7th European Identify the factors needed Case Interview business and IT Highlight the critical impact of
Light Model for Enterprise Conference on to ensure a successful ERP personnel in 8 companies legacy systems upon the
Resource Planning Information Systems project and to explain and through project implementation process and offer a
Implementation ECIS, Copenhagen, different project outcomes documents, annual reports, CSF model with strategic and
Denmark. 1999 and company web sites. tactical factors
Mary Sumner Risk factors in Journal of Develop a better Case Interview with the senior IT professionals and business
enterprise-wide/ERP Information understanding of the major project managers in seven analysts are highlighted.
projects Technology, vol.15 risk factors associated with companies
2000 enterprise-wide/ERP
projects
L.P. Willcocks The Role of the CIO and Communications of Identify serious neglect in Case to prove Several companies in Three factors associated with ERP
and R.Sykes IT Function in ERP the ACM 43, no. 4 ERP implementations in scenarios different industry failure based on CIO
2000 securing the most effective
roles for the CIO and IT
67
functions
Nah, Fiona Critical factors for Business Process Better understanding of Analysis Ten articles were Classify CSFs into respective
Fui-Hoon; Lau, successful implementation Management Journal; CSF. identified through a phases.
Janet Lee-Shang; of enterprise systems Volume 7 No. 3 computer search of
Kuang, Jinghua 2001 databases of published
works and conference
proceeding in the
information systems area.
Zhang L., Lee Critical Success Factors of IEEE Computer Improve understanding of Mail survey 138 companies in China Find the local characteristics of CSF,
K.O.M., Zhang Enterprise Resource Society critical factors affecting combined such as culture.
Z., Banerjee P. Planning Systems 2002 ERP implementation with internet
Implementations Success success in China research
in China
Majed Enterprise resource European Journal of Demonstrate the linkages Analysis N/A Model of CSF with evaluation
Al-Mashari, planning: A taxonomy of Operational research between ERP critical
Abdullah critical factors 146 factors of success, ERP
Al-Mudimigh, 2003 success and ERP benefit
Mohamed Zairi
Elisabeth J. Enterprise resource European Journal of Identify CSF, software Case One company case Incorporate the CSF into real cases.
68
Umble, Ronald R. planning: Implementation Operational Research selection steps, and
Haft, M.Micheal procedures and critical 146 implementation
Umble success factors 2003 procedures critical to
success implementation
69
Appendix 2, Questionnaire
ERP Implementation Survey
1. What is the Financial Information System (ERP) that your company is using now?
2. What system did you use before that?
3. When did you start using the new ERP system?
4. How many months was the ERP implementation planned to take?
5. How many months did the implementation actually last?
6. How many ERP modules were implemented?
7. Would you please make an estimate of the original budget established for the ERP
project?
8. Would you please make an estimate of the following cost categories actually incurred
in your ERP implementation?
Software license
Hardware
Implementation
Consultants
Training
Other costs
9. Please rate the degree of your agreement with the following statements
9.1.The ERP implementation has been completed within budget
9.2.At the present moment, the ERP system is successfully used
9.3.The required functionality of the ERP system was fulfilled
10. Please specify to what degree the planned business case was fully realized
11. Top management support refers to the fact that the ERP project needs to receive
approval from top management. Please rate the level of top management support for your
ERP project
12. The effective project management refers to the effective planning and execution of
the implementation process. Please rate the level of effectiveness of the project
management of your ERP implementation.
13. Business process reengineering refers to aligning the company business processes
with the ERP software that will be implemented. Please rate the degree of business
process reengineering for your ERP project.
14. The Suitability of Software and Hardware refers to the fit between the selected ERP
system and the hardware. Please rate the level of suitability of software and hardware in
your ERP project.
15. Education and Training refer to the introduction of the ERP concepts to the future
users, and to providing training with regard to the features of the ERP software. Please
rate the level of education and training in your project.
16. User Involvement refers to the users’ participation in the development and
implementation of the ERP system. Please rate the level of user involvement in your ERP
project.
17. Please indicate the main industry in which your company is operating
Acknowledgements
Oana Velcu
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Critical Success Factors in ERP

M.Sc. Thesis In Accounting

The Swedish School of Economics and Business Administration

Supervisor: Anders Tallberg

Organizations look to enterprise resource planning (ERP) as a significant strategic

1.2 Research objective ....................................................................................................... 5

2.2 ERP evolution ................................................................................................................. 6

2.3 ERP implementation ................................................................................................... 8

2.4 Why EPR implementation’s success is critical ............................................ 10

B1. Project management ................................................................................................. 25

B2. Business process reengineering (BPR) ........................................................... 27

B3. The Suitability of Software and Hardware .................................................... 29

C1. Education and Training ........................................................................................... 34

C2. User Involvement....................................................................................................... 37

5. Data and Research Methodology ...................................................................... 38

1.2 Research objective

2.2 ERP evolution

Table2.1 Multi-site ERP implementation Areas and Options

Total local autonomy Single financial/single operation Centralized Big bang

Headquarters coordination Multiple financial/ single operation

Multiple financial/ multiple

Peak resource requirements are less

Limited need to maintain and change More resource can be devoted to a

legacy software particular module

Low risks Lower risks

Functionality linkage Legacy system can be returned

Personnel gain knowledge in each

Project manager can demonstrate a

Time between development and use

Huge peak resources may be required Heavy use of temporary interface

Fewer resources will be available in Need to maintain and revise legacy

particular module software

be higher uncoordinated personnel

Cannot readily go back to legacy Higher risk of losing personnel to

Personnel have fewer hands-on May not be enough modules

opportunities to gain knowledge implemented to achieve functionality

Project managers can’t show that it Operative legacy system constitutes

Time between development and

Higher total cost

2.4 Why EPR implementation’s success is critical

Before implementing ERP it is important to develop key IT capabilities. According to

Table 3.1 Core IT Capabilities Needed for ERP implementation Success

IT leadership Develop strategy, structures, processes, and staff

Business systems thinking Adopt systems view

Relationship building Cooperate with business user

Architecture planning Create needed technical platform

Technology fixing Troubleshoot

Informed buying Compare vendor sources

Contract facilitation Coordinate efforts

Contract monitoring Hold suppliers accountable

Supplier development Explore long-term mutual benefits

A competent internal IT group is established along with a systems view of organization.

ERP implementation process

Table3.2 Factors in ERP implementation failure

Scenario CIO/IT focus Typical Outcome

Technological determinism Technical Failure to gain business benefits

Supplier/consultant driven Disregarded Cost overruns

Outdated relationships & capabilities Insufficient talent Chaos

Figure 3.2. Conceptual research model of ERP implementation success in China

Figure 3.3 Taxonomy for ERP critical factors