Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning

[ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com

Preface
Enterprise Resource Planning [ERP] has become the software application that no business can live without. There was a myth and SMEs were under the impression that ERP is not their cup of tea. But, based on the business complexities and the competition, nowadays, they are forced to embrace ERP and of course reaping the benefits. ERP is even considered as one of the solutions for their survival.[1]

But, there are lot of challenges & hurdles, which have to be faced & managed to accomplish the implementation successfully. If the ERP implementation fails, unlike the large scale companies, the impact on the SMEs could be very high & disturbing. The consolidated statistics[2] on ERP success, compiled over multiple surveys are given hereunder. 15 to 25 percent of implementations are reported as outright successes. 15 to 25 percent are reported as utter failures, where the entire project had to be abandoned. 50 to 70 percent are reported as challenged in some respect, usually: o The project is late, or o The project is over budget, or o The system is implemented with less than hoped for functionality This paper covers the authors representations in the following areas. Why ERP is still inevitable for the enterprises? An overview of the SME general environment The necessity of ERP for SMEs General challenges being faced during ERP Implementation Suggestions & recommendations to face the challenges

Page 1 of 8

Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning [ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com

ERP & its importance

ERP is a software solution that addresses the Enterprise needs, taking a process view of the overall organization to meet the goals, by tightly integrating all functions and under a common software platform.

As per Frost & Sullivan, ERP as a business solution aims to help the management by setting better business practices and equipping them with the right information to take timely decision. Some of the core benefits and necessity of ERP are listed hereunder. [3] Reduced manufacturing cycle time Reduced inventory Reduced error in ordering Reduced requirement of manpower Enables faster response to changing market situations Better utilization of resources Increased customer satisfaction Enables global outreach

An overview of the SME general environment

Following are some of the general characteristics of the SMEs. Limited focus on process efficiencies, centralized control structures, highly formalized business settings and lack of professional business practices[4] Majority of the firms do not think of long-term business strategy but focus only on survival. They think of change only when the business begins to fail because of not keeping track of the changing market scenario. The firms who survive and grow are those who have the ability to take risks and respond to the changing circumstances[5] The business routines being followed are as complex as that of large enterprises. Page 2 of 8

Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning [ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com Ad-hoc planning instead of structured planning & Management and mostly practicing on the spot decisions. Single human resource handling multiple functions Decisions are vested with limited individuals and the dependency on that of the owners is very high Might not be in a position to follow the laid down business processes [even ISO certified] Poor Information Technology [IT] setup & Team and IT spending are not in the priority, always Expectations from the IT systems are very high, if they decide to pursue for IT adaption Poor connectivity among the multiple & geographically distributed business entities

Why ERP is preferred by SMEs?

In general, the growth, the associated competition and quest for enhancing market share are pushing the SMEs to re-look at its processes & procedures and put in place proper processes, enablers & solutions, to make its business more efficient & effective. [6] Pressure from larger counterparts: Due to globalization, SMEs today operate in a wider arena. Majority of them have MNCs as their clients. These MNCs insist SMEs to implement the same. ERP system allows for tighter integration in their supply chain, which permits them to design and plan the production and delivery so as to reduce the turnaround time. Peer pressure: Considering the growth in ERP implementation in the SME segment, several SMEs are adopting ERP systems as their peers have done so. To gain competitive advantage and respond quickly to the dynamic market scenario

Page 3 of 8

Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning [ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com An ERP system would allow SMEs to integrate their business functions. It would provide for a transactional system, which provides for a disciplined way of doing business. Thus SMEs would be able to increase their efficiency and productivity by implementing a suitable ERP system. Availability of ERP applications suitable for SME environment that too from the reputed Vendors. E-commerce benefits: This benefit will accrue from the close integration between large enterprises and SMEs. Cheaper and faster Internet: Easier access to Internet reduces the costs further. Cheaper hardware and software: With the advances in technology, the costs of both hardware in the form of servers, cables, switches etc. and software like databases have come down.

General challenges being faced during the ERP implementation

One third of ERP implementations worldwide fail owing to various factors.[7] Following are the key factors attributing for the failures/delays. 1. Considering ERP implementation to be a mere automation project instead of a project involving change management. 2. It is a business solution rather than an IT solution, as is perceived by most organizations. 3. Preferring for over customization of the ERP system due to high expectations. Though the market for ERP seems to be growing, there are several issues and challenges one has to contend with when pursing & implementing an ERP system in the SME segment. Some of these are: Awareness: There is a low level of awareness amongst SMEs for ERP vendors, applications etc. Most of the time they do not even know what ERP systems are and what they can do. They consider ERP systems to be a magic wand, which will help solve all their business problems, be it in terms of quality or process defects.

Page 4 of 8

Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning [ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com Perception: SMEs have the perception that ERP is meant only for large firms mainly owing to the high costs of acquisition, implementation and maintenance as also the complexity. Some of the SMEs even feel they do not need ERP. Fear on earlier Implementations: SMEs have heard of the much-publicized failures in ERP implementation. Some SMEs who have implemented ERP earlier have failed. This has led SMEs to believe that ERP implementations are a waste of time and effort and can even lead to the demise of company. Approach to implementation: ERP vendors advice SMEs to mould the business to ERPs way of working, considering that ERP systems bring with it best business practices. This is the plain vanilla approach, which would bring down the cost of implementation. But most SMEs have processes that they have evolved over time and hold very dear to their hearts. As a result, SMEs are having the entire ERP system customized to meet their requirements. This would increase the overall cost of implementation. Cost: SMEs have less of capital than their larger counterparts. This would lead for compromise on selection of a good product, implementation team, hardware, funding throughout implementation etc. Change management: Generally the ERP implementation being considered as an automation project. This results in the system being put in place but not being used effectively due to people not ready to accept the change. Limited resources: Most SMEs do not have an in-house IT team. Due to this they have to rely on external agencies to help them even after implementation and this adds to the implementation/support costs. As per Mr. Peter Gross [8] & Alexis Leon[9], following are the summary of common vulnerabilities related to ERP implementation projects. 1. Expectations are unrealistic and undefined. 2. Lack of Training & user involvement.

Page 5 of 8

Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning [ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com 3. Implementation of existing business practices without proper re-engineering 4. Lack of awareness & preparation to face the hidden costs 5. Domination of some of the below mentioned myths a. Management need not get involved during implementation b. Manpower can be reduced after the ERP implementation c. ERP can be implemented in a staggered manner/module-by-module with adequate time gaps d. Going live is the end of ERP Journey e. Benefits can be reaped immediately after ERP implementation As per Michael Krigsman[10], The ERP implementation is like an open heart surgery while the patient is still alive and working.

How to face the challenges?

Before embarking on an ERP system journey, organizations have to ask themselves whether they are ERP ready. Some of the factors to be considered before starting an ERP system implementation are listed hereunder. These factors help organizations to understand their level of preparedness for an ERP implementation. o o o o o o Infrastructure resource planning Education about ERP Human resource planning Top management commitment Training facilities Commitment to release the right people for the implementation

SMEs need not hesitate to deploy suitable external consultants during Reengineering, Change Management, ERP product/Partner selection etc. All the team members must be trained adequately in the ERP Product, implementation approach, technical aspects etc. This training will boost the morale of the team members and also the confidence on the product & project. Select a product which is suitable for your business needs. A good approach would be to keep the customization to a minimum. Page 6 of 8

Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning [ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com Identify & finalize the requirements related to networking, hardware, software etc. Do not compromise on these as they are the back bone of the proposed ERP setup. Plan for a gradual approach for implementation, if the company has multiple units, business entities etc., instead of a big-bang approach Monitor the project schedules & the cost periodically & throughout the project. Have a close watch on the hidden costs [11] associated with scope creep, unscheduled training/consultancy, schedule lapses, customization, data conversion etc. Schedule the go-live date after attaining the confidence level of all the stake-holders and the transition from the legacy system to ERP has to happen seamlessly Achieving the go-live status is not the end of the ERP project. It is just a beginning of the journey. Continuous monitoring, corrective actions, value-additions, further roll-outs etc. are mandatory after implementation. The following Conceptual Model [Fig.1] can be followed by the SMEs w.r.t ERP Implementation. [12]

Fig.1 ERP Implementation Conceptual Model

Page 7 of 8

Challenges being faced by the Small & Medium Enterprises [SMEs] during the implementation of Enterprise Resource Planning [ERP] N Raveendran, Research Scholar [Anna University - External] General Manager Enterprise wide solutions, Sakthi Finance Ltd., #62, Dr. Nanjappa Road, Coimbatore 641 018. nravi@sakthifinance.com

Conclusion
In India, SMEs are the backbone of the economy and are today facing with global competition. Therefore, it becomes imperative for them to look for means of responding to the dynamic markets. ERP systems have become the most common IT strategy to be adapted by the SMEs. But, SMEs should take a focused approach to face the challenges carefully towards achieving the desired results.

References
[1]

Rao S. S., (2000), Enterprise Resource Planning: business needs and technologies, Industrial Management and Data Systems, Vol. 100 (2), pp. 81-86. The Elusive Meaning of ERP Project Success by Jack Frano, posted on 27th Feb 2008 at www.ittoolbox.com Garg Venkitakrishnan, (2006). ERP Concepts and Practice, Prentice Hall India. Ranganathan C and Kannabiran J., (2004), Effective management of information systems function: An exploratory study of Indian organizations, International Journal of Information Management, Vol. 25, pp.247266. Levy Margi, Powell Philip, (2006), Strategies for growth in SMEs: The role of Information and Information Systems, Information Processing and Management: an International Journal. Vol 42. PWC/CII ERP Implementation in the mid-market segment www.pwc.com Siriginidi S. R., (2000),Enterprise Resource Planning in re-engineering business, Business Process Management Journal, Vol. 6 (5), pp. 376-91. How to implement ERP correctly? by Mr.Peter Gross, Pemeco Inc., USA. ERP Demystified by Alexis Leon. ERP failure factors [Pages:350-352] 7 ERP failure analogies by Michael Krigsman, 25th June 2008. www.zdnet.com The ABCs of ERP by Christopher Koch, ERP Research center. www.CIO.com Enterprise Resource Planning Implementation in Indian SMEs: Issues and Challenges - P. T. Kale1, S. S. Banwait and S. C. Laroiya www.erpconsultantsindia.com/challenges.html www.Erpwire.com; www.sap.com

[2]

[3] [4]

[5]

[6] [7]

[8] [9] [10] [11] [12]

Page 8 of 8