SMALL ENTERPRISES’ PREDISPOSITION TO ADOPT AN ERP
Louis Raymond
Université du Québec à Trois-Rivières
C.P. 500
Trois-Rivières Qc
Canada G9A 5H7
Suzanne Rivard
HEC Montréal
3000 Côte Ste-Catherine
Montréal, Qc
Canada H3T 2A7
Danie Jutras
Université du Québec à Trois-Rivières
C.P. 500
Trois-Rivières, Qc
Canada G9A 5H7
Keywords: ERP implementation; ERP adop
tion; small enterprises
Abstract: Enterprise resource planning systems (ERPs) are now being implemented in small and medium enterprises
(SMEs). In addition to allowing for the integration of technological architectures, these systems make best
practices available to small firms. This paper presents the results of a study that was aimed at identifying
the dimensions of SMEs’ readiness for the adoption of this new technology.
1 INTRODUCTION
Until recently, enterprise resource planning (ERP)
technology had only been used by large firms. Over
the last few years, however, ERPs have begun
appearing in small- and medium-size enterprises
(SMEs), particularly in the manufacturing sector
(Palaniswamy & Frank, 2000). Since this
technology is complex and its implementation often
entails significant risks (Konicki, 2001; Songini,
2002), determining the ability of a firm to
successfully adopt it is a critical issue. This study
presents a model for assessing a manufacturing
SME’s potential to adopt an ERP. The model, tested
in 11 firms, draws on the conceptual framework
proposed by Raymond and Blili (1997) on the
potential for EDI adoption in SMEs.
2 CONCEPTUAL MODEL
The potential for adopting an ERP depends on four
basi
c groups of variables: the organization’s
predisposition to adoption, external forces,
perceptions about ERP and the nature of business
processes (see Figure 1).
The organization’s predisposition to adopting
ERP. A
n SME’s predisposition to adopt and use
ERP technology is related to the firm’s specific
attributes. The strategy adopted by the firm could
itself call for the implementation of an ERP system.
Thus a firm whose strategy calls for reducing costs
or prices would be inclined to adopt an ERP (Banker
et al., 2000). The degree to which it takes advantage
of available IT, in both operational as well as
managerial applications, is an indicator of the firm’s
capacity to implement an ERP. Operational
methods also influence whether ERP technology can
be adopted. In a firm with just-in-time production,
integrating production planning improves the
614
Raymond L., Rivard S. and Jutras D. (2004).
SMALL ENTERPRISES’ PREDISPOSITION TO ADOPT AN ERP.
In Proceedings of the Sixth International Conference on Enterprise Information Systems, pages 614-618
DOI: 10.5220/0002604606140618
Copyright
c
 SciTePress

production cycle. The chronic lack of resources in
SMEs is well known (Julien et al., 1997). Generally
speaking, this problem leads SMEs to enter into
partnerships or outsourcing agreements in order to
acquire the technology (Roy and Aubert, 2000). An
ERP is a significant investment. Banker et al.
(2000) identify three types of costs encountered in
an ERP implementation: the cost of the software
package itself, the costs related to the human
resources required for its implementation, and the
cost of adapting business practices to the needs of
the ERP. Hence, it is critical for a company wishing
to acquire an ERP to have the necessary resources.
External forces. Uncertainty about the
organization’s environment has been identified as a
determinant of adoption (Julien et al., 1997), and
being able to maintain the integration of subsystems
is a prerequisite to performance in organizations that
operate in environments characterized by uncertainty
and heterogeneity (Lawrence & Lorsch, 1969).
Organizations confronting great uncertainty could
show a marked interest in adopting an ERP system,
because it would enable them to achieve greater
integration of both their information management
and operational processes (Banker et al., 2000). In
addition, an organization is likely to adopt a
technology like ERP if its competitors have a similar
technology that gives them a competitive advantage.
SMEs, and more specifically manufacturing SMEs,
tend to be dependent on large clients or a prime
contractor, and this type of relationship is becoming
more demanding in terms of the quality needed and
the integration required in inter-organizational
processes. Undertaking these types of processes
imposes the adoption of technologies like ERP on
SMEs (Raymond & Blili, 1997).
Potential to adopt
an ERP system
Predisposition of
the organization
External forces Business processes
Perception of ERP
• Strategy
• Availability of resources
• Operational methods
• Sophistication of existing IT use
• Procurement methods
• Business environment
• Commercial dependence
• Complexity/cost
• Benefits/strategic values
• Desire to implement
•Operational
• Managerial
• Integration
Figure 1: Conceptual model of an SME’s potential for
adopting ERP
Perceptions about ERP. An SME is usually very
“organic,” inasmuch as it tends to reflect the beliefs,
attitudes and behaviour of an entrepreneur (Julien et
al., 1997). This is particularly true when it comes to
decisions concerning the adoption, implementation
and use of IT (Raymond & Blili, 1997). A positive
perception, on the owner/manager’s part, of the
benefits or strategic value that this type of
technology can afford is critical to the firm
becoming interested in implementing ERP
technology. This positive perception takes the form
of high expectations of the types of benefits to be
derived from access to superior-quality information,
support for business growth and improvements in
decision-making when better information is
delivered in real time. Furthermore, concerns may
be raised about the complexity or cost of
implementing and using ERP. Having management
dedicated to and actively involved in the project is
an important part of the adoption decision.
Business processes. An ERP system cannot
improve organizational performance without a
concomitant transformation of the organization’s
working methods (Bingi et al., 1999). If an ERP is
to generate the desired benefits, business processes
must be aligned with the business practices implicit
in the system design (Somers & Nelson, 2001; Nah
& Lau, 2001). The organization fares better if it
adapts its processes as much as possible to the ERP
system (Holland et al., 1999; Chen, 2001). The
degree of integration achieved in a company’s
operational and managerial processes is a good
indicator of the potential for ERP implementation.
Many organizations today have only achieved
limited integration of their business processes. In
fact, companies often use several unintegrated
applications to serve various functions, creating
redundancy in the capture of data and increasing the
risk of error, since information is not entered in real
time but according to need (Markus & Tanis, 2000;
Palaniswamy & Frank, 2000).
3 RESEARCH METHOD
In order to perform a preliminary test of the
proposed research model, we conducted a field study
of 11 SMEs. In each firm, we interviewed the senior
officers (owner/managers, operations managers,
general managers or other members of
management). Interviewees then responded to a
questionnaire that provided data on the company,
such as the types of information systems and
technologies used. The firms ranged in size from 17
to 245 employees; the average was 124. Data were
first analysed so as to provide a rich description of
the components of the model (see Raymond, Rivard,
Jutras, 2003 for a complete description). We then
conducted a cluster analysis to group participating
companies on the basis of similarities according to
SMALL ENTERPRISES’ PREDISPOSITION TO ADOPT AN ERP
615

variables in the conceptual model. We used SPSS
software (mean nearest neighbour algorithm,
Euclidean distance).
4 CLUSTER ANALYSIS
The grouping represented by the dendogram in
Figure 2 was obtained for the following variables:
presence of resources, operational methods,
operational business processes, managerial process,
integration of processes, business environment,
dependence on a single customer, complexity/cost
and benefits/strategic values, because these variables
best discriminated members of the groups. Three
distinct groups were obtained.
Table 1 shows characteristics of the three groups
with respect to potential for adoption of an ERP
system (high, moderate and low). The determining
factors for each of the dimensions were identified
through quantitative analysis of the data. The
groups are described below.
0 5 10 15 20 25
SME GR +---------+---------+---------+---------+---------+
C II -+---+
G II -+ +-----------------------+
E II -+ | |
I II -+---+ |
D II -+ +-------------------+
|
B I ---------------+-------+ | |
J I ---------------+ +-+ | |
H I -----------------------+ +---+ |
F I -------------------------+ |
|
A III -------------------------------------------+-----+
K III -------------------------------------------+
Figure 2: Euclidean Distance Between the Groups
Table 1: Three Profiles of the Potential for ERP Adoption
Group I:
Committed adopters
(B, J, H F)
Group II:
Uncommitted
adopters
(C, G, E, I, D)
Group III:
Late adopters
(A, K)
External pressure
Pressure to adopt an ERP
Low Low Low
Predisposition due to
organizational context
Advanced use of IT
High Moderate Low
Perception of ERP
Benefits
High Moderate to high Moderate
Business process
Integration
Moderate to high Moderate Low to moderate
4.1 Group I: Committed adopters
The firms in Group I have already committed or are
likely to commit to commencing an ERP adoption
process. This commitment is largely explained by
their concern for continuous improvement, the
search for better management practices, and a desire
to improve the quality, quantity and accessibility of
information. As opposed to members of the two
other groups, their potential for adopting the
technology arises spontaneously from a need for
information. They are increasingly preoccupied
with the idea of obtaining data in real time in order
to make better decisions, and this requires greater
integration of the systems used. The firms in Group
I believe that their competitors have deployed ERP
ICEIS 2004 - INFORMATION SYSTEMS ANALYSIS AND SPECIFICATION
616

systems, and this provides an additional incentive to
implement an ERP-type system. As far as potential
benefits are concerned, the executives have high
expectations. Expectations are not as high, however,
when it comes to the strategic value of ERP systems.
Business processes in this group are more
complex, most are computerized and they are better
controlled by management. All the respondents
believed that a greater integration of their systems
would improve performance as well as business
processes, since an ERP creates better management
practices only when the firm decides to minimize
customization. The firms in Group I identified
individuals from within the organization who would
participate in a team or a steering committee during
implementation. In a project of this magnitude,
senior management tends to feel that it should get
directly involved as leaders and champions, and that
users must actively participate, at whatever level. In
view of the scope, the complexity and the cost of
this type of project, the role played by senior
management is critical. Members must be directly
involved as motivators in order to minimize
resistance to change.
4.2 Group II: Uncommitted adopters
The firms that make up this group are in an
intermediate state, inasmuch as questions are being
raised about the need to improve their technological
infrastructure, and significant changes will need to
be made relatively soon. Inconsistencies are
apparent in operational methods, and there is little
concern shown for improving management
processes. These firms seek to become more
competitive by growing and increasing production
capacity, by distinguishing themselves with product
improvements and innovative, improved processes,
by developing new products and by finding new
market niches. Their managerial approach favours
operational processes and information flows as they
relate to production. In fact, technological
infrastructures for operational processes are much
more advanced than those used for managing.
Furthermore, at the management level, only
accounting functions are computerized and payroll
services are outsourced. New applications for the
integration and computerization of HR management
would appear to generate interest in this group.
Firms in Group II generally have a positive
perception of integrated management systems.
Members of Firm E, however, did not see the
advantages of adopting such a system. Its
respondents believed that they would be best served
by the technology already in place, as well as the
different tools that were developed over the years
and continue to be upgraded on a regular basis. But
overall, all the companies in the group are interested
in more advanced technologies than what is
presently being used. They recognize the
importance of implementing IT that will bring
improvements to how they work and that will give
them access to a wealth of information for decision
making. There are a variety of ways to implement
IT, but the key to succeeding is to consult employees
and get them to participate in the process.
Nevertheless, the technological development of
these firms faces a serious handicap; a lack of
resources, and in particular financial resources,
within the organization. This lack of resources
limits their access to IT.
4.3 Group III: Late adopters
The two firms in Group III have been classified as
late adopters. In Firm A, managers did not feel the
need to implement a technological infrastructure like
ERP. Existing technologies were considered
effective enough to meet the firm’s needs.
Executives also considered the investment too great,
given the size of their business and the potential
return on investment. They remained reticent about
taking on this type of project. The organization’s
approach to strategic issues is reactive. Since they
were not facing pressure from their partners to adopt
an ERP system, and since they only have a small
share of the market, the firm’s management was not
considering deploying an ERP package in the short
or medium term.
Firm K is governed by a board of directors that
oversees an entire group. The first issue to be
confronted therefore concerns the group as a whole;
should it operate in a centralized or decentralized
manner. This question will require considerable
reflection. This firm must also review most of its
operational and managerial processes before making
the transition to ERP-type technology. Finally, the
firm is still using traditional methods, few of which
are computerized. Last year, top management
studied the idea of adopting an ERP system. The
project was launched by an executive who had
limited information about ERP systems. After a few
meetings and getting a better understanding of the
implementation process, the company decided to put
the project on hold. The committee in charge
concluded that the group was not ready to undertake
the project. Even so, the project remains on hold,
and the executive interviewed hoped that it would be
re-evaluated in the short or medium term.
SMALL ENTERPRISES’ PREDISPOSITION TO ADOPT AN ERP
617

5 CONCLUSION
This work has direct benefits to corporate
management. The analytical framework could
enable executives to work with concrete criteria
when comparing their organization with others. The
assessment could serve as the starting point for
development of an implementation process that
would be adapted to the specific planning and
control needs of an SME. The SME is well known
for its flexibility and adaptability in the face of
operational and technological changes, and SMEs
are increasingly the site of complex and cutting-edge
manufacturing systems. The firms are looking to
integrate these systems in order to improve
performance. It is still uncertain, however, if SMEs
have the will or even the capacity to formalize
business processes. This would be a critical asset if
the firm decides to undertake the implementation of
an integrated management system. If an ERP
system is to deliver all the benefits promised by its
vendor, the new technologies must fully integrate all
corporate functions.
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