MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
LE THI KIM THOA
FACTORS IMPACT ERP IMPLEMENTATION SUCCESS IN VIETNAM
MAJOR: BUSINESS ADMINISTRATION
MAJOR CODE:
60.34.05
MASTER OF BUSINESS ADMINISTRATION THESIS
SUPERVISOR: DR. DINH CONG KHAI
HO CHI MINH CITY- 2011
ACKNOWLEDGEMENT
I would like to thank my thesis advisor Dr Dinh Cong Khai for all his intensive
support, valuable suggestions and encouragement during the writing process.
I would like to show our gratitude to the respondents for taking time to participate in
my survey. Without your answers, this thesis would not have been possible.
I would like to express my sincere gratitude to all of my teachers at Faculty of
Business Administration and Graduate Faculty, University of Economics Ho Chi
Minh City for their teaching and guidance during my MBA course.
I would like to specially express my thanks to all of my classmates, my friends and
Mr Dang Huu Phuc for their support and encouragement.
Ho Chi Minh City, 2011-02-05
Le Thi Kim Thoa
2
Abstract
Master Thesis in Business Administration, Summer 2011
Economics University Ho Chi Minh City
The enterprise resource planning (ERP) system provides support for core
organizational activities such as manufacturing and logistics, finance and accounting,
sales and distribution, and human resources. An ERP system helps different parts of
an organization share data and knowledge, reduce costs, and improve business
management. A large number of Vietnamese enterprises would like to apply ERP
system, but many are not successful in their ERP implementation projects. There are
quite a number of the factors that affect the success of ERP implementation project.
The aim of this research is to explore factors that influence ERP implementation
success in the Vietnamese context, which will help both implementing companies and
consulting companies get success for ERP implementation in Vietnam.
Both qualitative and quantitative approaches were considered in this research. First,
the qualitative research is conducted through making in-depth interview with five
managers in ERP implementing companies to check the content and meanings of
words using in the measurements scales. Then the main research is quantitative with
200 key users who use ERP system in their daily activities via email and phone to get
results. The Cronbach‟s alpha is used to measure reliability, the Exploratory Factor
Analysis attempts to identify underlying variables and regression analysis is used to
test the research model and hypotheses.
The result confirms that master data quality, minimal customization, Business Process
Reengineering (BPR), management, education and training, consulting factors have
positive impacts on ERP implementation success. Therefore, the benefit of this study
will help consulting companies and implementing companies focus on these critical
factors when they want to apply ERP system in Vietnam and reduce as much as
possible potential risks.
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Key words: ERP, project success, resource management, business process
reengineering, management, education and training, consulting, customization, SAP,
Oracle.
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Contents
Page
CHAPTER 1: INTRODUCTION ...................................................................................8
1.1
The problem statement ....................................................................................8
1.2
Research questions ....................................................................................... 11
1.3
Research objectives ...................................................................................... 11
1.4
Research methodology .................................................................................. 11
1.5
Scope of the study ........................................................................................ 12
1.6
Structure of the study .................................................................................... 12
CHAPTER 2: REVIEW OF RELEVANT LITERATURE ............................................... 13
2.1
Key Concepts .............................................................................................. 13
2.2
ERP implementation success ......................................................................... 14
2.3
Review of Critical Success Factors (CSFs) in ERP implementation .................... 16
2.3.1
Master data quality............................................................................. 16
2.3.2
Minimal customization ....................................................................... 17
2.3.3
Business Process Re-engineering (BPR) ............................................... 17
2.3.4
Consultants ....................................................................................... 18
2.3.5
Management ..................................................................................... 18
2.3.6
Education and Training ...................................................................... 19
Research Model ........................................................................................... 20
2.4
2.4.1
Variables and Hypotheses ................................................................... 20
2.4.2
A suggested research model ........................................................... 23
CHAPTER 3: RESEARCH METHODOLOGY ............................................................. 24
Research methodology ..................................................................................... 24
3
3.1.1
The pilot research .............................................................................. 24
3.1.2
The main research .............................................................................. 25
3.1.3
The scales ......................................................................................... 25
3.1.4
The questionnaire .............................................................................. 26
3.1.5
Measurement..................................................................................... 27
3.1.6
Data collection .................................................................................. 27
3.1.7
Population and sampling ..................................................................... 28
CHAPTER 4: RESULTS AND DISCUSSION OF THE FINDINGS ................................ 29
4.1
Descriptive statistics ..................................................................................... 29
4.2
Cronbach‟s Alpha Analysis ........................................................................... 31
4.3
EFA Analysis ............................................................................................. 31
5
4.4
Regression analysis ...................................................................................... 36
CHAPTER 5: CONCLUSIONS AND IMPLICATIONS ................................................. 42
5.1
Conclusions of the research ........................................................................... 42
5.2
Implications of the research ........................................................................... 42
5.3
Limitations and suggestion for further researches ............................................. 43
REFERENCES .......................................................................................................... 45
APPENDIX ............................................................................................................... 48
6
LIST OF TABLES & FIGURES
Table 4.1: Demographic statistics of the respondents .................................................... 29
Table 4.2: Descriptive statistics .................................................................................. 30
Table 4.5: KMO and Bartlett‟s Test ............................................................................ 31
Table 4.3: Cronbach‟s Alpha of all variables ............................................................... 32
Table 4.4: Cronbach‟s Alpha of business process re-engineering after removing variable
V33 ........................................................................................................................ 33
Table 4.6: Total Variance Explained ........................................................................... 34
Table 4.7: Rotated Component Matrix ........................................................................ 35
Table 4.8: The final measurement scale....................................................................... 36
Table 4.9: Regression analysis on data of 107 responses ............................................... 37
Table 4.10: Results ................................................................................................... 41
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CHAPTER 1: INTRODUCTION
1.1
The problem statement
ERP stands for Enterprise Resource Planning. Before 1970s, this concept did not
exist. At that time, there were only a few software products that handled processing
data in real time and saved it in a central database. At the beginning of 2003, the
concept of an ERP system was redefined. It is no longer a system with a database;
instead, it is a combination of products covering basic functions such as purchasing,
sales, production, and finance. In the areas of human resources, accounting, and basis
technology, it corresponds to enhance solutions of the new dimension products (SAP
overview).
Enterprise resource planning (ERP) is an integrated computer-based system used to
manage internal and external resources including tangible assets, financial resources,
materials, and human resources. It is a software architecture of which purpose is to
facilitate the flow of information between all business functions inside the boundaries
of the organization and manage the connections to outside stakeholders. Built on a
centralized database and normally utilizing a common computing platform, ERP
systems consolidate all business operations into a uniform and enterprise wide system
environment (Bidgoli et al, 2004). ERP software automates core corporate activities
such as purchasing, inventory, manufacturing, sales and distribution, human resource,
finance, and supply chain management, etc., by incorporating the best practices to
facilitate rapid decision-making, cost reductions, and greater managerial control.
After joining WTO (World Trade Organization), Vietnamese enterprises have faced a
lot of challenges and opportunities. In order to achieve greater flexibility, ERP has
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been introduced to Vietnamese enterprises. Implementing ERP helps companies
increase competitiveness by reducing cost, better controlling organization resources,
making timely decision.
The use of ERP has also been found to be critical in improving customer satisfaction.
For example, NEC Technologies credits its installation of ERP for increasing its
speed of order processing, improving invoicing and drastically reducing its customerservice response times (Michel, 1997). In addition, ERP has also been credited with
reducing manufacturing lead times (Goodpasture, 1995).
Although ERP is a large and helpful software, it is expensive to implement. Thus,
enterprises expect a lot whenever they decide to implement it. They hope ERP could
assist them in reducing manual work, making provision easier and timely access to
accurate information, improving reports, fastening system response time, enhancing
procurement, planning, controlling sales cycle and approval functions, providing
relevant tools for managerial accounting control and profitability analysis, and
responding faster to the dynamic market changes. Specially, in globalization, ERP is a
key and essential tool in management that supports enterprises to go global.
According to VCCI, by the mid-year of 2006, there were only 1.1% Vietnamese
enterprises applying ERP. However, the number of Vietnamese enterprises applying
ERP has risen up significantly currently. According to FIS-ERP - a consulting
company, to install ERP system, Sino Pacific Construction Consultancy Co. spent
more than 1 million USD, Thep Viet paid more than 2 million USD, Nova group paid
1 million USD, Pham Nguyen company paid more than $500.000, Vietin bank paid
4.3 million USD.
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Since ERP is so expensive, although many enterprises want to apply ERP but they
have some concerns whether they should apply it. Some enterprises such as Vietnam
Electricity Corporation, Phong Phu Corporation intended to apply ERP 3 years ago,
but till now they have not applied it. There are several reasons why these firms are not
rushing to install the systems. Firstly, the ERP implementation efforts of many larger
counterparts have resulted in partial failure, or in some cases total abandonment. The
other reason is a lack of financial resources, which restrains them to implement the
typically expensive ERP system. It was reported that 40 percent of all ERP
installations were partially implemented and that nearly 20 percent were scrapped
total failures. Especially for Vietnamese firms, with their limited resources they are
less likely to survive or quickly overcome a failed ERP implementation. Most of the
times, implementation of an ERP system will require more effort than an initial plan.
An ERP implementation failure may lead to a big problem to a firm as this will
waste enormous sums of money, labor, and destroy competitive advantage of the
firm.
There are many researches about critical factors impacting ERP project‟s success in
foreign companies. Bingi, et al. (1999) found the common critical success factors
(CSFs) of ERP Implementation in ten criteria: top management commitment,
reengineering, integration, ERP consultants, implementation time, implementation
costs, ERP vendors, selecting the right employees and training employees. In order to
evaluate impacts of factors on success in ERP implementation in Vietnam, Giang
(2009) identified these factors: ERP package selection, communication, process
management,
training
and
education,
project
management,
legacy system
management, system integration, system testing, cultural and structural changes.
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However in his research Giang used the case study methodology therefore the
numbers of chosen cases may not be representative or typical. This research is also a
study about ERP implementation success factors but using the Exploratory Factor
Analysis (EFA) and regression analysis to get results.
1.2
This
Research questions
paper
attempts
to
determine
“What
major
factors
impact
ERP
implementation success in Vietnam?”
1.3
Research objectives
The objective of the research is to identify critical factors that affect ERP
implementation in the Vietnamese context. The lessons withdrawn from this study
would be useful for consulting and implementing companies in their efforts to
successfully implement an ERP system in Vietnam.
1.4
Research methodology
The purpose of this research is to identify the CSFs for ERP implementation in
Vietnam by using the EFA method, hence both pilot research and quantitative
research are considered.
The pilot research is conducted by making an in-depth interview with five
managers in some ERP implementing companies in Ho Chi Minh city in order to
get their ideas about success factors and meaning of words using in the
questionnaires. The questionnaire is adapted from the literature and the field
visits, as well as the comments gathered from the interviews.
In the next step, the sample is collected by sending questionnaires to the relevant
people who took part in the ERP implementation, such as key-users, end-users,
developers and team members of the ERP projects. Individuals are asked to
indicate the extent of agreement or disagreement with the questionnaire items
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concerning ERP systems on a five-point Likert-type scale ranging from 1
(strongly disagree) to 5 (strongly agree).
After collecting data, the measurement scales will be verified by using the
Cronbach‟s alpha ratio and the Exploratory Factor Analysis (EFA) is used to
refine the measurement scales. Finally, the hypotheses are tested by using
regression analysis.
1.5
Scope of the study
Due to the limit of time and financial budget, the research cannot cover al l the
ERP applying companies in Vietnam. Based on the list of firms that implemented
ERP in Vietnam, there are about one hundred ERP implementing firms and most
of them have head office in Ho Chi Minh City. Thus, the sampling covers
companies working in different activities and located in Ho Chi Minh City,
Vietnam. There are a lot of ERP suppliers such as: SAP, Oracle, PeopleSoft,
Invensys, ABB Automation, i2, SSA Global Technologies, Intentia International,
Epicor... But, this paper concentrates on two leading ERP solutions providers which
are SAP and Oracle only.
1.6
Structure of the study
The structure of this study includes 5 chapters. Chapter 1 presents information
about the problem statement, research question, research objectives, research
methodology and scope of the study. Chapter 2 discusses concepts of terms and
literature review of ERP success factors. Chapter 3 explains research
methodology and research model that are used in the study. Chapter 4 analyzes
the result and discussion of the findings. And finally, conclusions and
implications are presented in Chapter 5.
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CHAPTER 2: REVIEW OF RELEVANT LITERATURE
This chapter is to focus on introducing the literature review in order to establish a
research model. There are four parts. The first one will introduce some key concepts
about ERP; the second one will discuss about ERP implementation success; the next
one will review some critical success factor; and the last one will suggest the research
model and the hypotheses about the impact of major factors on ERP implantation in
the Vietnamese context.
2.1
Key Concepts
Since we are dealing with the subject of Enterprise Resource Planning, this is the
key concepts in the study. Kumar et al. (2000) defined Enterprise Resource Planning
(ERP) systems as configurable information system packages that integrate
information and information-based processes within and across functional areas in an
organization. O‟Leary (2000) also defined that “ERP systems are computer-based
systems designed to process an organization‟s transactions and facilitate integrated
and real-time planning, production, and customer response.” According to him, ERP
systems have the following characteristics: (i) ERP systems are packaged software
designed for a client server environment, whether traditional or web-based; (ii) ERP
systems integrate the majority of a business processes; (iii) ERP systems process a
large majority of organizational transactions; (iv) ERP systems use an enterprise-wide
database that typically stores each piece data once; (v) ERP systems allow access to
the data in real time; (vi) In some cases, ERP allows an integration of transaction
processing and planning activities (e.g., production planning). Zeng et al. (2003)
thought that an ERP system should be: (i) Flexible: An ERP system has to be able to
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react to changing needs that an organization can have in future. This is facilitated by
the fact that ERP systems are constructed on client/server technology that makes it
possible to run them on various database servers; (ii) Comprehensive: An ERP system
should be able to support a variety of organizational processes. Consequently, ERP
systems cover different modules; (iii) Modular and open: An ERP system ought to
allow any module to be interfaced or disconnected whenever needed without
disrupting other modules; (iv) Beyond the company: A good ERP system is not
restricted by the organizational boundaries, it should support connection to entities
outside the organization.
2.2
ERP implementation success
Kyung et al. (2001) showed that while some firms announced ERP implementation
success, many others reported negative results of ERP implementation. An ERP
implementation failure may be fatal to a firm: either wasting enormous sums of
money or destroying the competitive advantage of the firm. To manage ERP
implementation successfully, a high level ERP implementation success measure is
required. Markus et al. (2000) argued that a minimum set of success metrics included
project metrics, early operational metrics, and long-term business results.
To answer the question “what makes ERP implementation so unsuccessful?” Swan et
al. (1999) argued that the root of such high failure rate is the difference in interest
between customer organizations who desire unique business solutions and ERP
vendors who prefer a generic solution applicable to a broad market. He also suggested
that the organizational fit of ERP might be worse in Asia, because the reference
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process model underlying most ERP system is influenced by European or US
industry/business practices, which are different from Asian business practices.
In this study, the author defines ERP implementation success from ERP
implementation project perspective. ERP implementation success, the dependent
variable in the study, is not evaluated by the general users but by ERP project team
members. Implementation project success is frequently defined in terms of the
achievement of some predetermined goals, which normally include multiple
parameters such as time, cost, and performance. The author measured ERP
implementation success in terms of the perceived deviation from the expected project
goals such as cost overrun, schedule overrun, system performance deficit, and failures
to achieve the expected benefits.
According to Roger (2004), in project there are usually three distinct objectives: cost,
schedule, and performance. The project cost is the sum of direct and allocated cost
assigned to the project. The project manager and project team‟s job is to control those
costs that are directly controllable by the project organization. Normally, the project
will have a project budget, which includes costs assigned to the project.
The second objective in managing project is schedule. Frequently, a project
completion date and intermediate milestones are established at the outset. Just as the
project team/manager must control the project cost within budget, they must also
control the schedule to meet established dates. The budget and schedule often conflict
to each other. For example, if the project is behind schedule, more time may be
needed to bring it back on. But there may be insufficient funds in the budget to
support the overtime costs. Therefore, a trade-off decision between time and cost must
15
be made. Management must determine whether the schedule objective is of sufficient
importance to justify and increased cost.
The third objective is performance, that is, the performance characteristics of the
product or service being produced by the project. Performance for a service project,
such as ERP project, is ordinarily much more difficult to specify than for a
manufactured product.
Performance may also require trade-offs with both schedule and cost. Performance
requirements may, in turn, cause cost and schedule changes. Since it is rarely possible
to predict performance, schedule, and cost requirements accurately before a project
begins, numerous trade-offs may be required while the project is under way.
2.3
Review of Critical Success Factors (CSFs) in ERP implementation
There are several researches about critical factors influencing ERP implementation.
ERP implementation issues have been caught attention because it is very expensive
but low implementation success. The purpose of this paper is to investigate the factors
impact on ERP implementation project in Vietnam. This research will review some
researches relevant to the study. Understanding such effects may enable not only ERP
implementing companies but also domestic consulting companies to be more
proactive in planning and implementing ERP in the country.
2.3.1 Master data quality
Master data quality is crucial for an ERP system‟s success. There are different names
of master data quality, but the meaning is rather similar. For example, Somers et al.
(2001) used data analysis and conversion, Zhang et al. (2002) used data accuracy. In
this thesis, the author decided to use master data quality, which means data loaded
16
from existing legacy systems or documents must be of high quality. Timely and
accurate data in a single consistent format is thought a fundamental requirement for
the effectiveness of ERP system implementation. This factor has been considered
critical by Shanks et al. (2000); Somers et al. (2001); Umble et al. (2003); Zhang et al.
(2002); Jiang (2005); Yusuf et al. (2006), Yizi (2007).
2.3.2 Minimal customization
Minimal customization which involves using the vendor‟s code as much as possible
even if this means sacrificing functionality has been associated with successful ERP
implementations. Because customizations are usually associated with increased
information systems costs, longer implementation time, and the inability to benefit
from vendor software maintenance and upgrades, customization should only be
requested when the competitive advantage derived from using non-standard
processing can be clearly demonstrated. Customization factor is mentioned by Bingi
et al. (1999); Parr et al. (2000); Shanks et al. (2000); Nah et al. (2001); Somers et al.
(2001 and 2004); Jiang (2005); Zhang et al. (2002); Zhou-Sivunen (2005).
2.3.3 Business Process Re-engineering (BPR)
Business process re-engineering (BPR) is defined by 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”. Implementing an ERP system involves reengineering the existing business
processes to the best business process standard. One of the main reasons why ERP
and other large technologically sophisticated systems fail is that organizations simply
underestimate the extent to which they have to change and re-engineering the existing
17
business processes in order to accommodate their purchase. ERP systems are built on
best practices that are followed in the industry. All the processes in a company must
conform to the ERP model. This factor is reviewed by Bingi et al. (1999); Parr et al.
(2000); Shanks et al. (2000); Nah et al. (2001); Somers et al. (2001 and 2004); Jiang
(2005); Zhang et al. (2002); Zhou-Sivunen (2005).
2.3.4 Consultants
Consultants play an important role in ERP implementation. Specially, when ERP is
very new in Vietnam, almost Vietnamese consultants have low experience in ERP
segment. Thus, three dimensions of vendor support are classified: (1) Qualified
consultants with knowledge in ERP system; (2) Qualified consultants with knowledge
in enterprises‟ business processes; and (3) Consulting skills in ERP implementation.
It‟s important for the consultants to be knowledgeable in both business processes and
ERP system functions. Also, the consultants should possess good interpersonal skills
and be able to work with people. They have experiences to help a company
implement the ERP system during the whole ERP implementation process and after
the implementation phase. This factor is discussed as one of the factors which impact
the ERP implementation success by researchers Bingi et al. (1999); Parr et al. (2000);
Zhou-Sivunen (2005); Yusuf et al. (2006).
2.3.5 Management
Many studies have emphasized the importance of management as a necessary factor
in successful ERP implementation. As ERP is a highly integrated information system,
it requires the complete cooperation of staff members from all segments of the
business. Management in project must create an environment for implementing an
18
ERP system to gain the expected results and must be seen as a participant in the
implementation. Management in ERP implementation has two main facets: (1)
providing leadership; and (2) providing the necessary resources. To implement an
ERP system smoothly and successfully, companies require a steering committee to
participate team meetings and monitor the implementation efforts, spend time with
people and provide clear directions of the project. Willingness to provide the
necessary resources is another indicator of top management commitment to the ERP
project. The implementation could be seriously handicapped if some of the critical
resources (e.g., people, funds and equipment) are not available. This factor is
discussed by Bingi et al. (1999); Holland and Light (1999); Sumner (1999); Gupta
(2000); Sarker and Lee (2000); Rao (2000); Huang and Palvia (2001); Aladwani
(2001); Chen (2001); Dong (2001); Soliman et al. (2001); Nah et al. (2001);
Krammergaard and Rose (2002).
2.3.6 Education and Training
Education and training refers to the process of providing management and employees
with the logic and overall concepts of ERP system. Thus, people can have a better
understanding of how their jobs are related to other functional areas within the
company. The user is people who produce results and should be held accountable for
making the system performance meet expectations. ERP system was not easy to use,
adequate training and education would help employees to use the ERP system much
easier. This factor is presented by researchers Bingi et al. (1999); Sumner (1999);
Gupta (2000); Rao (2000); Rao (2000); Zhang et al. (2001); Mabert et al. (2001);
Aladwani (2001); Al-Mashari (2002); Kuruppuarachchi et al. (2002); Gyampah and
Salam (2003); Umble et al. (2003); Voordijk et al. (2003).
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2.4
Research Model
2.4.1 Variables and Hypotheses
2.4.1.1 The dependent variable
In this research, the dependent variable is ERP implementation project‟s success. In
the literature review, ERP implementation success can be measured by cost, time and
performance. If the project is behind schedule, overtime may be needed to bring it
back on. But there may be insufficient funds in the budget to support the overtime
costs. So a trade-off decision between time and cost must be made. And performance
may also require trade-offs with both schedule and cost. So, the dependent variable in
this study is frequently defined in terms of the achievement of some predetermined
goals, normally include parameters as mentioned in the literature review: cost,
schedule, performance and trade-off between them. However, as cost is sensitive,
confidential and further more users do not know about project cost, so the author
measures ERP implementation success in terms of schedule overrun and system
performance.
2.4.1.2 Independent variables and hypotheses
Independent variables represent the treatments or conditions that the researcher has
either direct or indirect control over to test their effects on a particular outcome. In
this research, the independent variables include implementation success factors
as mentioned in the literature review which are master data quality, minimal
customization, business process reengineering, consulting, management and education
and training.
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