Critical success factors of enterprise resource planning systems implementation success in vietnam
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MINISTRY OF EDUCATION AND TRANNING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
------------
LÊ THỊ THU CHUNG
CRITICAL SUC CESS FACTORS OF
ENTERPRISE RESOURCE PLANNING
SYSTEMS IMPLEMENTATION SUCCESS
IN VIETNAM
THESIS OF MASTER OF BUSINESS ADMINISTRATOR
HO CHI MINH CITY – 2012
MINISTRY OF EDUCATION AND TRANNING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
------------
LE THI THU CHUNG
CRITICAL SUCCESS FACTORS OF
ENTERPRISE RESOURCE PLANNING
SYSTEMS IMPLEMENTATION SUCCESS
IN VIETNAM
Subject: Master of Business Administrator
Code: 06.34.01.02
THESIS OF MASTER OF BUSINESS ADMINISTRATOR
ADVISOR:
DR. NGUYỄN THỊ NGUYỆT QUẾ
HO CHI MINH CITY – 2012
i
ACKNOWLEDGEMENT
I would like to take this opportunity to express my gratitude to all those
who have helped and supported me during the time I conducted the study.
First of all, I would like to express my deepest gratitude to my advisor,
Dr. Nguyen Thi Nguyet Que, for her generous and patient guidance to my
thesis. Her inspiring advices are extremely essential and valuable for me to
finish this thesis. The advisor is very knowledgeable, professional, and nice to
me all the time. I feel very lucky and deeply appreciate her to give a chance to
be her student.
Secondly, I would like to show sincere gratitude to faculty members for
their enthusiastic support.
Thirdly, I would like to send special thank you to my friends, members
of ERP forum, my work partners...who supportively help me so much to
finalize the questionnaire, take part in the survey for pilot test as well as the
main study.
Lastly, I would like the send the most special thanks to my family,
especially my parents who are always there for me with so much love, care
and encouragement.
Le Thi Thu Chung
Ho Chi Minh, October 2012
ii
COMMITMENT
I hereby would like to commit that the thesis, “Critical success factors
of Enterprise Resource Planning systems implementation success in Vietnam”,
was accomplished based on my independent and serious studies and
researches. The data was collected in reality and it has clear origins. In
addition to that, the data would be trust-worthily handled and it has never
been released in any menu.
Le Thi Thu Chung
iii
TABLE OF CONTENT
ACKNOWLEDGEMENT ........................................................................................ I
COMMITMENT ...................................................................................................... II
TABLE OF CONTENT ..........................................................................................III
LIST OF TABLE...................................................................................................... V
LIST OF FIGURE.................................................................................................. VI
ABSTRACT ...............................................................................................................1
CHAPTER 1 INTRODUCTION .............................................................................2
1.1. Research background ..................................................................................................... 2
1.2. Research questions and objectives .................................................................................. 3
1.3. Practical significances of the study................................................................................. 5
1.4. Scope and approach ........................................................................................................ 5
1.5. Research method ............................................................................................................. 5
1.6. Structure of the thesis ..................................................................................................... 6
CHAPTER 2 LITERATURE REVIEW .................................................................7
2.1. Definition of ERP ......................................................................................................................................................................7
2.2. Situation of ERP in Vietnam ............................................................................................................................................... 10
2.3. Proposed conceptual model and hypotheses ............................................................................................................ 11
CHAPTER 3 ............................................................................................................25
3.1. Research purpose ...............................................................................................25
3.2. Research design ..................................................................................................26
3.3. Questionnaire design ..........................................................................................27
3.3.1. Questionnaire development .........................................................................27
3.3.2. Questionnaire translation .............................................................................31
3.4. Research strategy ..............................................................................................32
3.4.1. Qualitative pilot study .................................................................................32
3.4.2. Quantitative pilot study ...............................................................................32
3.5. Targeted population ...........................................................................................33
3.6. Research sampling ............................................................................................33
CHAPTER 4 ............................................................................................................38
4.1. Descriptions of sample ......................................................................................38
4.2. Reliability and validity of the measurement scale ............................................40
4.3. Testing the research model and the hypotheses ................................................45
iv
4.3.2. Testing hypothesis ......................................................................................49
4.3.3 Testing the moderating relationship .............................................................50
4.3.4. Description of statistics of overall ERP implementation success. ..............55
4.4. Findings ..............................................................................................................56
CHAPTER 5 ............................................................................................................58
5.1. Discussion of findings ........................................................................................58
5.2. Practical implications .........................................................................................59
5.3 Contribution of the current study ........................................................................61
5.4 Limitation and future research ............................................................................61
LIST OF REFERENCE ............................................................................................63
APPENDIX 1 .......................................................................................................6973
APPENDIX 2 ...........................................................................................................73
APPENDIX 3 ............................................................................................................80
APPENDIX 4 ............................................................................................................84
APPENDIX 4 ............................................................................................................87
v
LIST OF TABLE
Table 2. 1: ERP systems history ............................................................................................ 7
Table 2. 2: Unified CSFs model by Esteve & Pastor (2000) .............................................. 12
Table 2. 3: 22 CSFs proposed by Somers & Nelson (2001) ................................................ 13
Table 2. 4: seven broad categories of CSFs by Nah & Delgado (2006) .............................. 13
Table 2.5: Eleven key CSFs by Nah, Lau & Kuang (2003) ................................................ 14
Table 2. 6: Four CSFs and 1 moderator proposed by Nah et al. (2007) .............................. 15
Table 2.7: Measurement of ERP implementation success by Petroni (2002) ..................... 23
Table 3.1: Survey items in the study .................................................................................. 29
Table 4.1: Sample characteristics ....................................................................................... 39
Table 4.2: Reliability of scales .......................................................................................... 40
Table 4.3: KMO and Barlett's Test (DV) ........................................................................... 43
Table 4.4: Total variance explained .................................................................................... 43
Table 4.5: Rotated Component Matix(a) ............................................................................ 44
Table 4.6: Correlation of constructs 1 ................................................................................. 45
Table 4.7: Model sumary(b) (MRL) 1 ................................................................................. 47
Table 4.8: ANOVA (Regression) 1 ..................................................................................... 47
Table 4.9: Coefficients (Regression) 1 ................................................................................ 47
Table 4.10: Testing H1, H2, H3, H4 1 ................................................................................. 49
Table 4.11: Model Summary of H5 1 .................................................................................. 51
Table 4.12: Coefficients of H5 hierarchical regression 1 .................................................... 51
Table 4.13: Model summary of H6 1 ................................................................................... 51
Table 4.14: Coefficients of H6 hierarchical regression 1 .................................................... 52
Table 4.15: Model Summary of H7 1 .................................................................................. 52
Table 4.16: Coefficients of H7 hierarchical regression 1 .................................................... 53
Table 4.17: Model summary of H8 1 ................................................................................... 53
Table 4.18: Coefficients of H8 hierarchical regression 1 .................................................... 54
Table 4.19: Testing H5, H6, H7, H8 1 ................................................................................. 54
Table 4.20: Descriptive statistic of ERP 1 ........................................................................... 55
Table 4.21: Levels of importance of factor 1....................................................................... 56
vi
LIST OF FIGURE
Figure 2.1: Modules of ERP system ..................................................................................... 9
Figure 2.2: Proposed conceptual framework ...................................................................... 16
Figure 3.1: Research procedure .......................................................................................... 26
Figure 4.1: The revised research model 1 ............................................................................ 55
1
ABSTRACT
Enterprise resource planning (ERP) systems with high level of integration
can help improve capability of customer service, productivity, cost reduction,
inventory turnover and provide effective supply chain management and e-commerce.
ERP has been widely adopted in many countries, but in Vietnam it is still very
limited. Trend of globalization and fierce competition push Vietnamese enterprises
into having effective management and optimize cost. However, there have been
many failed attempts in implementing ERP systems. This research aims to examine
the critical success factors of success of ERP implementation.
The study was conducted in twenty five companies in Hochiminh, Dong Nai,
and Binh Duong (out of eighty one companies throughout Vietnam) with “go live”
ERP systems. The results of the study indicate Top management support,
Teamwork, Enterprise-wide communication and Project management program as
critical success factors of ERP implementation success. The results also show that
Organizational culture is the moderator which positively moderates the relationships
between Top management support, Teamwork, Enterprise-wide communication,
Project management program and
ERP implementation success.
2
CHAPTER 1
INTRODUCTION
1.1. Research background
For the last few decades, business management strongly relies on the
information. The use of Management Information system (MIS) is being proved to
lead to better planning, better decision making and better result. MIS is defined by
Davis and Olsen (1985) as an integrated user-machine system for providing
information to support information management and decision making functions in
an organization. This study will look into one of the most advanced and
sophisticated MIS, the Enterprise Planning System (ERP) and the critical success
factors for its successful implementation.
Generally, ERP systems help organizations increase level of customer
service, productivity, cost reduction, inventory turnover and provide effective
supply chain management and e-commerce. The ERP systems are designed to
develop plans and schedules so that the right resources (manpower, material,
machinery and money) are available in the right amount when needed (Wallace and
Kremzar, 2001).
In reality, ERP implementation is costly, complicated and time-consuming.
According to survey result in 2010 by Panorama Consulting Group, on average, an
ERP project takes about 18.4 months with total cost of $6.2 mil. 51.4 % of ERP
projects exceed budget, 35.5% of projects take longer than expected duration and
40% of company face with operational disruption after “go-live”. In extreme cases,
companies have even had to close because of vast ERP investments that did not go
live, an example being the FoxMeyer Drug Company that ends into bankruptcy
(Scott and Vessey, 2002).
3
In developing countries in Asia, the rate of ERP adoption was very low and
several years behind advanced countries (Rajapakse & Seddon, 2005; Ngai et al.,
2008). In Vietnam, ERP systems are still new to the companies. The system just
started to be seriously considered after WTO joining. Based on the information
found on ERP forum (www.erpsolution.vn, http://eac.vn), there are about 81
corporate throughout Vietnam that implemented ERP systems as in Appendix 1
attached to this thesis. At present, there hasn’t been specific statistics or numeral
analysis on successful and failed projects as well as the costs which were spent to
gain an effective ERP system. However in general, the effectiveness of ERP
implementation in Vietnam hasn’t been high yet. A great number of businesses
have implemented ERP but haven’t used up capacity of the system. Most of them
only come to a halt at the level of control. These businesses can apply little of
planning feature, while it is the prominent feature of the ERP.
The difficulties and high failure rate in implementation ERP systems have
been widely attracted many researchers to discover critical success factors for ERP
adoption in the world. Through comprehensive literature review, Ngai et al. (2008)
indicate that much of the research focused on Western developed nations while
there has been lack of research on the success or failure of ERP adoption in
developing regions/countries. This study attempts to study critical success factors
(CSFs) affecting ERP systems implementation success in Vietnam.
1.2. Research questions and objectives
There’s no doubt about the benefits that ERP systems bring to organization.
However, there are still many issues relating to ERP implementation which can
become potential risks for ERP projects. The research aims to answer to the
following question:
Question 1: What are the critical success factors for the ERP implementation
success?
4
Question 2: What are the levels of effects that critical success factors have on the
ERP success?
Question 3: Does organizational culture enhance the relationship between critical
success factors and ERP implementation success?
Question 4: What is the state of ERP adoption in Vietnam?
This study is conducted to identify factors influencing ERP implementation
success. It seeks to examine and understand whether factors such as top
management support, teamwork and composition, enterprise-wide communication
and project management influence success of ERP adoption. It also seeks to
examine whether organizational culture positively moderates the relationship
between these factors and ERP implementation success. The specific objectives are:
- To examine the relationship between top management support and ERP
implementation success.
- To examine the relationship between teamwork and ERP implementation
success.
- To examine the relationship between enterprise-wide communication and
ERP implementation success.
- To examine the relationship between project management program and ERP
implementation success.
- To examine the moderating effect of organizational culture on the
relationship between top management support and ERP implementation
success.
- To examine moderating effect of organizational culture on the relationship
between teamwork and ERP implementation success.
- To examine moderating effect of organizational culture on the relationship
between enterprise-wide communication and ERP implementation success.
- To examine moderating effect of organizational culture on the relationship
between project management program and ERP implementation success.
- To examine the state of ERP adoption in Vietnam.
5
1.3. Practical significances of the study
The results of the study are practically meaningful for implementation ERP
systems in Vietnam. The study helps organization to master the main factors
influencing the success of ERP implementation. The results of the study will
provide necessary measures to improve the success rate of adopting ERP systems,
which results in improvement in performance and competition capability. The study
will also enrich necessary knowledge for people who are working the field of ERP
as well as those who are implementing or will implement ERP systems.
1.4. Scope and approach
Based on the list of corporate that have implemented ERP systems, the
author attempts to conduct the study in twenty five companies in Ho Chi Minh,
Binh Duong and Dong Nai with “go live” ERP systems.
The study is conducted in 2 phase: pilot study and main study. The purpose
of pilot test is to test the content as well as the measurement of scales. Then the
main study is to test the hypotheses and research model.
1.5. Research method
The study was carried out within 2 steps relating to two different methods:
Qualitative method: The author would use the qualitative method by
carrying out group discussions with five experienced people working in the field of
ERP business. The purpose of this step is to adjust and amend the translated
questionnaire suitable with the subjects and purposes of the study.
Quantitative method: Quantitative study would be carried out based on the
data collected from the questionnaire. Quantitative study is implemented to evaluate
the scale, verify the theoretical model. The scale is preliminarily tested the
reliability and validity using Cronbach alpha and exploratory factor analysis carried
6
out by the SPSS 20.0 software. Multiple linear regression analysis and hierarchical
regression would be used to test the proposed model and the hypotheses of the study.
1.6. Structure of the thesis
This study includes 5 chapters:
Chapter 1- Introduction, mentions about research background, research objectives
and research scope and approach.
Chapter 2 – Literature review, provides theoretical and empirical background
supporting for hypothesized research model.
Chapter 3 – Research methodology, is about the methodologies that author used to
conduct the research.
Chapter 4 – Data analysis and findings, discusses about the analysis that author
conduct to test hypothesis and to answer the research question.
Chapter 5 - Conclusion and implication, is about the results, implication, and
recommendation for future research.
7
CHAPTER 2
LITURATURE REVIEW
This chapter presents the theories behind ERP critical success. It will also
discuss about measurement for ERP implementation success. The research
framework and hypotheses will also be proposed in this chapter.
2.1. Definition of ERP
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”.
ERP systems are expensive, and once ERP systems are implemented successfully,
significant benefits such as improved customer service, better production
scheduling, and reduced manufacturing costs can be gained.
The following table shortly summarizes the history of ERP and its precedents
Table 2. 1: ERP systems history
Time System Description
Inventory Inventory Management Inventory management and control
& Control is a combination of information
technology and business processes in
order to maintain the appropriate
ratio in a warehouse.
1970’s Material Requirement Material requirements planning
Planning (MRP) (MRP) software applications used
for planning and tendering
processes. MRP plans for activities
and purchase raw materials based on
production requirements, current
inventory levels and procedures for
8
each activity.
1980s Manufacturing MRP II applications using software
Requirements Planning to coordinate the production process,
(MRP II) including a range from product
planning, parts purchasing, inventory
control to shipping finished goods
and distribution.
1990s Enterprise Resource In the enterprise resource planning
Planning (ERP) or ERP, software applications used
for that purpose, to improve the
performance of internal business
processes. Modern integrated ERP
business on body functions,
including planning, inventory,
purchasing, distribution, sales and
tracking orders. ERP systems may
include application modules to
support other business functions.
2000s ERP: Business ERP has developed further to
Intelligence & include powerful data processing
Workflow and reporting engines, createing real
time reporting for business users.
ERP continued to extend into
vertical industries.
(http://www.sysoptima.com/erp/history_of_erp.php)
Initially, manufacturing systems emphasized on inventory management and
control. Most of software packages were individually designed and developed to
automate inventory. Since 1970s, the software packages were developed and
extended to Material Requirement Planning (MRP and MRP II). In the early 1990s,
9
MRP II was further extended to some other areas, such as Finance, Engineering,
Human Resource, Project Management etc., and the term Enterprise Resource
Planning started to be used.
Considered as the most important development in the corporate use of
technology in the 1990s, ERP has been undertaken by many organizations.
Generally, ERP systems nowadays compose of several modules, such as human
resources, sales, marketing, finance and production, providing cross-organizational
integration of transaction-based data management throughout embedded business
processes support.
Figure 2.1: Modules of ERP system (www.abouterp.com) 1
The potential benefits of successfully implementing an ERP system is large,
and even, according to Markus et al. (2000), critical to organizational performance
and survival. ERP systems can potentially allow a company to manage its business
better with potential benefits of improved process flow, better data analysis, higher
quality data for decision-making, reduced inventories, improved coordination
throughout the supply chain, and better customer service (Gattiker and Goodhue,
10
2005; Lengnick-Hall et al., 2004; Gupta, 2000; Fan et al., 2000). Moreover, Zheng
et al. (2000) suggest that ERP systems improve the efficiency of management
decisions and plans and increase the flexibility with adjustments of functionality to
react to business needs while Huang and Palvia (2001) suggest that ERP helps a
manufacturer or a service business manage the important parts of its business. All of
the benefits can help improve profit margins (Fan et al., 2000). Businesses have
been quick to embrace ERP. Willis and Willis-Brown (2002) observe that the ERP
market is one of the fastest growing markets in the software industry and Yen et al.
(2002) and Adam and O’Doherty (2000) suggest that ERP will continue to be one
of the fastest growing and influential players in the application software industry
through to the next decade.
2.2. Situation of ERP in Vietnam
After 1990s, many companies in the world have been implementing ERP
systems to have a uniform information system in their business. In Vietnam, ERP
appeared in 1998. However, the application and construction of ERP in enterprise
was developed in 2002. The number of more than 80 enterprise companies with “go
live” ERP systems indicates that the status of ERP application in Vietnamese
enterprises is very limited. Most of businesses are still not aware of the importance
of ERP as well as their material and technical basis and financial resource are not
adequate to implement ERP. Some enterprises, which provided ERP solution,
recognized that the number of experts in this field in Vietnam is quite low.
In 2006, Oracle was the only ERP solution provider for the whole market of
small and medium enterprises in Vietnam. However, until now most of leading ERP
solution providers in the world have appeared in Vietnamese market, including
famous ones such as SAP, Tectura, Atos, Soltius, IBM ... Most ERP vendor have
partnership with Vietnamese companies in order provide ERP solution to end-users.
FPT seems be the biggest ERP provider who have partnership with most of ERP
vendor.
11
Until February 2011, there were about 80 Vietnamese companies that
already adopted ERP systems, and the number was anticipated to increase
significantly. This result came from a report released on the website http://eac.vn on
March 2011 which was attached in Appendix 1 at the end of this research.
Until the present moment, there hasn’t been detailed statistics on the success
or failure, the cost as well as effectiveness of ERP systems in Vietnam. However in
general, the effectiveness of ERP implementation in Vietnam hasn’t been high yet.
A great number of businesses have implemented ERP but haven’t used up capacity
of the system. Most of them only reach to the level of control. These businesses can
apply little of planning feature despite the fact it is the prominent feature of ERP
systems.
2.3. Proposed conceptual model and hypotheses
According to Amberg (Amberg et al, 2005), the first author who developed
the concept of critical success factors on the basis for determining information
needs of managers is Daniel (1961). Then , the idea was popularized by Rockart
(1979) and have been widely used in the information system. “CSFs are the
limited number of areas in which results, if they are satisfactory, would ensure
competitive performance for the organization. They are few key areas where things
must go right for the business to flourish” (Rockart, 1979, 85).
Implementing an ERP system is a complicated process which many factors
potentially affect on. There have been recently many research published on the
factors contributing to ERP adoption. Author will mention about several researches
used as main reference of the study.
Esteves and Pastor (2000) categorize CSFs into Organizational and
Technological, and then sub-devide them into strategic and tactical factors.
12
Table 2. 2: Unified CSFs model by Esteve & Pastor (2000)
Strategic Tactical
Sustained management support. Dedicated staff and consultants
Effective organizational change Formalised project
management plan/schedule
Good project scope management Adequate training program
Organizational
Comprehensive business process Preventive trouble shooting
re-engineering
Appropriate usage of
Adequate project champion role consultants
User involvement and participation Empowered decision-makers
Trust between partners
Adequate ERP implementation Adequate software
Technological
strategy configuration
Avoid customization Legacy system knowledge
Adequate ERP version
The organizational factors relates to organizational structure and culture and,
business process. The technological perspectives mention a particular ERP products
in terms of technical issues such as hardware and software.
Also through citations in the studies that they reviewed, Esteves and Pastor
supposed that organizational aspects are more important than technological one, and
top management seems to be the most important factor.
Somers and Nelson (2001) proposed twenty two critical success factors
which can be seen in Table 2.3
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
------------
LÊ THỊ THU CHUNG
CRITICAL SUC CESS FACTORS OF
ENTERPRISE RESOURCE PLANNING
SYSTEMS IMPLEMENTATION SUCCESS
IN VIETNAM
THESIS OF MASTER OF BUSINESS ADMINISTRATOR
HO CHI MINH CITY – 2012
MINISTRY OF EDUCATION AND TRANNING
UNIVERSITY OF ECONOMICS HO CHI MINH CITY
------------
LE THI THU CHUNG
CRITICAL SUCCESS FACTORS OF
ENTERPRISE RESOURCE PLANNING
SYSTEMS IMPLEMENTATION SUCCESS
IN VIETNAM
Subject: Master of Business Administrator
Code: 06.34.01.02
THESIS OF MASTER OF BUSINESS ADMINISTRATOR
ADVISOR:
DR. NGUYỄN THỊ NGUYỆT QUẾ
HO CHI MINH CITY – 2012
i
ACKNOWLEDGEMENT
I would like to take this opportunity to express my gratitude to all those
who have helped and supported me during the time I conducted the study.
First of all, I would like to express my deepest gratitude to my advisor,
Dr. Nguyen Thi Nguyet Que, for her generous and patient guidance to my
thesis. Her inspiring advices are extremely essential and valuable for me to
finish this thesis. The advisor is very knowledgeable, professional, and nice to
me all the time. I feel very lucky and deeply appreciate her to give a chance to
be her student.
Secondly, I would like to show sincere gratitude to faculty members for
their enthusiastic support.
Thirdly, I would like to send special thank you to my friends, members
of ERP forum, my work partners...who supportively help me so much to
finalize the questionnaire, take part in the survey for pilot test as well as the
main study.
Lastly, I would like the send the most special thanks to my family,
especially my parents who are always there for me with so much love, care
and encouragement.
Le Thi Thu Chung
Ho Chi Minh, October 2012
ii
COMMITMENT
I hereby would like to commit that the thesis, “Critical success factors
of Enterprise Resource Planning systems implementation success in Vietnam”,
was accomplished based on my independent and serious studies and
researches. The data was collected in reality and it has clear origins. In
addition to that, the data would be trust-worthily handled and it has never
been released in any menu.
Le Thi Thu Chung
iii
TABLE OF CONTENT
ACKNOWLEDGEMENT ........................................................................................ I
COMMITMENT ...................................................................................................... II
TABLE OF CONTENT ..........................................................................................III
LIST OF TABLE...................................................................................................... V
LIST OF FIGURE.................................................................................................. VI
ABSTRACT ...............................................................................................................1
CHAPTER 1 INTRODUCTION .............................................................................2
1.1. Research background ..................................................................................................... 2
1.2. Research questions and objectives .................................................................................. 3
1.3. Practical significances of the study................................................................................. 5
1.4. Scope and approach ........................................................................................................ 5
1.5. Research method ............................................................................................................. 5
1.6. Structure of the thesis ..................................................................................................... 6
CHAPTER 2 LITERATURE REVIEW .................................................................7
2.1. Definition of ERP ......................................................................................................................................................................7
2.2. Situation of ERP in Vietnam ............................................................................................................................................... 10
2.3. Proposed conceptual model and hypotheses ............................................................................................................ 11
CHAPTER 3 ............................................................................................................25
3.1. Research purpose ...............................................................................................25
3.2. Research design ..................................................................................................26
3.3. Questionnaire design ..........................................................................................27
3.3.1. Questionnaire development .........................................................................27
3.3.2. Questionnaire translation .............................................................................31
3.4. Research strategy ..............................................................................................32
3.4.1. Qualitative pilot study .................................................................................32
3.4.2. Quantitative pilot study ...............................................................................32
3.5. Targeted population ...........................................................................................33
3.6. Research sampling ............................................................................................33
CHAPTER 4 ............................................................................................................38
4.1. Descriptions of sample ......................................................................................38
4.2. Reliability and validity of the measurement scale ............................................40
4.3. Testing the research model and the hypotheses ................................................45
iv
4.3.2. Testing hypothesis ......................................................................................49
4.3.3 Testing the moderating relationship .............................................................50
4.3.4. Description of statistics of overall ERP implementation success. ..............55
4.4. Findings ..............................................................................................................56
CHAPTER 5 ............................................................................................................58
5.1. Discussion of findings ........................................................................................58
5.2. Practical implications .........................................................................................59
5.3 Contribution of the current study ........................................................................61
5.4 Limitation and future research ............................................................................61
LIST OF REFERENCE ............................................................................................63
APPENDIX 1 .......................................................................................................6973
APPENDIX 2 ...........................................................................................................73
APPENDIX 3 ............................................................................................................80
APPENDIX 4 ............................................................................................................84
APPENDIX 4 ............................................................................................................87
v
LIST OF TABLE
Table 2. 1: ERP systems history ............................................................................................ 7
Table 2. 2: Unified CSFs model by Esteve & Pastor (2000) .............................................. 12
Table 2. 3: 22 CSFs proposed by Somers & Nelson (2001) ................................................ 13
Table 2. 4: seven broad categories of CSFs by Nah & Delgado (2006) .............................. 13
Table 2.5: Eleven key CSFs by Nah, Lau & Kuang (2003) ................................................ 14
Table 2. 6: Four CSFs and 1 moderator proposed by Nah et al. (2007) .............................. 15
Table 2.7: Measurement of ERP implementation success by Petroni (2002) ..................... 23
Table 3.1: Survey items in the study .................................................................................. 29
Table 4.1: Sample characteristics ....................................................................................... 39
Table 4.2: Reliability of scales .......................................................................................... 40
Table 4.3: KMO and Barlett's Test (DV) ........................................................................... 43
Table 4.4: Total variance explained .................................................................................... 43
Table 4.5: Rotated Component Matix(a) ............................................................................ 44
Table 4.6: Correlation of constructs 1 ................................................................................. 45
Table 4.7: Model sumary(b) (MRL) 1 ................................................................................. 47
Table 4.8: ANOVA (Regression) 1 ..................................................................................... 47
Table 4.9: Coefficients (Regression) 1 ................................................................................ 47
Table 4.10: Testing H1, H2, H3, H4 1 ................................................................................. 49
Table 4.11: Model Summary of H5 1 .................................................................................. 51
Table 4.12: Coefficients of H5 hierarchical regression 1 .................................................... 51
Table 4.13: Model summary of H6 1 ................................................................................... 51
Table 4.14: Coefficients of H6 hierarchical regression 1 .................................................... 52
Table 4.15: Model Summary of H7 1 .................................................................................. 52
Table 4.16: Coefficients of H7 hierarchical regression 1 .................................................... 53
Table 4.17: Model summary of H8 1 ................................................................................... 53
Table 4.18: Coefficients of H8 hierarchical regression 1 .................................................... 54
Table 4.19: Testing H5, H6, H7, H8 1 ................................................................................. 54
Table 4.20: Descriptive statistic of ERP 1 ........................................................................... 55
Table 4.21: Levels of importance of factor 1....................................................................... 56
vi
LIST OF FIGURE
Figure 2.1: Modules of ERP system ..................................................................................... 9
Figure 2.2: Proposed conceptual framework ...................................................................... 16
Figure 3.1: Research procedure .......................................................................................... 26
Figure 4.1: The revised research model 1 ............................................................................ 55
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ABSTRACT
Enterprise resource planning (ERP) systems with high level of integration
can help improve capability of customer service, productivity, cost reduction,
inventory turnover and provide effective supply chain management and e-commerce.
ERP has been widely adopted in many countries, but in Vietnam it is still very
limited. Trend of globalization and fierce competition push Vietnamese enterprises
into having effective management and optimize cost. However, there have been
many failed attempts in implementing ERP systems. This research aims to examine
the critical success factors of success of ERP implementation.
The study was conducted in twenty five companies in Hochiminh, Dong Nai,
and Binh Duong (out of eighty one companies throughout Vietnam) with “go live”
ERP systems. The results of the study indicate Top management support,
Teamwork, Enterprise-wide communication and Project management program as
critical success factors of ERP implementation success. The results also show that
Organizational culture is the moderator which positively moderates the relationships
between Top management support, Teamwork, Enterprise-wide communication,
Project management program and
ERP implementation success.
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CHAPTER 1
INTRODUCTION
1.1. Research background
For the last few decades, business management strongly relies on the
information. The use of Management Information system (MIS) is being proved to
lead to better planning, better decision making and better result. MIS is defined by
Davis and Olsen (1985) as an integrated user-machine system for providing
information to support information management and decision making functions in
an organization. This study will look into one of the most advanced and
sophisticated MIS, the Enterprise Planning System (ERP) and the critical success
factors for its successful implementation.
Generally, ERP systems help organizations increase level of customer
service, productivity, cost reduction, inventory turnover and provide effective
supply chain management and e-commerce. The ERP systems are designed to
develop plans and schedules so that the right resources (manpower, material,
machinery and money) are available in the right amount when needed (Wallace and
Kremzar, 2001).
In reality, ERP implementation is costly, complicated and time-consuming.
According to survey result in 2010 by Panorama Consulting Group, on average, an
ERP project takes about 18.4 months with total cost of $6.2 mil. 51.4 % of ERP
projects exceed budget, 35.5% of projects take longer than expected duration and
40% of company face with operational disruption after “go-live”. In extreme cases,
companies have even had to close because of vast ERP investments that did not go
live, an example being the FoxMeyer Drug Company that ends into bankruptcy
(Scott and Vessey, 2002).
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In developing countries in Asia, the rate of ERP adoption was very low and
several years behind advanced countries (Rajapakse & Seddon, 2005; Ngai et al.,
2008). In Vietnam, ERP systems are still new to the companies. The system just
started to be seriously considered after WTO joining. Based on the information
found on ERP forum (www.erpsolution.vn, http://eac.vn), there are about 81
corporate throughout Vietnam that implemented ERP systems as in Appendix 1
attached to this thesis. At present, there hasn’t been specific statistics or numeral
analysis on successful and failed projects as well as the costs which were spent to
gain an effective ERP system. However in general, the effectiveness of ERP
implementation in Vietnam hasn’t been high yet. A great number of businesses
have implemented ERP but haven’t used up capacity of the system. Most of them
only come to a halt at the level of control. These businesses can apply little of
planning feature, while it is the prominent feature of the ERP.
The difficulties and high failure rate in implementation ERP systems have
been widely attracted many researchers to discover critical success factors for ERP
adoption in the world. Through comprehensive literature review, Ngai et al. (2008)
indicate that much of the research focused on Western developed nations while
there has been lack of research on the success or failure of ERP adoption in
developing regions/countries. This study attempts to study critical success factors
(CSFs) affecting ERP systems implementation success in Vietnam.
1.2. Research questions and objectives
There’s no doubt about the benefits that ERP systems bring to organization.
However, there are still many issues relating to ERP implementation which can
become potential risks for ERP projects. The research aims to answer to the
following question:
Question 1: What are the critical success factors for the ERP implementation
success?
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Question 2: What are the levels of effects that critical success factors have on the
ERP success?
Question 3: Does organizational culture enhance the relationship between critical
success factors and ERP implementation success?
Question 4: What is the state of ERP adoption in Vietnam?
This study is conducted to identify factors influencing ERP implementation
success. It seeks to examine and understand whether factors such as top
management support, teamwork and composition, enterprise-wide communication
and project management influence success of ERP adoption. It also seeks to
examine whether organizational culture positively moderates the relationship
between these factors and ERP implementation success. The specific objectives are:
- To examine the relationship between top management support and ERP
implementation success.
- To examine the relationship between teamwork and ERP implementation
success.
- To examine the relationship between enterprise-wide communication and
ERP implementation success.
- To examine the relationship between project management program and ERP
implementation success.
- To examine the moderating effect of organizational culture on the
relationship between top management support and ERP implementation
success.
- To examine moderating effect of organizational culture on the relationship
between teamwork and ERP implementation success.
- To examine moderating effect of organizational culture on the relationship
between enterprise-wide communication and ERP implementation success.
- To examine moderating effect of organizational culture on the relationship
between project management program and ERP implementation success.
- To examine the state of ERP adoption in Vietnam.
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1.3. Practical significances of the study
The results of the study are practically meaningful for implementation ERP
systems in Vietnam. The study helps organization to master the main factors
influencing the success of ERP implementation. The results of the study will
provide necessary measures to improve the success rate of adopting ERP systems,
which results in improvement in performance and competition capability. The study
will also enrich necessary knowledge for people who are working the field of ERP
as well as those who are implementing or will implement ERP systems.
1.4. Scope and approach
Based on the list of corporate that have implemented ERP systems, the
author attempts to conduct the study in twenty five companies in Ho Chi Minh,
Binh Duong and Dong Nai with “go live” ERP systems.
The study is conducted in 2 phase: pilot study and main study. The purpose
of pilot test is to test the content as well as the measurement of scales. Then the
main study is to test the hypotheses and research model.
1.5. Research method
The study was carried out within 2 steps relating to two different methods:
Qualitative method: The author would use the qualitative method by
carrying out group discussions with five experienced people working in the field of
ERP business. The purpose of this step is to adjust and amend the translated
questionnaire suitable with the subjects and purposes of the study.
Quantitative method: Quantitative study would be carried out based on the
data collected from the questionnaire. Quantitative study is implemented to evaluate
the scale, verify the theoretical model. The scale is preliminarily tested the
reliability and validity using Cronbach alpha and exploratory factor analysis carried
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out by the SPSS 20.0 software. Multiple linear regression analysis and hierarchical
regression would be used to test the proposed model and the hypotheses of the study.
1.6. Structure of the thesis
This study includes 5 chapters:
Chapter 1- Introduction, mentions about research background, research objectives
and research scope and approach.
Chapter 2 – Literature review, provides theoretical and empirical background
supporting for hypothesized research model.
Chapter 3 – Research methodology, is about the methodologies that author used to
conduct the research.
Chapter 4 – Data analysis and findings, discusses about the analysis that author
conduct to test hypothesis and to answer the research question.
Chapter 5 - Conclusion and implication, is about the results, implication, and
recommendation for future research.
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CHAPTER 2
LITURATURE REVIEW
This chapter presents the theories behind ERP critical success. It will also
discuss about measurement for ERP implementation success. The research
framework and hypotheses will also be proposed in this chapter.
2.1. Definition of ERP
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”.
ERP systems are expensive, and once ERP systems are implemented successfully,
significant benefits such as improved customer service, better production
scheduling, and reduced manufacturing costs can be gained.
The following table shortly summarizes the history of ERP and its precedents
Table 2. 1: ERP systems history
Time System Description
Inventory Inventory Management Inventory management and control
& Control is a combination of information
technology and business processes in
order to maintain the appropriate
ratio in a warehouse.
1970’s Material Requirement Material requirements planning
Planning (MRP) (MRP) software applications used
for planning and tendering
processes. MRP plans for activities
and purchase raw materials based on
production requirements, current
inventory levels and procedures for
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each activity.
1980s Manufacturing MRP II applications using software
Requirements Planning to coordinate the production process,
(MRP II) including a range from product
planning, parts purchasing, inventory
control to shipping finished goods
and distribution.
1990s Enterprise Resource In the enterprise resource planning
Planning (ERP) or ERP, software applications used
for that purpose, to improve the
performance of internal business
processes. Modern integrated ERP
business on body functions,
including planning, inventory,
purchasing, distribution, sales and
tracking orders. ERP systems may
include application modules to
support other business functions.
2000s ERP: Business ERP has developed further to
Intelligence & include powerful data processing
Workflow and reporting engines, createing real
time reporting for business users.
ERP continued to extend into
vertical industries.
(http://www.sysoptima.com/erp/history_of_erp.php)
Initially, manufacturing systems emphasized on inventory management and
control. Most of software packages were individually designed and developed to
automate inventory. Since 1970s, the software packages were developed and
extended to Material Requirement Planning (MRP and MRP II). In the early 1990s,
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MRP II was further extended to some other areas, such as Finance, Engineering,
Human Resource, Project Management etc., and the term Enterprise Resource
Planning started to be used.
Considered as the most important development in the corporate use of
technology in the 1990s, ERP has been undertaken by many organizations.
Generally, ERP systems nowadays compose of several modules, such as human
resources, sales, marketing, finance and production, providing cross-organizational
integration of transaction-based data management throughout embedded business
processes support.
Figure 2.1: Modules of ERP system (www.abouterp.com) 1
The potential benefits of successfully implementing an ERP system is large,
and even, according to Markus et al. (2000), critical to organizational performance
and survival. ERP systems can potentially allow a company to manage its business
better with potential benefits of improved process flow, better data analysis, higher
quality data for decision-making, reduced inventories, improved coordination
throughout the supply chain, and better customer service (Gattiker and Goodhue,
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2005; Lengnick-Hall et al., 2004; Gupta, 2000; Fan et al., 2000). Moreover, Zheng
et al. (2000) suggest that ERP systems improve the efficiency of management
decisions and plans and increase the flexibility with adjustments of functionality to
react to business needs while Huang and Palvia (2001) suggest that ERP helps a
manufacturer or a service business manage the important parts of its business. All of
the benefits can help improve profit margins (Fan et al., 2000). Businesses have
been quick to embrace ERP. Willis and Willis-Brown (2002) observe that the ERP
market is one of the fastest growing markets in the software industry and Yen et al.
(2002) and Adam and O’Doherty (2000) suggest that ERP will continue to be one
of the fastest growing and influential players in the application software industry
through to the next decade.
2.2. Situation of ERP in Vietnam
After 1990s, many companies in the world have been implementing ERP
systems to have a uniform information system in their business. In Vietnam, ERP
appeared in 1998. However, the application and construction of ERP in enterprise
was developed in 2002. The number of more than 80 enterprise companies with “go
live” ERP systems indicates that the status of ERP application in Vietnamese
enterprises is very limited. Most of businesses are still not aware of the importance
of ERP as well as their material and technical basis and financial resource are not
adequate to implement ERP. Some enterprises, which provided ERP solution,
recognized that the number of experts in this field in Vietnam is quite low.
In 2006, Oracle was the only ERP solution provider for the whole market of
small and medium enterprises in Vietnam. However, until now most of leading ERP
solution providers in the world have appeared in Vietnamese market, including
famous ones such as SAP, Tectura, Atos, Soltius, IBM ... Most ERP vendor have
partnership with Vietnamese companies in order provide ERP solution to end-users.
FPT seems be the biggest ERP provider who have partnership with most of ERP
vendor.
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Until February 2011, there were about 80 Vietnamese companies that
already adopted ERP systems, and the number was anticipated to increase
significantly. This result came from a report released on the website http://eac.vn on
March 2011 which was attached in Appendix 1 at the end of this research.
Until the present moment, there hasn’t been detailed statistics on the success
or failure, the cost as well as effectiveness of ERP systems in Vietnam. However in
general, the effectiveness of ERP implementation in Vietnam hasn’t been high yet.
A great number of businesses have implemented ERP but haven’t used up capacity
of the system. Most of them only reach to the level of control. These businesses can
apply little of planning feature despite the fact it is the prominent feature of ERP
systems.
2.3. Proposed conceptual model and hypotheses
According to Amberg (Amberg et al, 2005), the first author who developed
the concept of critical success factors on the basis for determining information
needs of managers is Daniel (1961). Then , the idea was popularized by Rockart
(1979) and have been widely used in the information system. “CSFs are the
limited number of areas in which results, if they are satisfactory, would ensure
competitive performance for the organization. They are few key areas where things
must go right for the business to flourish” (Rockart, 1979, 85).
Implementing an ERP system is a complicated process which many factors
potentially affect on. There have been recently many research published on the
factors contributing to ERP adoption. Author will mention about several researches
used as main reference of the study.
Esteves and Pastor (2000) categorize CSFs into Organizational and
Technological, and then sub-devide them into strategic and tactical factors.
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Table 2. 2: Unified CSFs model by Esteve & Pastor (2000)
Strategic Tactical
Sustained management support. Dedicated staff and consultants
Effective organizational change Formalised project
management plan/schedule
Good project scope management Adequate training program
Organizational
Comprehensive business process Preventive trouble shooting
re-engineering
Appropriate usage of
Adequate project champion role consultants
User involvement and participation Empowered decision-makers
Trust between partners
Adequate ERP implementation Adequate software
Technological
strategy configuration
Avoid customization Legacy system knowledge
Adequate ERP version
The organizational factors relates to organizational structure and culture and,
business process. The technological perspectives mention a particular ERP products
in terms of technical issues such as hardware and software.
Also through citations in the studies that they reviewed, Esteves and Pastor
supposed that organizational aspects are more important than technological one, and
top management seems to be the most important factor.
Somers and Nelson (2001) proposed twenty two critical success factors
which can be seen in Table 2.3