Factor impacting ERP implementation success in vietnam

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 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 Key words: ERP, project success, resource management, business process reengineering, management, education and training, consulting, customization, SAP, Oracle Conten CHAPTER 1: INTRODUCTION 1.1 The problem statement 1.2 Research questions 1.3 Research objectives 1.4 Research methodology 1.5 Scope of the study 1.6 Structure of the study CHAPTER 2: REVIEW OF RELEVANT LITERATURE 2.1 Key Concepts 2.2 ERP implementation success 2.3 Review of Critical Success Factors (CSFs) in ERP implementation 2.3.1 Master d 2.3.2 Minima 2.3.3 Busines 2.3.4 Consult 2.3.5 Manage 2.3.6 Educatio 2.4 Research Model 2.4.1 Variable 2.4.2 A sugge CHAPTER 3: RESEARCH METHODOLOGY Research methodology 3.1.1 The pilo 3.1.2 The mai 3.1.3 The sca 3.1.4 The que 3.1.5 Measure 3.1.6 Data co 3.1.7 Populati CHAPTER 4: RESULTS AND DISCUSSION OF THE FINDINGS 4.1 Descriptive statistics 4.2 Cronbach‟s Alpha Analysis 4.3 EFA Analysis 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 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 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 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 customer-service 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 million USD, Thep Viet paid more than million USD, Nova group paid million USD, Pham Nguyen company paid more than $500.000, Vietin bank paid 4.3 million USD 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 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 10 Y: ERP implementation success α: intercept (the constant) Βi (i=1-6): slope coefficients of the independent variables (master data quality, minimal customization, Business Process Reengineering (BPR), consultants, management and education and training) X1: score of the independent store variable, master data quality X2: score of the independent store variable, minimal customization X3: score of the independent store variable, BPR X4: score of the independent store variable, consultants X5: score of the independent store variable, management X6: score of the independent store variable, education and training Table 4.9: Regression analysis on data of 107 responses (Constant) Master Data Quality Customization Business Process Reengineering Consulting Project Management Education Planning Table 4.9 shows that all the observed standardized coefficient betas are positive and significant (Sig is smaller than the benchmark of 0.05) which demonstrates that the null hypotheses are rejected by the data In conclusion, there are significant impact of master data quality, minimal customization, business process reengineering, 37 consulting, management and education and training on ERP implementation success Now we can write the regression line as follows: Success factor = -.029 + 138 * Master data quality + 107 * Customization + 262 * BPR + 118 * Consulting + 338 Management + 123 * Education and training Now we can conclude that Result 1: Master data quality has a positive impact on ERP implementation success in Vietnam Before applying ERP system firms need to transfer data from legacy system to new ERP system The data loaded from legacy systems must be of high quality Timely and accurate data in a single consistent template is a fundamental requirement for the effectiveness of ERP system performance As shown in Table 4.9 master data quality (coded M1) has a positive impact on ERP implementation success in Vietnam Result 2: Minimal customization has a positive impact on ERP implementation success in Vietnam It is very difficult to get every company to agree the new process Some are not willing to give up their own business transaction, they require that the system need to satisfy their requirement by customizing the standard system However, one of the reasons to apply ERP system is that it can help to get the best practice with standard ERP system Customization may increase risk of failure As presented in Table 4.9, we can say that minimal customization (coded M2) has a positive impact on ERP implementation success in Vietnam Result 3: Business Process Reengineering (BPR) has a positive impact on ERP implementation success in Vietnam 38 To achieve the greatest benefits provided by the ERP system, it is imperative that the business processes are aligned with the ERP system Both the literature and the study‟s result in Table 4.9 shows that ERP system alone cannot improve organizational performance unless an organization restructures its business processes BPR (coded M3) has a positive impact on ERP implementation success in Vietnam Result 4: Consultants has a positive impact on ERP implementation success in Vietnam Consultants are experts in ERP field Their knowledge in both business processes and ERP system function is very important to ERP project Consultants will help users understand that ERP represents a totally new business process model, not simply a piece of technology that is easily implemented Also, the consultants should possess good interpersonal skill and be able to work with people We can conclude that consulting (coded M4) has a positive impact on ERP implementation success in Vietnam, as explained in Table 4.9 Result 5: Management has a positive impact on ERP implementation success in Vietnam ERP systems implementation is a set of complex activities, involving all business functions, so companies should have an effective project management strategy to control the implementation process, avoiding overrun of budget and ensuring the implementation within schedule Besides, the ERP project also needs to receive approval from top management Without top management support, it is so difficult to progress the project This support can provide time, money and human resources, the project will be a head of the schedule with high performance Furthermore, based on 39 the result in Table 4.9 we are confident to express that effective management (coded M5) has a positive impact on ERP implementation success Result 6: Education and training has a positive impact on ERP implementation success in Vietnam As mentioned before, ERP system is very new in Vietnam, it is not easy to use, adequate education and training would help employees use the system much easier They are often afraid that they could not operate the new system, after education and training course, their attitude changes forward to more positive and they started to know the benefits of the ERP system When they are aware of the ERP concepts and familiar with the system‟s feature, they will be willing to participate in the system development and implementation Then, look at the Table 4.9, it is no doubt to say that education and training (coded M6) has a positive impact on ERP implementation Now, based on all the analysis above, we now can answer the research question Factors impact ERP implementation successes in Vietnam include master data quality, minimal customization, business process reengineering, consulting, effective management and education and training We have conclusion about the hypotheses test of the research model as shown in the Table 4.10 ERP implementation is a high-risk project that needs to be managed properly Organizations must learn how to identify the critical issues that affect the implementation process and know when in the process to address them effectively to ensure that benefits can be realized and potential failures can be avoided 40 Table 4.10: Results Hypothesis Master data quality has a positive impact o H1 implementation success in Vietnam Minimal customization has a positive impa H2 ERP implementation success in Vietnam Business Process Reengineering (BPR) has H3 positive impact on ERP implementation su Vietnam Consultants has a positive impact on ERP H4 implementation success in Vietnam Management has a positive impact on ERP H5 H6 implementation success in Vietnam Education and training has a positive impact on Accepted ERP implementation success in Vietnam A total of six critical success factors for ERP implementation have been identified based on the review of the related literature The results of the study show that master data quality, minimal customization, BPR, consultants, management and education and training have positively impact ERP implementation success in Vietnam 41 CHAPTER 5: CONCLUSIONS AND IMPLICATIONS 5.1 Conclusions of the research ERP system is designed to implement a total business solution which supports major business functionalities of an enterprise Implementing an ERP system was thought to be complex, expensive, and time-consuming Many organizations in Vietnam not achieve success in their ERP implementation projects The aim of this research was to explore factors impact on ERP implementation in Vietnam Six independent variables such as master data, minimal customization, BPR, consulting, management, education and training, that are assumed to be extremely important factors in ERP implementation in Vietnam are examined in the research The findings of the research will help implementing enterprises and ERP consulting firm pay attention on them and get success for ERP implementation projects in Vietnam 5.2 Implications of the research The finding of the study has implications for both implemented ERP and consulting firms to identify, anticipate and allocate time and resources across those factors and their importance throughout implementation project This can consider as a useful guide for firms in Vietnam when they want to implement ERP system Addressed these factors can improve the likelihood of a successful implementation This study provide evidence to confirm that master data quality, minimal customization, business process reengineering, consultants and education and training are positively impact ERP implementation success But management has higher influence than the other factors Therefore, before implementation ERP system, top management must create a good environment for implementing an ERP system 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 42 critical resources (e.g., people, funds and equipment) are not available ERP systems implementation is a set of complex activities, involving all business functions and often requiring between one and two years of effort, thus companies should have an effective project management strategy to control the implementation process, avoiding overrun of budget and ensuring the implementation within schedule Since ERP is a relatively new phenomenon in Vietnam, and specially in globalization, more and more organizations worldwide in the world have adopted ERP system as a core of successful information management There are several unsuccessful ERP attempts, and companies lost not only invested capital in ERP system, but also a major portion of their business Before implementing ERP, Vietnamese companies, especially top of mangers, should focus on these six factors to reduce as much as possible the potential risk could happen 5.3 Limitations and suggestion for further researches Due to the small sample size in the survey, there are some limitations in the generalization of the research results to a larger population Meanwhile, ERP implementation is not a short-term project lasting only two or three months, but a long-term program which may last for one or several years Factors affecting ERP implementation are complex, thus this paper is only to find out some specific problems with ERP implementation Based on the research review, there are a lot of factors should be consider while implementing ERP project in Vietnam market 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 the costs assigned to the project However, this study cannot fulfill a test on project cost because it is confidential and the respondents have no idea about this Future research could focus on how these critical success factors differ among various implementation partners such as managers, IT specialists, vendors, and consultants In 43 addition, ERP implementation methodology is also play a very importance role The methodology helps to through every aspect of implementing your project, from initial planning, organizing, and staffing to directing, controlling, and establishing continuous improvement A further research can be fulfilled for each phase of ERP implementation project 44 REFERENCES Berdie, D., Anderson, J and Niebuhr, M (1986), „Questionnaires Design and Use‟, The Scarecrow Press, London, UK Bidgoli, H (2004), The Internet Encyclopedia, Volume 1, John Wiley & Sons, Inc p 707 Bingi, P., Sharma, M K., & Godla, J (1999), “Critical issues affecting an ERP Implementation”, Information Systems Management, 16(3), 7-15 Holland, C and Light, B (1999a), "Global Enterprise Resource Planning Implementation," in Proceedings of HICSS 32 - 32nd Annual Hawaii International Conference on System Sciences, Maui, Hawaii, 1999, pp 10 Holland, C and Light, B 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H1 implementation success in Vietnam Minimal customization has a positive impa H2 ERP implementation success in Vietnam Business Process Reengineering (BPR) has H3 positive impact on ERP implementation. .. implementation success in Vietnam Result 4: Consultants has a positive impact on ERP implementation success in Vietnam Consultants are experts in ERP field Their knowledge in both business processes and ERP. .. su Vietnam Consultants has a positive impact on ERP H4 implementation success in Vietnam Management has a positive impact on ERP H5 H6 implementation success in Vietnam Education and training