Essay preview
Web based ERP systems for SMEs
Skander- Alexander Gaied
Table of Contents
Abstract i
1. Introduction
1.1 Research questions
2. SME
2.1 Definition
2.2 ERP adoption in SMEs
2.2.1 Factors influencing ERP adoption
3. On premises ERP
3.1 Advantages
3.2 Disadvantages
4. Web based ERP
4.1 Basics
4.1.1 SOA
4.1.2 ERP 2
4.2 SaaS
4.2.1 Application service providing
4.2.2 Differences ASP/SaaS
4.2.3 Advantages
4.2.4 Disadvantages
4.2.5 Parameters to consider
4.2.6 Pricing Patterns for SaaS
4.3 Web service based ERP Systems
4.3.1 Difference SaaS/ Web services
4.3.2 Web service broker
4.3.3 Web service model for SME
5. Interviews
5. 1 Approach
5. 2 Problems
5.3 Method
5.4 Profiles
5.5 Interview results
5.5.1 Experiences with current ERP- Systems
5.5.2 Opinion on SaaS and Web based ERP
6. Conclusion
References
Tables-Figures
Figure 1
Figure 2
Figure 3
Abstract
This bachelor thesis deals with the topic of web based enterprise resource planning systems for small and medium enterprises, in order to conclude if web based ERP systems provide a more promising approach than traditional ones, as well as to gain more insight into the level of information SMEs have in regards to those relatively new approaches.
ERP systems are a sort of business management software which is generally thought to provide important documentation and management functions to businesses of all sizes, however the author is under the impression that micro and small enterprises are not offered satisfactory options at this point in time, through the traditional ERP approach and might be better off with the specific traits web based ERP systems provide. As will be explained in the introduction, the SME segment provides a relatively untapped market in regards to ERP systems, with lots of potential customers. Therefore explorative literature review has been conducted, in order to identify the strengths and weaknesses of traditional on- premises ERP systems, with a focus on what those mean for SMEs (section 2&3).
Furthermore two approaches have been identified, which fall under the web based ERP system umbrella term, namely the software as a service and web service based approaches in connection with ERP systems. Within those two approaches, ERP software is not bought anymore, but rather rented as a service and then streamed to customer’s end- devices. Those two approaches are then thoroughly highlighted, by showing how they change the way ERP systems are implemented and used, with additional information on disadvantages and advantages of the respective approaches (section 4). The explorative literature review is then enriched by an extensive interview with affected employees of a Viennese SME and relevant answers are then compared towards the corresponding literature review parts (section 5).
In the thesis last part, the author concludes that web based ERP systems do provide a valid option for SMEs, although there a certain limitations to the potential large scale commercial deployment of this approach, stemming from natural drawbacks inherent by the approaches. Furthermore the level of information in regards to the web based ERP alternatives appears to be rather low among SMEs, potentially a result of general lack of knowledge/ interest in the field (section 6).
1.Introduction
ERP (enterprise resources planning) systems are a sort of business management software, which aims at combining all relevant information within a company in a central database. The information is derived from all relevant fields such as manufacturing, development, sales and marketing. Not only is it important for making internal dealings more transparent and efficient but ERP systems are also becoming an important part of the supply chain. [1]
From the definition above, it can be derived that the basic functions of such systems could be of great use to companies of any size, in a world where change and uncertainty in manufacturing environments is common. In order to deal with the above-mentioned challenges, large enterprises (LEs) have begun using sophisticated ERP systems on a large scale in the mid 90s. [2] Since the adoption and implementation of traditional on- premises ERP systems represents a major investment and complex challenge smaller enterprises have been slow to make use of this sort of business management software. [3] As SMEs are increasingly under pressure to adopt ERP systems, either because they are forced to do so by LEs they deliver goods to, or because of the ever-increasing global competition, the question arises on how ERP systems can be adjusted in a way so that they present a valid and feasible option for SMEs.
Furthermore it is generally accepted, that the ERP market in regards to LE is mainly saturated and therefore more and more ERP vendors have begun targeting the SME market. [4] Judging by the numbers, this is a market segment with huge potential, since for 2012 it is predicted that SMEs are going to account for 67% of overall employment and 58% of the EU’s gross value added [5] The author is under the impression that a relatively new concept called “Software-as-a-Service” (SaaS) is capable of reducing the negative impact of SME’s limited IT knowledge and financial resources enabling them to successfully implement and use web based ERP systems. The defining difference between SaaS and on-premise solutions lies within the fact that rather than paying a license fee and using one’s own hardware, the entire ERP infrastructure and software works through a cloud based model, with the customer only renting the software to then use the product through his web browser. However, as will be explained later, there are also natural drawbacks to SaaS, which could make it an unfitting concept not only for SME’s potential ERP systems, but for ERP systems in general.[6] While the use of ERP systems through the SaaS concept, is already being marketed through big ERP vendors such as SAP, there appears to be another possibility for web based ERP systems, through the use of the web service concept. However, this sort of web based ERP systems appears not yet to be in a stage where it could be commercially deployed on a larger scale and therefore only the current state of affairs is highlighted in this thesis, in order to portray future possibilities in regards to web based ERP systems.
1.1 Research questions
The aim of the following thesis is to answer the two research questions below, through means of explorative literature research complemented by interviews with people having a certain degree of knowledge regarding ERP systems in SMEs.
1. Are web based ERP systems a better option for SMEs than traditional ones? In order to answer this research questions, a close look will be taken at SMEs need as well as limitations in regards to the implementation and use of ERP systems. As mentioned in the introduction, web based ERP systems do have advantages as well as disadvantages compared to traditional ERP systems. Therefore the author will try to define the most critical issues SMEs have with traditional solutions in order to identify if those can be solved through web based solutions and furthermore if the natural drawbacks to this alternative can be overlooked due to the fact that they concern less important problems for SMEs
2. Do SME owners/employees have enough information in regards to potential web based ERP solutions?
Since literature appears to agree that among SME’s natural limitations, a lack of IT knowledge appears to be common, this research questions aims at finding out if the respective responsible personal for decisions regarding IT systems in SMEs are properly informed in regards to the new possibilities that web based ERP systems offer. Since the aforementioned lack of IT knowledge is not specifically mentioned in context with web based ERP systems, the author tries to get more information regarding this through the interviews.
2. SME
2.1 Definition
Since this thesis focuses on SMEs as a target group for web based ERP systems, the term needs to be clearly identified, in order to clarify what an SME is considered to be in this work’s context. Following a recommendation stemming from the European Commission (EC) there are 3 subcategories to SMEs, namely micro, small and medium sized companies. A micro-company has a maximum number of 10 employees and an annual turnover lower than 2 million euros, while a small-company has less than 50 employees and an annual turnover that does not exceed 10 million euros. According to this definition, a medium company hast less than 250 employees and a maximum annual turnover of 50 million euros. [7]
Interestingly, 9 out of 10 European SME’s consist of less than 10 employees. [8] The majority of Austrian SMEs fall into line with the European average given above, as 86,1% of Austrian SMEs consist of less than 10 employees. [9] Taking the numbers above into account, this paper is focusing on micro and small companies, not only because they make up the majority of the European SMEs, but also because, compared to micro and small enterprises the medium segment appears to be already successfully using ERP systems. Even though more and more ERP vendors appear to be realizing the importance/profitability of the SME market, acceptable solution for SMEs with less than 50 employees have not yet been thoroughly established. [10] Furthermore it should be noted that the term SME should be understood with the focus on micro and small enterprises as explained above in the context of this paper, since an alternative term, MSE (for micro and small enterprises) is not common in literature regarding this thesis’ topic and therefore might be misleading.
2.2 ERP adoption in SMEs
In order to conclude if web based ERP systems are a useful alternative for SMEs, it is important not only to pay attention to the basic technological background of web based ERP systems and therefore the advantages they offer, but also what appears to be relevant to SMEs in regards to the adoption of an ERP system in general. This is done in order to furthermore conclude, if web based ERP systems could provide a valid alternative from the SME’s point of view. The author considers this an important aspect, since the general advantages of web based ERP systems as elaborated in the later chapters of this thesis
do not count for much, as long as they do not fit SMEs priorities in regards to selecting an ERP system. Therefore the following section looks into SME’s more specific needs in regards to the selection and adoption of ERP systems, as they have been highlighted in relevant literature and the findings are then compared to a recent study conducted by Sanna Laukkanen, Sami Sarpola and Petri Hallikainen in 2007 in order to judge if the literature findings, which in most cases have been published a long time ago, still hold up.
2.2.1 Factors influencing ERP adoption
Selection of possible ERP solutions
According to literature, especially small companies have been found to be influenced by external advice (from family members, other SMEs in the same field etc.) in their information system (IS) selection process, rather than doing their own research. [11]
However, a study conducted by Laukannen, Sarpola and Hallikainen concluded that this is not necessarily the case, especially not for small enterprises, where 78% of the respondents indicated that they are conducting their own research in regards to ERP systems. [12] This contradiction could be explained through arguing that the wide spread use of the internet has made it easy for even the smallest of all companies to conduct there own thorough research if necessary. While external advice was a useful source of information before, internal research has become easy enough to make this redundant to some degree.
Considering the above said, one could conclude, that it is generally easier for smaller/new ERP providers to be able to attract potential SME customers, due to them largely doing there own research, than it was before. This also benefits the potential spread of web based ERP systems, considering the fact that big players such as SAP have not yet been able to properly tap the SME market, leaving room for smaller companies with new solutions to gain some market share.
Limited resources
Due to limited resources a SME has at his disposal in regards to human and financial capital and the vulnerability to external effects, they tend to make decisions on a day to day basis rather than emphasizing on long term strategic thinking.[13]
Furthermore, SMEs tend to have a reactionary approach towards the introduction of IS, seeing them as
something that’s reinforcing their current expertise, rather then a way of gaining a competitive advantage through innovation, which appears to be LEs viewpoint [12]. Moreover, the lack in human resources appears to be especially problematic for small companies, since a significant amount responded to the questionnaire by stating that they see user’s IT competence as possible point of failure. Furthermore, again referring to the study, small enterprises appear to doubt their adequacy of information for decision making in the ERP selection process
Taking this into account, ERP systems for SMEs should have a limited and manageable financial impact, as well as fast implementation times in order to avoid putting the SMEs survival at risk and cope with the SME’s day to day attitude. The above mentioned study also concluded, that budget overruns and long implementation times are, unsurprisingly, an issue for companies of all sizes. However, SMEs usually have restrictions in regards to their cash flow and availability of financial funds in general and are therefore even more susceptible to those two factors.
In regards to the above written, the more managable and lower TCO, as well as faster implementation times, are 2 of the main strongpoints of web based ERP solutions. Admittedly, the issue in regards to user’s lack of IT competence can’t be solved any better through web based solutions than through traditional ERP systems. However information adequacy in regards to decision making appears to be easier gained through looking at web based solutions, since future costs an capabilities are more transparent than they are with traditional solutions.[14]
3. ERP
In the following sections, advantages and disadvantages of traditional on-premises ERP systems will be discussed. The short overview of traditional ERP system’s advantage, is supposed to show the advantages an ERP system produces for an enterprise in general. Those advantages also hold up for web based ERP solutions and should give an impression of why SMEs should adopt an ERP system. The section on disadvantages however, is proposed to display the weaknesses of on-premises ERP systems and which of those weaknesses web based ERP systems can/can’t eliminate, possibly making ERP systems a more lucrative product for SMEs.
3.1 Advantages
What benefit
How
Reliable information access
Common DBMS, consistent and accurate data,
improved reports.
Modules access same data from the central
database, avoids multiple data input and
update operations.
Avoid data and operations redundancy
Delivery and cycle time reduction
Minimizes retrieving and reporting delays.
Time savings, improved control by enterprisewide analysis of organizational decisions.
Cost reduction
Changes in business processes easy to adapt
and restructure.
Easy adaptability
Improved scalability ,Improved maintenance
Global outreach E-commerce, e-business
Figure 1
Structured and modular design with “add-ons”.
Vendor-supported long term contract as part of
the system procurement
Extended modules such as CRM and
SCM. Internet commerce, collaborative
culture.
Advantages of ERP systems (compare [15])
3.2 Disadvantages
Complex Product
ERP Systems pose a challenge in many regards, which often tends to be underestimated by the company trying to implement them, impacting the economical, technical and organizational aspects of an
enterprise. According to literature, three quarters of all ERP implementations fail.[16]
Substantial Investment
Traditional ERP systems usually involve a variety of different incurring costs that should be taken into account when considering the acquisition of such a system.
Training costs for personal: Usually employees, especially in non IT affiliated companies have to be trained in...