Analyzing SMEs Size as a Moderator of ERP Impact in SMEs Productivity

Abstract

ABSTRACT Enterprise Resource Planning (ERP) vendors have emphasized a positive impact of their ERP projects in enterprise performance and in costs reduction. Recently, some researchers have started to analyze the impact on business performance of the organizational changes that complement IT investments. However, there is a lack of research studies on ERP impact in Small and Medium Enterprises (SME). Based on Cobb-Douglas production function, this paper attempts to analyze the impact of ERP implementations in SMEs' productivity. We have collected data from 168 Spanish SMEs during the period 1997-2005, concerning the type of purchased ERP, implementation period, number of employees and some financial indicators. We use a cross-sectional and time-series model to compare and analyze the SMEs' productivity evolution, before and after ERP implementations considering SMEs size as a critical variable to determine the level of productivity reached. Our preliminary findings suggest that SMEs size moderates ERP impact in their productivity. Therefore, researchers and practitioners should not consider all SMEs in the same package and they should have different strategies and approaches to obtain the best results in each ERP implementation. INTRODUCTION One of the main trends in ERP world, both in research and business, is the analysis of ERP impact obtained from this complex and in some cases costly implementations. According to Esteves and Bohorquez (2007), most of the research studies about ERP impact has been in the form of individual case studies, while experiences on the field of Small and Medium-sized Enterprises (SMEs) often fail in recognizing the economic and organizational impacts related to their ERP implementation and use. Khurana and Lippincott (2000) mentioned that the potential performance improvements area is greater for relatively unhealthy large firms because large financially healthy enterprises are more efficient and effective in their industries. Subsequently, Mabert et al. (2000) found that ERP implementation costs, as a percent of revenue, range from 0.82% for very large firms to 13.65% for very small firms. One reason could be that there are economies of scale working in favor of the larger firms. However, the demand of ERP systems in SMEs has multiplied in recent years (Van Everdingen et al. 2000). At the same time, ERP vendors have started to develop specific products for this market because the differences between SMEs and large companies are recognized in existing literature (e.g. Bernroider & Koch 2001). Furthermore, most of previous research studies consider company size only as a factor of adoption process (e.g. Buonanno et al. 2005) and they do not consider SMEs size as a moderator of ERP impact. In terms of methodology impact, Alpar and Kim (1990) note that methodology used to assess IT impacts can also significantly affect the results, especially when the findings are only calculated for a cross-section of the data. For this reason, we use a cross-sectional and time-series model to compare and analyze the SMEs' productivity evolution, before and after ERP implementations. This paper is structured as follows. First, we analyze previous related literature. Next, we propose a theoretical model and some hypotheses. Then, we describe the research methodology. Finally, we present the preliminary findings and we draw some conclusions and further work. LITERATURE REVIEW ERP Overview Although ERP vendors claimed for the impact of their ERP systems in enterprises' performance, few studies have demonstrated this impact in enterprises' performance or in their productivity. The press is plenty of examples of not so successfully ERP implementations and, in some cases, there is the evidence of high expectations before ERP implementations. By the late 1990's, the research concerning the IT impact on financial performance broadened with a new research path that focused on the business value of ERP systems. …