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Enterprise Resource Planning (ERP) adoption in a hybrid service and manufacturing Small and Medium- sized Enterprise (SME): an action case study Chinedu Anthony OFOEGBU Salford Business School University of Salford, Salford, UK Submitted in Partial Fulfillment of the Requirements of the Degree of Doctor of Philosophy, January 2016
Dedication It is with great pleasure, that I dedicate this thesis to my wife, Lilian Kudzie Kumire-Ofoegbu, my five years old daughter, Uchechukwu Ruvarashe Audrey Ofoegbu and son Daniel Chinedu Kudzaishe Ofoegbu who throughout the course of this study patiently supported me. My little girl, as I call my daughter, always understood that ‘Daddy was doing his research’. Finally, I also dedicate this thesis to my lovely late mother, Augustina Uchechukwu Ofoegbu, who would have been very proud to read this work. i
Table of Contents Dedication…………………………………………………………………………………………………………………………………………….. i Table of Contents.........................................................................................................................................ii Acknowledgements ....................................................................................................................................ix Declaration ..................................................................................................................................................x Abbreviations..............................................................................................................................................xi Definitions …………………………………………………………………………………………………………………………………………. xii Abstract ……………………………………………………………………………………………………………………………………………. 1 Chapter One: Introduction to the research problem ..................................................................................3 1.1 Introduction................................................................................................................................3 1.2 SME and hybrid service and manufacturing management........................................................3 1.3 Research motivation, context and constraints ..........................................................................4 1.4 Background and role of the researcher and the KTP.................................................................7 1.5 Business process analysis in an SME..........................................................................................8 1.5.1 Organisational Information Processing Theory..........................................................................9 1.6 Research problem, questions, objectives and contributions to knowledge............................10 1.6.1 Research problem: Specialist hybrid service and manufacturing industry..............................11 1.6.2 Research problem: Business process analysis in an SME.........................................................12 1.6.3 Research aim and questions ....................................................................................................13 1.6.4 Research Objectives ................................................................................................................15 1.6.5 Original contribution to knowledge.........................................................................................15 1.7 Thesis structure........................................................................................................................17 Chapter Two: Literature Review................................................................................................................19 2 Introduction..............................................................................................................................19 2.1 Information Processing ...........................................................................................................19 2.1.0.1 Technology Acceptance Model (TAM):...................................................................................20 ii
2.1.0.2 Diffusion of Innovation Theory: ...............................................................................................22 2.1.0.3 Technological-Organisational-Environment (TOE) framework:...............................................23 2.1.1 Organisational Information Processing Theory (OIPT).............................................................24 2.1.2 Information Systems Success Theory (Theory of critical success factor).................................26 2.1.2.1 Limitation of Organisational Information Processing Theory (OIPT).......................................28 2.2 Business process analysis.........................................................................................................30 2.2.1 Business Process analysis methods.........................................................................................31 2.2.1.1 Business process analysis using Six Sigma................................................................................31 2.2.1.2 Business process analysis using Value Stream Mapping (VSM)...............................................32 2.2.2.1 VSM and other methods for systems redesign........................................................................33 2.2.2.2 Justification for using VSM.......................................................................................................35 2.3 Specialist issue within the hybrid service and manufacturing industry...................................36 2.3.1 What is the service industry?...................................................................................................38 2.3.2 Overview of ERP systems .........................................................................................................41 2.3.2.1 Introduction to ERP systems ....................................................................................................41 2.3.2.2 Evolution of ERP systems .........................................................................................................42 2.3.3 Hybrid service and manufacturing SME motivations for implementing an ERP system .........46 2.3.4 Challenges within hybrid service and manufacturing management SMEs..............................48 2.3.5 Factors that affect successful identification and adoption of a suitable service management solution....................................................................................................................................51 2.3.6 Stages of the pre-adoption and implementation of IS/IT system............................................54 2.4.1 Organisational Information processing theory and application to present study...................56 2.4.2 Information Processing Needs ................................................................................................58 2.5 Summary ..................................................................................................................................59 Chapter Three: Research Methodology ....................................................................................................61 3 Introduction..............................................................................................................................61 3.1 Research Approach and Philosophy.........................................................................................61 iii
3.1.0 Research Paradigms.................................................................................................................62 3.1.1.0 Positivism.................................................................................................................................63 3.1.1.1 Criticisms of Positivism............................................................................................................64 3.1.2.0 Interpretivism..........................................................................................................................65 3.1.2.1 Criticisms of Interpretivism.....................................................................................................66 3.1.3.0 Critical Pluralist........................................................................................................................67 3.1.3.1 Criticisms of Critical Pluralist...................................................................................................68 3.1.4 Philosophical review................................................................................................................68 3.2 Justification of research paradigm...........................................................................................69 3.3 Research Methodology ............................................................................................................71 3.3.1 Laboratory Experiment.............................................................................................................72 3.3.2 Case Study................................................................................................................................73 3.3.3 Action Research........................................................................................................................74 3.3.4 Action Case...............................................................................................................................75 3.3.4.1 Single case justification............................................................................................................78 3.3.5 Interpretive Action Case description – Alpha overview...........................................................79 3.3.6 Action Case protocol................................................................................................................83 3.3.6.1 Action Case Description ...........................................................................................................84 3.3.7 Data collection and analysis.....................................................................................................89 3.3.7.1 Data Analysis ............................................................................................................................98 3.3.7.1.1 Qualitative Data Analysis .........................................................................................................99 3.3.7.1.2 Quantitative Analysis..............................................................................................................105 3.3.8 Data sources...........................................................................................................................107 3.4.1 OIPT and Interpretive contextualism.....................................................................................110 3.4.2 Analysing empirical material..................................................................................................110 3.4.3 Research Integrity ..................................................................................................................114 iv
3.4.4 Research limitation ................................................................................................................116 3.4.5 Ethical Consideration .............................................................................................................117 3.5 Summary ................................................................................................................................118 Chapter Four: Data Analysis and Findings ...............................................................................................119 4.0 Introduction............................................................................................................................119 4.0.1 Action Case description: Introduction to Alpha.....................................................................119 4.1 Phase One: Study of the development organisation – Alpha................................................120 4.1.1 The case of Alpha ...................................................................................................................121 4.1.2 The need of an efficient ERP system in this hybrid service and manufacturing Organisation ...............................................................................................................................................123 4.1.2.1 Alpha service business process overview ..............................................................................137 4.1.3 Risk assessment of adoption and implementation of ineffective service ERP system..........143 4.1.4 Reflection on Phase One........................................................................................................146 4.2 Phase two: Analysis of available hybrid ERP systems and suppliers......................................147 4.2.1 Overall ERP system selection process....................................................................................148 4.2.2 ERP service management functionality evaluation and vendor mapping process................153 4.2.3 Vendor evaluation and selection ...........................................................................................157 4.2.4 Value Stream Mapping (VSM)................................................................................................158 4.2.4.1 Current state ..........................................................................................................................161 4.2.4.2 Evaluation of current state map.............................................................................................164 4.2.4.3 Value Stream Mapping (VSM) of future state........................................................................164 4.2.4.4 Cost impact of waste on business using VSM data................................................................168 4.2.5 Reflection on Phase Two........................................................................................................170 4.3 Phase three: Application of the re-engineered business process..........................................171 4.3.1 Project scoping.......................................................................................................................171 4.3.2 SAP Business One Analysed....................................................................................................173 4.3.3 Reflection on Phase Three .....................................................................................................175 v
4.4 Benefits expected from the implementation of a most suitable service management solution ...............................................................................................................................................175 4.5 Summary ................................................................................................................................178 Chapter Five: Discussion..........................................................................................................................179 5.0 Introduction............................................................................................................................179 5.0.1 Adaption of Organisational Information Processing Theory (OIPT2.0)..................................181 5.1 How does business process analysis using Value Stream Mapping impact the implementation and customisation of an ERP system in a hybrid service and manufacturing SME?.............184 5.1.0 Business Process Analysis and Process Improvement ..........................................................184 5.1.1.1 VSM is helpful for hybrid service and manufacturing SMEs..................................................184 5.1.1.2 Customer centricity in BPR.....................................................................................................190 5.1.1.3 Role of customer satisfaction in VSM....................................................................................191 5.1.2 Business Process Analysis and Value Stream Mapping..........................................................191 5.1.2.1 VSM is suitable for hybrid organisation.................................................................................194 5.1.2.2 VSM is vague, imprecise and uncertain .................................................................................195 5.1.2.3 Comparison with the SAP Business One’s implementation model........................................197 5.1.2.4 RQ1 summary.........................................................................................................................199 5.2 How can an SME benefit from the use of OIPT in an ERP implementation for an SME?.......200 5.2.1 SME’s and Organisational Information Processing Theory (OIPT)........................................200 5.2.2 Interdependence and OIPT ...................................................................................................201 5.2.3 SME’s Information requirement during ERP implementation..............................................202 5.2.4 SME’s information processing during ERP implementation .................................................203 5.2.5 Management trust in hybrid service and manufacturing SME .............................................204 5.2.6 RQ2 summary........................................................................................................................204 5.3 How does business process automation affect a hybrid service and manufacturing SME?..205 5.3.0 Hybrid service and manufacturing SME................................................................................205 5.3.1 ERP Systems and hybrid service and manufacturing functionality........................................205 vi
5.3.2 ERP Adoption model in hybrid service and manufacturing SME ...........................................215 5.3.3 Non-hybrid SME ERP Adoption model...................................................................................218 5.3.4 RQ3 summary.........................................................................................................................220 5.4 Limitations and Strengths of the Research ............................................................................221 5.5 Reflection on Methodology....................................................................................................223 5.6 Reflections on the research from the interpretive perspective.............................................223 5.6.1 The principle of the hermeneutic circle.................................................................................223 5.6.2 Principle of contextualization.................................................................................................226 5.6.3 Principle of interaction between researcher and subjects....................................................230 5.6.4 Principle of abstraction and generalisation ...........................................................................231 5.6.5 Principle of dialogical reasoning.............................................................................................232 5.6.6 The Principle of multiple interpretations...............................................................................235 5.6.7 The Principle of suspicion.......................................................................................................237 5.7 Chapter summary..................................................................................................................237 Chapter Six: Conclusion ...........................................................................................................................238 6.0 Introduction............................................................................................................................238 6.1 Achieving the Aim and Objectives of the Study.....................................................................238 6.2 Answers to Research Questions.............................................................................................241 6.3 Contributions to knowledge..................................................................................................243 6.3.1 Scoping ..................................................................................................................................243 6.3.2 ERP system adoption and organisational performance and efficiency.................................246 6.3.3 Business Process Analysis using VSM....................................................................................247 6.3.4 Theoretical contribution to OIPT...........................................................................................248 6.3.5 ERP Systems Evaluation vs ERP Vendor Evaluation ...............................................................249 6.3.6 Definition of hybrid service and manufacturing business model..........................................250 6.4 Contribution to Practice.........................................................................................................252 vii
6.4.1 Business Process Analysis.......................................................................................................252 6.4.2 Value Stream Mapping in service business strategy..............................................................253 6.4.3 Specialist issues within the case study...................................................................................253 6.4.4 User involvement during ERP adoption and implementation ...............................................255 6.4.5 SAP Business One and Add-ons..............................................................................................256 6.5 Suggestions for future work...................................................................................................257 6.6 Researcher’s Reflection on the Research Process .................................................................258 6.7 Concluding Remarks...............................................................................................................258 References ...............................................................................................................................................261 Appendices ..............................................................................................................................................280 Appendix 1a:............................................................................................................................................281 1a: Employee questionnaire ........................................................................................................282 1b: Customer questionnaire.........................................................................................................296 1c: Recorded Supplier Interview..................................................................................................304 Appendix 2: Research Consent ................................................................................................................305 Appendix 3: System Test script................................................................................................................308 viii
Acknowledgements Thanks to God for giving me the grace required to complete this thesis. This thesis has been an epitome of a challenging journey which started as an idea but resulting into a five-year-long study. Many people have provided me with support, motivation and guidance throughout the process of this study. I am grateful to all those who have contributed in various ways to this research study. First I will want to thank my supervisor, Dr. Aleksej Heinze for his immense support, encouragement and guidance and for providing frequent constructive feedback. It is also with great pleasure that I extend my gratitude to Prof. John Davies, my Co-supervisor, for his constructive comments. I will also want to show my appreciation to my external examiners Prof. Savvas Papagiannidis and Dr. Crispin Coombs for their immense help and detailed feedback which strengthened this thesis. My deepest thanks goes to my dear wife Lilian Kudzie Kumire-Ofoegbu, my daughter Uchechukwu Ruvarashe Audrey Ofoegbu and my son Daniel Chinedu Kudzaishe Ofoegbu for their support and encouragement when it seemed like the journey was so difficult. I also owe gratitude to my father (Louis Ofoegbu), my mother-in-law (Elizabeth Kumire), sisters (Chinyere Rosemary Ofoegbu-Ugen and Chinasa Augustina Ofoegbu) and brothers (Francis Chidi Ofoegbu and Johnny Uche Ofoegbu) for their encouragement. Finally, I would also like to thank my former manager and friend Mr Jair Mendoza Vazquez for his support and the intellectually stimulating discussions, which has contributed immensely to this study. ix
Declaration This thesis contains material which the author has used before in the following publications: Griffiths et al. (2013). The Real SAP Business One Cost: a case study of ERP adoption in an SME. International Journal of Management Practice, 6(2), 199 - 215. Ofoegbu et al. (2011). Themes and challenges for service management solutions in Small and Medium Enterprises (SMEs). Paper presented at the UKAIS 2011 conference, Oxford. x
Abbreviations The following abbreviations are used in this thesis: BPI – Business Process Improvement BPR – Business Process Redesign ERP – Enterprise Resource Planning GDP – Gross Domestic Product HVAC – Heating, Ventilation and Air Conditioning IS – Information Systems KMS - Knowledge management systems KTP – Knowledge Transfer Partnership M&E – Mechanical and Electrical MRP – Material Requirement Planning SAP - Systems, Applications and Products in Data Processing SME – Small and Medium-sized Enterprise UK – United Kingdom xi
Definitions The following terms have specific meaning in this thesis: Enterprise Resource Planning systems (ERP systems): An ERP system according to Saini et al. (2013) is an enterprise wide packaged software system that helps an organisation like an SME to manage and effectively use its resources (materials, human resources, finance and so on) by providing an integrated solution for its information processing needs. Business process evaluation - HVAC: HVAC is the acronym for Heating, Ventilation and Air Conditioning. HVAC is often referred to by industry professionals to be exclusively defined as thermal comfort and air quality (2009). Information processing: Information processing can be defined as the collection of tasks and activities involved with the creation, processing, transfer, storage, retrieval and application of information (Desouza et al., 2008). Information Systems (IS): Information systems can be defined as the overall information processing in an organisation, this includes the associated human players and the information technology used to achieve the goal (Ammenwertha et al., 2003). Material Requirement Planning (MRP): Is a production, planning and inventory control system, usually software based, used by organisations to manage manufacturing processes. Spraybooth: A spraybooth is a painting technique where a device sprays a coating of paint or ink onto a surface through the air, within an enclosure. Small and Medium-sized Enterprise (SME): For the purpose of this study the HM Revenue and Customs classification of an SME is adopted, which defines an SME as an organisation with xii
fewer than 500 employees and either an annual turnover not exceeding €100million or a balance sheet not exceeding €86million (Customs, 2008). xiii
Abstract There is a growing need for understanding business process re-engineering within SMEs such as the service management companies and this calls for more research focusing on Enterprise Resource Planning (ERP) and implementation. The aim of this study is to highlight the impact of an in-depth business process analysis during the pre-adoption and implementation of an ERP system in a hybrid service and manufacturing Small and Medium-Sized Enterprise (SME). Service management SMEs are identified as lacking in research focus especially in service operations, and in hybrid organisations that combine manufacturing and service provision. The study extends the existing knowledge in business process analysis and ERP adoption research by drawing upon the interpretive action case and Organisational Information Processing Theory (OIPT). The emphasis is on the impact of appropriate business process analysis during the pre-adoption decision making of an ERP system in a hybrid service and manufacturing SME. Primary data was collected using an online survey with 72 customer responses, questionnaires for in-company observations and third party meetings conducted at an SME in the North West of England, UK. OIPT specifically states that organisations are structured around information and the flow of information in order to minimise uncertainties. The theory suggests the use of information processing needs and information processing capabilities of an organisation to find an optimal performance. The theory however made no suggestion of how to find this optimal performance. Customising OIPT as the theoretical framework, the current study identified two variables a) information processing needs and b) information processing capability of the case organisation and used Value Stream Mapping (VSM) to analyse both variables in order to obtain an optimal fit during IS/IT pre-adoption decision making. The current study takes an original approach by combining and customising OIPT with VSM to the needs of the current study. It also highlights existing wastes in the business process and areas of improvement are suggested while mapping the information processing needs and information processing capabilities of the organisation. The study used action case methodology to provide a rich insight into business process analysis and ERP pre-adoption in a hybrid service and manufacturing SME. The current study was 1
conducted over a period of two years from January 2010 to December 2011. The author was fully immersed into the study as both a participant and a researcher. The action case provided an environment where information processing needs and information processing capabilities as well as the application of VSM could be studied while analysing the resultant implications. Using action case, the current study was able to focus on pre-adoption decision making and monitored the initial impact of action on the case. The key finding is that OIPT and VSM are compatible and offer an opportunity of closing the weaknesses of not being able to identify the optimal fit when using OIPT alone during business process analysis. The contributions to knowledge are: i) Modification of OIPT in the form of OIPT2.0 to reproduce the current state as well as develop the future state value stream to suggest the optimal fit between the information needs and capability of an organisation. ii) Emphasis on extensive scoping during an IS/IT pre-adoption process aids the identification and adoption of an ERP system which best fits the business process and also suggests areas of the business process which could benefit from improvement. iii) The study also creates more awareness of action case methodology by demonstrating how it provides a rich insight into the process of ERP pre- adoption decision making in a hybrid SME. iv) Recommendation is made to the definition of hybrid service and manufacturing SME. 2
Chapter One: Introduction to the research problem 1.1 Introduction The primary focus of this work is to explore the business process analysis practice at the pre- adoption and implementation stages of an Enterprise Resource Planning (ERP) system in hybrid service and manufacturing Small and Medium Sized Enterprise (SME). The SME is classified as hybrid as a result of its business processes being neither wholly service oriented nor it being wholly manufacturing oriented, rather the business process combines both service and manufacturing elements. Specifically, this study focuses on three main themes: the specialist hybrid service and manufacturing business processes in an SME; business process analysis using Value Stream Mapping (VSM); and Organisational Information Processing Theory (OIPT), which are largely under-investigated themes in hybrid SMEs. This chapter will problematize the importance of SMEs to national economies and go on to establish the uniqueness of the hybrid service and manufacturing business processes in the heating, ventilation and air conditioning (HVAC), spraybooth and the Mechanical and Electrical (M&E) service sector. Subsequently, this chapter will present an understanding of service management ideas and issues relating to business processes and ERP adoption and implementation within hybrid service and manufacturing organisation. Business processes and their role in ERP system implementation are also introduced in this chapter. The scope of the thesis is outlined and emphasis is placed on the use of Value Stream Mapping and Organisational Information Processing Theory, which are introduced and their importance highlighted. These themes lead on to discussion of the justifications for the research questions, anticipated contributions to knowledge and structure of the thesis. 1.2 SME and hybrid service and manufacturing management Small and Medium-Sized Enterprises (SMEs) constitute more than 90% of businesses in the UK and also employ 59% of the private sector workforce (Department for Business, 2011, Kumar et al., 2009, ONS, 2010a, Blackburn et al., 2013). The importance of SMEs to a country’s economy is not unique to the UK alone, as according to European Commission (2013), Saunders et al. (2014) and World Bank Institute (2004) other European and international countries are similar 3
in that SMEs represent between 97% and 99% of all enterprises and between 50% and 70% of total employment (Mutula and Van Brakel, 2006). This indicates the consistent dominance of SME’s contribution to these economies over recent years. An SME was defined in 2008 as an organisation with fewer than 500 employees and either an annual turnover not exceeding €100 million or a balance sheet not exceeding €86 million (Customs, 2008). A more recent definition of SME was given by the European Commission in 2013 as an organisation with 10 to 250 employees and a turnover above €2 million but not exceeding €50 million (European Commission, 2013). For the purpose of this study the European Commission’s classification of an SME is adopted. Manufacturing activities are relocating to competitive labour markets and an increasing number of SMEs are outsourcing some of their activities to service industries (Chen et al., 2011, Voutsina and Mourmant, 2010). They are outsourcing areas of activity where they lack technological know-how (Abdul-Halim et al., 2012), such as equipment servicing and maintenance. In general, the impact of service management on the UK economy, for example, constitutes 74% of the UK Gross Domestic Product (GDP) (ONS, 2010) and in 2013 this figure has increased to 80% (ONS, 2014). 1.3 Research motivation, context and constraints Whilst the GDP figure mentioned in section 1.2 includes both private sector and government services, customer expectations in terms of service quality provision are increasing, regardless of the type of service and the provider’s size (Hung et al., 2014). Consequently, innovation in service industries has placed emphasis on improvements in service quality, customer management, service management and operations management (Hertog et al., 2010), all of which could further impact the GDP figures. These innovations in service management are increasingly driven by the need to improve service, and are made possible using the latest information technology tools such as an ERP system, mobile devices, and increasingly web integrated e-business systems. In support of the argument for innovation in service management, Asif de Bruijn et al. (2009) and Xu and Zhao (2010) argue that a traditional focus 4
on customer satisfaction alone is no longer sufficient for assessing the quality of services provided to customers. Increasingly, SMEs are finding themselves in a situation where their core mission is expanded due to the necessity to be competitive and as a result, organisations that start out by offering service only tend to diversify to manufacturing or those that were in manufacturing expand to service offerings (Neely, 2008, Oliva and Kallenberg, 2003, Griffiths et al., 2013). This diversification into manufacturing from a service only business strategy, presents unique challenges for these ‘hybrid’ SMEs – namely business process alignment and integration – where business process automation and ERP systems are often used to help the integration of these (Cheng et al., 2010). There is therefore a need to explore the specific challenges faced in the hybrid industry when they adopt and implement an ERP system. In order to establish a clear understanding of the HVAC, spraybooth and Mechanical and Engineering (M&E) services’ uniqueness, an understanding of the general service and manufacturing sector is required. A service-oriented process does not have a physical output made from the transformation of raw materials while a manufacturing oriented process uses raw materials as bill of materials to produce a physical output. Despite available literature which clarifies ERP pre-adoption decision making in manufacturing business process and that of a service business process (Buonanno et al., 2005, Ram et al., 2013), little is known about the hybrid business process. The lack of research in VSM application in the hybrid business process and the complexity of combining both service and manufacturing business processes support the current study’s justification for studying the impact of business process analysis using Value Stream Mapping in implementing an ERP system. One of the challenges faced by the specialist service (HVAC) management industry could be the lack of adequate research which evaluates the needs in relation to systems implementation. This lack of adequate research in the hybrid service and manufacturing business process is in comparison to the manufacturing sector, which is relatively more popular, in terms of research focus than the service sectors which will be discussed in the literature review chapter. The term “hybrid” in this study refers to an organisation whose business strategy involves both; 5
a) Specialist service on equipment on the customer’s site and b) Manufacturing of the materials used in carrying out the specialist service. Turnover % Turnover % contributed contributed by by Manufacturing Servicing Figure 1.1: Typical hybrid business composition Turnover % Turnover % contributed contributed by by Servicing Manufacturing Figure 1.2: Hybrid business composition referred to in this study Figure 1.1 above, illustrates that a larger percentage of a business turnover comes from manufacturing and is the most popular type of hybrid organisation. According to Neely (2008) and Visnjic and Van Looy (2011), globally over 60% of manufacturing firms now offer services with the share of service sales reaching 31%. In figure 1.2, however, a larger percentage of the business turnover comes from service when compared to manufacturing. An example of a large hybrid organisation is Rolls-Royce Aerospace which evolved from pure manufacturing of aero engines to also provide maintenance and overhaul services (Neely, 2008). However, the scope of this study is to examine SMEs, in particular one case of a hybrid service and manufacturing SME which specialises in HVAC (Heating, Ventilation and Air Conditioning) servicing and filter 6
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