All entries for Saturday 04 May 2013

May 04, 2013

Should SMEs use ERP systems?

In the knowledge era of today, organisational performance relies deeply on the level of knowledge that can be obtained, used and retained within an array of organisations. Increasingly, firms are realising the importance of integrated information systems and enterprise resources planning systems as a tool to achieving higher performance and gain greater competitiveness within the business environment. Nevertheless, the implementation of these highly integrated systems have proven to come with a hefty price tag. Owing to its extreme price, it can be argued that traditionally, only large organisations are willing to pay and bare the risks these systems entails. The question is then, would it be worthwhile for small and medium sized enterprise to adopt an ERP system?

As the business world gets ever more competitive by the day, there are many advantages that can be brought to small and medium enterprises (SME) by implementing ERP systems. On top of the well-established advantages such as the shortening of lead time, integration of databases, refinement of business process etc... from different academic literatures. One significant unique benefit to SMEs is that ERP can bring SMEs closer to large enterprises. Traditionally, large enterprises relies heavily on the its established business processes and information systems. As a basic requirement, external organisations who aspire to partner with these large enterprises will incur huge costs in the adoption of electronic data interchange systems to support data transfers from these large enterprises to their partners. The benefits of ERP can open up huge market potential and act as a competitive advantage against similar sized enterprises. (Malhotra & Temponi, 2010)

However, considering the amount of resources an average SME can afford to invest into a complex ERP system together with the risks that may incur, it may not be realistic to propose such a drastic change. Many organisations tend to fall into the trap of romanticising and underestimating the resources needed for the adoption of an ERP system. First of all, the software system accounts only for approximately one-third of the total costs incurred. Secondly, human resources through direct intervention and indirectly through training and education can also consume a substantial cost. Finally, the prolonged time frame of the implantation is also often underestimated. These are only some of the resources needed for the implantation of an ERP system as a highlight.

(Malhotra & Temponi, 2010) identifies 6 critical decisions which SMEs are advised to consider throughout before selecting and implementing ERP systems to enhance implementation and organisational success.

In conclusion, with the globalisation effect, the world is becoming a smaller place. In order for SMEs to survive, they must enhance their competitiveness against organisations across the globe. I feel that is it necessary for SMEs to evolve by unifying business processes through the use of best practices as a foundation, and therefore can then develop competitive advantages through flexibility and adaptability to compete with their large scale competitors. If resources permits, SMEs should implement ERP systems which they can cope with within their capabilities.

References

Malhotra, R. & Temponi, C., 2010. Critical decisions for ERP integration: Small business issues. International Journal of Information Management, 30(1), pp. 28-37.


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