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Enterprise Resource Planning (ERP) System in Start-ups

Info: 17523 words (70 pages) Dissertation
Published: 9th Mar 2021

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Tagged: BusinessBusiness Strategy

Enterprise Resource Planning (ERP) System in Start-ups. Reasons, Outcomes and Opportunities.

Abstract

The research paper seeks to analyse the benefits an Enterprise Resource Planning (ERP) System can offer to Start-ups providing IT services, and identify what would be an ideal stage of the start-up development for deploying such system. The thesis contains Literature Review where the most significant and relevant factors regarding an ERP System implementation have been defined. To answer the research questions, “What are the underlying benefits of adopting an ERP System for Start-ups?” and “To what extent does it make sense to implement an ERP System within an IT service provider Start-ups?” primary research has been carried out by collecting extensive data from Start-ups and ERP Vendors.

Executive Summary

The aim of this thesis is to understand if an ERP System should be implemented within an IT Service providing Start-up, what benefits a company might obtain and when would be a reasonable time to deploy such system.

Modern economies and ever-changing customer desires create the constant challenge for the enterprises to be innovative and find new ways of making their operations more efficient. Enterprise Resource Planning (ERP) is a system that offers a solution to this problem. Since the late 20th century, the software has become an integral part of large organizations by supporting their daily activities. The statement stands true, particularly for multi-national corporations. However, a rapid change in markets and technological revolution has offered opportunities for smaller companies to enjoy similar benefits. Some of the benefits were found to be: increased efficiency and productivity, reduced costs, better customer service and sales, high degree of real time information visibility and better resource management. While, a company has the opportunity to obtain above explored benefits the paper also found that there are numerous challenges associated with a system adoption.

After careful literature research, several relevant studies were found which offered insight into the topic in question. The results, suggested that a start-up would benefit from system implementation, however all of them lacked in depth analysis and did not offer direct parallels from the ERP Vendors side. The thesis tries to fill in the existing gaps, by connecting existing research and theories to insights provided by the start-ups and ERP Vendors. The results are optimistic, as benefits identified through interviews with ERP Vendors directly match with needs specified by the Start-up sample. To note, further research is required in the Start-up and ERP relationship research as it could be one of the main driving force towards the company’s success.

Table of Contents

Acknowledgements

Abstract

Executive Summary

List of General Tables

Table of Figures

Table of Graphs

Acronyms

1 Introduction

2 Research Questions and Research Objectives

3 Literature Review: ERP

3.1 What is ERP

3.2 Challenges Associated with ERP

3.3 Advantages Associated with ERP

3.4 ERP for Manufacturing vs Service Industries

3.5 On-premise vs Cloud ERP

4 Literature Review: Start-ups

4.1 Classification of Start-ups

4.2 ERP in Start-ups

5 Methodology

5.1 Secondary Research

5.2 Primary Research

5.2.1 Start-ups

5.2.1.1 Introducing the Sample

5.2.1.2 Start-up Interviews

5.2.2 ERP Vendors

5.2.2.1 Introducing SAP

5.2.2.2 Introducing Odoo

5.2.2.3 Introducing Salesforce

5.2.2.4 Comparison of Vendors

5.3 Limitations of the Study

6 Findings & Analysis

6.1 Business Processes

6.1.1 Process Management

6.1.2 Integration (Business Processes and Technology)

6.1.3 Cost

6.2 Business Intelligence

6.3 The Start-up’s Evolution

6.3.1 Business Growth

6.3.2 Validating Start-ups by an ERP System

6.4 Challenges

7 Conclusions and Recommendations for Future Work

7.1 Future Research

Bibliography

Appendix A: Survey Questions for the Start-up Sample

Appendix B: Interview Questions for the Start-up Sample

Appendix C: Odoo Capabilities

List of General Tables

Table 1: Advantages Associated with ERP adoption for Small Companies 13
Table 2: Key Success Factors (KSFs) for ERP Implementation 15
Table 3: Classification of Companies by Employee Number 19
Table 4: Summary of the Start-up Sample 22
Table 5: Sample of Qualitative Start-up Data 23
Table 6: Comparison of Possible Operational Benefits in Start-ups, from Literature and Research 38
Table 7: Comparison of Possible Knowledge Benefits in Start-ups, from Literature and Research 38
Table 8: Comparison of Possible Future Benefits in Start-ups, from Literature and Research 38
Table 9: The Requirements a Start-up should meet before a system implementation 39

Table of Figures

Figure 1: ERP Modules and Activities Involved in them 10
Figure 2: Average Cost of ERP Per User 12
Figure 3: Start-up Development Phases According to LawBite (2015) 19
Figure 4: Comparison of Intelligent System Vendors 25

Table of Graphs

Graph 1: Business Processes Within a Company Based on Employee Number 23
Graph 2: Importance of the Listed Factors for the Start-up Sample 27
Graph 3: To What Extent Business Processes need System Support 28
Graph 4: Usage of Software by Business Processes 29
Graph 5: The Importance of Factors When Adopting New System for the Start-up Sample 33

Acronyms

ERP – Enterprise Resource Planning

SME – Small and Medium Sized Enterprises

IT – Information Technology

SaaS – Software as a Service

KSFs – Key Success Factors

1         Introduction

Historically Enterprise Resource Planning (ERP) systems have only been available for large corporations, and are believed to be one of the main reasons for their success. In time, the market of Small and Medium Sized Enterprises (SMEs) has become more active in pursuing the ERP implementation, and has also seen direct benefits after its implementation. However, regardless of the numerous systems and software available, start-ups continue to suffer from fragmented operations and high level of failure.

After having studied management and technology at La Salle University, I came to be aware of the many ways the companies manage their operations and the methods they can use. I particularly became interested in the ERP systems after completing the Supply Chain Management (SCM) course. Instantly I knew that this would be a field of interest for writing my thesis. Initially, the research topic was concerned with SCM for humanitarian purposes, however, lack of available data prevented me to pursue this path. At the same time, I was introduced to the start-up notion and the steps required to create one. The topic seemed appealing to me as I always knew that one day I would want to create my own enterprise. Thus, I decided to combine the two concepts in order to try to identify relationships and opportunities the two could provide.

2         Research Questions and Research Objectives

The research questions are as follows:

  • What are the underlying benefits of adopting an ERP system for Start-ups?
  • To what extent does it make sense to implement an ERP system within an IT service provider Start-ups?

The research objectives are as follows:

  • To evaluate if the ERP systems are able to support the requirements of Start-ups.
  • To understand the extent of which silo solutions benefit and hurt start-ups.
  • To identify if the implementation of ERP system will provide Start-up the expertise required to make information driven decision.
  • To identify if the implementation of ERP system will accelerate a Start-up growth.

To answer the identified questions, published literature related to ERP nature and its capabilities, challenges and advantages associated with ERP, and needs of the start-ups was reviewed. The final part of the literature review also identifies the relevant studies regarding an ERP implementation in start-ups.

Furthermore, primary research related to start-up’s needs and ERP’s capabilities was carried out. The findings discussed in the literature review were used to reject or confirm the conclusions drawn from the primary data analysis

3         Literature Review: ERP

3.1      What is ERP

Enterprise Resource Planning (ERP) is a complex system, supporting the daily activities of the particular enterprise. ERP Systems are defined to be a “software architecture, facilitating the flow of information among core processes and main administrative functions of an enterprise, which is built on a common database and is supported by a single development environment” (Buonano, et al., 2005). Therefore, it allows a seamless communication between departments, allowing to have a single view of the corporation (Jacobs & Why back, 2000). Devenport (1998) stresses the importance of understanding why ERP systems were developed in the first place. He believes, the system solves “fragmentation of information in large organizations”. He continues and suggests that “if a company’s systems are fragmented, its business is fragmented” as well. Communication between the business units reduces risk of losing information, having redundant data, and increases working efficiency (Davenport, 1998). The idea is supported by Baker & Frolick (2013), where they suggest that ERP is able to break down barriers between the departments and allow fluid movement of critical data across functions.

Jacobs and Whyback (2000) stress the idea that ERP is not a software, but rather a business tool helping employees to do their duties. Devanport (1998) analysed the ERP system offered by world’s largest ERP Software vendor SAP, and explored that the system is able to integrate each minor daily transaction and make them come together as one. Apart from integrating business into one platform, while using ERP, employees can easily automate and monitor processes that rely on data. Some of the activities involve: payroll, invoicing, reporting and manufacturing (SelectHub, 2015).

The system is able to support most of the company’s divisions and perfectly integrate data into one place. The following list summarizes the modules included in typical ERP system: Manufacturing, Supply Chain Management, Operations & Logistics, Finance, Human Resources and Customer Relationship Management (Bradford, 2008) (Davenport, 1998) (Forslund, 2010). However, apart from these modules, rapid evolution of Information Technology has forced Information Technology (IT) to be included in an ERP system as a module as well (Jacobs & Whyback, 2000). The Figure 1 presented below, better visualizes typical modules included in the ERP System and activities associated with them (Davenport, 1998) (Bradford, 2008).

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Figure 1: ERP Modules and Activities Involved in them

Devanport (1998) explores by which type of companies Enterprise Resource Planning (ERP) system should be implemented. He argues that, even though implementing the system offers numerous advantages, not all companies need it. For instance, companies which differentiate themselves in providing better service and low prices rather than unique products, should not implement ERP as it may result in increasing product prices, eventually leading to loss of potential sales. This action may ultimately dissolve competitive advantage that the company possessed. However, contrary to Devanport’s beliefs real life implementations of an ERP shows that, companies focused on low cost and high quality can indeed benefit from the system. Few of the examples of the success are Wal-Mart and Primark (Wailgum, 2007) (Spence, 2015). Walmart – a giant retailer deployed SAP ERP System in 2007, in order to manage its back-office operations – “inner workings of a business or institution” (Merriam Webster, 2017). While in 2015 the Company expanded the usage of the system by deploying the Business Intelligence capabilities (BI – “the methods and technologies that gather, store, report, and analyse business data to help people make business decisions” (Dictionary.com, 2017)) of the package (Berthiaume, 2015). This implementation was used to lower operational costs, increase efficiency, flexibility and scalability (SAP, 2007) (Berthiaume, 2015). The second giant retailer Primark, also adopted the ERP system, but in their case, it was a Partial ERP System; more specifically Human Capital Management (CHM) system provided by Workday. According to the analysis of Spence (2015), Primark chose Workday, in order to homogenize its processes and eliminate existing inefficiencies. The adoption resulted in modification of some business processes, however the resulted benefits were efficient and automated internal processes.

3.2      Challenges Associated with ERP

Every vendor and literature published, agrees that ERP Systems are complex and are not easy to implement (Forslund, 2010) (Shiau, et al., 2009) (Buonano, et al., 2005) (Davenport, 1998). When it was being developed by the pioneer software company SAP SE during the early 1970s, its main driver was standardization of activities involved in the system (SAP, 2017). This objective was achieved by making “series of assumptions about the way companies operate in general” (Davenport, 1998). However, not all enterprises are alike and most of them require systems to be customized in order to fit their activities (Buonano, et al., 2005). Contrary to this, Devanport (1998) discusses that in most cases, companies are the ones who have to change the way they operate to ensure the perfect fit of the system and the entity. In most cases, these changes are extensive and they are not limited to changes in business processes, but rather also include modifications of job design (Anaya, et al., 2015). Law & Ngai (2007) recognize changes in business processes and claim that ERP and business process fit is critical for successful implementation. After conducting extensive literature review other researchers support Law & Ngai, and recognize process changes as one of the critical success factors (Polychronopoul & Kakouris, 2005) (Buonano, et al., 2005) (Hugos, 2011).  Another success factor is considered to be project management along with financial liabilities (Buonano, et al., 2005) (Polychronopoul & Kakouris, 2005).

A number of researchers and publications acknowledge the high cost of ERP implementation within the companies (Stefanou, 2001) (Markus & Tanis, 2000) (Buonano, et al., 2005) (Burnson, 2015). Haddara (2011) classifies financial liabilities associated with an ERP implementation into two groups: direct and indirect. Example of the direct costs includes System License and IT ERP-Cost-InfographicInfrastructure needed, while the indirect ones occur due to employee training and organizational changes (Irani, et al., 2001). Business Models and paying schemes vary from vendor to vendor. However, as expressed in the Figure 2, most vendors require customers to pay access per user, and on average it can vary between $1.500 and $4000 per user (WorkWise Software, 2016).

Figure 2: Average Cost of ERP Per User

Through analysis Harrara (2011) discovered actual costs associated with an ERP implementation. The highest percentage is held by ERP License with 13.6% and System Customization with 8.6%, however, these two factors only account for 22.2%. While this number is high, the finding support claim on Scheer & Habermann (2000), where the researchers claimed that companies spend three to seven times more on the implementation itself, compared to software license fees.

In spite of the previous findings, the cost of ERP can be as much as the company decides to spend on it. Because of the reason that the system is modular, it easily can be divided into parts; thus, the company can implement the ones that are most important for that particular enterprise (Rajesh, 2011) (Odoo, 2017). However, for the large and established organizations average implementation cost of the system is $3.8M and lasts for 21.1 months (Panorama Consulting Solutions, 2016).

Apart from financial liabilities, Lindley et al (2008) also identifies the disadvantages ERP System can possibly cause. The paper states that for a system to be altered, and for a successful implementation existing processes require standardization, and Change Management needs to be impeccable. It continues and states that after having implemented complex and expensive system, flexibility to change within a Start-up and innovation along with decision-making might suffer. However, Pawlowski et al (1999) found that enterprise system is able to provide greater job flexibility by promoting innovation and creativity.

3.3      Advantages Associated with ERP

The literature states that there are a number of potential benefits associated with an ERP adoption. These benefits include: increased efficiency, reduced operating costs, better coordination between the business departments and better decision-making  (Maditinos, et al., 2011). The emperical analysis conducted by Polychronopoul & Kakouris (2005), founded that a system can provide “ongoing savings of inventory carrying costs”. This result is achieved through improved manufacturing practices, allowing users to also enjoy reduced labour and overhead costs (Gefen & Ragowsky, 2006).

Apart from the benefits explored, empirical analysis conducted by Laukkanen et al (2007) prove that enterprise is able to improve productivity and better manage its resources. Polychronopoul & Kakouris (2005) also suggest that inventory can be reduced through careful planning and analysis. They continue and state that through efficient and effective process management, customer service will benefit and enterprise will retain more potential sales (Laukkanen, et al., 2007).

Shang & Seddon (2000), conducted an extensive Literature Review regarding the ERP implementation and proposed the framework of the benefits classification. The framework includes 21 benefits divided into Operational, Managerial, Strategic, IT Infrastructure and Organisational dimensions. Annamalai & Ramayah (2011), conducted the research on the ERP benefits for Indian Companies based on the framework proposed by Shang & Seddon (2000). The results show that highest benefit is exercised by Information Visibility, Customer Responsiveness, Cost Reduction, Personnel Reduction and Financial Close Cycle Reduction. The same framework is explored and improved by Staehr (2007), where the author proposes additional gains. These gains include: user accountability, standardization and service differentiation.

Markus & Tanis (2000) explore an ERP adoption and develop the list of technical and business reasons for System adoption by the Small and Medium Sized Enterprises (SMEs). The Table 1, lists the most applicable reasons for adopting an ERP System solely for the small companies.

Table 1: Advantages Associated with ERP adoption for Small Companies
Technical Reasons
  • Eliminate redundant data entry
  • Improve IT infrastructure
  • Decrease computer engineering costs
Business Reasons
  • Accommodate business growth
  • Improve informal and inefficient business processes
  • Clean up data and records through standardisation
  • Reduce business operating and administrative expenses
  • Reduce inventory carrying costs and stock-outs
  • Eliminate delays and errors in filling customers’ orders

Modern literature also identifies another advantage, which is more concerned with e-Commerce. Norris et al (2001) defines e-Commerce as a sales channel through the internet, with an intent to improve efficiency and sales. Integration of ERP with e-Commerce is able to further eliminate redundant data, improve inventory and pricing management, provide access of products to live tracking by customers and cope with the rapid increase in online demand without additional resources (Carpenter, 2015).

3.4      ERP for Manufacturing vs Service Industries

Polychronopulous & Kakouris (2005) claim that Enterprise Resource Planning (ERP) is most crucial for manufacturing and retail companies, as their operations have to be extra efficient to compete on the market. While Klaus, et al., (2000) states that all the companies that purchase, produce, sell or administer internationally are potential benefactors by the integrated system. Various authors agree that ERP requirements of the companies operating in the service industry are rather different and more complex, compared to the traditional – manufacturing companies (Trudell, 2012).

A study conducted in China regarding adoption of the ERP System by the Beauty Chain Service Industry, found that activities in the fast-paced industry still were recorded in spreadsheets or by hand (Shi-Sheng & Hui-Hui, 2010). The finding is also supported by another publication, where the author claims that most of the processes in any service sector is done either using spreadsheets or a number of disconnected systems (Trudell, 2012). As seen in the previous parts of the Literature Review, isolated systems and fragmented information can cause significant damage to the company. Senior ERP Analyst at the Technology Evaluation Centers – Tom Rohm, published the article where he claims that “disconnected processes cause delays and errors with financial implications”,and that service industry would highly benefit from System integration (Rohm, 2016).

Due to ERP capabilities, the system has gained popularity among universities. The institution providing knowledge services to its customers, found that technology can enhance its performance if implemented successfully (Furumo & Pearson, 2004). Another study conducted in Australia showed that 35 out of 42 universities embraced the ERP System, resulting in them ‘acting more like a business’ (Beekhuyzen, et al., 2001). The adoption of Enterprise Resource Planning Systems is also seen in the IT sector. Hintsch, et al. (2014) explores that process automation will benefit companies operating in the Information Technology industry, due to automotive movement of the simple information. The author also suggests that 80% of the standard ERP System are applicable to any service provider.

Researchers agree that Manufacturing and Service Providing are two distinct industries, with different requirements. Service Providing apart from traditional Service Industry also includes providing supporting activities to manufacturing (Dankbaar, et al., 2006). The most obvious differences between these two industries, as discussed by publishers are lack of product differentiation in the service industry, and need of high quality customer service for gaining competitive advantage (Direction Software, 2016). Other differences include: Product Tangibility, Incentivization, Process Management, Organizational Culture and Staff and Customer interaction (Dankbaar, et al., 2006). After conducting comprehensive literature analysis, Dankbaar et al. (2006) also found that the Service and Manufacturing industries not only differ in ERP requirements, but also have different Key Success Factors (KSF) in implementing ERP Systems. The Table 2 presented below, summarizes the common and distinctive KSFs for both industries.

Table 2: Key Success Factors (KSFs) for ERP Implementation  
KSFs for Manufacturing Companies KSFs for Service Companies

Common for Both

Organizational fit
Level of process management
Management involvement
Organizational leadership
Project management
Organizational readiness and people (Corporate culture)

Industry Specific

Standardization Understanding external processes
Internal customer centric Process Optimization
Stage-wise implementation External revenue strategy
Internal cost savings strategy External customer centric
         

3.5      On-premise vs Cloud ERP

Enterprise Resource Planning (ERP) Systems have evolved from platforms supporting solely manufacturing companies (MRP – Manufacturing Resource Planning) to systems which are able to support the activities of each company regardless of the sector they are operating in (Allart, 2014). Traditionally ERP systems had to be installed on a company’s premises along with the hardware, which would support its performance (Davenport, 1998). However, technological advancement has allowed the system to move on Cloud, thus enabling vendors to offer Software as a Service (SaaS). The research shows that basic difference between on-premise and Cloud ERP, is the location of the company’s data. Traditional ERPs store the data on a company’s premises, however, for SaaS solutions the data is located at the Vendor’s servers and is accessible through a web browser (Mbanzabugabo & Rukundo, 2016) .

In spite of the innovation being relatively new Mbanzabugabo & Rukundo (2016), argue that Cloud based ERP is able to support company’s daily activities and store massive data. However, the study also uncovered that the sample studied, preferred to deploy on-premise ERP rather than Cloud ERP. One of the most significant factors was lack of Cloud ERP awareness, trust, cost and availability of high speed broadband connection. Dwivedi & Sharma (2016), have also investigated the topic and have arrived at the conclusion, that both Cloud ERP and On-Premise ERP offer similar modules and functionalities. Equivalent results were found in the study conducted by Machal (2013) as well.

The following paragraphs offer a comparison of the most significant factors for on-premise and Cloud ERPs:

Cost, Governance and Security

On-Premise ERP: Mbanzabugabo & Rukundo (2016) state that apart from large up-front investment required by traditional ERP systems, maintenance and customization costs also play a significant role. Traditionally, companies would have to have an IT department, making sure that the system is up and running every day. The same department would be responsible for customizing the system in order to fit company’s activities. Due to this personal customization, the company would be required to re-customize the system after installing an updated version of the system.

Marcel (2013) recognizes that the increased cost of implementation, configuration and hosting, result in strong control and management of the company’s data; the factor which is a concern for SaaS users.

Cloud ERP: Hoseini (2012) conducted an extensive literature review and uncovered that SaaS radically lowers up-front investment. In addition, pay-as-you-go model plays significant role in further lowering the costs. Dwivedi & Sharma (2016), came to a similar conclusion and further state that the only predictable cost associated with a Cloud ERP is a monthly fee, charged by the vendor. Mbanzabugabo & Rukundo (2016) add that, due to the reason that platform is hosted by the Vendor, maintenance and updates are not the responsibility of the customer anymore, thus allowing companies to focus their IT and financial resources on innovation and future growth.

According to Hoseini (2012), SaaS model also invites high uncertainty for the future. The paper states that SaaS users may have to pay a higher subscription fee than originally agreed in order to reach desired capacity of service. The uncertainty also is involved in maintenance of customized applications. As vendor only provides standardised product, maintenance and updating of customized applications becomes the responsibility of the company itself. Lastly, a cloud based service invites some concerns for data security and loss of governance.

System Performance and Data Accessibility

On-Premise ERP: As traditional ERP systems need to be configured by a company’s IT department (or external consultants) and is hosted by local servers. In case of sudden spikes in the business processes, the company will be required to adjust the capacity system is able to support resulting in increased costs (Mbanzabugabo & Rukundo, 2016).

Cloud ERP: ERP offered as SaaS is said to deliver better performance compared to an on-premise ERPs. When using a Cloud ERP company can easily meet their needs as during sudden spikes in business processes, hosted system will adjust the capacity used without any extra IT interference (Mbanzabugabo & Rukundo, 2016). However, according to the research of Hoseini (2012) scalability and resource flexibility requires further technical research as it is a relatively new innovation with some uncertainty.

The data hosted by the Vendor can be accessed through multiple channels and be viewed in real time through automatized instant updates; the only requirement is a stable broadband connection (Mbanzabugabo & Rukundo, 2016) (Dwivedi & Sharma, 2016).

4         Literature Review: Start-ups

‘Start-up’ is an ambiguous term, for which the literature is unable to provide a clear answer for what it means. Kesim & Salamzadeh (2015) state that Start-ups are new ventures born from solid ideas struggling for survival. While Havia & Sirkia (2016) identify start-ups as “newly founded companies or entrepreneurial ventures that are in the phase of development and market research”. The definition is similar to the one of Niel Blumenthal, as he states: “start-up is a company working to solve a problem where the solution is not obvious and success is not guaranteed”. However, some authors such as Eric Ries associate start-up with more than just a phase; he states them to be “human institution designed to deliver a new product or service under conditions of extreme uncertainty” (Ries, 2011).

Due to high competition and high rate of failure, most of the new businesses do not get a chance to turn into an enterprise (Vesper, 1990). The study conducted by Weele et al. (2016) claims that most of the entrepreneurs have technological background and they are unfamiliar with business processes; thus, they suffer with employee management, investor relations, customer relations and sale of the product. Lack of knowledge, experience and technological understanding are also major contributors to this issue (Kesim & Salamzadeh, 2015). Marmer & Dogrultan (2011) found similar issues that most founders are not aware of what they should do, thus focusing on the wrong direction. They continue by claiming that founders are unable to interpret feedback gathered and use them for decision-making. The problem is amplified because creating a new venture involves a series of sequential events rather than one singular occurrence (Bush & Manolova, 2004).

Literature also offers the theories behind success and failure factors of start-ups. Human Capital Theory (HCT) argues that the founder’s characteristics act as fundamental factors in the company’s survival. Significant Human Capital characteristics include experience, knowledge and career history of the founder (Havia & Sirkia, 2016). Contrary to the HCT, Organisational Ecology proposes that environmental conditions along with organisational characteristics are key factors for survival; i.e. the conditions in which company is planned and processes defined in the initial stages will define the future of a start-up (Kesim & Salamzadeh, 2015). According to the theory development of knowledge and expertise, becomes harder as the market widens (Havia & Sirkia, 2016).

4.1      Classification of Start-ups

Table 3:  Classification of Companies by Employee Number
Enterprise Size Number of Employees
Micro 1-10
Small 11-50
Medium 51-250

Traditionally companies are classified based on the employee number or the level of sales. According to Ghobadian & O’Regan (2000), a firm with 250 or less employees is referred to be Small and Medium Sized Organisation (SME). López-Ortega, et al. (2015), offers further insight and distinguished three separate groups within SMEs; these groups are presented in the Table 3. The paper also proposes a qualitative classification of companies based on the works of Bohn (1994) and Albino et al. (2001), which suggest that enterprise may be identified by recognising dominant problems faced. The similar approach has been applied to the Start-up Development, where the firm LawBite (2015), developed a six-phased timeline exploring evolution of an entity. The full diagram is presented in Figure 3.

Figure 3: Start-up Development Phases According to LawBite (2015)

http://www.thebiponline.co.uk/bip/wp-content/uploads/2015/01/Startup-Legal-Journey.jpg

 

4.2      ERP in Start-ups

Published literature experiences scarcity in the field of ERP adoption by the start-ups. The most significant study regarding an ERP adoption by the start-up was conducted by Anaya et al (2015). The paper investigated the company operating in the telecommunications industry, and analysed its adoption of the ERP system, provided by Oracle Corporation before starting operations. According to the company, the reason for adopting was to “bring best practices for the Start-up and start our business operation according to these international standards”. The findings state that, when a company faced a new business requirement or a business issue, the first discussion managers had was how the problem faced could be solved by the ERP system in place. The researchers found that the absence of a corporate culture resulted in a smooth integration without any need of changing neither operational process, nor job definitions. The paper proposes that ERP can provide a healthy base for business growth and a working environment, based on the best practices in the field, to newly established companies

Another study conducted by Jurado (2016) regarding ERP implementation for Virtual Reality gaming company, suggests that Odoo Open-Source ERP can create competitive advantage for the start-up. These benefits include: more organised data, better administrative workflow, improved integration and selection of the appropriate growth path.

5         Methodology

The objective of this thesis is to identify if the implementation of an ERP System will benefit IT Start-ups and if it will lower risk of failure, thus increasing potential for future growth. To achieve the objective, Intensive Investigation following Hybrid Design was selected. The selection allowed the research to use: Positivism approach for quantitative data and Phenomenological approach for qualitative research.

The sources of data collected have been divided into two stakeholder groups: Start-ups and ERP Vendors. For both stakeholder groups, secondary and primary research has been conducted.

5.1      Secondary Research

The secondary research was conducted to investigate and understand what Enterprise Resource Planning (ERP) System is, challenges and advantages associated with implementation and the underlying differences between Service, Manufacturing and Retail industries in terms of ERP usage. The notion of Start-up was also discussed and relevant cases were identified. The data was collected from online and offline academic resources, such as books, journals, research papers and case studies.

5.2      Primary Research

In order to find required evidence for comprehensive analysis and achieve reliable results, a mixed method of research has been selected: a combination of quantitative and qualitative research. Quantitative data allows generalisation and understanding of Start-up’s needs as a group, while qualitative data allows further research and enables to look at the companies closer in order to better understand their performance.

5.2.1        Start-ups

To determine the overall performance and identify existing flaws of the Start-ups, quantitative research was conducted through online platforms in English and in Spanish. The survey consisted of both open-ended and closed-ended questions, this allowed respondent to select the most applicable answer to them and further justify the answer (refer to Appendix A for the survey questions of the sample). The themes of the survey were as follows: Respondent & Company Profile, Evaluation of Business Processes, Company Evaluation, Observation of Technology and Business Processes at the Company, and ERP Selection. The target of the survey were founders or executives of the entity which has been operating for a maximum of 5 years within the IT Service sector.

The sample group was reached through LinkedIn portal, Incubators and referrals. Collected quantitative data was analysed individually, and findings are presented in forms of tables and graphs. The small number of the sample prevented using sophisticated statistical methods, however some correlations between the variables were still identifiable.

In order to better understand the Start-up activities and see the differences along with the similarities of the IT Start-ups, interviews were carried out with two companies. The questions were derived from their responses in the online survey and revolved around the same themes. During the interviews, mostly open-ended questions were used, which allowed interviewee to better express and explain the topic. The approach resulted in highly descriptive data. Qualitative data was analysed following a thematic analysis by identifying patterns within each individual piece of data.

5.2.1.1       Introducing the Sample

The total number of respondents accumulated to 17 companies, however, after filtering total sample of the survey was reduced to 11 companies with existence length varying from 2 months to 52 months. The Start-ups were divided into four categories depending on the number of employees: 1-4, 5-10, 11-15 and 16-50; the distribution of age can be seen in the Table 4. It is notable that 100% of the sample, has one office operating in one country.

Table 4: Summary of the Start-up Sample
Number of Employees 1-4 5-10 11-15 16-50
Number of Respondents 5 3 2 1
Company size 1-4 5-10 11-15 16-50
Average Start-up existence length 18 Months 21 Months 37 Months 3 Months

In order to understand the performance of the company, respondents were asked to select the business processes which they possessed at the time of responding. The most adopted business processes were Sales, Accounting and R&D, followed by Marketing, Customer Service and Finance. Meanwhile, HR, Quality Control and Project Management are not seen as critical processes that needs to be possessed by the company, therefore the adoption rate is lower among the sample. The Graph 1 provides an overall view over the Business Process adoption, and the results are grouped by nature of operations allowing easier comparison between the process adoptions.

Graph 1: Business Processes Within a Company Based on Employee Number

5.2.1.2       Start-up Interviews

The sample of Start-ups interviewed for in-depth analysis consist of two companies with similar profiles. Both companies operate in the IT service industry and offer different technological solution. The company profiles chosen allow generalisation and comparison of data between the two (refer to Appendix B for sample questions used in in-depth interviews). The Table 5 displays key common and distinct factors between the companies:

Table 5: Sample of Qualitative Start-up Data    
  Start-up A Start-up B
Start-up existence length 24 Months 52 Months
Number of employees 11-15 5-10
Market served International National
Knowledge of creating and managing the company by founder Non-Existent Non-Existent

5.2.2        ERP Vendors

The stakeholder group consisted of 3 companies and 5 interviews in total. The interviews were semi-structured allowing respondent to explain the subject more in detail, if he/she felt it was relevant to the research. The sample was reached through personal referrals and through social media, such as LinkedIn. The findings were analysed by thematic analysis, enabling two groups of stakeholders to connect and draw parallels.

5.2.2.1       Introducing SAP

Before 1972 there was no standardized system that enabled business to see their activities in real time and integrate them. SAP became a pioneer as they created a solution that transformed the way ‘businesses do business’ (SAP, 2017). Company’s product portfolio consists of diversified ERP solutions aimed at different customer profiles. After having reviewed the Enterprise System solutions offered, the most relevant for the study are: SAP Business One and SAP Business ByDesign (SAP, 2017).

SAP Business One: the solution is specifically aimed at small and medium sized businesses (SMEs) and incorporates Financial Management, Sales and Customer Management, Purchasing and Inventory Control, and Production Planning. The platform is deployable on on-premise, cloud and Hybrid version (SAP SE, 2016).

SAP Business ByDesign: the solution is best suited to medium sized companies and is solely offered on Cloud. The platform offers fast integration, increased flexibility and automation. The customer is able to integrate Financial Management, Sales and Customer Management, HR, Project Management, and Supply Chain (SAP SE, 2016).

5.2.2.2       Introducing Odoo

Apart from the Proprietary ERP providers such as SAP, there are numerous Open-Source platforms offering similar services for much lower cost (Jurado, 2016). The platform consists of several groups of apps: Front-End Apps, Sales Management Apps, Business Operations Apps: Marketing Apps, HR Apps, and Productivity Apps (Appendix C shows the full capabilities of the platform). Odoo offers Open-Source ERP which is available free of licensing fees, enabling developers to use the source code to use and modify the platform to their needs. In addition, Odoo also offers an Enterprise Edition where modules are pre-developed and user is not required to have in-depth IT knowledge to modify the system (Dinesh & Vetrivel, 2016).

5.2.2.3       Introducing Salesforce

Today’s technological solutions also include specialized systems. Salesforce is one of the best Cloud based Customer Relationship Management (CRM) solution provider. CRM is part of the ERP System and includes modules of Sales, Marketing and Customer Service. The solution is offered on Cloud and enables its users to manage Sales contacts, track Customer activity and create one-to-one Customer Journeys (Salesforce, 2017).

Users of Salesforce are also able to extend the capabilities of the platform to full ERP. This is achieved through FinancialForce, which is a “full suite of back office applications built on the Salesforce platform”. The products offered include: Financial Management, Professional Services Automation (PSA) and Human Capital Management (HCM) (FinancialForce, 2017).

5.2.2.4       Comparison of Vendors

C:UsersuserAppDataLocalMicrosoftWindowsINetCacheContent.WordScreenshot (436).pngThe Figure 4 provides a general view of differences between various ERP Solution providers (Odoo, 2017). All three companies interviewed (SAP, Odoo and Salesforce) can be identified in the figure and the differences for Business Scope and User Friendliness are easily noticeable. These differences allow minimization of the subjectivity of data gathered.

Figure 4: Comparison of Intelligent System Vendors

5.3      Limitations of the Study

For the research questions to be properly answered and the results be highly reliable the paper tried to collect a large group of start-up sample. However, the goal proved to be harder to achieve as the targeted entrepreneurs either were not familiar with an ERP system or did not consider it to be relevant for their operations. Thus, resulting in relatively low interest by the large number of targeted start-ups.

Furthermore, the number of interested people in the research did not meet the basic research criteria and had to be excluded from the study. On the positive side, as current literature experiences substantial scarcity in the topic in question, the gathered data is still able to provide insights that can be used as groundwork for future studies.

6         Findings & Analysis

Data collected is consistent and shows that when a company uses an integrated system from the beginning, it avoids the need to change it later. It is believed that the information gathered will give relative advantage to start-ups by enabling them to make data driven decisions rather than following their ‘gut feeling’. One of the interviewees of ERP Vendors, defines an ERP as a system which is able to intelligently connect employees, customers, suppliers, things (manufacturing, point-of-sale, service delivery, etc.) and other business partners to the system. Interviewees identify what key foundations companies need to possess in order for the implementation to be successful. These foundations are: proper business management and proper reporting of business processes. Well defined business processed will typically result in short implementation period. Companies are also required to be aware of their capabilities and decide where they should spend time on. Having strong internal skill-set will enable entrepreneurs to run companies smoothly without any significant issues. In case these skills are missing, a partner should be found which will be able to fill the existing gaps.

Start-up A interviewed offers customization services for Open-Source ERP and operates in Japanese and European markets. In addition to offering services to others, the Start-up also uses Odoo capabilities to manage their internal activities. The Start-up adopted Open ERP platform when it started operations and has seen the direct impact of its usage. On the other hand, the Start-up B investigated, similarly offers technological solution, however, the purpose of it is to display delivery time slots and routing to large online supermarkets. The Start-up highlights that their operations are B2B and because of a small number of clients at this stage of growth, there is no need to have a sophisticated sales platform integrated with other operations. Yet, numerous silo solutions (a piece of software specifically developed to solve one problem) are deployed, and according to the interviewee the new silo solution is discovered as the problem is evident. Interviewee also states, that it is critically important for the company to find the balance between software capabilities and price associated with it.

6.1      Business Processes

In order to evaluate if ERP Systems are able to support IT Start-up requirements, the start-up sample was asked to evaluate the importance of the attributes the system is able to provide. As seen in the Graph 2 with a 100% selection rate, flexibility of the company showed to be the most prominent factor a start-up could possess, followed by service differentiation and process integration. However, the least important factor according to the sample is an employee and cost reduction.

Graph 2: Importance of the Listed Factors for the Start-up Sample

All the interviewees of the ERP Vendors mention the effects on company’s flexibility after implementation of the system, and agree that the company can maintain existing flexibility if not increase it even further. The system implemented should offer a high degree of business support, and only several of the processes will be standardized. Start-ups are also able to develop additional business processes on top of the adopted system.

Data gathered suggests that ERP is capable of supporting any company, regardless of the fact that it might offer a unique product. Furthermore, respondent states that the business processes, such as manufacturing, inventory management, e-commerce connections, transaction recording, invoice management and others will be 99% identical to any other ‘traditional’ manufacturer, even though the product manufactured is different from the rest. Interviewee continues to argue that in his experience there is nothing so unique about any company which cannot leverage the best practices that had occurred before, and brings an example of a small company offering craft beers. Even though the specific requirement of recipe management was not supported by default, the extension was easily created by the partners of the Vendor. A partner can be a full-time employee or temporary consulting firm. Depending on what company is trying to accomplish it can be either of the two, however, according to the interviewee companies see significant growth when their partner is able to provide the skills company lacks. At the same time, the interviewee states that extending functionalities of ERP should only be considered after having significant growth.

6.1.1        Process Management

To understand the needs of the start-ups and involvement of the technology in daily operations, the sample was required to select whether the identified business fields required technological support or not. According to the results presented in the Graph 3: Data Entry, Scheduling and Customer Service require the most support, while Project Management, Finance and Marketing require technological support to an extent.

Graph 3: To What Extent Business Processes need System Support

The data shows that there is a limited use of technology for managing projects. The nature of the Start-up B requires it to treat its clients as separate projects. To accomplish tasks allocated to employees involved in a certain project, company uses two separate platforms with no connection between the two; one for developers and another for non-developers. According to the interviewee, the reason for the separation is because two groups have unique needs and cannot be supported by one single platform. On the other hand, the Start-up A, which also has developers and non-developers, only uses one platform for project management and identifies that the needs of both groups are fully met. Interviewee explains that the solution adopted can streamline project plan, create roadmaps, assign tasks to both developers and non-developers. In addition, it can check the quality of the process carried out. Providers of ERP Services also address the topic and state that even though a small company may not have a large amount of data, the projects managed by them might be so complex that they would need something intelligent to solve the issues, like scheduling and resource management.

Out of the three companies interviewed, Salesforce is the most prominent Customer Relationship Management (CRM) system provider. According to the interviewee of the company, managing data of the clients and providing good customer service is nearly impossible without an intelligent system in place. He continues and adds that particularly for a newly established firm, having insights into customer profile will further increase the possibility of providing customized services to customers, ultimately resulting in increased sales. Interviewee of the Start-up B state that they had lost some potential clients in their earlier days, due to having unorganized data prior to adopting current silo solution.

6.1.2        Integration (Business Processes and Technology)

The data gathered concerning the usage of software by business processes is shown in the Graph 4. It is evident that most of the identified processes are supported by a system, and after closer analysis results show that the most of the solutions deployed for a specific business processes are isolated with no or little connection between one another. For deeper understanding, interviewed Start-ups were asked the follow-up questions.

Graph 4: Usage of Software by Business Processes

Interviewee from the Start-up B discussed numerous software deployed, and acknowledged that they are on different platforms, however he explains that the company does not face any problem, as each software serves one specific function. The interviewee also recognizes that the silo solutions are not connected; however, he brings the example of Sales and explains that in his mind the needs of the sales team at the Start-up are solved by the system currently in place and that there is no need to upgrade or change solutions. He continues and adds that these silo solutions are acceptable for Start-ups when they do not have the means to invest in powerful CRM or ERP solutions.

On the other hand, the interviewee of the Start-up A strongly believes that when silo solutions are deployed, regardless of the benefits it can provide, the company is unable to have a holistic view over the entire company in a specific point of time. The interview continues and states that, if the processes are integrated, a person can automatically create reports that will show all the activities of a particular project and receive alerts directly through email; all this is not possible with silo solutions.

The topic was also discussed by the Vendors of ERP, where one of the interviewees stated that particularly for a start-up where employees normally do more than one job, an ability to do all the activities in one interface increases their efficiency level exponentially. This eliminates the need to re-enter data into multiple silo solutions which are typically reconciled at the end of the period. According to the interviewee this is “just a recipe of disaster”. He argues and suggests that this problem is much more evident in start-ups, especially if the company experiences price and value fluctuations, and inventory turns. Other interviewees also offer their opinion and state that if a company commits itself to a project and it does not have enough resources to accomplish the task, the company ends up losing customer for this and other future potential sales. According to the data, one of the most important asset that any business can have is real time visibility into their operations.

The Graph 4, shows that Human Resources has the least software support. The topic is discussed by the Start-up B and states that salaries of employees are managed through Excel Spreadsheet, and when it is time to issue payments he directly transfers amount by going to the online banking platform. He adds that it would be better to have interconnected system where employees are not required to access multiple platforms to complete one task, but at the time being he does not know a solution which will provide this connectivity at the acceptable price. On the other hand, a respondent of ERP provider argues that around 99% of the business processes Start-ups require are supported immediately by a reliable ERP system, only after when users know how to use the system. This is possible because, for example, Start-up does not need to use specialized solution for travel and expense management solutions, as their savings would not outweigh the cost of implementing the solution.

6.1.3        Cost

The matter of cost was discussed by each interviewee and various business models were explored. Start-ups have the option to choose between paying a large up-front fee or paying the amount gradually depending on their needs. However, interviewees discuss differences between system providers and explore that generally more expensive version of the software is more reliable and powerful. Different occurrences were observed when interviewing start-ups. Start-up B which uses silo solutions is required to pay a monthly fee to have access to the solutions, on the other hand, the Start-up A which uses Open-Source ERP is not required to pay any licensing fees. However, the interviewee [of Start-up A] acknowledges that the solution adopted needs extensive internal IT knowledge to manage it successfully.

The cost of an adopted system can be diminished by using modular ERP version. When deploying ERP, the company is not required to fully use it, but rather it should use the capabilities which are the most significant for its success and scale up usage of the system as the business grows and users of the system get more comfortable with it. However, there are core requirements that any company must meet regardless of its size; the interviewee brings the example of generally accepted accounting principles that any company must comply with.

6.2      Business Intelligence

The founders of both Start-ups were inexperienced and did not possess Business Operation Knowledge when establishing the company, however the system in place made a tremendous difference in growth and success. As the Start-up A had ERP implemented since it started their operations, the owner believes that the ERP has helped him to understand business processes, manage the business better, understand existing problems and grow the company from the very beginning. While the Start-up B lacked Business Operation Knowledge as well, because of inexperienced and uninformed employees, the company was not aware that existing problems were real and solvable. While Start-up A recognized benefits gained, Start-up B recognized that it probably would have been better if they had known that the solutions existed when the company started its operations.

The similar observation can be made from the Vendors side, as they recognize that business owners have deep knowledge of the product creation but they are struggling with business management nuances. Regardless of the type of ERP solution used, data collected can be presented in a manner and language that will be the best understandable for the user (dashboards, graphs, drill down, etc.). Users can customize the dashboard for better information visibility. As expressed by the ERP Vendor interviewee, Business Intelligence used by the system enables people to “interact with the system in a same manner they interact with Google”. From the experience collected, the respondent confidently states that when using sophisticated ERP system, the business can enjoy the best practices which had occurred before thus eliminating the need of starting process creation from scratch.

Regardless of the intelligent system used, data analysis can provide insight into the company needs for growth. Integrated solutions can also track the important Key Performance Indicators (KPIs) and send alerts to the users, these KPIs would reflect the central aspects of company’s activities. Use of KPIs were also discovered by both Start-ups interviewed, however, measurements used by both companies are minimalistic and general.

6.3      The Start-up’s Evolution

The Start-up sample identified most principal factors when adopting a new system for daily use. The quantitative data displayed in the Graph 5, shows that the main factors for Start-ups are that the system should provide business growth and meet their current needs. Meanwhile cost, easiness to implement and easiness to understand are least important factors.

Graph 5: The Importance of Factors When Adopting New System for the Start-up Sample

Respondents of ERP Vendors argue that companies should implement ERP based on their future self, and not based on their current activities. The selection will define if the system is able to support business growth or not. According to the data collected, one of the basic success factors a company can have, is a clear vision, and based on the responses gathered it has been seen in practice that Start-ups must understand what they are trying to achieve, their operations and market they are aiming to serve. Inability to understand company operations may result in misfit between system selected and Start-up activities. According to the interviewee, the problems might also arise if a company tries to solve all its problems with ERP in a small period of time. However, interviewee also proposes that after having defined all the problems, the company should look to solve around 80% with the ERP.

The interviewee from Start-up B stresses the importance of increasing knowledge and usage of the platforms that are already adopted, before finding a new solution. He also highlights that if the system solves the problem faced, employees will learn and use it. Interviewee of the Start-up A also recognizes the need of understanding the solution before deploying it, and states, that when a new employee enters the company he/she should receive an extensive ERP training. According to the interview, if no training was conducted, a person would not be able to complete assigned task, as company’s processes are created around the system’s capabilities. Training issue is also addressed by ERP Vendors where they state that the person should invest time in learning the solution, as this will enable user to efficiently utilize the system capabilities. Some of the respondents’ state that training can last for as little as two weeks.

6.3.1        Business Growth

The Interviewee of Start-up A believes that start-ups should implement ERP, as the integrated system will provide more flexibility and insights into a company’s operations for future possible growth; in addition, the intelligent integrated system allows full automation and any change made in one part is automatically reflected in another. He continues and adds that Open-Source ERP can offer process standardization and after implementation there will be nothing “holding back the company to grow”. The interviewee continued and adds from his experience that using automated and standardized system helped employees reduce time and costs spent on manual administrative tasks.

The same issue is also discussed by ERP provider, where the person stated that ROI for ERP is measured by efficiency and productivity gains. The interviewee explains the gains with the example: ‘If a company uses Microsoft Excel and on average spends 20 hours a week, combining information from different silo solutions, ERP can replace this effort by having a single end-to-end integrated business processes. The system not only enables more efficient business operations, but also the saved hours can be moved from cost center to revenue generated center, allowing companies to generate more revenue’. However, the respondent also suggests that any company should be able to recognize a Return-On-Investment (ROI) within 18 months, if not the change should not be implemented.

Meanwhile, other respondents of the ERP Vendor group also recognize that having in place an intelligent system will enable companies to easily scale up its operations. Some of the answerers believe that the easiness of scaling up partially is derived from having all business operations on the on-demand Cloud.

Companies should look at the system as an investment and as a tool to grow their operations. For example, if companies have ERP installed this means that the processes are well defined and standardized, which will avoid confusion in the later stages of the company’s growth. While, if the ERP is absent, processes might not be defined thus resulting in confusion of what to do when more employees are hired. Similarly, ERP can support expansion of the company. The ability of the system to run on multiple languages on multiple currencies lowers risk of failure when expanding geographically. The similar problem was faced by the Start-up B, when unorganized and unclassified data started to appear as number of employees increased and the company started to be more profitable. However, in this particular case the problem was solved by deploying silo solutions, aimed at a specific problem.

According to the findings, in the case of a company needing to change its business model or any of the core activities, an entity that has an ERP in place would have an advantage, rather than an entity depending on silo solutions (within the same sector and the market). The reason is that ERP solutions (provided by credible vendor) have built in incredible amount of capabilities, allowing customers to change and evolve their operations together. However, the change that needs to be made should always be communicated with a partner to avoid any complications. The respondent also argues that the reason for companies changing ERP providers has less to do with the capabilities of the system itself, but more with the relationship of a customer and the partner.

At the same time, respondents suggest that adoption of ERP only makes sense if a company wants to grow. If companies are not growing fast or do not want to grow, then implementing ERP would not be essential for their success. While, the business processes of the companies which expect to grow, will ultimately get complex and will not be manageable without an intelligent system in place.

6.3.2        Validating Start-ups by an ERP System

Respondents of ERP providers discuss that having a system in place which can analyse a company’s performance will validate the seriousness of the enterprise and make it more attractive to investors. Interviewees stated that in their experience, investors respond more supportively to the companies which have in place an intelligent system, enabling start-ups to have financial and process reports, over the ones who only had silo solutions in place, such as an Excel Spreadsheet. Similarly, the idea of increased valuation also has been explored by the full established ERP Vendors. Their belief is that having a solution of well-respected ERP vendor in place is important for companies that seek financial aid because their valuation tends to go up.

One of the respondents brings an external company example and states that the founders of Company X mainly concentrated on creating the product, however, they overlook management of daily activities efficiently. When the time came for raising the funds, investors were asking for financial statements, but, founders did not have the knowledge and skill-set to provide these statements. At this point company had two choices: either hire consultant for a short amount of time or a full-time employee. The company ended up hiring an employee, and their first initiative was to implement an intelligent system which would support their daily activities. As the company was serving a niche market without competitors, it experienced a sudden growth and required to deploy an ERP System. Having ERP implemented helped the Company X to increase their credibility regardless of their small size, and investors were assured that all 3 employees fully understood business processes, how to manage the Start-up and report on the activities.

6.4      Challenges

The data analysed identifies 3 main challenges associated with implementing an ERP system:

1. Availability of customer resources – for the implementation to be successful, the owner has to fully support the investment. Such investment entails:

  1. the money the company spends on the system
  2. the time dedicated to the implementation by the owner and the staff.

In addition to the resources, one of the interviewee stresses the importance of the patience from the company’s side as “ERP requires patience because it has to be done properly”.

2. Fit for Purpose – the challenge concentrates on expectations management between ERP provider and customer. For companies who have a clear idea and vision of what they do and where they are going, ERP consulting service and project are built towards optimizing and customizing the system chosen. However, if the company changes its core-activities or business model and the changes are not clearly communicated between the two parties, the expectations will end up being misaligned. The respondent of the ERP Vendor proposes for Start-up and consulting firm to have written and confirmed project schedule and methodology, which must be updated if any change happens within a company.

3. Change Management – employees are resistant to change and do not want to learn how to use innovative technology. The change should always come from executives and not from employees; executives should push and make the transition smooth. One respondent also recognizes that a newly established company is just creating its culture, thus enabling it to change ways of conducting business easily.

7         Conclusions and Recommendations for Future Work

The combination of a secondary and a primary research has concluded that, ERP is an intelligent system facilitating information flow, and connecting core stakeholders in the company. As discussed by Devanport (1998) not all companies require adopting an ERP System, however, the primary research conducted, concluded that a company needs to have an intelligent system in place which will support the key operations of the entity.

As the Start-up Samples’ concern was the cost of an ERP system, both the secondary and primary research agree that implementing a SaaS solution should significantly lower the investment needs, in comparison with on-premise ERP System. However, companies should extensively research the payment scheme of Cloud based ERP, as according to Hoseini (2012) user “may have to pay a higher subscription fee than originally thought, in order to reach desired capacity of service”.

If the management knowledge and experience of the founder are limited, according to the Human Capital Theory the new venture will experience significant issues and will have a low possibility of success. The Start-up sample experienced the flaws identified by Weete et al. (2016), where the research concluded that “most of the entrepreneurs have technological background, and they are unfamiliar with business processes”. The happening was observed in case of the Start-up B, where for a significant portion of time the team was unable to grow their operations and incorporate right solution into their daily activities. However, as explored in the case of the Start-up A, having in place the ERP system helped the management to overcome the issue and learn more from provided services. The implemented ERP also helped the Start-up A to defy the Organisational Ecology theory, which states that “development of knowledge becomes harder as the market widens”.

From the analysis of the primary data, it is evident that the benefits that a company can obtain are not limited to technical and operational, but also include management knowledge benefits and opportunities for the future. It is possible to conclude that especially for start-ups, ERP should be viewed as a long-term investment and a foundation of company’s growth. For above explained reason, the benefits have been divided into three categories: Productivity Benefits, Knowledge Benefits and Future Opportunities. The Tables 6, 7 and 8 provide insight into the benefits an IT Start-up might obtain with implementation of an ERP System, including the differences between findings from the Published Literature and Primary Research.

Table 6: Comparison of Possible Operational Benefits in Start-ups, from Literature and Research
Literature Research
  1. Process Standardisation and Automation
  2. Elimination of Redundant Data
  3. Reduced Operating Costs
  4. Better coordination between departments
  5. Increased Efficiency and Productivity
  6. Better Resource Management
  7. Improved Information Visibility
  8. Improved Customer Service
  9. Service Differentiation
  1. Full automation and standardization of applicable activities
  2. Maximum process integration
  3. Maintain or increase in flexibility
  4. Real time visibility into operations
  5. Improved Project Management
  6. Improved Scheduling
  7. Better Resource Management
  8. Improved Customer Service
Table 7: Comparison of Possible Knowledge Benefits in Start-ups, from Literature and Research
Literature Research
  1. Better decision-making
  1. Understand business processes
  2. Manage business better
  3. Understand existing problems
  4. Data can be presented in understandable form
  5. Insights into operations
  6. Real time visibility
Table 8: Comparison of Possible Future Benefits in Start-ups, from Literature and Research
Literature Research
  1. Accommodate business growth
  1. Avoid need to change later
  2. Develop additional business processes
  3. Grow company
  4. Scale-up operations
  5. Easier to adapt to market changes
  6. Validate business for financial incentives
  7. Real time visibility

The analysis also concludes that, for the benefits identified in the Tables 6, 7 and 8 to be obtainable, a start-up should meet some requirements before implementing an ERP System. These findings are presented in the Table 9, and are illustrated as a checklist; i.e. the start-up should only go forward with the intelligent system implementation after all five boxes of ‘Yes’ have been ticked.

Table 9: The Requirements a Start-up should meet before a system implementation
Requirement   Yes    No
Full Understanding of Current Business Activities
  •  
  •  
Clear Company Vision
  •  
  •  
Desire to Grow Rapidly
  •  
  •  
Proper Business Reporting
  •  
  •  

When comparing findings to the Start-up Development Phases proposed by LawBite (2015), and presented in the Figure 3 on page 19, it is evident that an implementation of a system should occur during the Validation phase. At this stage of development, the start-up is starting to see an increase in revenue or users, has already committed to building-up the company to its full potential and can successfully produce a product or a service. The study successfully confirms the findings of Anaya et al. (2015), where the researchers proposed that “an ERP can provide a healthy base for business growth”, and also proposes that a goal can be achieved by deploying any credible intelligent system.

It must be noted that the start-up, wanting to adopt the system should find a balance between the software capabilities and the cost associated with it. Start-ups are also encouraged to select the system based on their future activities, and know the proper and efficient use of the system selected for daily activities. In addition, the start-up should only use capabilities of the selected system which will give positive return regarding resources invested.

7.1 Future Research

As it has been explored throughout the literature review, the possible benefits an ERP implementation can provide for large, medium and small companies have sufficiently been investigated. Although the current paper only looked at a small sample of Start-ups in the IT business, still it was able to propose the potential benefits and a stage of development it should be adopted. However, there is a need to empirically prove the findings, by observing a large sample of start-ups over time. The findings will unquestionably prove or dismiss the need of having an integrated system within a start-up.

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Appendix A: Survey Questions for the Start-up Sample

Respondent’s Basic Information
1. Name of the Company
2. What is your position at the company?
3. Are you the founder of this particular company?

 

– Yes: Could you briefly describe your personal background (e.g. experience, education)

Did you have knowledge on how to create a business and run it before creating this company?

– No:  Have you ever owned a company before establishing this venture?

Have you ever run a company before establishing this venture?

Company’s Basic Information
1. Please briefly describe the way company operates (nature, culture…)
2. How old is the company?
3. How many employees does the company have?

 

– 1-4

– 5-10

– 11-50

– 16-50

– 51-150

– Other

4. In which sector does the company operate?

 

– Service

– Retail

– Manufacturing

– Other

5. In which area?

 

– Trade

– Services

– Product Development

– Conclusion

– Information and communication

– Mechanical Engineering

– Electronics

– Software

– Manufacturing

– Other

6. How wide is the market served now?

 

– Local

– Regional

– National

– International

7. How many offices/branches does the company have?

 

– One

– Two

– Three

– Four

– Five

– Other

8. In how many countries are these offices located?

 

– One

– Two

– Three

– Four

– Five

– Other

Business Processes
1. Which business processes do you currently have? (select all that apply)

 

– Sales

– Marketing

– Customer Service

– Accounting

– Human Resources (HR)

– Quality Control

– Finance

– Information Technology (IT)

– Logistics

– Research & Development (R&D)

– Other

2. Please, indicate if the following attributes are important for your company:

 

– Flexibility

– Information Visibility

– Cost Reduction

– Employee Reduction

– Process Standardisation

– Service Differentiation

– Integrating Business Processes

3. Do you use any type of software/system in your company for daily activities?

 

– Yes

– No

Strengths & Weaknesses
1. To your best knowledge and understanding, please evaluate the overall competences of the company in the following fields:

 

– R&D

– Marketing

– Sales

– Management skills

– Human resources

– Finance

– Information Technology (IT)

– Customer Service

– Flexibility

– Usage of software

2. What are the main weaknesses of your company (select all that apply):

 

– Unskilled workforce/lack of skilled workers

– Nonexperienced owners/managers

– Financial resources

– Inability to acquire new customers

– Inability to build networks and co-operation

– Inability to use technology efficiently

– Inability to change processes and adapt

– Other:

3. Does your company require technological (software/system) support in the following fields? (Yes/No)

 

– Sales

– Marketing

– Customer Relations

– Human Resources (HR)

– Finance

– Data Entry

– Pricing

– Process Management

– Scheduling

– Inventory

– Logistics

– Capacity Planning

– Quality Control

– Purchasing

– Inventory Management

Technology
1. Please, select how automated processes are in your company:

 

– 0 (not automated)

– 1

– 2

– 3 (completely automated)

2. Please, select the usage of technology for daily activities in your business:

 

– 0 (we don’t use it)

– 1

– 2

– 3 (we use it for everything)

3. Please, indicate the importance of the factors when adopting system in the company for daily use: (1 being least important, 5 being most important):

 

– Cost

– Easy to understand

– Easy to implement

– Able to meet current company needs

– Able to provide business growth

Technology and Business Processes
1. Please, indicate for which processes does the company use technology/software and for which it doesn’t? (choice between: use technology software; use pen and paper; not relevant)

 

– Sales

– Marketing

– Customer Service

– Accounting

– Human Resources (HR)

– Quality Control

– Finance

– Information Technology (IT)

– Logistics

– Research and Development (R&D)

– General data recording

2. Please, select which business processes need automation but are not and which ones need standardization but are not: (choice between: needs automation; needs standardization; needs both; doesn’t need either)

 

– Sales

– Marketing

– Customer Service

– Accounting

– Human Resources (HR)

– Quality Control

– Finance

– Information Technology (IT)

– Logistics

– Research and Development (R&D)

– General data recording

Additional Comments
1. Please provide any additional comments regarding an implementation of a system:

 

2. Please describe additional benefits a company wants to gain with an intelligent system:

Appendix B: Interview Questions for the Start-up Sample

General Questions
1. Can you briefly describe the company culture (centralized, decentralized, stable or not, etc.)?
2. Describe your target market?
3. Can you briefly describe company evolution through past years? (how many employees did you have when first formed company? How fast did you acquire them?)
4. How do you think company is performing so far?
5. Do you think company is still developing its processes and changing rapidly?
6. How do you plan to grow?
7. Do you think with technology’s help it can grow faster?
8. How do you control and measure the quality of service delivered?
9. Can you explain why the cost and employee reduction are not important for the company?
10. Why do you think the cost and ability to meet future needs is not important when adopting system/software?
11. You selected that you don’t need software for sales and marketing, why?
Integration
1. How are processes integrated in the company now?
2. What software do you use for what?
3. What software do you use for supporting business processes? (daily)
Customer Relationship Management
1. How do you reach clients?
2. How do you record leads?
3. How do you manage clients?
4. How do you measure quality of service delivered?
5. Do you believe you have lost any clients because of poor sales management?
6. How do you manage CRM?
7. What system/software do you use for sales, marketing and customer service?
Finance
1. How do you manage daily cash-flow?
2. How do you manage accounting?
Project Management
1. How do you manage projects? (what software do you use if any?)
2. Which software do you use specifically for project management?
ERP Questions for Start-up A
1. At what stage did you implement ERP?
2. How did company change after implementing ERP?
3. What were challenges during process? (change management)
4. Compared to the similar companies do you think you have competitive advantage because you have an ERP installed? Why?
ERP Questions for Start-up B
1. Why do you think the company is too little to adopt ERP?
2. When do you think the company should adopt ERP? (at what stage)
3. Would you implement partial ERP? (such as salesforce for CRM or opensource ERP?)
4. Why do you think it takes 6 months to implement ERP? (who told you this info)
5. Which provider did you consider adopting? For what purpose? (what was your goal)
6. Did you want to adopt on-premise ERP or cloud based ERP?
7. What budget would you set aside for ERP adoption?
8. Did you consult anybody regarding ERP adoption? Who? When? What did they say?

Appendix C: Odoo Capabilities

Source – Dinesh & Vetrivel (2016) C:UsersuserAppDataLocalMicrosoftWindowsINetCacheContent.WordScreenshot (453).png

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