MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY LE THI KIM THOA FACTORS IMPACT ERP IMPLEMENTATION SUCCESS IN VIETNAM MAJOR: BUSINESS ADMINISTRATION MAJOR CODE: 60.34.05 MASTER OF BUSINESS ADMINISTRATION THESIS SUPERVISOR: DR. DINH CONG KHAI HO CHI MINH CITY- 2011 2 ACKNOWLEDGEMENT I would like to thank my thesis advisor Dr Dinh Cong Khai for all his intensive support, valuable suggestions and encouragement during the writing process. I would like to show our gratitude to the respondents for taking time to participate in my survey. Without your answers, this thesis would not have been possible. I would like to express my sincere gratitude to all of my teachers at Faculty of Business Administration and Graduate Faculty, University of Economics Ho Chi Minh City for their teaching and guidance during my MBA course. I would like to specially express my thanks to all of my classmates, my friends and Mr Dang Huu Phuc for their support and encouragement. Ho Chi Minh City, 2011-02-05 Le Thi Kim Thoa 3 Abstract Master Thesis in Business Administration, Summer 2011 Economics University Ho Chi Minh City The enterprise resource planning (ERP) system provides support for core organizational activities such as manufacturing and logistics, finance and accounting, sales and distribution, and human resources. An ERP system helps different parts of an organization share data and knowledge, reduce costs, and improve business management. A large number of Vietnamese enterprises would like to apply ERP system, but many are not successful in their ERP implementation projects. There are quite a number of the factors that affect the success of ERP implementation project. The aim of this research is to explore factors that influence ERP implementation success in the Vietnamese context, which will help both implementing companies and consulting companies get success for ERP implementation in Vietnam. Both qualitative and quantitative approaches were considered in this research. First, the qualitative research is conducted through making in-depth interview with five managers in ERP implementing companies to check the content and meanings of words using in the measurements scales. Then the main research is quantitative with 200 key users who use ERP system in their daily activities via email and phone to get results. The Cronbach‟s alpha is used to measure reliability, the Exploratory Factor Analysis attempts to identify underlying variables and regression analysis is used to test the research model and hypotheses. The result confirms that master data quality, minimal customization, Business Process Reengineering (BPR), management, education and training, consulting factors have positive impacts on ERP implementation success. Therefore, the benefit of this study will help consulting companies and implementing companies focus on these critical factors when they want to apply ERP system in Vietnam and reduce as much as possible potential risks. 4 Key words: ERP, project success, resource management, business process reengineering, management, education and training, consulting, customization, SAP, Oracle. 5 Contents Page CHAPTER 1: INTRODUCTION 8 1.1 The problem statement 8 1.2 Research questions 11 1.3 Research objectives 11 1.4 Research methodology 11 1.5 Scope of the study 12 1.6 Structure of the study 12 CHAPTER 2: REVIEW OF RELEVANT LITERATURE 13 2.1 Key Concepts 13 2.2 ERP implementation success 14 2.3 Review of Critical Success Factors (CSFs) in ERP implementation 16 2.3.1 Master data quality 16 2.3.2 Minimal customization 17 2.3.3 Business Process Re-engineering (BPR) 17 2.3.4 Consultants 18 2.3.5 Management 18 2.3.6 Education and Training 19 2.4 Research Model 20 2.4.1 Variables and Hypotheses 20 2.4.2 A suggested research model 23 CHAPTER 3: RESEARCH METHODOLOGY 24 3 Research methodology 24 3.1.1 The pilot research 24 3.1.2 The main research 25 3.1.3 The scales 25 3.1.4 The questionnaire 26 3.1.5 Measurement 27 3.1.6 Data collection 27 3.1.7 Population and sampling 28 CHAPTER 4: RESULTS AND DISCUSSION OF THE FINDINGS 29 4.1 Descriptive statistics 29 4.2 Cronbach‟s Alpha Analysis 31 4.3 EFA Analysis 31 6 4.4 Regression analysis 36 CHAPTER 5: CONCLUSIONS AND IMPLICATIONS 42 5.1 Conclusions of the research 42 5.2 Implications of the research 42 5.3 Limitations and suggestion for further researches 43 REFERENCES 45 APPENDIX 48 7 LIST OF TABLES & FIGURES Table 4.1: Demographic statistics of the respondents 29 Table 4.2: Descriptive statistics 30 Table 4.5: KMO and Bartlett‟s Test 31 Table 4.3: Cronbach‟s Alpha of all variables 32 Table 4.4: Cronbach‟s Alpha of business process re-engineering after removing variable V33 33 Table 4.6: Total Variance Explained 34 Table 4.7: Rotated Component Matrix 35 Table 4.8: The final measurement scale 36 Table 4.9: Regression analysis on data of 107 responses 37 Table 4.10: Results 41 8 CHAPTER 1: INTRODUCTION 1.1 The problem statement ERP stands for Enterprise Resource Planning. Before 1970s, this concept did not exist. At that time, there were only a few software products that handled processing data in real time and saved it in a central database. At the beginning of 2003, the concept of an ERP system was redefined. It is no longer a system with a database; instead, it is a combination of products covering basic functions such as purchasing, sales, production, and finance. In the areas of human resources, accounting, and basis technology, it corresponds to enhance solutions of the new dimension products (SAP overview). Enterprise resource planning (ERP) is an integrated computer-based system used to manage internal and external resources including tangible assets, financial resources, materials, and human resources. It is a software architecture of which purpose is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders. Built on a centralized database and normally utilizing a common computing platform, ERP systems consolidate all business operations into a uniform and enterprise wide system environment (Bidgoli et al, 2004). ERP software automates core corporate activities such as purchasing, inventory, manufacturing, sales and distribution, human resource, finance, and supply chain management, etc., by incorporating the best practices to facilitate rapid decision-making, cost reductions, and greater managerial control. After joining WTO (World Trade Organization), Vietnamese enterprises have faced a lot of challenges and opportunities. In order to achieve greater flexibility, ERP has 9 been introduced to Vietnamese enterprises. Implementing ERP helps companies increase competitiveness by reducing cost, better controlling organization resources, making timely decision. The use of ERP has also been found to be critical in improving customer satisfaction. For example, NEC Technologies credits its installation of ERP for increasing its speed of order processing, improving invoicing and drastically reducing its customer- service response times (Michel, 1997). In addition, ERP has also been credited with reducing manufacturing lead times (Goodpasture, 1995). Although ERP is a large and helpful software, it is expensive to implement. Thus, enterprises expect a lot whenever they decide to implement it. They hope ERP could assist them in reducing manual work, making provision easier and timely access to accurate information, improving reports, fastening system response time, enhancing procurement, planning, controlling sales cycle and approval functions, providing relevant tools for managerial accounting control and profitability analysis, and responding faster to the dynamic market changes. Specially, in globalization, ERP is a key and essential tool in management that supports enterprises to go global. According to VCCI, by the mid-year of 2006, there were only 1.1% Vietnamese enterprises applying ERP. However, the number of Vietnamese enterprises applying ERP has risen up significantly currently. According to FIS-ERP - a consulting company, to install ERP system, Sino Pacific Construction Consultancy Co. spent more than 1 million USD, Thep Viet paid more than 2 million USD, Nova group paid 1 million USD, Pham Nguyen company paid more than $500.000, Vietin bank paid 4.3 million USD. 10 Since ERP is so expensive, although many enterprises want to apply ERP but they have some concerns whether they should apply it. Some enterprises such as Vietnam Electricity Corporation, Phong Phu Corporation intended to apply ERP 3 years ago, but till now they have not applied it. There are several reasons why these firms are not rushing to install the systems. Firstly, the ERP implementation efforts of many larger counterparts have resulted in partial failure, or in some cases total abandonment. The other reason is a lack of financial resources, which restrains them to implement the typically expensive ERP system. It was reported that 40 percent of all ERP installations were partially implemented and that nearly 20 percent were scrapped total failures. Especially for Vietnamese firms, with their limited resources they are less likely to survive or quickly overcome a failed ERP implementation. Most of the times, implementation of an ERP system will require more effort than an initial plan. An ERP implementation failure may lead to a big problem to a firm as this will waste enormous sums of money, labor, and destroy competitive advantage of the firm. There are many researches about critical factors impacting ERP project‟s success in foreign companies. Bingi, et al. (1999) found the common critical success factors (CSFs) of ERP Implementation in ten criteria: top management commitment, reengineering, integration, ERP consultants, implementation time, implementation costs, ERP vendors, selecting the right employees and training employees. In order to evaluate impacts of factors on success in ERP implementation in Vietnam, Giang (2009) identified these factors: ERP package selection, communication, process management, training and education, project management, legacy system management, system integration, system testing, cultural and structural changes. [...]... success in Vietnam The business processes are aligned with the ERP system which will improve organization performance Since ERP packages are based on best practices, ERP implementation will involve adapting the existing business processes to standard business processes of ERP Therefore, reengineering business process may influence positively o the hypothesis is: H3: Business Process Reengineering has... visits, in the Vietnamese context, interviewees all agree that master data quality, minimal customization, Business Process Reengineering (BPR), consultants, management and education and training are critical success factors on ERP implementation success in the Vietnamese context In conclusion, the pilot research results would help to create the main questionnaire that would be used in the main research... major factors on ERP implantation in the Vietnamese context 2.1 Key Concepts Since we are dealing with the subject of Enterprise Resource Planning, this is the key concepts in the study Kumar et al (2000) defined Enterprise Resource Planning (ERP) systems as configurable information system packages that integrate information and information-based processes within and across functional areas in an -based... 2.2 ERP implementation success Kyung et al (2001) showed that while some firms announced ERP implementation success, many others reported negative results of ERP implementation An ERP implementation failure may be fatal to a firm: either wasting enormous sums of money or destroying the competitive advantage of the firm To manage ERP implementation successfully, a high level ERP implementation success. .. impact on ERP implementation success in Vietnam Consultants have experiences in specific industries; comprehensive knowledge about certain modules may be better able to lead the project to success We suggest the following hypothesis: H4: Consulting vendor has a positive impact on ERP implementation success in Vietnam 21 Researches show that effective project management is critical to successful implementation. .. organizational fit of ERP might be worse in Asia, because the reference 14 process model underlying most ERP system is influenced by European or US industry/business practices, which are different from Asian business practices In this study, the author defines ERP implementation success from ERP implementation project perspective ERP implementation success, the dependent variable in the study, is not evaluated... direct or indirect control over to test their effects on a particular outcome In this research, the independent variables include implementation success factors as mentioned in the literature review which are master data quality, minimal customization, business process reengineering, consulting, management and education and training 20 As mentioned in the literature review, availability and timeliness... conducted by making an in- depth interview with five managers in some ERP implementing companies in Ho Chi Minh city in order to get their ideas about success factors and meaning of words using in the questionnaires The questionnaire is adapted from the literature and the field visits, as well as the comments gathered from the interviews In the next step, the sample is collected by sending questionnaires... research is to identify critical factors that affect ERP implementation in the Vietnamese context The lessons withdrawn from this study would be useful for consulting and implementing companies in their efforts to successfully implement an ERP system in Vietnam 1.4 Research methodology The purpose of this research is to identify the CSFs for ERP implementation in Vietnam by using the EFA method, hence both... responsible for ERP implementation success Thus, the hypothesis is: H6: Education and training has a positive impact on ERP implementation success in Vietnam In order to evaluate factors impact on ERP implement project in Vietnam, this study proposes a research model would be presented as bellow: 22 2.4.2 A suggested research model Master Data Quality Positive Minimal Customization Positive ERP Consultant . MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY LE THI KIM THOA FACTORS IMPACT ERP IMPLEMENTATION SUCCESS IN VIETNAM MAJOR: BUSINESS ADMINISTRATION. enterprises applying ERP. However, the number of Vietnamese enterprises applying ERP has risen up significantly currently. According to FIS -ERP - a consulting company, to install ERP system, Sino Pacific. researches about critical factors impacting ERP project‟s success in foreign companies. Bingi, et al. (1999) found the common critical success factors (CSFs) of ERP Implementation in ten criteria: top