measuring erp system success: a … erp system success: a respecification of the delone and...

MEASURING ERP SYSTEM SUCCESS: A RESPECIFICATION OF THE DELONE AND

MCLEAN’S IS SUCCESS MODEL

Kwang Su Wei and Dr. Alain ChongYee Loong

Faculty of Computing and IT, INTI International University College, Malaysia

Ying-Mei Leong and Keng-Boon Ooi

Faculty of Business & Finance, University Tunku Abdul Rahman

ABSTRACT

The implementation of Enterprise Resource Planning (ERP)

system has grown rapidly world-wide in recent years.

According to AMR Research, the globalization and

centralization, and the performance management as the key

drivers for continue ERP investment among the large

corporations and small companies. Therefore measuring ERP

systems success has been an important criterion for adopting

organization. This paper presents a re-specification to

DeLone and McLean’s IS success Model and empirically

examines it in ERP context. A conceptual model was

proposed by the comprehensive review of IS success

literature that attempted to evaluate the ERP system success.

Four dependent valuables (system quality, information

quality, vendor/consultant’s quality, and perceived ERP

benefits) were used in evaluating ERP system success. This

conceptual model and relationships will be tested and

validated using data gathering from small and medium

enterprises (SMEs) in Malaysia. The result provides an

expanded understanding of factors that measure ERP system

success and suggest a ways to improve the ERP system

usage.

Keywords— ERP system success, Delone and McLean,

SMEs in Malaysia

1. INTRODUCTION

The current business environment is getting more

competitive. With customers expecting better quality

products in a shorter period of time, many companies

increasingly are facing the challenges of operating efficiently.

Computers today are no longer just a tool for organizations.

By implementing IT technologies, organizations will be able

to operate more efficiently and effectively. One tools that are

implemented by organizations in respond to the current

demanding business world is Enterprise Resource Planning

(ERP). By implementing ERP, organizations will have more

real time real time visibility and control over their business

operation. According to Gupta (200), implanting ERP

systems is not an easy task. ERP systems are complex and

large and thus warrant careful planning and execution to

ensure their successful implementation (Gupta, 2000). ERP

brings many benefits. A properly implemented ERP system

will improve the efficiency and effectiveness of organizations

by through added value, automation, integration of business

processes, sharing of data and practices, and real-time

information (Ragowsky et al., 2005). More importantly, with

greater emphasis in supply chain management by

organizations, ERP system implementation will be an

important step for the integration of interorganizational

supply chains for the companies (Markus and Tanis, 2000).

Although the benefits of ERP is well publicized, the

usage of ERP system among Malaysian SMEs is still

considered new and low. According to Lian (2005), only

about 10 percent of SMEs in manufacturing have used ERP

system. With the Malaysian government placing great

emphasis IT and wanting companies to compete with lower

cost nations by being more efficient, the success of the ERP

systems adoption is considered an important issue for

Malaysian SMEs. However there is currently little research

on measuring the success of ERP system for adopting

organizations that has been carried out. Although past

literatures showed that several researchers such as Martin,

(1998), Markus and Tanis (2000), and Ifinedo, (2007) have

studied the implementation success of ERP systems in

adopting organizations, but there is little research which has

examined the impact of contingency factors on ERP system

success (Sedera et al., 2003; Wang and Chen, 2006). Most

current researches in the field of ERP implementation tend to

focus on the implementation success of ERP systems in

adopting organization (Gable et al., 2003; Ifinedo, 2006).

Due to the lack of current research on ERP system success as

well not having a validated conceptual model, we proposed a

re-specified DeLone and McLean’s IS success Model and

empirically examines it in the ERP context. This conceptual

model and relationships will be tested and validated using

data gathering from small and medium enterprises (SMEs) in

Malaysia.

The objective of this study to measure the ERP

system success factors among the SMEs in Malaysia by using

the re-specification DeLone and McLean’s IS success Model

and empirically examines it in ERP context. The objectives

of this study are:

• To measure the success factors of adopting ERP system

among the SMEs in Malaysia.

Symposium on Progress in Information & Communication Technology 2009

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• To validate the ERP system success conceptual model

and its extendibility to SMEs in Malaysia.

• To understand the state of ERP system in SMEs in

Malaysia.

Toward that end, the main purpose is to present an

extended ERP systems success measurement model or

framework that could be of use to organizations where such

systems are being adopted. Likewise companies could benefit

from this endeavor as we replicate and enhance knowledge in

this area of research study. Following is the research question

for this research study:

• What are the success factors of ERP system adoption?

• How ERP system success factors can be usefully

measured.

2. LITERATURE REVIEW

4.1. ERP System

ERP systems are one of the most prevalent forms of business

computing for large organizations in both private and the

public sectors (Gable, 2008). An ERP system link back-office

operations to front-office operations as well as both internal

and external supply chains through a suite of client/server

based application modules (Verville and Halingten, 2003).

An ERP system integrates various business activities in

companies such as human resources, marketing, production,

customer relationship management, finance into a single

system through the use of a share database.

There are many reasons why businesses are adopting

ERP. Some reasons include replacing existing legacy

systems, reducing cost and faster information transactions,

among others (Davenport, 1998; Hallikainen et al., 2004).

ERP system provides consistency and visibility or transparent

information flow across the entire enterprise which helps to

improve the business process efficiency and enhance the

competitive advantage of organization.

4.2. The evolution of ERP system

Evolutions of ERP systems have their roots back in

the 1960s. The focal point of manufacturing systems in the

1960's was on Inventory control. Most of the software

packages were designed to handle inventory based on

traditional inventory concepts include identifying inventory

requirements, setting targets, providing replenishment

techniques and options, monitoring item usages, reconciling

the inventory balances, and reporting inventory status.

The evolution of ERP systems started in the 1960s

when the main manufacturing systems in companies are

inventory control. At that time, the software main aim was to

manage inventory whereby the the main emphasizes were

placed on the activities of Bills of Material Processor

(BOMP)

In the 1970's most organizations shifted their focus

to Material Requirement Planning (MRP) systems. MRP

make use of software applications for preparation production

processes. With MRP systems, a master schedule which is

built for the end product is translated into time-phased net

requirements for the production activities such as

subassemblies, components and raw materials planning and

procurement.

In the 1980s, MRP moved to its second stage

whereby Manufacturing Resources Planning (MRP-II) was

developed and was an extension of MRP to utilize software

applications for coordinating manufacturing processes and

distribution management activities.

In the early 1990's, MRP-II started to cover a larger

area in businesses and included areas such as Engineering,

Finance, Human Resources, Projects Management etc i.e. the

complete of whole activities within any business enterprises.

These MRP II extensions are what are now known as ERP.

During the 1990s, Internet technologies start to

grow. The growths of Internet technologies have also

improved ERP systems. ERP vendors looked at their system

as an e-business suite which allows companies to add

additional modules and functions into their ERP systems as

their needs increased or business expanded. Such ERP

system for example, might help integrate e-commerce front

store of companies and link it to the companies’ CRM and

Supply Chain Management Systems. As Internet

technologies is low cost, and has a universal standard, the

Internet enabled ERP systems was able to allow customers to

gain unmediated access into their supplier’s ERP system

anytime, anywhere.

There are many ERP systems vendors in the market

today, but, however only a handful of them share the ERP

market which dominates about 60 percent of it. These

vendors are People Soft, Oracle, SAP, BAAN and JD

Edwards which had its own prominent characteristics. Figure

1 shows the evolution of ERP. Figure 1 below provides

shows the evolution of ERP.

Figure1: The Evolution of ERP

4.3. Small and Medium Enterprises (SMEs) in Malaysia

Small and medium enterprises (SMEs) in Malaysia play a

vital role to support the nation’s economy. Given that

majority of companies in Malaysia are SMEs, these SMEs

strengthens Malaysia’s industrial base as well as providing

the necessary supports for industries to enhance Malaysia’s

development across the economic sectors.

At presence there is no consistent definition of SMEs in

Malaysia. According to the Small and Medium Industries

Development Corporation (SMIDEC), SMEs is defined as


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enterprises with annual sales turnover not exceeding RM25

millions or with full-time employees of not exceeding 150.

Bank Negara Malaysia (Central Bank), defined SMEs as

enterprises with shareholders funds of less than RM10

million (NSDC, 2005). One of the main problems with the

lack of uniform definition for SME is that it became difficult

to collect and compile uniform SME data for study which

involves the assessment of development needs and business

performance of various economic sectors in Malaysia. The

NSDC in 2005, introduced a new definition for SMEs that

covers the manufacturing, manufacturing related services,

primary agriculture and services sector (NSDC, 2005). This

new definition is still based on the annual sales turnover and

number of employees of the SMEs and can be summarized as

shown in Table 1.

Table 1: Definition of SMEs in Malaysia In Terms of Annual

Sales Turnover and Full Time Employees

(Source of Data: National SME Development Council

(2005), SME Annual Report)

4.4 ERP in SMEs Malaysia

When compared to many developed nations, the

implementation level of information and communications

technology (ICT) among Malaysian SMEs remain low and

the IT implementation among Malaysian SMEs is consider to

be at a a very basic level although over the past few years,

there has been some improvement (Manecksha, 2003). Given

the current competitive business environment, many SMEs

have started to invest in ERP to improve their business

processes.

In 2002, to encourage Malaysian SMEs to

implement ERP, SMIDEC started giving out loans to SMEs

for adoption of ERP under the E-Manufacturing Grant

scheme. The aim of providing such loans to Malaysian

SMEs is to improve productivity, competitiveness and

efficiency of the SMEs. Given that SMEs forms a vital part of

the Malaysian economy sector, the Malaysian government

knows that ERP is a critical business-enabling tool for SMEs,

especially those serving multinational corporations.

Therefore the Malaysian government, through SMIDEC,

gave out RM150, 000 of matching grants to SMEs that

wanted to adopt ERP.

A study was conducted in 2004 by NPC on selected

manufacturing companies that had implemented ERP. The

study sought to assess the impact ERP implementation by

these companies (Productivity Report 2004). Respondents in

general agreed that ERP’s benefits include providing a better

management tools which enhance their competitiveness and

increase customer satisfaction. The results from the study

support the importance of ERP systems for Malaysian SMEs

to retain competitiveness. One challenge however, is that the

cost of ERPs is still extremely high for many Malaysian

SMEs. However, for the Malaysian SMEs, such initial high

cost will be offset in the long run as they will be able to save

cost and have a more efficient and effective business

processes. For Malaysian SMEs, issues and delays in ERP

implementations will be a major problem hindering the long

term success of ERP adoption. Therefore, ensuring a quality

ERP system after it was implemented is important to SMEs.

4.5. DeLone and McLean’s IS success Model

The DeLone & McLean IS Success Model has become a

standard for the specification and justification of the

measurement of the dependent variable in information

systems research. The measurement for IS success has neither

been entirely crystalline nor precisely outlined because IS

success is a multidimensional concept that can be assessed at

various levels. In 1992, DeLone and McLean made a major

discovery where they conducted a comprehensive critique of

IS success literature and proposed a model of IS success as

shown in Figure 2.

Figure 2: McLean’s IS success Model 1992

(Source: DeLone & McLean, 2003)

This McLean’s IS success model identified six interrelated

dimensions of IS success. The model suggested that the

success can be represented by the system quality, the output

information quality, consumption (use) of the output, the

user’s response (user satisfaction), the effect of the IS on the

behavior of the user (individual impact), and the effect of the

IS on organizational performance (organizational impact).

McLean's model recommended the causal and temporal

interdependencies between these six dimensions and supplied

a strategy for classifying the masses of IS success measures.


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DeLone and McLean’s paper provided some conclusions.

Firstly, they called for a careful study on the definition and

measurement of the dependent variable proposed in their

model. In particular, the measurement of the interactions

among the success dimensions is needed so that the effects of

the independent variables with the dependent variable can be

isolated. Secondly, DeLone and McLean also stated that

although the success dimensions and measurement should be

selected based on empirical study and based on objectives, it

is prefably that when possible, tested and proven measures

should be selected.

Thirdly, there is a need to reduce the number of

measures for IS success and the measure should be

consistent. By having consistent measures, different

researchers are able to compare their results and validate their

findings.

Fourthly, there should be more field-study research

which investigates and incorporate measurement to study the

impact of organizational factors.

Lastly, there is a need to further expand and validate

the model so that the model can be used in other IS success

study.

As the IS success model that was originally

proposed needed further validation, DeLone and McLean

also proposed an updated model. This is shown in Figure 3.

The primary differences between the original and updated

models included:

1. They have added the service quality variable to show the

importance of service and support in successful eecommerce

systems,

2. Adding a measure for user attitude, i.e. intention to use

3. Organizational and individual impact flops lead to a

greater ungenerous final performance construct.

Figure 3: Reformulated McLean’s IS success Model 2003

(Source: DeLone & McLean, 2003)

The categories of the updated taxonomy were system,

information, and service quality, intention to use, use, user

satisfaction, and net benefits (Delone & McLean, 2003).

4.6. A conceptual ERP system success model

DeLone and McLean’s integrated, multi-dimensional, and

inter-related IS success model is now one of the most used

and cited model for IS evaluation research. This research

concentrates on four specified dimensions of ERP system

success (system quality, information quality,

vendor/consultant quality, perceived ERP benefits) in order

to build and extend on the DeLone and McLean model. The

empirical measures behind each of the dimensions in the

model were strengthened by conducting exiting studies that

had specific linkages to ERP system success. This is shown in

Figure 4.

Figure 4: The conceptual ERP system success model

In the literature, the model to measure the success of DeLone

and McLean (1992) is widely accepted. For example, in the

case of ERP, and using DeLone and McLean's model, Gabel

and colleagues developed a new model that redefines the

dimensions in the original Delone and McLean IS model by

removing variables such as the Use and User satisfaction

dimensions through statistical analysis. In 2003, DeLone and

McLean pointed out two major changes to their original

model where the first emphasize is to combine the individual

impact and organizational impact into one property known as

net benefits, and subsequently, added the service quality

property. In our proposed model, ERP success is measured in

four dimensions:

System Quality

System quality focuses on the ERP’s characteristics. Some of

the chararteristics associated with system quality include

productivity, portability, reliability and ease of use (Ramirez

and Ancha, 2005). Given that the system quality is found to

be an important factor and has a positive impact on perceived

ERP benefits which is necessary for the ERP system success

adoption for the SMEs. Therefore, we hypothesized:

H1. System quality is positively associated with user

perceived ERP benefits.

Information Quality

Information Quality is different from the system quality as

system quality focuses on the characteristics of the

information that is produced by the system. These

information are primarily in the form of reports.

Information quality is measured based on whether the report

is usable, concise, comprehensible, pertinent, available, and

in a correct format (Ramirez and Ancha, 2005). Therefore,

we propose the following hypothesis:


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H2. Information quality is positively associated with user

perceived ERP benefits.

Vendor/Consultant Quality

For this vendor/ consultant quality dimension, we have

decided to group both vendors and consultants together as

they represent an external source of expertise to the

organization with regards to ERP implementation, and in

some instances an organization may deal with one entity

representing both. Sedera and colleague found that

“consultant and vendor items loaded together yielding a new

factor named External knowledge player.” (Sedera et al.,

2003). Also, when the implementations of such systems go

awry both the vendor and consultant face a similar penalty

(Markus and Tanis, 2000). The factors vendor/consultant

trustworthy, reliability, responsiveness, assurance and

experience are considered determinants for the service

quality.

H3. Vendor/ consultant quality is positively associated with

user perceived ERP benefits.

Perceived ERP Benefits

For companies, one of the most basic desired outcomes of

implementing ERP is to have benefits when compared to

existing ways of doing things. Thus for organizations, in

order for them to feel that the ERP system is successful, the

least that is expected is to have some benefits. Such benefits

can include reduction in costs, better flow of information,

reduction of redundant data by different departments, better

coordinations of business proceeses and so forth. These

benefits will improve business’s operational capacity as well

as helping organizations to reach their business goals

(Ramirez and Ancha, 2005). Therefore, we hypothesized:

H4. The perceived ERP benefits are positively associated

with ERP systems success.

3. RESEARCH DESIGN

This research study is divided into three phases (as shown in

Figure 5). In the first phase, the research problem is identified

by constructing research questions. This is followed by a

comprehensive and detailed literature review which will

allow us to understand more on the topics that are related to

this study, and at the same time identify gaps in exiting

studies such as the measurement of IS success and the

appropriate research method to be used. With the discussions

in literature review, the research framework is developed to

examine relationship between system quality, information

quality, vendor/consultant quality, perceived ERP benefits

and ERP system success for adopting SMEs in Malaysia.

The second phase of the research is the survey

phase, which starts with a conducted pilot study to verify the

draft survey instrument. A selected number of respondents

will be asked to answer the survey instrument. We will select

respondents who are senior executives or managers of the IT

departments. The respondents are also asked to provide

feedback regarding the survey, to draw attention to confusing

words, tenses, terms etc. An item analysis will be conducted

to look at the reliability of the instrument. Cronbach’s alpha

will be used to test the reliability of the instrument. Item

distribution may also be considered to observe the variation

of the collected data. From the reliability results and feedback

from the respondents, the instrument will be revised if

necessary. Once the instrument is verified successfully, the

questionnaire survey will be distributed to the target

respondents. The target sample of this study is the ERP users

in the SMEs in Malaysia. The selected sample must fit the

definition of SMEs and currently using the ERP system in the

organization. The questionnaire survey will be administered

to the respondent as an email attachment or online survey.

Before distributing the survey, we will inform the

respondents in terms of ethical clearance, privacy, and

confidentiality issues regarding the survey. Necessary phone

calls will be carried out if the survey is not return after 2

weeks. Once we have received the survey, we will check the

data collection forms to ensure that all survey is valid. We

will use SPSS to anlze the data in this research. The data is

then analyzed using descriptive statistics as well as

appropriate multivariate data analysis to test out the model.

Figure 5: The Research Design

4. CONCLUSION

This paper provides a review and overview of a current on

going research work. Although ERP is no longer consider a

new IT tools, many SMEs in Malaysia are still unaware of

ERP or are not willing to invest money to implement ERP.

In this paper, we have adapted Delone and McLean (2003)’s

model and proposed a conceptual model to investigate the

ERP system success. Our model proposes that factors such


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as system quality, information quality and vendor/consultant

quality will have a positive association with ERP perceived

benefits. The perceived benefits of ERP will also have a

positive influence on the ERP system success of Malaysian

SMEs.

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