A profile of ERP adoption inmanufacturing SMEs

Louis Raymond and Sylvestre UwizeyemunguInstitut de recherche sur les PME, Universite du Quebec a Trois-Rivieres,

Trois-Rivieres, Canada

Abstract

Purpose – This paper seeks to build and validate a typological profile of manufacturing small tomedium-sized enterprises (SMEs) in regard to their eventual adoption of an enterprise resourceplanning (ERP) system, based on the predisposition of their environmental, organizational, andtechnological context.

Design/methodology/approach – Provides cluster analysis of secondary questionnaire dataobtained from a benchmarking database of 356 Canadian manufacturing SMEs.

Findings – Three types of SMEs were obtained: 140 “internally predisposed” SMEs, 60 “externallypredisposed” SMEs, and 156 “unfavourably disposed” SMEs.

Originality/value – Provides a valid framework for analysis that can serve ERP vendors andconsultants, as well as SME owner-managers, the first to better target their offer of products/services,and the second to better position their firm before contemplating the implementation of an ERPsystem.

Keywords Manufacturing resource planning, Integration, Small to medium-sized enterprises,Computer integrated manufacturing, Advanced manufacturing technologies

Paper type Research paper

1. IntroductionAn analysis of the expanding roles being assigned to information systems (IS) showsthat they have gradually spread to all organizational levels and to all forms of businessmanagement, affecting a greater number of users and managers. However, thedevelopment of IS has followed the different operational units or functions of theenterprise, each function developing its own applications to such an extent that varioussystems coexisted in the same business without there necessarily beingcommunication between them. This meant the existence of “informationalfragmentation” (Muscatello et al., 2003) or of “functional silos” (Beretta, 2002), withall that this implied in terms of dysfunction, redundancy, and waste. The need for ISintegration thus became more and more urgent. This is when enterprise resourceplanning (ERP) systems, or more recently enterprise systems (ES), were perceived byvarious organizations as a solution to this problem.

If the first implementations of ERP occurred in large enterprises (LE), the demandfor such systems in small and medium-sized enterprises (SME) has mushroomed inrecent years (Everdingen et al., 2000; Greenemeier, 2001). However, these systemsremain linked with large-scale organizations to such an extent that their adoption bythe SME resembles an incursion into the world of the large firm, an incursion thatrequires some foresight. White (1999) speaks of ERP systems for the SME as a large

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The authors would like to thank the Canada Research Chairs Program and the CanadaFoundation for Innovation for their financial support of this research.

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Journal of Enterprise InformationManagement

Vol. 20 No. 4, 2007pp. 487-502

q Emerald Group Publishing Limited1741-0398

DOI 10.1108/17410390710772731

enterprise solution for small businesses, and Pender (2001) suggests that the challengeto SMEs confronting ERP is to learn how to deploy the technology of large enterpriseswithout incurring their expenses.

Even if we are aware of the evident interest shown by SMEs and ERP vendors forthe development of enterprise systems that are better adapted (Gable and Stewart,1999; Greenemeier, 2001), we do not know very much about the profile of SMEs likelyto adopt them. We are also unaware of the typical traits of SMEs that would allowthem to implement ERP with a good a priori chance of success. The answer to thesequestions is of obvious interest. First, the ERP system vendors and consultants willbetter adapt their offer to the SMEs who might eventually be interested. Moreover, tobetter prepare SMEs to adopt and effectively exploit ERP systems, it is necessary totarget specifically those that show the required profile. The SMEs for their part willknow if they meet the essential conditions that would make the adoption andexploitation of an ERP system less risky.

The aim of the present study is first to propose the elements of the required profilefor SMEs likely to successfully adopt an ERP system. It also initiates a partial test ofthis profile by comparing it to actual characteristics of the environmental,organizational, and technological context of 356 Canadian manufacturing SMEs.

2. Conceptual foundationThere are potentially many factors that can motivate or persuade SMEs to adopt anERP system. While the ERP phenomenon has long been associated with largeenterprises, we do not find many empirical studies dealing specifically and in depthwith the ERP adoption factors in SMEs. Indeed, Ariss et al. (2000) lament the absenceand/or the fragmentation of the research on the factors that influence the introductionof modern technologies in small businesses, despite the admittedly crucial role thesefactors play in the survival of these businesses. It is however possible to study theseERP system adoption factors by having recourse to the literature dealing with ITadoption factors in general, and on the incentives for ERP system adoption inparticular.

Examining the factors that influence the decision to adopt advanced manufacturingtechnology in SMEs, Ariss et al. (200) proposed the following classification:

. factors related to the product/market (improvement of product quality,improvement in product design);

. financial reasons (cash flow, availability of financing, government programs offinancial assistance);

. managerial and organizational reasons (strategic orientation with regard totechnology, exposure of management to technology, relations betweenmanagement and employees, competence of employees, increase inproductivity); and

. factors related to the sector of activity (competitiveness in terms of cost,environmental requirements).

When compared to earlier classifications (Grover and Goslar, 1993; Cooper and Zmud,1990), the last one added certain interesting elements in the SME context: financialconsiderations, given the often prohibitive cost of new technologies, especially ERP,

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and the limited means of SMEs, and managerial factors such as the strategicorientation regarding technology and the exposure of management to this technology,factors that, in the case of SMEs, can be grouped with individual factors, given theconcentration of decision-making vested in the entrepreneur or the owner-manager.

As have already noted Cooper and Zmud (1990), most studies on the implementationof IT consider these technologies in a general fashion, and thus do not emphasize thespecific technological characteristics of one IT in particular. It is to avoid this limitationthat in the present study, which deals specifically with ERP systems, the factorsmentioned above are reanalyzed in a context of ERP system adoption by SMEs. Inorder to do so, reference is made to studies having to do with the motivations for ERPsystem adoption. Indeed, we could try to establish the profile of SMEs likely to adoptan ERP system by starting from the analysis of the reasons that lead to this adoption.

The question of the motives for ERP system adoption has been taken up in differentstudies (Oliver and Romm, 2000; Ross, 1999), with some dealing specifically with SMEs(Dolmetsch et al., 1998; Oliver and Romm, 1999; Gable and Stewart, 1999). Oliver andRomm (2000) divide the factors that determine the investment made in seeking outinformation with a view to an eventual ERP system adoption into three categories:

(1) The need to improve the performance of ongoing operations.

(2) The need to integrate data and systems.

(3) The need to avoid a competitive disadvantage or to avoid that a business riskbecomes critical.

Ross (1999) classifies the reasons for ERP system adoption into three categories:

(1) Infrastructure.

(2) Capability (improvement of processes, data visibility).

(3) Performance (cost reduction, strategic decision making, adaptability to clientrequirements).

Furthermore, she demonstrates the overlapping character of these reasons: the newintegrated enterprise systems infrastructure makes it possible to acquire newcapabilities, which in turn are supposed to allow the business to generate improvedresults. For Dolmetsch et al. (1998), the reasons for using standard integrated softwarepackages can be traced back to corporate strategy, business processes, or ISapplications. In a study having to do with medium-sized non-profit organizations,Oliver and Romm (1999) propose that these organizations adopt ERP systems for gainsin efficiency or for technical, economic, or strategic reasons.

Caldas and Wood (1999) call for a broadened perspective to comprehend the ERPphenomenon, thereby removing it from the technological reductionism anddeterminism that have tended to characterize it previously. Hence, they proposethree groups of factors that, either alone or in interaction in a complex dynamicprocess, influence the adoption, the implementation, and the evaluation of ERPsystems in an organization:

. substantive factors;

. institutional factors; and

. political factors.

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Substantive factors include the actual requirements, problems, or opportunities thatorganizations face and for which ERP systems are an adequate response. Institutionalfactors refer to all external forces present in the organizational environment that applypressure for the adoption of ERP systems, which are often presented as a “panacea”.Political factors reflect the interests of the various power groups within theorganization.

With regard to the adoption of computer-integrated systems, a taxonomy has beendeveloped by Forest (1999) who categorizes the firm’s system needs on the basis of itstype of production. Firms whose production process is characterized by high inputdiversity (e.g. many kinds of raw materials) but low output diversity (e.g. few types offinished goods) will concentrate on better managing their supply chain, thus opting forMRP type systems. Those with low input diversity but high output diversity, requiringadvanced manufacturing technology, will focus on better control of theirmanufacturing process and thus adopt production scheduling systems. Whereasfirms who type of production is characterized as “make-to-order” must conciliateoutput diversity with a flexible manufacturing process (Koh and Simpson, 2005), hencethe need for an ERP type of system that integrates both supply chain management andproduction scheduling.

The preceding review of the literature leads one to conclude that little is known as tothe environmental, organizational, and technological factors that actually predisposeSMEs to adopt an ERP system. While some insights can be gained from studies of ITadoption in general, the previously-cited studies of ERP adoption in SMEs havefocused on the “generic” motivations or predispositions associated with the purportedbenefits or advantages to be obtained from ERP systems. While these are the a priori orprescriptive reasons for which a SME is ready to adopt ERP, the a posteriori orempirical reasons such as pressure from customers, the availability of resources andexpertise, and the existing level of computer-integrated manufacturing have yet to beexamined in depth.

3. Research modelWhile researchers have categorized in various ways the motivations that leadorganizations to adopt an ERP system, an analysis of these categories shows that themotives put forward are quite similar from one study to another (Oliver and Romm,1999; Ross and Vitale, 2000; Stewart et al., 2000). In the present study, thesemotivations are of interest to the extent that we can deduce from them, as acomplement to IT adoption and assimilation factors, the characteristics of themanufacturing SME’s environmental, organizational and technological context thatmay lead it to adopt an ERP system. A number of studies have in fact successfullyused Tornatsky and Fleischer’s (1993) technology-organization-environment (TOE)framework to explain the adoption and assimilation of information technology,emphasizing three groups of determinants or predictors:

(1) Characteristics of the environmental context such as external pressures fromthe firm’s business partners.

(2) Characteristics of the organizational context such as the firm’s structure andresources.

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(3) Characteristics of the technological context, including the computer-integratedmanufacturing technologies already implemented by the firm (Raymond et al.,2005).

3.1 Environmental context

The adoption of an ERP system can be the result of pressure exerted on the enterpriseby its environment. On this subject, the SME cases studied by Dolmetsch et al. (1998)are very revealing. A business that operates in a market very sensitive to pricevariations cannot afford high margins, and it depends on its IS for tight control of itsproduction costs; it is a matter of cost transparency, and integrated systems are meantto satisfy this preoccupation (Dolmetsch et al., 1998). An enterprise operating in astrong growth market is made to reconsider its business processes in order to deal withits rapidly increasing size; the same is true of a business operating in a very dynamicsector, such as in high technology: the need to react rapidly to change accentuates theneed for integration (Chalmers, 1999; Dolmetsch et al. 1998). That is similar to theenvironmental uncertainty construct, measured in its three components, heterogeneity,dynamism, and hostility (Grover and Goslar, 1993).

The need to optimize the supply chain is one of the factors that lead to theadoption of an ERP system: large manufacturing companies exert pressure ontheir suppliers, mainly SMEs, so that they will meet world standards in terms ofcost, efficiency, and quality; this very often obliges these SMEs to restructure theirprocesses, and in so doing they generally need an ERP system capable of real-timesharing of detailed information with their partners in the value chain (Chalmers,1999). It is in fact the existence of very close logistical links between an SME andits business partners that creates an urgent need for integration (Dolmetsch et al.,1998). It is perhaps the absence of these links in the SMEs studied by Bernroiderand Koch (2001) that may explain why these firms considered extra-organizationallinks with clients and suppliers less relevant in the process of selecting an ERPsystem, even though “extended” enterprise systems are specifically meant tointegrate these links (Møller, 2005).

The status of a business expressed in terms of independence from or affiliation witha group or network of firms is significant in the adoption of technology (Julien andRaymond, 1994). For an SME to be part of a larger group leaves it practically no otherchoice than to adopt an integrated system of the same type as that adopted by thegroup (Dolmetsch et al., 1998). It also seems that the relational environment of smallbusiness managers exerts a dominating influence on their decision on whether or not toadopt IT (Monnoyer-Longe, 2002): this influence comes from individuals withincommunities marked by informality and trust rather than by structure as is the casefor large firms.

To summarize, we could express the effects of the environmental context as follows:

. SMEs operating in a price-sensitive market will be more predisposed to adopt anERP system.

. SMEs operating in a very dynamic sector or in a high-growth market will bemore predisposed to adopt an ERP system.

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. Close logistical links between SMEs and their business partners(partnership-network) would necessitate the integration of information in thevalue chain, thus increasing their motivation to adopt an ERP system.

. Membership or affiliation of SMEs in a network of business partners willmotivate them to adopt an ERP system.

3.2 Organizational contextThe introduction of an IS can be seen as the diffusion of technology in a social system(Stewart et al., 2000). It is then important that there be adequate alignment between thetechnological and organizational requirements. This explains why the congruence orfit between an ERP system and the organization’s processes heads the list of criteria inthe selection of an ERP system for SMEs (Everdingen et al., 2000). This congruenceallows the SMEs to avoid the shock of an in-depth process re-engineering. Thissuggests that the nature of business processes of in a SME will weigh heavily in itsdecision to adopt an ERP system: if business processes are very idiosyncratic, there ismuch less of finding ERP software on the market whose design fits the organization.

Studies show that for SMEs, the affordable cost of software packages and shortimplementation times are among the most important selection criteria (Bernroider andKoch, 2001; Everdingen et al., 2000). Ariss et al. (2000) note the importance of cash flowand access to financing, whether by way of financial institutions or throughgovernment subsidies, in the decision to adopt advanced technologies for SMEs. Infact, Buonanno et al. (2005) found financial constraints to be the main cause of thenon-adoption of ERP systems among SMEs. In circumstances of acute scarcity ofresources (qualified manpower, technical capacity, time), management is less inclinedto invest in long-term IT projects, worried are they to obtain visible short-term gainsfrom their investments in ERP (Gregory, 1993).

In a study analyzing the differences between medium-sized enterprises and largeones in the matter of defining the needs and selection in the implementation of theirERP system, Bernroider and Koch (2001) report that criteria relative to flexibility (e.g.increase in organizational flexibility, improvement of processes, and improvement ofthe capacity for innovation) were judged aspects of lesser importance by SMEs,probably because these firms already have a tendency to be more flexible and thusthere is no need to resort to an ERP to achieve this. We could then conclude that thedegree of organizational flexibility plays a significant role in the decision to adopt ornot an ERP system.

Size, centralization, formalization, and specialization are some of the elements listedin the category of organizational factors in studies on IT adoption. On size, we couldsuppose that the larger the organization, the greater will be its resources to facilitatethe initiation, adoption, and implementation of new technologies (Grover and Goslar,1993). Specialization is defined as the diversity of technical specialists within theorganization: thus, it is taken into account in the availability of resources.Centralization, defined as the degree to which the decision-making power isconcentrated, is taken up in the individual factors. Formalization would correspond toadministrative or bureaucratic complexity (Gregory, 1993). The relation betweenformalization and IT adoption is ambivalent: on the one hand, the effect of thebureaucracy would handicap innovation initiatives (Gregory, 1993), but on the other,bureaucratic complexity would lead to the search for a solution through IT (Julien and

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Raymond, 1994). Since enterprises are often motivated by the need for data visibility(Ross, 1999), the relationship between formalization and adoption in the specific case ofthe adoption of an ERP system tends to be considered, that is, in an institutional sense.

To summarize, we could state the effects of the organizational context as follows:. SMEs having very idiosyncratic production processes will be less predisposed to

adopt an ERP system.. SMEs in a situation of (human, technical, and financial) resource scarcity will be

less predisposed to adopt an ERP system.. SMEs with greater flexibility will be less predisposed to adopt an ERP system.. Larger, more decentralized SMEs will be more predisposed to adopt of an ERP

system.. Greater formalization will predispose SMEs to adopt an ERP system.

3.3 Technological contextThe need to improve the performance of ongoing operations is an important incentivefor the adoption of ERP systems (Oliver and Romm, 2000; Ross, 1999). This need oftenfollows an awareness of the limits of existing systems (inefficiency, inflexibility), aswas the case with a good number of enterprises at the time of the Y2K bug (Dolmetschet al., 1998) or the switch to the euro in the countries of the European Union (Kennerleyand Neely, 2001). The expiration of a maintenance contract for an existing “legacy”system can also motivate a business to contemplate moving on to a more moderntechnology (Dolmetsch et al., 1998). The other incentive lies in the need to integratedata and systems: IS were historically developed as an answer to functional needs,which resulted in a multitude of applications with problems of incompatibility(systems that could not communicate with one another), of duplication (the samedatum is entered several times), and of costly support (Oliver and Romm, 2000). Theintegration of data and systems then turns out to be an urgent necessity.

Considering the preceding, the elements of the profile that can be extracted withrespect to a technological context could be expressed as follows:

. SMEs confronted with the obsolescence (inefficiency, inflexibility, disintegration)of their “legacy” manufacturing information systems will be more predisposed toadopt an ERP system.

. SMEs that have implemented and assimilated more advanced and integratedmanufacturing technologies and applications such as CAD/CAM, FMS, andMRP-II will be more predisposed to adopt an ERP system.

4. Research methodologyIn comparing the literature having to do with both the factors for adoption of IT andthe motivations for adopting ERP systems, the present study has established atheoretical profile of SMEs likely to do so. The comparison of this profile with thecharacteristics of manufacturing SMEs in the PDG (performance, development,growth) database provides us with an outline of the actual ERP adoption profile ofthese SMEs. This database was developed by a university research laboratory incollaboration with an association of over 850 manufacturing SMEs. It now consists ofdata on 356 Canadian manufacturing SMEs, whose number of employees range from 7to 405, with a median of 42. More than 15 industrial sectors are represented, including

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metal products (30 percent of the enterprises), wood (14 percent), plastics and rubber (9percent), electrical products (8 percent), food (7 percent), and machinery (5 percent).These enterprises are fairly representative of Canadian manufacturing SMEs in so faras size and industry are concerned.

The database was created by having the SMEs’ chief executive and functionalexecutives such as the controller, human resources manager, and productionmanager fill out a questionnaire to provide data on the practices and results oftheir firm and add their firm’s financial statements for the last five years.Anonymity and confidentiality is preserved by having the questionnaires transitthrough the industry association so that firms are known by the research centeronly by an alphanumeric identifier assigned by the association. Once all thequestionnaire data and financial statements have been manually verified by theresearch center’s personnel, they are typed in via validation software and enteredin the PDG database as valid data, ready for benchmarking. In exchange for thesedata, the firms are provided with a complete comparative diagnostic of theiroverall situation in terms of performance and vulnerability (further information onthe PDG diagnosis system and on data collection and validation can be found inSt Pierre and Delisle, 2006).

Figure 1 illustrates the research model based on the TOE framework anddeveloped by taking into account variables of the theoretical profile that can betraced in one form or another in the PDG database. Hence, given the secondarynature of the research data, not all of the variables of the theoretical profile wereincluded in the research model, and others are apprehended indirectly. As anexample of such a variable, type of production (“make-to-order” mode as opposedto “make-to-stock”) gauges the flexibility needed by a SME, in the absence of dataon the nature of its sector of activity (e.g. dynamism, market growth rate, pricesensitivity). To render operational the various variables retained, the present study,for obvious reasons of comparison, was limited to the definitions adopted in thePDG database.

Table I presents the research variables retained, their operational definitions, andthe principal source in previous empirical work from which they were taken oradapted. For the dependent variable, the study uses the advanced manufacturingtechnologies taxonomy developed by Brandyberry et al. (1999). In this taxonomy, thetechnologies are divided into three categories according to their degree of integration:

Figure 1.Research model

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the first category comprises “stand-alone” technologies such as industrial robots,computer-assisted design (CAD), numerical control machines (NC), and automatichandling of materials; the second is that of the functionally-oriented technologies, thatis, computer-assisted manufacturing (CAM) and flexible manufacturing systems(FMS); and the third comprises integrated technologies and systems of thecomputer-integrated manufacturing (CIM) type, including CAD/CAM, MRP, MRP-II,and eventually ERP. We can see that an SME whose technologies are in the thirdcategory has already shown a clear interest for the advantages offered by an ERPsystem, integration being the principal feature of such systems.

Table II illustrates the presence of different technologies in the SMEs studied, aswell as their own estimation of the degree with which they have assimilated thesetechnologies. ERP systems and preceding computer-integrated systems such asmaterials requirements planning (MRP), MRP-II (“manufacturing resource planning”),are not very present: in 18.5 percent of the sampled firms for MRP, 12 percent forMRP-II, and 8 percent for ERP.

5. Results and discussionCluster analysis was used to group the SMEs on the basis of their principalmotivations for adopting ERP. The SPSS TwoStep algorithm was used as it can handlea large number of cases and determine the optimal number of clusters, three here, asshown in Table III.

Looking at the results presented in Table III, the first cluster comprises 140manufacturing SMEs that can be characterized as “internally predisposed” to adopt anERP system. In terms of their environmental context, firms in this first group are

Variable Operational definition (source)

Environmental contextCommercial dependence Percentage of sales to the three principal customers (Freel, 2000)Networking intensity No. of design/R&D, production, marketing, and distribution

partnerships with prime contractors, customers, suppliers,competitors, research centers, colleges and universities, and otherSMEs (D’Amours et al., 1999; Sohal et al., 1998; Yuan-Chieh, 2003)

Organizational contextSize No. of employeesAdministrative intensity No. of managers/No. of employees (Damanpour, 1991)Type of production Percentage of production in “make-to-order” mode (Mechling

et al., 1995)Operational capacity Perceived attainment of production objectives having to do with

quality, flexibility, and cost reduction (King and Ramamurthy,1992)

Innovation capacity Percentage of sales attributable to new or modified products(Freel, 2000)

Financial capacity Average net margin for the last three years (St Pierre, 1999)

Technological contextCIM systems assimilation Proficiency in the use of CAM, CAD/CAM, FMS, MRP, MRP-II,

ERP (Brandyberry et al., 1999)

Table I.Operational definition of

the research variables

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characterized on average by a higher level of commercial dependence than the othertwo groups, and by networking that is significantly less intense than the second groupand relatively similar to the third group. These SMEs distinguish themselves howeverby their organizational context, in that they show the greatest operational capacityamong the three groups in terms of production quality, cost reduction, and flexibility.Note that in the case of flexibility, this difference is significant with the third groupwhereas it is not with the second. Similarly, “internally predisposed” firms show thehighest capacity for innovation in terms of designing new or modified products. Again,this difference is significant with regard to the third group but not with the second.Finally, these SMEs have assimilated CIM systems to the same extent as the secondgroup, but to a much higher extent than the third group.

The second group comprises 60 SMEs characterized as “externally predisposed” toadopt ERP. These firms are on average significantly less dependent on a few majorcustomers than the second group, but more so than the third group. They showhowever a higher propensity for networking than the other two groups, havingestablished a significantly greater number of design/R&D, marketing, and distributionpartnerships with business partners. Firms from this group are also of greater sizethan the other two, and are more decentralized than the third group with regard toadministrative intensity.

The 156 SMEs that constitute the third cluster are qualified as “unfavourablydisposed” to adopt an ERP system. These are firms whose environmental,organizational and technological contexts make it less conducive to an ERP

Manufacturing systems Presence (%) Assimilation *

Manufacturing technologiesComputer-aided drafting 61.2 4.0Computer-aided design (CAD) 40.7 3.9Programmable automata 37.9 4.0Numerical control machines (NC) 34.6 4.1Computer-assisted manufacturing (CAM) * * 33.1 3.8CAD/CAM * * 27.0 4.0Robotized operations 21.1 3.9Flexible manufacturing systems (FMS) * * 19.4 3.4Automated handling of materials 17.4 4.0

Manufacturing applicationsComputer-based inventory management 62.4 3.4Computer-based production scheduling 34.6 3.3Computer-based bar-coding 26.1 3.4Electronic data interchange (EDI) 24.2 3.3Materials requirements planning (MRP) * * 18.5 2.9Computer-based maintenance management 16.6 2.6Manufacturing resource planning (MRP-II) * * 11.8 2.8Enterprise resource planning (ERP) * * 7.8 3.4

Notes: *Perceived level of proficiency in the technology or application used (low: 1, . . ., 5: high);* *Selected to determine the level of assimilation of computer-integrated systemsSource: Brandyberry et al. (1999)

Table II.Degree of presence andassimilation of CIMsystems

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implementation in the short term. When compared with the other two groups, thesefirms have the lowest level of commercial dependence, that is, their customer base ismore diversified, and they are the least networked in terms of marketing, productdesign, and R&D partnerships.

Firms in this last group also require less flexibility as a lower proportion of theirproduction is done in “make-to-order” mode. In line with this environmental context isthe significantly lower operational capacity that characterizes these SMEs in terms ofproduction quality, cost reduction, and flexibility. Their organizational context is alsocharacterized by less administrative intensity, that is, less delegation ofdecision-making, and a lower capacity for innovation, that is, a lower proportion ofsales attributed to new or modified products. Finally, SMEs qualified as “unfavorablydisposed” to adopt ERP show a much lower level of CIM systems assimilation; thesefirms are much less proficient in the use of computer-integrated manufacturingtechnologies and applications such as CAD/CAM, FMS, and MRP-II.

Returning to Table III, it is also worth noting that there is no difference in financialcapacity among the three groups. This could be tentatively interpreted as meaning thatthe availability of financial resources is much less important than human resourcesand competencies in ascertaining a SME’s predisposition. In summary, the “internallypredisposed” SMEs should be strongly inclined to adopt ERP, based on theircommercial dependency, type of production, administrative intensity, strongoperational capacity, strong innovation capacity, and high level of CIM systems

Variables

All SMEsmean

(n ¼ 356)

Internallypredisposed

mean(n ¼ 140)

Externallypredisposed

mean(n ¼ 60)

Unfavorablydisposedmean

(n ¼ 156) ANOVA F

Environmental contextCommercial dependence 43.1 51.5a 43.0b 35.6b * *

Networking intensity:design/R&D partnerships 0.9 0.6b 2.5a 0.4b * *

production partnerships 1.1 0.9b 2.7a 0.6b * *

mrkg./distrib. partnerships 1.1 0.7b 3.6a 0.7b * *

Organizational contextSize 59 48b 100a 53b * *

Administrative intensity 13 0.140a 0.150a 0.109b * *

Type of production 26.7 32.1a 33.2a 19.3b *

Operational capacity:quality 33.2 40.1a 34.0b 26.2c * *

flexibility 30.9 38.2a 36.0a 22.4b * *

cost reduction 23.3 32.4a 25.9b 14.2c * *

Innovation capacity 33.9 45.8a 35.1a 22.7b * *

Financial capacity 0.041 0.043 0.040 0.041 NS

Technological contextCIM systems assimilation 3.1 4.4a 4.4a 1.5b * *

Notes: *p , 0.01; * *p , 0.001; NS – non significant (p ¼ 0:91); Within rows, different subscriptsindicate significant ( p , 0.05) pairwise differences between means on Tamhane’s T2 (post-hoc) test

Table III.ERP adoption profilesresulting from cluster

analysis ofmanufacturing SMEs

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assimilation. The “externally predisposed” manufacturers should also be ratherstrongly inclined, based on their networking intensity, type of production, size andadministrative intensity, relatively strong innovation capacity, and strong proficiencyin the use of CIM technologies and applications. Whereas “unfavorably disposed”SMEs would be disinclined to adopt ERP on the basis of their low level ofadministrative intensity, type of production, weak operational capacity, weakinnovation capacity, and low level of CIM systems assimilation.

In synthesizing and grounding the results of this research within the broaderliterature on the role of IT and its adoption in contemporary enterprises, one arrives atcertain conclusions. First, the three ERP adoption profiles that were derived here canbe seen as supporting a reconceptualization of the role of ERP within three differentstrategic perspectives. First, from complementary resource-based and competitivestrategy perspectives (Rivard et al., 2006), the role of ERP for the“internally-predisposed” SMEs would be in building their operational capabilitiesand IT competence to lower manufacturing costs, increase the quality ofproducts/services, and be more innovative. A second view on the role of ERP wouldbe based upon the strategic value of IT as “a platform for agility” (Sambamurthy et al.,2003). Thus, “externally-predisposed” firms would not only enhance their operationalagility through the greater integration of business processes brought about byadopting ERP, but would also enhance their networking or partnering agility throughthe collaborative platforms and the supply-chain/customer-relationship managementsystems made possible by an “extended” ERP (Jaiswal and Kaushik, 2005). Finally, thethird perspective is based on institutional theory, that is, on the competitive andisomorphic pressures that bear upon manufacturing SMEs in their eventual adoptionof ERP (Benders et al., 2006). For “unfavorably disposed” SMEs, whose manufacturingprocesses and practices are fundamentally different from the ones that are assumed byand embedded within an ERP system, these pressures would be a source ofERP-organisation misalignments if and when the organization is forced to adapt itselfto the ERP and has neither the organizational nor the technological capacity to do so(Soh and Sia, 2004).

6. ConclusionIn proposing a profile of manufacturing SMEs’ predisposition to adopt an ERP system,the present study offers a framework for analysis that can serve ERP vendors andconsultants, as well as SME owner-managers, the first to better target their offer ofproducts/services, and the second to better position their firm before contemplating theimplementation of an ERP system. To the extent that managers want to increase thecompetitiveness of their firms through eventual recourse to ERP systems, the empiricalresults obtained in the present study suggest that they could start by closelyexamining the current level of assimilation of their firm’s manufacturing systemswithin their organizational and environmental context. The identification of thetechnologies and applications that are assimilated versus those that are less so or not atall, on the one hand, and the technologies that are integrated with one another byopposition to those that are autonomous, on the other, would be essential indetermining to what extent the SME’s manufacturing systems are in phase with itscompetitive environment, its strategy, and its resources. This could help answer thequestion asked of increasing number of manufacturing SMEs, i.e. whether they are

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ready to implement computer-integrated manufacturing technologies and an ERPsystem.

With the advent of globalization and the appearance of new forms of organizationbased on networks of closely cooperating firms, it seems clear that successfullyimplementing ERP systems will take on an increased significance for the survival,growth, and competitiveness of many SMEs. Given existing empirical knowledge inthis regard, the present study has contributed to a better understanding of the nature,state, and antecedents of ERP implementation in SMEs. It is known that these SMEsare highly flexible and adaptable to change, whether they are environmental,organizational, or technological. Some already have implemented enterprise systems,and, in today’s global context, they must follow suit by implementing manufacturingpractices such as concurrent engineering, just-in-time, value-added production, andagile manufacturing to improve their competitive position. Enterprise systems shouldnot be adopted unless they are in alignment with the competitive environment, thestrategic objectives, and the structure of manufacturing SMEs. For this reason, theseorganizations must increase their ability to simultaneously manage production andinformation technologies and, in order to do so, they will need continuing support fromresearchers and practitioners.

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Through the Past, Pinnaflex Education Resources, Cincinnati, OH.

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About the authorsLouis Raymond is Professor of information systems at the Universite du Quebec aTrois-Rivieres. His research has been published in journals such as the MIS Quarterly,Journal of Management Information Systems, Journal of Information Technology,Entrepreneurship Theory and Practice, International Journal of Electronic Commerce,International Journal of Operations & Production Management, and in internationalproceedings such as the International Conference on Information Systems and Frontiers ofEntrepreneurship Research. Louis Raymond is the corresponding author and can be contacted at:louis.raymond@uqtr.ca

Sylvestre Uwizeyemungu is a doctoral student in information systems at the Universite duQuebec a Trois-Rivieres.

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