Explore the background of the study, the problem discussion

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Chapter 1

1 Introduction:

This section will explore the background of the study, the problem discussion, research questions, delimitations and the time plan for research work.

1.1 Background:

In today's information age, the use of computers in any organization is fundamental. We use computer in each and every aspect of our lives. Anybody who wants to succeed in today's world cannot afford to ignore computers and information technology. Any industrial, business or administrative organization comprises of different components such as employees, business processes and the machinery equipment etc. It is essential to manage and utilize these components in order to achieve the desired goals. The management and utilization of these components is possible only if the managerial authorities are provided with the full information about the availabilities and capabilities of all components. For purpose to achieve, Information System (IS) was introduced which was an attempt to gather the required information and store it for efficient running of the organization in order to achieve its goals. Later on the demand arose to focus on development of some sort of information systems which would be integrated, cross functional and could work efficiently across organization.

M. Lynne Markus & Cornelis Tanis (200) explained how the need for such integrated systems emerged. They highlighted that “the 1970s vision of a single integrated information system for the enterprise remained a mirage for the majority of computer-using organizations”. Software entrepreneurs at that time started developing integrated software packages in which multiple functional applications can share a single common database. They succeeded in their mission and finally they came up with such systems/packages known as Enterprise Resource Planning (ERP).

According to Kumer et al.(2008), ERP systems initiated in manufacturing industries and it was the first generation of ERP system. He further explained that the development of first generation of ERP system was an inside-out process, expanded and developed from standard inventory control(IC) packages, to material requirements planning(MRP), material resources planning(MRP II) (B. Johansson and F. Sudzina, 2009). Then advanced it to a software package that aims to support the entire organization(Second generation ERP systems) and this advanced software package is then described as the next generation ERP system branded as ERP II system(Kumar and V. Hillegersberg ).

In the mean time the open source ERP also came into the market. According to Hars and Qu (Hars, A. and Qu, S., 2002), Open source software derived back in 1950s and 1960s. When software was sold, macros and utilities were free. “However, the real take-off of open source software was probably when Richard Stallman founded the Free Software Foundation (FSF) that provided the conceptual foundation for open source software”(B. Johansson and F. Sudzina, 2009). Open source is a special kind of software development, design and distribution method. It allows access to source code. It became popular with the rise of internet. Anyone can use, modify and redistribute the open source software. The access to the source code provides more freedom to user to reconstruct or modify the code according to their own needs so that the software best fits their requirements. Usually communities of users and developers having collaboration through internet communicate, design and develop open source software. Contributors from different parts of the world may contribute. The communities have capabilities to change project source code; they have regular code contribution among themselves. The community reviews the contribution of the users and developers and accepts that one that fulfills the project standards.

According to Bruce et al. (2006), open source is mature and has strength in many areas like- OS, application servers and security tools (B. Johansson and F. Sudzina, 2009). With the passage of time different types of open source software's came into the market, so as the Open Source ERP also emerged. Bruce et al. (2006) referred it as third wave of Open Source software adoption. They also mentioned that business applications areas like- CRM, ERP, content management and business intelligence OS is strong in. The open source ERP is a system for innovative businesses aiming for global collaboration. Some of the well known open source ERP applications providers are Compiere, Opentaps, ERP5, OpenPro etc.

1.2 Problem Discussion

Most of the organizations are well familiar with ERP systems and the ERP market is quite appealing for them. The ERP systems have rapidly become the de facto industry standard for replacement of legacy systems (A. N. Parr and Dr. G. Shanks, 2000). The global ERP applications market is growing at a fast rate and continues to grow due to an increase demand for integrated solutions. The ERP vendors are providing organizations with different applications for their requirements. A. N. Parr and Dr. G. Shanks (2000) explained it that the vendors of these fully integrated software (ERP systems) offer software which is capable of processing all commercial functions of companies, even if they are diverse or geographically disparate.

Despite the significance of ERP systems the reality is that ERP is a complex systems, where the complexity comes from the fact that ERP systems are made-up to integrate the organization, both inter-organizational as well as intra-organizational, and its business processes in one ensemble package (Koch, C., 2001). Nowadays majority of the ERP vendors are changing their strategy and kept increasingly developing it to make their position strong amongst the SMEs along with the large companies (Amit Bajaj, 2008).

Large organizations find it easy to implement ERP systems due to the availability of sufficient resources. Only large firms have been able to enjoy the benefits of ERP systems (Sandra J. Cereola, 2000).On the other hand for the small and medium sized companies it is hard to deploy such ERP systems in their firms. Most SMEs operate in a highly dynamic world, where both internal and external requirements may change (Branzei and Vertinsky, 2004). Implementing such systems can be costly for SMEs because they may need consultants later on which will engender extra cost for them.

SMEs play very important role in the economy and it is a significant market to focus. That is why ERP vendors want to capture small and medium sized business with a number of offerings which can help SMEs to take full advantage of ERP without spending much time, efforts and manpower (Amit Bajaj, 2008). But the requirements of the SMEs may be identical from each other. And they never be bothered about extremely decisive functionality, implementation and delivery models that can keep primary and returning costs low (Michael Dominy, 2004). With the changed strategy to create a center of attention of the SMEs the vendors came up with new ideas like- Application Service Providers (ASP), Outsource ERP systems and Pre-configured ERP Applications for SMEs(Amit Bajaj, 2008). In spite of these efforts from ERP vendors, SMEs are still not deeply interested to Proprietary ERP.

B. Johansson and F. Sudzina (2009) described, “There is no doubt that there is a great interest in open source. ” The increasing interest in this field can be understood from the OS ERP Project registered in the SourceForge.net. “SourceForge.net provides free hosting to Open Source software development projects with a centralized resource for managing projects, issues, communications, and code” (B. Johansson and F. Sudzina, 2009). They also mentioned that the software showed to be highest in the list of download is OpenBravo, which clearly focused only on the SMEs as they described.

Serrano and Sarreiegi(2006) argued that 12 SMEs successfully implemented OS ERP and they did it after evaluating proprietary ERPs but the interesting fact is that the SMEs were not interested in open source license. So it can be said that it was not the fact that openness was the reason that made the SMEs install specific ERP systems (B. Johansson and F. Sudzina, 2009). This can also be understood from the client's successful implementation cases of Compiere, one of the leading players in the OS ERP market. Two of their customers replaced their legacy systems with Compiere. So free licensing is not the only fact.

From the discussion so far it is clear that the use and growth of Open Source Software in Enterprise Computing arena yet to be mentionable, although the significance of Open Source Software at present is invaluable. Even in academic sector there have not been so much research work done about different issues of Free/Open Source ERP. Throughout literature review of Enterprise Resources Planning we found so much material on the proprietary ERP. But when we come in to OS ERP we found little work has been done so far; And some important areas inside it are still ignored. The interesting thing was that in almost all of these cases the open source ERP are used by SMEs only. Few research work raised the issues of cost and thus proposed that cost is reason for the SMEs to adopt it but nothing or very less mentioned about why only SMEs are implementing OS-ERP. What other factors or reasons are there that encourages the SMEs to move towards OS-ERP.

1.3 Research Questions

Writing research paper normally initiates with the research question(s). The research question(s) gives us a clear direction for investigation throughout our research. The probable research questions that will be investigated in detail in our research are as follows.


What motivates SMEs to adopt Open Source ERP?

1.4 Purpose

The purpose of this study is to look upon at the increase drift of using OS ERP by SMEs and explore knowledge about various rationales that motivates Small and Medium Sized (SMEs) companies in adopting OS ERP. This paper is an attempt to provide information to those who are interested in OS ERP concept and various issues related to it; and to those companies who have desire to use OSS ERP and seeks information about it. The focus will be to indentify those rationales that motivates and influcence SMEs to implement OS ERP even though the proprietary ERP vendors have different strategies to attract SMEs. At first they will be indentified and analyzed thereafter.

1.5 Delimitations

The study is based on those companies which fall under the definition of SMEs, and to the companies that are accessible for study. The study is also limited to experiences or opinions of the users and opinions of the vendors are not mentioned. This signifies that Open source ERP user's perspective will be mentioned and that of vendor's will be excluded.

Chapter 2

2 Frame of Reference:

This chapter focuses on various definitions and concepts related to Enterprise resource planning systems. Here we will also discuss about OS ERP and of its emergence. The different definitions, concepts and the related work in the field of OS ERP will also be discussed here to help us in presenting the framework for our study.

2.1 Information Systems:

The information systems include hardware, software, data, process and people; and its role is to process data into information using information technology, business processes, and people resources (Motiwalla 2009, p:4). Further the UK Academy of Information Systems (UKAIS) defines Information systems as the means by which people and organizations, utilizing technology, gather, process, store, use and disseminate information (J. Ward & J. Peppard; 2002, p: 20).

2.2 Integrated information systems:

Integrated information systems refers to the interaction of two or more than two information systems with one another. It is an expansion of a basic information system achieved through system design of an improved or broader capability by functionally or technically relating two or more information systems, or by incorporating a portion of the functional or technical elements of one information system into another .

Integrated Information Systems is the configuration that helps to coordinate the mechanized operations in an organization. This tool can be referred as one step ahead of management information systems. They help in supplying the required information that one can decide upon in an organization. This is regarded as one of the vital function in the business organization. Information systems need to have integrated data, applications, and resources from across the organization. To accomplish this, the integrated information systems are needed today to focus on customers, to processes efficiency, and to help build teams that bring employees together from different functional areas (Motiwalla 2009; P:07).

2.3 Enterprise Resource Planning (ERP):

An Enterprise Resource Planning (ERP) system is an integrated software system that manages the mainstream operations of an organization. ERP is often defined as the standardized packaged software designed at aiming integration the entire value chain in the organization, as described by lengnick-Hall et al.(2004) and Rolland et al.(2000). Quoting Alshawi et al, 2004 as they stated “What is different about ERP systems is that they integrate across functions to create a single, unified system, rather than a group of separate, insular applications” And Davenport (1998) defined it as “ERP (Enterprise Resource Planning Systems) comprises of a commercial software package that promises the seamless integration of all the information flowing through the company financial, accounting, human resources, supply chain and customer information”

Kumar and Hillsgersberg (2000) have a similar definition to Davenport's: “ERP systems are configurable information systems packages that integrate information and in-formation-based processes within and across functional areas in an organization” . Tadjer (1998) has a more technical definition than Davenport (1998) and Kumar and Hillsgersberg (2000), the definition reads: “One database, one application and a unified interface across the entire enterprise”. ERP systems are the first generation of enterprise systems whose goal was to integrate data across and be comprehensive in supporting all the major functions of the organization. They are comprehensive software applications that support critical organizational functions. These integrated information systems support enterprise functions like accounting, financial, marketing, and production requirements of organizations. This allows for real time data flows between the functional applications (Motiwalla 2009; p:7,8).

Wier et al.(2007) argue that aim of ERP systems is to integrate business processes and ICT into a harmonized collection of procedures, applications and metrics which can work over the boundaries of firms. ERP systems are all inclusive applications that can perform specific critical organizational functions. It makes the information flow smooth and dynamic. The purpose is to make the information flow instant and eliminate the data redundancy, and to add more flexibility. It allows different units of the organizations to come under one infrastructure. The data integration allowed by the ERP empowers the reusing of the data across all the systems.

Motiwalla (2009; p:9) highlighted this by stating that the goal of ERP is to integrate departments and functions across an organization onto a single infrastructure that serves the needs of each department. They further explained that an ERP system combines all units of an organization together into a single, integrated software environment that works on a single database, thereby allowing various departments to share information and communicate with each other more easily.

2.4 Small and Medium Sized Enterprises (SMEs):

Specific definition of the SMEs are tough to find as it varies and depends on criteria such as number on employees and turnover (Burgess, 2002). As Thomas Deelmann and Peter Loos (2002) mentioned, “The acronym SME (Small and Medium-sized Enterprise) tries to group a sort of companies, which are small and medium sized in a special way. Unfortunately this classification is not well defined.”

“In 1971 Bolton Report (Dawes & Haydock in Frank, 1999) defined SMEs on the basis of number of employees, turnover and an economic definition that was based on the essential characteristics of the small firms”(Kishore, K.,Bandi & Kamlesh Bhatt, 2008 ).

According to official EU definition of the SMEs is based on the combination of the following criteria: number of employees, independence, turnover and balanced-sheet total. As mentioned in the press releases on 08-02-1996, in order to be considered as an SME an enterprise must have less than 250 employees and annual turnover not exceeding than 40 million euro. A further basic criterion added in the definition is “independence”, means the firm cannot be owned by the one or jointly by several large enterprise more than 25%.The differentiation of SMEs can be understood clearly from the following table.

Table 2.1EU official definition of SME

Enterprise Category

Maximum number of employees

Maximum annual turnover

Maximum annual balance sheet total

Maximum % can be owned by the one or jointly by severel large enterprise.

Very Small






7 million Euros

5 million Euros




40 million Euros

27 million Euros


According to the Swedish official Statistics from Statistics Sweden(StatistikaCentralbyrån, SCB), a company is typically categorized as SME when it has maximum 199 employees (Jennie Lindmark & Lena Zetterwall, 1998).

Small and Medium Sized company has significant impact on economy. 20% of total export come from the SMEs in Sweden Having less than 200 employees(Jennie, L. & L. Zetterwall,1998 cited in Kishore, K.,Bandi & Kamlesh Bhatt, 2008). According to Sandra J. Cereola (2000), “SMEs play an enormous role in most economies. According to the US Census Bureau, in 2005 SMEs represented approximately eighty six percent of the total establishments (ninety nine percent of the total firms) and accounted for approximately fifty percent of the total employment (U.S. Census Bureau 2005)”

2.5 Open Source Software

Nowadays the use of open source software is obvious in almost every field. Various authors tried to explain the concept of OSS. OSS/FS programs are programs whose licenses give users the freedom to run the program for any purpose, to study and modify the program, and to redistribute copies of either the original or modified program (David A. Wheeler, 2007).

The Open Source Initiative (OSI) introduces the definition of open source software as such; Open source mean access to the source code but that it should comply the following characteristics as well.

Free distribution

- means there should not be any restrictions on a party from selling or distributing any component of a software and shall not require any fee for sale.

Source Code -

the program must include source code and it must be in a readable form so that a programmer could modify the program.

Derived Works

- Furthermore the license must allow modifications, other derived works and distribution of such work under the original license terms.

Integrity of The Author's Source Code -

The license may restrict source code that modifications are distributed as ‘patch files'. In addition the license should contain that derived works hold a different name or version number from the original software.

No Discrimination Against Persons or Groups -

means that the license must not discriminate against any person or group of persons.

No Discrimination Against Fields of Endeavor -

It should not restrict the program for using by someone in a business or for genetic research.

Distribution of License -

The rights of a program must apply to all those to whom such program is redistributed.

License Must Not Be Specific to a Product -

License should have the same rights to all parties to whom the program is redistributed and that that are granted in conjunction with the original software distribution.

License Must Not Restrict Other Software -

there should not be any restrictions on other software that is distributed along with the licensed software in a license.

License Must Be Technology Neutral-

the license should not contain any prerequisite on any individual technology or style of interface.

Those licenses that fulfill the above conditions can obtain certificates from OSI and after being certified by OSI may use their certification mark.

People often misinterpret the term open source which they believe, is always refer to freely available software and they can modify or distribute it without any limitation or so; while the actual scenario is a bit different. There are some types of open source software and different issues are related with them. Many authors tried to focus on the probable types of open source software and the most prominent among them is Dirk Riehle. Riehle. D (2007) pointed out this by explaining that there are two different types of open source software, one is community open source and other is commercial open source. According to Riehle, the Community open source is software developed by a community. On the other hand the commercial open source is software that a for profit entity owns and develops. These types differ in the context that in each of them, who decides on the future direction of a software. He further discussed that in the case of community open source a broad community of volunteers which includes individual developers decides that which contributions should be accepted in the source code base and where the software is bearing. On the other hand in commercial open source case a company decides on what should be accepted into software code base. Here it is the company which maintains the copyright and decides what to implement subsequently. The point that he stated is that in the community open source case no market entry barriers exist, and therefore can, given the right license, anyone set up a company and start selling software which is not in the case of commercial open source where market entry barriers exists. According to Riehle (2007) in commercial open source case, the interest is not in selling software as such, instead they sell its provision, maintenance, and support to end users.

2.6 Open Source ERP Systems and SMEs

The concept of open source ERP is a bit confusing and tough to understand and describe due to the involvement of too many broad concepts altogether. By viewing literature we did not find any agreed or more specifically exact definition of OS ERP. Rather it is defined in the context of open source and ERP collectively. Most of authors tried to give some sort of general definition and formulates that OSS ERP can be refer to the software programs which are obtained by organizations from vendors for certain fee; that can be modified or customized without programming to make it fit according to their own needs; and moreover is a system for innovative businesses aiming for global collaboration.

Jakob Nielsen (2001) explained the problems with traditional ERP systems by stating that ‘‘ERP software models are too complex, hard to extend and updated which leads to high costs, big development efforts, very large and redundant data structures.'' He further argued that the integration and implementation are too complicated, sluggish, costly and unable to meet the needs of clients in most of the cases. Moreover the user interfaces are often fusty, inflexible, customization is not possible and the software is solving not enough tasks. Joseph et.al; (2005) supported him and stated that the current commercial ERP systems development is facing a lot of unresolved problems and with less available solutions to solve them properly. The reasons is that the software development models have not changed much in the last decades. Björn Johansson ( 2008) tries to explain that software vendors of proprietary ERPs face some challenges, which they need to take care of if they are to be able to stay in business in the future. He pointed out that the question arises of whether or not open source can serve as a useful input for figuring out how to manage future challenges. He further illustrates that the challenges for future development of ERPs addressed by proprietary ERP software vendors could be one reason for the high attention among developers of open source ERPs.

Hyoseob kim & Cornelia Boldyreff (2005) explained the emergence of OS ERP in a diverse perspective by stating, that the enterprise information systems (EIS) like ERP and CRM applications are crucial to the successes of an organization as they handle business processes. Recently, although it is still in its infancy the OSS community has started to move into this sector i.e. Enterprise Resource Planning (ERP). They further argue that because of the complexity associated with large corporations business processes, OSS ERP might never be suitable for them while SMEs are more suitable candidates for it as they can more easily adapt themselves to ever changing business environments.

Alexander Dreiling et.al; (2005) argue that dissatisfaction with traditional enterprise systems can be explained by the constellation between developers and users, which is in favor of the developers, and that a significant cornerstone for that is the proprietary nature of software licensed to organizations. With various successful open source development initiatives the open source software development provides us with a viable alternative to the proprietary development of enterprise systems. Soh, kin and Tay-Yap (14) describes that the problems of ‘misfit' persists in adopting software package, which means that there is a gap between functionality offered by the package and the functionality required from the adopting organization. This gap can be trounce by the open source phenomenon, in ERP context it is referred to as OS ERP.

Svilen Valkov (2008) highlighted the importance of the concept of open source ERP system, according to him it is for an innovative business platform which is based on global collaboration. Thomas Herzog (2006) stated that open ERP software has less than 5 percent of the business software market. Although there is opportunity for expansion of this kind of software but the most of the open source solutions are too small and there target groups includes mostly SMEs.

B. johansson & F. Sudzina (2008) discussed that observing the number of downloads of the Open source ERP software's in recent years, can give some awareness regarding the interest shown by organizations for this sort of software. They also clarify that although the number of downloads does not give any confirmation these softwares are actually adopted by organizations but the assumption is that the rate of adoption will be increases with the increase into downloads. According to them by examining the number of downloads of the six different Open source ERP providers; indicates that at this moment the SMEs are more interested in using these open source ERPs. Open Source ERP seems full of potential for high growth in the future. As companies are searching more and more for cutting costs and gaining competitive advantage, Open Source seems to be a good alternative to SMEs and to some large organizations as well (V. G. Fougatsaro, 2009).

2.7 Critical Success factors of ERP implementation:

ERP systems automate the core activities of the organization by fit in the best practices and re-engineering in the core business activities or by making adjustment in the software according to organizations requirement (Christopher P. Holland and Ben Light, 1999). The successful implementation of ERP system promises huge benefits but the disastrous effect of it is also fabricated (Vidyaranya B. Gargeya & Cydnee Brady, 2005).

As stated by Davenport(2000), “A well-planned and well-executed ERP Implementation, in conjunction with a good chance management program, can create a dramatic turnaround for the company”. But from the beginning, ERP implementations have been weighed down by failure (Murray & Coffin, 2001). Almost 9o percent of the total ERP implementations are late or over budget (Christopher P. Holland and Ben Light, 1999) and at least half of them failed to attain the desired results (Yasar, et al.,2000). According to The Gartner Group, 70% of the total number of ERP implementation fails to be implemented totally even after three years(Vidyaranya B. Gargeya & Cydnee Brady, 2005). The high failure rate of ERP implementation entails for a better understanding of Critical Success Factors(Somers et al., 2000 cited in FFH Nah et al.,2001). There has been considerable research work for identifying the Critical Success Factors of ERP implementation motivated by the problems, difficulties and risk related to this(Loukis, et al., 2008).

Somers et al.(2001) in their study mentioned 22 Critical Success Factors for the ERP implementation. The top ten CSF of ERP implementation proposed by them are- Top Management Support, Project team competence, Interdepartmental Cooperation, clear goals and objectives, project management, inter departmental communication, Management of expectations, Project champion, Vendor Support, Careful package selection.

Christopher P. Holland and Ben Light(1999) proposed a Critical Success Factors model for the ERP implementation with strategic and tactical factors. The strategic factor are-Legacy Systems, Business Vision, ERP Strategy, Top Management Support, Project Schedule and plans. And the tactical factors are- Client consultation, Personnel, Business Process Change and software configuration, Client acceptance, Monitoring and feedback, Communication and trouble shooting.

Esteves and Pastor(2000) created an unified model of CSF of ERP implementation from the previous studies having four categories of CSF. They mentioned the organizational and technological character of CSF based on strategic and tactical orientation. The strategic-organizational factors are: Sustained management support, good project scope management, adequate project team composition, Comprehensive business process reengineering, Adequate project champion role, User environment and participation, and Trust between partners.

Figure:2.3The framework of ERP implementation adopted from J. Motwaniet al.(2005)

These category of studies of the CSF of ERP implementation have identified a useful set of factors and related measures that can increase the business value generated by ERP systems for the adopting organizations (Loukis, et al., 2008). And hence these can be constructive elements for the selection of ERP.

2.8 Critical Success factors of ERP implementation in SMEs:

Doom and Milis(2008) discovered and classified critical success factors for ERP implementations in SMEs. Their study shows that the CSFs found in the literature applicable for Belgian SMEs in spite of some exceptions. These are- (1)Vision, Scope and Goals (2) Culture, communication and Support (3) Infrastructure (4) Approach and (5) Project Management.

Loh and Koh(2004) found several Critical Success Factors of ERP implementation in the SMEs based on four implementation phases. And they also came up with critical people and critical uncertainties for the ERP implementation in the SMEs.

Table 2.2CSF of ERP implementation by SMEs based on Lohand Koh(2004)

Critical Success Factors


Project Champion

Project leader or manager having the capacity to defend and represent the project in the organization with business perspective and attempts to resolve conflicts.

Project Management

Project leader or manager ability to determine scope of ERP implementation, plan and control. Assess schedule, budget in the light of target.

Business Plan and vision

Strategic business plan with tangible and intangible benefits, resources, costs, risks and timeline.

Top Management support

Full committed top management to the ERP implementation project.

Effective communication

Expectations of the ERP implementation needed to communicated at every level.

ERP team work and composition

ERP team should contain best people, team should be cross-functional. Team must know organizational business strategy and ERP's technical issues.

BPR and minimum customization

Business processes should match the new system. Business processes should be changed to fit the software with as less customization as possible as it is best practice.

Change management program and culture

Managing the change in the culture and organizational structure, and providing right training and regular follow-up.

Software development, testing and troubleshooting.

Ability to develop software to link with legacy systems, setup, test and problem solving capabilities ease the implementation.

Monitoring and evaluation of performance.

Monitoring and evaluation of project performance with respect to targets and plan. Ability to obtain information of the affect of ERP implementation on business performance.

2.9 Selecting an ERP Solution:

Deploying an Enterprise Resource Planning(ERP) system is a significant decision for the company that affect critically the future performance of the company (Chun-Chin, et al.,2005) and it has effect on the strategic position of the company(CJ Stefanou,2001). Due to the complexity in the business environment and variety of ERP offerings the selection process of ERP systems is somehow tedious and time consuming(Chun-Chin, et al.,2004). ERP systems architectures are not appropriate for all the business requirement( Sarkis and Sundarraj, 2000; Teltumbde, 2000; Hong and Kim, 2002 cited in Chun-Chin, et al.,2005). And for this it is very important for the companies to choose a flexible ERP systems and a cooperative vendor that in turn can be responsive to the customer needs(Chun-Chin, et al.,2005).

Chun-Chin, et al.(2005) proposed an Analytic Hierarchy Process(AHP) based framework to select appropriate ERP systems from the alternatives.As they proposed, the ERP system selection classified in two factors- system factors and vendor factors. These two factors contains some attributes of the ERP systems that needed to be evaluated. The details about the factors are mentioned in the following table.

Table 2.3 Attribute details of the ERP selection based on Chun-Chin, et al.(2005)



Matter to evaluate


Software Systems Factors

Total Cost


Maintenance costs

Consultant expenses

Infrastructure cost

Minimum system price, limited annual maintenance cost, Limited project budget, limited infrastructure budget

Implementation Time

Minimizing the implementation time(6-9 months).


Module completion

Function fitness


Availability of necessary modules, Parameter setting, High functional fitness.

Multi currency, multi language and multi site option, Permission management and Database protection

User Friendliness

Ease of operation

Ease of learning

Easy graphical interface having step by step command, guidebook to help the user , online help and online learning.


Upgrade ability

Ease of integration

Ease of in house development

Written in Common programming language, Platform independence and easy integration with existing IS.



Recovery ability

Automatic data recovery &backup

Vendor Factors


Scale of vendor

Financial condition

Market share

Matching the scale of Vendors reputations , evaluate financial ability and qualifications of references of the previous users.

Technical Capability

R&D ability

Technical support capability

Implementation ability

Good service for upgrading the system, ability to support diverse product line, easy to implement, Technical capability & experience of the vendors to implement.

Domain Knowledge of the vendors.



Consultant services

Training service

Service speed

Detail warranty, enough number of experienced consultant, complete and enough training, good problem solving program and online services.

2.9.1 Selection of an ERP Solution by SMEs:

The criteria for the selection of a particular ERP systems show different priorities related to the organization size(Birdogan Baki and Kemal Cakar, 2005). Bernroider and Koch(2001) studied the selection criteria of the ERP systems among SME and large organization. A total number of 29 different ERP selection criteria was used in the but only 12 criteria were evident to have strong relationship with organizational size (Bernroider and Koch, 2001). Among those criteria- the following criteria are evident to be more important to the SMEs while selecting an ERP.

Table 2.4The top prioritized criteria of SMEs for selecting ERP based on (Bernroiderand Koch, 2001)

Selection criteria


Adaptability and flexibility of software

Adaptability allows software to be modified as the unique business processes need to be preserved. Easy to upgrade

Good Support

Support from the suppliers during installation , implementation, integration with existing systems, customization and security(Baki & Kemal,2005).

Short Implementation time

Less time to implement, less customization needs less time. The more customization the more time needed and hence the increased cost and more resources needed.

Several aspect dealing with the flexibility like- Increased organizational flexibility, Process Improvement and improved innovation capabilities was rated less important by the SMEs as they are likely to be more flexible from the beginning they don't need to use an ERP for this(Bernroider and Koch, 2001).

Another study on the European SMEs by Everdingen et al.(2000) revealed that high importance attributed to the criteria- fit with business procedures, flexibility and cost while selecting an ERP system. The results from this study can be used to compare to other countries to account for possible regional differences and in some cases it was described as multicounty European survey( Everdingen et al., 2000 cited in Bernroider and Koch, 2001). Fit with business process is most important criteria for the SMEs as found in this study and flexibility to adopt the software is found to be important as business process is the major issue in SMEs(Everdingen, et al.,2000).

2.10 Selecting an Open Source ERP solution:

B. Johansson and F. Sudzina(2009) came up with the result from a literature review of ERP system selection criteria. The result also represented a set of common ERP selection criteria and compare these criteria with respect to Open Source and Proprietary ERP Systems(B. Johansson and F. Sudzina, 2009). They presented and made order of those criteria according to the number of occurrence of them in the literature. The criteria are listed and described in the table below according to the importance of them in respect to Open Source ERP.

Table: 2.5ERP Selection criteria comparison between OS and Proprietary based on (B. Johansson and F. Sudzina, 2009)



Ease/speed of implementation

Easy to implement and possible to implement in less time.


Price of the ERP system licensing.

Vendor support

For proprietary user it is important as they are locked in one vendor. For OS support from vendor and large enough community which can support in implementation


Proprietary vendor tries to be highly reliable but OS community find an error faster and solve it quickly while for Proprietary it is much harder because same people have access to code always.

Ease of use

Proprietary ERP tries to be more user friendly but community of users can make the OS ERP more-or-less acceptable for most of the users.


Customization of code is important in terms of OS though it is not the only feature of OS ERP systems anymore, now MS Dynamics AX allows certain level of customization but the others are still not customizable.


Proprietary ERP allows usage of Data Warehouse for integration but it is possible to be solved by customization in OS ERP.


Proprietary may offer more but as in OS they are less, may be easier to master them.


Upgrading OS ERP is free but for proprietary customers have to buy upgrade or pay an annual fee.

These selection criteria show obvious difference between OS ERP and Proprietary ERP and these reported criteria should be studied further to determine specifically OS ERP selection criteria as stated by (B. Johansson and F. Sudzina, 2009).

2.10.1 Selecting Open Source ERP by SMEs:

When it comes to the context of SMEs, the selection criteria of Open Source ERP mainly- increased adaptability, Decreased reliance on a single supplier and reduced cost(Serrano and Sarriegi,2006). There seems to be several other reason or factors than cost involved in the decision of selecting OS ERP and those could be investigated(B. Johansson and F. Sudzina, 2009).

2.11 Research Framework:

A theoretical model was developed based on the frame of reference discussed above for the factors that influence SMEs to select an Open Source ERP. We will investigate this model against the experiential study and observations.

Figure:2.4TheoraticalModel of Factors/criteria that motivate SMEsto select OS ERP

The Critical Success Factors for both proprietary and OS ERP implementation have been discussed in this chapter. The critical success factors found to be applicable in both context in spite of few exceptions. In both cases there are many factors that influence ERP systems selection and some of the factors can be fulfilled only by proper selection of the ERP systems based on certain selection criteria.

Following that the selection criteria in general that play very important role while selecting an ERP generally and by SMEs have also been discussed. It is evident that SMEs emphasize more on few criteria while selecting an ERP systems and few of those criteria that are very important to large organization got less or rather unimportance by the SMEs and vice versa.

The selection criteria of OS ERP are described and context of SMEs also mentioned in the frame of reference. The frame of reference suggests that the possible other reasons for selecting OS ERP beside the described reasons could be investigated in terms of SME.

Chapter 3

3 Methodology:

This chapter deals with research philosophy, research approach, various available research methods and the way data is collected and will be analyzed. We have also highlighted how we will conduct our research under them.

3.1 Research philosophy

Galliers, (1991) defined research philosophy as, is a belief about the way in which data about a phenomenon should be gathered, analyzed and used. According to him the two major research philosophies have been identified in the Western tradition of science, namely positivist also known as scientific; and interpretivist also called anti positivist.

Easterby-Smith et al. (1991, P:27) highlighted some key features of these two philosophy paradigm alternatives in order to differentiate them. According to them in positivist approach the observer is independent, research focus is on facts, researcher formulates hypothesis and then test them; and the preferred methods of research is usually done by taking large samples. On the other hand in Phenomenological pattern the observer is part of what is observed, researcher focus in on meanings, tries to understand what is happening by developing ideas through induction from data and the includes investigation of small samples.

Saunders, Lewis and Thornhill (2003) also supported Easterby-Smith et al. (1991) by describing positivism as scientific based approach where researcher formulates a hypothesis from some theory, tests that hypothesis by experiment and then examines the results to confirm a theory or suggests for modifications. They described phenomenological approach as ‘‘the way people experience social phenomena in the world in which they live''. Here the researcher tries to understand what is happening and why it is happening. The researcher's focus is on those contexts where events occur and use qualitative data to establish view of phenomena.

For any kind of study we have a choice to select among the two research philosophies, for this study as it involves qualitative data, using phenomenological philosophy is more reasonable for us because the data is mainly qualitative and this sort of data usually in abundance and it will appropriate for us to develop our ideas on that basis.

3.2 Research Approach

Research approach means that what methodology has been adopted to conduct a research. Sekaran, (2003) identified two types of research approaches. These includes inductive and deductive. Incase if researchers use both side by side, then it is known as abductive approach, indicates a combination of inductive and deductive. According to Sekaran (2003), deduction is the process of arriving at reasoned conclusion by logical generalization of a known fact while induction is the process where certain phenomena is observed and conclusions are made on that basis.

In research mainly two broad methods of reasoning are referred known as deductive and inductive approaches (S. M. Aqil Burney, 2008). Deductive reasoning starts from more general to more specific, informally called top-down approach and conclusions are drawn logically from available facts; while inductive reasoning works from specific observations to broader generalizations, informally known as bottom up approach and conclusions are drawn on available facts (S. M. Aqil Burney, 2008).

Hussey and Hussey (1997) defined deductive research as “a study in which a conceptual and theoretical structure is developed which is then tested by empirical observation; thus particular instances are deducted from general influences.” And deductive research is defined as ‘‘a study in which theory is developed from the observation of empirical reality; thus general inferences are induced from particular instances, which is the reverse of the deductive method since it involves moving from individual observation to statements of general patterns or laws''.

Sometimes researchers uses both inductive and deductive approaches, that is known as abductive approach. The approach takes findings which are common, explain them and solve the issues related to collected data. The result is usually that facts are in a proper order and can provide opportunity to deal with issues confidently (Reichertz, 2004).

The abductive approach will be used as we have to move back and forth between empirical findings and theory repeatedly because it involves combination of inductive and deductive and is favored by most of the researchers.

3.3 Research Methods

Research method refers to systematic, focused and orderly collection of data for the purpose of obtaining information from them, to or answer a particular research problem or question (Ghuari & Gronhuag, 2005).

There are two types of research methods.

  1. Quantitative method
  2. Qualitative method

Malhotra (1996) defines quantitative research as ‘‘a methodology that seeks to quantify the data and it applies specially in some form of statistical analysis ''. Quantitative research is a kind of specific research which involves large representative samples and relatively structured data collection procedures (Parasuraman, 1991). Qualitative research involves investigating opinions, behaviors and experiences from the informant points of view. Walker et al. (2008), described qualitative research as process to discover and explain the complex nature of human nature. According to him this is kind of research where data obtained is usually exhaustive, affluent and holistic.

Maylor and Blackmon (2005) illustrate that, when a study includes statistical conclusion, it is appropriate to use quantitative research while if the research deals with processes that involves analyzing non-numeral information it's better to use the qualitative approach.

Quantitative research requires a huge amount of data to investigate and then conclusions are drawn on that basis which is not possible in this case. Researchers in the field of Enterprise systems normally use qualitative method. Therefore this method is used for conducting our study which is more adequate with regard to enterprise systems.

3.4 Research Strategy

Research strategy means that which research design alternative is used for study to solve the problem. There are a number of research strategies including, surveys, interviews, case study, experiment, ethnography and action research. Research strategies are similar to literary genres, indicating very broadly the style of the work like a survey, an experiment or a case study (A. Berkely Thomas, p.20).

Uma Sekaran (2003, p.119) illustrates that nature of studies may be either exploratory or descriptive, or may be conducted to test hypotheses. According to him the exploratory study is used when there is little or no information available for a situation which is to solve; it is good for obtaining a well clutch of the phenomena of the interest while the descriptive study is used when the purpose is to describe the characteristics of the variables of the interest in a situation. Parasuraman, (1991) defined descriptive study as the study which is used to produce data that describes the composition of relevant group including customers, salespersons, and organizations. Studies that includes hypothesis testing in order to explain the nature of certain relationships by certain factors are known as hypothesis testing studies. (Uma Sekaran, 2003, p.124).

The study will be exploratory in nature and will be used for this study due to fact as Yin (2003) pointed out, that exploratory study applies to those researches where choice of research includes new concepts and there is not enough material available for those topics. This applies to our choice of research. Surveys and interviews will be taken as a research strategy. .

3.5 Data Collection

There are two types of data. One is Primary data and the other is Secondary data. Primary data is that which is obtained through some means like surveys, interviews and observations etc while secondary data is that which is already there and is available to us in the form books, journals etc. Uma Sekaran (2003, p.59) defined primary data as ‘‘the data gathered for research from the actual site of occurrence of events'' while secondary data is obtained from existing resources.

Both types of data will be used for conducting this study. The secondary data is obtained from available resources like books, journals, articles and websites of various companies by using different search engines. While the primary data will be obtained from the respondents. For this we will conduct interview from two experts who have knowledge in this domain and questionnaire survey from the SMEs who have implemented Open Source ERP.

3.6 Sampling

Sampling is method of selecting a certain number of units from a total population. (Clark and Hockey, 1981). Uma Sekaran (2003, p. 266) defined sampling as the process of selecting adequate number of elements or cases from the population in order to understand its properties and investigate them. Sauder et.al 2003 argued that sampling gives us different methods to select a subset of population which represents the whole population.

There are two major types of sampling, i.e. probability and non probability sampling. In probability sampling, the elements in the population have equal chance of being selected and is used when the representatives of the sample is of importance in the interests of wider generalization. In non probability sampling the elements in the population do not have predetermined chance of being selected and is used when generalization is less critical and other factors like time are of importance. The drawback of this sampling technique is that generalization of results is compromised Uma Sekaran (2003, p. 269).

Marshall (1996) illustrates that for quantitative studies it is better to use probability sampling while for qualitative studies non probability sampling is appropriate. Non probability sampling is either convenience sampling or purposive sampling. Convenience sampling is that where the respondents are conveniently available and is easy to access them for getting information. On the other hand purposive sampling is that where it is essential to get information from specific group of people who have more knowledge about certain facts (Uma Sekaran, 2003, p.276). Polkinghorne, 2005 highlighted purposive sampling as the method when the focus is on to obtain rich information from more specific source rather than having huge data from large of sources.

For this study the non probability sampling technique is used because it was not possible for us to take probability sampling into account due the shortage of time and less availability to resources that are vital for doing this. Non probability sampling takes the form convenience or purposefully sampling. For taking interviews from experts the purposefully sampling will be used while for taking responses from SMEs the convenience sampling will be used.

3.7 Analysis of Data

Data analysis is the process of ordering and organizing raw data so that it can provides useful information. Raw data is in many forms like surveys responses, and observations which is not that much useful but when it converted into information through data analysis it becomes useful (S.E. Smith, 2008). Sekaran (2003) illustrates that when data is obtained through sampling the next step is to analyze that data, known as data analysis. The data analysis needs more attention and care when obtained data is qualitative in nature (Walker et al., 2008).

(Will be finalized after empirical findings)

3.8 Credibility of Data

Walker et al. (2008) stated that subjectivity affects qualitative research so credibility of data should be accentuated in this sort of research. Credibility can be enhanced by reducing wrong answers and paying attention on two important terms i.e. reliability and validity (Saunders et al. 2007). Carmines and Zeller (1982) described that when there is a degree of consistency in measurements which are repeated for same phenomena known as reliability while validity refers to the degree to which a one's measures what it supposed to measure that how much the measurements accurate. This indicates that reliability deals with consistency of results while validity with their accuracy.

(Will be finalized after empirical findings)