2.3.3 Positive impact after
study done by Ali, Saudah & Maisarah (2016)
focusing on financial performance after implementation of ERP’s in Iran, which
is a developing country like Kenya hypothesized that the implementation ERP
systems significantly improve performance over time. The results suggested that
extensive use of individual ERP modules positively influences the financial
performance. Also the extensive use of holistic ERP system provides a synergy
derived to improve financial performance, hence provides greater systemic
benefits than individual modular Implementation.
addition, Hwang (2011) in Tokyo found out that successful ERP implementation
driven by the external and internal environments can increase supplier
capabilities, customer value and organizational capabilities, which in turn
enhances supplier performance and organizational performance. This research
basically states that the external
environment of SME’s should be considered to ensure successful ERP adoption and
A different view is brought about by Hayes, James & Jacqueline (2001)
who examined how performance may be affected by the size and health of the
organization. Study findings indicated an overall positive reaction to initial
ERP implementation. Further analysis suggested that the reaction is most
positive for small/healthy firms because they can anticipate greater future
benefit from ERP adoption than small and unhealthy firms. Primarily small and
healthy firms are likely to acquire needed resources to complete full
integration and thereby become larger players in the marketplace.
Kavale (2015) examined the effects of enterprise
resource planning on organizational performance of Kenya Power and Lighting
Company with a case study of Kenya Power and Lighting Company Voi branch. The
study found that the organization experienced reduced operation costs;
management efficiency, competitive advantage and increased shareholder’s
findings were also consistent with Makathimo (2016) who conducted a survey and
the respondents were asked to indicate the extent of the ERP usage on
organizational performance indicators. It was evident that the adoption of
cloud-based ERPs have improved organizational performance of the SMEs in
Nairobi, Kenya. They are reported to have improved efficiency in the
organization, accurate data processing, timely reporting in the correct formats
and reduced operating costs.
(2011) determined the extent of IT business value alignment at Barclays Bank.
To investigate the relationship between IT business value alignment and
productivity in the same bank. It was found that IT business value alignment
does affect productivity in the organization . When ERP systems characteristics
are aligned to the business strategy, it has a great positive impact on the
organization in that increases productivity and consequently increases
& Mwirigi (2014) on their research
on The Effects of Enterprise Resource Planning Systems on Firm’s Performance
showed that financial resource availability, organizational complexities,
employee’s perceptions, regulatory requirements and having a top management
support all affects the effective implementation of an ERP system which in turn
will affect the firm’s performance .
have observed that a huge number of studies
in Kenya report a significant positive impact of ERP in on firm performance but not precisely
2.5 Chapter summary
investment promises effectiveness in operations and cost reduction, hence it
increases the adopting firms’ profitability. However, the empirical results of
the ERP impact on financial performance are mixed. It is worth to note as Hitt
et al. (2002) observed the reduction in firm performance immediately after the completion
of ERP implementation, but the empirical study by Hunton et al. (2003) is suggesting
that this decline in performance is temporary and the company started to regain
performance in a two-year post-implementation period. Amid et al. (2012) argue
that the high cost and complexity associated with ERP systems frequently leads
to serious failure.
Empirical evidence reveals that little
research has been done in Kenya to examine the impact of ERP’s on the financial
performance of SME’s in Kenya covering generally all sectors. Enterprise resource planning systems enhance general
performance of SME’s and consider ERP as a strategic move by firms to achieve
competitive advantage. Cost reduction is regarded as the main purpose of ERP
implementation. Anyway, attaining either of these goals will ultimately lead
the adopters to improved financial performance. However many SMEs do not
integrate ERP’s since the owners tend to assume they are very expensive.
developing country has its unique properties for instance Kenya has different
problems such deficiency of trained manpower, insufficient telecommunication infrastructure,
improper IT planning, Proper IT system selection, apposite use of computer, Management inadequate knowledge of IT
system, severe employees’ resistance, and Management avoidance to investment .Therefore
findings of prior studies conducted on the impact of ERP implementation on
financial performance of the firm in any other country cannot be generalized
immediately to Kenya. Studies have been conducted in other developing countries
like Pakistan, Namibia etc. but economic challenges in Pakistan cannot be
relatively similar to challenges in Kenya.
This issue has rarely been explored in Kenya and
to address this issue the research will investigate the impact of ERPs implementation
on SME’s performance in Kenya.
decent number of studies have been devoted to analyze pre-implementation
requirements to successfully implement ERP projects with minimum costs,
critical success factors of ERPs, their various implementation steps, related
problems, conditions of success and reasons of failure Loh and Koh (2004). Among these studies user adoption and system
use also have been investigated Ali, Saudah
& Maisarah (2016). Most of
the Kenyan studies base their research on ERP’s in specific companies and
certain sectors Kavale (2015).
by most of the Kenyan researchers suggest that ERP system implementation mostly
result in enhanced financial performance. Implementing an ERP system is
expensive and time consuming, and firms often fail to obtain the benefits of
ERP investments within the anticipated timeframe.
research will critically evaluate and assess the effect of ERP on financial
performance over a period of time and determine at what point better performance
is discovered by most SME’s in Kenya after implementation.