Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study

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Purpose - This study aims to explore the process of open source software (OSS) adoption in small and medium-sized enterprises (SMEs), and more specifically open source ERP as a “mission critical” OSS application in manufacturing. It also addresses the fundamental issue of ERP risk management that shapes this process.
Design/methodology/approach - The approach is done through an interpretive case study of a small Canadian manufacturer that has adopted an open source ERP system.
Findings - Interpreted in the light of diffusion of innovation theory and the IT risk management literature, results indicate that the small manufacturer successfully managed the adoption process in a rather intuitive manner, based on one guiding principle and nine practices.
Practical implications - This research confirms that open source is a credible alternative for SMEs that decide willingly or under external pressure to adopt an ERP system. Moreover, it suggests that a high level of formalization is not always necessary. For ERP vendors, this study shows that SMEs are more in search of flexibility in an ERP system than in the “best practices” embedded within these systems.
Originality/value - We argue that rich insights into the dynamics of the OSS-ERP adoption process can be obtained by framing this process within a risk management context.

KEYWORDS:
Open source software; ERP adoption; SME; Small business; IT risk management.

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Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study

  1. 1. ISSN 0832-7203 Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Par : Placide Poba-Nzaou Louis Raymond Bruno Fabi Cahier du GReSI no 12-01 Août 2012
  2. 2. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond and Bruno Fabi Copyright © 2012. HEC Montréal. Tous droits réservés pour tous pays. Toute traduction et toute reproduction sous quelque forme que ce soit sont interdites. HEC Montréal, 3000, chemin de la Côte-Sainte-Catherine, Montréal, Québec, Canada H3T 2A7. Les textes publiés dans la série des Cahiers du GReSI n'engagent que la responsabilité de leurs auteurs. Placide Poba-Nzaou Professeur adjoint Département d'Organisation et ressources humaines École des sciences de la gestion Université du Québec à Montréal 315, rue Ste-Catherine Est Montréal (Qc), Canada H2X 3X2 Courriel : poba-nzaou.placide@uqam.ca Tél. : 514-987-3000, poste 7744 Louis Raymond Professeur titulaire Titulaire de la chaire de recherche du Canada sur la performance des entreprises Université du Québec à Trois-Rivières 3351, boul. des Forges, C.P. 500 Trois-Rivières (Qc), Canada G9A 5H7 Courriel : louis.raymond@uqtr.ca Tél. : 819-376-5011, poste 3160 Bruno Fabi Professeur titulaire Département des sciences de la gestion Université du Québec à Trois-Rivières 3351, boul. des Forges, C.P. 500 Trois-Rivières (Qc), Canada G9A 5H7 Courriel : bruno.fabi@uqtr.ca Tél. : 819-376-5011, poste 3139 Août 2012
  3. 3. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 1 ABSTRACT Purpose - This study aims to explore the process of open source software (OSS) adoption in small and medium-sized enterprises (SMEs), and more specifically open source ERP as a “mission critical” OSS application in manufacturing. It also addresses the fundamental issue of ERP risk management that shapes this process. Design/methodology/approach - The approach is done through an interpretive case study of a small Canadian manufacturer that has adopted an open source ERP system. Findings - Interpreted in the light of diffusion of innovation theory and the IT risk management literature, results indicate that the small manufacturer successfully managed the adoption process in a rather intuitive manner, based on one guiding principle and nine practices. Practical implications - This research confirms that open source is a credible alternative for SMEs that decide willingly or under external pressure to adopt an ERP system. Moreover, it suggests that a high level of formalization is not always necessary. For ERP vendors, this study shows that SMEs are more in search of flexibility in an ERP system than in the “best practices” embedded within these systems. Originality/value - We argue that rich insights into the dynamics of the OSS-ERP adoption process can be obtained by framing this process within a risk management context. KEYWORDS:  Open source software; ERP adoption; SME; Small business; IT risk management. PAPER TYPE: Case study
  4. 4. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 2 1. INTRODUCTION Open source software (OSS) has taken on added importance in the last few years, emerging as a phenomenon that is simultaneously cultural, economic, societal, technological, legal, ethical, moral and political (AlMarzouq, Zheng, Rong and Grover 2005; Bonaccorsi and Rossi 2003; Shiels, 2009; von Hippel and von Krogh 2003). Whereas the majority of enterprises now consider OSS as a important component of their IT cost reduction strategy (Wilson 2004), the Gartner Group (2010) indicates that by 2012, at least 80% of commercial software packages will include some elements of open source technology. In addition, according to the TNS Technology (2009) survey in Europe, about 60% of SMEs already use OSS for core business activities. As more and more organizations adopt OSS (Niederman, Davis, Greiner, Wynn and York, 2006), this phenomenon has grown beyond infrastructure software in horizontal domains to IS applications in vertical domains (Fitzgerald, 2006), and has now reached the domain of enterprise resource planning (ERP) software. In an InfoWorld survey, 53% of managers questioned said that they would be ready to consider an open source ERP system as an alternative to their present ERP system (Knorr 2004). In fact, a number of small and medium-sized enterprises (SMEs) have opted for open source ERP (Gruman, 2007; Nolan 2005), given that a number of OSS characteristics make this software particularly attractive to these firms (Bradbury, 2006), including the potential of reducing the total cost of ownership by 20% to 60% when compared to the other ERP alternatives (Niemi, Tuisku, Hameri and Curtin, 2009). Despite the growing number of open source deployments for “business-critical IT challenges” (Gartner Group, 2010), very few studies have looked at the adoption of OSS by organizations (Bhadauria, Mahapatra and Manzar, 2009), and in particular at the adoption of “mission critical” or “enterprise wide” OSS applications such as ERP, CRM or SCM, and even less so in the context of small and medium-sized enterprises (SMEs). It is for this reason that von Krogh and von Hippel (2006) have called for researchers of all disciplines to study this important contemporary phenomenon without any theoretical or methodological restrictions. In a recent comprehensive review and synthesis of open source research, Aksulu and Wade (2010, p. 598) conclude that “the present open source adoption research is very preliminary and narrow”, despite calls for more insight into the adoption process (Niederman, et al., 2006). Lastly, after a review of empirical research on
  5. 5. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 3 OSS, Crowston, Wei, Howison and Wiggins (2011) reveal a paucity of research adopting organizational level of analysis. Given the specific context of manufacturing SMEs in terms of human, technological and financial resources, adopting packaged software and ERP systems in particular represents a greater resource commitment and entails greater risk for these enterprises than for their larger counterparts (Laukkanen, Sarpola and Hallikainen, 2007; Malhotra and Temponi, 2010). In response to previous appeals for further research on the adoption of OSS and on the basis of prior research on the adoption of ERP systems, the present study seeks to explore how one SME manages the implementation risk of open source ERP at the adoption stage. To this aim, an interpretive case study was made of a small Canadian manufacturer (50 employees) that has implemented an ERP system of the OSS type. 2. CONCEPTUAL AND EMPIRICAL BACKGROUND This study explores IS implementation risk management in a SME context, during the adoption phase of the system lifecycle, when the system adopted is an open source ERP which is relatively new. Consequently, the conceptual and empirical foundations of this research are twofold. They first include relevant results found in the IT risk management literature. These foundations also include concepts and empirical findings that emanate from the research stream on packaged software and OSS adoption. 2.1 IT Risk Management “Given the growing significance and risk of ERP projects, it is essential that research focuses on ways to improve ERP implementation”, as denoted by Robey, Ross and Boudreau (2002, p. 19). This is specifically true in a context characterized by resources scarcity. In addition, as far as we know, there is no existing literature which explicitly focuses on ERP risk management at the adoption stage. Notwithstanding the importance of the notion of risk in the development and use of IS, there is no consensus as to its definition and measurement, and most IT risk management models lack theoretical foundations (Alter and Sherer, 2004). In the present study, risk management will be founded upon contingency theory and viewed as a process of strategic alignment (Chan and Horner Reich, 2007). In this process, the SME’s leaders are deemed to align or “fit” their management of ERP implementation risk, i.e. their activities related to the abatement of such risk, to their firm’s exposure to risk (Aubert, Patry and Rivard, 2005). However, given the limitations of Barki, Rivard
  6. 6. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 4 and Talbot.’s (2001) model with regard to organizing risk factors in an easily communicated framework (Alter and Sherer, 2004), the absence of consensus on risk dimensions in the IS domain (Sherer and Alter 2004) and the specificities of SMEs in this regard (Snider, da Silveira and Balakrishnan, 2009), seven dimensions of exposure to ERP implementation risk were identified after a review of literature, that is, organizational, business, technological, entrepreneurial, contractual, financial, and legal risk. Each of these dimensions is defined in Table 1. Table 1: Attributes of Open Source ERP as Compared to Other Adoption Alternatives 2.2 OSS within the Packaged Software Industry In the applications software market in general and in the ERP software market in particular, three main alternatives are offered, that is, in-house or custom software, proprietary software, and open source software. In-house or custom software applications are those developed either by an organization’s internal IS staff or a third party, and designed for specific users (Olsen and Saetre 2007). Proprietary software is the dominant mode of developing and distributing application software. However, many researchers recognize that the open source phenomenon has shifted the Risk dimension Definition References Organizational The organizational risk derives from the context in which the ERP system is adopted, including the environmental context (industry, external pressures, power of customers) and the organizational context (size, structure, human resources and competencies) O’Leary (2000) Business The business risk is tied to the internal and external coherence of the business model and business processes after the implementation of an ERP system Austin and Nolan (1999) Technological Technological risk refers to information processing technologies required by the ERP system, including operating system, database management and network technologies O’Leary (2000) Entrepreneurial The entrepreneurial or managerial risk is linked to the attitudes of the firm’s owner-manager or management team Winston and Dologite (2002) Contractual Contractual risk refers to relationships with partners in ERP implementation (vendors, integrators, consultants) Bernard, Rivard and Aubert (2004) Financial The financial risk is tied to the SME’s financial capacity to pay for licensing fees and ERP system upgrades Ariss and al. (2000) Legal Legal risk is related to “the risk of losing competitive advantage from open source terms requiring a waiver of intellectual property (IP) rights” on the company’s own software that incorporates open source software or the potential liability for intellectual property infringement, in other words the risk related to the violation of third-party intellectual property rights Walsh and Tibbetts (2010, p. 9) Meyer and Stewart (2004)
  7. 7. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 5 structure and nature of information exchange in general (OECD, 2002), and has altered the basic nature of the software industry (Fitzgerald, 2006, p. 587) and challenges the dominant production or distribution model of software (Watson, Boudreau, York, Greiner and Wynn, 2008). OSS may be defined as software whose source code is published and made available to the public, enabling anyone to copy, modify and redistribute the source code with or without conditions (Levi and Woodard, 2004). Now, the ERP adoption process will be influenced by the type of ERP solutions that are available to SMEs, including OSS, and by those who provide these solutions such as vendors and application service providers (Haines and Goodhue, 2003). The criteria used by organizations to select an ERP system and an ERP supplier (Keil and Tiwana, 2006) would also come into play. When selecting a particular ERP solution, the two criteria deemed to be most important for SMEs are: the level of alignment of proposed system with the firm’s business model and processes, as well as the system’s degree of flexibility (AMR Research, 2004; Bernroider and Koch, 2001). Six ERP adoption alternatives can be identified. The first four of which involves proprietary software, namely large vendor, small vendor, “best of breed”, outsourcing, custom, and open source software. Noting that the ERP systems provided by both large and small vendors are generally of the “best of suite” type, that is, they are fully integrated and provide full functional coverage (Alshaw, Themistocleous and Almadami, 2005):  Large vendor this category regroups the ERP systems provided by the market leaders, that is, by SAP, Oracle, Sage, Microsoft and SSA; together, these five firms held 72% of the market in 2004 (AMR Research, 2004).  Small vendor (Helo, Anussornnitisarn and Phusavat, 2008) this category regroups the ERP systems provided by a large number of vendors such as Epicor, i2, Mapics, Meta 4, and Movex that differ from the previous five large vendors in that their offering is generally targeted to a specific market segment (such as manufacturing SMEs) or sector of activity (such as hospitals).  Best of breed (Light, Holland and Wills, 2001) these ERP systems are constituted by the organizations that use them from various functional modules provided by multiple vendors, be they large, small or open source ERP vendors, each module being considered the best in its category.  Outsourcing (Trimi, Lee, Olson and Erikson, 2005) here the organization transfers to a third party all or most of the tasks related to the configuration and exploitation of the ERP system, be it of the large vendor, small vendor or open source type.
  8. 8. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 6  In-house or custom ERP development (Olsen and Saetre, 2007) in this last alternative, the organization develops its own ERP system, made-to-measure to satisfy its specific needs, with or without the assistance of a third party.  Open source (Daffara, 2007) as is the case for other OSS (Levi and Woodard, 2004), the organization disposes of the ERP system’s source code, that it can then copy, modify or commercialize with or without conditions depending on the type of license under which the software is distributed. According to Wang (2009), IT innovations such as OSS have two main differentiating characteristics, that is, their conceptual form and their material form. In the first form, an IT innovation is a “collective idea for the development and utilization of an IT innovation”. Whereas it corresponds in the second form “to the physical aspects such as hardware, software and the processes enabled” (p. 2). In this regard, as shown in Table 2, certain attributes of OSS-ERP distinguish these systems from other ERP solution alternatives and thus render them attractive to SMEs. Table 2: Attributes of Open Source ERP as Compared to Other Adoption Alternatives + the ERP solution alternative is highly rated on the ERP attribute the ERP solution alternative is lowly rated on the ERP attribute +/- the ERP solution alternative is moderately rated on the ERP attribute NA the ERP attribute is not applicable to the ERP solution alternative ERP Solution Alternative ERP Attribute Proprietary Software Custom Development Open source Software Conceptual Ability to access and modify the source code (Kalina and Czyzycki 2005; Olsen and Saetre 2007) – + + Ability to try out the software at a very low cost (Dedrick and West 2004) – – + Independence (Light, Holland and Wills 2001; Olsen and Saetre 2007; Trimi, Lee, Olson and Erikson 2005) – + + High level of maintainability (Light; Holland and Wills 2001) – + + Low acquisition and possession costs (Davenport 2000; Gartner Group, 2008; Gruman, 2007; Olson 2007; TNS Technology, 2009) – +/– + Sharing of development costs (Lyman 2004; Sledgianowski, Tafti and Kietstead, 2007) – +/– + Material Property of source code (Olsen and Saetre 2007) – + + Rare need to invest in specific servers (Bordage 2005; Sledgianowski et al., 2007) – + + Based on most recognized software standards, middleware or languages such as XML and JBoss (Smets-Solanes and Carvalho, 2003)  +/– + +
  9. 9. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 7 3. CASE STUDY RESEARCH METHOD Adoption of OSS is a relatively new phenomenon, and especially in the SME context. This study thus aims to explore the process of OSS-ERP adoption, and the fundamental issue of ERP risk management that shapes this process. To do so, we illustrate how and why different contextual, organizational, managerial and OSS-ERP specific factors affect the adoption process. This case study was grounded in the interpretive epistemology, aiming to understand the context of an open source ERP system and the dynamics of the mutual influence between the system and its context (Walsham, 1995). The issue of generalization of results from interpretive case studies has been recognized as a major challenge for scholars (Lee and Bakersville 2003). In the present research, the two types of generalisation desired are in the form of developing concepts and developing rich insights, both of which “are feasible from a single case study” (Walsham, 2006, p. 322). Meeting the case selection criterion in that it had implemented an open source ERP system, Faboltec1 was the first organization to accept the researchers’ case study offer. As is shown in Table 3, this firm adopted its system at the end of a process that lasted six months. Table 3: Milestones of Open Source ERP Adoption at Faboltec Timeframe Months 1 – 3 Months 4 - 6 Milestone events  Adoption of a custom ERP system following an offer made by an independent developer.  Opportunity to acquire an open source ERP following an offer from an integrator.  Preparation of a one-page system specifications by Faboltec’s managers with the assistance of the integrator.  Organization by the integrator of a demonstration at Faboltec’s premises of the ERP based on the one-page system specification.  Numerous exchanges (e-mails, phone calls and meetings) between Faboltec’s managers and the integrator.  Choice made three months after the demonstration.  Negotiation with the integrator to obtain a fixed price that would include installation, configuration of the system, knowledge transfer and user training as well as support. ERP adoption phase Adoption Planning decision  Evaluation Choice Negotiation 1 A fictitious name is used to preserve the anonymity of the case study, as wished by the enterprise.
  10. 10. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 8 Evidence was obtained from four different sources: semi-structured interviews, written documents, a questionnaire, and field notes. The main source of the data collected consisted of four interviews conducted at Faboltec’s premises in October 2006 by one of the researchers. The four “key informants” that we met were the CEO, the sales and marketing manager, the logistics manager, and the quality control manager (Patton, 2002). The interview with the logistic manager ended with a demonstration of the ERP system in the production environment. With the permission of each informant, the field researcher conducted audio recordings. The field researcher took detailed hand written notes of all interviews. Each face-to-face interview lasted approximately one hour and a half. Two complementary phone interviews were conducted with the CEO and the logistics manager to clarify statements made during the face-to-face interviews. The selection of the key informants was based on a “snowball” sampling procedure and on the level of responsibility of potential informants with regard to the project functional coverage. An appropriate level of saturation was reached as answers began to repeat themselves after the third face-to-face interview because incremental learning became negligible and no new insights emerged at the end of the fourth interview (Guba and Lincoln, 2004). With regard to sample size in qualitative research, Morse (1994; 2000) recommends at least six participants for phenomenological studies such as this. This recommendation is consistent with Guest, Bunce and Johnson’s (2006, p. 76) findings that 34 out of 36 codes that were applied with a high frequency to the transcripts of 60 interviews had already been identified within the first six interviews. In the same vein, Romney, Batchelder and Weller (1986, p. 326) calculated that samples as small as four individuals can render extremely accurate information, with a high confidence level, if informants possess a high degree of competence with regard to the domain under inquiry. Prior to the interviews, each participant was sent a letter outlining the aim of the research project and indicating the specific areas that would be explored in the interviews. In a fashion similar to Joshi, Barrett, Walsham and Cappleman (2007), we also had a number of contacts with a consultant from the integrator firm that provided and implemented the ERP system at Faboltec. This enabled us to have a broader discussion that covered areas such as the characteristics that distinguish OSS-ERP from other alternatives, the adoption of OSS-ERP by SMEs as well as the configuration of the ERP market, given the engagement level of this consultant (Gable, 1991; Howcroft and Light, 2008). The documents consulted were essentially promotional material on Faboltec’s activities and products, information on the company’s markets, project documentation, documentation from the selected ERP
  11. 11. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 9 system supplier, and the ERP system documentation. The questionnaire was presented to all informants after their interviews. All audio recordings were transcribed and all written notes were converted to electronic format. Data analysis was performed in an iterative manner, as all electronic material was read through several times. At first, we applied data display techniques (Miles and Huberman 1994), the data being structured to identify the various phases of OSS-ERP adoption that Faboltec had passed through. The data were analysed to identify which elements of the firm’s global and ERP-specific context, risk exposure, and risk management profile came into play within a particular phase in the adoption process. This also enabled patterns to be identified in the process of moving backward and forward between the data and the research framework in a “hermeneutic circle” (Klein and Myers 1999). A narrative approach in the form of a “narrative report” was then used to describe the case (Langley, 1999). A further round of iterations between empirical data and concepts from diffusion of innovation theory offered deeper insights into the dynamics of this OSS-ERP adoption. 4. SUMMARY OF FINDINGS In this section, a brief history of Faboltec is first presented, followed by a description of the context of the open source ERP adoption, prior to discussing the risk management activities undertaken by this SME at the outset of and during the adoption process. As presented in Figure 1, this process was observed to be influenced by a general context and an ERP-specific context, and to be composed of five phases, namely the adoption decision, project planning, selection of ERP solutions, choice of the most adequate solution, and negotiation.
  12. 12. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 10 Figure 1: Dynamic of Risk Management in Faboltec’s ERP Adoption Process •Name a  competent  and  recognized  project  leader Adoption  decision •Breakdown  project into work  packages • Estimate the  budget and  schedule • Plan the transfer  of competencies •Ensure user  participation •Model critical  processes •Parallel operation  of legacy and new  system for one  month •Organize a  demonstration Evaluation phase ‐ In‐house ERP  development or ‐ Open source  Choice phase •Negotiate a fixed  price Negotiation phase Exposure to risk • organizational  • technological • business • contractual • entrepreneurial  • financial • legal Fit  Risk management profile • Principles • Practices Global context •environmental  •organizational • strategic • technological • entrepreneurial Principle • Adapt the ERP system to the organization Planning phase ERP‐specific context • Motivations to adopt ERP  • Stakeholders in ERP adoption process • ERP system /supplier selection criteria • ERP solution alternatives
  13. 13. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 11 Managing the risk of ERP adoption required Faboltec to align its risk management profile with its level of risk exposure, as a number of risk abatement mechanisms were employed during the adoption process. Faboltec’s management of this risk can be described in terms of its intuitive, rather informal and apparently unstructured nature, based on one guiding principle and nine practices, using these two levels of abstraction as architecture for such mechanisms (Colbert, 2004, p. 343). 4.1. Context of Open Source ERP Adoption at Faboltec Faboltec is a manufacturing SME specialized in the fabrication of buildings whose purpose is to house technical equipment. Created in 1967 by a skilled tradesman, the firm was under the sole ownership of its founder until 1987. That same year, given major problems with the management of the firm, the main customer, a large prime contractor, asked one of its subcontractors, a family firm operating in a related sector, to take over Faboltec. At present, Faboltec’s capital is still held by this family firm. Faboltec’s commercial dependency is quite high, given that 42% of its turnover originates directly or indirectly from one major customer. The firm operates in a national market in which there are less than ten competing firms. Most of Faboltec’s competitors are large enterprises, the market being characterized by a high level of professionalization and regulation. Approximately 70% of Faboltec’s business comes from repeat customers, given its positioning in the market. New customers are encountered at trade fairs where the firm exposes its products approximately three times per year, as well as through its Web site. To answer market demands, Faboltec produces both on “make-to-stock” and a “make-to-order” basis, and both in “job-shop” and unit mode. The volume of production has been increasing at a 10% annual rate for the last five years, having achieved 550 units in 2005 and due to achieve 750 units in 2006. To increase the flexibility of its operations, the firm has a number of subcontractors for certain specific activities, representing approximately 5% of its production. Faboltec is a small enterprise whose organizational structure is simple and centralized. It has 45 employees, and five managers, with a turnover of 9 million Canadian dollars on its national market in 2005. Communication within the organization is mostly direct and informal, and most important decisions are taken solely by the chief executive. Notwithstanding his age and business experience, the latter is quite familiar with computer-based management tools and shows a positive attitude toward IT, as illustrated by the following assertion:
  14. 14. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 12 “A few years back, I initially believed that I would retire without ever having to push a button on a computer keyboard, as computers did not exist when I was young. Realising the growing importance of computers in business however, I decided that I would get to know this technology. I thus took some training and started using computers both at the office and at home.” In fact both the CEO and logistics manager are passionate about computers; with the latter even presenting himself as a computer “doctor”. Until June 2006, managerial and operational processes were quite traditional, with no formalization. Faboltec’s sales and marketing manager indicates that implementation of the ERP system coincided with the start of the firm’s “modernization” process. To satisfy the exigencies of its major customer, the firm obtained ISO 9001 certification in 1990 and is currently in the process of implementing a bar-coding system and a technical document archival system. Faboltec hopes to maintain its “niche” with stable products that give value to its know-how. The firm basic strategy is one of differentiation founded upon its reputation, its responsiveness, and the quality of its products and services. Four years earlier, given the inadequacy of its information system, the firm adopted a proprietary sector-based ERP system, that is, a system specifically made for the firm’s industrial sector. As users could not “appropriate” themselves of the system one year after its implementation, management decided to abandon the system and return to the Excel-based legacy applications. In this regard, it seems interesting to note that Faboltec’s experience provides empirical evidence of the need for a confirmation phase after implementation, as suggested by Rogers (2003). Three main reasons were cited by key informants at Faboltec for the previous failure: the rigidity of the ERP system, its complexity, and the non-participation of users in the adoption and implementation process, as confirmed by the following assertions: “It was a standard package that was not adapted to our firm; moreover it was hard to master” (quality control manager). “Our mistake was in wanting to impose the system on the users. And maybe that’s why things went wrong”(sales and marketing manager). At first, Falbotec did not have a particular motivation to seek an ERP system. The opportunity to develop such a system simply arose when the firm received an offer of service from an independent software developer who was a member of the management team’s informal network. The firm then
  15. 15. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 13 expressed motivations of an operational and strategic nature. Management wanted the capacity to analyze the firm’s commercial activity and improve certain managerial processes, that is, to manage inventory in real time rather than monthly as provided by the Excel application, to identify requests for proposals that were turned into orders, to identify “profitable” customers, and to generate business documents in an automated manner (approximately 13 documents per order). As the discussions with the independent software developer progressed with regard to specifying and developing a “home-grown” ERP system, the system’s functional perimeter kept increasing and the project was thus becoming more complex. Initially, the software to be developed was simply meant to produce an analytical report of the proposals submitted to customers but the application perimeter was progressively enlarged. The project team first integrated detailed information on customer orders, including the detailed components of each building ordered with a link to inventory management. The application became even more complex when it was decided to add automated alert systems. It is at that time that the owner-manager of a young enterprise specialised in the integration of OSS, based a few kilometers from Faboltec’s premises, presented himself and offered the OsourceSoft2 ERP system to Faboltec. This coincidence was noted by the logistics manager: “So, as things were becoming complex for our development, here arrived OsourceSoft’s leader.” On his part, OsourceSoft’s owner-manager notes that this “coincidence” was in fact the result of his development strategy based on proximity to manufacturing SMEs. He had in fact planned to meet with the leaders of all the manufacturing SMEs located within a certain regional perimeter, including Faboltec, in order to offer OsourceSoft’s integration services. His positioning for open source ERP is to adapt the product to the client’s wishes. Holding a PhD in industrial production, he can have a critical eye on the client’s processes and can propose an audit to the customer if he judges it to be warranted. 4.2 Management of Open Source ERP Implementation Risk at Faboltec Attracted by the potential advantages of the second solution, that is, OsourceSoft’s offer of an OSS- ERP as compared to the first custom ERP offer, Faboltec’s management decided to evaluate OsourceSoft and invited the integrator to demonstrate its ERP software in April 2005. In particular, 2 OsourceSoft is a fictitious name designing both the integrator and the ERP system.
  16. 16. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 14 this second solution was deemed by the chief executive to be less risk-laden than the first. Hence the chief executive’s perception of the OsourceSoft system as being less risky than a custom-built system began to play in favour of an OSS solution: “OsourceSoft came to see us and said that they had this software to begin with and that they could adapt it to our needs. Since we had almost committed to the independent software developer that was to build everything from scratch, we said to ourselves: ‘Why not start with existing software, it can’t be riskier.” At that stage, while nothing had been formally planned in terms of project budget and schedule, and based on his past experiences with ERP, the chief executive hoped to be able to acquire the new ERP system for 50 000 dollars (CAD) and to implement it at the end of December 2005. The OsourceSoft system was evaluated through a two-hour demonstration held at Faboltec’s premises, and attended by the chief executive, the operations manager and the logistics manager. Prior to this demonstration, a one-page system specifications outline (presented in Appendix A) was prepared with the help of the integrator and in consultation with the future users of the system. To elaborate this document, the integrator’s consultant interviewed functional representatives from all of Faboltec’s domains of activity. The document’s final version was validated by each of the functional experts. This simple document synthesized Faboltec’s core processes in graphical format; in the chief executive’s opinion, it benefited from the discussions undertaken previously with the independent software developer. The aim of this specification document was basically meant to describe the workings of Faboltec in order to determine the adaptation needed of OsourceSoft. The 2-hour demonstration was based on production scenarios for products similar to Faboltec’s. The CEO, the technical director and the logistics manager were all present at the demonstration, which was based on the one-page spec outline, prepared with the help of the integrator and in consultation with the system’s future users. The CEO has more than 30 years’ experience in the business, the technical director is an engineer and a member of the family that owns the firm, and the logistics manager has had numerous responsibilities within the firm, including supply, design, quality control and production. The demonstration impressed the attending managers on three main aspects: the OsourceSoft system’s compatibility with Faboltec’s business model and processes, its flexibility, and its user-friendliness. With regard to the system’s compatibility, the chief executive notes: “Their presentation showed exactly what we wanted. What we want is once we have elaborated a proposal, that this proposal becomes an order, and once an order is received and validated, that it be sent to production with all of its elements.”
  17. 17. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 15 An assertion by the logistics manager corroborates this: “It’s true that this was a good presentation. We were to imagine our products within this system. I am not a software specialist but I saw OsourceSoft’s potential to answer our needs, and it turned out to be so.” At the outset, OsourceSoft’s leader highlighted the system’s flexibility, i.e., the possibility of aligning the system with Faboltec’s ways through the following two capabilities: configuration of the system and customisation of the accessible source code. The management team was also impressed by the concept of shared development within the OSS community, as brought forth by the integrator. For Faboltec, it was an advantage linked to cost reduction through sharing the investment in software development with others. Other aspects highlighted by the integrator were also well received by the management team: the characteristics of the GPL license under which the system is distributed, the dynamism of the OSS community as well as the transparency in dealing with new versions and software bugs. The first factor was deemed attractive for at least two reasons. First, it implied savings in software licensing costs, that is, in Macredie and Mijinyawa’s (2011, p. 244) terms, an “economic benefit gained from using OSS, including public licensing, royalty-free licenses, and scalable licensing”. The above authors also mentioned the economic attractiveness to SMEs of using OSS, seeking to leverage their limited IT budget and scare resources in the adopting IT. Second, it gave Faboltec freedom to modify the ERP software and adjust it to its processes at moderate cost, hence lowering the financial impact to the company of its organizational creativity and innovation (Macredie and Mijinyawa, op. cit.). Hence, while adopting an OSS ERP system can induce additional cost imputable to the complexity of such a software product and related services, the license cost saving was seen to be a valuable economic benefit for Faboltec, given its IT resource constraints. The preceding advantages of OSS gave Faboltec visibility and assurance in terms of the rationale and content of the new functionality to be added, that is, to extend the system’s functional coverage with new versions of the software, as well as participating in the bug reporting system and quick bug fixing. This is consistent with other scholars (Macredie and Mijinyawa, 2011; Wang and Wang, 2001) who have reported OSS community as an influential factor in OSS adoption and use, and as a distinctive source of free technical and informational support that enablies the use of OSS by individuals and organizations. No formal criterion was used to evaluate the new ERP system, neither did Faboltec’s management ask for references or contact other OsourceSoft customers. After the demonstration, the chief executive officially informed all personnel of its outcome.
  18. 18. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 16 In May 2005, after three months of discussions, the chief executive invited OsourceSoft’s leader for formal negotiations with regard to both price and schedule. He obtained a fixed price that included installation, configuration of the system and user training. The functional perimeter was broken down into five work packages covering the following activities: 1) proposal preparation and order preparation, 2) production, 3) quality control, 4) purchasing, and 5) logistics, shipping and billing. In fact, the functional perimeter was extended to all of the firm’s activities after discussion with the integrator. In addition, to host the system, it was planned to acquire a server prior to starting the project. The server was to be located on Faboltec’s premises and its configuration, installation and maintenance were to be under Osourcsoft’s responsibility. Three main internal stakeholders were involved in the ERP adoption process namely, the chief executive, the operations manager and the logistics manager. Users were nonetheless informed and consulted throughout the adoption process as emphasized by the sales and marketing manager: “This time, we talked a lot among ourselves and we had users participate at the project’s outset.” At Faboltec, adopting an ERP was done in a reactive, incremental, informal and intuitive manner that is common to SMEs (Simmons, Armstrong and Durkin, 2008), and enriched by the learning experience obtained from the implementation failure of the previous ERP system. The chief executive notes: “What made us progress quickly with OsourceSoft was the failure of our old ERP system. Thus, when we met with OsourceSoft’s people, we were able to say ‘wait, we don’t want this to cause us a problem at such and such a place’. We also understood that user participation was essential. ” One may add here that core business processes did not change. Although detailed specifications for automation revealed details that had been forgotten. For Scott and Vessey (2000), the organisational learning that results from the ERP implementation process is linked not only to the technology itself but also to the firm’s business processes. In Faboltec’s case, mention by key informants of ERP’s complexity and lack of flexibility as the previous implementation’s cause of failure, denotes learning on the characteristics of such technology. In similar fashion, learning obtained from terminating the “in-house” ERP adoption process allowed Faboltec to define the specifications for the open source ERP in a timelier and more efficient manner, and thus provided the firm learning on its business processes. Another type of
  19. 19. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 17 learning unmentioned by the preceding authors also occurred, namely learning on the ERP adoption process itself, as mention was made of the lack of user participation and of being too dependent to the integrator in the previous implementation. As noted by the logistics manager: “Because that’s the problem we had when we acquired the first system, we could not do anything without the integrator.” It seems important to mention that the failure of a first ERP implementation in an organization is something that is quite common; as the size and volatility of such IT projects impact their performance (Sauer, Gemino and Horner Reich, 2007). A number of authors report such cases, notably the Hydro-Quebec case (Landry and Rivard 2001). Having experienced the failure of an ERP system judged to be too “rigid” (Elbanna 2006) and adopted without the participation of users; seems to have created a particular adoption context for the new system at Faboltec. 4.3 ERP Risk Management Principles and Practices at Faboltec As soon as a new occasion to adopt an ERP system presented itself, Faboltec’s management decided to try again by pondering two alternatives that were riskier than the “small vendor” alternative chosen in the first experience, that is, an “in-house development” alternative and an OSS alternative. From this point of view, building everything from scratch was more risky than starting with existing software to be used as a “software blueprint” for the new system (Light, 2005). This attitude denotes a certain tolerance to risk on the part of Faboltec’s managers. In Faboltec’s case, mention of the system’s rigidity and complexity as the main cause of the previous ERP failure denotes learning with regard to technology. Similarly, learning obtained from abandoning the custom ERP development solution accelerated the elaboration of specifications for the open source ERP solution, and thus denotes learning with regard to business processes. Also, mention of the lack of user participation in the previous ERP adoption denotes organizational learning with regard to a third aspect, namely the adoption process itself. Hence, when came the second adoption, the stakeholders at Faboltec seemed to know exactly what they wanted. One single guiding principle and ten practices seemed to have been sufficient to successfully adopt an ERP system, notwithstanding the informal, intuitive and apparently unstructured approach adopted by the company. More precisely, this principle and these practices had an effect of reducing risk exposure in the various phases of Faboltec’s ERP adoption process, as shown in Table 4.
  20. 20. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 18 Table 4: Effects of Guiding Principles and Practices in Reducing Faboltec’s Risk Exposure ERP adoption phase Adoption decision Planning Evaluation Choice Negotiation PRINCIPLES The ERP system is adapted to the organization O B O B O B O B O B PRACTICES Ensure user participation O O O O Name a competent and recognized project leader O Estimate budget and schedule F Breakdown project into work packages O B T Plan the transfer of competencies O B C F O B C F Model critical processes B B Plan to parallel operation of legacy and new system for one month B O B O Organize a demonstration B Negotiate a fixed price F Legend B=business risk; C=contractual risk; F=financial risk; O=organizational risk; T=technological risk; E=entrepreneurial risk; L=legal risk. The guiding principle that the ERP system should be adapted to the organization indicates that Faboltec had opted for an alignment of the system with its existing business model and processes through the more malleable OSS solution rather than attempting to change these to adopt the so- called “best practices” embedded in the more rigid “large ERP vendor” or “small ERP vendor” solutions. The application of this guiding principle from the adoption stage onward decreased the exposure to both organizational risk and business risk as it assured that the selected system would be flexible enough to “fit” Faboltec’s business processes and it limited the extent of changes in its ways of doing business. From this perspective, Faboltec solved the alignment problem between the structure induced by the ERP system and its own organizational structure, and did so early at the beginning of the system’s lifecycle, thus answering Soh and Sia’s (2004) call.
  21. 21. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 19 By informing and consulting users early on in the adoption process, Faboltec mobilised its knowledge repertoire, as enriched by its previous experiences. As mentioned by the quality control manager: “During the adoption process, the chief executive talked to us about the ERP system, he asked us what we thought of it, if it could be of value to our business In addition, observing this practice decreased Faboltec’s exposure to organizational risk. More specifically, the probability that the system would be rejected by users, as was the case in the previous ERP adoption experience, was significantly reduced. By estimating a budget and a schedule, the CEO was attempting to align the projects with his limited means and his business imperatives. In the same vein, breaking-down the project reduced its complexity and avoided replicating the last experience with the independent consultant. Consequently, observing these two practices decreased Faboltec’s exposure to financial, organizational, business and technological risks. In same fashion, the demonstration organized at Falbotec premises on the basis of the one-page specifications provided an opportunity to evaluate the compatibility of the ERP system with the enterprise’s business processes and allowed for the envisioning of the functioning of the company under this system. These last practices thus contributed to reduce the firm’s exposure to business-related risk. One may infer here that Faboltec went to the heart of the matter, given its prior experiences, by deploying sufficient efforts to align its new ERP system with the organization. The rather intuitive approach taken by Faboltec yet its relatively successful implementation of an open source ERP system would contrast with what one would expect a priori. Indeed, given its prior unsuccessful experiences, one would have possibly expected Faboltec to undertake at the outset a formal, highly structured approach in order to reduce implementation risk. One should recall here that Bonaccorsi, Giannangeli and Rossi (2006, p. 1086) associate higher risk to OSS, having found that customers of software vendors appreciate the following characteristics of proprietary software: “Licensed software is usually packaged according to industrial standard in terms of documentation, maintenance, product updating, and product responsibility clauses. These are highly appreciated by final customers, because they greatly reduce the perceived risk. […] the perceived customers’ risk of buying from small new entrants offering open standards is significantly higher.”
  22. 22. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 20 Faboltec nevertheless preferred to acquire an open source ERP system, even though this alternative was perceived to be riskier than a proprietary system provided by a small or a large vendor. Moreover, the OSS solution was deemed by management to be less risk-laden than a custom-built or in-house ERP solution. Initially, the adoption process at Faboltec was mainly influenced by the organizational learning from the previous experiences of ERP adoption and by management’s knowledge and attitude toward IT. From an entrepreneurial point of view, management intuition also came into play in the planning and evaluation phases while management style influenced the choice and negotiation phases. The open source ERP-specific factors that influenced the adoption process, more specifically the evaluation phase, were the compatibility, the flexibility, and the perceived advantage of OSS-ERP. Also important were the notions of shared development as well as the transparency and dynamism of the OSS community as perceived by Faboltec’s management. The ERP system was put into service on June 1st , 2006. In the first month, the system was operated in parallel with the Excel-based legacy applications. One of the perceived benefits of the new system as perceived by the users lies in the level of rigour that it brings to the organization. Having succeeded in implementing its new ERP system, Faboltec has achieved integration of its processes, as denoted by the quality control manager in comparing the present situation with the one that prevailed before: “With OsourceSoft, all administrative processes are automated. The transfer from one process to the next is much quicker while limiting errors. If the proposal is accepted, the corresponding order ensues and everything else follows.” Another perceived benefit is with regard to sales and marketing, as the structure of technical and commercial documents related to the equipments fabricated by Faboltec are henceforth standardized. Additionally, Faboltec has also reaped a benefit from sharing ERP software development as it was able to retrieve a sub-module developed by a member of the OSS community to read bar-codes. And at the individual level, it is gains in productivity that are valued. For the quality control manager, an important impact of the ERP system is in reducing the time necessary to track an order from 30 to 5 minutes. Now, Faboltec’s management and most of the users want to go further in exploiting the possibilities of the OsourceSoft system, as denoted by the chief executive: “Our ambition is to extend the system to all production processes, that is, to transfer administrative data to the plant in order to control these processes.”
  23. 23. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 21 5. DISCUSSION OF FINDINGS According to Walsham (1995), the choice of theory is essentially subjective and lies in the researcher’s own experiences, background and interests. Also, from an interpretive epistemological posture, this choice can be made at different stages of the research, notably, both before and after data collection (Walsham, 2006). In this study, we utilized diffusion of innovation (DOI) theory (Rogers, 2003) as an initial theoretical “lens” in order to understand why and how small business managers adopt an open source ERP system for their organization. In a previous study, Rajagopal (2002) applied this theory to analyze the diffusion of ERP, whereas Bonaccorsi and Rossi (2003) did so for the diffusion of OSS. The adoption decision is deemed to rely upon certain perceived characteristics of the innovation, namely its complexity, compatibility, observability, trialability, and the relative advantage procured. This theory also proposes a model of the innovation adoption process that is based on the concept of communication channels and is decomposed into adoption phases. 5.1 Insights on the Case from DOI Theory DOI theory appeared to fit rather well with the situation observed at Falbotec, and to offer more insights than other competing theories; such as adaptive structuration theory for instance, in explaining the ERP adoption process. In a fashion similar to Noir and Walsham (2007), after reviewing the field data, a number of concepts from DOI theory were found to provide the greatest degree of insight into the dynamic of ERP adoption at Faboltec. These concepts are compatibility, observability, complexity, relative advantage, trialability, innovation knowledge, and communication channels. 5.1.1 Compatibility and Observability of Open Source ERP System The notion of “compatibility” of the proposed open source ERP system with the workings of the organization revealed itself to be most important at Faboltec. By adopting as guiding principle that “the system must be adapted to the enterprise”, Faboltec sought a system that was compatible with its existing business model and processes, that is, it did not seek to change this model in a fundamental way nor to reengineer its core processes to adopt so-called “best practices”. This compatibility was verified through OsourceSoft’s demonstration of its system. In the same vein, Faboltec’s management team seems to have “observed the results” of the open source ERP for the company when one of them declared that “we were able to imagine our products
  24. 24. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 22 within this system”. Here, in contrast to Fitzgerald and Kenny’s (2003) as well as Bhadauria, Mahapatra and Manzar’s (2009) empirical findings that the ability to modify the code source is not a important factor for OSS adoption, our own finding suggests the importance of this ability when considering the adoption of a “mission-critical” OSS. One may recall in this regard that Macredie and Mijinyawa (2001) found compatibility to have a positive influence on attitude towards the adoption of OSS. 5.1.2 Complexity, Relative Advantage, and Trialability of Open Source ERP System Another notion emanating from DOI theory, namely the “complexity” of the ERP technology, also revealed its importance in Faboltec’s case. As noted previously, OsourceSoft’s system was perceived as being easy to use. It was perceived as such particularly when compared to the proprietary ERP previously abandoned one year after its adoption. This point was also illustrated by the transfer of knowledge in terms of ability to configure OsourceSoft’s system by the logistics managers after few weeks of collaborative work with the integrator. Additionally, the management team had seen the “relative advantage” an ERP system, as opposed to Excel macros, and of the OSS solution, as opposed to the “in-house” solution initially proposed. In this regard, it was made clear by all the informants that the Excel-based information system had become a major constraint on the firm’s productivity and growth. Moreover, Faboltec made use of the system’s “trialability” by operating it for one month in parallel with the legacy Excel-based applications before adopting it definitively. This practice allowed for smoother changes and provided users with the opportunity to find out how the new system functioned under their own working conditions. In this last regard, trialability had been previously reported to favourably influence adoption attitudes (Morgan and Finnegan, 2010). 5.1.3 Communication Channels, Innovation Learning and Knowledge Two additional points may be made in light of the DOI theory. First, the integrator acted as a “change agent” which facilitated adoption. Second, the CEO and the organisation were able to move forward because they had sufficient competence with regard to innovation, that is, with regard to the ERP system, the OSS phenomenon and the process of adopting and implementing such a system. In short, the two previous experiences had provided Faboltec’s management with three types of knowledge relevant to innovation (Rogers, 2003): awareness-knowledge, i.e. information about the existence of the ERP system and OSS phenomenon, how-to knowledge, i.e. information necessary to adopt, implement and use the ERP system correctly, and principle knowledge consisting of information associated to the functioning principles underlying how an ERP system of the OSS type
  25. 25. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 23 works. This particular context is reinforced by the chief executive’s personal characteristics such as his knowledge of IT and positive attitude toward this technology, and by the management team’s characteristics such as risk propensity and intensity of informal communication. These characteristics correspond respectively to the “receiver variables” and the “social system variables” that are deemed to play an important role in DOI theory (Rogers, op. cit.). Overall, these results also confirm Ven and Verelst’s finding (2011) that the OSS assimilation is principally influenced by the availability of internal and external knowledge of OSS. The findings also confirm that adoption of ERP, as a complex integrating technology, requires integrating knowledge from various stakeholders including Faboltec’s management, the integrator, and the OSS community (Newell, Swan and Galliers, 2000). Thereafter, as befits the small business context, the role played by one individual, namely the chief executive, was crucial throughout the ERP adoption process, as all important decisions were taken by this individual. The characteristics of the OSS ERP system, reinforced by the integrator’s discourse as a change agent seems to have played in OsourceSoft’s favour. Our findings also suggest the importance of an “organizational sponsorship” of OSS in the adoption of OsourceSoft’s solution, this notion being defined as a publicly displayed affiliation between an OSS project and an organization (Stewart, Ammeter and Maruping, 2006, p. 128). As a sponsor, the integrator promoted both the OSS product and services. Moreover, the chief executive alone negotiated the fixed price with the integrator. This also highlights one of the specificities of SMEs when compared with large enterprises in matters of IT adoption, that is, the preponderant role played by one individual, namely the entrepreneur or owner-manager (Rodney, 2002). Diffusion of innovation theory seems to offer a direct insight as to why Faboltec adopted, without any serious misgivings, the apparently riskier open source ERP alternative rather than the “large vendor” alternative or again the “small vendor” alternative adopted then abandoned four years earlier. Given this previous experience followed by the interest in a custom ERP system as well as the relative tolerance to risk on the part of Faboltec’s managers, the notion of “communication channels” may provide additional background to understand Faboltec’s OSS adoption behaviour. Communication channels in the form of mass media constitute an interesting path, as supported by the following explanations:  The progressive intrusion of OSS into the ERP systems environment, as an operational ERP system can be decomposed into four major components, that is, client workstations, Web server, DBMS, the ERP software itself, and the operating system of the server that hosts this
  26. 26. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 24 software, whereas OSS progressively invaded the operating system, DBMS, Web server, and client workstation domains.  Highly publicized in the mass media, the entry into the open source movement of large players in the computer industry, as well as the latter’s large investments created knowledge, spread information and influenced the attitude held by Falbotec’s managers. Indeed, previous research has provided robust empirical findings on the attributes of innovations, including extent of interpersonal and mass media influence on adoption decisions (Greenhalgh, Macfarlane, Bate and Kyriakidou, 2004)  The chief executive’s and logistics manager’s strong interest in information technologies, and thus their awareness of OSS.  The organizational sponsorship of OsourceSoft’s OSS project by the integrator provided a cue to the availability of technical support and others services and resources that may be required over the long term, thus lowering the perceived risk of doing business with an OSS supplier. In addition, the face-to-face exchanges between Faboltec and the integrator, when the latter was promoting the OsourceSoft ERP, illustrate the importance of interpersonal communication as an innovation diffusion channel (Rogers, 2003). And while the availability of technical support did not appear to be a determinant factor in this case, contrary to what could be expected for the adoption of an OSS-type of application by a SME, it seems that Faboltec had anticipated this point by negotiating a contract with the integrator that included support for the ERP system. Another interesting finding is the importance of OSS “ideology” (Stewart and Gosain, 2006) in the adoption of OsourceSoft’s solution, as the notion of “sharing source code development” is related to this ideology. Faboltec’s management seemed to have entered into a “decision corridor” as soon as OsourceSoft had presented their solution; hence the project moved directly from the “planning” to the “evaluation” phase, skipping both the “search for information” and “selection” phases. One may recall here that organizations that adopt packaged software in general and ERP systems in particular “do not always have a clear understanding of the potential of the technology, how it maps on to their existing working practices, and how to use it in the most appropriate way” (Howcroft and Light, 2008, p. 611). For Olsen and Saetre (2007), this situation is most probable in SMEs given these firms’ lack of IT expertise and their consultants’ emphasis on the potential benefits rather than the potential drawbacks of ERP systems. In similar fashion, Gable (1991) reported that certain SMEs have a tendency to give their consultant a completely free hand in this regard. Three facts could explain why the preceding situations were not observed at Faboltec: 1) the CEO as well as the management team had rather sound knowledge of what ERP meant for their organization, given the learning generated by a previous ERP abandoned a year after its implementation and by the process of developing an in-house ERP, 2) the demonstration, lasting two hours, was made on the basis on
  27. 27. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 25 the one-page handwritten spec that synthesized Faboltec’s processes and business relationships, and 3) this spec was prepared jointly with the integrator. In the end, Faboltec was more interested in the business value potentially provided by open source ERP software than in the technology, and demonstrated a relatively high level of risk-propensity. Its behaviour is thus more in line with the “early adopter” profile as characterized in the DOI theory (Rogers, 2003). More precisely, Faboltec’s high level of risk propensity, denoted earlier by the willingness to accept the risk associated with the adoption of a second ERP, despite the past failure, is consistent with early adopter behaviour, that is, organizations seeking first and foremost to acquire new technologies if they better meet their needs than current technologies. If the benefits to be thus obtained are perceived to be substantial, “these early adopters are less price sensitive and are willing to take risks to acquire the benefits” (Taylor, Moore and Amonsen, 1994, p. 162). 5.2 Further Insights on the Case Further insights into “institutional” or “power” issues in the case may be gained by seeking explanations from a conceptual background other than that of DOI theory. A case in point lies with Faboltec’s adoption of ISO 9001 certification and of a bar-coding and document archival system, made under pressure from its major customer. As such, this may be the manifestation of a “coercive isomorphism”, as defined in neo-institutional theory (DiMaggio and Powell, 1983). But neither a customer nor any other institution intervened prior to or during Faboltec’s ERP adoption process. It seems however that the exigencies of the firm’s major customer had an indirect effect on the necessity to adopt an ERP system, as the legacy applications’ inefficiency was hindering Faboltec’s efforts to meet the quality standards set by this customer. In a similar instance, Benders, Batenburg and Blonck (2006, p. 6) used neo-institutional theory to explain ERP adoption by introducing the notion of “technical isomorphism” in which homogenization among organizations occurs as a result of “enacting software-embedded standards”. Other conceptualizations of IT adoption that take issue with the recursive, adhoc nature of ERP adoption may be called upon for further explanation (Elbanna, 2006). For instance, as an alternative, mission critical OSS adoption processes in SME context could be conceptualized as improvisation or bricolage (Ciborra, 2002; Baker and Nelson, 2005), i.e. a process wherein “thinking and action emerge simultaneously at the spur of the moment” using the resources at hand (Ciborra, 1999, p. 78).
  28. 28. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 26 6. CONCLUSION Adoption of information technology innovation constitutes a major research stream within innovation research (Venkatesh, Davis and Morris, 2007) and has been widely investigated by scholars. However, the rapidly expanding adoption of open source software, combined with optimistic growth forecasts in the IT market lead one to believe that the adoption of this type of software by small and medium-sized organizations will continue to increase. However, adoption of OSS in this context is a rather new phenomenon on which our understanding remains limited. This study has implications both of a conceptual and practical nature. 6.1 Implications for Research The main contributions of our research are threefold. First, this research has contributed to the ERP research stream by studying a case of open source ERP adoption as an alternative to the other more commonly found solutions such as the proprietary software packages provided by SAP, Oracle and other vendors. Second, this study has contributed to the OSS literature by looking at the adoption of a “mission-critical” OSS application, that is, in a wholly different context than the mostly peripheral or “back-office” OSS applications studied to date. Third, consistent with), the results of this research provide empirical support for Roger’s (2003) diffusion of innovation theory in explaining the implementation of an “open innovation” strategy by SMEs. Considering the adoption of an open source ERP as an organizational innovation, DOI theory is thus applicable to open innovation despite the associated risks and complexity (Morgan and Finnegan, 2010). Empirical evidence of the successful adoption of an open source ERP system by a manufacturing SME is in itself a significant contribution to the OSS, packaged software and ERP research domains. Also, methodologically speaking, the choice of a qualitative, in-depth study approach seems to have been particularly adequate in initially apprehending the more intuitive, less formal approach used by a SME such as Faboltec to adopt an open source ERP system. Another research contribution resides in providing theoretical and empirical foundation to a framework of ERP adoption in SMEs that is based on a set of management principles, policies and practices. Moreover, there has been as of yet little research on the open source ERP phenomenon. In this regard, this study has answered von Krogh and von Hippel’s (2006) call to information systems researchers to further research the OSS phenomenon from multiple theoretical perspectives and
  29. 29. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 27 methodological approaches. A contribution to the literature has thus been made, first by studying “mission-critical” OSS adoption, and second by doing so at an organizational level of analysis. This study has also followed Xu and Brinkkemper’s (2007) identification of an urgent need for more scientific studies on “product” (as opposed to “tailor-made”) software, given their characterisation of large packaged software such as ERP as “not simple to deploy”, as requiring “a lengthy selection and contracting phase”, and as having “to be implemented by specialists” (p. 539). In this regard, another research contribution lies in the confirmation that OSS should be studied within the context of packaged software and that SMEs can benefit from such a software service provisioning model, its uncertainties and risks notwithstanding. Further research is obviously needed to provide added support to the findings and conclusions of this study. Case studies of manufacturing SMEs having successfully implemented ERP alternatives other than open source, such as the “large vendor” or “best-of-breed” alternative, would provide added robustness to the research framework and provided comparative evidence on each of these alternatives, given management principles, policies, and practices appropriate to each alternative. The framework could also be extended to “mission critical” IT other than ERP such as CRM (customer- relationship management) systems. The theoretical and methodological postures taken in this study cannot however fully-encompass all such complex organizational phenomena. We thus hope that this initial research effort will stimulate further work on packaged software adoption and ERP adoption in particular within the OSS domain, and not only in SMEs but also in other types of organizations such as public and not-for-profit organizations. 6.2 Implications for Practice By providing a robust description and explanation of how a manufacturing SME can manage the packaged software adoption process in order to successfully implement an open source ERP system, this study also has implications for practice. First and foremost, this research confirms that open source is a credible alternative for SMEs that decide willingly or under external pressure to adopt an ERP system. Given its advantages, OSS is a solution that may be envisaged by SME owner- managers, and those individuals and institutions such as consultants and government agencies whose mission is to support and counsel these firms. Moreover, this study suggests that a high level of formalization is not always necessary, in accordance with the SME’s specificities.
  30. 30. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 28 For ERP vendors, this study shows that SMEs are more in search of flexibility in an ERP system than in the “best practices” embedded within these systems, as flexibility generally constitutes the main competitive advantage of these firms over large enterprises (Levy and Powell, 1998). Also corroborated is the potential of OSS to affect profound changes in the ERP software industry and in services, as the dominant mode of the relationship between the vendor and the client organization is called into question. And with regard to OSS, the shared development within a community is a feature that gets the attention of SMEs and could be more promoted. Now, the open source community relies on relationship that allows the sharing of commodity development that is relevant to a given firm or a group of firms, and company resources invested on new developments can benefit other member of the OSS community (Linden, Lundell and Marttiin, 2009). 6.3 Intended Contribution In an environment characterised by globalisation and based on knowledge, most small and medium- sized manufacturing enterprises are subjected to increased pressures with regard to competitiveness, innovation, flexibility, quality, and information processing capability. In attempting to achieve “world-class” manufacturing status, a number of these firms have adopted an ERP system, and some of them are doing so with open source software (TNS Technology, 2009). As complex evolutionary phenomena, both OSS and ERP are deemed by common wisdom to involve a substantial commitment in resources. This study has demonstrated that it is nonetheless possible for SMEs to successfully manage this commitment, albeit through a single case. In attempting to describe and understand the dynamics of the OSS/ERP adoption process from a packaged software adoption perspective, we hope to have provided a rich conceptual and practical contribution.
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  38. 38. Risk of Adopting Open Source ERP for Small Manufacturers: A Case Study Placide Poba-Nzaou, Louis Raymond et Bruno Fabi Copyright © 2012. HEC Montréal. 36 Appendix A: Faboltec’s handwritten one-page system specifications outline Prospecting Southwest Prospecting Southeast Direct clients CLIENT Preparation and management of proposals Client order (order stats for Prime Client) Commercial Software ToberealisedintotalityatFaboltec forastepbystepfollow-up Preparationofplans (allvalidations) Specialpurchases Ordercomponents Inventorymanagement Order capture by Faboltec with elements from proposal. All elements captured will be reproduced on ALL documents to come. (account managers) Techn. confirmation Oils, tints, labels Site plans Order acknowledge for the client Delivery date carry-over slip Site visit slip for transport company and crane operator Fabrication slip electrical Fabrication slip concrete and finishing Longitudinal and final quality control vouchers Vouchers announcing the delivery to the client, the transport co. and the crane operator Delivery slips (in sufficient number) + control vouchers for client (on site) Slip announcing to Prime Client the delivery of a station (realised) Client billing - input to commercial s/w Eventual processing of new client orders Eventual follow-ups in case of non payment Final archival document Traceability control Inputtoaccounting software Generalmanagement craneoperator,transportco.Follow-upofnewclientorders(qualityrecords)Traceabilityfollow-up Cellsandtransformers Byclientorclientgroup(forPrimeClient,:bycenter,byagency) (fornationalfirms:byregionorsub-region) Statusofrealisedproposals Statusofordersreceived Customerrelationshipmanagement(addresses,org.flowcharts,clientparticulars) Monthlyandannualmanagementofsalesreps’visits Turnoverbyclientor,forPrimeClient,bycenterandbyagency Turnovercomparedtoprecedingyear

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