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

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


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 : [email protected]

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 : [email protected] 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 : [email protected] Tél. : 819-376-5011, poste 3139

Août 2012


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




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




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




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)




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.




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)

+/– + +




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.




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




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.




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

Evaluationphase

‐ In‐house ERP development

or

‐Open source

Choicephase

•Negotiate a fixed price

Negotiationphase

Exposure to risk• organizational • technological• business• contractual• entrepreneurial • financial• legal

Fit

Risk managementprofile

• 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




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:




“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




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.




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.”




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.




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




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.




Table 4: Effects of Guiding Principles and Practices in Reducing Faboltec’s Risk Exposure

ERP adoption phase Adoptiondecision

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.




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.”




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.”




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




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




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




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




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).




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




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.




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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Appendix A: Faboltec’s handwritten one-page system specifications outline

ProspectingSouthwest

ProspectingSoutheast

Directclients CLIENT

Preparation and managementof proposals

Client order(order stats for Prime Client)

CommercialSoftware

To be realised in totality at Faboltec

for a step by step follow-up

Preparation of plans(all validations)

Special purchases

Order com

ponentsInventory m

anagement

Order capture by Faboltecwith elements from proposal.All elements captured will be

reproduced on ALL documentsto come. (account managers)

Techn. confirmationOils, tints, labels

Site plansOrder acknowledge

for the client

Delivery datecarry-over slip

Site visit slip fortransport companyand crane operator

Fabrication slipelectrical

Fabrication slipconcrete

and finishing

Longitudinal and finalquality 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 deliveryof a station (realised)

Client billing - inputto commercial s/w

Eventual processingof new client orders

Eventual follow-upsin case of non payment

Final archival documentTraceability control

Input to accountingsoftw

are

General m

anagement

crane operator, transport co.F

ollow-up of new

client orders (quality records)Traceability follow

-upCells and transform

ers

By client or client group (for Prim

e Client,: by center, by agency)(for national firm

s: by region or sub-region)

Status of realised proposals

Status of orders received

Customer relationship m

anagement (addresses, org. flow

charts, client particulars)

Monthly and annual m

anagement of sales reps’visits

Turnover by client or, for Prime Client, by center and by agency

Turnover compared to preceding year

Education

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