ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

THE EFFECT OF ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM

IMPLEMENTATION ON ORGANAZATIONAL PERFORMANCE: THE CASE OF
SELECTED PUBLIC SERVICE CAMPANIES IN ETHIOPIA.

A THESIS SUBMITTED TO THE DEPARTMENT OF ACCOUNTING AND FINANCE

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE DEGREE OF
MASTER OF SCIENCE IN ACCOUNTING AND FINANCE.

BY:
SISAY GEZAHEGN

ADVISOR:
TAKELE FUFA (PhD)

MARCH 2020
ADDIS ABABA, ETHIOPIA
 ADDIS ABABA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

This is to certify that the thesis prepared by Sisay Gezahegn entitled “The effect of Enterprise
Resource Planning (ERP) system implementation on organizational performance: The case
of selected public service companies in Ethiopia” and submitted in partial fulfillment of the
requirements for the Degree of Master of Science in Accounting and Finance complies with the
regulations of the university and meets the accepted standards with respect to originality and
quality.

Approved by Board of Examiners:

Name of Advisor_____________________________ Signature ______________Date _______

Name of internal examiner______________________ Signature _____________ Date ________

Name of external examiner______________________ Signature _____________ Date _______

ii
 ADDIS ABABA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

Statement of Declaration

I, Sisay Gezahegn declare that, this thesis entitled “The effect of Enterprise Resource Planning
(ERP) system implementation on organizational performance: The case of selected public
service companies in Ethiopia” for the partial fulfillment of the requirements for MSC Degree
in Accounting and Finance is my own work with close advice and supervision of my advisors
Degefe Duressa (PhD) and Takele Fufa (PhD).

Name: Sisay Gezahegn

Signature __________
Date ______________

iii
 CERTIFICATION
This is to certify that Ato Sisay Gezahegn has carried out this research work on the topic entitled
“The effect of Enterprise Resource Planning (ERP) system implementation on
organizational performance: The case of selected public service companies in Ethiopia”
under my guidance and supervision. This research work is original in nature and is sufficient for
submission for the partial fulfillment for the award of MSc. in Accounting and Finance.

Takele Fufa (PhD).

Signature_____________
Date______________

iv
i
 Acknowledgements

First of all, I would like to thank the almighty God for giving me the means, courage and
strength that enabled me to complete my study. I would like to express my deepest gratitude to
both my advisors, for the first phase of research proposal review, Degefe Duressa (PhD) and last
phase thesis review, Takele Fufa (PhD) for their guidance, valuable comments and suggestions
from the beginning of the research proposal to the completion of the research study.

My appreciation also goes to employees of Ethiotelecom, Ethiopian Airlines and Commercial

Bank of Ethiopia especially working in the area of finance, human resource and sourcing &
facility divisions for their great collaboration and support for successfully carrying out the data
collection processes.

Finally, my special thanks go to my beloved wife Meseret Teklearegay and my daughter Yididya
Sisay for their support, encouragement and patience during my study.

May the Almighty God bless you all.

i
 Table of Contents

Tables page
Acknowledgements-------------------------------------------------------------------------------------------i
Table of Contents---------------------------------------------------------------------------------------------ii
List of Tables -------------------------------------------------------------------------------------------------v
List of Figures -----------------------------------------------------------------------------------------------vi
List of Acronyms /Abbreviations-------------------------------------------------------------------------vii
Abstract------------------------------------------------------------------------------------------------------viii
Chapter 1: Introduction ----------------------------------------------------------------------------------1
1.1 Background of the study -------------------------------------------------------------------------------1
1.2 Statement of the Problem-------------------------------------------------------------------------------3
1.3 Research Questions--------------------------------------------------------------------------------------5
1.4 Objectives of the Study --------------------------------------------------------------------------------6
1.4.1 General Objective of the study----------------------------------------------------------------6
1.4.2 Specific objectives of the study---------------------------------------------------------------6
1.5 Significance of the study-------------------------------------------------------------------------------6
1.6 Scope and Limitation of the study--------------------------------------------------------------------7
1.6.1 Scope of the study---------------------------------------------------------------------------- 7
1.6.2 Limitation of the study-----------------------------------------------------------------------8
1.7 Organization of the paper------------------------------------------------------------------------------8
Chapter 2: Literature review----------------------------------------------------------------------------9
2.1 Theoretical Review-------------------------------------------------------------------------------------9
2.1.1 Concept of Information Technology-------------------------------------------------------9
2.1.2 The IT Productivity Paradox----------------------------------------------------------------10
2.1.3 Definition of ERP system-------------------------------------------------------------------10
2.1.4 The history of ERP System-----------------------------------------------------------------11
2.1.5 ERP Modules---------------------------------------------------------------------------------13
2.1.5.1 Financials Module-----------------------------------------------------------------13
2.1.5.2 Human Resources (HR) Module------------------------------------------------14
2.1.5.3 Supply Chain Management (SCM) Module-----------------------------------14

ii
 2.1.6 Theoretical Framework---------------------------------------------------------------------15
2.1.6.1 Theory of Organizational Information Processing-----------------------------15
2.1.6.2 Theory of Sociotechnical System (STS) ----------------------------------------16
2.1.7 Organizational Performance----------------------------------------------------------------17
2.1.8 ERP system and Organizational Performance-------------------------------------------17
2.1.8.1 Impact of ERP System on Financial Performance--------------------------19
2.1.8.2 Impact of ERP System on Non-Financial Performance------------------- 20
2.1.9 The Role of Financial ERP system on organizational units------------------------- 21
2.1.10 The role of Sourcing and Facility (SCM) ERP system on organizational units --21
2.1.11 The role of Human Resources ERP system on organizational units----------------27
2.2 Empirical Review ------------------------------------------------------------------------------------- 31
2.3 Research Gap-------------------------------------------------------------------------------------------34
2.4 Conceptual Framework -------------------------------------------------------------------------------35
Chapter 3: Research Design and Methodology------------------------------------------------------37
3.1 Research design and approach -----------------------------------------------------------------------37
3.2 Population and Sample--------------------------------------------------------------------------------38
3.3 Sampling Design---------------------------------------------------------------------------------------38
3.3.1 Sampling Technique-------------------------------------------------------------------------- 38
3.3.2 Sample Size-------------------------------------------------------------------------------------39
3.4 Data Type and Sources of data-----------------------------------------------------------------------42
3.5 Methods of Data Collection---------------------------------------------------------------------------42
3.6 Data Analysis Techniques-----------------------------------------------------------------------------43
3.6.1 Descriptive statistical Analysis---------------------------------------------------------------43
3.6.2 Inferential statistical Analysis----------------------------------------------------------------43
3.7 Measurement of Variables-----------------------------------------------------------------------------43
3.8 Model Specification------------------------------------------------------------------------------------44
3.9 Test of Validity and Reliability-----------------------------------------------------------------------45
3.9.1 Validity-------------------------------------------------------------------------------------------45
3.9.2 Reliability----------------------------------------------------------------------------------------46
3.10 Ethical Considerations-------------------------------------------------------------------------------46

iii
Chapter 4 : Data Analysis and Interpretation-------------------------------------------------------47
4.1 Demographic Profile of Respondents----------------------------------------------------------------47
4.2 Result of Survey data-----------------------------------------------------------------------------------50
4.2.1 Result for survey data for independent variables------------------------------------------- 50
4.2.2 Result for survey data for dependent variable-----------------------------------------------53
4.3 Descriptive Statistics of Variables--------------------------------------------------------------------55
4.4 Correlation Analysis------------------------------------------------------------------------------------58
4.5 Model Diagnostic test-----------------------------------------------------------------------------------59
4.5.1 Multicollinearity Test----------------------------------------------------------------------------59
4.5.2 Autocorrelation Test----------------------------------------------------------------------------- 60
4.5.3 Normality test-------------------------------------------------------------------------------------
61
4.5.4 Heteroscedasticity Test---------------------------------------------------------------------------
63
4.6 Model Specification Test-------------------------------------------------------------------------------64
4.7 Result of regression analysis---------------------------------------------------------------------------65
4.7.1 Evaluation on the regression output----------------------------------------------------------65

Chapter 5: Summary, Conclusion and Recommendations----------------------------------------71

5.1. Summary-------------------------------------------------------------------------------------------------71
5.2 Conclusion------------------------------------------------------------------------------------------------
72
5.3 Recommendation----------------------------------------------------------------------------------------74
5.4 Recommendation for Further Research---------------------------------------------------------------
75
References---------------------------------------------------------------------------------------------------- 76
Appendices--------------------------------------------------------------------------------------------------- 84
Appendix I: Questionnaires-------------------------------------------------------------------------------- 84
Appendix II: Descriptive Statistics of Variables-------------------------------------------------------- 90
Appendix III: Multicollinearity Test-----------------------------------------------------------------------
90

iv
Appendix IV: Autocorrelation test-------------------------------------------------------------------------
91
Appendix V: Normality test--------------------------------------------------------------------------------91
Appendix VI: Heteroscedasticity Test--------------------------------------------------------------------92
Appendix VII: Model Specification Test-----------------------------------------------------------------93
Appendix VIII: Regression Results -----------------------------------------------------------------------93

List of Tables

Table Page
Table 3.1: Distribution of sample size ------------------------------------------------------------------41
Table 3.2: Measurement of Variables-------------------------------------------------------------------44
Table 4.1: Demographic Profile of Respondents------------------------------------------------------48
Table 4.2: Reliability Test of Variable‟s----------------------------------------------------------------50
Table 4.3: Survey result for the independent variables----------------------------------------------- 51
Table 4.4: Survey result for the dependent variable---------------------------------------------------54
Table 4.5: Descriptive statistics with aggregate value------------------------------------------------55
Table 4.6: Descriptive statistics with individual value------------------------------------------------55
Table 4.7: Correlation Matrix-----------------------------------------------------------------------------58
Table 4.8: Multicollinearity Test (Correlation Matrix) -----------------------------------------------60
Table 4.9: Multicollinearity test (VIF method) --------------------------------------------------------60
Table 4.10: Autocorrelation Test-------------------------------------------------------------------------61
Table 4.11: Normality test---------------------------------------------------------------------------------62
Table 4.12: Heteroscedasticity Test----------------------------------------------------------------------64
Table 4.13 Model specification Test---------------------------------------------------------------------65
Table 4.14: Regression result-----------------------------------------------------------------------------65

v
 List of Figures

Figure Page
Figure 2.1: Historical evolution of ERP system--------------------------------------------------------13
Figure 2.2: Conceptual framework-----------------------------------------------------------------------36
Figure 4.1: Histogram with normal distribution------------------------------------------------------- 63

vi
 Acronyms /Abbreviations
BPM-Business Process Management
CBE-Commercial Bank of Ethiopia
CIM-Computer Integrated Manufacturing
EAL-Ethiopian Airlines
ET-Ethio Telecom
ERP-Enterprise Resource Planning
DW-Durbin Watson test
FA-ERP: Finance ERP system
HR- Human Resource
ICT-Information Communication Technology
IS-Information Systems
IT-Information Technology
MRP-Manufacturing Resources Planning
OIP- Organizational Information Processing
OP-Organizational Performance
OVtest -Omitted Variables Test
SAP - Systems Applications and Products
SF ERP - Sourcing and Facility ERP
SCM- Supply Chain Management
STS-Sociotechnical System
VIF- Variance Inflation Factor

vii
 ABSTRACT

In today’s global economy, organizations implement integrated software to create smooth inter-
organization integration, get competitive advantage, hold customer satisfaction, produce real time report,
provide user satisfaction as operating system, and getting output from the system. Enterprise resource
planning (ERP) system is a set of integrated software modules and a central database that facilitates an
organization to manage the efficient and effective use of resources. The effects of ERP system
implementation on organizational performance needs to be known and measured so that appropriate &
timely interventions can be undertaken for improvement. The main objectives of this study is to evaluate
the effects of ERP system implementation on organizational performance in the selected public service
companies in Ethiopia with respect to major ERP modules finance, human resource and sourcing &
facility. The research adopted both explanatory and descriptive research designs with mixed of
quantitative and qualitative research approach. Both primary and secondary data were used in the study
for data collection purpose. The study population was composed of management and non-management
staffs of selected public service companies, which were 1270 respondents. The study applied both
stratified random sampling and purposive sampling techniques so as to allow in coming up with a sample
size of 604 respondents, where primary data was collected directly from the respondents by the use of a
questionnaire which was composed of both close ended and open ended questions. The collected data was
analyzed using descriptive and inferential statistics using powerful econometric software STATA 11.
Multiple regression analysis was used in the study to determine the effect of ERP system on
organizational performance. The study results were presented by the use of tables, percentages and
figures. The findings of the study show that financial ERP, human resource ERP and sourcing & facility
ERP have statistically significant and positive effect on organizational performance of selected public
service companies. In conclusion, the management of these companies as well as other organizations
must emphasize on those variables and develop strategy accordingly for efficient and effective utilization
of resources, managing time and expenses, facilitating organizational survival, profitability, maintain
competitive advantage and generally improved overall organizational performance. Finally, the study

viii
recommends that the companies must implement adequate training and development programs in order to
enhance the user's satisfaction and be more productive on their job.
Keywords: Enterprise Resource Planning (ERP), Organizational performance, selected public service
companies.

ix
 CHAPTER ONE
INTRODUCTION
1.1Background of the study
Globalization has made business more challenging by expanding markets, increasing customer
expectations and competition, made additional pressure on the firms to change rapidly. As such,
an integrated system is required by the business leaders, in a way that can run the whole business
processes to maintain their competitive advantages and fulfill the global requirements (P. K.
Dey, B. T. Clegg, & D. J. Bennett, 2010). Information systems are often used as tools to improve
customer service, reduce cycle times, increase effectiveness, and decrease cost. The potential and
proven ability of Information Communication Technology (ICT) and Information Systems (IS)
to increase organizational performance in terms of efficiency in processes and quality is well
documented (Al-Mashari, 2003; Abugabah &Sanzogni, 2009). Njihia and Mwirigi (2014)
contend that Enterprise resource planning (ERP), among the principal forms of ICT applications
in organizational setting, which is emerging as one of the most effective means of ensuring
optimum organizational performance.

Enterprise resource planning (ERP) is an enterprise-wide information system designed to

coordinate all the resources, information, and activities needed to complete business processes.
ERP system is a set of integrated software modules and a central database that facilitates an
organization to manage the efficient and effective use of resources (materials, human resources,
finance etc.) by automating and incorporating business processes, data sharing throughout the
enterprise and enabling information access in real-time environment (Laudon and Laudon,
2013).

ERP systems play a fundamental important supporting role in several industries for instance the
service industries such as the telecommunications, financial institutions, as well as airline
industries. When ERP systems are fully realized in a business organization, they can yield many
benefits: reduce cycle time, enable faster information transactions, facilitate better financial
management, lay groundwork for e-commerce, and make tacit knowledge explicit
(Davenport,2011). In general, the benefits of ERP system can be classified into five different
dimensions: Operational benefits, by automating business processes and enabling process
changes, they can offer benefits in terms of cost reduction, cycle time reduction, productivity

1
improvement, quality improvement, and improved customer service. Managerial benefits, with
centralized database and built-in data analysis capabilities, they can help an organization achieve
better resource management, improved decision making and planning, and performance
improvement. Strategic benefits, with large-scale business involvement and internal/external
integration capabilities, they can assist in business growth, alliance, innovation, cost
differentiation, and external linkages. IT infrastructure benefits, with integrated and standard
application architecture, they support business flexibility, reduced IT cost and marginal cost of
business units‟ IT, and increased capability for quick implementation of new applications. And
finally organizational benefits, they affect the growth of organizational capabilities by supporting
organization structure change, facilitating employee learning, empowering workers, and building
common visions.

One specific aspect of management control is the area of performance management. Talking
about managing performance, the next question that presents itself is: what exactly is meant by
performance and how can performance be measured. In the context of performance management,
the term "performance" means continually achieving the preferred results in a manner that is as
effective and efficient as possible. According to Gavrea et al. (2011), there are two dimensions to
measuring performance in organization. This is done by assessing either the financial or the non-
financial indicators. Glova and Gavurova (2012) stated that financial indicators include net
profit, profitability, return on assets, share prices and installation and maintenance costs of a
system. The non-financial indicator of performance can be further conceived into two categories,
organizational effectiveness and efficiency, in other word operational/managerial and strategical
benefits.

According to Elragal & Al-Serafi (2011) the adoption of ERPs injects efficiency in
organizational processes through the reduction of coordination costs and enhancing tighter
cording between and among departments, which allow organizations to react promptly and
simultaneously to certain environmental turbulences and opportunities. Organizations expect that
ERP will create competitive advantages. In assuming that ERP create advantages, it is necessary
to know what effects it has on an organizational performance. Now a days the performance of
service industries like Ethio-telecom, Ethiopian Airlines and Commercial Bank of Ethiopia are
highly dependent on modern technologies, the implementation of ERP System has a big role on

2
their business performances. Hence, the purpose of this study is to evaluate the effect of ERP
implementation on organizational performance in case of selected public service companies in
Ethiopia.

1.2 Statement of the Problem

In today‟s global economy, organizations face a number of challenges, such as severe
competition, greater market intensity, and more demanding customer expectations. In this
competitive situation, organizations can survive only if they improve quality, decrease costs in
their whole supply chain, reduce inventories lead time, diversify their products and services, and
provide more reliable delivery service in better ways in comparison to their competitors. Rapid
changes in social, economic, and political forces together with daily advances in technology are
making business markets even more intensely competitive, which fact is having a profound
influence on the way businesses are managed. In such environment, it becomes increasingly
imperative that managers create new and different strategies to maintain market position and
meet customer needs (Umble, 2003).

In light of these challenges, more and more organizations are seeking technologies that have the
ability, essentially, to manage every aspect of their business and, at the same time, make their
internal processes more efficient, effective and professional. Thus, information technology (IT)
and information system (IS) have changed the lives of both individuals and organizations and
play a crucial role in today‟s business world (Chung et al., 2008). Specially for those firms that
their business activities are highly dependent on modern information Technology (IT) and
Information System (IS) such as Ethio-telecom has mission to provide world class, modern and
high quality telecom service for all citizens, Ethiopian Airlines has vision named as “Vision
2030”, “There will be new planes and new destinations, and we will increasingly transform the
airline into an aviation group”. Ethiopian Airlines will set up its own aviation production and
Commercial Bank of Ethiopia envision is to become a world-class commercial bank by the year
2025. In order to achieve their vision and mission and create competitive advantages, the
companies must implement modern technology to run their business activities efficiently and
effectively and thus enhance organizational performance as a whole. ERP systems are among
those spreading technologies which take strategic advantages in competitive market through
enhancing organizational performance by facilitating transaction processing capabilities of the

3
firm, record keeping, decision-making, operational cost reduction, coordination of internal
processes, information sharing and communication. The advantages of using ERP system spread
broadly to the organizations worldwide for which organizations may enjoy benefits such as
better customers satisfaction, increased flexibility of operations, reduced quality costs, increased
company profits, improved information accuracy and improved decision-making capability for
top management (Dirisu et al., (2013).

A significant aspect for developing an ERP system is to evaluate and measure its performance.
Evaluating the effect of ERP implementation helps in analyzing the contribution of ERP systems
to organizations. The sectors that fully implemented ERP systems does not realize whether the
use and deployment of an ERP system enhances their employees' productivity, service quality
and innovation (Al-Mashari et al., 2003). The effects of ERP modules implementation on
organizational performance needs to be known, categorized, and measured so that appropriate &
timely interventions can be undertaken for improvement.

ERP implementation, however, brings not only business gain but also business pain (Cissna,
1998). Although ERP systems have many advantages and become a focal point of business and
technology planning, implementing ERP systems is expensive and time consuming (Sweat,
1998). The cost associated with ERP implementation is often greater than planned because of
many hidden costs such as training, customization, integration, and data conversion. The
business managers of organizations with significant ERP experience suggest that the cost of
introducing ERP systems is close to the cost to rebuild the firm‟s information infrastructure
(Trott and Hoecht, 2004).

A lot of studies are conducted regarding ERP system implementation success and failure factors
in Ethiopian context. For instance: Abiot & Jorge (2012) tried to assess successful ERP
implementation in an Ethiopian Company: A case Study of ERP Implementation in Mesfin
Industrial Engineering Pvt. Ltd. Engidayehu Getachew (2014) studied an assessment of
Enterprise Resources Planning (ERP) Implementation in Ethio telecom, practice and challenges
of ERP system. Elsa Taddele (2015) has conducted study on ERP post-implementation
management framework: The case of Ethiopian Airlines. Markos Mulat (2016) integrating
Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) and
analyze their impact on quality service delivery in Ethiopian Airlines. Foziya Ahmed (2017)

4
factors affecting the Implementation of Enterprise Resource Planning at Commercial Bank of
Ethiopia. Globally studied research has established that there exists a positive correlation
between adoption of ERP systems and organizational performance (Al-Mashari, 2003; Abugabah
& Sanzogni, 2009; Njihia & Mwirigi, 2014). Empirical evidence suggested that ERP adoption
facilitate organizational processes and activities including sales, billing, marketing, human
resource management, quality control and production thus ensuring general performance
(Motwani, 2016; Al-Mashari, 2003).

All the above-mentioned researches were conducted on ERP system implementation issues and
success and failure factors by considering a single case organization in Ethiopian context. To the
best of the knowledge of the researcher no sufficient empirical study has been conducted
regarding the impact of ERP systems implementation on organizational performance focusing on
three organizations namely: Ethio telecom, Ethiopian Airlines and Commercial Bank of Ethiopia
collectively. Because these companies‟ business activities are highly dependent on modern
information Technology (IT) and Information System (IS) hence, they invest huge amount of
money for implementing ERP systems and providing service to the general publics and also are
the prime supporter of rapid growth and development of the country‟s economy. Additionally ,
instead of single case, conducting an assessment of ERP implementation on organizational
performance on different organizations can give a holistic (all rounded) picture of the impact of
ERP implementation success in business performance of these service sectors but are in different
working environment, Ethio telecom (Telecom service),Ethiopian Airlines (Transportation
service) and Commercial Bank of Ethiopia (Financial service).

Therefore, in this research the researcher attempts to show how implementation of ERP system
affect performance of organization and generally aims to fill the above stated gap in the literature
focusing on three selected public service companies namely- Ethio-telecom, Ethiopian Airlines
and Commercial Bank of Ethiopia picking major automated ERP Module areas such as Finance,
Human Resource and Sourcing and facility divisions as main variables.

1.3 Research Questions

Ethio-Telecom, Ethiopian Airlines and Commercial Bank Ethiopia are Ethiopia's large state-
owned service companies established for the purpose of providing telecom, transportation and
financial services respectively to the public throughout the country. Hence, they have great

5
contribution to the overall growth and devotement of the country. Therefore, knowing the effect
of ERP system on business performance of these companies has its own merits, hence this paper
is conducted to address the following research questions:

1. What are the effects of Financials ERP system implementation on organizational

performance?
2. What are the effects of Human Resource ERP system implementation on organizational
performance?
3. What are the effects of Sourcing and Facility (SCM) ERP system implementation on
organizational performance?

1.4 Objectives of the Study.

1.4.1 General Objective

The general objective of this research is to assess the effect of ERP system implementation on
performance of Ethio-telecom, Ethiopian Airlines and Commercial Bank of Ethiopia.

1.4.2 Specific objectives

More specifically, the study will be guided by the following objectives:

1. To assess the effect of Financial ERP system on financial performance.

2. To evaluate the effect Human resource ERP system on organizational performance.

3. To investigate the effect of Sourcing and Facility (SCM) ERP system on organizational
performance.

1.5 Significance of the study

The study will be significant to the following stakeholders:

Ethio-Telecom, Ethiopian Airlines and Commercial Bank of Ethiopia are major contributor for
the development and growth of the country‟s economy. Their day to day operations are highly
oriented with information and communication technology (ICT) system. Therefore, studying the
relationship between one of the modern information and communication technology system
known as ERP system and its impact on the performance of companies is very essential because

6
cost of implementing ERP system is very expensive and time consuming. Thus, it needs serious
follow up whether the adopting companies achieved the expected objectives or not. Therefore,
the findings from this study serve as an input that ERP system improved the performance of the
companies.
The findings of the study will be a guide to the management of finance, human resource and
sourcing & facility divisions of Ethiotelecom, Ethiopia airlines and Commercial Bank of
Ethiopia as well as to other sectors to make strategic decisions considering the effect of ERP
system on organizational performance. For any organization which have a plan to deploy the
ERP system, the study will enable them to take correct decisions by looking the findings in
Ethiopian context.
The study attempted to fill gap of short of literature within the context of Ethiopia public service
company‟s ERP system. Finally, the findings of this study also serve as reference for future
researchers who will be interested to study topics related with ERP implementation and its
impact on organizational performance.

1.6 Scope and Limitation of the study

1.6.1 Scope of the study

This study is a multi-case study aiming to assess the effect of ERP implementation on
organizational performance that encompasses Ethio-Telecom (telecom sector), Ethiopian
Airlines (transportation sector) and Commercial Bank Ethiopia (finance sector). Because these
companies‟ business activities are highly dependent on modern information Technology (IT) and
Information System (IS) hence, they invest huge amount of money for implementing ERP
systems and providing service to the general publics and also are the prime supporter of rapid
growth and development of the country‟s economy. The participants are management and non-
management groups of employees from finance, human resource and sourcing & facility
divisions of company‟s organizational units located at company‟s Head Quarters only. Because
finance, human resource and sourcing & facility divisions had more respondents due to having
most of the staffs who participate during feasibility study and ERP system development phase
are currently working in these three areas .These divisions were also identified as the divisions
that are the major users of the ERP system. The research is conducted at head office level only

7
mainly due to ERP fully automated centrally at head office level and provide support to
branches, zones and regions and can be considered represent the remaining geographical areas.

1.6.2 Limitation of the study

The study is restricted to access only three public service companies. It would be better if more
stakeholders were included in the study to reach on national generalization about ERP system.
With limited number of independent variables, there could be other ERP modules that may affect
the performance of the organizations which are not included in this study. Finally, Because of
unavailability of related research work on the current topic in Ethiopia context, the study has
focused on materials of other countries.

1.7 Organization of the paper

This paper organized into five chapters.

The first chapter presents introduction of the study which consists of background of the study,
background of the organizations, statement of the problem, research questions, and objectives of
the study, hypothesis development, scope and limitation of the study. Chapter two deals with
literature review in the form of theoretical and empirical studies and states the gap analysis and
conceptual framework. The third chapter reflects the research design and methodology of the
study. Then chapter four presents data analysis and interpretation of the result. Finally, in the
fifth chapter, summary of the findings, conclusion and recommendation are presented.

8
 CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
In uncertain business environment, a firm develops its resources and capabilities to improve or
maintain its competitiveness. A firm needs to provide a product or service in the right place at
the right time at the lowest cost. Many firms are employing ERP solutions to respond to
customers‟ demands with speed and accuracy. Using ERP systems effectively is essential to stay
competitive and profitable. The following sections provide a brief conceptual understanding
Information Technology, what ERP system mean, evolution of ERP system, ERP modules,
theoretical framework to justify the need for the current study, review of existing literature on the
impact of ERP systems on organizational performance, the empirical review on the relationship
between Enterprise Resource Planning (ERP) and organizational performance, Research gap and
finally conceptual framework to guide the study discussion.

2.1 Theoretical Review

2.1.1 Concept of Information Technology

“IT investment, broadly defined, includes investments in both computers and

telecommunications, and in related hardware, software, and services” (Dedrick, Gurbaxani, &
Kraemer, 2003). IT investment is not the only tool for automation of current business processes,
but it plays a role of enabler which can bring desired organizational changes that can result in
improved productivity (Dedrick et al., 2003). The return on investments in IT can vary
significantly among firms, which can be linked to differentiated management practices that allow
the firm to bring organizational changes in accordance with the effective use of information
technology. As different industries have varying business processes, management, operations,
business cycles, decision-making style, the impact of IT can depend on a particular sector.

9
Devaraj and Kohli (2003) recommend that in order to see the true effect of IT on organizational
performance, the impact of particular IT application on specific industry should be assessed.
Likewise, different IT investments have a different impact on organizational performance.
Gattiker and Goodhue (2005) argue that studies conducted on the performance impact of IT have
assessed collective IT investments instead of considering varying impact of the different type of
information technology thus they suggest that better results may be achieved through focusing on
particular information technology such as enterprise resource planning system (ERPs).

2.1.2 The IT Productivity Paradox

In the early 1990s, researchers did not find significant positive relationship between IT
investment and performance because of productivity paradox. Research findings indicated that
companies which adopt IT technologies had no additional gains in productivity, and it was
claimed later that IT adoption actually slows down the growth in productivity since then, the
evidence has been mixed (Kallunki et al., 2011). Poston and Grabski (2001) reported there is no
relationship between ERP system implementation and financial performance, on the other hand,
Hayes, Hunton, and Reck (2001) found positive effect of ERP system on performance. However,
lately research indicates that IT can actually contribute to productivity improvements (Anderson
et al., 2003). As Pavlou et al. (2005) stated “previous literature has not conclusively shown that
IT investments have a positive effect on either firm or process performance.” This phenomenon
was named as a productivity paradox because the findings on productivity contradicted the
expectations of IT investors who thought that IT investments would improve business
performance (Anderson et al., 2003).

2.1.3 Definition of ERP system

There are different definitions of ERP. An Enterprise resource planning system commonly
known as an ERP system can be defined as a set of commercial software packages and hardware
that promise unified integration of information flow through all functional areas in a firm via
providing them access to single database. “Integration” is the key word for ERP implementation.
Enterprise resource planning (ERP) is an enterprise-wide information system designed to
coordinate all the resources, information, and activities needed to complete business processes
such as order fulfillment or billing. The ERP software encompasses the best business practices

10
which a firm can use to replace existing legacy systems. An ERP system supports most of the
business system that maintains in a single database the data needed for a variety of business
functions such as manufacturing, supply chain management, financials, projects, human
resources customer relationship management, knowledge management and talent management
(Nishad Nawaz, K Channakeshavalu, 2013).

According to Spano and Bello (2010) ERP is a kind of advanced Information System (IS), which
is capable of providing a comprehensive impression of the firm as well as shared database in
which the firm‟s transactions are both recorded and stored. Parr and Shanks (2000) explain that
the ERP system software typically comprises of several enterprise software modules, which are
purchased separately, based on the organizations specific technical capabilities and needs, such
as sales, service and product development and intra-organizational communication. Some of the
most common ERP modules consist of those for material purchasing, product planning,
inventory control, accounting, distribution, marketing, human resource and finance. According to
Laudon and Laudon (2013) ERP system is a set of integrated software modules and a central
database that facilitates an organization to manage the efficient and effective use of resources
(materials, human resources, finance etc.) by automating and incorporating business processes,
data sharing throughout the enterprise and enabling information access in real-time environment.

Scholars have argued in favor of multiple business value of ERP. Some of the stated values
include improved business insight (due to the possibility or availability of real-time information
produced by reports) lower organizational operational costs (via well-defined and more
streamlined business activities and processes), enhanced collaboration between organizational
staff, as well as between the organization and other stakeholders through effective data sharing in
requisitions, contracts and purchase orders (Al-Mashari, 2003; Fosser, et al.,2008; Dirisu, et al.,
2013). Thus, a firm implementing an ERP system can have benefits such as fast and accurate
information gathering, quick decision making, low inventory cost, improved interaction with
customers, improved product quality and manage the entire organizations‟ resources efficiently
and effectively.

2.1.4 The history of ERP System

Most research studies view the evolution of ERP systems from a manufacturing perspective. In
the late 1950s and the early 1960s, automated reorder point (ROP) systems were used for
11
scheduling production, ordering materials, and shipping products within an assigned plant area.
During the mid-1960s, computerized materials requirements planning (MRP) systems began to
replace ROP systems. These systems represented the first off-the-shelf business application
systems available in the market. They supported the creation and maintenance of master data and
bill of materials (BOM) across all products and parts in one or more plants. BOM processors and
forecasting algorithms along with computerized production reporting tools formed typical parts
of the MRP system. In the mid-1970s, manufacturing resources planning (MRP II) systems
began to replace MRP systems. MRP II systems integrated materials as well as production
capacity requirements in the calculation of overall production capabilities. In addition, advanced
reporting capabilities enabled the efficient scheduling and monitoring the execution of
production plans. The IT underlying MRP and MRP II systems focused primarily on automating
transactions in order to increase the firm‟s operational efficiency. (Chung & Snyder, 2000;
Klaus, Rosemann, & Gable,2000; Rondeau & Litteral, 2001).

The MRP systems typically ran on mainframes, reflected centralized computing, involved
limited interactions between users and the system, and had low levels of functional integration.
The MRP II systems, in contrast, mainly used multi-user networks and ran on a variety of IT
platforms. The late 1980s witnessed rapid advances in technology and MRP II systems were
integrated with other systems such as computer integrated manufacturing (CIM), just-in-time
(JIT), electronic data interchange (EDI), and manufacturing execution systems (Hsieh &
Kleiner,1992; Rondeau & Litteral, 2001).

In the early 1990s, ERP systems replaced MRP II systems. ERP systems extended MRPII system
functionalities to include functions such as human resources, sales and distribution, and quality
to create seamless, integrated information flows across the entire firm. ERP systems comprise of
a suite of integrated products that use a common IT architecture and can be linked or de-linked
and integrated with legacy and other application systems. These systems run on multiuser
networks and allow the simultaneous aggregation, de-aggregation, and manipulation of real time
data across functions. ERP systems now form the IT backbone of firms and their functionalities
have extended to include inter-firm integration facilitated by business applications such as
electronic-commerce (E-Commerce), SCM, and CRM (Sadagopan, 1999; Chung & Snyder,
2000).

12
ERP systems produced by companies such as SAP (Systems Applications and Products in Data
Processing) gained more interest in the market because they enabled firms to upgrade their
capabilities and to improve their business processes and procedures. In the highly competitive
and rapidly changing business environment, a firm needs to make right and timely decisions.
ERP systems enabled firms to gain competitive advantages through integrating and optimizing
business processes (Davenport, 1998). For that reason, ERP has gained importance in the
business strategy field.

Figure 2.1 shows the historical evolution of ERP system.

Source: -Rashid, Hossain & Patrick (2002).

2.1.5 ERP Modules

Enterprise Resource planning modules consists of broader variety of functional elements known
as Modules. However, different vendors have offered various Module packages. According to
major global ERP system vendor Websites there are two module categories, the first one pertains
to modules that address intra-firm activities, and the second one to modules that cater to inter-
firm activities. Firms initially implement the intra-firm module sub-system comprising of
modules such as finance, logistics, and human resources. Then, after stabilizing their internal
ERP system deployments, they implement the inter-firm module sub-system consisting of
modules such as supply chain, e-commerce, and planning and optimization (ArunKumar
Madapusi, 2008).

13
2.1.5.1 Financials Module

The financials module constitutes the operational aspects of the general accounting and financial
information for the firm (Appelrath & Ritter, 2000). This module meets global accounting
standards and typically comprises of integrated multi-site and multicurrency financial solutions
that allows for reconciliation of balance sheets, profit and loss statements, and cash flow figures
over different corporate entities. Flexible components such as the general ledger, accounts
receivable, accounts payable, asset management, treasury management, and investment
management, automate and streamline key business transactions across a firm‟s supply chain.
They incorporate decision capabilities with drill down facilities that help decision-makers
monitor key performance indicators at various organizational levels.

2.1.5.2 Human Resources (HR) Module

This module includes all business processes required to efficiently manage a firm‟s human
resources needs from recruitment to post termination benefits. It provides support for all
personnel management and development activities in the firm. The areas typically focused are
personnel, payroll, e-recruiting, time management, training, employment laws, meeting statutory
reporting requirements, taxes, benefits, workforce deployment and analytics, and self-service
delivery. Organizations can maximize the potential of workforce, while supporting innovation,
growth, and flexibility. They can automate talent management, core HR processes, and
workforce deployment enabling increased efficiency and better compliance with changing global
and local regulations (ArunKumar Madapusi, 2008).

2.1.5.3 Supply Chain Management (SCM) Module

The module helps firms manage their back-offices‟ linear, sequential, as well as adaptive supply
chains, by providing firms with planning and execution capabilities to manage internal
operations as well as extended inter-firm operations. The key components include order
processing, inventory control, inventory planning and forecasting, distribution requirements
planning (DRP), Material Requisition Planning (MRP), purchasing audit, customer order
management, supply chain manufacturing, and supply chain planning (Ayers, 2001).

To support the above idea, Kudyba and Diwan (2002) reported that investment in various forms
of IT has made important contributions to productivity and gross revenue. Hitt et al. (2002) noted

14
that firms that implemented ERP showed higher performance than firms that did not implement
ERP across a wide array of financial metrics. Therefore, based on previous research, ERP
implementation should contribute positively to organizational performance.

Previous research also indicates that ERP scope has a clear impact on firm performance. One
study indicated that deploying the human resources and financials modules had more impact on
performance than deploying either all modules or just the primary modules (Nicolaou, 2004).
Other study by Hitt et al. (2002) indicated that implementing financials, human resources,
manufacturing, and data warehousing/mining had more impact on firm performance than any
other combination. Both studies agree that deploying the financials and human resources
modules have the most impact on firm performance when compared to implementing all ERP
modules. Based on prior research, ERP implementation status and ERP scope both affect
organizational performance. Therefore, this study picks three major ERP Modules namely,
Finance, Human Resource and Souring and Facility (SCM) modules and evaluate their impact on
organizational performance.

2.1.6 Theoretical Framework

2.1.6.1 Theory of Organizational Information Processing

This theory was developed by Galbraith (2005). The theory identifies three important concepts:
information processing needs, information processing capability, and the fit between the two to
obtain optimal performance in organizations. According to the theory, organizations need quality
information to cope with environmental uncertainty and improve their decision making.
Environmental uncertainty stems from the complexity of the environment and dynamism, or the
frequency of changes to various environmental variables. The theory further postulates that
organizations have two strategies to cope with uncertainty and increased information needs for
their management processes: (1) Develop buffers to reduce the effect of uncertainty, and (2)
Implement structural mechanisms and information processing capability to enhance the
information flow and thereby reduce uncertainty. These sub units require an integrated IT system
that improve information flow and reduce uncertainty within organizational sub units. Increasing
the capacity to process information required in management processes which require (1)
investment in vertical information systems and (2) creation of lateral relations to portray an
image of how the levels of management interact in the management processes. Creation of slack
15
resources and self-contained tasks that reduce the need for information processing after a
satisfactory confirmation that indeed output of a process doesn‟t require further intervention of
an information processing system. Increasing the capacity to process information and reducing
the need for information processing are products aimed at fulfilling management goals which are
key entities of management (Markus et.al, 2000). The model was adopted because accurate and
timely information is a key element in management processes. Acquiring this information
requires a processing model which cannot be complete without focusing on Information and
Communications Technology infrastructure.

2.1.6.2 Theory of Sociotechnical System (STS)

The Sociotechnical System (STS) advocates the joint consideration of social and technical
factors when introducing new technologies into an organization. This theory considers
organizations as consisting of two interdependent systems; a technical system and a social
system. The technical system of an organization consists of tools, techniques, devices, artifacts,
methods, configurations, procedures and special knowledge used by organizational members to
acquire input and to transform input into output (Perinea and Mc Clean, 1994). The extent of
automation of a given technical system is crucial to the productivity of an organization. On the
other hand, the social system of an organization comprises the individuals who work in the
organization and the total of their individual and social attributes. Specifically, a social system
encompasses individuals‟ characteristics and relationships within and between groups.
Individuals‟ characteristics are related to employee‟s aptitudes, skills, education, attitudes and
beliefs. Relationships include lateral and vertical relationships between supervisors and
subordinates.

This theory is applicable especially in service industries putting into consideration to the
technical factors such as laying down information technology infrastructure such as networking
the industries, buying computers and integrating all functional areas into a single data base as
well as the social system which includes hiring of skilled staff and training the existing staff to
enable successful adoption and implementation of ERPs. Therefore, the socio-technical
perspective describes the devices, tools and techniques needed to transform inputs into outputs to
enhance the organizational performance. Tasmin and Woods (2007) showed that the socio-
technical model matched with the Knowledge Management proposed elements of leadership and

16
culture (infoculture), technology (infrastructure) and process and measurement (infostructure).
Pan and Scarbrough (1998) stated that “the socio-technical perspective thus adopts a holistic
approach which highlights the interweaving of social and technical factors in the way people
work”.

2.1.7 Organizational Performance

Organizational performance is a method of measuring the success of the organization to ensure

that it achieves its goals. Organizational performance measurement plays an important role in
organizational growth. Through measuring performance, a firm can identify and track progress
against organizational goals, seek opportunities for improvement, and compare performance
against both internal and external standards, and formulate strategic activities through reviewing
its performance (Woosang Hwang, 2011). Lee, Hong, and Katerattanakul (2004) divided
organizational performance into two categories financial performance and non-financial
performance. Financial performance, that is the ability to generate profits or profitability assessed
by financial measures such as the return on investment ratio (ROI), return on assets ratio (ROA)
and non-financial performance, which is organizational effectiveness and efficiency assessed by
service delivery lead time, labor efficiency variance and number of customer complaints, in other
word, operational/managerial and strategical benefits like market share, product quality,
company image and economic value added, which have no immediate effect on the financial
position of the firm but are rather of a more long-term character.

Most management practices built around financial measures bear little relation to a company‟s
progress in achieving long term objectives. Financial measures are also criticized for lacking
balance because they are more concerned with physical assets and ignore, for instance,
perspectives of customers, and internal business processes. All these perspectives are necessary
under the circumstances where companies transform themselves for competition based on
information (Emmanuel et al., 1990).

17
2.1.8 ERP system and Organizational Performance

ERP software integrates information used by the accounting, process, distribution, and human
resources departments into a seamless computing system (Jaidep Motwani, etal 2005). Most
firms place ERP implementation as a key technology priority in today„s increasingly competitive
and turbulent business environment. Many researchers suggest that IT investment leads to
improved firm performance including cost, quality, delivery, product variety, and time-to market
(McAfee, 2002). Firms must design, build and deliver the highest quality products in the
timeliest manner at the lowest costs to win and retain customers.

ERP systems are expected to provide at least in theory, seamless integration of processes across
functional areas with improved workflow, standardization of various business practices,
improved order management, accurate accounting of inventory, and better supply chain
management (Mabert et al.,2000). ERP arrived at a time when process improvement and
accuracy of information became critical strategic issues. In the past few years, ERP has become a
„„must have‟‟ system for almost every firm to improve competitiveness.

Evidence from a survey on companies who have adopted ERP systems and their impact on
management practice confirms a number of such benefits, increased flexibility in information
generation, improved quality of reports, increased integration of accounts applications and
improved decisions based on timely and reliable accounting information. After implementing an
ERP system, the company can use business processes quickly and correctly to stay on top of
product quality and timely delivery, which establishes customer confidence. Using the ability to
access and analyze information, a company can readily build a customer database and effectively
analyze customer information. This enables a firm to understand customer attributes and
behaviors, thereby finding the correct position and market segment for the product. This results
in customers becoming corporate assets and firms being able to maintain a good relationship
with their customers (Huang et al., 2007). Further with an ERP system, companies can leverage
advanced features and functionality to improve all aspects of their operations from product
development, sourcing and procurement, through manufacturing, quality testing, and to delivery.
As a result, they can enhance efficiency and profitability by reducing cost, developing various
products, introducing new products faster than competitors, delivering products on time, and
improving quality.

18
Some researchers have reported that firms typically fail to obtain the full benefits of ERP
investment (Pollock et al., 2003; Barker and Frolick, 2003). The main reason that benefits are
uneven is that research tends to focus on financial performance. That is, business performance is
usually quantified in productivity measures or profitability measures such as ROE (Return on
Equity), ROI (Return on Investment), and market share. However, there are many factors which
affect the financial performance of organizations such as strategy, organizational culture,
organizational competences, and financial standing.

Literature review of ERP systems and organizational performance show that most authors report
benefits or measures of business performance which fall into one or more of these three types,
namely tactical (operational/managerial), strategic, and financial. Strategic impacts can manifest
in the form of innovative business growth; growth business alliance with other organization,
create competitive advantage, product differentiation, build cost leadership ,product leading,
revenue growth and gains in market share and other strategic things that affect the external
affairs (supply chain) of the organization instead of its internal affairs. On the other hand,
Tactical impact will affect the managerial and operational level. The impacts only affect the
internal affairs of the organization, such as reduction of operational cost and product cost,
increase in productivity, operational efficiency, good time and resource management, human
resource development. The operational category concerns improvements in functional areas
leading to cost reductions, cycle time reductions, and productivity improvements, whereas, the
managerial group focuses benefits such as better resource management, improved decision-
making and planning, and performance improvements.

2.1.8.1 Impact of ERP System on Financial Performance.

Financial performance is conceptualized as implying the maximization of profits. ERP systems

directly improve financial performance by decreasing IT infrastructure costs (Shang & Seddon,
2002). As the system is put to effective use, firms obtain increased productivity levels for their
various resources such as labor and capital (Hitt et al., 2002;Hawking & Stein, 2004).The most
common financial performance indicators are profitability rations such as, Return on Investment
(ROI) and Return on Asset (ROA). Profitability plays a very fundamental role in determining the
performance and the survival of the firm. Firms obtain early cost savings as a result of
streamlining of operational areas such as inventory, receivables, distribution as well as reduced

19
information cost across the firm‟s supply chain (Davenport, 1998; Madhavan, 2000).
Profitability also enhances the firm‟s reputation and as such, profit maximization is a constant
preoccupation for most managers. Hence, profit maximization is at the heart of every
organization and as such firms are looking for means of ensuring profitability. Thus, ERP
promises sales increases and reduction in operational costs hence profitability for adopting firms.

Operating costs are expenses associated with the maintenance and administration of a business
on a daily basis. Reducing administrative costs, manual effort, and overhead or diminishing
operation costs can lead a firm to be more efficient, effective, responsive, and profitable.
Through integrating business processes across departments onto a single enterprise-wide
information system, ERP improves cross-functional coordination and increases efficiencies in
doing business.

Zeng, Lu and Skibniewski (2012) contend that operation and cycle time reduction are the
primary benefits of an ERP system to a company that adopts it. By avoiding duplication of
information, an ERP system allows a firm to have opportunities for cost reduction and value-
added tasks which result to increased margins. Implementation of an ERP system enhances a
firm„s ability to reduce operational costs by standardizing and optimizing processes, integrating
financial information, controlling system introduction effectively, and increasing financial
reporting plausibility.

Financial performance and the analysis of financial performance is also of significant importance
to the firm‟s management as they are interested in determining and understanding the various
aspects of financial performance including better financial condition, internal processes among
others (Abugabah & Sanzogni, 2009). This implies that ERP systems are important to firms with
respect to their ability to facilitate financial performance. ERP systems permit for the realization
of financial performance in various ways. According to Njihia and Mwirigi (2014) the accurate
and timely financial data are necessary for the efficient and smooth direction of the organization.
The provision of the right and timely financial data to the right person in the organization helps
much in the process of making the right decision in the right moment (Aral & Weil, 2007).

2.1.8.2 Impact of ERP System on Non-Financial Performance

20
ERP system can be expected to have a direct effect on the non-financial performance of a firm.
Empirical studies show that several benefits for operational efficiency can be achieved when
implementing ERP system. Shang and Seddon (2002) propose a framework for assessing ERP
benefits at five levels: operational (e.g. the automation of business processes),managerial (e.g.
better planning and management of organizational resources),strategic (e.g. the ability of the
ERP system to support business growth and competitive advantage),IT infrastructural (e.g.
savings on IT costs), and organizational (e.g. organizational learning and staff
empowerment).The main non-financial benefits of ERP‟s include productivity and quality
improvements in key business areas such as product reliability, customer service, and knowledge
management (Hunton et al., 2003).

2.1.9 The role of Financial ERP system on organizational units.

ERP system support the day-to-day operations (transaction processing); for management to be
able to ascertain their financial position, to support decision making by internal decision makers
(information processing); and for those who need to generate financial statutory reports for
external purposes to meet the needs of various stakeholders in real-time, for instance fulfilling
taxation requirements. It facilitate communication between company and all the vendors,
suppliers, service providers, management of all the revenue received from the clients, all the
transactions through the bank system, evaluate, record, track and manage the assets inside the
whole organization, manage and evaluation of all the financial frameworks. In general, ERP
enable centralization of administrative activities such as account payable and payroll, amount of
accounting operations and transactions costs are reduced, preparation of financial statements is
performed with a higher accuracy and also performed with a higher speed.

2.1.10 The role of Sourcing & Facility (SCM) ERP system on organizational units.

Supply Chain Management (SCM) is the “systematic, strategic coordination of the traditional
business functions and the tactics across these business functions within a particular company
and across businesses within the supply chain, for the purposes of improving the long-term
performance of the individual companies and the supply chain as a whole” (Mentzer et al.,
2001). SCM is a process to control the information flow, goods and services amongst and within

21
the firms and also develops strong ties between suppliers and customers. Thus, the flow of
management and co-ordinating decisions and inventory are faster and more efficient coming
from the top of the chain all the way down. SCM implementation is the improvement of the
relationship between upstream suppliers and downstream customers, ultimately resulting in
customers‟ satisfaction and optimal organizational performance of the company. Effectively
integrating the information and material flows within the demand and supply process is what
supply chain management is all about. SCM draws greatly from the components of asset
management, logistics, procurement, and IT. The primary objective of SCM is to improve the
overall organizational performance and customer satisfaction by ensuring on time and on-
schedule delivery of services and products to customers (Abdallah, Obeidat, & Aqqad, 2014). To
achieve this objective, business leaders collaborate with various departments within the
organization as well as with external customers and vendors. Both SCM and ERP systems lead to
efficiencies and effectiveness within an organization and positively affect performance and
competitive advantage.

Enterprise Resource Planning (ERP) systems are changing the ways many businesses and
governmental organizations‟ carry out their business processes by providing a means of
connecting all the various departments together thus resulting in more accurate information for
the company. ERP systems provide an organization with a single platform system responsible
for the coordination and integration of key-business processes.

ERP system can offer high value to any organization whose aim is smooth planning, decision-
making and execution of related operations to achieve long term profitability and maintain a
solid competitive edge. This is the main reason more and more companies are attracted towards
purchasing and implementation of the information technologies like ERPs. ERP has been
extensively implemented to enhance inter- and intra-organizational communication, operations,
processes within the logistics channel, and distribute data along the supply chain from the
merchants to the consumers (Varma & Khan, 2015). In order to obtain a better competitive
position, SCM is a strategy that aims to reduce the costs and provide better integration of ERP
systems and to enhance the customer satisfaction. Therefore, the following are the four key
benefits of ERP on Supply Chain Management of an organization:

22
Improved Supply Chain Network: ERP provides complete visibility across the supply chain
network which is highly impossible in the manual process. With the implementation of ERP an
organization can monitor all the status and activities of all suppliers, plants, storage facilities and
all the members of the supply chain which makes it easy for communication throughout the
network. This in turn helps in effective tracking and management of all processes. The status of
all the operations can be monitored at any time and corrected anytime in case of problems.

Minimize delays: Delivery reliability is referred to as the degree to which a firm provides
products or services according to the schedule promised at the time of sale. Many supply chains
which are not configured with the ERP systems have already placed complaints over poor
business relationships and as well as loss in business. Some of the general complaints are late
shipments from vendors, slow down on production lines, logistical errors in distribution
channels. Shortages and quality problems in supplier parts are additional sources of product
delay. These all have negative impacts on organization and therefore results in negative impact
with the customers who are the main force of attraction for a supply chain. With the
implementation of ERP all the activities can be co-ordinated and executed in such way that
enhanced control over components inventory, more precise demand planning, smooth production
scheduling, and more effective coordination of distribution channels, enable firms to improve on
time delivery of products, a critical performance measure for today„s firms.

Enhanced Collaboration: ERP helps organization to have a control over all the suppliers and
distributors. This creates the ability to know what they are doing all the times. ERP bridges the
gap between supply chain partners. With ERP all the members across the network can share vital
information like demand, forecasting reports, inventory levels, and status of production,
transportation plans and many more in real time.

Reduce costs: Real-time information and automation help the firms to reduce the cost in
numerous ways. ERPs enables simultaneous access to a central database that keeps the different
departments alert to react at the same time to certain tasks hence it creates efficiency in the
organization. IT investment, if handled properly, generates dual effects. It can not only facilitate
higher sales, but also it decreases the costs. IT investments have evidenced efficiency through
supporting the lean transformational process of operational and supply chain management within
and across the firms (Ilebrand, Mesoy, & Vlemmix, 2010). Deployment of ERPs in the firms is

23
associated with higher productivity and improved inventory turnover thus diminishing the
operational cost (R. D. Banker, Bardhan, & Asdemir, 2006; Mukhopadhyay, Barua, & Kriebel,
1995). ERPs deployment injects the efficiency through reducing coordination cost by ensuring
the tighter coordination among the departments that allows firms to react simultaneously to
certain condition (Banker et al., 2006; R. Kohli, 2007; S. Mithas & Jones, 2007; Whitaker,
Mithas, & Krishnan, 2010). Improved reaction time triggered by ERP implementation to fulfill
the customers‟ orders facilitates the firm to reduce the inventory stock which results in enhanced
inventory turnover. Inventory management refers to changes in the inventory management
processes that lead to sizeable reductions in inventory holdings, increased inventory turnover,
and better control over inventories. Various studies indicate that ERP system implementers can
gain sizable inventory reduction and increased inventory turnover benefits by standardizing their
inventory management processes and improving performance to industry benchmark levels
(Madhavan,2000; Drayer & Wight, 2002). Holding less volume of inventory requires fewer
workers to deal with thus reducing the labor cost as well as monitoring cost required to supervise
the activities of decreased number of workers.

ERP on Business/Internal processes

Business Processes: Business processes are all the activities and key processes required in order
for the company to excel at providing the value expected by the customers. Dallas and Wyn
(2014) explain that business process management (BPM) is a form of management practice in
which is concerned with the improvement of company‟s performance through the enhancement
and control of business processes. The ERP system once implemented is meant to improve
organizational functions by simplifying organizational processes leading to seamless operations
in the organization. Njihia and Mwirigi (2014) observe further these systems provide, automate
support to wide-ranging business processes in modern organizations including sales, billing,
marketing, accounting, human resource management, quality control and production thus
ensuring general performance of the organization through facilitation of these pertinent
processes. Thus ERP systems directly and indirectly facilitate the various business processes in
the daily operation of the firm and enhance the firms‟ performance. In general, ERP systems not
only facilitate the integration of organizational processes, it also enhances standardization of

24
processes across multiple business units with the goal of improving efficiency and generation of
profits (Bosilj-Vuksic & Spremic, 2004; Botta-Genoulaz & Millet, 2006).

ERP and Customer value

Today‟s business processes are driven by constantly changing business environments, such as
customer demand change, uncertainty and rapid technological change. Customer value is
referred to as the degree of benefits perceived by customers as a tradeoff between what
customers receive and what they sacrifice. It is a source of competitive advantage for business
firms. Customer satisfaction is considered in much literature as one of the most perceptible
intangible benefits of an ERP system adoption by an organization. It has been argued that an
ERP system sends message to customers that the product and service qualities have been
improved (Batada & Rahman, 2012). Customer value comes from meeting the current needs of
customers more efficiently, from identifying the customer needs proactively, and from meeting
new customer needs or new needs of existing customers. Customer value is also related to
improved customer service and more accurate customer invoices. An ERP system enables faster
response to customers. It also enabled faster and more accurate customer reports regarding
project stages, the tasks of project members, and time spent on performing respective tasks.

Less internal mistakes visible to the customer, better follow-up of customer relationships, and
more flexibility in adapting to business changes are also possible. Increased customer
satisfaction and more increased value for customers are expected once the company enhances its
ERP package with a new module. Customers who perceived increased benefits and are satisfied
with the quality and features of products are likely to refer new customers to purchase the firm„s
products. According to Joo (2007) four important factors for customer value through ERP
implementations are identified. They are value for money, convenience, timely response, and
reputation for quality.

Value for money: is referred to as the degree to which a customer perceives value because a
firm has lowered a product„s price. It is the value that customers perceive the price of a product
purchased is lower than average market price. Customers feel that they purchased products with
high value and quality. This may be perceived due to cost reductions or a lower price. ERP
systems enable firms to facilitate quicker data/information flow between departments and offices

25
and helps employees to work faster, save valuable time, and reduce operational costs. As a result,
customers can perceive cost saving in their purchases.

Convenience: is referred to as the degree to which a customer perceives value because the firm
has provided convenient information and service. Customers experience convenience due to
timely and updated information. Valid delivery promises and fulfilling customer orders on time
through using an ERP system improves customer service. An ERP system enables a firm to
develop customer order quotations faster and even more accurately, improve job estimating, and
shorten delivery lead times. As a result, customers can perceive convenience in their purchases.

Timely response: is referred to as the degree to which a customer perceives time saving because
a firm quickly acts upon customer needs. Through the experience of quick services, such as order
fulfillment and delivery, customers can perceive time savings. ERP systems enable the
organizations to respond to any challenges in real time, so that a firm is able to respond in a
timely fashion to any customer demands. ERP systems also allow for timely and accurate
responses to customer problems and priorities.

Reputation for quality: is referred to as the degree to which a customer perceives product
quality and performance (Nasution and Mavondo, 2008; Petrick, 2002). It is based on the
customer„s perception about the superior quality of a product. Customers‟ perception of product
quality leads to their intentions to purchase products later. According to Zeithaml (1988)
perceived quality is different from objective or actual quality and higher in level of abstraction.
An ERP system enables a firm to provide quality service to customers through checking and
examining customers‟ preferences more often. This leads customers to perceive that the firm
provides quality products.

Therefore, the transactional cost savings combined with effective usage of the complete ERP
system over the long run increases ROI as well as firm profitability. These cost savings as well
as high quality service, when passed onto customers‟, results in increased customer satisfaction
levels. The above performance improvements when sustained and enhanced over the long run
through effective leveraging of the ERP system capabilities provide competitive advantages to
firms.

ERP on Decision Making

26
In the current business environment information is the key resource of an organization. If the
organization does not have an effective mechanism that gives the decision makers the needed or
the right information at the right time, then the chances of that organization succeeding in the
future will remain a mystery. The decision-making process is a crucial process in the firm and a
primary determinant of organizational success. The process of decision-making takes place at all
levels of the organization and it involves problem identification and the consideration of multiple
alternatives. So that it is highly information dependent process. The basic fundamental
characteristics of information are accuracy, relevancy and timeliness. The available information
has to be reliable, and relevant for the decision makers to make decision at the right time. In the
changing business environment, the time available for organization to react to the change in
market trend is very little (Fisher, Raman and McClelland, 2000). Any technology that will help
this gathering of information will enhance the chances of organization to stay alive in the market.

Nooriae (2012) contends that decision-making is one of the principal managerial functions and
one with potential positive or negative consequences for organizational performance. It is
suggested that this information-dependent attribute of decision-making process is what makes
ERP systems important to it. This means any input that facilitates augments or enhances the
quality of managerial decision-making directly enhances performance (Zeng et al., 2012).
Enterprise resource system also increases the availability of information helping the companies
to have information in real time to make wise decisions and accurate prognostics regarding the
organization.

Management can, therefore, make decisions faster and with very few errors. Data becomes very
visible across the organization. ERP systems enable managers to control the whole business and
accelerate decision-making. This implies that ERP improves the quality of the managerial
decision regarding how to run the firm, respond to threats and opportunities and successfully
position the firm within a competitive business environment.

2.1.11 The role of Human Resources ERP system on organizational units.

In today„s world of Globalization, it„s knowledge, commitment, skills, and training that provides
the competitive advantage for world class companies. And it„s Human resource‟s job to build
that competitive advantage. A business is concentrated by four productive resources namely its
Land, Labour, Capital and Enterprise to produce or sell products and provide services.
27
Simultaneously while achieving business tasks, concentration must be also be given to the people
who carry out these functional jobs i.e., the organization's Human resource (HR). Human
Resources are the company's people included in all hierarchy from employees to middle
managers and non-managerial employees to the CEO and others. Human Resource Management
(HRM) is the management which involve the activities framed to recruit best candidates suitable
for the respective nature of the job and improve their skills and abilities by providing them good
and proper support. The five gears of HRM system are: recruitment and selection, training and
development, performance feedback, payments and benefits, and labour relations (Jones, 2007).

Human Resource Management practices have strongly influence by ERP system. If there is high
level of system use, then it means that system is also linked with human resource management
functions including hiring, training, development, compensations, benefits, record management,
retirement (Tadinan, H., 2005).The success and failure of ERP implementation highly depends
on the education and trainings given by organization to their employees before it commenced.
Those organizations, which used ERP without much more effort, they have low commitment to
change and they did not actively participate in training of employees for proper handling. They
have to bear high costs in trainings for those people who are reluctant. If employees are properly
educated about what is expected from their side and also train them accordingly then failure
results can convert into success (Goldband, B., 2012). Users took long time to seek and adapt to
new systems and productivity effects. If suitable trainings are not given to workers then due to
lack of interest their satisfaction level will be low, but innovation and service quality of work
will enhance due to new system implementations (Qutaishat, F.T., S.A. Khattab, M.K. Abu Zaid
andE.A. Al-Manasra, 2012).

When employees underutilize the new information system it lowers the business‟s efforts in
order to gain benefits from such implementations. Employees are unwilling and show resistance
towards change and it is the commonly acceptable reason for system failure (Venkatesh, V.,S.A.
Brown, L.M. Maruping and H. Bala, 2008).There is significant effect of Human Resource
Management activities on the performance of organizations and productivity increases (Absar,
M.M., B. Nimalathasan and M.M. Jilani, 2010). Organizational performance includes the
increasing the product quality, satisfaction of the customers using the product, development of
the new innovated product, ability to attract and retain the employees of the organizations and to

28
enhance the relationship between management and these employees (Delaney, J.T. and M.A.
Huselid, 1996) .According to Katou, A.A. and P.S. Budhwar, (2006) there is significant effect of
HRM activities and policies like recruitment, trainings, promotion, incentives, benefits, safety
and health measures on organizational performance which leads towards organizational
productivity. Moreover trainings and compensations are very much effective in perceiving the
organizational performances (Singh, K., 2004).Recruitment and selection in any organization is
helpful in determining the decisions about which candidate is suitable and who will get the
employment offer and for this, there is the need to create and maintain better fit between
organization, teams, employees and working environment (Tzafrir, S.S., 2006).

Literature suggest that there is no agreed rules and dimensions for measuring ERP system
performance in better way but ERP system gives significant change towards organizational
success and it is measured with the evaluation of the employees who are actually using this
system (Wickramasinghe, V. and M. Karunasekara, 2012).

Key Human Resource Management Processes Affected by ERP:

Time management and leave administration: Information on the work performed by

employees and their availability to work are essential elements of a human resources
management. ERP helps in making the Time management and leave administration simple and
easily manageable. Time Management system in ERP provides with a flexible means of setting
up, recording and evaluating working times. Information about working times is transferred to
Payroll to calculate employees' gross pay. In ERP Employees can use the Time Sheet to enter
their own actual times. Time data can be recorded and transferred to Human Resources
management for further processing. Time data can be recorded as attendances, absences, and
employee remuneration information for Human Resources.

Recruiting: Since Human resources are the key drivers of any organization it is very important
and essential to ensure timely supply of the right talent. Recruitment professional needs to Plan
the Organizational resource requirement properly, so that the right talent be provided at the right
time and in the right cost. The ERP system enables faster and efficient driving of Recruitment

29
activity by providing system services such as: - Requisition Management, Management of Job
Postings, Application Entry, Applicant Tracking, Processes Flow and Reporting.

Training and Development: ERP provides for the learning solutions which provide the
flexibility to put online training calendars consisting of all the internal and external training
programs and their key features. Employees can opt for a training program and they can raise an
online request for the training program which they want to attend. The request is moved to the
respective department through online workflows and after due approval the requester is enrolled
for the training program and his attendance is booked. This reduces administrative effort and
improves efficiency. This entire online process in ERP saves lot of time and effort in comparison
to the manual process. Also, it brings more transparency through online application, cancellation
and feedback. Through it‟s integration with the employee master data the qualification is updated
in the master record of an employee once the course is completed this ensures real time reporting
and complete synchronization.

Performance management system: Performance management includes processes that

effectively communicate company aligned goals, evaluate employee performance and reward
them fairly. Clear goal planning, skill development and a true pay-for-performance culture are
talent management practices that successful companies use to demonstrate their employees are
valued. Effective performance metrics has been proven to increase employee morale and overall
productivity. Engaged, productive employees are essential to any company outperforming its
competition. Recognizing gaps and developing skills enables managers to properly map out
succession plans while employees develop attainable career paths.

ERP helped in simplifying the HR task in Performance management process and making it easy
for employee and managers as appraisee and appraisers respectively. ERP enables creation of
Appraisal forms in the online format with link to organizational and department goals. HR
managers can allocate Forms to all the employees within minutes. Employees can fill the form
online and managers can evaluate the performance online in each stage. ERP thus helps in
driving the entire process faster and with higher level of efficiency and effectiveness.

ERP on Employee/Staffs Productivity

30
Employee productivity is a particularly important issue to managers and supervisors as the
primary purpose of their job is to get the most out of the people, they are responsible for. Caruso
(2009) stated that employees are the secret of the success of any industry. In high-competition
business environment of modern times, the issue of employee productivity is a crucial one for
supervisors and managers as their primary job is to explore and get the best out of employees to
raise their firms‟ competitive edge (Qutaishat et al., 2012). The emphasis is on getting things
done through increasing the productivity of employees. Providing employees with timely
information, reducing their workload by eliminating task duplicities, managers are able to
achieve their competitive strategies while ensuring optimum performance of individual
employees and this can be done by using an integrated technology such as ERP system.
Nurmilaakso (2009) stated that one of the reasons behind investing in ICT solutions is to
improve labor productivity, where the ERP system has a positive influence on labor productivity.
Exact Max (2014) examined that ERP influences staff productivity in at least four important
ways; including improved communication, reduced workload per employee, facilitation of fact-
based decision-making and elimination of duplication of tasks and data.

2.2 Empirical Review

Parto, Sofian & Saat (2016) investigate the Impact of Enterprise Resource Planning on Financial
Performance in a Developing Country. The analyses are based on data drawn among 93 Iranian
manufacturing firms. The finding demonstrates that the implementation of each ERP system
module separately influences financial performance indicators. Besides, the results indicate that
implementing complete package of ERP system might provide synergetic impact on firm‟s
financial performance.

Kim et al. (2009) investigated the relationship between IT investment and company performance
using data from the top 100 electronics firms in China to study the impact of IT investment on
financial performance, and they compared the results to those of similar organizations in the
United States. The empirical results showed that IT investment had a positive impact on

31
company performance in China; they also showed no significant differences between the two
countries.

Almgren and Bach (2014) contend that ERP precipitates more profit for the company by
enhancing productivity. They further explain that ERP lead to general reduction in the cost of
doing business and in so doing increase the profit margin of the firm. According to Chtiou
(2009) about 70% of the most profitable firms and 90% of the leading firms in market
capitalization have implemented ERP.

Lorca and Gayo (2014) when they examined 695 leading firms in Spain on the impact of ERP on
the profitability. They determined that firms that had successfully implemented ERP systems
realized positive ROI, ROA, asset turnover (AT) and profit margin. The conclusion here is that
ERP promises sales increases and reduction in operational costs hence profitability for adopting
firms.

Velcu (2015) notes that one of the initial studies on the relationship between ERP on
organizational performance revealed that ERP had a positive effect on productivity of employees
in the firm. He notes that the study determined a gross marginal product of ERP on productivity
to be about 95%.

Booth et al. (2000) investigates the impact of ERP system on accounting processes of Australian
companies. Their evidence suggests that ERP systems have proved to be effective in transaction
processing and less effective in reporting and decision support. Further, they suggest that ERP
systems provide both the incentives and means for adopting newer accounting practices such as
activity-based budgeting (ABB), product lifecycle costing (PLC), and balanced scorecards.

McAfee A(2002) based on a survey of 101 U.S. firms that implemented SAP R/3 (former name
of the enterprise resource planning software), McAfee A found that after ERP implementation,
many company performance indicators improved, including the ability to provide customers with
information, order turnover time, and the completion rate of orders.

Singh and Singh (2013) show that ERP systems increase customer satisfaction by narrowing the
amount of time for service or product delivery. Further, Shannak (2016) conducted a study to
examine the impact of ERP on organizational performance basing his assessment on the
balanced scorecard. He found that ERP systems increased the effectiveness and efficiency of the

32
firms that implemented them and that this resulted in a better customer satisfaction. The two
explain that use of ERP systems can lead to a reduction of the order cycle times, customer
response times as well as delivery speeds hence facilitate positive customer satisfaction.

Bambang Leo Handoko et al (2015) investigate The Impact of Enterprise Resources System and
Supply Chain Practices on Competitive Advantage and Firm Performance: The research was
carried out for 148 Indonesia Companies‟ executives. The results indicated that SCM practices
and ERP systems has positive impact on competitive advantage and firm performance. Finally,
that competitive advantage positively affects the firm performance.

Ucakturk and Villard (2013) find that ERP systems are most reliable source of information for
managerial decision-making. They further contend that ERP facilitate real time environmental
analysis and provide managers with information that they can use strategically to ensure
organizational performance.

Mustapha and Ismail (2013) conducted a study to examine the impact of IT on monitoring and
found that firms with an integrated information system experienced significantly lower costs for
monitoring. They argued that the ERP system allows the firm to store information in one place
and make it easy for managers and other employees concerned with monitoring and evaluation of
the firms‟ progress to obtain such vital information.

In their study, Stefanou and Revanoglou (2006) found that an ERP implementation in a general
hospital resulted in improvement in information quality which can lead to better decision making
and improvements in health care, reduction of the ambiguity about order information, automated
generation of the list of requirements, accurate billing and therefore no loss of income, real-time
updating of patient records, existence of available information regarding the type and the
quantity of ordered-granted medicines for each patient, and follow-up of suspended orders.

Engidayehu Getachew (2014) conduct an assessment of ERP implementation in Ethio telecom,

practice and challenges of ERP system in Ethio telecom focusing mainly on automating the
major support activities of the company like finance, human resources and supply chain
management. And conclude that ERP implementation has supports the company by reducing the
financial cycle time, decision making cycle time, procurement lead time and pay slip generation
time.

33
Elsa Taddele (2015) studied a research on ERP Post-Implementation Management Framework in
of case of Ethiopian Airlines. A case study approach and a combination of quantitative and
qualitative methods has been used to collect and analyze data. The survey questionnaire and
interview method were used for data collection. The quantitative data were analyzed by
employing appropriate techniques of descriptive and inferential statistics using SPSS software
tool. The result of the study indicated that organizational theme constructs were the most critical
determinants of ERP post-implementation success; which make the highest contribution
(58.93%) of the total variance. Accordingly, continuous improvement (41.02%), user
involvement (6.61%), training (4.94 %), absorptive capacity (3.23%) and top management
championship (3.13%) are the major constructs of organizational theme. Technical theme has a
significant contribution which explains 10.36% of the total variance of ERP post-implementation
success.

Foziya Ahmed (2017) factors affecting the Implementation of Enterprise Resource Planning at
Commercial Bank of Ethiopia. The researcher has employed a case study in which qualitative
research method was also used to collect and analyze data, Pattern matching technique employed
to analyze the data collected through interview, direct observation and participation .The
research revealed that factors which affect ERP implementation are technological, organizational
and people, the stages of CBE ERP implementation (requirement analysis, solution design,
solution built and test, and production transition and support).

Adane Ayalew (2017) studied the effect of Enterprise Resource Planning implementation on
Internal Supply Chain Performance: -The case of Ethio Telecom- The research was conducted by
selecting eight independent variable and their effect on dependent variable of Internal Supply
chain performance. The finding suggested six independent variables such as top management
support, project management, user training, IT infrastructure, vendor support and communication
have a statistically significant relationship to predict internal supply chain performance, and the
remaining two variables project plan & vision and project champion are not statistically
significant to predict internal supply chain performance. User training and IT infrastructure
accounts the largest share to explain the variation of internal supply chain performance.

2.3 Research Gap

34
Globally different study is conducted on the effect of ERP implementation on organizational
performance on different sectors. For instance, Geofrey Kimutaikoech (2014) studied the effect
of Enterprise Resource Planning (ERP) performance of Organizations within the Agro-
Processing Industry in Kenya, considering information system, quality control, labour allocation
facility layout and their impact on organizational performance. And another study conducted by
Minh Duc Le and Kyeong Seok Han (2016) conduct a research on the impact ERP System
Implementation on firm performance of Small and Medium Size Enterprise (SMEs) in Vietnam
resulted that ERP system implementation successfully enhanced the firm performance indirectly
through the effects of organizational capability and competitive advantage, in which individual
impact showed the strongest effect. Florence W.Wanyoike (2017) studied the influence of
Enterprise Resource Planning (ERP) system on organizational performance in Kenya
Engineering Consultancy firms focusing impact of ERP system on financial performance,
organizational learning and internal processes of the firms.

In Ethiopia too lots of studies mentioned above have been conducted about critical success
factors of ERPs, their various implementation steps, related problems, conditions of success and
reasons of failure. Within the streams of several previous studies in Ethiopia context user aspects
have been mentioned as a crucial factor when studying IS, particularly in terms of ERP systems.
The studies however failed to assess the effect of ERP system on organizational performance.

Empirical evidence reveals that little research attention has been devoted to measuring the
impact of ERP on organizational performance of public sectors in Ethiopia, and also most of the
researchers studied in Ethiopia are focused on identification of the success factors and challenges
of ERP implementation on single case industry .The effect of the implementation on
organizational performance in multi organizational case is not studied. To the best of the
knowledge of the researcher no sufficient empirical study has been conducted regarding the
impact of ERP systems implementation on organizational performance focusing three
organizations namely: Ethio telecom, Ethiopian Airlines and Commercial Bank of Ethiopia
collectively. Because instead of single case, conducting an assessment of the effect ERP system
on organizational performance of different business-oriented organizations can give a universal
picture of what are its effects on the performance of adopting companies. Therefore, in this
research the researcher attempts to show how implementation of ERP system affect the

35
performance of organization: the case of Ethio-telecom, Ethiopian Airlines and Commercial
Bank of Ethiopia.

2.4 Conceptual Framework

A conceptual framework is a tool researcher use to guide their inquiry; it is a set of ideas used to
structure the research, a sort of a map (Kothari, 2004). It is the researcher‟s own position on the
problem and gives direction to the study. Aside from showing the direction of the study, through
the conceptual framework, the researcher can be able to show the relationships of the different
constructs that he wants to investigate. One study indicated that deploying the human resources
and financials modules had more impact on performance than deploying either all modules or
just the primary modules (Nicolaou, 2004). Other study by Hitt et al. (2002) indicated that
implementing financials, human resources, manufacturing, and data warehousing/mining had
more impact on firm performance than any other combination. Both studies agree that deploying
the financials, human resources and sourcing & facility (SCM) modules have the most impact on
firm performance when compared to implementing all ERP modules. Therefore, the study will
be guided by the following conceptual framework. The dependent variable is Organizational
Performance while the independent variables are Financials REP, Human Resource (HR) ERP
and Souring and Facility (SCM) ERP.

Fig 2.2 Conceptual framework that show the effect of ERP systems on Organizational
performance.

Independent variables Dependent Variable

Financials ERP
36

Organizational
Performance
 Human Resource
ERP

Sourcing & Facility

(SCM) ERP

Source: Compiled by the researcher.

CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY

INTRODUCTION

This chapter present briefly the general framework about how this particular study was done, the
choice of appropriate research method and methodology applied. The method is adopted with the

37
aim of expressing & analyzing the effect of ERP system implementation on organizational
performance of selected public service in Ethiopia. Specifically, to show the relationship and
effect of finance, human resource and sourcing & facility ERP systems on organizational
performance. This chapter highlights the study‟s research design, target population, sampling
design and sample size, data collection method, research procedure, the data analysis methods
used and model specification. Finally, testing for validity and reliability, and Ethical
Considerations.

3.1 Research Design and Approach

A research design is the arrangement of conditions for collection and analysis of data in a
manner that aims to combine relevance to the research purpose, keeping in view the objective of
the research and the availability of staff, time and money. It constitutes the blueprint for the
collection, measurement and analysis of data (Kothari, 2004).

To do the analysis the study used mainly explanatory research design. Explanatory study is one
of research design approach that establish causal relationships between variables. In other words,
how one variable (independent variable) produces changes in another (dependent variable). It is
preferred and applied as a key tool in this study because it goes beyond simple description and
more fit to answer for this type research questions that need answer to the problem and
appropriate to address the objectives of the study. The researcher also adopted the descriptive
research design for answering research questions and to value mean, standard deviation, the
maximum and minimum of the survey.

In this study a combination of quantitative and qualitative research approach are used for data
collection techniques and analysis procedures. Quantitative approach is predominantly used as a
synonym for any data collection technique (such as a questionnaire) or data analysis procedure
(such as graphs or statistics) that generates or uses numerical data. In contrast, qualitative is used
predominantly as a synonym for any data collection technique (such as an interview) or data
analysis procedure (such as categorising data) that generates or use non-numerical data (Saunders
et al., 2009).

Since the aim of the study is to examine the effect of ERP system implementation on
performance of organization, mainly quantitative research approach was used. Quantitative

38
approach is convenient to reach more people with optimized time and brought on broad
statistical data. To support the quantitative data obtained from closed ended questionnaires and to
gain extra data related to the research objectives, qualitative approach also used to interpret data
obtained from an open-ended questionnaire.

3.2 Population and Sample

A population is a group of individuals, persons, objects, or items from which samples are taken
for measurement. The data for this study was collected by taking a sample from employees
located at head quarter of Ethio-telecom, Ethiopian Airlines and Commercial Bank of Ethiopia.
So that the target group of this study comprised of all staffs in the companies located at head
quarter who directly interacted with ERP systems which include managers, supervisors and non-
management staffs of finance, human resource and sourcing & facility divisions in the
organizations. All parties involved in the implementation process of ERP System are represented
by the sample. Samples are subset or portion of a population. As a division finance, human
resources and sourcing & facility divisions are major source of information.

3.3 Sampling Design

A sample design is a definite plan determined before any data are actually collected for obtaining
a sample from a given population. To obtain relevant sample for consideration and inclusion in
the research, a significant number of individuals are selected from the population. Thornhill and
Saunders (2000) explain that it is normally from this population that researcher collects and
infers information. It follows therefore that the validity of the study result is contingent on the
suitability of the sampling design (Blanche et al., 2006).

3.3.1 Sampling Technique

Sampling techniques provide a range of methods that enable the researcher to reduce the amount
of data you need to collect by considering only data from a subgroup rather than all possible
cases or elements. The study used probability sampling procedure that is stratified sampling to
select the objects that represented the population. The sample would be drawn from the total
staffs of Ethio-telecom, Ethiopian Airlines and Commercial Bank of Ethiopia working at head
office using stratified sampling techniques. Under stratified sampling the population is divided
into several sub-populations (strata) that are individually more homogeneous than the total

39
population and then we selected items from each stratum to constitute a sample. This sampling
technique involves dividing the population into strata or a number of groups, which in this case
was manager and non-manager groups.

The researcher also used Non- probability sampling procedure that is purposive sampling method
in this study. Purposive or judgemental sampling enables the researcher to use your judgement to
select cases that will best enable you to answer your research question(s) and to meet your
objectives. The use of purposive sampling enables generating meaningful insights that help to
gain a deeper understanding of the research phenomena by selecting the most informative
participants (Saunders et al., 2009). Barbour (2013) suggested that purposive sampling allows a
researcher to identify participants who are rich with information to provide in-depth knowledge
of a phenomenon. Sample from head office level were purposely selected because most of the
business activities and transactions are processed centrally at head office level with fully
automated ERP system and are well familiar to the application of ERP system and with the
assumption that it represent the remaining zones/branches and because companies follow
centralized management system most of activities are similar. In addition to that, because each
companies comprises of different divisions, the application of ERP system is not similar among
these divisions. In considering such issue, availability of data and to meet the desired study
target, purposive sampling method used to select the three divisions namely; finance, human
resource and sourcing & facility divisions from the other divisions found in head office, due to
the fact that the ERP system was applied fully with in these divisions from the beginning of its
implementation than other divisions. Furthermore, they have great contribution for the
performance of organizations.

3.3.2 Sample Size

The sample size refers to the proportion of individuals that are actually chosen to participate in
the study. According to June, 2019, Ehio telecom Employee head count report, 450 ET
employees were staffed under those three divisions (strata) at head office level, employees of
human resource (136), finance (140) and sourcing & facilities divisions (174). In the same way,
for Commercial Bank of Ethiopia (CBE), human resource (112), finance (75) and sourcing &
facilities divisions (213), and that of Ethiopian Airlines (EAL) human resource (39), finance
(231) and sourcing & facilities divisions (150). The selection of the divisions mainly because

40
they are fully deployed with ERP system and employees use the system for their day-to-day
business activities. In addition, they have great contribution for the performance of
organizations. Finance, human resource, and sourcing & facilities division‟s employees are
considered as valid target population for this study since they use ERP system as their major IT
solution for their core business functionalities. Therefore, the target population size of these three
divisions for ET, CBE and EAL are 450, 400 and 420 respectively. Furthermore, companies
follow centralized management system and most of activities are similar, studying different
zones and regions would not bring significant difference. To determine the sample size for
populations that are large, Cochran(1963) developed the Equation 1 to yield a representative
sample for proportions.

Equation 1

This is valid where:

n0 = sample size
Z2 = abscissa of the normal curve that cuts off an area α at the tails (1 – α equals the
Desired Confidence level, e.g., 95%) , e = desired level of precision
p = estimated proportion of an attribute that is present in the population, and q is 1-p.
N.B.The value for Z is found in statistical tables which contain the area under the normal curve.
Then, the sample size determined for the large population have been used to determine sample
size for a finite population. Therefore, the following formula is derived from equation 1:

Equation 2
Where n is the sample size and N is the population size.
Hence, the sample size for the given population (1160) at e = ±5%, confidence level = 95%, and
p = 0.5 (maximum variability).
Equation 1:

41
(1.96)2 (.5) (.5) = 385 = given
(.05)2

Finally, the sample size is determined using equation 2:

For ET For CBE For EAL

N= 450, then, N= 400, then, N= 420, then,
n = 385______ n = 385___ n= 385____
1+ (385-1) 1+ (385-1) 1+ (385-1)
450 400 420
n= 207 sample size n= 196 sample size n= 201 sample size

Based on the above sample rate, the distribution of the questionnaire and the response rate
summarized as follows:
Table 3.1 - Distribution of sample size.
Comp Main ERP Proportional
any user Target Population sample size Distribution will be Collected
Name Location Division Managers Non- of the strata Managers Non-
Manager Total Managers
Finance 20 120 140 64 9 55 50

ET Head Human 17 119 136 63 8 55 35

Quarter Resource
Sourcing 25 149 174 80 12 68 40
& Facility

Total 62 388 450 207 29 178 125

Finance 17 58 75 37 8 29 26
Human 25 87 112 55 12 43 40
CBE Head
Resource
Quarter
Sourcing 48 165 213 104 24 80 49
& Facility

Total 90 310 400 196 44 152 115

Finance 24 207 231 111 11 100 65

EAL Head Human 4 35 39 18 2 16 12

Quarter Resource
Sourcing 16 134 150 72 8 64 43
& Facility

Total 44 376 420 201 21 180 120

Source: ET June, 2019 monthly Report, for CBE & EAL data obtained from ERP implementation
sections.
3.4 Data Type and Sources of data
This study used both primary and secondary sources of data for collecting valuable data.

Primary data

42
Primary data are those which are collected afresh and for the first time (Kothari, 2004). Because
primary data are original and relevant to the topic of the research study so the degree of accuracy
is very high, current and it can better give a realistic view to the researcher about the topic under
consideration. Primary data were collected through questionnaires.

Secondary data

Secondary data are those that are already available and refer to data that have already been
collected and analyzed by someone else (Kothari, 2004).

3.5 Methods of Data Collection

Questionnaires

To construct independent variables

A questionnaire is a series of questions asked to individuals to obtain statistically useful

information about a given topic. Questionnaire is the main source of collecting primary data. The
self-administered questionnaire developed by Johnson Karimi(2017) used for this study.
However, the researcher modified and added some questions with regard to their content to make
the questions easy to understand to the respondents. The questionnaire is directly related with the
research hypotheses and objective of the study. Based on the research questions a five-point
Likert-scale type (1: strongly disagree, 2: disagree, 3: neutral, 4: agree, 5: strongly agree)
questionnaires are prepared. The questionnaires are comprised of both closed and open-ended
questions type to be answered by the respondents. The questionnaire format consisted of three
parts, the first part mainly contained general information (demographic information) which is the
gender, age, marital status and level of education, the second part focuses on the effects of ERP
system implementation on organizational performance the companies, and finally open-ended
questions regarding the topic are presented.

Data obtained from secondary sources such as employees‟ master lists, company‟s profile
booklet, company‟s policies and procedures manuals, related publication, books, journals and
internet were used to support the primary data to make the finding more accurate and reliable.

3.6 Data Analysis Techniques

43
After data collection, the filled-in and returned questionnaires were edited for completeness and
coded. The analysis process involved the process of transforming a mass of raw data into tables
with frequency distribution and percentages to provide key answers to the research questions.
First the data that had been collected using closed ended questionnaire were converted to
represent the main variables through taking mean values of the item responses for each construct.
Mean values are chosen because item responses that ranged from “Strongly Agree” to “Strongly
Disagree” generate ordinal data. Then data entries made into a powerful statistical and
econometric software package STATA 11 for further analysis. The quantitative analysis involved
both descriptive and inferential analyses.

3.6.1 Descriptive statistical Analysis

Descriptive statistics is the term given to the analysis of data that helps describe, show or
summarize data in a meaningful way, which allows simpler interpretation of the data. Mean and
standard deviations will be used as measures of central tendencies and dispersion respectively.
Data will be presented in the form of frequency distribution tables that will facilitate description
and explanation of the study findings.

3.6.2 Inferential statistical Analysis

Inferential statistics are techniques that allow us to use the samples to make generalizations about
the populations from which the samples were drawn. In inferential statistical analysis,
associations between the variable were conducted by use of STATA 11 software through which
cross-tabulations, correlations and multiple linear regression methods were conducted between
and among relevant variables to permit further interpretation of the data.

3.7 Measurement of Variables

The dependent variable used for this study was organizational performance, whereas, the
independent variables were ERP system of Finance, Human Resource, and Sourcing & Facility.

Table: 3.2: Summery of variables and its measurement.

Variables Measurement of Variables Source
-Profit maximization through cost reduction
and increase sales revenue.
Dependent Organizational Questionnaires
-Operational efficiency.

44
 performance -Productivity.
-Operational effectiveness.
-Enhance Finance and Accounting activities.
-Reduce Transaction and operational costs.
Financial ERP Questionnaires
-Fulfill taxation requirements
Human -Training and development.
Independent Resource ERP -Employees‟ performance evaluation. Questionnaires
-Recruitment process.
Sourcing and -Enhance sourcing and facility activities.
-Resource and Inventory management.
Facility ERP Questionnaires
-Customer Satisfaction.
-Procurement process.

Source: compiled by the researcher.

3.8 Model Specification

Model specification refers to the determination of which independent variables should be

included in or excluded from a regression equation. STATA 11 statistical software was applied
to test and analyze the impact of each independent variable finance, human resource and
sourcing & facility ERP systems on dependent variable organizational performance and to find
out answer for the research question and meet the stated objectives of the study.

The model represented by:

Organizational Performance = f(Finance ERP, Human Resource ERP and Sourcing &
Facility ERP).

In addition, the researcher conducted a multiple regression analysis so as to determine the

relationship between organization performance and the variables of the study. The regression
equation that guided the study was:

Organizational Performance = β0 + β1FAERP + β2HRERP + β3SFERP + ε

Where: - FAERP = Finance ERP

HRERP = Human Resource ERP

45
 SFERP = Sourcing and Facility ERP, And

β0 = Constant Coefficient

β1 β2 and β3 are the regression coefficients for measuring independent variables.

ε - Error terms showing unobserved factor.

Finally, a diagnostic test conducted to make sure that the data and methodology meets the basic
assumptions of the Classical Linear Regression Model (CLRM) such as: -

 Multicollinearity test: multicollinearity will occur if some or all of the independent

variables are highly correlated with one another (Brooks (2008). To check existence of
strong correlation between the independent variables was tested using correlation matrix.
 Normality test: It is assumed that the distribution of residuals is normal. To check for
normality, Kurtosis and Skewness of the distribution of the data, Jarque bera test as well
as histogram of residuals for the model were examined.
 Autocorrelation test: Autocorrelation refers to the degree of correlation between the
values of the same variables across different observations in the data. Durbin Watson test
(DW) rule for autocorrelation was applied in this study.
 Heteroscedasticity test: The variance of the error term, given the explanatory variables,
is not constant (Wooldridge, 2009). Breusch–Pagan–Godfrey (BPG) test was used for
this study.
3.9 Test of Validity and Reliability
Reliability and validity are means of evaluation of research instruments.

3.9.1 Validity

According to Kothari (2004) Validity is the most critical criterion and indicates the degree to
which an instrument measures what it is supposed to measure. As stated above, questionnaire
was used to collect the primary data (see Appendix I).

Meanwhile, the questionnaire was adopted from Johnson Karimi (2017) with some modification
by the researcher. After the questionnaire was constructed, pre-testing was done with individuals
who have knowledge of the area (professionals) by allowing them to read and comment on it.
Constructive comments were collected from the professionals and the questionnaire was adjusted

46
accordingly. Then, validation of the instrument was given by academic advisor prior to the data
collection process.

3.9.2 Reliability

Reliability is the extent to which a measure, procedure or instrument yields the same result on
repeated trials. The study used internal consistency method to measure reliability of the survey
instrument (i.e. questionnaire). Internal consistency method was tested using Cronbach‟s Alpha,
which measure how closely related a set of items are as a group. The ultimate goal is to minimize
errors and biases that may occur during the research.

3.10 Ethical Considerations

 The study was in line with the organizations policy in relation to any intellectual property
rights of the organization.
 Regarding privacy of the respondents, their responses are strictly confidential and only
used for academic purposes.
 It could not be ethical to access some confidential documents of the organization. So, the
organizations‟ code of ethics taken in to account without significantly compromising the
findings of the study.
 Concerning references, all the materials and sources are properly acknowledged.

CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION

47
INTRODUCTION

Chapter three presented, the research design and methodology adapted for this study.
Accordingly based on the framework in the previous chapters, in this chapter the result and
analysis of the data taken from the selected public service companies are presented. The data
collected using both closed and open-ended questionnaires were analyzed and presented based
on the objectives of the study. Therefore this chapter presents demographic information of the
respondent, descriptive statistics, correlation analysis, tests for the classical linear regression
model assumptions (diagnostic test), model specification test and finally analysis of regression
results.

Response Rate

A total of 604 questionnaires were distributed for finance, human resource and sourcing &
facility division‟s employee of ET, EAL and CBE. Out of 604 questionnaires, 360 have been
collected and used for data analysis and interpretation for this study. The response rate was 60%.

4.1 Demographic Profile of Respondents

The respondent in the survey has composed from wide ranges of age groups, gender, educational
background, job position, years of experience and their division including their familiarity with
ERP system to enhance organizational performance.

Table 4.1: Full description of respondents’ Demographic profile.

Demographic Company name Frequency Percent Cumulative
information Category ET EAL CBE (n) (%) Percent

48
 Female 53 44 41 138 38.33 38.33
Gender of respondent Male 72 76 74 222 61.67 100.00
Total 125 120 115 360 100.00
25 and below 2 16 6 24 6.67 6.67
Age of respondent (in years
years) 26-35 years 68 69 61 198 55.00 61.67
36-40 years 27 19 30 76 21.11 82.78
Above 40 years 28 16 18 62 17.22 100.00
Total 360 100.00
College diploma 3 3 1 7 1.94 1.94
Educational Bachelor‟s degree 74 114 87 275 76.39 78.33
Qualification Master‟s degree 38 17 23 78 21.67 100.00
Total 360 100.00
5 and below years 22 41 9 72 20.00 59.44
6-10 years 26 33 54 113 31.39 90.83
Company Experience 11-15 years 34 21 24 79 21.94 21.94
16-20 years 31 15 17 63 17.50 39.44
Above 20 years 12 10 11 33 9.17 100.00
Total 360 100.00
Company working in 125 120 115 360
Finance 50 65 26 141 39.17 39.17
Division of Human Resource 35 12 40 87 24.17 63.33
employees Sourcing&Facility 40 43 49 132 36.67 100.00
Total 360 100.00
Expert 1 1 0 2 0.56 0.56
Job Position of Manager 12 1 3 16 4.44 5.00
Respondent Officer 0 36 86 122 33.89 38.89
Staff 83 76 22 181 50.28 89.17
Supervisor 29 6 4 39 10.83 100.00
Total 360 100.00
< 25 % 24 20 30 74 20.56 63.89
Interaction with ERP 25-50 % 21 18 25 64 17.78 17.78
system on daily basis 51-75 % 34 31 27 92 25.56 43.33
More than 75% 46 51 33 130 36.11 100.00
Total 360 100.00

Source: Survey Result, 2019

As depicted in table 4.1 above, out of 360 respondents, 61.67 % of them were male and the
remaining 38.33% were female respondents. A significant number of respondents are found in
the age group of 26-35 years, which constitutes 55 % of the total respondent. However, age

49
groups 25 years and below are less likely to use ERP system daily, which accounts for 6.67%.
This show that all the three companies were staffed with young and energetic employees. In
other words, the companies were staffed employees belonging in the productive age group. With
regards to educational status of respondents, it is observed that majority of the respondents
(76.39%) were Bachelor‟s degree holder, Master‟s degree (21.67 %) and the remaining (1.94%)
had college diploma. This prove that human resource profile of the companies in terms of
educational background was in a good position, that means staffed with well educated
professionals with the ability of easily understand the concept and functions of ERP system.

Regarding company experience, the majority of the employees, 31.39% have been working with
the company for at least 6 to 10 years, 21.94% of the respondents have an experience which
ranges from 11 up to 15 years, 17.50% of the respondents have been working with the company
from 16 up to 20 years, 9.17% had longer experience which is 21 years and above and the
remaining 20% of the respondents had an experience of 5 years or less in the company. It shows
that respondents had remarkable work experience in telecom, airlines and banking sectors.
Because vast majority of the respondents 48.61% participants had above ten years working
experience in their respective companies.

Out of the 360 respondents who returned the questionnaire, 39.17% of respondents belonged
finance division and 36.67% sourcing & facility division and the remaining 24.17% of
respondents are from human resources division. Regarding the job position of the respondent
50.28% of the respondents were staff, 33.89% officer, 10.83% supervisor, 4.44% managers and
the remaining 0.56% were expert level. The survey also reveals in terms of the daily interaction
and usage to ERP system, the majority of the employees performs their daily activity using ERP
system which constitute (61.67). This implies that employees are familiar with ERP system and
used this system for their daily business operations. Thus, reduce workload, reduce errors and
cycle time, reduce paper work, reduce cost of paper, and minimize time & energy spent on
manual working which leads to increased employees‟ productivity and improved organizational
performance.

Reliability Test

50
Prior to conducting the analysis, the suitability of the data to be analyzed has been checked.
Internal consistency of the data was checked so that reliability statistics was conducted through
Cronbach's Alpha method. Cronbach‟s alpha reliability coefficient (α) normally ranges between
0 and 1. There is a greater internal consistency of the items if the Cronbach‟s alpha coefficient
closes to 1.0. According to George and Mallery, (2003) rule of thumb if (α > 0.9 – „Excellent‟),
(α >0.8 – „Good‟), (α >0.7 – „Acceptable‟), (α >0.6 – „Questionable‟), (α >0.5 – „Poor‟), and (α
<0.5 – „Unacceptable‟). As depicted in table 4.2 below there is “Excellent” and “good” internal
consistency of each independent variable‟s parameters used. The alpha coefficient for the sixty
items was 0.85, suggesting that the items have relatively high internal consistency. Therefore, the
reliability test of the study is located on “excellent” range.

Table 4.2: Reliability Test of Variable’s Using Cronbach’s Alpha

№ of Average Cronbach's (α)reliability
S.№ Variable Name Items interitem Alpha ranges
Covariance
1 Finance ERP system 14 0.136 0.804 Good
2 Human Resource ERP system 15 0.144 0.823 Good
3 Sourcing & Facility ERP system 15 0.156 0.858 Good
4 Organizational Performance 16 0.177 0.902 Excellent
Overall 60 0.85
Source: STATA 11 Output of survey Result, 2019.

4.2 Result of Survey data

4.2.1 Financial, Human Resource and Sourcing & Facility ERP systems.
In order to evaluate the effect of ERP system on organizational performance, a close ended
questioner was designed. Then, the respondents were asked to rate their accuracy with ERP
system on their daily activity based on five-point likert scales ranging from highly disagree to
highly agree. To characterize the effect of ERP system on organizational performance for the
study, the researcher used three main variables and eight sub-variables along with 60 factors.

Table 4.3: Summary of survey result for the independent variables.

51
 Strongly Agree Neutr Disag Strongly Mean Std.
Agree al ree Disagree Dev.
Financial ERP system

(i) Enhance Financial and Accounting 36.71 47.92 13.80 1.30 0.27 4.20 0.73
activities.
(ii) Reduce Transactional costs. 39.78 45.83 12.11 1.61 0.67 4.22 0.76

(iii) Fulfilment of Taxation 19.72 45.46 29.63 2.87 2.32 3.78 0.86
Requirements
Average (mean) response value 34.16 46.40 18.61 1.93 1.08 4.12 0.41

Human Resource ERP system

(i)Employee performance evaluation 22.87 53.01 20.00 3.52 0.60 3.94 0.78
(ii) Training and Development 19.80 54.21 20.36 4.76 0.87 3.87 0.79
(iii) Recruitment processes 19.17 57.78 20.00 2.64 0.41 3.93 0.73
Average (mean) response value 20.95 54.20 20.17 3.98 0.70 3.91 0.42

Sourcing and facility ERP

system
(i) Improve Sourcing and facility 21.44 59.58 16.02 2.78 0.18 3.99 0.70
activities
(ii) Facilitate procurement processes 18.57 56.44 20.23 4.26 0.50 3.88 0.76
and customer satisfaction
(iii) Improve inventory control 21.11 55.37 20.65 2.50 0.37 3.94 0.74
activities
Average (mean) response value 20.22 57.48 18.63 3.31 0.35 3.94 0.43
Source: STATA 11 output of survey, 2019.

Table 4.3 above designed based on the average responses (mean value) of respondents. The
arithmetic average or mean takes into account all of the available information in computing the
central tendency of a frequency distribution and standard deviation has also been included to see
how responses deviate among individual respondents from the central value calculated for each
response. To evaluate the effect of financial ERP system on organizational performance, the

52
researcher categorizes financial ERP performance measurement indicator into three sub-
variables; enhances accounting & finance activities, reduce transactional cost and fulfil taxation
requirements. Again, each of this sub-variable has different questions under it.

According to respondents‟ feedback, about on average 84.63% of them forwarded their view as
agree and strongly agree that ERP system enhance finance and accounting activities through on
timely and with a higher accuracy preparation of financial statements, accurate & quick data
acquisition from all sections, reduces burden of operation, enables management to ascertain their
financial position & control the financial flows and helped simultaneous data recording in
different sections.

Similarly, on average 85.61 % of respondents were extended their view on ERP system in reduce
transactional cost especially shortening accounting process cycle times, reduce the paperwork,
smooth integration with IT system, centralization of administrative activities and facilities quick
information retrieval and easily identify problems. And on average 65.18 % of the respondents
agreed that ERP system enable to fulfil of taxation requirements by initiates early payment of
taxes and minimizing tax penalty and ultimately removing interest which arises from late
payments of taxes. Therefore, we can say that ERP system enables organizations‟ to meet
taxation payment requirements before due date, retaining tax penalty and interest on late
payments of taxes. In conclusion, the majority of the respondents confirm that ERP system has
greater impact on smoothly and efficiently utilization of financial resources in the organization
which leads to improvement in financial performance.

As depicted in table 4.3 above, on average 75.88% of the respondents agreed that ERP system
facilitate employee performance evaluation processes through producing accurate appraisal
documentation, maintaining employees‟ loyalty and commitment, providing disciplinary
performance procedures and feedback guidelines, making time management and leave
administration simple and easily manageable and finally leads to improves employees and
organizational performance. On average 74.01% of the respondent agree and strongly agree as
ERP system enhances training and development activities, increased employees‟ skills,
productivity and qualification growth. From organizational perspectives, the contribution of ERP
system towards improving overall company‟s productivity, research and development has a
positive outcome. 76.95% of the respondents‟ agreed that ERP system shorten recruitment

53
processes. Generally, when there is system based human resource management within a given
organization, no doubt there is what we call self-help management of employees and such
culture actually creates employee and employer loyalty, and finally enhances the overall
organizational performances.

With regards to sourcing & facility ERP system, 81.02% of respondents on average agreed that
ERP system improves sourcing & facility activities through better coordination and cooperation
between various departments, improved interaction with customers & suppliers and enhance
inter- and intra-organizational communication. 75.01% of the respondents‟ on average agreed
that ERP system facilitate procurement processes through integrating departmental and
functional activities and enhance inter and intra communication and improved customer
satisfaction through on time and on-schedule delivery of products and services to the customers.
76.48% participants revealed their view that ERP system enhances the inventory control
activities helping to avoid unnecessary purchase of material by doing this the companies use
their resources properly, minimize their expenses highly, hence increase the overall performance
of the companies.

As shown in the table 4.3 above, the respondents‟ Aggregate mean and Std. Dev. rating
regarding financial ERP was 4.12 and 0.41 respectively. It implies that the effect of financial
ERP in enhancing financial and accounting activities, reducing transactional costs and meeting
taxation requirement were high. The standard deviation is less than one suggesting the individual
response did not deviate at all from the mean. So, majority of respondent give positive response
for application of ERP in finance also the same view in human resource and sourcing. & facility.

In general, based on the aggregate mean comparison of the independent variables as shown in
table 4.3, it can be seen that finance ERP was ranked first followed by sourcing & facility ERP
and then human resource ERP.

4.2.2 Organizational performance

The study tries to find out the respondents‟ opinion on organizational performance. The findings
were presented in table 4.4 below. The results indicated that on average 86.22% of the
respondents strongly agree and agreed that the ERP system has improved the financial
performance through reduction of operational, administrative and organizational costs and lead

54
 to profit maximization, enhance competitive advantage and improved the performance of the
companies.

The survey results also revealed that on average 84.47% of the respondent agreed and strongly
agreed that the ERP system improved organizational efficiency and effectiveness of the
companies through provide accurate and reliable information that is essential for strategic
planning & operational control (information quality), facilitate easier access and faster retrieval
of information (information availability), fulfill user satisfaction, and customer satisfaction,
improved order management/order cycle, reduced delivery lead times(On-time Delivery) and
increased productivity of their job. ERP system had improved overall company‟s productivity,
helped in building common vision and improved in decision making and planning processes of
the companies.

Table 4.4 Summary of survey result for the dependent variable.

Organizational performance
Strongl Agre Neut Disa Strongly Mean Std.
y Agree e ral gree Disagree Dev
(i) Financial performance .
ERP has an impact on Profit maximization and eventually 33.33 51.67 11.94 2.50 0.56 4.15 0.76
leads to improved business performance.
Implementation ERP system in our company leads to 26.67 60.83 11.39 1.11 0.00 4.13 0.64
good financial performance.
ERP implementation has helped in reduction of 30.28 60.28 7.78 1.67 0.00 4.19 0.64
operational and administrative costs.
ERP improves competitive advantage and lowers 25.56 57.22 15.28 1.94 0.00 4.06 0.69
transaction costs.
Our ERP reduces organizational costs. 24.17 61.11 11.94 2.50 0.28 4.06 0.69

Average (mean) response value--(i) 28.00 58.22 11.67 1.94 0.17 4.12 0.68

(ii) Non-Financial performance

Information Quality (accurate and reliable information 22.50 61.39 13.89 2.22 0.00 4.04 0.67
for strategic planning & operational control).

Information Availability (easier access and faster 36.39 53.06 8.33 2.22 0.00 4.23 0.69
retrieval of information).

User Satisfaction (precise information availability, user 27.22 56.94 13.61 2.22 0.00 4.09 0.70
friendly system, output available in useful format).

Customer Satisfaction (improved customer relations & 22.78 60.00 15.00 2.22 0.00 4.03 0.68
timely responsiveness, increased interaction with
customers).

55
On-time Delivery (improved order management/order 22.50 57.22 17.78 2.50 0.00 4.00 0.71
cycle, reduced delivery lead times).
The ERP system has positive impact on the productivity 35.83 50.56 11.67 1.94 0.00 4.20 0.72
of my job.
Better resource and inventory management. 28.33 52.78 16.39 2.22 0.28 4.06 0.74

Improving overall company‟s productivity. 33.33 51.67 13.06 1.94 0.00 4.16 0.71

Build common vision. 27.50 50.28 19.17 3.06 0.00 4.02 0.76
Improved decision making and Planning. 32.22 55.56 11.11 1.11 0.00 4.18 0.66
In general ERP system improved operational efficiency 36.67 54.44 8.06 0.83 0.00 4.27 0.64
and effectiveness of an organization.
Average (mean) response value--(ii) 29.57 54.90 13.46 2.04 0.03 4.12 0.70

Source: STATA 11 output of survey, 2019.

4.3 Descriptive Statistics of Variables

Descriptive analysis deals with the descriptive statistics results of dependent and independent
variables used in the study. The descriptive statistical value of mean, standard deviation, the
maximum and minimum value of the dependent and independent variables presented
respectively.

Table 4.5: Descriptive statistics for dependent and independent variables aggregate
value:
Organizational Finance ERP Human Resource Sourcing and Facility
Performance system ERP system ERP system
Mean 4.12 4.12 3.91 3.94
Maximum 5 5 4.93 5
Minimum 2.63 2.64 2.42 2.60
Std. Dev(SD) 0.44 0.41 0.42 0.43
Observations 360 360 360 360
Source: STATA 11 output from survey, 2019.

Table 4.6: Descriptive statistics for dependent and independent variable individual
value:
MEAN VALUE

56
 Company Organizational Finance Human Resource Sourcing & Facility
Name performance ERP ERP ERP
ET 4.14 4.13 3.84 3.90
EAL 4.14 4.19 3.95 4.03
CBE 4.08 4.03 3.93 3.89
Source: STATA 11 output of survey, 2019.

Discussion on the descriptive statistical value of dependent variable.

Organizational performance (OP): the aggregate mean value of OP of the selected public
service companies was 4.12 with a minimum of 2.63 and a maximum of 5. The mean value of
organizational performance rated highly indicated that participants were agreed that the
performance of an organizations positively affected by implementation ERP system. The
standard deviation of this variable was 0.44, indicating that the respondents‟ perceptions were
close to one another because the std.dev. was less than 1.00. In case of individual company level
statistical mean values, the ET and EAL for Organizational performance variable was similar at
4.14 whereas the mean value for CBE was 4.08, which reveals most respondents agreed that
implementation of ERP system positively affected the performance of ET and EAL and CBE.

The result from qualitative data (open-ended questions) also support the above idea in that most
of the respondents revealed their view about ERP system suggesting a positive response on the
organizational performance, enhance organizational productivity and improves operational
efficiency and effectiveness of an organization

Discussion on the descriptive statistical value of independent variables.

Financial ERP system: Its aggregate mean value was 4.12, with minimum and maximum value
2.64 and 5 respectively. The mean value show that the majority of respondent give positive
response regarding the implementation financial ERP system in selected public service
companies. The standard deviation of this variable was 0.41. It indicates that the respondents‟
perceptions were close to one another because the std.dev. was less than 1.00. When we observe
individually the mean value was rated highly 4.19, 4.13 and 4.03 for EAL, ET and CBE
respectively show that the respondents‟ agreement level on financial ERP system EAL ranked

57
first, ET ranked second, then CBE third and generally agreed that the variable had positive
impact on performance of all three companies.

The result from qualitative data (open-ended questions) also confirmed that ERP system
facilitate accurately and timely report of for financial statement, easily access of information,
minimize paper work and increased the efficiency and effectiveness of business processes.

Human Resource ERP system: The aggregate mean value of selected public service companies
was 3.91 with minimum 2.42 and maximum value of 4.93. The mean value implies that
participants were agreed on the implementation of ERP in human resource division as a whole
had a greater impact in the improvement of performance of public service companies. Its
standard deviation was 0.42. It shows that the respondents‟ perceptions about the effect of human
resource ERP on organizational performance were close to one another because the SD was less
than 1.00. Individually the mean value 3.95, 3.84 and 3.93 indicated that EAL ranked first
followed by ET and finally CBE. The result from qualitative data (open-ended questions) also
justify that ERP system creates a positive effect on human resource module, facilitate evaluation
processes, salary and benefit payment and enhance employees productivity.

However, some of the respondents revealed their perception about problem they faced about
ERP system. Firstly, more of system-oriented activities in our society not acceptable, they
suggested that system implementation is difficult because the employees fear the system and
resist to accept quickly due to lack of awareness by employees about ERP. Therefore, the
management before plan to announce new system or go live the system, they must prepare to
brain wash their staffs about the system. Other problem raised by respondents is lack of training
in basic ERP system skills or there is training gap among employees and create dissatisfaction
among them. Hence, they proposed that all users should have trained in basic ERP system skills
regularly. Lack of educated person on ERP system programming because IT system (ERP) needs
highly skilled professional to give support. The ERP system is internet/network oriented, the
interruption of network has an impact for effect in ERP system on organizational performance.

Sourcing & Facility ERP system: The mean value of the explanatory variable sourcing &
facility ERP system was 3.94 with minimum and maximum value of 2.60 and 5 respectively. The

58
mean value implied that the majority of participants give positive response regarding the
implementation sourcing & facility ERP system in selected public service companies. This
variable has standard deviation of 0.43 which implies that the respondents‟ perceptions about the
effect of sourcing & facility ERP on organizational performance were close to one another
because the std.dev. was less than 1.00. In case of individual company level statistical mean
values for EAL, ET and CBE were 4.03, 3.90 and 3.89 respectively show that the respondents‟
agreement level about sourcing & facility ERP EAL ranked first , ET ranked second ,then CBE
third and generally agreed that the variable had improvement on performance of all three
companies.

4.4 Correlation Analysis

Correlation analysis was incorporated to describe the strength and direction of the linear
relationship between the independent variables and the dependent variable (Pallant, 2001). The
linear relationship between variables can be measured by correlation coefficient (r), which is
commonly called Pearson product-moment correlation. Person‟s “r” which ranged between
positive one and negative one. A correlation coefficient of negative one indicates that a perfect
negative(inverse) association between the two variables, while a correlation coefficient of
positive one indicates that a perfect positive(direct) association between the two variables. A
correlation coefficient of zero on the other hand indicates that there is no linear relationship
between the two variables (Brooks, 2008).

The result of the correlation analysis is shown in table 4.7 below. It indicates that the correlation
between explained variable organizational performance and explanatory variables financial ERP,
human resource ERP and sourcing & facility ERP have positive and statistically significant
correlation with value 0.54, 0.53 and 0.52 respectively at 5% significant level. This implies that
efficiency and effectiveness of organizational performance had improved as a result of the
adoption of ERP system in these major areas.

59
 Table 4.7: Correlation Matrix between the dependent and the Independent Variables.
. pwcorr OP FAERP HRERP SFERP , sig obs

OP FAERP HRERP SFERP

OP 1.0000

360

FAERP 0.5368 1.0000

0.0000
360 360

HRERP 0.5279 0.4753 1.0000

0.0000 0.0000
360 360 360

SFERP 0.5207 0.4857 0.5576 1.0000

0.0000 0.0000 0.0000
360 360 360 360

Note: Correlation coefficient significant at 5% significant level.

Source: Computed from STATA 11 output.
4.5 Model Diagnostic test

Regression diagnostics are statistics used for detecting problems which are encountered in model
or data set. The objective of model diagnostic test is that to test and contain statistically
significant explanatory variable and to test either the classical linear regression model
assumptions violated or not. Thus if the data fits the basic assumptions of classical linear
regression model it is confirmation for the acceptability of the regression result since it enhance
the reliability of the regression input and output at hand .Based on these objective the common
diagnostic test was done and presented as follows.

4.5.1 Multicollinearity Test

Multicollinearity is a statistical problem which occurs when the explanatory variables are much
correlated with each other (Hair et al., 1998). When there is a perfect or exact relationship
between the predictor variables, it is difficult to come up with reliable estimates of their
individual coefficients. It will result in incorrect conclusions about the relationship between
outcome variable and predictor variables. In any practical context, the correlation between
explanatory variables will be non-zero, although this will generally be relatively benign in the
sense that a small degree of association between explanatory variables will almost always occur
but will not cause too much loss of precision. However, a problem occurs when the explanatory
variables are very highly correlated with each other. High degrees of multi-collinearity can result
in both regression coefficients being inaccurately estimated and difficulties in separating the

60
influence of the individual variables on the dependent variables (Brooks, 2008). In this study, the
existence of multicollinarity examined by looking at the matrix of correlations between the
explanatory variables. Brooks (2008) noted that correlation above 0.8 among explanatory
variables may be sign of multicollinearity and have to be adjusted.
When we look at table 4.8 below, no variable correlation matrix exceeds 0.8 between the
independent variables, the maximum correlation observed was 0.5576 between human resource
ERP (HR-ERP) and sourcing & facility ERP (SF-ERP). Thus, there is no problem of
multicollinearity in this study which confirm the reliability of the regression analysis.

Table 4.8: Correlation matrixes of independent variables.

. pwcorr FAERP HRERP SFERP

FAERP HRERP SFERP

FAERP 1.0000
HRERP 0.4753 1.0000
SFERP 0.4857 0.5576 1.0000

Source: correlation matrix from STATA 11 output

Another widely used method to examine the existence of multicolinerity among the predictor
variables is by examining “Tolerance” and “VIF” values for each predictor variables. The
variance inflation factor (VIF) is a measure of how much the variance of the estimated regression
coefficient is “inflated” by the existence of correlation among the predictor variables in the
model. Tolerance defined as a statistical tool which used to indicate the variability of the
specified independent variables from other independent variables in the model (Pallant, 2007).
Tolerance values less than 0.10 and VIF (variance inflation factor) greater than 10 indicates
existence of multicollinearity (Wooldridge, 2009). From table 4.9 below, the VIF was 1.53 and
tolerance value were greater than 0.10, then multicollinearity is not an issue for this study.

Table 4.9: Multicollinearity test using VIF method

61
. vif

Variable VIF 1/VIF

SFERP 1.60 0.626188

HRERP 1.58 0.634353
FAERP 1.42 0.703419

Mean VIF 1.53

Source: Computed from STATA 11 output.

4.5.2 Autocorrelation Test

The assumption of autocorrelation is that the errors associated with one observation are not
correlated with error of any other observation cover several different situations. If the errors are
correlated with one another, it would be stated that they are “autocorrelated” or that they are
„serially correlated‟ (Brooks, 2008). To confirm either there is autocorrelation or not the Durbin
Watson test (DW) rule for autocorrelation was applied in this study and the null hypothesis being
there is no autocorrelation. The Durbin-Watson statistic ranges in value from 0 to 4. A value near
2 indicates non autocorrelation, a value toward 0 indicates positive autocorrelation; a value
toward 4 indicates negative autocorrelation (Hair et al., 1998). Having 360 observations with
three independent variables the regression result of DW as shown in table 4.10 below was 1.7689
which is closer to 2 indicated that the null hypothesis can‟t be rejected. Therefore, there is no
evidence of autocorrelation among error terms in this study. The hypothesis for the
autocorrelation test was formulated as follow:
HO: There is no autocorrelation problem in the model.
H1: There is autocorrelation problem in the model.
. gen t=obs

. tsset t
time variable: t, 1 to 360
delta: 1 unit

. estat dwatson

Durbin-Watson d-statistic( 4, 360) = 1.768859

Source: Computed from STATA 11 output. (Table 4.10: Durbin-Watson test).

4.5.3 Normality test

The classical linear model assumption which states that the error (dependent variable) has a
normal distribution, conditional on the explanatory variables (Wooldridge, 2009). In other
words, normality test assume that the mean of the residuals is zero. One of the most commonly

62
applied tests for normality is the Bera-Jarque (BJ) test. BJ uses the property of a normally
distributed random variable that the entire distribution is characterized by the first two moments-
the mean and the variance and its corresponding kurtosis (Brooks, 2008). Skewness measures the
extent to which a distribution is not symmetric about its mean value and kurtosis measures how
fat the tails of the distribution are. A normal distribution is not skewed and is defined to have a
coefficient of kurtosis of 3.
The null hypotheses is that with 5% significant level (i.e. P > 0.05) we do not reject the null
hypotheses (HO) and we said the data is normally distributed and the kurtoses of 3 or closer to 3
we said the data have normal distribution .Table 4.11 below the p-value for the Jarque-Bera test
was of 0.0744 for the model which is greater than 0.05. Therefore, we fail to reject the null
hypothesis hence the residuals are normally distributed and conclude that the error terms of the
modes are found to be normally distributed. In addition, the kurtosis was 3.44 the value close to
3 which is also acceptable and confirm the data was normally distributed. The hypothesis for the
normality test was formulated as follow:
H0: Error term is normally distributed
H1: Error term is not normally distributed
Table 4.11: Normality test
. predict uhat , residual

. jb uhat
Jarque-Bera normality test: 5.197 Chi(2) .0744
Jarque-Bera test for Ho: normality:

. sum uhat , detail

Residuals

Percentiles Smallest
1% -.8773718 -1.104577
5% -.5462547 -1.02673
10% -.4375897 -.9153826 Obs 360
25% -.1957883 -.8773718 Sum of Wgt. 360

50% .021744 Mean -1.82e-10

Largest Std. Dev. .3384973
75% .2068956 .774899
90% .4261207 .7885512 Variance .1145804
95% .5263181 .8320877 Skewness -.1921282
99% .774899 1.17649 Kurtosis 3.44587

Source: Computed from STATA 11 output.

Histogram of Residuals: Normality can further be checked through histograms of the

standardized residuals (Stevens, 2009). A histogram of residuals is can be used to check whether
the variance is normally distributed, or the variance is a constant. A symmetric bell-shaped
histogram of residual which is distributed around zero indicates that the normality assumption is

63
 likely to be true. Figure 4.1 below show that the histogram is bell-shaped normal distribution
curve on the histogram.
1.5
1
Density

.5
0

-1 -.5 0 .5 1
Residuals

Source: Computed from STATA 11 output.

4.5.4 Heteroscedasticity Test

Heteroskedasticity is a systematic pattern in the errors where the variances of the errors are not
constant. The presence of heteroscedasticity makes the standard errors too big or too low and
hence any inferences made could be misleading. One of the most popular method to test
heteroscedasticity is the Breusch–Pagan–Godfrey (BPG)‟s test. BPG is a test for
heteroskedasticity where the squared OLS residuals are regressed on the explanatory variables in
the model. The null hypothesis of homoskedasticity is rejected if BPG statistics is greater than
the chi-square values. According to (Brook, 2008) if the probability of the heteroscedastic BPG
test result is in excess of 5% then there is no heteroscedastic problem. Accordingly, as shown in
table 4.12 below, the test statistic gave the conclusion that there is no evidence for the presence
of heteroscedasticity, since the p-values 0.1953 was in excess of 0.05. Thus, the null hypothesis

64
that the variance of the error term is constant (homoscedastic) not violated and should not be
rejected. The hypothesis for the Heteroscedasticity test was formulated as follow:

HO: There is no Heteroscedasticity problem in the model

H1: There is Heteroscedasticity problem in the model

Table 4.12- Heteroscedasticity Test: The Breusch–Pagan–Godfrey (BPG).

. estat hettest

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of OP

chi2(1) = 1.68
Prob > chi2 = 0.1953

Source: Computed from STATA 11 output

4.6 Model Specification Test

A model specification error can occur when one or more relevant variables are omitted from the
model, or more irrelevant variables are included in the model or choosing the wrong functional
form. If relevant variables are omitted from the model, the common variance they share with
included variables may be wrongly attributed to those variables, and the error term is inflated.
On the other hand, if irrelevant variables are included in the model, the common variance they
share with included variables may be wrongly attributed to them. Model specification errors can
substantially affect the estimate of regression coefficients. To detect specification errors, this
study used the ovtest (Omitted Variables Test) method. It performs a regression specification
error test (RESET) for omitted variables. The hypothesis for the model specification test was
formulated as follow;

HO: the model is correctly specified

H1: the model is not correctly specified
As depicted in table 4.13 below, the p-value for ovtest was 0.2049 which is greater than (p=0.05)
at 5% significance level, so we fail to reject the null and conclude that the model is correctly
specified.

65
Table 4.13: Model specification test
. ovtest

Ramsey RESET test using powers of the fitted values of OP

Ho: model has no omitted variables
F(3, 353) = 1.54
Prob > F = 0.2049

Source: Computed from STATA 11 output.

4.7 Result of regression analysis

The Classical Linear Regression Model (CLRM) is concerned with the study of the dependence
of one variable, the dependent variable, on one or more other variables, the explanatory
variables, with a view to estimating and/or predicting the (population) mean or average value of
the dependent variable in terms of the known or fixed (in repeated sampling) values of the latter.
(Wooldridge, 2009). The regression results between the dependent variable and independent
variables was shown below.
Table 4.14: Regression result between dependent variable organizational performance and
independent variables finance ERP, human resource ERP and sourcing & facility ERP.
. reg OP FAERP HRERP SFERP

Source SS df MS Number of obs = 360

F( 3, 356) = 85.16
Model 29.5185876 3 9.83952921 Prob > F = 0.0000
Residual 41.1343638 356 .115545966 R-squared = 0.4178
Adj R-squared = 0.4129
Total 70.6529514 359 .196804879 Root MSE = .33992

OP Coef. Std. Err. t P>|t| [95% Conf. Interval]

FAERP .3270377 .0519855 6.29 0.000 .2248005 .4292749

HRERP .2704245 .0538977 5.02 0.000 .1644265 .3764225
SFERP .2403436 .0530897 4.53 0.000 .1359348 .3447524
_cons .770304 .2105271 3.66 0.000 .356271 1.184337

Source: Regression results from STATA 11.

4.7.1 Evaluation on the regression out put

R-Squared (R2) value: In the course of model estimation, it is common practice to evaluate the
appropriateness of a single descriptive model for the problem under study with the help of the
coefficient determination, R2. It tells what proportion of the variation in the dependent variable is

66
explained by the explanatory variable. This R2 lies between 0 and 1. In empirical studies, the
most important benefit of R2 is that it serves as a fast and easily interpretable measure for the
goodness of fit of the estimated model (Reisinger, 1997). However, R 2 is not an absolute
indicator of goodness of fit. Some authors particularly in social science largely reject the usage
of the coefficient of determination (Reisinger, 1997; Thompson, 2002). Further, cross-sectional
studies achieved lesser R2 value than time-series studies (Reisinger, 1997). Thus, the best value
for R2 depends on what the researcher measured. This study depends on participant‟s perception
which collected through questionnaire. Therefore, r-squared (R2) value more than 25% can be
respectable and good to fit (Reisinger, 1997; Thompson, 2002). As depicted in table 4.14 above
the R-squared value was 41.78%, indicating that financial ERP, human resource ERP and
sourcing & facility ERP collectively counted for 41.78% of the variance in the organizational
performance and the remaining 58.22% was explained by other factors which are not included in
the model.
Adjusted R-Squared (R2 ) value: The adjusted R2 show that the percentage of variation
explained by only the independent variables that actually affect the dependent variable. The
adjusted R2 will penalize you for adding independent variables that do not fit the model. As
indicated in table 4.14 it was 41.29%, indicating that the change in independent variables finance
ERP, human resource ERP and sourcing & facility ERP explain 41.29 % of the dependent
variable organizational performance.

T-Statistic value: T-value measure of the statistical significance of an independent variable in

explaining the dependent variable. It is determined by dividing the estimated regression
coefficient by its standard error. Thus, the t-statistic measures how many standard errors the
coefficient is away from zero. Generally, t-value of more than 2 are indicating a strong
relationship between the independent and dependent variable (Hair et al., 1998).

F-Statistic value: The F-test is useful for testing a number of hypotheses and is often used to test
for the joint significance of a group of variables. When testing for the significance of the
goodness of fit, our null hypothesis is that the explanatory variables jointly equal zero. If our F-
statistic is below the critical value we fail to reject the null and therefore we say the goodness of
fit is not significant (Wooldridge, 2009).The joint F statistical probability of this study was

67
0.0000 and F=85.16 confirm that jointly the model was reliable, valid and statistically significant
to predict the effect of ERP system on organizational performance.
P-Value: p-value is the probability, for a given statistical model that, when the null hypothesis is
true, the statistical summary would be equal to or more extreme than the actual observed results.
It is the lowest significance level at which a null hypothesis can be rejected. The decision rule is
if the p-value is less than or equal to 0.05 we reject the null and accept the alternative hypothesis
at 5% level of significance (Wooldridge, 2009). Based on this criterion, as depicted in table 4.14
above, the P value of independent variables, finance ERP with P value of 0.000, human resource
ERP with P value of 0.000 and sourcing & facility ERP with P value of 0.000 were statistically
significant at 5% significance level. Therefore, we reject the null hypothesis, and accept the
alternative hypothesis.

Regression model: The general model equation for predicting the effect of ERP system
implementation on organizational performance from finance, human resource and sourcing &
facility perspectives are

𝑌 = 𝛽0 + 𝛽1𝑋1 + 𝛽2𝑋2 + 𝛽3𝑋3 + 𝜀

OP= 0.770 + 0.327(FA-ERP) + 0.270(HR-ERP) + 0.240(SF-ERP) + 𝜀

Where:

OP- Organizational Performance

𝛽0 - Constant coefficient

β1-3- Regression coefficient for measuring independent variables

FA-ERP: Finance ERP system

HR-ERP: Human Resource ERP

SF-ERP: Sourcing & Facility ERP

𝜀 - represent the error term

68
The constant coefficient (β0) is the point on the vertical axis where the regression line crosses the
Y axis. The value of β0 is 0.770 represent the expected value of organizational performance
when all the three explanatory variables assume zero value.

The beta (β) sign includes a sign of positive (+) and negative (-). It shows the effect of
independent variables over the dependent variable (Field, 2009). Based on Table 4.14 beta sign
of all the independent variables were positive suggesting that they had a positive effect on the
predicting the dependent variable which is organizational performance. That means an increase
in the implementation ERP systems will result in the increase in the performance an
organization.

Effect of Financial ERP on organizational performance.

Financial (FA) ERP: The regression result as depicted in table 4.14 confirm there was a positive
relationship between financial ERP and organizational performance. The coefficient for financial
ERP was 0.327. This means the model predicts that with a unit increase in adoption financial
ERP in the firm, one should expect an increase in firm‟s organizational performance by 0.327
units, all other factors remain constant. The t-value of 6.29 and P value of 0.000 indicated that
there is a strong relationship between financial ERP and organizational performance and also
statistically significant at 5% significance level. Therefore, we can conclude that company‟s
performance has improved as a result of adoption of ERP system in finance division.
Theoretically the result of the regression confirms the theory of organizational information
processing. It assumes organizations need quality information to cope with environmental
uncertainty and improve their decision making. The theory further hypothesizes that
organizations have to design a strategy of implementing structural mechanisms and information
processing capability to enhance the information flow and thereby reduce uncertainty. Accurate
and timely information is a key element in management processes. Acquiring this information
requires a processing model which cannot be complete without focusing on Information and
Communications Technology infrastructure. Hence ERP system is one of ICT that help in
smoothly flow of information throughout the organization that help top management to make
right decision at the right time which leading to company‟s operation efficiently and
effectively.

69
This finding was consistent with the finding of Spathis and Constantinides (2014) have found
that ERP facilitates the accounting process in firms that have adopted enhancing efficiency and
speed of these processes. It has been found that ERP systems provide general benefits in terms of
increased transaction processing efficiency, more accessible information of a higher quality and
greater support for real- time data reporting, involve increased flexibility in information
generation ,increased integration of accounts applications and improved decisions based on
timely and reliable accounting information.

Effect of Human Resource ERP on organizational performance.

Human Resource (HR) ERP: The regression result show that there was a positive relationship
between human resource ERP and organizational performance in selected public service
companies. The coefficient for HR-ERP was 0.270. It implies that the model predicts that with a
unit increase in HR-ERP adoption in the firm, one should expect an increase in firm‟s
organizational performance (productivity) by 0.270 units, all other factors remain constant. The
p-value of 0.000 and t-value of 5.02 indicated that the variable was statistically significant at 5%
significance level and had strong relationship with organizational performance.
Theoretically the theory of Sociotechnical System (STS) is in line with the output of variables
human resource ERP system and organizational performance. According to this theory both
social and technical factors must be considered jointly when introducing new technologies into
an organization. The extent of automation of a given technical system is crucial to the
productivity of an organization. This theory suggested that the technical factors such as laying
down information technology infrastructure such as networking the companies, buying
computers and integrating all functional areas into a single data base as well as the social system
which includes hiring of skilled staff and training the existing staff to enable successful adoption
and implementation of ERPs. Therefore, the socio-technical perspective describes the devices,
tools and techniques needed to transform inputs into outputs to enhance the organizational
performance.

Previous empirical findings by Exact Max (2014) and Velcu (2015) support the findings of this
research study. They found that ERP influences staff productivity in at least four important ways;
including improved communication, reduced workload per employee, facilitation of fact-based
decision-making and elimination of duplication of tasks and data.

70
Effect of Sourcing and Facility ERP on organizational performance.

Sourcing and Facility (SF) ERP: From the regression result as depicted in table 4.14 above the
coefficient of sourcing and facility ERP was 0.240 and it is positively correlated with
organizational performance and statically significant at 5% significance level because the P value
of the coefficient was 0.000. The value of the coefficient 0.240 implies that a unit increase in
sourcing and facility ERP adoption in the firm, one should expect an increase in firm‟s
organizational performance by 0.240 units, and all other factors remain constant.

Theoretically the result of the regression confirms again the organizational information
processing theory, it assumes organizations need quality information to cope with environmental
uncertainty and improve their decision making. The theory further hypothesizes that
organizations have to design a strategy of implementing structural mechanisms and information
processing capability to enhance the information flow and thereby reduce uncertainty. Accurate
and timely information is a key element in management processes. Acquiring this information
requires a processing model which cannot be complete without focusing on Information and
Communications Technology infrastructure. Hence ERP system is one of ICT that help in
smoothly flow of information throughout the organization that help top management to make
right decision at the right time which leading to company‟s operation efficiently and effectively.

This finding in line with the findings of with the finding of Gartner (2010) and Nooriae (2012).
According to Gartner (2010), ERP systems provide firms with the ability to enhance businesses
process through the integration of all the activities and function areas of a company. Nooriae
(2012) has argue that ERP systems facilitate product or service improvement as well as enhanced
management of the life cycle of customers, both of which increases customers level of
satisfaction. ERP systems contribution to improvement in on-time delivery of product and
services. He also revealed that decision-making is one of the principal managerial functions and
one with potential positive or negative consequences for organizational performance. It is
suggested that this information-dependent attribute of decision-making process is what makes
ERP systems important to it. This means that any input that facilitates augments or enhances the
quality of managerial decision-making directly enhances performance.

71
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

INTRODUCTION

This chapter present the summary of the study, summarizing the purpose and the research
questions of the study as well as the study key findings, the conclusion and suggests some
recommendations for further research.

5.1. Summary

An organization‟s business environment is changing and becoming turbulent at an accelerated

speed throughout the world, creating significant challenges for firms in maintaining a
competitive advantage. To sustain competitiveness, firms should be able to embrace global
challenges as well as manage their environment effectively. Information systems are often used
as tools to improve customer service, increase effectiveness, and efficiency of an organizations.
An ERP system is a large information system practices project with a huge impact on a number
of different areas regarding the organization that implements it. This study was intended to
provide both theoretical and practical insights into the effect of ERP system implementation on
the performances of selected public service companies namely: ET, EAL and CBE. This research
presented a model to explain the effect of ERP implementation on organizational performance,
picking up fully ERP automated modules, particularly focused on finance, human resource, and
sourcing & facility divisions that can contribute to assess the overall organizational performances
of the companies. The study sought to answer the following research questions, namely; what are
the effects of financials ERP implementation on organizational performance? What are the
effects of human resource ERP implementation on organizational performance? What are the
effects of sourcing & facility ERP implementation on organizational performance? To what
extent do the selected factors influence improvement in organizational performance?

72
The main objective of this study was to evaluate the effect of ERP system on organizational
performances in case of selected public service companies. To achieve this objective the research
design and methodology of the study (i.e. explanatory research approach) was selected and the
data for the selected three companies were obtained using five point likert type questionnaire
(both closed and open ended) distributed to 604 respondents out of which 360 were returned for
analysis purpose for this study. The data was analyzed and tested using classical linear regression
model assumption. To analyze and answer to the proposed research question descriptive
statistics, diagnostic tests, model selection, regression result analysis and test of the hypothesis
have been done using SATAT 11 econometric software.

The mean value for organizational performance of the selected public service companies were
high which implies the performance of these companies highly improved as a result of ERP
implementation in finance, human resource and sourcing & facility divisions, according to the
respondent‟s perception. With regard to independent variables finance ERP, human resource
ERP and sourcing & facility ERP, they were positively and significantly affected organizational
performance of selected public service companies. Therefore, the management of these
organizations should give emphasis to use these determinant variables to make its service
delivery efficient, effective and maintaining a competitive advantage which leads to improve
overall organizational performance.
This study finds that the composite measure of financials ERP, human resource ERP and
sourcing & facility ERP accounted for 41.78% ( R2 = 0.4178) variance for organizational
performance. This means that about 41.78 percent of the variation in the organizational
performance is explained by independent variables finance ERP, human resource ERP and
sourcing & facility ERP collectively. The remaining 58.22 % were accounted for other variables
that are not included in the model.

5.2 Conclusion

With the objectives of examining the effect of ERP implementation on the organizational
performance of selected public service companies, the researcher made detail analysis and
attempted to provide answers for the research questions and test the hypothesis the following
conclusions are drawn.

73
For the research question that was “what are the effect of financials ERP on organizational
performance?” Based on the finding of the research, financials ERP and organizational
performance had positive relationship indicating that as the value in the adoption of financials
ERP increased at certain value and all other variables remain constant, the organizational
performance has also increased. When examine the significance of the variable, it has
statistically significant effect on the organizational performance at 5% significance level. The
conclusion is therefore financials ERP significantly affect financial and accounting activities
(accounting process) with greater efficiency and speed of these processes , real time generation
of reports, accurate financial reports, reducing the financial cycle time, there has been increased
transparency and accountability due to the use of ERP systems in the companies , reducing
transactional costs and fulfilment taxation requirement on time before due date, mainly saving
the companies from penalty and unnecessary expenses like interest on late payment of taxes,
which in fact enhances the financial position and leads to profitability of selected public
companies that gives the companies greater competitive advantage and ultimately increases the
overall organizational performances.

For the research question that was “what are the effects of human resource ERP on
organizational performance?” Based on the finding of the study, human resources ERP plays
greater role in improving the performance of public service companies. Human resource ERP
had a positive relationship with organizational performance. This means that a unit increase in
human resource ERP adoption in the companies, one should expect an increase in companies‟
organization performance, all factors staying stantis paribus. The explanatory variable was
statistically significant at 5% significance level. Accordingly, the findings show that the human
resource ERP had a very significant importance in facilitating employee performance evaluation,
enhancing training & development activities and shorten recruitment process. ERP systems
enable to reduce the workload for their employees and to ensure their optimum productivity. It
allows for the collection and storage of information regarding employees‟ background and
improves the efficiency of tracing employee‟s detail. It also contributions a lot towards
improving overall company‟s research & development activities and ultimately enhances
organizational productivity.

74
For the research question that was “what are the effect of sourcing and facility ERP on
organizational performance?” From the finding of the research, the coefficient of sourcing and
facility ERP was positive indicating as the value of sourcing and facility ERP system adoption
increase, the performance of the organization also increased. Sourcing and facility ERP variable
was statistically significant at 5% significance level. It has significant impact on organizational
performance by improving sourcing & facility activities, facilitate procurement process, fulfil
customer satisfaction and enhances the inventory control activities. ERP enable better resource
management, better coordination and cooperation between functional departments of the
company, support managers access to accurate, timely and complete information that support
their decision-making competencies (on time decision making). It provides firms with the ability
to enhance businesses process, internal process and monitoring through the integration of all the
activities and function areas of a company. ERP systems facilitate communication activities
through quick and accurate information sharing between and across departments as well as with
external stakeholders.
To conclude, finance, human resource and sourcing & facility ERP systems discussed above had
a positive and statistically significant effect on organizational performance of selected public
service companies.

5.3 Recommendations
Based on the findings and conclusion of the study, the following recommendations were
forwarded:

 The organizational performance of selected public service companies was significantly

and positively affected by financial, human resource and sourcing & facility ERP
systems. Hence, the management of these companies have to emphasize on those
variables and develop strategy accordingly in facilitating organizational survival,
profitability, market share and competitive advantage and ultimately improved overall
performance of the companies.
 In order to enhance the user's satisfaction as one of the constructs of ERP
implementations, it is recommendable that employees who use the ERP applications
should be involved during the life cycle of ERP implementation. Since employees would

75
 need time to adapt the change imposed by the new technology, it would be very practical
to develop adequate training programs and course in order to equip end-users with
sufficient knowledge about system and that identifies and explains all the necessary
changes that would occur to the business processes inside the organization. Moreover,
although ERP systems standardize processes inside organizations, fast learners and
technology-adaptive employees should have the chance to be distinguished and rewarded
based on their effort. Therefore, managers should support and encourage such employees
with suitable ways and procedures for incentives and rewards.

 The research study recommended that the management must adopt ERP systems as a
strategy of enhancing firm‟s overall performance. ERP systems potential for the
enhancement of business processes such as decision-making, productivity, task
performance and managerial control. Additionally, ERP systems adopted should also be
customer oriented and be aimed at enhancing firm-customer relations with the goal of
achieving greater customer satisfaction. In general, the management should appreciate the
ability of ERP systems to enhance information management within the firm. They should
adopt ERP systems since the systems have the ability to facilitate the internal processes
such as internal access to vital information, internal communication (both horizontal and
vertical) and the accounting processes. They should appreciate the potential of ERP
systems to generate efficiency and effectiveness in these processes, which has a direct
impact on organization performance.

5.4. Recommendations for Further Research

Finally, this study focused on the effect of ERP system on organizational performance of
selected public service companies picking up three independent variables, but those explanatory
variables included in this study are not exhaustive. Therefore, the study recommends further
research should studied in the future by other researchers interested in the area of the topic
including other variables in order to improve understanding on the ERP factors in broader range
that affect organizational performance.

76
REFERENCES

Abdallah, A. B., Obeidat, B. Y., & Aqqad, N. O. (2014). The impact of supply chain management
practices on supply chain performance in Jordan: The moderating effect of competitive
intensity. International Business Research, 7(3), 13-27.
Abiot & Jorge (2012). Conducted a research study of successful ERP implementation in an Ethiopian
Company: A case Study of ERP Implementation in Mesfin Industrial Engineering Pvt. Ltd.
Absar,M.M., B. Nimalathasan and M.M. Jilani,(2010). Impact of HR practices on organizational
performance in Bangladesh. International Business of Journal Insight and Transformation.
Abugabah, A. &Sanzogni, L. (2009). Enterprise Resource Planning Systems (ERP) and User
Performance: A Literature Review.20th Australasian Conference on Information Systems,
pp. 1 – 10.
Adane Ayalew (2017). The effect of Enterprise Resource Planning implementation on Internal
Supply Chain Performance:-The case of Ethio Telecom.
Al-Mashari, M. (2003). Enterprise resource planning (ERP) systems: a research agenda. Industrial
Management & Data Systems, Vol. 103, No. ½, pp. 7-22.
Almgren, K. & Bach, C. (2014). ERP Systems and their Effects on Organizations: A Proposed
Scheme for ERP Successes. Bridgeport, CT: University of Bridgeport.
Anderson,M.,C.,Banker, R., D. & Ravindran, S. (2003). “The New Productivity Paradox,”
Communications of the ACM, 46 (3), 91-94.
Appelrath, H.J., & Ritter, J. (2000). SAP R/3 Implementation: Methods and Tools. Berlin: Springer-
Verlag.
Aral, S., & Weill, P. (2007). IT Assets, Organizational Capabilities, and Firm Performance: How
Resource Allocations and Organizational Differences Explain Performance Variation.
Organization Science, Vol. 18, No.5, pp.763-780.
ArunKumar Madapusi(2008). Post implementation evaluation of enterprise resource planning system
university of North Texas.

77
Ayers, J. (2001). Is Supply Management the Same as ERP? Information Strategy: The Executive‟s
Journal, 17(3), 43-45.
Bambang Leo Handoko et al (2015). The Impact of Enterprise Resources System and Supply Chain
Practices on Competitive Advantage and Firm Performance: Procedia Computer Science 72,
122 – 128.
Banker, R. D., Bardhan, I., & Asdemir, O. (2006). Understanding the impact of collaboration
software on product design and development. Information Systems Research, 17(4), 352-373.
Barker, T. and, M.N. Frolick (2003). ERP Implementation Failure: A case study, Information
Systems Management, 20(4), pp.43-49.
Batada, I. &Rahman, A. (2012). Measuring System Performance & User Satisfaction after
Implementation of ERP. Proceedings of Informing Science & IT Education Conference.
Booth, P., Matolcsy, Z. and Wieder, B. (2000), “The impacts of enterprise resource planning systems
on accounting practice – the Australian experience”, Australian Accounting Review, Vol. 10
No. 3, pp. 4-18.
Bosilj-Vusksic, V. &Spremic, M. (2004).ERP System Implementation and Business Process Change:
Case Study of a Pharmaceutical Company. Journal of Computing & Information Technology,
pp. 1 – 13.
Botta-Genoulaz, V., and Miller, P-A. (2006).An investigation into the use of ERP systems in the
service sector. International Journal of Production Economics. Vol.99, pp. 202-21.
Brooks, C (2008). Introductory Econometrics for Finance, 2nd edn, Cambridge University Press,
New York.
Caruso, D. (2009). Manufacturers: How ERP systems improve employee productivity.
Chung, S.H., & Snyder, C.A. (2000). ERP Adoption: A Technological Evolution
Approach.,International Journal of Agile Management Systems, 2(1), 24-32.
Cissna, T. (1998). ERP software implementation brings pain with its gain‖, Electric Light and Power,
76(11), pp.43.
Cochran, W.G. (1963). Sampling Techniques, Wiley, New York.
Dallas, I. &Wyn, T. (2014). Business Process Management in Small Business: A Case Study.
Information Systems for Small and Medium-sized Enterprises, Vol. XXVI, No. 420, pp. 25 –
46.
Davenport, T.H. (1998). Putting the enterprise into the enterprise system‖, Harvard Business Review,
76(4), pp.121-131.

78
Davenport, T.H., (2011). Mission Critical: Realizing the Promise of Enterprise Systems, Harvard
Business School Press, Boston.
De Andres, J., Lorca, P. &Gayo, J. E. L. (2014).The Effect of ERP Implementation on the
Profitability of Big Firms: The Case of Spain.
Dedrick, J., Gurbaxani, V., & Kraemer, K. L. (2003). Information technology and economic
performance: A critical review of the empirical evidence, ACM Comput. Surv., 35(1), 1-28.
Delaney, J.T. and M.A. Huselid,(1996).The impact of human resource management practices on
perceptions of organizational performance The Academy of Management Journal, pp: 949-
969.
Devaraj, & Kohli, R. (2003). Performance Impacts of Information Technology: Is Actual Usage the
Missing Link? Management Science, 49(3), 273-289.
Dey, P. K., Clegg, B. T., & Bennett, D. J. (2010). Managing enterprise resource planning projects.
Business Process Management Journal, 16(2), 282-296.
Dirisu, J. I., Iyiola, O. &Ibidunni, O. S. (2013). Product Differentiation: A Tool of Competitive
Advantage Optimal Organizational Performance .European Scientific Journal, Vol. 9, No. 34,
pp. 258 – 281.
Elragal, A. A. & Al-Serafi, A. M. (2011). The Effect of ERP System Implementation on Business
Performance: An Exploratory Case Study. IBIMA Publishing, pp.1 – 20.
Elsa Taddele (2015). Conducted study on ERP post-implementation management framework: The
case of Ethiopian Airlines.
Emmanuel, C., Otley, D., & Merchant, K. (1990). Accounting for Management Control. London:
Chapman & Hall.
Engidayehu Getachew (2014). Conduct an assessment of Enterprise Resources Planning (ERP)
Implementation in Ethio telecom, practice and challenges of ERP system.
Exact Max. (2014). 5 Ways ERP Improves Employee Productivity.
Fisher (2000). Supply chain inventory management and the value of shared information‖,
Management Science, 46(8), pp.1032-1048.
Fosser, E, Leister, O H, Moe, C E & Newman, M. (2008). Organizations and Vanilla Software: What
Do We Know About ERP Systems and Competitive Advantage? Proceedings of ECIS 2008,
Galway, Ireland, June 8-11.
Foziya Ahmed (2017). Factors affecting the Implementation of Enterprise Resource Planning at
Commercial Bank of Ethiopia.

79
Gattiker, T. F., & Goodhue, D. L. (2005). What happens after ERP implementation - Understanding
the impact of interdependence and differentiation on plant-level outcomes vol 29, pg 559,
2005.
Gavrea, C. Ilies, L.& Stegerean, R. (2011). Determinants of Organizational Performance: The Case
of Romania. Management & Marketing Challenges for the Knowledge Society, Vol. 6, No. 2,
pp. 285 – 300.
Geofrey Kimutaikoech (2014). Studied the effect of Enterprise Resource Planning (ERP)
performance of Organizations within the Agro-Processing Industry in Kenya.
George, D., & Mallery, P. (2003). SPSS for Windows step by step: A simple guide and reference (
4th ed., Vol. 11.0 update). Boston: Allyn & Bacon.
Glova, J. &Gavurova, B. (2012). Performance Indicators as Part of a Balanced Scorecard System
within a Company.
Goldband, B. (2012). The real reason why ERP system fail.
Hair, J., Anderson, R., Tatham, R., & Black, W. (1998). Multivariate Data Analysis. 5th ed. New
Jersey: Pearson Prentice Hall.
Hawking, P., & Stein, A. (2004). Revisiting ERP Systems: Benefit Realization. Proceedings of the
37th, Hawaii International Conference on System Sciences, p. 8.
Hayes DC, Hunton JE, Reck JL (2001). Market reaction to ERP implementation announcements.
Journal of Information Systems 15(1): 3-18.
Hitt, L.M., Wu, D.J., & Zhouo, X. (2002). Investment in Enterprise Resource Planning: Business
Impact and Productivity Measures. Journal of Management Information Systems, 19(1), 71-
98.
Hsieh, P.J., & Kleiner, B.H. (1992). New Developments in Inventory and Materials Management.
Logistics Information Management, 5(2), 32-35.
Huang, T.C., J. Lawler and C.Y. Lei (2007). The effects of quality of work life on commitment and
turnover intention‖, Social Behavior and Personality, 35(6), pp.735–750.
Hunton, J. E., Lippincott, B., Reck, J. L. (2003). “Enterprise resource planning systems: comparing
firm performance of adopters and non-adopters”, International Journal of Accounting
Information Systems, Volume 4, Issue 3, September 2003, pp. 165-184, ISSN 1467-0895.
Ilebrand, N., Mesoy, T., & Vlemmix, R. (2010). Using IT to Enable a Lean Transformation.
McKinsey on Business Technology, pp.1-3.
Jones,G (2007).Introduction to Business: How Companies create value for people, McGraw-Hill
Inc., New York, pp. 398-401.
80
Joo, J. (2007). An Empirical study on the relationship between customer value and repurchase
intention in Korean internet shopping malls‖, Journal of computer information systems,
pp.53- 62.
Kallunki, J.-P., Laitinen, E. K., & Silvola, H. (2011). Impact of enterprise resource planning systems
on management control systems and firm performance. International Journal of Accounting
Information Systems, 12(1), 20-39.
Katou, A.A. and P.S. Budhwar,(2006).The effect of human resource management policies on
organizational performance in Greek manufacturing firms. Thunderbird International
Business Review.
Kim J K, Xiang J Y, Lee S (2009). The impact of IT investment on firm performance in China: An
empirical investigation of the Chinese electronics industry. Technological Forecasting &
Social Change, 76(5): 678-687.
Klaus, H., Rosemann, M., & Gable, G.G. (2000). What is ERP? Information Systems Frontiers, 2(2),
141 162.
Kohli, R. (2007). Innovating to create IT-based new business opportunities at United Parcel Service.
MIS Quarterly
Executive, 6(4), pp.199.
Kothari, C. R. (2004). Research Methodology Methods and Techniques. (2nd edition). India: New
Age International Publishers.
Kudyba, S., & Diwan, R. (2002). Increasing returns to information technology. Information Systems
Research, 13(1), 104-113.
Laudon and Laudon (2013). Management Information Systems, managing the digital firm,12th
edition.
Lee, S. M., Hong, S., & Katerattanakul, P. (2004). Impact of data warehousing on organizational
performance of retailing firms. International Journal of Information Technology & Decision
Making, 03(01), 61-79.
Mabert, V. Soni, A. &Venkataramanan, M.A. (2000). Enterprise Resource Planning Survey of U.S.
Manufacturing Firms. Production and Inventory Management Journal, Vol. 41, No.2, pp. 52-
58.
Madhavan, S.K. (2000). Strategic Transformation through ERP. Vikalpa, 25(3), 57-69.
Markos Mulat (2016). Integrating Enterprise Resource Planning (ERP) and Customer Relationship
Management (CRM) and analyze their impact on quality service delivery in Ethiopian
Airlines.

81
Markus, M.L. and C. Tanis (2000). The enterprise system experience: from adoption to success‖. In:
Framing the Domains of I.T. Management, Zmud, R. (ed.), pp.173– 208.
McAfee, A. (2002). The impact of enterprise information technology adoption on operational
performance: an empirical investigation‖, Production and Operations Management, 11(1),
pp.33–53.
Mentzer, J.T. et. al. (2001). Defining Supply Chain Management, in: Journal of Business Logistics,
Vol. 22, No. 2, 2001, pp. 1–25.
Minh Duc Le and Kyeong Seok Han (2016). Conduct a research on the impact ERP System
Implementation on firm performance of Small and Medium Size Enterprise (SMEs) in
Vietnam Vol. 10, No. 9 (2016), pp. 87-104.
Motwani, J., Akbul, A. Y. & Nidumolu, V. (2005). “Successful Implementation of ERP Systems: A
Case Study of an International Automotive Manufacturer,” International Journal of
Automotive Technology and Management, 5(4). 375-386.
Motwani, B. (2016). Impact of Enterprise Resource Planning (ERP) Implementation Process on
User‟s Performance. MIMS Management Review, Vol. XXX, pp. 16 – 31.
Mukhopadhyay, T., Barua, A., & Kriebel, C. H. (1995). Information technologies and business value
–an analytic and empirical investigation, (vol 6, pg 3, 1995).
Mustapha, M. & Ismail, H. (2013). Information System Structure and the Demand for Monitoring
Costs. International Journal of Economics and Management, Vol. 7 No. 12, pp. 396-407.
Nasution, H. N., and F. T. Mavondo (2008). Organizational capabilities: antecedents and
implications for customer value‖, European Journal of Marketing, 42(3/4), pp.477-501.
Nicolaou, A. (2004). Firm Performance in Relation to the Implementation and Use of Enterprise
resource planning systems. Journal of Information Systems,18 (2): pp 79-105.
Nishad Nawaz, K Channakeshavalu(2013). The Impact of Enterprise Resource Planning (ERP)
Systems Implementation on Business Performance, Vol.2,Issue: 4,pp.13.
Njihia and Mwirigi (2014). The Effects of Enterprise Resource Planning Systems on Firm‟s
Performance: A Survey of Commercial Banks in Kenya, International Journal of Business
and Commerce Vol. 3, No.8:pp[120-129]
Nooraie, M. (2012). Factors Influencing Strategic Decision-Making Processes. International Journal
of Academic Research in Business and Social Sciences, Vol. 2, No. 7, pp. 405 – 429.
Nurmilaakso J. M. (2009). ICT solutions and labor productivity: evidence from firm-level data.
Electron Commer Res,9, 173–18.
Pallant, J. (2007). SPSS Survival Manual. 3rd ed. Sydney : Ligare Book Publisher.
82
Parr, A.N.,& Shanks, G.(2000). A model of ERP project implementation School of Business
Systems, Monash University, Clayton, Victoria 3168, Australia, Journal of Information
Technology (15), 289–303.
Parto, A., Sofian, S. &Saat, M. M. (2016). The Impact of Enterprise Resource Planning on Financial
Performance in a Developing Country. International Review of Management and Business
Research, Vol. 5, Is. 1, pp. 176 – 187.
Pavlou, P. A., Housel, T. J., Rodgers, W. & Jansen, E. (2005). “Measuring the Return on Information
Technology: A Knowledge Based Approach for Revenue Allocation at the Process and Firm
Level,” Journal of the Association for Information Systems, 6 (7), 199-226.
Petrick, J.F. (2002). Development of a multi-dimensional scale for measuring the perceived value of
a service‖, Journal of Leisure Research, 34(2), pp.119-134.
Pollock, N., R. Williams, and R. Procter (2003)."Fitting standard software packages to non-standard
organizations: the biography of an enterprise-wide system", Technology Analysis and
Strategic Management, 15(3), pp.317-332.
Poston, R., Grabski, S. (2001). “Financial impacts of enterprise resource planning implementations”,
International Journal of Accounting Information Systems, Volume 2, Issue 4, December
2001, pp. 271-294.
Qutaishat, F.T., S.A. Khattab, M.K. Abu Zaid andE.A. Al-Manasra, (2012). The effect of ERP
successful implementation on employees' productivity service quality and innovation: an
empirical study in telecommunication sector in Jordan. International Journal of Business and
Management.
Rashid, Hossain & Patrick,(2002). The Evolution of ERP systems: A Historical Perspective.
Reisinger, H. (1997). The Impact of Research Designs on R2 in Linear Regression Models: an
Exploratory Meta-Analysis. Journal of Empirical Generlaizations in Marketing Science, 2(1),
1-12.
Rondeau, P.J., & Litteral, L.A. (2001). Evolution of Manufacturing Planning and ControlSystems:
From Reorder Point to Enterprise Resource Planning. Production and Inventory Management
Journal, 42(2),1-7.
Sadagopan, S. (1999). The World of ERP. In Sadagopan, S. (Ed.) ERP: A Managerial Perspective
(pp. 1-16). New Delhi: Tata McGraw-Hill Publishing Company Limited.
Shang, S. and P.B. Seddon (2002). Assessing and managing the benefits of enterprise systems: the
business manager„s perspective‖, Information systems Journal, 12, pp.271-299.

83
Shannak, R. O. (2016). The Impact of Implementing an ERP System on Organizational Performance
Using Balanced Scorecard. Journal of Management Research, Vol. 8, No. 1, pp. 37 – 51.
Singh, J. & Singh, R. (2013). Enterprise Resource Planning Systems in Tourism Industry. IRJMSH,
Vol. 4, Is. 3, pp. 1352 – 1365.
Singh, K.,(2004). Impact of HR practices on perceived firm performance in India. Asia Pacific
Journal of Human Resources, pp: 301-317.
Spano, A. & Bello, B. (2010). The Impact of Using an ERP System on Organizational Process and
Individual Employees.
Stefanou, C.J. and Revanoglou, A. (2006). ERP integration in a health care environment: A case
study. Journal of Enterprise Information Management, Vol. 19(1).
Sweat, J. (1998). ERP: Enterprise Application Suites are becoming a focal point of business and
technology planning‖, InformationWeek, pp.42-52.
Tadinan, H. ( 2005). Human Resource Management Aspects of Enterprise Resource Planning (ERP)
Systems Projects, Swedish School of Economics and Business Administration.
Tasmin,R,Oyedun and Rusuli,M (2007). Applicability of Socio-Technical Model in working system
of modern organizations.
Thompson, B. (2002). "Statistical", "Practical", and "Clinical": How Many Kinds of Significance Do
Counselors Need to Consider? Journal of Counseling and Development, 80, 64-71.
Tzafrir, S.S.,(2006). Universalistic perspective for explaining the relationship between firm practices
and firm performance at different points in time. Journal of Managerial Psychology, pp: 109-
130.
Umble, E.J.; Haft, R.R.; and Umble, M.M. (2003). Enterprise resource planning: Implementation procedures and
critical success factors, European Journal of Operational Research 146, 241–257.

Velcu, O. (2007). Exploring the Effects of ERP Systems on Organizational Performance: Evidence from Finnish
Companies. Industrial Management & Data Systems, Vol. 107, No. 9, pp. 1316-1334.
Venkatesh, V.,S.A. Brown, L.M. Maruping and H. Bala,( 2008). The competing roles of behavioral
intention, facilitating conditions and behavioral expectation. MIS Quarterly and the Society
for Information Management, pp: 483-502.
Wickramasinghe, V. and M. Karunasekara,(2012). Impact of ERP systems on work and work-life.
Industrial Management and Data Systems, pp: 982-1004.
Whitaker, J., Mithas, S., & Krishnan, M. S. (2010). Organizational Learning and Capabilities for
Onshore and Offshore Business Process Outsourcing. Journal of Management Information
Systems, 27(3), 11-42.

84
Wight, R. (2002). Getting the most from your ERP system. Supply Chain Management Review,
May/June, 44-52.
Wooldridge. (2009). Introductory Econometrics: A modern Approach. South Western, Division of
Thomson Learning.
Woosang Hwang (2011). The drivers of ERP implementation and its impact on organizational
capabilities and performance and customer value.
Zeithaml, V. A. (1988). Consumer perceptions of price, quality, and value: a means-end model and
synthesis of evidence‖, Journal of Marketing, 52, pp.2-22.
Zeng, Y., Lu, Y. &Skibniewski, M. J. (2012). Enterprise Resource Planning Systems for Project-
Based Firms: Benefits, Costs and Implementation Challenges. Journal for the Advancement
of Performance Information and Value, Vol. 4, No. 1, pp. 85 – 96.
Appendices

Appendix I: Questionnaire

Addis Ababa University

Faculty of Business and Economics
Department of Accounting and Finance

Researcher: Sisay Gezahegn

Dear respondents,

This questionnaire is designed to prepare a research title of “The Effect of Enterprise Resource
Planning Implementation (ERP) system on Organizational Performance: the case of Ethio
telecom, Ethiopian Airlines and Commercial Bank of Ethiopia” for the purpose of partial
fulfillment of the requirement for the Degree of Master of Science in Accounting and Finance. I
kindly request you to take your time to complete the questionnaire to the best of your knowledge
and thereafter send the same back to me. Hereby, I would like to express my gratitude for your
dedicated cooperation in participating in this study. Had it not been your genuine cooperation in
filling this questionnaire, it would have not been possible to conduct this thesis. All your
responses are confidential and will only be used for the purposes of this research. You may feel
free to verify these statements from me personally via the under mentioned addresses. Thank you
in advance for taking the time to complete this survey.

Thank you.

85
Sisay Gezahaegn
E-mail:- [email protected]
Mobile phone:-+251911 50-23-20
General Instruction: This questionnaire contains three parts. Please provide your responses to
the questions based on the instructions under each part.

PART I: General Information (Demographic Information) - Please put (√) in the box.

1.1. What is your gender? Male Female

1.2. Age Group:

≤ 25 26 – 35 36 – 40 41 and above

1.3. Educational Qualification: A) Collage Diploma B) Degree

C) Masters & Above D) other please specify ___________________

1.4. Your service year:

≤5 6 – 10

11 – 15 16 – 20 21 and above

1.5. In which company are you working in?

Ethio telecom Commercial Bank of Ethiopia

Ethiopian Airlines

1.6. In Which division are you working in?

Finance Sourcing & Facilities

Human Resources

1.7. The position you hold in the organization

Staff Supervisor Manager Officer

Other _____________________________

1.8 On average, how much do you interact with the ERP system in your daily work routine?

86
 Less than 25% of daily work routine 25%to 50% of daily work routine

51% to 75% of daily work routine More than 75% of daily work routine

PART-II: Questions Related to the topic.

To what extent do you agree or disagree with the statements provided below from question No. 2A.1-
2D.17 since ERP system is implemented? Show the extent of your agreement on the statements provided
below by putting [x] mark on space provided in the table within the five-point Likert- rating scale:

Where: 1 = Strongly Disagree 4= Agree

2 = Disagree 5= Strongly Agree
3 = Neutral
SECTION 2: Survey questions for- Effect of ERP system on organizational performance.

SN Description of performance measurements Scale

2A Financial ERP system

Enhance Finance and Accounting activities 5 4 3 2 1

2A.1 ERP system helps on timely and with a higher accuracy preparation of
financial statements.
2A.2 ERP system leads Accurate & quick data acquisition from all sections.

2A.3 ERP System reduces burden of operation.

2A.4 ERP enables the management to ascertain their financial position.

2A.5 ERP enable us to control the financial flows.

2A.6 ERP system uses for Simultaneous data recording in different sections.

Reduce transactional Costs. 5 4 3 2 1

2A.7 In my view ERP system shorter accounting process cycle for example
financial closing cycle.
2A.8 ERP system reduce the paperwork.
2A.9 Our ERP allows for integration with other IT systems.

2A.10 ERP enable centralization of administrative activities.

2A.11 The ERP system facilities quick information retrieval and easily identify
problems.

Fulfill Taxation Requirements 5 4 3 2 1

2A.12 In my opinion ERP system initiates early payment of taxes.

87
2A.13 I think ERP system minimize tax penalty.

2A.14 ERP system remove interest on taxes payment.

2B Human Resource ERP system

2B.1 Employee Performance Evaluation 5 4 3 2 1

2B.1.1 ERP system produces accurate appraisal documentation to protect both the
employee and employer.
2B.1.2 ERP system standardizes evaluation forms in line with clear performance
measures.
2B.1.3 ERP system maintains employees‟ loyalty.
2B.1.4 ERP system maintain employees‟ commitment.
2B.1.5 ERP system provides clear disciplinary performance procedures and
feedback guidelines.
2B.1.6 ERP helps in making the Time management and leave administration simple
and easily manageable.

2B.2 Training and Development 5 4 3 2 1

2B.2.1 All users have been trained in basic ERP system skills.
2B.2.2 The training programs where properly and well designed for end-users.
2B.2.3 ERP facilitate online training programs.
2B.2.4 In my opinion ERP system increase employee skill level.
2B.2.5 In my view ERP enhances qualification growth.
2B.2.6 I think ERP system enhances Research & Development (employee
innovation) in the company.
2B.2.7 ERP helps quickly updated on master record of employee (employee profile)
after training courses completed.

2B.3 Recruitment process 5 4 3 2 1

2B.3.1 ERP system enable to supply the right talent at right time and in the right
cost.
2B.3.2 ERP system reduced the recruitment cycle.

2C Sourcing and Facility ERP system

2C1 Enhance Sourcing and Facility activities 5 4 3 2 1

2C1.1 Better coordination and cooperation between various departments within the
organization and with external customers and vendors.
2C1.2 Easily monitor all the status and activities of business process at any time
and corrected anytime in case of problems.
2C1.3 Improved interaction with customers.

88
2C1.4 Improved interaction with suppliers.

2C1.5 Enhance inter- and intra-organizational communication.

2C1.6 ERP improve organizational functions by simplifying business and internal

Processes of the company.

2C.2 Procurement process and Customer Satisfaction 5 4 3 2 1

2C.2.1 Enables buying the items actually needed on time.

2C.2.2 ERP system create delivery reliability.

2C.2.3 Fulfill customers‟ order accurately

2C.2.4 ERP system facilitate on time delivery of customer order.

2C.2.5 ERP system enables a firm to provide quality services to customers

2C.2.6 ERP minimize customer complaints for late delivery

2C.3 Inventory control activities 5 4 3 2 1

2C.3.1 Real‐time access to inventory turnover

2C.3.2 More dominance on warehouse control

2C.3.3 Decreased excess time spent for taking of inventory

SECTION D- Survey questions for Organizational Performance

Key performance indicators Scale

2D Effect of ERP system on Financial performance 5 4 3 2 1

2D.1 ERP has an impact on profit maximisation and eventually leads to improved
business performance.
2D.2 Implementation ERP system in our company leads to good financial
performance.
2D.3 ERP implementation has helped in reduction of operational and
administrative costs.
2D.4 ERP improves competitive advantage and lowers transaction costs.
2D.5 Our ERP reduces organizational costs.

Effect of ERP system on Non-Financial performance 5 4 3 2 1

2D.6 Information Quality (accurate and reliable information for strategic planning
& operational control)

89
2D.7 Information Availability (easier access and faster retrieval of information)

2D.8 User Satisfaction (precise information availability, user friendly system,

output available in useful format)

2D.9 Customer Satisfaction (improved customer relations & timely responsiveness,

increased interaction with customers).

2D.10 On-time Delivery (improved order management/order cycle, reduced delivery

lead times).
2D.11 The ERP system has positive impact on the productivity of my job.

2D.12 Better resource and inventory management.

2D.13 Improving overall company‟s productivity.

2D.14 Build common visions.

2D.15 Improved decision making and planning.

2D.16 In general ERP system improved operational efficiency and effectiveness of

an organization.

Part ΙΙΙ
1. If there is any other issue/ problem that you observed in relation to the effect of ERP system
implementation on organizational performance. Please write down here:-------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
-------------------------

Thank You Again!

90
Appendix II: Descriptive Statistics of Variables

Descriptive statistics for dependent and independent variables aggregate value

Organizational Finance Human Resource Sourcing and Facility
Performance ERP system ERP system ERP system
Mean 4.12 4.12 3.91 3.95
Maximum 5 5 4.93 5
Minimum 2.63 2.64 2.42 2.6
Std. Dev(SD) 0.44 0.41 0.42 0.44
Observations 360 360 360 360
Source: STATA 11 output from survey, 2019.

Descriptive statistics for dependent and independent variable individual company value
MEAN VALUE
Company Organizational Finance Human Resource Sourcing & Facility
Name performance ERP ERP ERP
ET 4.14 4.13 3.84 3.90
EAL 4.14 4.19 3.95 4.03
CBE 4.08 4.03 3.93 3.89
Source: STATA 11 output of survey, 2019.

Appendix III: Multicollinearity Test

Correlation matrixes of independent variable.

91
. pwcorr FAERP HRERP SFERP

FAERP HRERP SFERP

FAERP 1.0000
HRERP 0.4753 1.0000
SFERP 0.4857 0.5576 1.0000

Source: correlation matrix from STATA 11 output

. vif

Variable VIF 1/VIF

SFERP 1.60 0.626188

HRERP 1.58 0.634353
FAERP 1.42 0.703419

Mean VIF 1.53

Source: Computed from STATA 11 output.
Appendix IV: Autocorrelation test

Autocorrelation test-: Durbin-Watson test

. gen t=obs

. tsset t
time variable: t, 1 to 360
delta: 1 unit

. estat dwatson

Durbin-Watson d-statistic( 4, 360) = 1.768859

Source: Computed from STATA 11 output.

Appendix V: Normality test

Normality test: Bera-Jarque (BJ) test

. predict uhat , residual

. jb uhat
Jarque-Bera normality test: 5.197 Chi(2) .0744
Jarque-Bera test for Ho: normality:

. sum uhat , detail

Residuals

Percentiles Smallest
1% -.8773718 -1.104577
5% -.5462547 -1.02673
10% -.4375897 -.9153826 Obs 360
25% -.1957883 -.8773718 Sum of Wgt. 360

50% .021744 Mean -1.82e-10

Largest Std. Dev. .3384973
75% .2068956 .774899
90% .4261207 .7885512 Variance .1145804
95% .5263181 .8320877 Skewness -.1921282
99% .774899 1.17649 Kurtosis 3.44587

Source: Computed from STATA 11 output.

92
 Normality test: Histogram of residuals
1.5
1
Density

.5
0

-1 -.5 0 .5 1
Residuals

Appendix VI: Heteroscedasticity Test

Heteroscedasticity Test: The Breusch–Pagan–Godfrey (BPG).

93
. estat hettest

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity

Ho: Constant variance
Variables: fitted values of OP

chi2(1) = 1.68
Prob > chi2 = 0.1953

Source: Computed from STATA 11 output.

Appendix VII: Model Specification Test.

Model Specification Test: OVTEST (Omitted Variables Test)
. ovtest

Ramsey RESET test using powers of the fitted values of OP

Ho: model has no omitted variables
F(3, 353) = 1.54
Prob > F = 0.2049

Source: Computed from STATA 11 output.

Appendix VIII: Regression Results for effect of ERP system Implementation on

Organizational Performance of selected public service companies.
. reg OP FAERP HRERP SFERP

Source SS df MS Number of obs = 360

F( 3, 356) = 85.16
Model 29.5185876 3 9.83952921 Prob > F = 0.0000
Residual 41.1343638 356 .115545966 R-squared = 0.4178
Adj R-squared = 0.4129
Total 70.6529514 359 .196804879 Root MSE = .33992

OP Coef. Std. Err. t P>|t| [95% Conf. Interval]

FAERP .3270377 .0519855 6.29 0.000 .2248005 .4292749

HRERP .2704245 .0538977 5.02 0.000 .1644265 .3764225
SFERP .2403436 .0530897 4.53 0.000 .1359348 .3447524
_cons .770304 .2105271 3.66 0.000 .356271 1.184337

Source: Regression results from STATA 11.

94
95
96