A Framework for Enterprise Resource Planning System Selection by Small and Medium Enterprises Neetu Ganapathy 1 , J. K. Raju 2 1 SDM Institute for Management Development, Mysore, India 2 Institute for Management Studies, Kuvempu University Post Graduate Center, Davangere, India neetuatsdmimd@yahoo.co.in javaliraju@hotmail.com Presented at the European Conference on Information Management and Evaluation held at the Royal Holloway School of Business, University of London, on September 10-12, 2008. Abstract: An Enterprise Resource Planning (ERP) system acquisition and implementation is a strategic decision that can significantly affect future competitiveness and performance of a company. This increases the criticality of this decision. Though several SMEs have taken the ERP implementation decision, they don’t use a formal procedure for selecting an ERP system. The awareness amongst SMEs for ERP is very low and very few know how they can benefit from an ERP system. Many SMEs believe that ERP systems are meant only for large enterprises on account of the cost and the complexity involved in the implementation. There are others who consider ERP to be a magic wand that will solve all their problems. While some SMEs decide to acquire a particular ERP solely because their competitor has done so, others approach the selection as they would any other software. Thus, most ERP decisions are taken without proper consideration and without aligning ERP with business goals. This oft times results in a system that meets but part of a company’s requirements. In this paper, the authors have proposed a framework to help SMEs select an ERP system with care. The framework is based on the insights gained from a study carried out at 6 SMEs who have acquired an ERP system and have implemented or are currently implementing it. In-depth interviews were conducted with IT personnel, CEOs and others at these SMEs to understand the procedure adopted in selecting an ERP system. This was aided by an extensive review of literature. Thus, this paper presents the current selection procedure used by the six SMEs and proposes a systematic approach to ERP acquisition that SMEs can adopt to ensure that the ERP system selected offers a better fit to their requirements. Keywords: ERP (Enterprise Resource Planning) Software, SMEs (Small and Medium Enterprises), Information System Selection, Acquisition Framework 1. Introduction With the opening up of the economy, organizations big and small have been facing increased competition. In order to stay ahead, organizations are improving their customer service, reducing costs and are looking for ways to respond quickly to the dynamic market conditions. To survive, thrive and beat competition, enterprises the world over need to manage information effectively (Leon, 1999). Enterprises, large and small, have been harnessing the power of Information and Communication Technology (ICT) to compete in the global marketplace. An Enterprise Resource Planning (ERP) system is one such solution that has the ability to provide tight integration of the various functions in an organization and thus address their information needs. An ERP system is an Information System (IS) that supports the functional units of an enterprise like finance and accounting, HR, marketing and sales, manufacturing and logistics (Sadagopan, 1999). ERP systems provide for seamless integration of all the information flowing through an organization (Davenport, 1998), and are considered as the IT backbone of choice for large firms. It has done to organizations, what internet has done to communication i.e. it has eliminated boundaries (Davenport, 2000). Today these systems are an IT strategy of choice, especially for large enterprises. Most large enterprises, the world over, have either implemented or are in the process of implementing ERP systems. Thus for ERP vendors, the large enterprise segment has reached a near saturation and they have shifted their focus to the Small and Medium Enterprise (SME) segment. Sale of ERP in the SME segment has increased also due to the fact that today prices of hardware have reduced and ECIME ’08 11 th and 12 th September,2008 University of London,Royal Holloway