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Impact of Enterprise Resource Planning (ERP) Systems to the Construction

Industry

Article · April 2019

DOI: 10.6084/m9.figshare.8868392

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 IJRECE VOL. 7 ISSUE 2 (APRIL- JUNE 2019) ISSN: 2393-9028 (PRINT) | ISSN: 2348-2281 (ONLINE)

Impact of Enterprise Resource Planning (ERP) Systems to

the Construction Industry
Thathsarani Hewavitharana1, Samudaya Nanayakkara2, Asoka Perera3, Jude Perera4
1,3,4
University of Moratuwa, Sri Lanka
2
Western Sydney University, Australia

(E-mail: [email protected])

Abstract— Enterprise Resource Planning (ERP) system has two, increasing managerial flexibility, lowering the cost in the
become a key component of organizations all over the globe entire supply chain (cost and time are main parameters in the
long-term running project) [7], shortening the lead time and
giving an edge over competitors. However, the adaptation of throughput time, increasing efficiency of communication
ERP systems in construction companies is far behind than among functional boundaries [8], improving business
other industrial fields. As it is a highly heterogeneous sector productivity (reducing inventories, expanding the product
with a great diversity of specialties and large disparities in choice, providing more reliable delivery dates), improving
the size of companies, the complexity of interconnecting the quality customer service [9], competitive advantage are some
of the uses which can obtain from ERP system [7, 10].
projects is significant. Thus, the main objective of this
research is to investigate how ERP will impact to the Barriers to the ERP implemetation are identified as
construction industry and establish the aspects to measure the requirement of high cost and resources, incompatibility of
software with the company objective [3], problems with
ERP readiness before its implementation. The research was technical advancement and human resources, not having clear
conducted using 210 financial statements from 29 objective of using ERP before its implementation, lack of
construction companies. It is proved that 90% of the senior involvement, unbalanced combination of team project
companies who have implemented ERP has gained [1, 10]. However, when considering small construction firms,
significant successful rate with their construction activities. financial capital, human and technical resources are major
concerns [11, 12]. And also, culture, politics, government
Furthermore, it is certified that ERP readiness ratios named
regulations, management style and labor skills can be
Investment/Revenue more than 10% and Intangible considered as indirect determinant factors for the
Asset/Fixed Asset more than 10% are required to fulfill implementation [4, 12-14].
management and technical requirements respectively for a Previous researchers have identified how ERP system can
successful implementation. And also, it is identified that the affect to the process of construction companies and the
training cost allocated by the construction companies is challenges which are faced in the ERP implementation. No
much lower than it requires. previous research has focused on overall financial behavior of
companies with the ERP implementation and how to overcome
the challenges of implementing with a proper readiness [8, 14-
Keywords— ERP, Financial ratios, Readiness Scale, 17]. Through this research it is expected to find out the impact
Construction industry of ERP implementation on the growth rate of construction
companies with a critical analysis of financial statements.
I. INTRODUCTION Furthermore, this study suggests the threshold values for
readiness factors to be identified by the company owners
Many construction companies are embarked upon ERP with before the investment on ERP [11, 18, 19].
the growth of global competition [1]. As construction company
has uniqueness on its functionalities it needs specialized ERP
vendors as well as specialized systems which is driven by II. RESULTS
projects [2]. ERP can benefit the company in five main ways
called Operational, Managerial, Strategic, IT infrastructure, A. Impact of the ERP implementation
Organizational [3, 4]. ERP provides two main pros than that of
a company which does not have an integrated system. They are As shown in Fig. 1 impact of ERP implementation on the
(a) A one clear picture of all businesses that comprise with all construction companies’ growth can be categorized in to five
functions and departments [5, 6]. (b) A enterprise single ways with the results. They are (a) Companies who continue
database where all business transactions are entered, recorded growth rate with the ERP implementation, (b) Stagnated
,processed, monitored, and reported [5, 7]. Other than these
companies who increase the growth rate with the ERP
implementation, (c) Companies who survive with the ERP

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implementation, (d) Companies who loss with the ERP

implementation, (e) Companies who gain growth rate without
ERP implementation. When sum up the success levels, 90% of
the companies who implemented ERP have reached their
successful limit. The distribution of the success levels in
developed countries and developing countries are shown in
Fig. 2 and Fig. 3 respectively. It indicates that 92% of the
companies in developed countries and 68% of companies in
developing countries have increased their growth rate by ERP
implementation. However, only 3% of the total companies
have managed to suceed without ERP.

Fig. 3: Impact of ERP on company growth in developing countries

The comparison of growth rates before the ERP

implementation and after the ERP implementation are
indicated in Fig. 4 (Companies who gained continuous
improvement with ERP), Fig. 5 (Companies who have a
stagnated growth with ERP) and Fig. 6 (Companies who are
surviving with ERP) respectively. As per the Fig. 4, 55% of
the companies were supported by ERP to gain high growth
rate with the new investment, 10% of companies who have
stagnated long period gained its growth after implementation
of the ERP (See Fig. 5). Further, around 28% of companies
Fig. 1: Impact of ERP on company growth
had survived from their bankrupt, losing of profits, negative
growth rates, and financial crisis. (See Fig. 6)

Fig. 4: Companies which gain high growth rate by implementation of

ERP
Fig. 2: Impact of ERP on company growth in developed countries

Revenue in Million US $ ERP Implementation Time

1400 200
1200
1000 150
800
100
600
400 50
200
0 0
2005 2006 2007 2008 2009 2010 2011 2012

Fig. 5: Companies which gain stagnated growth by ERP

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ERP
implemeted
After 2010
15%

ERP
implemented
Companies
(2005-2010)
85%

Fig. 6: Companies which survived by ERP

Fig. 8: Thrends of ERP implementation

Some other conclusions which arrived from the data analysis

 The sample consisted of 23% large scale and 77%
are shown below.
medium scale companies. The effect of ERP
implementation may depend on the company size.
 The presence of high capacity database enables a
According to the Fig. 9, 62% of large companies
company to store and manipulate a large amount of
acquired higher growth rate and as per the Fig. 10,
data. When the company is growing, it is a must to
41% of medium sized companies have obtained the
operate an adequate capacity database. Out of 99
high growth rate.
companies in the sample, only 29 companies who
implemented ERP system consisted of rich data set.
Enable to handle a large amount of data can be
considered as a positive impact of ERP
implementation. Fig. 7 shows the impact of ERP on
data storing.

Reach data
with ERP
sys
29%

Other
30%
Fig. 9: Results by large companies

Less data Reach data

for without
Analysis ERP sys
70% 1%

Fig. 7: Impact of ERP on data storing

According to the selected sample, it is attested that

considerable numbers of companies have implemented ERP
after 2010. While 85% of implementations happened in 2005-
2010, 15% of the implementations happened in 2010 (See Fig.
8) Fig. 10: Results by Medium companies

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B. Readiness for the ERP implementation III. DISCUSSION

When establishing the readiness factors Intangible Asset This study provides a valuable insight to the impacts of ERP
Investment/Revenue ratio, Training Cost/Revenue, implementation and company readiness to accept the ERP.
Intangible Asset/Fixed Asset Ratio were considered under Research output indicates that companies are unable to deal
three criterions management, technical, and human resources with huge amount of data unless there is an ERP system. Only
readiness respectively. All companies who have succeed 1% has a high growth rate without ERP. Because when the
with ERP have invested more than 10% on intangible assets company is growing, it needs efficient and accurate data
over their investments as per the Fig. 11. Thus, it is handling system. Without ERP it is a miracle for highly
recommended that company should exceed 10% of revenue growing companies to achieve that target. Thus, there is a high
over intangible asset investments (Management) for proper impact from ERP for the large companies than medium
implementation. And also, 75% of the companies which companies. If there is no ERP, when the company is reaching
succeeded with the system exceeded 10% of total assets over its maximum operation capacities, it collapses (See Fig. 7).
intangible assets (Technical) as per the Fig. 12. According to the research output, it is assured that 90% (53%
high growth, 10% Stagnated to growth & 27% Survival) of the
companies have gained financial benefits from ERP
implementation. Only 3% of the companies have gain
successes without ERP (See Fig. 1). Therefore, it can be
concluded that ERP has a positive impact towards the
financial conditions of the companies.
On the other hand, ERP is one of the largest investments that a
company can involve with. So if there is no readiness to
accept to ERP, implementing ERP may lead to a loss. It is
noted that the implementation of ERP systems require much
capital, technical and human resources. Results have shown
that 7% of medium-size construction companies failed in ERP
implementation due to lack of these resources. Therefore, it is
crucial to identify whether the companies are satisfied with the
requirements before the ERP implementation. This qualitative
analysis shows the potential to invest on this system. The
Fig. 11: Intangible Asset/Investment Ratio for management readiness
importance of identifying readiness factors before the ERP
implementation for a construction company has analyzed
under three criterions named as Managerial readiness,
Technical Readiness, and Human resource readiness using
ratios Intangible asset investment/Revenue, Intangible
asset/Fixed asset and Training cost/Revenue respectively.

A. . Intangible asset/Investment

Companies in developed countries show a stable Intangible

Asset Investment/Revenue ratio while companies in
developing countries show a huge variation in Investment on
Asset/Revenue ratio from year to year. Having more than
10% (See Fig. 11) of investment on Intangible assets implies
that companies are capable of investing ERP. It is a great
potential for a company who is going to implement an ERP.
The variation can be due to investment policies of the
company. If the company even does not have 10%
Fig. 12: Intangible Asset/Fixed Asset ratio for Technical readiness investment from the revenue, the company is not ready to
accept the ERP implementation.

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Apart from that, if the company intangible websites and ERP vendors’ websites. Also, journal articles,
investment/Revenue ratio is low it indirectly indicates that conference articles and ERP related web sites were referred
the top management doesn’t involve with those investments for the data collection.
very much. Further, if the Top management does not support
with installation with the financial support company is very A. Identification of the impact on the growth of
unlike to ready for the ERP system implementation. When construction companiest
the investment on intangible assets is comparatively low, it
To identify how the growth rate of construction companies are
can be concluded that the company is not technically feasible
varied because of ERP implementation, 210 financial reports
to accept the ERP implementation also.
form 29 construction companies were analyzed. The
measurements considered were revenue, expenditure,
Moreover, ERP strategies will not match with the goals of
operation cost, material cost, and inventory before and after
the organization if the ratio is well below than the
implementing ERP. The Fig. 13 describes how the final
requirement. ERP is not matching with the low-cost culture
sample was selected from the initial sample off 594 annual
of a company as it already costs higher itself than the other
reports from 99 construction companies which are listed in
additional requirements. Thus, both strategies should be
stock exchange. As shown in Fig. 15 it was consisted with
aligned with each other to mean a good readiness for ERP.
Building construction companies (27Nos) City Development
B. Training cost/Revenue (03Nos), Civil construction (20Nos), Communication
(01Nos), Electrical (01Nos), Energy (09Nos), Infrastructure
The training cost of employees is hidden in all most all of the (15Nos), Manufacturing (06Nos), Mechanical (9Nos) and
financial statements which were selected for the analysis. It Real state (8Nos) (Total of 99 companies). The data was
indicates that most of the companies are reluctant to allocate
collected from large and medium construction companies from
budget on training. That is because top management doesn’t
like to involve with ERP. But according to the previous developed countries as well as developing countries. (See Fig.
literature, staff training is a critical component of ERP 14)
implementation [9, 10, 19, 20, 21]. Because of this, even
though companies are implemented ERP they struggle for
obtaining expected results from the system
C. Intangible fixed assets

This ratio is a measure of software and hardware related to IT

sector of a company. It indicates whether the company is
having enough technical resources and capability to carry out
ERP implementation. Except few companies in developing
countries Intangible Asset/Fixed Asset ratio is higher than
10% (See Fig. 16) and that is considered as a point to success.
Thus,it is recommended that maintaining over 10% Intangible
asset/Fixed asset ratio is a requirement for a company who is
going to target of ERP.
This study was conducted according to the quantitative
method using secondary data sources such as published
Figure 13: Macro View of data collection
materials from a broad range of sources, including National
stock exchange’s websites, Public Limited Company’s (PLC)
websites and ERP vendors’ websites. Also, journal articles,
conference articles and ERP related web sites were referred
for the data collection.
IV MATERIAL AND METHODS
This study was conducted according to the quantitative
method using secondary data sources such as published
materials from a broad range of sources, including National
stock exchange’s websites, Public Limited Company’s (PLC)

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fixed assets owned by the company were obtained from the

balance sheets for that particular year. Then ratios were
separately calculated, and the threshold ratios were identified
for each company and each year.
V CONCLUSION

This research is carried out with 210 financial reports form 29

construction companies and 90% of the medium and large-
Scale construction companies in developing countries, as well
as developed countries show an increase in profit and growth
rate after the implementation of ERP. Here, 92% growth rate
in developed countries and 68% growth rate in developing
countries is represented. Thus, it is clear that significant
Figure 14: Universal data collection (99 companies)
positive impact on organizations can be achieved through ERP
implementation.

Further, according to the secondary data analysis of financial

statements, it is found that maintaining above 10% for
Intangible investment /Revenue is a readiness factor. It
implies the management support, technical resource
availability and alignment of company strategies with ERP.
And Intangible Asset/Fixed Asset ratio more than 10%
implies the adequate technical capacity of the company.
However, the negligible value for Training Cost/Revenue
ratio concluded the incompetency of the staff for the ERP
implementation. Thus, for a company to be successful in
ERP implementation, they should at least need to full fill this
threshold values. The significance of this study can be
attributed to the identification of perceived and realistic
importance of readiness factors related to the selection and
implementation process of ERP.
Figure 15: Type of industries used in the sample VI LIMITATIONS OF THE STUDY

B. Development of readiness factors

 The initial sample of 594 financial statements from
ERP can be considered as an intangible asset to a construction 99 companies has reduced up to 210 financial
company. Thus, the effect of ERP is mentioned in the form of statements from 29 companies because of poor data
Intangible asset in their financial statements. In this research, quality. Because of that, the evaluation was carried
the readiness of the company is categorized in to three out from 210 financial statements only.
sections. They are Management readiness, Technical readiness  To evaluate Training cost/Investment ratio the data
and Human resource readiness. Thus, to scale out the could not be captured from financial statements of
management readiness, Technical readiness and Human the construction companies. This is created due to
resource readiness, ratios of Investment on intangible lack of training on employees by the construction
assets/Revenue, Intangible Asset/Fixed Asset Ratios Training organizations. But the analysis was impossible with
Cost/Revenue were used. To develop these readiness factors, the accurate figures.
companies who were successfully implemented ERP were
taken in to consideration from above samples. The numerical
values for intangible asset investment, Total revenue, Training
cost for employees were obtained from Profit and loss
statements and the value of intangible assets, value of total

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