Enterprise Information Systems
tia900
assignment_1_case_study.pdf
Understanding information systems infrastructure in engineering SMEs: A case study
B.J. Hicks a, S.J. Culley a, C.A. McMahon a, P. Powell b,* a University of Bath, Bath BA2 7AY, United Kingdom b Birkbeck, University of London, London WC1E 7HX, United Kingdom
1. Introduction
The importance of information and systems for management are widely accepted (Jessup, 2006). Applications such as finance, payroll, customer relationship management (CRM), and inventory management support operations and strategy. The full range of business functions which commercial off-the-shelf (COTS) information systems (IS) address is shown in the lower portion of Fig. 1. Within any organisation the IS infrastructure may comprise many different functional elements and associated software applications.
J. Eng. Technol. Manage. 27 (2010) 52–73
A R T I C L E I N F O
Article history:
Available online 3 April 2010
JEL classification:
M15
O32
Keywords:
Information systems
Engineering SMEs
Functional elements
Information dependencies
Integration
Investment
A B S T R A C T
The benefits of integrated enterprise-wide information systems (IS),
such as Enterprise Resource Planning (ERP) systems, are widely
accepted. The implementation of such systems in large organisations
is established with many in their second or third generation.
However, in small to medium-sized enterprises (SMEs) the maturity
and extent of their IS infrastructure is less clear. In engineering SMEs,
this infrastructure needs to support not only business processes but
also the activities of design and manufacture.
In this case study, our goal is to provide a better understanding of
current IS infrastructure, the functional elements of IS infrastruc-
ture, integration and expenditures are explored in ten engineering
SMEs. A model of IS functionality is developed and used to identify
and classify functional elements within the firms and to compare
and contrast the IS infrastructures. The findings are contrasted with
the SME literature and conclusions and implications developed.
� 2010 Elsevier B.V. All rights reserved.
* Corresponding author. Tel.: +44 0 20 3073 8086; fax: +44 0 1223 386928.
E-mail address: [email protected] (P. Powell).
Contents lists available at ScienceDirect
Journal of Engineering and Technology Management
journal homepage: www.elsevier.com/locate/jengtecman
0923-4748/$ – see front matter � 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.jengtecman.2010.03.004
Information systems need to support core business functions and to ensure that the overall infrastructure is integrated. Integration provides accurate, timely information across the organisation. One route to integration is through Enterprise Resource Planning (ERP) systems, which arose from earlier developments of Materials Resource Planning (MRP) systems (Langenwalter, 1999). These systems evolved from linking stores and production departments to their current manifestation that include modules for sales, finance, human resources, quality and project management. Enterprise- wide implementations are generally provided by a single vendor and utilise a common database architecture, simplifying integration and data exchange. The systems typically require major process realignment, significant investment in hardware and systems architecture, and training (Adam and Sammon, 2004; Reuther and Chattopadhyay, 2004).
The IS infrastructure challenges for large organisations using ERP involve IS evaluation and effective planning (Irani and Love, 2001), change management (Edwards and Humphries, 2005) and
Fig. 1. Hierarchy of business IS and functional groups and organisational structure.
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assessment of fit (Kanellis et al., 1999). These issues are critical where organisations are upgrading, adding to existing applications or migrating systems. However, such maturity is unusual in SMEs as they lack the necessary resources and expertise to implement enterprise-wide IS and achieve a fully integrated infrastructure. Further, as a wide range of information is needed for design and manufacture (Pahl and Beitz, 1996), and information exchange, input and flow between departments and systems are critical (Hicks et al., 2006).
In order to provide insight into these issues, this paper investigates the IS infrastructure of ten engineering SMEs. It examines the range of functional elements of the IS infrastructure and their integration. The results are compared with the functions which commercial off-the-shelf ERP systems typically fulfil. The paper evaluates IS expenditure and discusses IS strategies.
2. Classification of IS and ERP functionality
This section develops a functional classification of common business IS for manufacturers. The classification includes the product functionality of major ERP systems and commercial off-the-shelf IS. The classification is developed to:
� generate consistent terminology for describing IS and application functionality that is appropriate for SMEs; � relate functions to core business areas and organisational structure to identify IS and functionality; � provide a framework for assessing engineering SME IS infrastructure.
The IS and ERP functionality is shown in Fig. 1 where more than thirty common functions are identified. These are the set of common functions highlighted by major IS vendors as relevant to manufacturers. In practice, many of these functions are provided by a single system or application (subset) of a large (enterprise-wide) implementation. Hence, identification of basic functions within an organisation or a particular implementation is difficult. For example, when asking about sales order processing a common response would be ‘our finance system deals with that’. Therefore, for the purpose of identifying IS and functional elements, a higher level grouping is more appropriate. Such higher level groupings are commonly used by vendors. For example, the entire Oracle suite (Oracle, 2006) includes: CRM, Financial, Human Resources, Supply Chain and e- Business. In contrast, the SAP suite (SAP, 2006) is grouped as CRM, ERP, Product Life-cycle Management, Supply Chain, Supplier Relationship, Analytics, Governance and Risk, and Mobile Business. This highlights inconsistent terminology use within the industry and it is unlikely that anyone other than highly experienced users, vendors and consultants is able to describe the functionality of individual applications.
To overcome this and to provide the basis for the analysis that follows, the product groupings provided by manufacturers are used to infer a classification of IS functionality. The elements include: Materials Resource Planning, Job Management System, Manufacturing, Computer-Aided Design, Quotations and Reporting, Accounting and Finance, Human Resources/Personnel, Sales and Customer Relationship Management, E-commerce, Logistics and Dispatch, and Monitoring and Compliance. These are defined in Table 1 and shown in Fig. 1.
In addition to this intermediate classification, the various functional groups are classified with respect to the structure of engineering SMEs. Five core business areas are defined: production and planning, design and manufacture, finance and administration, sales and operations. This higher level grouping is derived through consideration of the case SMEs’ structure. The five areas often correspond to departments’ and directors’ responsibilities. For example, medium-sized engineers often have directors of finance, production, technical and sales in addition to the CEO. In smaller organisations, finance and sales may be combined and also design, manufacture and production. Many SMEs maintain dynamic, entrepreneurial or organic structures to adapt to changing markets (Covin and Slevin, 1988). However, the structures of many of the SMEs here remained largely unchanged throughout the last decade.
The classification creates a consistent terminology for IS functionality to present a framework to support the identification of the functional elements of the IS infrastructure in engineering SMEs, and
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to develop a ‘benchmark’ model against which the observed IS infrastructure may be compared and contrasted.
3. Research method
Ten organisations are studied (Fig. 2) all based in the UK South West and all satisfy the formal definition of an SME (Europa, 2004).
Of interest here are organisations operating in advanced engineering (SWRDA, 2005), characterised by extensive and continuous design, development and manufacture of new, variant and special
Table 1 Functional grouping of IS applications.
Functional element Core purpose/function Business function
1 Materials/Manufacturing
Resource Planning
Managing and monitoring stores, purchasing,
procurement and logistics
Production and
planning
2 Job Management System Management and monitoring of where work is in
production and the status of particular projects
3 Manufacturing Scheduling of component manufacture and
monitoring of process status and capacity
4 Computer-Aided Design 2D drafting and 3D modelling software Design and
manufacture
5 Human Resources/Personnel Records of employees, their contact details
and training status/proficiency
Finance and
administration
6 Accounting and Finance Preparation and management of budgets,
job costing, monitoring costs and cash flow
7 Quotations and Reporting Preparation and production of management
accounts, budgets, forecasts and costs
8 Sales and Customer
Relationship Management
Management of customer and supplier
information. Often including all correspondence
and records of contact
Sales
9 E-commerce Extra-organisational facility for customers
and suppliers to checking/availability of stock,
process orders process, make payment
and monitor progress
10 Logistics and Dispatch Management of warehouse (goods out/in),
transport and delivery
Operations
11 Monitoring and Compliance Systems for monitoring and improving
utilisation of resources, processes
efficiency, infrastructure and emissions/waste
Fig. 2. Turnover against number of employees.
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purpose machinery rather than mass producing components or sub-assemblies. Many of the firms supply processing, packaging, pharmaceutical, food technology and measurement equipment. Such activities require that a wide range of information is managed effectively to undertake the processes of design and manufacture (Pahl and Beitz, 1996; Ullman, 1992). For example, information relating to, or represented by, CAD files, electronic documents, emails, correspondence, suppliers’ literature, analysis models, service reports, meeting records, manufacturing schedules, lead times, procurement information and attendance all need to be managed. Further, these organisations supply many customers and use a wide variety of suppliers across the globe. Such organisations are dependent upon information to achieve and sustain competitive advantage. Accurate and timely information from departments, suppliers and customers, needs to be available across the organisation.
Four specific areas of the IS infrastructure are investigated:
� functional elements of IS infrastructure; � information dependencies and functional relations in the IS infrastructure; � investment in IT, IS and support; � evolution of the IS infrastructure.
Data was collected using two complementary methods; a questionnaire and detailed audit followed by semi-structured interviews. A bottom-up approach was adopted, where organisations were audited and directly involved in characterising their IS infrastructure. Fig. 3 highlights five data collection activities and illustrates their relationship to the four areas of the study. The two data collection methods and the five activities are discussed next.
3.1. Questionnaire and audit
The questionnaire and audits involved three data collection activities. The questionnaire obtains background information on each SME and its operational metrics. The metrics include turnover, product range, employees and expenditure on software and hardware. Following the questionnaire, two focussed audits were conducted to construct and verify inventory. The first dealt with the IS infrastructure, involving identifying the software applications and describing their functionality.
Here, an IS is a system that manages corporate information within or across a department, an entire organisation or for a specific function. The classification of IS functionality was referenced to identify functionality and to functional elements. In order to explore departmental and organisational
Fig. 3. Research methodology.
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dimensions the audit considered individual departments (business areas) and the central information technology (IT) function. The second auditing activity considered all software applications, their purpose or function and software licences. This activity was undertaken for each department and considered all hardware. These activities identify the functional elements of the IS infrastructure and examine IS infrastructure expenditure.
3.2. Semi-structured interviews
The second method of data collection involved semi-structured discussions with senior personnel to explore the functions of the various elements of the IS infrastructure. It elicited information dependencies between elements of the infrastructure and the functional relationships.
Information dependencies are identified where/when common information (data) is produced by, or required by, a number of different elements of the infrastructure. In contrast, the functional relationships are defined where/when one or more elements and associated systems are used to achieve a specific purpose. During the semi-structured interviews the overall IS infrastructure of the SME was reviewed and its evolution discussed.
All the interviews were conducted at participants’ offices and factories and included directors, and representatives from key departments – technical, IT and finance. Participants were interviewed in groups of up to three, enabling a consensus, so the data provides a unified and reliable perspective.
4. IS in engineering SMEs
The approach establishes and audits software applications and elaborates their functions. These functions are not supported by, or limited to, a particular software application or suite. However, particular functions are frequently supported by a single dedicated software system.
Establishing the principal functional elements of the IS infrastructure is key to understanding information handling elements within the engineering SMEs. It also provides the basis for comparing the typical suite of IS applications (Fig. 1) with an empirical model representing the current infrastructure.
4.1. Establishing functional elements
Identifying functional elements relies on clearly defining the functions of particular IS. However, distinguishing between some of the elements is difficult where production and planning-related components are considered. Fig. 4 shows an audited list of the functional elements within the ten SMEs and the software applications.
The difficulty in distinguishing functional elements of the IS infrastructure can be attributed, in part, to the nature of commercial off-the-shelf (COTS) systems. Often systems implemented to deal with particular functions are capable of dealing with related ones, such as those associated with production and planning. As a consequence, organisations and users frequently classify a particular software application and its entire functional capability as a single element of the infrastructure.
In the case of planning or production, two thirds of the organisations, where two functional elements can be identified, use only a single computer-based system to perform both. The inability to determine which systems support which functional elements can significantly frustrate the capacity to plan and develop the IS infrastructure. For example, it is more difficult to specify the requirements for new systems and assess the capabilities of potential solutions to meet these. In the case of production and planning, three elements are identified (MRP, JMS and manufacturing) by three different organisations. Most SMEs (six) identify only two elements, but there appears no correlation between the two elements implemented. That is to say, organisations implement different combinations of the three elements.
In addition to problems of distinguishing between elements of production and planning, there is overlap between the functions of accounting and payroll. For example, in five SMEs a single computer-
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based system is used to perform both functions. One organisation outsources its payroll, which is interesting given that this requires weekly data for over 150 employees to be transferred externally.
4.1.1. Principal functional elements
Twelve principal functional elements of IS infrastructure emerge that support business processes, and design and manufacture (Table 2). Grouping these elements by organisational structure reveals that finance and administration require most elements (five), while production and planning, and design and manufacture require three. Sales require a single dedicated functional element. However, sales teams require access to systems supporting production and design functions as well as finance and administration. For example, where designers visit customers to discuss upgrades or revisions it is important that sales are aware of the content and outcomes.
Despite the difficulties in separating functionality and software applications, the study reveals twelve principal functional elements. For six SMEs it is possible to identify at least nine different functional elements (Fig. 5). Further, in two of these, ten separate elements can be identified, while in one SME all twelve elements exist. The average number of functional elements of IS infrastructure is about eight. The relative levels of implementation of each functional element and the number of different software applications are shown on the right-hand side of Fig. 5. The relative levels of implementation across organisations range from 40% to 100% of the total principal functional elements with an average of 70% (>8 functional elements).
4.1.2. Core functional elements
In addition to examining the implementation of functional elements, this research explores the relative levels of implementation of specific functional elements. Three core functional elements are clearly identifiable and implemented across all organisations. These are accounts, payroll and CAD that together represent the core set of IS necessary to operate and support an engineering SME. These
Fig. 4. Functional elements of IS infrastructure of engineering SMEs and associated software applications.
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Table 2 Functional elements of the IS infrastructure.
Functional element Core purpose/function Business function
1 Materials/Manufacturing
Resource Planning
Managing and monitoring stores, purchasing,
procurement and logistics
Production and
planning
2 Job Management System Management and monitoring of where work is in
production and the status of particular projects
3 Manufacturing Scheduling of component manufacture and monitoring
of process status and capacity
4 Computer-Aided Design 2D drafting and 3D modelling software Design and
manufacture5 Product Data Management Managing CAD models and assemblies (2D and 3D) and
other documents which relate to specific projects
6 Computer Numerically
Controlled (CAM)
Control of manufacturing equipment
7 Personnel Records of employees, their contact details and training
status/proficiency
Finance and
administration
8 Time and Attendance Monitoring employees’ time at work and also monitoring
manufacturing and production times for particular
operations and jobs
9 Payroll Control payments to employees and subcontractors
10 Accounting Preparation and management of budgets, job costing,
monitoring costs and cash flow
11 Quotations and Reporting Preparation and production of management accounts,
budgets, forecasts and costs
12 Customer Relationship
Management
Management of customer and supplier information.
Often including all correspondence and records of contact
Sales
Note: The term CNC is used rather than the more common term CAM because it reflects terminology used by the participants.
Fig. 5. Aggregated analysis of functional elements and software applications.
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are unsurprising given that there are legal and statutory requirements governing accounting and payroll, and that CAD systems are now a prerequisite for the design and production of any engineering system.
It is also possible to assess the least widely implemented components – CNC and personnel systems. One reason for the low level of implementation of CNC systems is the varying levels and complexity of in-house manufacture of components across the organisations. Further, many SMEs still use simple manually generated code for machine tools. In the case of personnel systems, some of the information is contained within payroll and only this basic set of personal information is managed by the organisation.
4.1.3. Additional elements of IS infrastructure
In addition to the principal elements of IS infrastructure, a number of additional elements either relate to, or are implemented by, others. For engineering SMEs, these external organisations generally include suppliers, customers, subcontractors and other sites. These market-oriented elements (Lucchetti and Sterlacchini, 2004) provide the basic components for e-commerce capabilities. However, none of the SMEs has fully implemented e-commerce applications. More specifically the elements include email, Internet, electronic catalogues, MRP systems and Extranets/Electronic Data Interchange (EDI). Electronic catalogues (Culley and Webber, 1992) and product configurators (Configure One Inc, 2004) are becoming increasingly common as organisations try to rationalise product ranges and smooth production runs. These systems represent the current available range of products and possible configurations and may require information from the PDM and MRP systems, if current stock levels are included. Extranets and EDI systems generally incorporate some similar functionality to the electronic catalogues but may include quotations, stock levels and lead time. EDI may also support sales order processing and financial transactions. Further, these elements often provide customer-specific information such as production progress and anticipated delivery times and may therefore require information from the MRP system and the JMS.
4.2. Dependencies between elements of IS infrastructure
Twelve principal functional elements of engineering SMEs’ IS infrastructure have been established. In addition, there is a need to understand their dependencies and relationships. Information dependencies arise where common information (data) is produced, or required, by a number of infrastructure elements. Such dependencies determine the level of integration (communication) necessary within the infrastructure. In contrast to the information dependencies, functional relationships arise where one or more elements and associated software applications may be used to achieve a specific function or purpose. Such relationships do not necessarily demand integration, rather they define access requirements.
4.2.1. Information dependencies
Nine information dependencies are identified. These dependencies (D1–D9) are summarised in Table 3. Although the dependencies are described at a high level they clearly identify the necessary links between elements of the infrastructure and provide insight into the nature of these links. For example, the type of information that needs to be exchanged is shown.
It is useful to categorise the information dependencies by the core business functions in order to highlight inter-departmental dependencies. A breakdown of dependencies and business functions (Fig. 6) shows that there are two information dependencies between systems within the business functions of design and manufacture, and finance and administration and a single dependency within production and planning. The remaining four dependencies are across business functions and multiple IS. Three dependencies involve production and planning, two with finance and administration, and one with design and manufacture. The final dependency involves sales and finance, and administration.
4.2.2. Functional relationships
In addition to the nine elemental dependencies, two system level dependencies are identified. These concern quotation and reporting, and accounting that require information from many other
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elements. For example, quotation and reporting systems typically use information from eight elements and their associated systems; MRP, JMS, Manufacturing, Time and Attendance, Payroll, Personnel, CRM and PDM elements. In practice, the accounting functions are dependent upon these elements, with the general exception of PDM.
Fig. 6. Information dependencies across functional elements of the IS infrastructure.
Table 3 Information dependencies.
Information systems Information dependency Business function
D1 CNC and CAD Creation and exchange of machining
instructions (CNC code)
Design and manufacture
D2 CAD and PDM Management and organisation of part
drawings and documentation (Drawings
and Design Office Instructions)
Design and manufacture
D3 MRP and PDM Creation, management and completion of
Bills of Materials (Bills of Materials)
Production and planning
and design and manufacture
D4 Manufacture, MRP
and JMS
Scheduling and monitoring of production
information (Stock, WIP and build status)
Production and planning
D5 Manufacture, MRP
and JMS
and Accounting
Costing and variance analysis of manufactured
components (Cost [Materials, Labour and Parts])
Production and planning
and finance and administration
D6 JMS and Time and
Attendance
Monitoring and analysing time spent on
manufacturing activities for particular jobs
(Time and Process status)
Production and planning
and finance and administration
D7 Time and Attendance
and Payroll
Calculating payment for employees (Time) Finance and administration
D8 Payroll and Personnel Personal information necessary for payment
(Personal information)
Finance and administration
D9 CRM, Quotation and
Reporting, and
Accounting
Provision of accurate quotes for particular
customers (Cost [Materials, Labour and
Parts] and Time)
Sales and finance and
administration
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4.2.3. Software applications
Establishing the functional elements of the IS infrastructure necessitates evaluating the range of software applications implemented (Fig. 4). The right-hand side of Fig. 5 shows the number of IS and the ratio of systems-to-functional elements. Two firms maintain as many as ten different software applications to fulfil the functional elements of IS infrastructure. Indeed, the organisation in which twelve separate functional elements are identified implements eleven different applications. In general, the average number of IS is seven, covering planning and production, design and manufacture, finance and administration, and sales.
The ratio of IS to functional elements provides an insight into automated integration. In practice, the information dependencies identified in Section 4.2.1 can be satisfied either manually (data is transferred by users or operators), semi-automatically (using an end-user-developed intermediary to collect or exchange and parse information), or automatically (information is dynamically updated across dependent systems/applications). Automatic exchange is only generally available where a single vendor system is implemented for two or more dependent elements.
A systems-to-function ratio approaching one implies that dedicated IS are implemented for each functional element. Further, if the ratio approaches one and there are a large number of different systems, then such infrastructures are much more complicated to integrate than an infrastructure with a low number of systems and a low ratio (<0.6). For the SMEs here the ratio of systems-to- functional elements is between 0.7 and 1. In general, there are an almost equal number of software applications to functional elements. This supports Hicks et al. (2006) who identify automatic exchange of information as important to engineers.
4.3. Functional model of IS infrastructure
The previous sections characterised the functional elements of IS infrastructure and defined the information dependencies and functional relations between them. By combining these, a functional model of the key elements of infrastructure and their relationships can be constructed. The overall model is shown in Fig. 7c, with the two stages of its development which are shown in Fig. 7a and b.
Fig. 7a represents the twelve elements and their grouping according to business areas that tend to represent identifiable departments in engineering SMEs. Fig. 7b represents the information dependencies and functional relations. The dependencies are represented by the intersections of the sets that denote each functional element. The quotation and reporting element has been resized to enable the two functional relations (quotation and reporting, and accounting) to be represented. The dependencies are numbered corresponding to Table 3. Mapping these dependencies onto the system model highlights that all the elements possess at least one information dependency. That is to say, there are no independent elements of IS infrastructure. Fig. 7b retains the grouping by the four business functions. These are represented by the bold lines with the names outside the diagram. This grouping highlights the importance of what, in reality, are frequently inter-departmental dependencies between systems, reinforcing the need for a properly integrated IS infrastructure.
The functional model is extended in Fig. 7c to include the additional elements of the infrastructure identified earlier. These include e-catalogues, MRP, Extranets (EDI), email and the Internet. The first three are generally used by suppliers, customers and subcontractors. The final two elements provide general communication elements.
In Fig. 7 three core elements of the IS infrastructure (CAD, payroll and accounting) are highlighted. There are no information dependencies or functional relations between these elements. Although salary costs are required for accounting purposes, such information is relatively low volume and only required monthly or annually and can be acquired and transferred manually when required.
4.4. IS/IT expenditure
Expenditure on IS, IT and support determine the total cost of ownership (TCO) (West and Daigle, 2004). Fig. 8 shows this and organisational metrics for comparison. Here, expenditure represents all direct costs a three-year period. IT expenditure includes all hardware, while support costs include
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Fig. 7. A functional model of IS infrastructure of an engineering SME. (a) The functional elements of the information systems infrastructure. (b) The internal elements of the information systems infrastructure and the information. (c) The total
information systems infrastructure including internal and external elements.
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salaries of IT staff and subcontractors. For IS, the figures include all software and licences. This also includes desktop office-type applications, although these represent a small proportion of expenditure given that many licences are distributed with new PC packages. Further, an increasing number of the functional elements of the infrastructure are supported by such end-user-developed applications.
Annual IS/IT expenditure ranges from $9k to $315k with an average of $135k. Such a range is expected given the large variation in firm size. It is also unsurprising that the minimum expenditure corresponds to the SME with the smallest turnover (organisation K), which also maintains the fewest different IS (software applications). In contrast, the largest expenditure does not correspond to the largest turnover or the greatest number of different IS. However, the SME with the largest expenditure (C) does possess the greatest number of computers. When compared to a firm with a similar number of computers (H) the IS/IT expenditure of C is twice the level of H. Further, H maintains a greater number of IS. The reason for this difference is C’s expenditure on IS and support due to implementation of a new IS and a second full-time IT officer appointed.
More insight can be gained by considering expenditure expressed as a proportion of turnover (Fig. 8). Total IS/IT expenditure ranges from 0.3% to 2.1% of turnover with an average of less than 1%.
Fig. 7. (Continued ).
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These values include IT, IS and support costs. If solely IS are considered, the expenditure of each organisation ranges from $4.5k to $75k and 0.15% to 0.5% of annual turnover with an average of 0.21%. If IT is considered, the expenditure of each organisation ranges from $3k to $60k and 0.06% to 0.5% of annual turnover with an average of 0.25%. These figures slightly exceed that of IS but are considerably lower than the expenditure on support. Annual support expenditure is equal to expenditure on IT and IS, representing on average over half of the total expenditure.
Additional insight into the relationship between expenditure and size can be obtained by examining employee and computers numbers (Fig. 9a and b). Although the sample population is relatively small it is still possible to formulate qualitative observations on the basis of overall trends. More specifically, it is possible to approximate the bounded region over which the relationships between expenditure, number of computers and number of employees occur (one circled outlier is omitted). In the case of expenditure against employee numbers (Fig. 9a) the results lie within a hatched region which can be qualitatively characterised by a linear relationship having a coefficient approaching unity. This implies that if employees double then the total IS/IT expenditure will also double. Further, this relationship suggests that, on average, the organisations spend $1200 on IT/IS for every employee. For expenditure against number of computers (Fig. 8b) the results lie within a hatched region qualitatively characterised by a linear relationship having a coefficient of almost two. This implies that if the number of computers doubles then IS/IT expenditure will treble.
The relationship between IS expenditure and the number of different software applications (Fig. 10) reveals an overall trend for expenditure to increase with the number of different systems, but there is no clear relationship. For example, one firm with four systems has similar expenditure to another with ten. This lack of correlation also holds when total IS/IT expenditure is considered and the functional elements of IS infrastructure are considered. The latter of which is unsurprising given the close ratio of systems-to-functional elements (!1).
Fig. 8. A comparison of IS/IT expenditure across engineering SMEs.
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4.5. IS strategy
For the engineering SMEs, it is difficult to identify an overall strategy which has driven the development of IS infrastructure. This is largely due to a lack of documentation and records relating to
Fig. 9. IS/IT expenditure against key organisational metrics. (a) IS/IT expenditure against number of employees. (b) IS/IT expenditure against number of computers.
Fig. 10. IS expenditure and the number of information systems.
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the choice and rationale for current and future systems. This lack supports the notion that SME IS generally develops through need rather than planning. The IS infrastructure has evolved incrementally over the last two decades. This evolution has been primarily driven by parallel developments in CAD, and finance and accounting. Such developments were driven by the necessity to reduce the time and routine operations involved in drafting and also conform to the legal and statutory requirements for accounting, auditing and reporting. The critical role of these elements in shaping current infrastructure is further supported by the fact that CAD, accounting and payroll are the only three functional elements of the IS infrastructure to be implemented across all the SMEs.
Despite the critical role of these elements and their long-term parallel development, often software applications which support the business functions of design and manufacture, and finance and accounting are not well aligned. This is illustrated by a number of responses from design and manufacturing which suggest a feeling of isolation from the financial function(s). One reason for this perceived isolation is that IS are viewed as a cost rather than a resource by owner-managers. As a consequence, the financial support and hence evolution of the infrastructure is controlled or significantly influenced by finance employees/director. Further, it is likely that these individuals are involved in accounting and reporting processes and so are more attuned to the needs of these functions. None of the SMEs identified an information dependency between IS supporting design and manufacture and finance and administration.
5. Comparisons
In this section the findings are contrasted with the standard functional model of IS infrastructure developed earlier and the IS/IT in SMEs literature. The comparison deals with functional elements, level of integration, expenditure and IS strategy.
5.1. Functional elements of the IS infrastructure
This section compares/contrasts principal functional elements of the IS infrastructure with the functional grouping of common business IS developed earlier. This functional grouping represents the standard IS model presented by vendors. In particular, there are elements of the standard functional model that are not identified by the SMEs and also functional elements identifiable within the firms that are not presented in the standard model (i.e. not included in the suites offered by major vendors). These additional elements are often supported by dedicated software from specialist vendors.
When comparing the standard model with the functional model of IS infrastructure, eight of the eleven functional groups are implemented within the SMEs. These include all groups within production and planning, design and manufacture, finance and administration and the majority of sales elements (2.5 out of 3). In this instance, the 0.5 is used to reflect the fact that only a proportion of e-commerce functionality is implemented across the firms. While all organisations maintain some market-oriented elements (Lucchetti and Sterlacchini, 2004) including an Internet site and electronic product catalogues only three exchange financial information with suppliers, and even this is limited. Although nine out of ten SMEs claim to exchange drawings and documentation with customers and suppliers this is by email rather than through EDI. Notwithstanding this, the SMEs are clearly progressing from purely MRP and MRP II levels of functionality to CIM and EDI (Coronado et al., 2000).
While nearly all the functional elements within the four organisational groups of production and planning, design and manufacture, finance and administration and sales are implemented across the SMEs, there are no elements within the Operations group and, in particular, logistics and despatch, and monitoring and compliance. This may be partly due to the limited resources and size of the firms but it may also be that within the advanced engineering sectors, firms are not generally involved in high volume manufacture and, hence, carry relatively low stock and despatch finished goods relatively infrequently. For example, a machinery manufacturer may not produce more than two machines in any week. Further, where monitoring and compliance are considered, only a couple of organisations maintained explicit IS for quality or environmental management. This lack of explicit IS for supporting quality (ISO 9000/2) and environmental management supports Hicks et al. (2006) who reveal that many engineering SMEs believed ISO 9000/2 certification just contributes to issues concerning
B.J. Hicks et al. / Journal of Engineering and Technology Management 27 (2010) 52–73 67
information storage. While the SMEs may not have IS implemented to support aspects of quality control, improvement and assurance, many have well-documented, paper-based procedures.
When comparing the functional model of the IS infrastructure of engineering SMEs with the standard model, four additional elements are identifiable, including: Computer Numerical Control, Payroll, Product Data Management, and Time and Attendance. Payroll is surprisingly not an intrinsic part of the finance system. However, most firms (six) maintain a separate dedicated payroll system. Of the other three functional elements (CNC, PDM and T&A) such systems are generally provided by specialist or dedicated COTS software vendors. Further, CNC and T&A systems are highly dependent upon specialist hardware, not just standard IT and are not represented in the standard vendor model.
5.2. Integration within the IS infrastructure
The levels of integration within the IS infrastructures are likely to be poor due to the relatively high ratio of software applications to functions (0.7). Information dependencies can be satisfied manually, semi-automatically or automatically. Automatic exchange is the most effective and efficient means to ensure that accurate and up-to-date information is available across the firm, and is generally only available where a single vendor system is implemented for two or more dependent elements.
To investigate the levels of automatic data exchange and, hence, levels of integration, the IS implemented to support the functions across each of the nine dependencies are evaluated (Table 4). The table highlights those dependencies for which the functional elements are fulfilled by software applications from the same suite or vendor. The final row highlights the total ‘same systems’ from the SMEs where both functional elements are implemented.
The first dependency CNC and CAD (D1) is arguably not integrated within any of the SMEs. This can be attributed to the specialist nature of CAD and CNC systems (Xu et al., 2005). In the case of CAD and PDM (D2) half the information dependencies are fulfilled by integrated systems. Where dedicated COTS PDM systems are implemented, the dependency and related elements are integrated. This is because PDM systems are usually specified to support a particular CAD system and integration is a critical design requirement. Notwithstanding this, there is one implementation where the CAD system has been upgraded and the PDM-to-CAD integration is no longer fully automated. The dependency D3 (MRP and PDM) is discussed after D4, D5 and D9, and collectively with D6–D8.
The fourth dependency: Manufacture, MRP and JMS (D4) arguably represents the most integrated part of the IS infrastructure and is integrated across eight of a possible nine organisations. This reflects the need to integrate aspects of production and planning (MRP I). A similar observation concerns the fifth dependency: Manufacture, MRP and JMS and Accounting (D5) which represents the core dependencies addressed by MRP II systems. Here five SMEs implement a common software system to fulfil both functions. Three of these are COTS systems while two are end-user-developed systems created from desktop applications. Another dependency to benefit from integration by virtue of end- user-developed systems is dependency D9; CRM, Quotation and Reporting, and Accounting, where three out of seven implementations are integrated by these. The implications of user-developed systems are discussed later.
The dependencies D3, D6, D7 and D8 arise from poorly integrated parts of the infrastructure. Dependencies D3 and D6 (MRP and PDM, and JMS and Time and Attendance respectively) are inter- departmental. Dependencies D7 and D8 (Time and Attendance and Payroll, and Payroll and Personnel respectively) are internal to finance and administration.
In order to overcome the issues of integration, considerable work has been undertaken to develop Materials Resource Planning (MRP) systems into Enterprise Resource Planning (ERP) systems (Langenwalter, 1999). These systems have evolved from initially linking stores and production departments to their current manifestation which include modules for sales, finance, human resources, quality and project management. For the SMEs here, this addresses the integration of MRP and JMS and in part MRP and JMS Accounting (MRP II). However, they have not been widely implemented to address other aspects of the business (ERP). One major reason is that these enterprise- wide implementations typically require major business process realignment, substantial investment in the latest hardware technologies and systems architecture, and significant training (Adam and Sammon, 2004; Reuther and Chattopadhyay, 2004). As a result and due to limited resources, and often
B.J. Hicks et al. / Journal of Engineering and Technology Management 27 (2010) 52–7368
Table 4 Information dependencies fulfilled by software applications from the same suite or vendor.
Organisation Dependency
D1 D2 D3 D4 D5 D6 D7 D8 D9
CNC and
CAD
CAD and
PDM
MRP and
PDM
Manufacture,
MRP and JMS
Manufacture,
MRP and JMS
and Accounting
JMS and Time
and Attendance
Time and
Attendance
and Payroll
Payroll and
Personnel
CRM, Quotation
and Reporting,
and Accounting
A N – – – N – – – N
B N Y N Y Y – – N Y
C N Y N Y N – – N –
D N – – Y Y N N N N
E N N Y Y N N N – Y
F N N Y N Y N N Y Y
G N N N Y Y N N – N
H N Y N Y Y N N – N
J N – – Y N – – – –
K N – – Y N – – – –
Total 0/10 3/6 2/6 8/9 5/10 0/5 0/5 1/4 3/7
Same information system vendor/suite Y or N.
B .J.
H ick
s e t
a l./
Jo u
rn a
l o
f E
n g
in e e rin
g a
n d
T e ch
n o
lo g
y M
a n
a g
e m
e n
t 2
7 (2
0 1
0 )
5 2
– 7
3 6
9
unique business processes, such systems have not been as widely implemented. Only three firms possess MRP II/ERP implementations and include SYSPRO (SYSPRO, 2006) and MFG Pro (Minerva, 2006).
In addition, inter-departmental integration is not as widespread as expected because of the numerous software applications available for particular functions. Many have been developed by vendors in relative isolation from other IS and vendors. For example, CADCAMNet (2005) lists over fifty vendors for product data management (PDM) systems. Further, CAD systems and associated software modules have been developed by software vendors particularly for engineers. Equally, the development of accounting and finance software has been driven by statutory requirements. However, in practice members of finance and design departments require information from both systems, including, for example, cost information and part codes.
5.3. Expenditure/investment in the IS infrastructure
When considering relative levels of IS and IT investment, there is no benchmark against which the expenditure of the engineering SMEs can be compared. In the IS literature there is no generally accepted method for evaluating IS expenditure and benefits (Delone and Van de Ven, 2000; Mylonopoulos et al., 1995). Yet, a study of US manufacturers demonstrates that most organisations spend over 4% of total budget on IS/IT (Industry Week, 2003). In the same study, organisations realising the most significant improvements in cost control and productivity are those with an annual investment of 4% or more. These figures contrast the findings here where expenditures range from 0.3% to 2.1% of turnover with an average of less than 1%.
The relationship between expenditure and the functional elements of the IS infrastructure and the number of software applications reveals a general trend but no strong correlation between expenditure and the number of different systems. In order to reveal a stronger correlation between expenditure and IS it is necessary to remove in-house end-user-developed applications. Such applications do not generally represent a significant direct cost, although there will be a hidden cost in terms of employee time. Factoring out these applications reveals a clearer relationship between expenditure and the number of different IS (Fig. 11). The trend line suggests that the expenditure associated with the core set of three IS for engineering SMEs is around $15k p.a. This includes the CAD, payroll and accounting systems. The results also suggest that the addition of subsequent IS; such as MRP, JMS, manufacturing and PDM systems add around $8k each p.a.
5.4. IS strategy
The SME IS literature suggests that IS infrastructure evolves incrementally to meet changing business activity, needs of particular departments or external factors (Ferneley and Bell, 2005). This
Fig. 11. IS expenditure and the number of commercial off-the-shelf IS.
B.J. Hicks et al. / Journal of Engineering and Technology Management 27 (2010) 52–7370
study supports this, if only that in many cases there is no evidence or documentation of a formal strategy (Naylor and Williams, 1994). Despite the apparent lack of formal planning, this study suggest that IS infrastructure is primarily driven by parallel developments in CAD, and finance and accounting. As a consequence, decision makers in these areas possess a limited view of their department’s or their organisation’s activities and may not fully appreciate the information flows and their values to other departments and the firm. This approach may reinforce the view of some departments that their systems are largely independent and support their activities and processes rather than the entire firm.
Further, the notion that system elements are acquired and implemented on an apparently ad hoc basis seemingly driven by necessity rather than planning is also supported as the SMEs all possess many different, poorly integrated systems. For example, engineering organisations maintain up to eleven different IS to deal with all the various functional elements.
This variety of systems and the associated lack of planning and integration can result in a poorly functioning or underperforming IS infrastructure (Levy and Powell, 1997; Brittain, 1992). Further, Kaasbøll (1997) suggests that the relative lack of planning frequently results in new elements that may only replace a current problem with a new less well-understood problem or cause negative effects. For the SMEs here, these factors can have a significant impact on their responsiveness and ultimately long- term performance. In particular, engineering organisations need to be able to provide accurate, competitively priced quotations for new systems, which can be produced within their capabilities and current capacity and generate an appropriate contribution. Successfully achieving this is critically dependent upon the availability of accurate and up-to-date information from across the organisation, and hence the IS infrastructure.
Participants highlighted that bespoke software and COTS has been dropped in favour of simpler systems created in-house using desktop office software. The reasons include reduced software and support cost, the ability to include firm-specific knowledge, develop functionality as it is required and align systems to business processes. The most common functional elements of the IS infrastructure that are fulfilled by such applications are quotations and reporting, and then customer relationship management followed by personnel and product data management. All these functions lend themselves to spreadsheets, relational databases and linked reports. Linked reports use technologies such as Object Linking and Embedding to dynamically link data and objects across different files. One of the main reasons for the increasing use of Microsoft Office-type applications is their relatively low cost, combined with the significant improvements in functionality and the relative ease of data exchange. Further, generic templates for supporting various business functions are freely available and can be easily altered by proficient users, and do not require expensive third-party customization. One potential disadvantage of such end-user-developed systems is their scalability which is a barrier to use in larger organisations.
6. Conclusions
This study of the information infrastructure of ten engineering SMEs establishes the nature and maturity of their IS infrastructure. The functional elements, level of integration and expenditure on IS are explored. A vendor-based model of IS functionality is developed, including over thirty IS functions, grouped into eleven functional classes and five organisational groups. The model is used to identify functional elements and provides a comparison for the observed IS infrastructures.
A bottom-up study of the IS infrastructures of engineering SMEs reveals twelve principal functional elements: Materials/Manufacturing Resource Planning, Job Management System, Manufacturing, Computer-Aided Design, Product Data Management, Computer Numerically Controlled (CAM), Personnel, Time and Attendance, Payroll, Accounting, Quotations and Reporting, and Customer Relationship Management. It also identifies three core functional elements: Accounts, Payroll and CAD, defined as core as they are implemented in all organisations. A comparison of this functional model with the standard vendor-based model, reveals that none of the SMEs possesses functional elements to support operations and, in particular, logistics and despatch, and monitoring and compliance. Further, the engineering SMEs possess four functional elements to their IS infrastructure not included within the standard vendor model – Computer Numerical Control, Payroll, Product Data Management, and Time and Attendance.
B.J. Hicks et al. / Journal of Engineering and Technology Management 27 (2010) 52–73 71
A critical aspect of the work investigated information dependencies as a way of understanding integration. Thus, in addition to considering the functional elements of the IS infrastructure, the study establishes the dependencies between infrastructure elements. Nine information dependencies are identified and these are used as a basis to evaluate the level of integration within the infrastructure. The IS infrastructures are not generally well-integrated, particularly where dependencies are inter- departmental. It is, however, shown that the dependency between Manufacture, MRP and JMS, and Accounting is relatively well-integrated, and it is arguable that these elements form the basis of a typical MRP II system.
Assessment of expenditure of on IT, IS and support reveals an average expenditure of less than 1% of turnover – 0.21% on IS, 0.24% of IT and 0.47% on support. Further, the empirical data suggests that, on average engineering SMEs, spend around $1.2k on IT/IS per employee. In addition to exploring the relationships between total IT/IS expenditure and organisational size the expenditure on IS alone is examined. This reveals that the core set of IS: CAD, payroll and accounting, require an investment of around $15k p.a. and that subsequent information systems such as MRP, JMS, manufacturing and PDM each demand a further investment of approximately $7.5k p.a.
The final part of the study explores the evolution of the IS structure and hence the IS strategy. This confirms previous findings that suggest that SMEs undertake relatively little IS planning and generally lack a long-term strategy. In addition, the evolution of the IS infrastructure within the engineering SMEs is largely driven by developments in CAD and Finance systems. Although not part of a formal strategy, firms are beginning to drop commercial off-the-shelf systems for simpler end-user- developed software applications constructed in-house from desktop software. The findings suggest that the IS infrastructure of engineering SMEs is approaching an equivalent level of capability to MRP II and that organisations are beginning to embrace certain aspects of e-commerce and Electronic Data Interchange. In order to progress to ERP/CIM and full EDI capabilities it is necessary for these organisations to focus on achieving a more integrated IS infrastructure and, in particular, addressing the core information dependencies.
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