Developing a Framework to Understand the Challenges and Benefits of Cloud-Based ERP Systems in the South African Mining Industry

Abstract

The aim of this study is to develop a framework to understand the challenges and benefits of cloud-based Enterprise Resource Planning (ERP) Systems in the mining industry in South Africa. Large corporates and organisations invest a lot of money and resources in the implementation of ERP systems. Much of this goes towards the high licencing and maintenance costs of these systems. Although the CIOs of many of these companies are reluctant to adopt the latest trends in Information Technology (IT) infrastructure when it comes to ERP implementation, one premise is that ERPs are becoming more complex to manage as there is often a shortage of in-house ERP system skills, which impacts on the maintenance of such systems. This has led many mining companies to turn to ERP service providers for their maintenance needs. This study has four objectives. Firstly, to understand the current state of adoption of cloud-based ERP systems in the mining industry in South Africa; secondly, to define the aspects that influence the move to cloud-based ERP systems in general; thirdly, to understand the type of IT infrastructure and resources needed by South African mining companies to enable them to adopt cloud-based ERP systems; and fourthly, to develop a framework to understand the factors that influence the migration to cloud-based ERP systems in these mining companies. A thorough literature review was done on ERP systems, cloud computing, cloud-based ERP systems and TOE framework, followed by qualitative research done in the form of interviews. Experts in the field of ERP implementation, as well as some of the core service providers of ERP systems in the South African mining industry, were interviewed to tap their knowledge on the use of cloud-based ERP systems. A total of ten semi-structured interviews were conducted, after which the data were transcribed and analysed using Atlasti.7.0. The topics which emerged from this analysis were used in conjunction with the Technology-Organization-Environment (TOE) framework of DePietro, Wiarda and Fleischer (1990) to construct a framework of the benefits and challenges that affect the implementation of, or the migration to, cloud-based ERP systems. The framework is aimed at assisting the management of South African mining companies to understand the benefits and challenges of cloud-based ERP systems. It is further intended to be used as a readiness framework to determine an organisation’s readiness to move to a cloud-based ERP system. The results of the study revealed that there was a low level of migration to cloud-based ERP systems in the South African mining industry with some experts projecting that it could take up to 10 years for these companies to adopt the cloud deployment model. These experts, however, propagated the migration to cloud-based ERP systems as they believed it would assist these companies with reducing their ERP operational costs; it would allow for more flexible ERP systems, and it would provide for data storage at a lower cost. Despite these advantages, the hindrances for cloud-based ERP system migration include poor bandwidth offered at a high cost; unfavourable maintenance contracts; concerns around data security, electricity and theft; and issues around the mindsets of management, resulting in insufficient change management and a lack of priority in ERP investment. To overcome some of these hindrances, the experts firstly recommend that mining companies adopt a hybrid strategy when migrating to cloud-based ERP systems. This implies that the production ERP system is hosted on premise while only the non-production ERP system is migrated to a cloud computing environment. A further recommendation to mining companies includes a proposal to increase the investment made towards a cloud computing environment to reap future benefits of cloud-based ERPs. Secondly, service providers are recommended to create value propositions for the migration to a cloud computing environment, which should incorporate an extension of cloud computing skills; to revise unfavourable support contracts which could lead to vendor lock-in; and to work on ensuring uncompromised data security. Finally, policy makers are advised to build in regulations to improve the availability and accessibility of broadband to enable the move to cloud-based ERP systems.