2.

2.4 Technologyacceptance modelThismodel was originally proposed by Davis in 1986. Technology Acceptance Model isderived from the Theory of Reasoned Action (TRA) and it offers an explanationfor user acceptance and usage behavior of information technology.

  The theory of reasoned action was developedby Martin Fishbein and Icek Ajzen in 1967 and was derived from previousresearch that began as the theory of attitude. The theory aims to explain therelationship between attitudes and behaviors within human action. TRA is usedto predict how individuals will behave based on their pre-existing attitudesand behavioral intentions. An individual’s decision to engage in a particularbehavior is based on the outcomes the individual expects will come as a resultof performing the behavior. TechnologyAcceptance Model theorizes that an individual’s behavioral intention to adopt asystem is determined by two beliefs, perceived usefulness and perceived ease ofuse. Perceived usefulness is defined as “the degree to which an individualbelieves that using a particular system would enhance his or her productivity”while perceived ease of use is defined as ” the degree an individual believesthat using a particular system would be free of effort” Davis, Bagozzi & Warshaw (1989).

Criticismsof TAM include its questionable heuristic value, limited explanatory andpredictive power, triviality, and lack of any practical value. Benbasat andBarki (2007) suggest that TAM “has diverted researchers’ attention awayfrom other important research issues and has created an illusion of progress inknowledge accumulation. Furthermore, the independent attempt by severalresearchers to expand TAM in order to adapt it to the constantly changing ITenvironments has led to a state of theoretical chaos and confusion. In general, TAM focuses on the individual ‘user’of a computer, with the concept of ‘perceived usefulness’.  It brings in more factors to explain how auser ‘perceives’ ‘usefulness’, and ignores the essentially social processes ofsystem development and implementation.

Thistheory will explain the objective that covers the extent of adoption of theERPs by SME’s in Kenya.  2.2.5 SME’s In Kenya UNDP(2015) defines small scale business as any firm, trade, service, industry or abusiness activity, formal or informal, that it has an annual turnover that doesnot exceed Kenya Shillings 500,000 and employing  1- 9 people. The total assets and financialinvestment or the registered capital of the enterprise does not exceed Ksh 10million in the manufacturing sector and does not exceed Ksh 5 million theservice and farming sector. Medium  enterprises as those firms, trade, service,industry or business activities that post an annual turnover of between Ksh500,000 and Ksh5 million and have an employee list of 10 to 50.A surveyby KNBS (2016) established that therewere about 1.56 million MSMEs licensed by the county governments while theunlicensed businesses identified from the households were 5.

85 million. The majorityof these MSMEs are in the service sector, with most operators in wholesale andretail trade, repair of motor vehicles and motorcycles followed byaccommodation and food service activities and other service activities.Wholesale and retail trade and repair of motor vehicles and motorcycles accountedfor more than half of the licensed (57.1 per cent) and unlicensed (62.9 percent) businesses.

Inall counties with the exception of Nairobi, micro sized establishmentsconstituted more than90.0percent of all licensed establishments. Nairobi County had the highestproportion of small sized establishments at 14.

8 per cent.Accordingto KNBS (2016) Small and MediumEnterprises (SMEs) play a vital role in the economic development of Kenya in anumber of ways including; by increasing competition, fostering innovation,generating employment and an important source of goods and services. The main constraints ofSME’S in Kenya include the requirement of multiple licenses for the samebusiness. These licenses are also expensive and cumbersome to get. There isalso interference from authorities; taxes are high and crippling; multipleprocedures in applying for business registration that are hectic andrestrictive. Other constraints include lack of capital, expensive loans, and alack of markets, stiff local competition, poor infrastructure (roads, power andwater supply) and insecurity.

 2.2.6 Financialperformance Performance,traditionally, has been conceptualized in terms of financial measures, but somescholars have proposed a broader view that incorporates non-financial measuresi.e.

product, quality, company image etc.Accordingto Richard (2009) organizationalperformance encompasses three specific areas of firm outcomes: financialperformance (profits, return on assets, return on investment, etc.), productmarket performance (sales, market share, etc.) and shareholder return (totalshareholder return, economic value added, etc.).Financialperformance is a measure of a firm’s overall financial health over a givenperiod of time. Hamid (2016) says thatfinancial performance is an analysis conducted to see the extent to which acompany has conducted the rules of financial performance well and correctly.

Financialperformance measures are criticized for lacking neutrality and encouragingshort -termism. This measures are also criticized for lacking balance becausethey are more concerned with physical assets and ignore other perspectives forinstance customer satisfaction.Returnon Assets (ROA) is considered as a major surrogate of the financial performanceof any firm because it represents both efficiency and profitability (Skousen etal.

, 1998) thus ROA can be a useful performance indicator.Thisstudy considers using multiple measures in order to assess the performance ofthe firms pre-implementation and post –implementation. Most of the measureswill be cost oriented.2.

2.7 ERP’s andfinancial performanceAdoptingEnterprise resource planning systems is a way to integrate business units,provide real time data for timely decision making and improve performance ofthe organization. Enterpriseresource planning systems have become a game changer for a lot of organizationsall over the world due to its benefits. ERP’s also help companies to run theirbusinesses better by improving efficiency, providing accurate information andimproved customer and supplier relationship.Mostof the Small and Medium Enterprises aim to keep their operations cost at aminimum to acquire a greater margin .Enterprise resource planning systems seekto reduce operations cost by paying for the service rather than host their owninfrastructure and software. ERP systems directly improve financial performanceby decreasing IT infrastructure costs Shang and Seddon (2002).  2.

3 EMPIRICAL FRAMEWORK.Someof studies claim improved performance, whereas other studies report no ornegative impact of ERP’S in post implementation period.2.3.

1 No impact of ERP’s afterimplementation.Hunton, Barbara & Jacqueline (2003)researched on Enterprise resource planning systems: comparing firm performanceof adopters and non- adopters and results indicated that ROA, ROI, and ATO weresignificantly lower for non-adopters than adopters, the third year after ERPimplementation. The results of this study was the performance of the adoptersdid not change  significantly from pre-to post-adoption, but the performance of non-adopters declined over the sameperiod of time. The survey results were drawn from 63 firms in Florida, USA. Withrespect to pre- to post-ERP adoption gains,Poston and Grabski (2001)had similar results are similar to Hunton et al (2003) .This study focuses onEnterprise Resource Planning (ERP) and its impact on firm performance. Theresearch finds, after accounting for within-firm variances, no significantimprovement associated with residual income or the ratio of selling, general,and administrative expenses in each of the 3 years following the implementationof the ERP system.

However, a significant improvement in firm performanceresulting from a decrease in the ration of cost of goods sold to revenues wasfound 3 years after the ERP system.This corresponds to the work of Ali (2016), whoused the financial data of ERP adopters and non-adopters in Pakistan from 2000to 2013 to  analyze theimpact of ERP implementation of the financial performance of the firm .The mainresults of parametric tests showed no significant pre to post change infinancial performance of adopters. However the non-adopting firms experiencedsignificant performance impairment in, through and post implementation periodas denoted by ROA, ROIC, ROE and ROS. This confirms that ERP implementationgenerates dual relative effects for adopters such as strategic benefit in termof reduced relative COGS and operational benefit.

Soit can be concluded that the productivity paradox is supported in the mentionedstudies, if we consider the adopters only. One can conclude no support for theproductivity paradox if we take into account the relative performance ofadopters as compared to non-adopters because comparisons clearly indicatesbetter relative performance of adopters2.3.2 Negative impactafter implementation.Astudy by Hitt, Wu & Zhou (2002)  conducted a study to investigate ERP investment and its business impact  and the results suggested that most ofthe gains occur during the (relatively  long)implementation period, although there is some evidence of a reduction inbusiness  performance and productivityshortly after the implementation is complete.DeAndres, Lorca, and Labra (2012) found a negative impact of ERP system implementationon firm performance while reporting the Spanish firms’.

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