ERP-Driven Performance Changes and Process Isomorphism

ERP-Driven Performance Changes and Process Isomorphism

Andrea Masini (London Business School, UK)
Copyright: © 2009 |Pages: 14
DOI: 10.4018/978-1-59904-859-8.ch008
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Abstract

After observing that the pervasiveness of IT may soon render it strategically irrelevant, management scholars have recently questioned the value of information technology. This chapter challenges the above view, contends that ERP investments may contribute to the achievement of improved business performance, and examines the conditions under which this contribution occurs. The panel analysis of a sample of SAP R/3 adopters provides several insights. First, it suggests that the ERP exerts a generalized positive impact on both productivity and profitability. Second, the results confirm that the widespread diffusion of best practices embedded in the software may limit the ability of firms to use ERP to effectively differentiate from competitors. However, they also suggest that, whilst in the long run the pervasive diffusion of standardized software may decrease its strategic value, in the short run early ERP adopters can profit from a window of opportunity to obtain above average returns.
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Introduction

The rising level of competitiveness and the high degree of market turbulence of most industries induces business organizations to increase their investments in information technology (IT) to improve the efficiency and responsiveness of operations. Enterprise Resource Planning (ERP1) applications represent perhaps the most relevant example of this trend. ERP has become prevalent over the last few years, particularly in the manufacturing sector (Scott and Shepherd, 2002). Investments in this technology continue to grow steadily in all major markets. Compound annual growth rates for 2005 ranged from 5.2% for the Europe, Middle East and Africa market (EMEA) to 11.8% for the Asia-Pacific region (Pang and Eschinger, 2006).

While highly complex, risky, and often characterized by difficult implementations, ERP applications have a clear appeal: they generate internal operations benefits and help firms improve their competitiveness. Yet, in spite of their pervasive diffusion, the benefits of ERP are still uncertain (Vemuri and Palvia, 2006). The scale of ERP projects suggests that ERP deployment should have a significant and measurable effect on firm performance (Hitt et al., 2002). However, there is conflicting empirical evidence regarding the benefits of ERP investments (Hayes et al., 2001; Poston and Grabski, 2001; Hitt et al., 2002; Cotteleer and Bendoly, 2006; Wieder et al., 2006). A significant amount of heterogeneity also exists across firms, as large and mostly unexplained performance differences have been observed across ERP adopters (Mabert et al., 2003; Umble et al., 2003).

Although management scholars and practitioners have dedicated a significant amount of attention to study enterprise systems, several gaps still remain in the literature. First, whilst most studies have sought to establish whether a link exists between ERP adoption and performance, few scholars have analyzed the conditions under which this link occurs. One important aspect that has been often neglected is the issue of adoption timing. As a result of the increasing uncertainty and of the high cost of ERP implementation, most companies prefer to defer their ERP projects and wait for newer and less complex versions of the software. Yet, deferring implementation is also risky because it causes delays in the realization of operational improvements. Very little research has been conducted to shed light on this trade-off and help managers in making this decision.

A second important aspect that has been overlooked is the extent to which the pervasive diffusion of standardized business process templates embedded in the ERP software may reduce the ability of firms to differentiate from competitors. Some scholars have indeed questioned the strategic value of IT, arguing that as the technology can be easily imitated, it does not bring any long-term competitive advantage (Carr, 2003). A few anecdotal examples have been used to support this claim. However, to our knowledge, very few studies have provided sound empirically grounded evidence for this hypothesis.

Finally, with the relevant exception of Hitt et al. (2002), most empirical studies seeking to establish a link between ERP and performance were based on cross-section analyses. A cross-section model enables the researcher to verify whether such a link exists at a particular point in time. Yet, it does not allow for the analysis of the long-term implications of the phenomenon investigated. In the case of ERP systems, which often exert their benefits several years after implementation, this is clearly a limitation.

These observations constitute the point of departure for our study. We use a panel data analysis to shed further light on the relationship between ERP adoption and performance. The study has three specific objectives: i) to quantify the average impact of ES investments on both productivity and profitability; ii) to examine whether the timing of adoption affects this impact; iii) to examine whether the widespread diffusion of best practices embedded in the software creates business process isomorphism and presents risks for the achievement of long-term competitive advantage.

Key Terms in this Chapter

Panel Data: Panel data are data where multiple cases (e.g. firms) are observed over multiple time periods. The data contain two kinds of information: the cross-sectional information reflected in the differences between case, and the time-series information reflected in the changes within subjects over time. Panel data offers several advantages compared to cross-sectional or time-series data as the researcher can exploit these different types of information.

Best Practice: Generic process template built in the ERP software that suggests what the optimal process configuration and the most efficient resource allocation scheme(s) should be for the execution of a particular task.

Live Date: Date that identifies the beginning of the operational phase of the ERP software. After the live date the organization starts using the ERP (or a significant part of it) to support its operations.

Performance Dip: Phenomenon often observed after the implementation of an ERP system whereby the organization adopting the system experiences a decrease in process and/or organizational performance immediately after the live and then increases performance above the initial level several weeks or months after the dip.

Business Process Isomorphism: Phenomenon whereby organizations tend to display similar business processes. It can be associated with the adoption of similar software packages containing similar process templates.

Business Process Reengineering (BPR): Activity consisting in rationalizing and streamlining business processes, often associated with the implementation of an Enterprise System

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Editorial Advisory Board
Table of Contents
Preface
Jatinder N. D. Gupta, Sushil Sharma, Mohammad A. Rashid
Acknowledgment
Jatinder N. D. Gupta, Sushil Sharma, Mohammad A. Rashid
Chapter 1
Nancy Alexopoulou, Panagiotis Kanellis, Mara Nikolaidou, Drakoulis Martakos
Efficient response to change, both upon expected and unpredicted contingencies, is a critical characteristic for modern enterprises. This chapter... Sample PDF
A Holistic Approach for Enterprise Agility
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Chapter 2
Hossana H. Aberra
SAP Business Blueprint is a vital part of SAP implementation exercise. A well-defined business blueprint may set the foundation for successful... Sample PDF
What is SAP Business Blueprint?
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Chapter 3
Rogerio Atem de Carvalho
This chapter introduces the key aspects of Free/Open Source Enterprise Resources Planning systems (FOS-ERP). Starting by related work carried out by... Sample PDF
Free and Open Source Enterprise Resources Planning
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Chapter 4
Brian H. Cameron
Business process modeling (BPM) is a topic that is generating much interest in the information technology (IT) industry today. Business analysts... Sample PDF
The Changing Nature of Business Process Modeling: Implications for Enterprise Systems Integration
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Chapter 5
Alok Mishra
In the age of globalization, organizations all over the world are giving more significance to strategy and planning to get an edge in the... Sample PDF
Enterprise Resource Planning Systems: Effects and Strategic Perspectives in Organizations
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Chapter 6
Gary P. Moynihan
An executive information system (EIS) is a software system designed to support the informational needs of senior management. The EIS is... Sample PDF
An Overview of Executive Information Systems
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Chapter 7
Joseph Bradley
Enterprise Resource Planning systems have proven difficult and costly to implement. Organizations must consider the risks and rewards of embarking... Sample PDF
Enterprise Resource Planning System Risks and Rewards
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Chapter 8
Andrea Masini
After observing that the pervasiveness of IT may soon render it strategically irrelevant, management scholars have recently questioned the value of... Sample PDF
ERP-Driven Performance Changes and Process Isomorphism
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Chapter 9
Ronda R. Henning
The application software life cycle considers the functionality of a given collection of components within the context of a consumer’s requirements... Sample PDF
Application Integration within the Enterprise Context
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Chapter 10
Sanjay Mathrani, Mohammad A. Rashid, Dennis Viehland
A significant investment in resources is required for implementation of integrated enterprise systems as technology solutions while the... Sample PDF
The Impact of Enterprise Systems on Business Value
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Chapter 11
Charlotte H. Mason, Aleda V. Roth
Growing competitive pressures and escalating customer demands have led businesses to sophisticated information technology to manage costs and... Sample PDF
The Right Path to SCM-CRM Integration
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Chapter 12
Euripidis Loukis, Ioakim Sapounas, Konstantinos Aivalis
This chapter is dealing with the alignment of enterprise systems with business strategy and its impact on the business value that enterprise systems... Sample PDF
Enterprise Systems Strategic Alignment and Business Value
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Chapter 13
Sanjay Mathrani, Mohammad A. Rashid, Dennis Viehland
The market for enterprise systems (ES), continues to grow in the post millennium era as businesses become increasingly global, highly competitive... Sample PDF
Enterprise Systems in Small and Medium-Sized Enterprises
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Chapter 14
Kerstin Fink, Christian Ploder
Small and medium-sized enterprises (SMEs) are a vital and growing part of any national economy. Like most large businesses, SMEs have recognized the... Sample PDF
Integration Concept for Knowledge Processes, Methods, and Software for SMEs
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Chapter 15
Tobias Schoenherr, Ditmar Hilpert, Ashok K. Soni, M.A. Venkataramanan, Vincent A. Mabert
Although the research on integrated enterprise systems (ES) is proliferating, the knowledge base about ES implementations, usage and experiences... Sample PDF
Enterprise System in the German Manufacturing Mittelstand
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Chapter 16
Darshana Sedera
Organizations invest substantial resources in acquiring Enterprise Systems, presumably expecting positive impacts to the organization and its... Sample PDF
Size Matters! Enterprise System Success in Medium and Large Organizations
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Chapter 17
Joseph Bradley
ERP implementation projects normally involve a single vendor providing the packaged software for the entire system. Although most companies follow... Sample PDF
Implementing Best of Breed ERP Systems
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Chapter 18
Ganesh Vaidyanathan
Enterprise resource planning systems are complex yet single, integrated software programs that runs off a single database so that the various... Sample PDF
Enterprise Resource Systems Software Implementation
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Chapter 19
Calin Gurau
This chapter considers the importance of business modelling for implementing e-CRM systems. The introduction of e-business models requires the... Sample PDF
Restructuring the Marketing Information System for eCRM: An Application of the Eriksson-Penker Method
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Chapter 20
Albert Boonstra
At the present moment, many hospitals are going through a process of change directed at the integrated delivery of health care. Enterprise Systems... Sample PDF
Analyzing an ES Implementation in a Health Care Environment
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Chapter 21
S. Padmanaban
ERP systems have become key enablers of businesses today. While many organizations wish to adopt ERP for competitive advantage, they find choosing... Sample PDF
Designing to Deploying Customisable ERP Cost Effectively
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Chapter 22
Mateja Podlogar, Katalin Ternai
This chapter introduces the ERP systems, their complexity, and especially their integration in higher education as a significant challenge for many... Sample PDF
ERP Systems in Higher Education from Regional Perspective
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Chapter 23
Valentin Nicolescu, Holger Wittges, Helmut Krcmar
This chapter provides an overview of past and present development in technical platforms of ERP systems and its use in enterprises. Taking into... Sample PDF
From ERP to Enterprise Service-Oriented Architecture
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Chapter 24
ERP and Beyond  (pages 329-345)
Suresh Subramoniam, Mohamed Tounsi, Shehzad Khalid Ghani, K. V. Krishnankutty
Enterprise-wide automation has already transformed the relations among suppliers, purchasers, producers, and customers. Conventional ERP helps only... Sample PDF
ERP and Beyond
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Chapter 25
Gita A. Kumta
The chapter introduces the essence of ERP in government as a tool for integration of government functions which provides the basis for citizen... Sample PDF
E-Government and ERP: Challenges and Strategies
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Chapter 26
Manish Gupta, Raj Sharman
A paradigm shift is occurring in identity management philosophy. User-focused identity management is one the emerging and most promising paradigms.... Sample PDF
Emerging Frameworks in User-Focused Identity Management
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Chapter 27
Ramón Brena, Gabriel Valerio, Jose-Luis Aguirre
From the Knowledge Management perspective, Knowledge distribution is a critical process in organizations. As many of the other Knowledge-related... Sample PDF
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