Exploring the Influence Sources of ERP Adoption and the Y2K Effect in Taiwan

Introduction

In the age of the information and knowledge, organizations depend heavily on information systems to support regular operations, solve problems, and make flexible responses to the competition around the world. In the early stages, organizations tended to develop stand-alone systems for a single functional area or business unit; maintaining many different systems led to enormous costs. Organizations faced many problems because of the lack of integration, especially at the global level (Ives & Jarvenpaa, 1993). Enterprise Resource Planning (ERP) systems which incorporate commercial software packages, also known as integrated enterprise computing systems, and attempt to integrate all departments and functions across a company, constitute one of the fastest growing segments in the software market and one of the most important developments in recent years (Sprott, 2000; Seethamraju, 2005). Most of this are clearly attributable to the Y2K effect (Sprott, 2000). The Y2K rectification is a key driver in the decision to move to ERP software (Jacobs & Weston, 2007; Scott & Kaindl, 2000).

The ERP is the most important development in information technology use in the 1990s (Davenport, 1998). In the past decade about $300 billion was invested in ERP worldwide (Gefen & Ragowsky, 2005). And in Taiwan, according to the investigation of MIC (Market Intelligence & Consulting Institute), the market for ERP grew from 2.13 billion NT dollars in 1997, to 4.68 billion NT dollars in 1998. During the year 2000, the ERP market grew 26% and the market scale was up to 7.72 billion NT dollars. Nevertheless, the ERP market has generated 9.535 billion NT dollars in year 2003 and only up to 9.841 billion NT dollars in year 2004. MIC indicated that ERP market became mature after 2002. The CAGR (Compound Annual Growth Rate) of ERP market scale would reach 28% for three years after 2001, but also that the growth of the ERP market would decrease below 5% after 2004 (MIC, 2004).

The diffusion of innovation model (DOI model) is usually applied to explore the spread of an innovation such as a new technology, a new idea and a practice (Rogers, 2003). Schmitt, Thiesse, and Fleisch (2007) indicated that the diffusion of innovation theory provides well-developed concepts and quantities of empirical results which are useful for the study of technology evaluation, adoption and implementation. For example, Anat et al. (2004) applied the DOI model to investigate adoption of Internet standard IPV6. Ko, Yin and Kuo (2008) employed the innovation-diffusion model to analyze message diffusion within the blog community. Schmitt et al. (2007) used the concepts of DOI to explore the factors of Radio Frequency Identification (RFID)’s diffusion in the automotive industry. ERP packages can be characterized as an innovation, which has the potential to trigger change at organizational and inter-organizational levels (Light & Papazafeiropoulou, 2004); the DOI model has the potential to investigate ERP adoption. The imitation hypothesis has generally guided researches on the organizational adoption of administrative innovations. The hypothesis states that, within a relevant population of firms, such adoption results in a predictable diffusion pattern. Members of a social system have different propensities for relying on mass media or interpersonal channels when seeking information about an innovation (Mahajan, Sharma, & Bettis, 1988; Rogers, 1995; Rogers, 2003).

In this study, we applied the DOI perspective to examine the impact of various forms of influence in the adoption of ERP in Taiwan. First, we examined the sources of influence (internal, external, and mixed) that could explain the diffusion pattern of ERP by adopting ordinary least square (OLS) estimation methods and specification tests. Second, because previous research showed that the Y2K effect is a key driver for the adoption of ERP; we treated the Y2K as a ‘critical point’ in delineating two regimes: “pre-Y2K” and “post- Y2K”, to assess the different impacts of the influence sources within each of the regimes.