Journal of Management Information Systems

Volume 19 Number 1 2002 pp. 11-15

Special Section: Enterprise Resource Planning

Ragowsky, Arik and Somers, Toni M

OVER THE LAST DECADE, companies have abandoned legacy systems in favor of a new class of comprehensive packaged application software designed to integrate the core corporate activities of an organization. Variously called Enterprise Resource Planning (ERP) systems, enterprise-wide systems, or enterprise systems, ERP systems are the software tools used to manage all the enterprise's data, and to provide information to those who need it when they need it. These systems help organizations deal with their supply chain: receiving, inventory management, customer order management, production planning and managing, shipping, accounting, human resource management, and all other activities that take place in a modern business [4, 13]. The benefits of a properly selected and implemented ERP system can be significant. On average, inventory costs can be reduced by 25 to 30 percent; raw material costs can be reduced by about 15 percent. Lead-time for customers, production time, and production costs can be reduced as well [5, 6, 11]. However, the cost of implementing these software packages can be quite high. Software, incremental hardware, training, and implementation support may cost $200,000 for a smaller company with approximately $10 million annual sales, $600,000 to $800,000 for midsized companies with approximately $40 million to $70 million annual sales, and up to several million dollars for larger companies. It has been suggested that approximately $300 billion has been invested in ERP worldwide in the last decade, and the enterprise applications market is projected to reach $79 billion by 2004 [3]. Despite these high expectations and huge investments, ERP implementations often fail. The New York Times printed an article, "Software That Can Make a Grown Company Cry" [5], describing problems with ERP implementations. Allied Waste Industries purchased an ERP software package from SAP America, a major ERP software vendor, but discontinued its use after finding it too complicated, too expensive, and a poor value in terms of added functionality [2]. By doing so the firm lost over $40 million. Hershey Foods Corporation installed an ERP application early in 1999. By mid-September of that year, the candy-making giant was having trouble pushing orders through the new system, resulting in shipment delays and incomplete orders during the busy Halloween season. One reason for these failures is that the implemented ERP systems did not fit organizational needs. In spite of the fact that some ERP vendors argue that their software can suit most organizations [2], not all information systems (IS) are equal, nor are all ERP packages used equally. Several studies [8, 9, 10] suggest that the benefit an organization derives from using information technology (IT) is dependent on the characteristics of the organization. Therefore, not all companies will gain the same benefit from using the same ERP applications, and different ERP software packages will better suit different organizations. In addition, other issues (such as, implementation, linkage to customers) affect the success of ERP. The three papers in this special section present contemporary and rapidly evolving research focusing on ERP systems. The value for academic researchers lies with the findings presented and with the opportunity to use these papers as avenues for future research. Practitioners will be able to use the findings of these studies to better plan and use ERP systems, especially as they encounter three problem areas: the change that ERP brings to an organization, the use of ERP as a platform for other applications, and measuring the effect of ERP on firm performance. A key implication of ERP is that it involves sweeping changes to a company's organization, business practices, and core competencies. Few companies begin the project with the required organizational dynamics and business practices in place. The method of introducing the systems into companies might well make the crucial difference between successful organizational transformation and an abandoned project. Many of the issues involved in implementation are not so much technical as they are people-related and culture-related. The first paper, "Learning to Implement Enterprise Systems: An Exploratory Study of the Dialectics of Change," by Daniel Robey, Jeanne W. Ross, and Marie-Claude Boudreau, attempts to help organizations understand ERP system implementation. The authors adopt a process theory perspective with a focus on the dialectics of organizational learning that generates change in a comparative case study of 13 industrial firms. Demands associated with change require substantial organizational learning. It was observed that firms have identified various mechanisms for overcoming configuration and assimilation knowledge barriers associated with the implementation. The paper concludes by identifying the implications of their research for the theory and practice of systems implementation. An important role of ERP is to serve as a platform for other applications, such as Customer Relationship Management (CRM). The vision for ERP extends beyond the organization, providing support for enhancements cutting across whole industries. Despite the size of the CRM market, which is said to have grown 70 percent in 1999, and is expected to become worth over $12 billion by 2004 [12], limited information exists on the progress of diffusion of the CRM innovation. The second article, "Implementation Team Responsiveness and User Evaluation of Customer Relationship Management: A Quasi-Experimental Design Study of Social Exchange Theory," by David Gefen and Catherine M. Ridings, deals with user-level issues, which, according to industry reports, account for a large proportion of the estimated 65 percent of CRM implementation failures. This study examines the social exchange aspects of CRM implementation by using a quasi-experimental design. Gefen and Ridings describe some of the complexity of CRM implementation and the relationship between users and the implementation team. The findings suggest that the nature of the social exchange during implementation of a CRM influences user assessments about the CRM and ultimately user willingness to adopt it. Moreover, the effect of actual and perceived responsiveness on user willingness to adopt the new system is mediated through user beliefs about the correctness of the configuration. Measuring the benefits from an enterprise system is a difficult task, particularly when the benefits of these systems are strategic in nature. Understanding the value of an ERP system entails examining the amount of duplicated effort that the ERP system eliminates and the increased efficiency that results from having an ERP solution in place. Savings can be derived from a reduction in staff numbers and productivity improvement. ERP helps companies control their purchasing, inventory, manufacturing, finance, and human resource activities by centralizing information collected from dispersed geographical sites. A year after implementing ERP, Par Industries in Moline, Illinois, reduced lead-time, increased on-time delivery performance, decreased work-in-progress inventory, and the life of a shop floor order went from weeks to hours [1]. Despite successes like this, many organizations are not certain that they will realize positive returns. Even worse, many fail to see immediate benefits from moving to ERP or experience adverse effects, such as missed sales and profit targets [7]. The final article, "Investment in Enterprise Resource Planning: Business Impact and Productivity Measures," by Lorin M. Hitt, D.J. Wu, and Xiaoge Zhou, is an empirical study dealing with the research question, What theoretical understanding do we really have about the relationship between adopting ERP systems and firm performance? The authors were able to collect and analyze a set of responses from firms that have purchased licenses for the SAP R/3 system from which they confirm some important conjectures about the business value of ERP implementations. Besides explaining the business impact of ERP implementation on a wide variety of performance measures, the authors empirically test for the productivity and business performance effects of ERP on firms that adopted ERP versus those that did not, and on firms before, during, and after implementation to assess performance over time. They determined that ERP adopters are consistently higher than non-adopters in performance across a wide variety of measures. Most of the gains occur during the implementation period, although they find some evidence of a decline in business performance and productivity shortly after completion of the implementation. Likewise, adopters had higher market valuations both during and after adoption. In closing, we offer special thanks to a number of people who supported our work on this Special Section. First, the Editor-in-Chief, Vladimir Zwass, was open to the idea of this special section and supportive from the beginning of the process. Next, we are grateful to Robert J. Kauffman from the Carlson School of Management, University of Minnesota, who helped us as an Associate Editor with the review process and provided valuable guidance. We also want to thank all the reviewers who provided instructive comments to the authors. Finally, our graduate assistants, Michele Harrison and Karen MacDonald, deserve thanks for dealing with a multitude of administrative tasks. REFERENCES 1. Appleton, E.L. How to survive ERP. Datamation, 43, 3 (1997), 50-53. Available at 2. Bailey, J. Trash haulers are taking fancy software to the dump. Wall Street Journal, June 9, 1999, B4. 3. Carlino, J.; Nelson, S.; and Smith, N. AMR research predicts enterprise applications market will reach $78 billion by 2004. AMR Research, Boston, 2000. 4. Davenport, T.H. Putting the enterprise into the enterprise system. Harvard Business Review, 16, 4 (1998), 121-131. 5. Deutsch, C.H. Software that can make a grown company cry. New York Times, November 8, 1998, 13. 6. Main, J. Computers of the world, unite! Fortune, 122, 1 (September 24, 1990), 117-122. 7. Martin, M.H. An electronic firm will save big money by replacing six people with one and lose all this paperwork, using enterprise resource planning software. But not every company has been so lucky. Fortune, 137, 2 (1998), 149-151. 8. Johansen, J.; Karmarker, U.; Nanda, D.; and Seidmann, A. Business experience with computer integrated manufacturing. In M.A. Langton, Proceedings of the Twenty-Eighth Annual Hawaii International Conference on System Sciences. New York: Gordon and Breach, January 1995, pp. 970-979. 9. Ragowsky, A.; Ahituv, N.; and Neumann, S. Identifying the value and the importance of an information system application. Information & Management, 31, 2 (November 1996), 89-102. 10. Ragowsky, A.; Stern, M.; and Adams, D. Relating benefits from using IS to an organization's operating characteristics: Interpreting results from two countries. Journal of Management Information Systems, 16, 4 (Spring 2000), 175-194. 11. Schlack, M. IS has a new job in manufacturing. Datamation, 38, 2 (1992), 38-40. 12. Wardley, M., and Shiang, D. Customer relationship management market forecast and analysis, 2000-2004. International Data Corporation (IDC), Framingham, MA, June 2000. 13. Watson, E.E., and Schneider, H. Using ERP systems in education. Communications of the Association for Information Systems, 1, 9 February 1999.

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