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Implementing enterprise resource planning systems: organizational performance and the duration of the implementation

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Abstract

This paper examines the impact of the duration of ERP implementation on firm performance both during and after implementation. Organizations choose either an accelerated implementation approach or a traditional (longer) implementation approach. The former approach gives the organization the advantage of speed, but the disadvantage of fitting its processes to that of a packaged (thus, undifferentiated from competitors) ERP. The latter approach allows the organization to redesign strategy and processes, and thus, search for ways to be unique from its competition. The study uses a regression model to capture the changes in various performance measures during and after implementation between firms that implemented the ERP, using the performance measure of a matched group of firms that did not implement an ERP as a benchmark/control sample, on the basis of the duration of the implementation. Financial data from Compustat, and data on start date and end date of ERP implementation between 1990 and 2005 for firms in the Oil and Gas industry was collected from an ERP vendor. Results show that measures such as return on sales improved after implementation. However, measures such as inventory turnover, which reflect operational benefits, improve during implementation. We find that accelerated implementation confers both operational and strategic benefits. This study highlights the strategic consequences of the different choices of implementation.

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Notes

  1. The theory of production economics suggests that if a firm implements a capital resource such as an ERP, such a resource will help the firm reduce costs, and produce more output for a given quantity of inputs.

  2. The theory of competitive strategy argues that if a firm installs an information system, competing firms may imitate or escalate their reactions [70]. This theoretical framework does not clearly forecast a positive or negative effect of information technology on performance [49]. However, it is possible for a firm to gain a competitive advantage through the innovative use of information technology, or by using an innovative way to implement the system [31]. For instance, instead of choosing a regular ERP implementation, a firm may use an accelerated implementation. Ragowsky and Somers [86] found substantial benefits to “properly” selected and implemented ERP systems.

  3. The theory of consumer extends the thinking underpinning the competitive strategy framework, and leads to the conclusion that consumers will eventually benefit from firms implementing information systems, because competition will erode prices and improve quality [71].

  4. The efficient market theory argues that the financial market will gauge/project all benefits accruing from investments in information systems ahead of time, and this positive assessment will be reflected in stock prices of firms implementing the information system. Subramani and Walden [98] found that announcements of e-commerce initiatives increased the cumulative abnormal returns to shareholders of the firms making the announcements.

  5. The theory of complementarity suggests that for information technology to provide positive returns, complementary organizational changes must be undertaken. These changes are often difficult and uncertain, so that outcomes vary across firms [22].

  6. SAP consulting partners such as: Acta Technology, American Technology Corporation, Andersen Consulting, Atos Origin, BASE, Blue Star Solutions, Cap Gemini Ernst & Young, Clarkston Consulting, Commerce One, Compaq, Deloitte, Diagonal-Consulting, Ecredit.com, EDS, Ernst & Young LLP, Ezcommerce, HP, IBM, Kpmg, Melillo Consulting, Michael Management Corporation, Microsoft, Notions, Platinum DB Consulting Inc., Plaut Consulting Inc., Pricewaterhouse Coopers, Resco (www.resco.se), Sogeti, Solutions Consulting, Inc. (SCI) of Pittsburgh, Starpoint Solutions, TDCI, Topcall, TrustedLink Enterprise (TLE),and Unilog.

  7. Seven firms were identified as having installed other ERP packages such as Oracle, PeopleSoft, J.D.Edwards, Baan, Viecore, Sybase IQ, SPS Commerce, Perfect Commerce, Glovia’s Enterprise Resource Planning, and Encompix ETO. We did not include these seven firms in the analysis.

  8. We admit that the unavailability of the planned time for the implementation is a limitation. However, it is not problematic for the following reason. ERP projects are normally delayed, but they are never finished two quarters (6 months) before the planned time. That is, it is likely that accelerated implementations will get delayed, but traditional implementations are never finished in 2 quarters or less. Therefore, by splitting our sample at 2 quarters for accelerated implementations, and by creating a “buffer zone” of 3-4 quarters, we might have counted fewer accelerated implementations than those originally planned as accelerated implementations. In any case, for those projects that over-ran the planned time from less than 2 quarters by over 4 quarters, these projects can no longer be called accelerated implementation, regardless of the original plan.

  9. It is possible that IT capabilities, and indeed overall firm capabilities, will drive whether an implementation ends in the time that it was planned to be completed. So we tested whether the ERP adopters that completed implementation differed in performance from those ERP adopters that took longer time for implementation. To do this test, we conducted a t-test between the average values of a i and b i parameters for the two groups in the pre-implementation stage. The results showed that the two groups do not differ much. Therefore we are satisfied that there is no significant differences of an average firm in each group in terms of organizational ability or IT capability.

    With regards to the endogenous nature of ERP adoption and duration of implementation with respect IT capabilities, an advantage of our model is that it uses the average performance of the control sample as an independent variable. Suppose the model is specified as a regression model wherein both the treatment sample and the control sample observations are used as dependent and independent variables, then the endogenous nature of the ERP-based decisions could bias estimates of coefficients because of the correlation between these decisions/independent variables and the error term (which contains unobserved variables such as IT capabilities). In our model, the use of the average of the control sample as an independent variable reduces the threat of this correlation, because the independent variable subsume average IT capabilities as well.

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Anderson, M., Banker, R.D., Menon, N.M. et al. Implementing enterprise resource planning systems: organizational performance and the duration of the implementation. Inf Technol Manag 12, 197–212 (2011). https://doi.org/10.1007/s10799-011-0102-9

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