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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : International Journal of Accounting Information Systems, Volume 2, Issue 4, December 2001, Pages 271–294
Debate exists regarding the contribution of information technology to firm performance reflecting predictions of a positive, negative, or nonexistent relationship. Prior research has examined technology and firm performance in the aggregate, however, this study focuses on a specific technology — Enterprise Resource Planning (ERP) and its impact on firm performance. Economic and industrial organization theories provide the basis for the examination of how ERP systems affect firm coordination and transaction costs. ERP systems are expected to: (1) reduce costs by improving efficiencies through computerization; and (2) enhance decision-making by providing accurate and timely enterprise-wide information. These effects should be associated with improved firm performance. This research finds, after accounting for within-firm variances, no significant improvement associated with residual income or the ratio of selling, general, and administrative expenses in each of the 3 years following the implementation of the ERP system. However, a significant improvement in firm performance resulting from a decrease in the ration of cost of goods sold to revenues was found 3 years after the ERP system implementation (but not in the first or second year after implementation). Further, there was a significant reduction in the ratio of employees to revenues for each of the 3 years examined following the ERP implementation.
According to a 1999 survey of large multinational companies conducted by META Group, the average cost to implement and own an Enterprise Resource Planning (ERP) system is US$15 million per year and the time to deploy it has averaged 23 months (Knorr, 1999). Analysts reported that 70% of Fortune 1000 firms had or were in the process of installing ERP systems in 1998 (Hoffman, 1998), and that the ERP market experienced a compound annual growth rate of 35% in 1998 (Shepherd, 1998). Given this significant investment in ERP systems, the economic issue of whether ERP technology is associated with improved firm performance remains unanswered. This question is empirically addressed using archival financial data of Compustat firms that implemented ERP systems. 1.1. Description of ERP Most ERP software available on the market (i.e., from vendors like J.D. Edwards, Baan, Oracle, PeopleSoft, and SAP) is structured into different modules. Typical modules include accounting, human resources, manufacturing, and logistics. Each module is business process-specific, accesses a core/shared database, and can be considered a single application from both a user interface and software structure point of view. This structure enables users to develop module-specific competencies and vendors to swiftly modify software structure with new release updates (Rizzi and Zamboni, 1999). One of the major features of ERP software is the integration between modules, data storing/retrieving processes, and management and analysis functionalities Davenport, 1998 and Hoffman, 1998. ERP provides the same functionalities of previous stand-alone systems while allowing access to enterprise-wide information by employees throughout the entire company on a controlled basis. 1.2. Reasons firms adopt ERP Many firms that implement ERP systems strive to reduce redundancy and inconsistency in data through the creation and maintenance of a central database of corporate information. Errors are reduced and employees have access to current information for decision-making. Data reentry errors and omissions from one business process to the next are eliminated Rizzi and Zamboni, 1999 and Latamore, 2000. The ERP architecture also facilitates integration across different applications (i.e., information sharing across business processes) supporting concurrent and automatic updates, without the need for manual intervention. This reduces labor costs, bureaucracy, and errors (Latamore, 2000). Given these features of ERP, firms implementing ERP systems should experience an overall reduction in cost and a general improvement in decision-making activities. Anecdotal evidence also suggests that firms expect ERP systems to deliver improved firm performance. Specifically, firms expect ERP systems to result in Brown, 1997, Davenport, 2000, Gilbert, 2000, Glover et al., 1999, Knorr, 1999, Rizzi and Zamboni, 1999 and Wah, 2000: • Reduced asset bases and costs, enhanced decision support, more accurate and timely information, reduced financial cycles, and increased procurement leverage; • Increased customer satisfaction through integration and consistency; • Conversion to Year 20002 compliant software; • Response to pressure from trading partners who have already converted their systems; • Globally integrated information access across the enterprise and supply chain; • Enabling e-business; or • Flexibility to change quickly and configure the business in response to a changing marketplace while making tacit process knowledge explicit. Consulting survey results of Fortune 500 companies suggest perceived tangible and intangible benefits from ERP of cost reductions and revenue improvements including (but not limited to) inventory and personnel reduction, productivity and order management improvement, improved information, improved processes, and improved customer responsiveness (Benchmarking Partners, 1998). Finally, many firms have announced performance improvements attributed to their ERP system (see Appendix A, Panel A). 1.3. The high cost and complexity of ERP implementations While managers may strive for financial improvements from ERP adoption, firms may experience adverse financial effects. A typical ERP implementation is complex. Organizations have had a great deal of difficulty in integrating the ERP software with the hardware, operating systems, database management systems, and telecommunications suited to their organizational needs (Markus and Tanis, 2000). Further, additional complexity arises because the ERP software implementation results in changes throughout the division or the entire firm. ERP implementations require substantial investments in software and hardware, direct implementation costs, and training for system users Davenport, 2000 and Wortmann, 1998. To address this high cost and complexity, ERP vendors developed preset software parameters based on “best practice” models within a given industry (Schragenheim, 2000). However, this approach adds to the complexity by introducing rigidity to the implementation process, often causing project delays and failures Williamson, 1997, Knorr, 1999 and Wortmann, 1998. ERP implementations can have lengthy project windows of 3 to 5 years (Davenport, 2000), contributing to higher costs. Additionally, ERP implementations are often performed along with business process reengineering Davenport, 2000, Grabski et al., 2000 and Wortmann, 1998. Some firms wanting to reengineer use ERP as the vehicle to accomplish this (Grabski et al., 2000). While this study is focused on the effect of ERP on firm performance, the separate effect of reengineering business process cannot be disentangled. An ineffective and unsuccessful process reengineering project could also contribute to lost performance gains including negative financial returns. These adverse results are not unusual as many firms have announced negative results attributed to their ERP implementation (see Appendix A, Panel B). Successful ERP implementations may exhibit negative effects as many tasks are automated and positions eliminated. Workers reengineered out of a position and redeployed within the company may enter a grieving process resulting in low productivity (Arnold et al., 2000). In addition, performing process reegineering assumes current processes are insufficient and changes them, but the current processes may be appropriate (and best) for that organization. Finally, the “best practice” models used by ERP vendors are based on successful methods from prior decades and might not anticipate the future needs of evolving organizations (Arnold et al., 2000). ERP models focus on order and streamlined processes, which may stifle creativity and innovation (Arnold et al., 2000). ERP systems also impose a hierarchical organization with a command and control perspective, which may be unsuitable for a given organization (Davenport, 2000). Finally, with the adoption of ERP systems, information errors are no longer confined to one area of the company. Errors maintained within the ERP system are propagated throughout the entire business (Lynn and Madison, 2000). Managers and technology staff are both responsible for ensuring data integrity and appropriateness of processes within ERP systems. An ERP system with poor information quality and inappropriate processes guarantees that more wrong answers look prettier and they are accessed faster by decision-makers (Lynn and Madison, 2000). Decisions based on error-filled data may lead to inefficient and ineffective management of the firm. Thus, while the promise of ERP systems to provide firm performance improvements exist, other factors exist that could result in significant economic losses. This study empirically examines the influence of ERP technology on firm performance. However, given the recency of the development of ERP systems, few firms have long postimplementation time horizons resulting in a limited potential sample. Nonetheless, this paper introduces theory-based predictions and provides incipient evidence on ERP systems and firm performance.
نتیجه گیری انگلیسی
5.1. Summary of findings Based on the sample of 50 companies implementing ERP packages from 1993 to 1997, results indicate no significant change in costs as a percentage of revenue until 3 years after the implementation of the ERP system, and then a significant decrease in costs only for cost of goods sold as a percentage of sales. There were no significant decreases associated with selling, general, and administrative costs scaled by revenues, nor was there any improvement in RI. However, there was a significant decrease in the number of employees as a percentage of revenue all 3 years after ERP implementation. While inconclusive, this paradox suggests additional complexities surround ERP technology. To fully understand the results, the limitations associated with the study must be examined. 5.2. Limitations of results Given that industry experts predict a 4- to 5-year return for ERP implementations (Knorr, 1999; Wah, 2000; Wortmann, 1998), the 3-year longitudinal window may be insufficient to capture the effects of ERP on firm performance. The lack of long-term postimplementation public financial data for 82% of the sample implementations made it infeasible to use a longer time horizon for analysis. Thus, the benefits of ERP may not be apparent until 4 to 5 years after implementation. Future research studies on ERP should lengthen the post- implementation window to ensure an adequate longitudinal timeframe for observing the impacts of ERP on firm performance. Further, these ERP systems studied might only provide the necessary infrastructure for improvements, and the real benefits will result when the ‘‘bolt-on’’ packages such as customer relationship management and advanced planning systems are utilized. That is, ERP systems are necessary but not sufficient for significant improvement in financial performance. Many firms implementing ERP simultaneously perform process reengineering. Thus, reengineering business processes could cause the effects attributed to ERP on firm performance. However, the ERP implementation could have brought about the process reengineering, which in turn, changed firm performance. The ERP implementation, either directly or indirectly through process reengineering, had an impact on firm performance. Future studies may need to capture the separate effects of process reengineering vs. ERP adoption. While four firms were eliminated due to exceptional changes in their businesses, this study was unable to control for additional initiatives (i.e., JIT, TQM, etc.) or other firm or industry events that could impact firm performance simultaneously with the ERP imple- mentation. Even though industry experts and ERP implementation consultants informed us that implementing ERP is an enormous task and concurrent implementation of other initiatives would be extremely difficult, these initiatives could be taking place. Future research should capture these initiatives via a survey instrument and control for their effect on firm performance.Additionally, macroeconomic influences were not controlled for in this study reducing the ability to isolate financial effect from adopting ERP. Future studies should employ a control sample of firms matched on industry membership and size that have not adopted ERP. Comparison of financial performance between these groups would reveal differences attributable to ERP adoption. Another limitation of this study was the additional value associated with capturing and controlling for variables reflecting the level of success of ERP implementations. Brynjolfsson and Hitt (1998) found that purchasing computerized equipment was the smallest part of the overall cost of creating a new manufacturing system, while the biggest costs were in changing the organization. It could be that all the sample firms had unsuccessful implementations, including unsuccessful organizational change management, inadequate technology capabilities, etc., and these factors have confounded the ability to examine whether the ERP system has affected firm performance. Thus, future studies may need to control for implementation and organizational characteristics to better understand the impacts of ERP. Finally, the sample included firms that voluntarily disclosed the announcements. As a result, the sample may be biased in that it contains only those ERP implementations that firms wish to make known. Given this potential bias, a reduction in costs or increase in revenues is to be expected in the full sample of ERP implementations. That the opposite is found is evidence against such a bias in the sample. Future studies may need to employ survey methods and random sampling of target companies to guard against potential bias in their sample of ERP implementors. 5.3. Lessons from the study Initial empirical findings indicate a paradox where firms having fewer employees supporting more revenue simultaneously experience higher cost-to-revenue ratios after their ERP implementation. While the exact reasons for this are unknown without more detailed research, this section of the paper explores some competing and complementary potential explanations for the phenomena observed in this study. Because of the mammoth expanse of ERP and difficulties in implementation, firms could be reducing costs by streamlining processing and eliminating clerical duties that are automated, but increasing costs from hiring expensive ERP computer engineers for post- implementation maintenance. In 1998, the premium paid for SAP skills (the ERP vendor with greatest market share) above regular salary levels was 39% for information technology consultants and contractors and 19% for information technology permanent staff (Spain, 1997). After making large investments in ERP, companies may be unwilling to divest of the skills needed to keep these vital systems running. Firms might be trading the long-term gains from eliminating clerical jobs and improving decision-making for short-term high costs in consulting and systems staffs to support on-going ERP system maintenance. Another reason that costs as a percentage of revenue increase after implementing an ERP system is that on-going fixes and fine-tuning of installations may continue past the officially stated implementation ending date. The Standish Group International, a research advisorycompany, estimates 90% of ERP projects run late (Williamson, 1997). Costs captured after the implementation end date may reflect additional implementation costs causing inflated selling, general, and administrative costs and cost of goods sold values. This would cause the cost as a percentage of revenue value the first year after implementation to be abnormally high. Another explanation could be that organizational culture and human issues initially block the performance gains from ERP. It takes time for employees to understand and experiment with new technology before they can reap the rewards of using it (Bresnahan and Greenstein, 1996; Brynjolfsson and Hitt, 1998). Thus, during post-ERP implementation, inefficiencies caused by people eliminated the performance gains created by installing the ERP system, and after the organizational issues are resolved, the rewards of ERP surface. This might be observed by controlling for these organizational factors or extending the longitudinal window for analysis. Finally, after an extensive economic investigation of how technology spending affects firm productivity, Hitt and Brynjolfsson (1996) find that firms spending more on technology are more productive but do not capture the resulting profits. These profits (benefits of increased productivity) are passed on to the consumer. Thus, firms adopting ERP in a competitive market pass on the benefits of lower costs per dollar of revenue to their customers.5.4. Future research directions The impact on firm performance of ERP implementations within companies from 1993 to 1997 was examined. This new technology was predicted to (1) reduce costs by improving efficiencies through computerization; and (2) enhance decision-making by providing more accurate and timely data through individual access to enterprise-wide information. Both of these effects were predicted to improve firm performance. However, the results suggest no significant improvements in firm performance ratios except for 3 years after the implementation for cost of goods sold scaled by revenues. To fully explain these results, future research is needed to clarify and examine the multitude of factors affecting the ERP and firm performance relationship. Based on the findings and limitations in this study, a model of future ERP research directions was developed (see Fig. 1). This research introduced theory-based predictions and incipient evidence on the limited connection between ERP system architecture and firm performance (see the relationship connection designated by ‘‘*’’ in Fig. 1). Additional in-depth research is needed to study other important constructs influencing the relationship of an ERP system and financial returns while controlling for other firm and industry initiatives and lengthening the longitudinal window. As illustrated in the proposed ERP research model, the ERP arena is replete with research opportunities.