Under the new paradigm of an information society, Japan is experiencing a vicious cycle between non-elastic institutions and insufficient utilization of the potential benefits of IT that impedes the structural change efforts of firms. In parallel with this, the advanced innovation-oriented projects of firms are undergoing a structural change.
However, a dramatic deployment of i-mode service (NTT DoCoMo’s mobile Internet access service) in the late 1990s provides encouragement that, once the potential is exploited, Japan’s institutional systems can effectively stimulate the self-propagating nature of IT through dynamic interaction with it. The advancement of enterprise resource planning (ERP) software in a co-evolutional way between convergence for vendor strength and divergence for satisfying diversified customer base demonstrates a similar expectation. This expectation relates to a business field in which the advanced innovation-oriented projects of firms under a new paradigm can be expected to develop in the process of embodying a self-propagating function.
Prompted by this demonstration, this paper on the basis of a comparative empirical analysis of the interaction between a software vendor (ERP firm) and ERP customers with different business models towards creating a self-propagating structure based on a co-evolutional process between internal motivation of the vendor and external expectations raised by customers, attempts to identify key conditions essential to creating a self-propagating structure for advanced innovation-oriented projects of firms.
Under the new paradigm of an information society, while the advanced innovation-oriented projects of firms are undergoing a structural change, Japan’s institutions do not function as efficiently as they did in the 1980s. As a result, Japan is experiencing a vicious cycle between non-elastic institutions and insufficient utilization of the potential benefits of IT that impedes the structural change efforts of firms.
While Japan is experiencing such a vicious cycle, a dramatic deployment of i-mode service (NTT DoCoMo’s mobile Internet access service) in the late 1990s provides encouragement that potential elasticity of Japan’s solid institutions towards unknown systems, especially with higher IT intensity, can be derived if some familiarity is stimulated, and once the potential is exploited, institutional elasticity effectively stimulates the self-propagating natures of IT through dynamic interaction with it during the course of its diffusion, thereby a co-evolutional structure is expected to construct. A dramatic advancement of enterprise resource planning (ERP) software in a co-evolutional way by satisfying trade-off issues between converging for vendor strength and divergence for satisfying diversified customer base demonstrates a similar expectation also in a business field that the advanced innovation-oriented projects of firms under a new paradigm can be expected to develop in the process of embodying a self-propagating function similar to IT’s new functionality development mechanism (Yucean et al., 1999).
Prompted by this demonstration, this paper attempts to identify key factors contributed to creating an elaborate self-propagating structure in ERP software development and essential for creating a similar structure for advanced innovation-oriented projects of firms.
To date, a number of studies have revealed Japan’s less elastic institutions impeding the advanced innovation-oriented projects of firms in the midst of the IT evolution (Dewan and Kraemer, 2000, OECD, 2001 and Watanabe and Kondo, in press). In addition, not a few works analyzed development path of ERP software and the impacts of ERP. Based on the recognition of the significant impacts of ERP phenomenon on supply chain strategies, Yucean et al. (1999) sought to understand the impacts of ERP systems on supply chain performance by surveying 60 European firms. They pointed out that while ERP relies on the use of IT for creating radically different working methods to deliver significant improvements, it is a key catalyst for organizational change by adopting a new set of performance metrics by enabling routine data collection on those metrics. They postulated that the ERP industry is now a tightly knit ‘ecosystem’ of software vendors, middleware vendors, supply chain experts, specialty-software houses, and hardware vendors. Furthermore, they demonstrated that, since this ecosystem is rapidly evolving, it is important to understand the capabilities afforded by the current technology and identify the desirable features of ERP evolution. Sakakibara (1999) conducted a questionnaire survey on the state of the introduction and utilization of ERP software in Japan’s leading firms and pointed out that the utilization of ERP software in Japan’s leading firms is insufficient primarily due to the absence of a timely decision-making system.
While these studies demonstrate suggestive warning with respect to firms introduction and utilization of ERP software for their business strategy, none have identified the critical success factor in constructing a self-propagating structure essential for the advanced innovation-oriented projects of firms.
This paper attempts to identify key conditions essential to creating a self-propagating structure in ERP software deployment. An empirical analysis is conducted comparing the interaction between software vendors (ERP firms) and ERP customers with different business models. Based on this empirical analysis, secondary impacts of this process on the interaction between ERP customers and their customers (consumers) are explored. Through this analysis, suggestions for the co-evolution between customer satisfactions and sustaining producers’ strength by constructing a virtuous cycle between converging their core competence and diverging non-core competence process are developed.
Section 2 provides an analytical framework by demonstrating the overlap between the theory of IT self-propagation and the role of ERP software deployment. Section 3 demonstrates a comparative empirical analysis. Section 4 extracts key conditions essential for creating a self-propagating structure by outlining interpretations of the results of the empirical analysis. Section 5 briefly summarizes the key findings of the analysis and presents policy implications.
In light of the signi
fi
cance of the advanced innovation-
oriented projects of
fi
rms while Japan is experiencing a
vicious cycle between non-elastic institutions and insuf-
fi
cient utilization of the potential bene
fi
ts of IT that
impedes the structural change efforts of
fi
rms, this paper
fi
rst focused on IT
’
s self-propagating nature leading to
creating new functionality during the course of interac-
tion with institutions.
With an expectation of creating a similar self-propa-
gating structure also in a business
fi
eld, further focus of
this paper moved to a dramatic advancement of ERP
software in a co-evolutional way between convergence
for the vendors strength and divergence for satisfying
diversi
fi
ed customer expectations.
On the basis of the understanding that through multi-
layer virtuous cycle, resonance between inner virtuous
cycle within the ERP
fi
rm and a co-evolutional interac-
tion between internal motivation of the ERP
fi
rm and
external expectation raised by customers would be the
key to constructing a self-propagating structure, and that
this resonance is not necessarily limited only an interac-
tion between the ERP
fi
rm and ERP customers but also
expected in an interaction between ERP customers and
consumers as a secondary impacts of the initial interac-
tion, a comparative empirical analysis on the interaction
between the ERP
fi
rm and ERP customers with different
business models was conducted.
The empirical analysis suggests as follows.(i) The construction of a co-evolutional interacting sys-
tem between the ERP
fi
rm and its customers leads
to a self-propagating trajectory similar to IT
’
s new
functionality development and essential for the
advanced innovation-oriented projects of
fi
rms.
(ii) In order to gain suf
fi
cient momentum for this sys-
tem, it depends on speci
fi
c stepwise interactive pro-
cesses between the two actors.
(iii) While critical success factors for these interactive
processes were not necessarily the same, all of these
processes worked due to the following:
(a) quality of the functionality,
(b) speed,
(c) customers
’
achievement in its business target.
(iv) Importantly, the highest success was observed in
the case in which the ERP customer always paid
attention not only to its own internal ef
fi
ciency
improvement but also to its service improvement
to its customers (consumers).
(v) In this highest success case, resonance is not only a
necessary limited interaction between the ERP
fi
rm
and ERP customer, but also in the interaction
between this customer and consumers (its
customers) as a secondary impacts of the initial
interaction.
All these successful processes led to the following
points as critical strategy for spurring and maintaining
resonance:
(i) consistent sponsorship of management;
(ii) timely decision and agile exemption of the business;
(iii) delegation of
fi
rms with con
fi
dent power.
Stimulated by these analysis focusing on an interac-
tion between the ERP
fi
rm and ERP customer, further
analysis should focus on the interaction between ERP
customers and their consumers for identifying the gen-
eral conditions essential for constructing a self-propagat-
ing structure for advanced innovation-oriented projects
of
fi
rms
