artigo 1 jon beard mary sumner

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Seeking strategic advantage in the post-net era:viewing ERP systems from the resource-based

perspective

Jon W. Bearda,*, Mary Sumnerb

aWebster University, 898 Prestonwood Dr., Edwardsville, IL 62025-4136, USAbDepartment of Computer Management and Information Systems, Southern Illinois University Edwardsville,

Box 1106, Edwardsville, IL 62026-1106, USA

Received 25 March 2002; accepted 25 February 2004Available online 17 April 2004

Abstract

The purpose of this research is to explore whether enterprise resource planning (ERP) systems can

provide an organization with a sustained competitive advantage. Using the VRIO framework of the

resource-based model of competitive advantage, four questions are posed to consider this issue. Is

the ERP system valuable? Is the ERP system a resource that is heterogeneously distributed across

competing firms? Is the ERP system imperfectly mobile? And, is the firm organized to exploit the

full potential of its ERP system? An examination of the existing research suggests that ERP systems

may not provide a competitive advantage based upon the premises of system value, distribution, and

imitability. This is largely due to the common systems approach used for the implementation of

most ERP systems. Instead, the source of competitive advantage may lie in the careful planning and

successful management of ERP projects, refinement of the reengineering of the organization, and thepost-implementation alignment of the ERP system with the organizations strategic direction.

Suggestions for future research are offered.

q 2004 Elsevier B.V. All rights reserved.

Keywords: Enterprise resource planning; Resource-based model; VRIO model; Competitive advantage; Common

systems

The capture, processing, storage, and dissemination of data and information to

enhance managerial decision-making have been significant motivators for integrated,

0963-8687/$ - see front matter q 2004 Elsevier B.V. All rights reserved.

doi:10.1016/j.jsis.2004.02.003

Journal of Strategic Information Systems 13 (2004) 129150

www.elsevier.com/locate/jsis

* Corresponding author.

E-mail addresses: [email protected], [email protected] (J.W. Beard); [email protected](M. Sumner).
http://www.elsevier.com/locate/jsishttp://www.elsevier.com/locate/jsis


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organization-wide information systems (IS). These motivators have driven the develop-

ment of ever-more-sophisticated hardware environments (such as upward-compatible

families of mainframe computers, mini-computers, microcomputers, and networks) and

increasingly complex and elaborate software environments (such as advanced generations

of programming languages, database management systems, and the Internet). Further, the

alignment of an IS with the strategic goals and operational objectives of an organizationhas been an important issue through the 1980s and 1990s ( Brancheau et al., 1996). This

desire dates back to the mid-1960s with the earliest conceptions of organization-wide IS.

Unfortunately, until recent years the processing power of the hardware and the complexity

and sophistication of the software have not been sufficient to meet these expectations.

Even the promise of the Internet has not been sufficient to meet these requirements,

leading, at least in part, to the demise of the Internet boom. A new era, sometimes

described as the Post-Net era, is emerging creating new challenges for the integration of

IS and organization strategy.

Today, enterprise resource planning (ERP) systems are one of the most significant

business software investments being made in this new era. Davenport (1998) has declared

that the business worlds embrace of enterprise systems may in fact be the most important

development in the corporate use of information technology in the 1990s (p. 122). Mabert

et al. (2001) noted that industry reports suggest as many as 30,000 companies worldwidehave implemented ERP systems. AMR Research has projected as much as $180 billion in

global investments in ERP (as cited in Kalling, 2003). While not as glamorous as the

Internet and electronic commerce, ERP systems offer the advantage of providing

organizations with a single, integrated software system linking the core business activities

such as operations, manufacturing, sales, accounting, human resources, and inventory

control (Lee and Lee, 2000; Newell et al., 2003; Shanks and Seddon, 2000). As Brown and

Vessey (2003) note, this integrated perspective may be the first true organization-wide

view available to management. And, with the increasing awareness of the availability and

capability of information technology (IT), particularly following the Internet boom,

organizations are seeking every benefit that can be gleaned from the technology.

Further, given the IT spending frenzy of the Internet boom and Y2K remediation,

organizations are taking greater care in how they allocate their technology dollars. ERP

research has explored how these types of systems contribute value to an organization(Markus and Tanis, 1999; Ross and Vitale, 2000; Somers and Nelson, 2001), as well as

how they should be integrated with already-existing IT resources ( Hayman, 2000). Still,

large and small companies continue to invest between $300,000 and hundreds of millions

of dollars in ERP software and accompanying hardware (Markus, 1999), using a variety of

business justifications, including improved productivity, reduced costs, greater operational

efficiency, enhanced customer relationship management, and better supply chain

management (Communications of the ACM, 2000; Brown and Vessey, 2003; Mabert

et al., 2001). In spite of the hopeful nature of ERP investments, many companies have

ended up in litigation over ERP implementation issues (cf. Boudette, 1999; MacDonald,

1999; Nash, 2000) and even bankruptcy (cf. Montoya, 1998; Nash, 2000). Scott and

Wagner (2003) portray organizations as being caught between the perceived need to

implement ERP and the challenge of realizing the benefits from them (p. 287).

Ultimately, for the return on investment in ERP systems to be achieved, these systems

J.W. Beard, M. Sumner / Journal of Strategic Information Systems 13 (2004) 129150130


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should yield a strategic advantage. Yet, Kalling (2003) notes that it is still an open question

on whether ERP systems actually produce a competitive advantage.

One challenge to achieving a competitive advantage is that ERP systems impose a

common systems approach by establishing a common set of applications supporting

business operations. In fact, successful implementation of an ERP system typically

requires re-engineering business processes to better align with the ERP software, so thatthe common systems approach is imposed (Brown and Vessey, 2003; Dahlen and Elfsson,

1999). This common structure approach allows for faster implementation of the ERP

system because there are fewer customized pieces to the software. In addition, the limited

customization means that it will be simpler to upgrade the ERP software as new versions

and features emerge over time.

A second related challenge associated with achieving a competitive advantage through

ERP is the significant complexity of the implementation and integration process. It often

takes several years to fully implement the ERP system. This includes integrating ERP with

already-exisiting IS and accomplishing the related reengineering of the organization.

Several additional years may then be required to recover from and fine-tune the

organization following the reengineering process. Concurrently, it takes time to refine the

alignment of organization to the ERP system and to more fully leverage the opportunities

offered by the ERP system. This challenge is represented by the stage theories (cf. Hollandand Light, 2001; Markus et al., 2000).

The focus of this manuscript is whether or not a common systems approach can provide

a competitive advantage when a variety of firms within the same industry adopt the same

ERP software and employ almost identical business processes with similar IS supporting

these processes. In addition, we explore whether organizations can find mechanisms for

gaining a competitive advantage within an environment in which common systems are

being implemented within their industry. One perspective for gaining and sustaining a

competitive advantage is the resource-based model, sometimes called the VRIO model

(Barney, 1999). It is this theoretical perspective that is used to frame our exploration.

1. The resource-based model of competitive advantage

It is clearly recognized that both the external environment (cf. Porter, 1980) and

internal characteristics (cf. Barney, 1991, 1999) have an effect on the level of firm

profitability (Henderson and Mitchell, 1997; Oliver, 1997). The resource-based model of

competitive advantage, also called the resource-based model of superior returns, focuses

primarily on the internal characteristics of a firm. These internal characteristics consist of

both the tangible and intangible semi-permanent assets of the firm ( Wernerfelt, 1984).

More specifically, in the resource-based model the origin of the firms strategy and the

primary source of its financial returns are the unique collection and dynamic management

of a firms resources and its evolving capabilities (Hitt et al., 2003) that create what

Wernerfelt (1984) termed resource position barriers (p. 172). Resources are the

organizational capital, physical, and human inputs into the production process. A set of

resources becomes a capability when they are combined or integrated in the performance

of a task or activity (Hitt et al., 2003). Capabilities, in turn, can develop into core

J.W. Beard, M. Sumner / Journal of Strategic Information Systems 13 (2004) 129150 131


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competencies that ultimately become the source of competitive advantage over rivals.

Research increasingly supports the contention that a firm must acquire a unique set of

resources and capabilities to successfully compete in the 21st century (Barney, 1999;

Henderson and Mitchell, 1997; Hitt et al., 2003; Oliver, 1997).

In fact, when the external environment is rapidly evolving and in a state of flux, an

internal perspective, such as the resource-based approach, may provide the only stablebasis on which to make strategic decisions (Narayanan, 2001). In other words, when the

marketplace is in transition and the competition is evolving, it is difficult to look outward

for direction or guidance in making strategic decisions. For example, in Porters (1980,

2001) Competitive Forces Model, he identifies five external forces as creating the

environmental stress that should drive a firms strategic choices and actions. These forces

are the bargaining power of suppliers, the bargaining power of customers, the threat of new

entrants to the marketplace, the threat of substitutes, and the competition from within the

industry. Unfortunately, in a dynamic environment, attention to these five forces may not

provide sufficient guidance to make meaningful strategic choices about how to allocate an

organizations resources. Instead, by focusing inward and identifying the particular

strengths of the firm, especially the set of resources and capabilities that are unique,

decision makers in a firm may be able to make superior strategic choices on the allocation

and acquisition of resources and capabilities.

Mata et al. (1995) applied the resource-based model in considering IT and its

contribution to a sustained competitive advantage. Guided by the developed body of

research on the resource-based model from strategic management theory (cf. Barney,

1991, 1999; Wernerfelt, 1984), Mata et al. (1995) presented a model, reproduced and

adapted in Fig. 1, to guide this assessment by asking three questions. The first question is:

Is the resource or capability valuable? A negative response yields an outcome of a

competitive disadvantage, for energy and effort are being spent on a resource or capability

that does not add value to the firm. An answer in the affirmative leads to the second

question: Is the resource or capability heterogeneously distributed across competing

firms? In other words, is the resource or capability differently distributed among

competing firms? An answer of No, meaning that the resource or capability is evenly or

similarly distributed, will yield a result of competitive parity due to the resource orcapability. This suggests that most, or all, competing firms have a similar set of resources

or capabilities. A positive answer will lead to the third question.

Is the resource or capability imperfectly mobile; i.e. is it imperfectly imitable

(Barney, 1986)? Stated another way, is it costly, or even possible, to imitate (Hitt et al.,

2003)? A negative response to this question will yield a result where the resource or

capability can be a source of at least a temporary competitive advantage. In other words,

the resource or capability can be duplicated, but it will take some time to do so. During that

time, the firm will have a temporary competitive advantage. A positive answer to this

question leads to a result where the resource or capability can be a source of sustained

competitive advantage. Therefore, answering in the affirmative for all three questions

suggests that a resource or capability meets the necessary, but not sufficient, conditions to

be a source of a sustained competitive advantage. It is not sufficient because it does not

guarantee a competitive advantage. Bad luck, bad timing, a market shift, and poor decision



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Fig. 1. The resource-based model of sustained competitive advantage (VRIO framework).


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making, among other circumstances, may diminish or eliminate the opportunity for a

competitive advantage (Mata et al., 1995).

Three factors contribute to the creation of an imperfectly mobile resource or

capability. These are the role of history, causal ambiguity, and social complexity.

(These factors are also portrayed in Fig. 1). As described by Mata et al. (1995), history

can increase the cost or difficulty of imitation in two general ways: when a firm is inthe right place at the right time yielding an outcome that other firms cannot

reproduce, and when the resource or capability can be developed only over a long

period of time. Causal ambiguity suggests that it will be difficult, and therefore more

costly, to imitate a firms resources or capabilities when it is difficult to clearly discern

the features of those attributes, i.e. it is not entirely clear what imitating firms should

duplicate (Mata et al., 1995, p. 493). These attributes, sometimes thought of as

invisible assets (Itami, 1987) or tacit attributes (Reed and DeFillippi, 1990), include

features such as organizational culture (Barney, 1986), operating procedures and

routines (Nelson and Winter, 1982), or the many small decisions and actions that make

up the day-to-day operations of a firm (Mata et al., 1995). Finally, social complexity

refers to the relationships a firm has with its suppliers, customers, other organizations,

including competitors, and even among people within the firm. These relationships take

time to build and typically evolve slowly, meaning that they would be difficult toquickly duplicate. These three factors provide additional depth and richness in

elaborating the concept of a resource or capability being imperfectly mobile.

A recent addition to this framework suggests that an additional component is needed to

refine the last portion of the model. Is the firm organized to exploit the full competitive

potential of its resources and capabilities (Barney, 1999, p. 160)? It is also portrayed as is

the resource or capability nonsubstitutable (Hitt et al., 2003)? Complimentary resources

and capabilities, such as the firms formal reporting structure, compensation policies, and

management control systems, in isolation are not sufficient to generate a sustained

competitive advantage. However, when taken together, and in combination with other

characteristics of the resources and capabilities, they do represent a situation where a

resource or capability may result in a sustained competitive advantage (Amit and

Schoemaker, 1993; Barney, 1999). Barney (1999) has named this entire model the VRIO

framework, for Valuable, Rare, Imitability, and Organization. The VRIO framework,portraying the resource-based model as presented by Mata et al. (1995) and refined by

Barney (1999), provides the structure for this exploration.

2. Research questions

The broad research question under consideration is whether ERP systems can provide

an organization with a sustained competitive advantage. More specifically, if ERP systems

are the resource or capability under direct consideration, do they yield a competitive

advantage? This question is approached in both a theoretical and descriptive way. In our

research, we will apply the VRIO framework of the resource-based model of competitive

advantage (Barney, 1999; Mata et al., 1995). Using this VRIO model, the questions related

to ERP systems are:



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1. Is the ERP system valuable? For example, does the implementation of an ERP system

reduce a firms cost below and/or increase its revenues above what would have been the

case if these resources or capabilities were not exploited?

2. Is the ERP system a resource that is heterogeneously distributed across competing

firms? For example, if all competing organizations have implemented ERP systems

then there will be no competitive advantage from ERP, i.e. the ERP resource is notheterogeneously distributed. On the other hand, if the ERP is heterogeneously

distributed across firms, then the resource will be a source of at least temporary

competitive advantage for firms that possess the ERP.

3. Is the ERP system imperfectly mobile? In other words, if firms without the ERP are at

no significant disadvantage in acquiring, developing, and using it compared to firms

that already possess this resource, then it will only be a source of temporary competitive

advantage for the firms that originally implement it. Once the competing organizations

implement ERP systems, the advantage will subside.

4. Finally, is the firm organized to exploit the full competitive potential of its ERP system?

For example, is the firm organized to take advantage of the benefits to be gained from

an ERP system?

3. Methodology and review of the erp literature

3.1. Methodology

The methodology used in this study is content analysis. Articles published between

January 1998 and March 2002 which appear in refereed journals and proceedings in IS on

the general topic of ERP systems were selected for review. This period of time was

selected because ERP systems were achieving a rapidly growing level of organizational

penetration, organizations were realizing some benefits from already-installed systems,

and it coincides with the dramatic effects of the Internet boom and Y2K. The journals used

were based on the list of MIS journals reviewed in a number of research studies

(Mylonopoulos and Theoharakis, 2001; Whitman et al., 1999; Hardgrave and Walstrom,

1997; Walstrom et al., 1995; Holsapple et al., 1994; Gillenson and Stutz, 1991). Inaddition, several new journals were included in the sample population.

Using the components of the resource-based model as a framework to guide our query,

we explore whether ERP systems enable organizations to achieve a competitive advantage

and how this can be achieved. Each of the articles was reviewed in order to obtain

information related to the research questions. With respect to the first question, Is the

ERP system valuable? we looked for evidence of financial benefits, including return on

investment, reduced costs, increased revenues, and payback. In terms of the second

question, Is the ERP system heterogeneously distributed across competing firms? we

looked for evidence of the extent of coverage and usage of ERP systems across industries

and within industries. In terms of the third question, Is the ERP system imperfectly

mobile? we looked for evidence indicating whether ERP implementations were gettingeasier, faster, and less expensive-largely as a result of an accumulated knowledge base,

vendor support, and industry and consultant experience. Finally, for the fourth question,



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Is the firm organized to exploit the full competitive potential of its ERP system? we

looked for evidence of management strategies contributing to the successful implemen-

tation of ERP systems and software.

3.2. ERP system value

The first question to consider in assessing the strategic impact of ERP is whether the

ERP system is valuable. This can be evaluated by whether the exploitation of ERP systems

can reduce a firms costs below what would have been the case if the ERP and its

capabilities were not implemented. The studies reviewed here indicate that measuring an

ERPs benefits is a long-term proposition, and that these measures are largely value-added

in nature.

Mabert et al. (2001) report that companies view the standardization and integration of

business processes across the enterprise as a key benefit. As one of the executives stated,

ERP is the digital nerve system that connects the processes across the organization and

transmits the impact of an event happening in one part to the rest accurately (Mabert et al.,

2001, p. 69). Of the tangible benefits, the companies studied most often reported lower

inventories, shorter delivery cycles, and shorter financial closing cycles. However, the

ERP system did not lead to reductions in work force or savings in operational costs in theshort term.

In a broader analysis of the business benefits of enterprise systems, Davenport (2000)

points to cycle time reduction (e.g. cost and time reductions in key business processes),

faster information transactions (e.g. faster credit checks), better financial management

(e.g. shorter financial closing cycle, improved management reporting), and laying the

groundwork for electronic commerce (e.g. providing the back office functions for Web-

based product ordering, tracking, and delivery processes), as well as a better understanding

of key business processes and decision rules (Davenport, 2000, pp. 7 8). Laughlin (1999)

suggests that the business justification for ERP includes both hard dollar savings

(e.g. reductions in procurement cost, inventory, transportation, increased manufacturing

throughput, and productivity improvement) and soft dollar savings (e.g. revenue growth,

margin enhancement, and sales improvements). Yet, as with Mabert et al. (2001),

Laughlin argues that there is no evidence of ERP providing headcount reduction.According to Piturro (1999), when an ERP works well it can speed up business

processes, reduce costs, increase selling opportunities, improve quality and customer

satisfaction, and measure results continuously (p. 48). However, she notes that when it

doesnt work well, it can be a very expensive way to gum up the works.

On the question of the business benefits of ERP, managers mention many productivity

enhancements, including the ability to calculate new prices instantly, more accurate

manufacturing cost comparisons among different facilities, better electronic data

interchange with vendors and suppliers, improved forecasting, and the elimination of

bottlenecks and duplicative procedures (Plotkin, 1999). Additional benefits deal with

eliminating the redundancies associated with legacy systems. In most organizations, vast

amounts of data are stored in hundreds of different computer systems. For

example, at Owens Corning, there were 200 legacy systems, most running in

isolation from one another. Eastman Kodak had 2600 different software applications



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(Palaniswamy and Frank, 2000). Davenport (1998) noted that if the systems are

fragmented in an organization, then the business is fragmented. Integrated systems help

organizations reduce cycle time, reduce inventories, share information across the

organization, and provide management with a more complete perspective on business

operations. Additionally, companies with ERP systems have made improvements in cross-

functional coordination and business performance (Oliver, 1999).Other benefits, such as the impact of better business rules and the effect of access to

better financial information, are difficult to directly measure. Yet, business returns can

come from better customer relationships management (CRM) and eCommerce capabilities

that enable customers to create and to track orders on-line. Both of these capabilities, as

well as many others, must be built upon the foundation of integrated ERP systems. This

foundation must be built before some of these strategic benefits are possible (Oliver,

1999). After examining a number of articles dealing with the benefits of ERP, we have

summarized some of the findings in Table 1.

Markus et al. (2000) echo that the larger value of ERP is measured when the

organization captures actual business results (e.g. reduced inventory costs), but these

results dont occur until the phase in which the systems have already been successfully

implemented and integrated into business operations-in what Markus et al. (2000) call the

onward and upward phasea stage three evolution. Holland and Light (2001) also arguethat the business benefits of ERP occur in a third stage of evolution, during which

innovative business processes are thoroughly implemented.

Based upon the evidence collected in prior studies, ERP systems may not necessarily

directly provide firms with a competitive advantage through the reduction of these firms

costs below or by increasing these firms revenues above what would have been the case if

these systems had not been implemented. Instead, the advantages cited are largely value-

added measures, such as increased information, faster processing, more timely and

accurate transactions, and better decision-making. In sum, therefore, published research

suggests that ERP systems are valuable to the firms that implement them.

3.3. ERP systems distributed across competing firms

The second question posed in the VRIO framework of the resource-based model iswhether ERP systems are heterogeneously distributed across competing firms. If ERP

systems are heterogeneously dispersed, i.e. if ERP systems are unevenly implemented,

then they may provide at least a temporary competitive advantage for those that implement

ERP systems over those who do not. Given the growth of the ERP industry, it may be an

easy question to answer.

The ERP market is one of the fastest growing markets in the software industry.

According to industry reports, at least 30,000 companies worldwide have implemented

ERP systems (Mabert et al., 2001). The ERP market is projected to grow from a current

$15 billion to $50 billion in the next five years and to reach $1 trillion by 2010 ( Bingi

et al., 1999). AMR Research has projected the global ERP market at $180 million by

2003 (as reported in Kalling, 2003). This growth will be reinforced by the estimated

70% of Fortune 1000 firms that have installed or will install ERP systems during this

time frame.



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Table 1

Business benefits of ERP

Company Business benefits Source

Fujitsu 90% reduction in cycle time

for quotation from 20to 2 days

Jensen and Johnson (1999)

50% reduction in financial

closing times from 10 to

5 days

Boeing Simplification of processes Jensen and Johnson (1999)

Pacific coast feather company Inventory reduction; improved

customer service


IBM storage products company Time for checking customer

credit upon receiving an

order was reduced from

15 to 20 min to instantaneously


Responses to customer billing

inquiries occurred in real

time (vs. 1520 min)

Entering pricing data into

the system took 5 min where it took

8 days beforehand

Shipping repair and replacement

was done in 3

days, compared to as

many as 44 days

Earthgrains On-time product delivery rate

increased to 99%

Bingi et al. (1999)

Operating margins improved from

2.4 to 3.9%

Par industries Delivery performance improved from

80% on-time to more than 95%;

Bingi et al. (1999)

Lead times to customers

were reduced from 6

to 2 weeks

Repair parts were reducedfrom 2 weeks to

2 days;

Work-in-process inventory

dropped almost 60%

Life of a shop

order dropped from weeks

to hours

Owens corning Inventory levels were reduced

significantly

Palaniswamy and Frank (2000)

Lot sizes and machine

allocations more efficient

Growth in inter-facility coordination

Viskase Reductions in lead time

and inventory


Reduction in headcount

(continued on next page)



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While there are many war stories dealing with large-scale ERP implementation failures

(cf. Mobil Europe, Dell Computer, Hershey, Dow Chemical, Fox Meyer Drug), there is

increasing evidence of satisfaction with ERP systems. In a Conference Board survey of

117 firms in 17 countries implementing ERP (McNurlin, 2001), 34% of the organizations

were satisfied with ERP, 58% were somewhat satisfied, 7% were somewhat unsatisfied,and only 1% were unsatisfied. Further, the study showed that 78% of the organizations that

were very satisfied made a quantifiable business case for ERP when they first explored

making the transition.

The evidence of ERP implementations within various industries, such as oil, chemicals,

consumer products, and computers, is largely anecdotal. In these industries the cost of

implementing an ERP is simply a cost of doing business and creates a new playing field for

competitors (Davenport, 2000).

[A]n enterprise system, by its very nature, imposes its own logic on a companys

strategy, organization, and cultureit pushes a company toward generic processes

even when customized processes may be the source of competitive advantage

(Davenport, 1998, p. 122).

Table 1 (continued)

Company Business benefits Source

Integration of information

Decision-making times are reduced

significantlyProduction-based decisions are tied

to sales-based decisions in a

timely manner

Diebold Real-time access to data

across the organization


Better control of manufacturing

processes

Valenite Lower levels of inventory Palaniswamy and Frank (2000)

Improved customer satisfaction

Faster, more accurate order

processing

Accurate and timely financial

information

Leeson Reduction in paperwork related

to order processing


Ability of end-users to gain access

to information

Improved accuracy of financial

and inventory transactions

Improved currency of manufacturing

databases



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Davenport (2000) suggests that if an entire industry is adopting ERP systems then the

basis for determining competitive advantage shifts from implementing the ERP to

implementing the ERP better than anyone else. Therefore, the evidence seems to point out

that as ERP implementations become more pervasive within various industries, these

systems will not necessarily provide a competitive advantage to firms within these

industries. However, firms may gain a temporary competitive advantage by implementingERP systems more quickly or more economically than their competitors.

3.4. ERP system imitability

The third question in the VRIO framework relates to whether the ERP system is

imperfectly mobile. If firms without an ERP are at no disadvantage in acquiring and

developing an ERP compared with firms that already possess this resource, then ERP

systems will be a source of only a temporary competitive advantage, i.e. the advantage will

exist only as long as it takes competing firms to acquire the resource or replicate the firms

capabilities. Given the number of firms that have initiated or completed ERP

implementations, a temporary competitive advantage seems to be the situation with

ERP systems.

For example, there is evidence that ERP systems projects take considerable time andhave a payback schedule which may not be realized for some time. In the study conducted

by Mabert et al. (2001), several firms reported that it would take over 12 months for them

to get to the point where they could start using their ERP systems effectively. This suggests

that firms that implemented ERP systems first would have a competitive advantage based

upon the ERP system only until the competing firms also completed their ERP

installations.

To provide some additional depth, there is growing support for the view that ERP

systems implementation projects are complex and require a multiple stage approach. In

their analysis, Mabert et al. (2001) break ERP projects into three phases, including (1) the

project phase, during which the ERP software is introduced, (2) the shakedown phase,

during which the company integrates ERP into its operations, and (3) the onward and

upward phase, during which the company captures the benefits of the ERP system. Success

during any phase is directly related to success during subsequent phases. One of thebiggest failures in ERP implementations is the failure to modify business processes to

conform to the requirements of the ERP software.

Several other researchers organize ERP projects into phases. In their analysis, Parr and

Shanks (2000) organize such projects into a planning phase, a re-engineering phase, a

design phase, and configuration and testing. As in the former study, re-engineering

business processes to support the business model which the ERP supports is critical to the

success of the overall project.

Holland and Light (2001) further elaborate upon the stage implementation approach by

proposing a stage maturity model for ERP systems. In their view, at the initial stage

(stage 1), organizations are still managing legacy systems and start to implement ERP

software. In stage 2, they complete their ERP implementation by employing ERP-related

functions across the firm. It is not until stage 3, when ERP systems are integrated

successfully, and the organizations business processes have been realigned to match



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the ERP system, that organizations can leverage the data generated by the ERP system by

using specialized modules supporting advanced capabilities such as customer resource

management.

These theories of the stage evolution of ERP systems indicate that the process of ERP

implementation is relatively complex, and that these systems entail the re-structuring of

business processes, technical implementation, as well as organizational change. Yet, withthe increased experience acquired by individuals and consulting firms implementing these

systems, firms embarking on ERP projects can benefit from these lessons and can move

through these project phases more rapidly and more cost-effectively than their

predecessors, thus shortening the time frame for the temporary competitive advantage.

Therefore, the implementation process, although still daunting, is more easily

accomplished as firms, and their technology consultants, learn from the experiences and

mistakes of others. In sum, ERP systems are more or less easily imitated.

In fact, as previously noted, many ERP systems incorporate a best practices approach

for how the system is configured, requiring the organization to reengineer its processes to

fit the software. As such, firms implementing ERP will probably not be able to maintain

ERP systems as a source of competitive advantage over time.

3.5. Organized to exploit the potential of ERP

The fourth question of the VRIO framework relates to whether the firm is organized

to exploit the full potential of an ERP system. The readiness to exploit these

advantages can be understood by examining the experience of organizations in

implementing ERP systems quickly and effectively. If project implementation is

successfully achieved and the organization has been appropriately reengineered, then

organizations will be able to exploit the full potential of these systems and achieve a

competitive advantage.

In their analysis of difficulties encountered in completing ERP projects on-time and

on-budget, Willcocks and Sykes (2000) note that problems occur because of a lack of

internal skill sets, attempts to customize the ERP, and the complexity of linking legacy

systems and data to the ERP system. They argue that the success of ERP projects

depends upon re-engineering business processes, relationship building with seniorexecutives, effective management of supplier relationships, and the creation of cross-

functional teams. Others also note the critical role of realigning business processes,

often significantly, to ERP software during implementation as one of the critical

success factors (Bingi et al., 1999; Holland and Light, 1999; Markus et al., 2000; Parr

and Shanks, 2000). They argue that implementing an ERP system is not a matter of

changing software; it is a matter of transforming business processes. Instead of

managers trying to maintain old procedures, they must adapt to and learn the

capabilities of the new system.

Successful implementation also requires recruiting and retaining individuals who

understand the capabilities of the new ERP system. In Parr and Shanks (2000) in-depth

study of critical success factors in each phase of ERP project implementation, they argue

that vanilla ERP (i.e. not attempting to modify the software, but rather modifying

business processes to conform with the software) was critical to the success of



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the planning, design, and configuration phases of major ERP projects. Top management

leadership and participation was important to assure the selection of a balanced team and

the re-engineering of business processes.

In an analysis of ERP implementations in smaller firms in Ireland, Adam and

ODoherty (2000) argue that the same lessons apply for ERP projects that are smaller in

size and scope. Even in projects of smaller size and reduced scope, there are constanttrade-offs between the implementers wanting zero modification and the client wanting

100% functionality, or custom modifications. Due to the political and managerial

challenges of reconciling these trade-offs, Adam and ODoherty (2000) recommend that

collaborative teams work together to resolve these issues so that projects are kept on track.

The question of what risk factors are associated with ERP projects, as compared with

traditional MIS projects, has been addressed in a study of seven Fortune 500 companies

implementing large-scale ERP systems (Sumner, 2000). Built upon multiple case studies,

Sumner finds that the unique risk factors associated with ERP projects include the danger

of customization, the challenge of reskilling technology professionals and business

analysts who are knowledgeable in ERP software, and the coordination required in

effectively using external consultants.

Based upon these studies, the challenges of managing ERP projects are quite complex

and are complicated by organizational and political factors. As such, top managementleadership is needed to assure that changes in organizational structures and business

processes are made. This combination of mastering organizational, managerial, technical,

and political factors may create a basis for competitive advantage in those firms who can

address these challenges successfully.

4. Research summary and significance

The overall question being addressed in this study was whether ERP systems can

provide organizations with a competitive advantage. There is some anecdotal research

dealing with this question, but most of the results are inconclusive. We decided to apply

the VRIO framework, a representation of the resource-based model, to this analysis of

ERP systems in order to analyze the question in further detail. In the VRIO framework ofthe resource-based model proposed by Mata et al. (1995) and Barney (1999), an ERP

system (i.e. a resource or capability) can provide a competitive advantage when it is

valuable, when the system is heterogeneously distributed across competing firms, when

the system is imperfectly mobile, and when the firm is organized to exploit the full

competitive potential of the system.

We used a review of studies related to ERP to obtain evidence of each of these tenets.

On the first question, we did not find evidence that an ERP system reduces a firms costs

below what would have been the case if the ERP system was not implemented. Most of the

benefits of ERP derive from value-added criteria, such as improved or leveraged

information, more efficient customer service, or building a foundation for e-commerce.

With further, longitudinal studies, evidence of long-term cost-reduction may occur, but the

current literature does not provide clear evidence of a competitive advantage gained

through ERP-based cost-reduction.



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On the second question, there was some anecdotal evidence derived from industry case

studies that ERP systems have been heterogeneously distributed within industries, but

there is growing evidence that ERP implementations within certain industries (e.g. oil,

chemicals, computers) are becoming standard due to the common systems approach.

This implies that the cost of doing business in such industries requires an investment in

ERP systems just to retain parity with the competition. As noted by Mabert et al. (2001),some 30,000 companies worldwide have implemented ERP indicating a widespread use of

the technology. Therefore, the implementation of an ERP system would not assure a

competitive advantage, but rather assures competitive parity. In contrast, in these

industries, companies without an ERP may find themselves at a competitive disadvantage.

On the third question, there is ample evidence of the significant challenges associated

with acquiring and implementing ERP systems, but the lessons learned may have been

learned primarily by the pioneers of ERP implementations (e.g. the war stories), and new

implementers can benefit from these experiences by taking note of the critical success

factors associated with ERP implementations. As such, firms just acquiring ERP

capabilities do not necessarily face a competitive disadvantage in implementing ERP

systems and may benefit from the experience of their predecessors, consultants, and other

models of successful implementation. Stated another way, the benefits of being a first

mover are receding. Consequently, it appears that ERP systems are increasingly imitable,yielding only a temporary competitive advantage at best.

Therefore, using the resource-based model of competitive advantage, an examination

of existing research suggests that ERP systems may not provide a competitive advantage

based upon the premises of system value, distribution, and imitability. ERP systems are

increasingly less heterogeneously distributed. The implementation process can be imitated

in that firms can learn from the experiences and mistakes of others. Instead, an opportunity

to achieve a competitive advantage may exist in how a firm exploits the ERP system. We

propose that effectively exploiting an ERP system depends upon successful project

planning, implementation, alignment, and utilization. As such, the source of competitive

advantage may lie in the actual management of ERP projects and their subsequent

operations. This echoes the conclusion of Mata et al. (1995) that the management of IT,

not the IT itself, may be the only consistent source of competitive advantage.

Further, with the increasing adoption of ERP systems within industries, the sources ofcompetitive advantage that were originally defined in the resource-based model may not

apply, at least not as strongly. For example, the implementation of ERP systems may in

fact diminish the value of many of the very features (i.e. the resources and capabilities) of

the organization that made them difficult to imitate and provided the firm with a

competitive advantage. The recommendation that organizations use the common systems

approach, aligning their business processes with the software instead of trying to

significantly tailor (i.e. align) the software to their own needs (cf. Bingi et al., 1999;

Holland and Light, 1999; Markus et al., 2000; Parr and Shanks, 2000; Sumner, 2000), will

almost certainly lessen, at least temporarily, the impact of an organizations history, the

causal ambiguity of how the organization operates, and the social complexity of the inter-

and intra-organizational environment. The impact of a transition to an ERP system on

these issues is an empirical question that has not yet been explored. Instead, the adoption of

ERP may create a new playing field, i.e. a new dimension of competition. Therefore, in



16/22

many industries, the decision to adopt an ERP may only be sufficient to prevent the

organization from being at a competitive disadvantage.

If ERP systems provide competitive parity among organizations, then the source of

competitive advantage may lie elsewhere (cf. Mata et al., 1995), i.e. not with the ERP

system. As noted above, the literature on ERP implementation suggests that addressing the

significant challenges associated with managing and implementing ERP projects may bethe key to competitive success. Organizations that can address these organizational,

managerial, and technical challenges by implementing ERP systems more quickly and

more economically than their counterparts and those that recover more quickly from the

turmoil of reengineering their business processes to match the ERP structure may be the

ones to ultimately achieve a competitive advantage. These findings have practical

significance because they indicate the critical importance of effective project management

and implementation.

Much of the research in this area is based upon case studies, but some of the

conclusions are useful. In a case analysis devoted to the question of how organizations are

using ERP systems to gain a competitive advantage, Holland et al. (1999) suggest that

while common systems can be used to support core operations, organizations can design

and build custom solutions to support strategic processes. Customization can increase the

risk of ERP implementation delay or failure. However, it is suggested that thecustomization, while only a small percentage of the entire system, can be quite significant

in creating the differences between otherwise similar systems. This would correlate well

with the ideas of both causal ambiguity and social complexity. Organizations that can fine

tune their ERP systems through selected, small-scale customization to match their own

specific strategic and decision-making needs will be more difficult to imitate. In addition,

ERP systems may support a further improvement and understanding of the extended value

chain of the organization, allowing the organization to link and share data with its

suppliers and customers to improve business operations.

In a study of ERP implementations managers reported that they expected the

availability, quality, and standardization of data to provide a strategic advantage (Mabert

et al., 2001). Data quality and the improvement of business processes are fundamental

business drivers for ERP systems. Based upon interviews with executives at RJR Nabisco,

Gullo (1988) also concluded that the IT function needs to move to a view of data that isglobal in order to obtain a competitive advantage. Of course, all ERP implementations

should yield improved data management. Therefore, the benefit, if one occurs, comes from

the opportunity for better strategic, tactical, and operational decision making from

management. This characterization again suggests that the real source of the competitive

advantage is not the ERP system, but resides within those who better refine and use its

capabilities, i.e. management. Once again, the causal ambiguity and social complexity of

the decision-making processes within any specific organization will be almost impossible

to accurately imitate by others, yielding a potential competitive advantage.

Building on this perspective, another view of how ERP systems can provide a

competitive advantage relates to migration strategy. Given the enormous investment in

implementing an ERP system, and the fact that common systems supporting generic

business processes afford little opportunity to differentiate processes from competitors,

Kremers and Van Dissel (2000) point out that one of the ways in which firms can obtain



17/22

a competitive advantage is by their capability to migrate to new versions of the software

more rapidly.

The complexity of ERP implementations, which involve making a transition from

legacy systems and re-engineering business processes, has caused a number of researchers

to develop stage implementation models (cf. Holland and Light, 2001; Markus et al., 2000;

Parr and Shanks, 2000). These models are similar to the more general IS stage models (cf.Bhabuta, 1988; Galliers and Sutherland, 1991; Hirscheim et al., 1988; Nolan, 1979, 1984 )

that depict an increasing level of sophistication, integration, and maturity in IS/IT

management as an organization evolves from one stage to the next. Depending on the

specific model, different benefits are associated with each of the stages of ERP evolution.

In a stage model proposed by Holland and Light (2001), they argue that the strategic

potential of an ERP implementation will probably not be realized until stage three

evolution, during which ERP transactions data can be leveraged by high-value processes

such as customer relationship management. In their view, the third stage involves the

strategic exploitation of the core ERP system using innovative business processes and IT

initiatives that extend the ERP transaction data into high value processes that are often

supported by satellite systems to support new functionality and capabilities (Holland and

Light, 2001, pp. 3445).

5. Strategic implications and future research

Many of the strategic implications for ERP have already been suggested by Porter

(2001) in his discussion of Strategy and the Internet. Although not directed at ERP

efforts, there is a surprising parallel between the Internet-related issues firms face and the

issues currently faced by firms electing to implement ERP systems. For example, Porter

(2001) notes that there are two primary ways to gain cost and price advantages in a

marketplaceyou can improve your operational effectiveness or you can work toward

better strategic positioning. Operational effectiveness can include advantages such as

developing people through better training and education, the acquisition and application of

better technologies, or a more efficient and effective management structure, among others.

ERP systems are an obvious fit with efforts to improve operational effectiveness, and muchof the ERP literature presented above suggests that ERP systems are generally aimed at

this type of effort. However, according to Porter, the Internet tends to alter industry

structures in ways that dampen overall profitability, and it has a leveling effect on business

practices, reducing the ability of any company to establish an operational advantage that

can be sustained (Porter, 2001, p. 64). Due to the common systems approach, ERP

systems have a similar impact. From this view, ERP would yield only a temporary

competitive advantage, at best. Further, as companies become more alike, rivalry tends to

increase (Hitt et al., 2003; Porter, 2001), creating additional competitive pressure on the

firm.

Strategic position is a more challenging endeavor. Porter (2001) describes strategic

positioning as doing things differently from competitors, in a way that delivers a unique

type of value to customers (p. 70). Creating this unique value requires creating a different

set of features, services, or logistical structures. These can then be used to assist



18/22

the organization in better developing its business-level strategies (e.g. cost-leadership,

differentiation, focused, and/or integrated strategies), corporate-level strategies, and

cooperative strategies. The challenge for firms implementing ERP systems is to develop

new strategies that leverage the full capabilities of ERP. These might include selective

customization of the ERP system, additional attention to aligning the firm with the ERP

system, or focusing on more rapid recovery of the firm following reengineering. Theyinclude both the formulation and implementation of an organizations strategic initiatives.

The ERP stage models offer some general guidance on direction, but are less useful in

elaborating the process for achieving the more advanced stages (Galliers and Sutherland,

1991; Kalling, 2003) or maturity. Kalling (2003) may have suggested the most accurate

representation of the true dynamic that occurs in ERP efforts (as well as with more general

IT projects) with the concept of bricolage. As described by Kalling, bricolage is

learning through trial and error and local tinkering. This learning ultimately leads to

improved individual work practices, new capabilities for the firm, and, finally, strategic

advantages. It is an organizational learning process that is similar to the concept of double-

loop learning (Argyris and Schon, 1978). Double-loop learning is where organizations first

unlearn previous knowledge, then move beyond the old knowledge as they envision and

develop new ways of doing things that were not possible or had not been imagined before.

Double-loop learning is a revolutionary change instead of an evolutionary one. Due to thecomplexity of the ERP systems, plus the complexity (e.g. history, causal ambiguity, and

social complexity) of an organization embarking on a reengineering effort, the full

development and tuning of an ERP system is an emergent process. The discussion below

suggests several avenues of research toward exploring these options.

As a follow-up to this study, it would be useful to pose the same questions related to the

resource-based model of competitive advantage through a comparative study of firms

within a specific industry. A comparison across industry groups would also be useful.

Using additional case study material would provide further insight into the value,

distribution, and imitability of ERP systems within industries and would help to determine

the importance of the management of ERP projects in achieving a competitive advantage.

In addition, it would be useful to examine in some detail the features and capabilities that

are added to the ERP systems due to customization that appear to yield a competitive

advantage. Can different business-related outcomes be attributed to these customizedfeatures? Further, it might be useful to explore how much the timing of the adoption of

ERP in comparison to competitors yields a competitive advantage. For example, Rogers

(1995) has described five broad categories of adopters of an innovation, such as

innovators, early adopters, early majority, late majority, and laggards. What are the

competitive implications for ERP systems in relation to when they are actually installed in

a firm? Further, what are the implications to when they are perceived as having achieved a

fully operational status?

It was noted above that the implementation of ERP systems may disrupt the very

resources or capabilities (i.e. history, causal ambiguity, and social complexity, among

others) that make them difficult to imitate. Alternatively, the history, causal ambiguity, and

social complexity may in some instances have lead to the development and creation of an

organization that is uniquely able to leverage or quickly adapt to the capabilities of an ERP

system. The organizations culture may be particularly adaptable to change, such



19/22

as the business process reengineering typically required with an ERP installation.

Management may be especially astute at discerning market trends in the more detailed

organization-wide data being provided by the ERP. The value chain, consisting of the

organization, its suppliers and suppliers suppliers, and customers, may become more

tightly coordinated due to the improved flow of accurate data. In this type of situation, an

ERP system may enhance the organizations competitiveness. While uncommon, in thisenvironment the ERP may be an important component in the firm being organized to fully

leverage the capabilities of an ERP system. But the research is equivocal on these issues at

this point in time. Table 2 provides a summary of the implications of ERP research on both

practice and research.

In sum, ERP systems are an increasingly popular IT platform that are being installed to

assist organizations in better capturing, managing, and distributing organization-wide

operational data to decision makers throughout the organization. The importance of ERP

Table 2

Strategic Implications of ERP for Practice and Research

Implications for Practice Implications for Research

Careful project planning is important

to successful ERP installation

How do you create a sustainable competitive advantage with an ERP

system? More specifically, what are the important characteristics

of ERP systems that will create a sustained competitive advantage?

Organizations that have been

reengineered to fit the common

systems model of a specific ERP

have the best chance of successful

implementation

Can you reengineer the organization without disrupting or destroying

the characteristics that gave it a competitive advantage?

Imperfect imitability, one of the

characteristics of a sustained

competitive advantage, can be

developed through ERP customization.

This does increase the cost and the risk

of project failure

How can you continue to leverage the benefits of history, causal

ambiguity, and social complexity that already exist in the

organization? How can these characteristics be used to improve

ERP systems adoption and implementation in an organization?

Careful consideration should be made

about the implications of reengineering

the organization and that impact on the

strategic direction of the firm.

What are the implications of the stage models for ERP systems in

organizations? How do you progress from one stage to the next?

What is/are the process(es) in advancing to each of the stages?

ERP systems should be aligned with

the strategic direction of the

organization

How do you speed the organizational learning process in order to

more quickly move beyond the basic operational features of

ERP systems to take greater advantage of the opportunities that

now exist?

How do you align the ERP system with the strategic initiatives

of the organization? Alternatively, how

do you alter the strategic direction of the organization to take

advantage of the opportunities offered by the ERP system?

How have ERP systems altered industry structures and the basis

of competition within an industry?

Do the stages of innovation predict relative levels of successful

ERP adoption? Do the stages of innovation predict levels and

duration of competitive advantage?



20/22

systems may have been enhanced by Y2K and the Internet boom, as well as the growing

recognition of the need and opportunity for leveraging the capabilities of IT. In spite of the

clamor for ERP technology, the literature is equivocal on the strategic impact, at least in

terms of competitive advantage, of this type of system. It appears that ERP systems are

increasingly a requirement for organizations just to stay competitive. Additionally, the

research suggests that an ERP system can yield at most a temporary competitive advantageas others are also installing these enterprise-wide systems. Yet, many questions and

opportunities remain to be explored.

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