ERP

Abstract

Introduction Most large companies have adopted some form of enterprise resource planning (ERP) system. A survey of IT executives in the U.S. showed that ERP was the second most important key category for investment. In many cases, the implementation of an ERP system was a long and expensive ordeal that involved extensive restructuring of businesses and reengineering of processes. While the potential benefits of ERP have been extolled frequently and much has been written about individual company experiences, only limited evidence has been produced that implementation of ERP does, on average, lead to enhanced performance. To the best of our knowledge, this is the first industry analysis on ERP because previous work has been limited to case studies and industry cross-sectional analyses. Several research studies have validated that IT provides productivity and profitability advantages. However, questions remain because it is not clear whether advantages from IT contribute, and to what degree they might contribute, to operational efficiency and profitability. For example, if the same IT is implemented by all firms in an industry, will industry profits from IT disappear? Due to the fact that for many years large companies developed their information systems independently, there have been limited opportunities to evaluate the implementation of similar IT infrastructure across companies. This study seeks to extend prior work by performing a longitudinal study of implementation of ERP systems in a specific industry. According to Porter, each industry is affected by new information technology in different ways and drawing general conclusions about how new IT affects firms across industries would be a mistake. The oil and gas industry was selected because ERP plays a major role in standardizing business processes in this industry. In this role, ERP helps firms link global operations and supply chains. Also, a commodity-product industry, like the oil and gas industry, helps us control for other influences that may have affected the performance of oil and gas companies during the study period. The ERP adopting firms are those that adopted SAP. This research applies a new methodological approach toward understanding ERP implementation because rather than looking at ordinary measures of firm performance, we look at strategic performance measures (SPM) that can only be utilized if one delves into data that is not found on the financial statements. This is the first study that shows the sources of profitability after an ERP implementation, and will help managers understand the strategic and managerial implications of ERP implementations. Our analysis compares performance changes of ERP adopting firms versus non-adopting firms over a fifteen-year period (1990--2005), which is the period when this industry was being transformed by increased use of technology in the oil and gas industry. Therefore, we see how the implementation of ERP affected firm performance during this period in relation to non-adopting firms.