Journal of Strategic Information Systems 13 (2004) 129150 www.elsevier.

com/locate/jsis

Seeking strategic advantage in the post-net era: viewing ERP systems from the resource-based perspective
Jon W. Bearda,*, Mary Sumnerb
b a Webster University, 898 Prestonwood Dr., Edwardsville, IL 62025-4136, USA Department of Computer Management and Information Systems, Southern Illinois University Edwardsville, Box 1106, Edwardsville, IL 62026-1106, USA

Received 25 March 2002; accepted 25 February 2004 Available 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 rms? Is the ERP system imperfectly mobile? And, is the rm 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, renement of the reengineering of the organization, and the post-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 signicant motivators for integrated,
* Corresponding author. E-mail addresses: jonwbeard@sbcglobal.net, jonwbeard@hotmail.com (J.W. Beard); msumner@siue.edu (M. Sumner). 0963-8687/$ - see front matter q 2004 Elsevier B.V. All rights reserved. doi:10.1016/j.jsis.2004.02.003

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organization-wide information systems (IS). These motivators have driven the development 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 organization has 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 sufcient to meet these expectations. Even the promise of the Internet has not been sufcient 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 signicant 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 worldwide have 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 rst 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 benet 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 justications, including improved productivity, reduced costs, greater operational efciency, 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 benets from them (p. 287). Ultimately, for the return on investment in ERP systems to be achieved, these systems

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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 that the 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 signicant 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 ne-tune the organization following the reengineering process. Concurrently, it takes time to rene 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. Holland and 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 rms 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 nd 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 rm protability (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 rm. These internal characteristics consist of both the tangible and intangible semi-permanent assets of the rm (Wernerfelt, 1984). More specically, in the resource-based model the origin of the rms strategy and the primary source of its nancial returns are the unique collection and dynamic management of a rms 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

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competencies that ultimately become the source of competitive advantage over rivals. Research increasingly supports the contention that a rm 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 ux, an internal perspective, such as the resource-based approach, may provide the only stable basis on which to make strategic decisions (Narayanan, 2001). In other words, when the marketplace is in transition and the competition is evolving, it is difcult to look outward for direction or guidance in making strategic decisions. For example, in Porters (1980, 2001) Competitive Forces Model, he identies ve external forces as creating the environmental stress that should drive a rms 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 ve forces may not provide sufcient guidance to make meaningful strategic choices about how to allocate an organizations resources. Instead, by focusing inward and identifying the particular strengths of the rm, especially the set of resources and capabilities that are unique, decision makers in a rm 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 rst 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 rm. An answer in the afrmative leads to the second question: Is the resource or capability heterogeneously distributed across competing rms? In other words, is the resource or capability differently distributed among competing rms? 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 or capability. This suggests that most, or all, competing rms 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 rm 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 afrmative for all three questions suggests that a resource or capability meets the necessary, but not sufcient, conditions to be a source of a sustained competitive advantage. It is not sufcient 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). 133

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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 difculty of imitation in two general ways: when a rm is in the right place at the right time yielding an outcome that other rms 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 difcult, and therefore more costly, to imitate a rms resources or capabilities when it is difcult to clearly discern the features of those attributes, i.e. it is not entirely clear what imitating rms 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 rm (Mata et al., 1995). Finally, social complexity refers to the relationships a rm has with its suppliers, customers, other organizations, including competitors, and even among people within the rm. These relationships take time to build and typically evolve slowly, meaning that they would be difcult to quickly 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 rene the last portion of the model. Is the rm 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 rms formal reporting structure, compensation policies, and management control systems, in isolation are not sufcient 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 rened 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 specically, 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 rms 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 rms? 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 not heterogeneously distributed. On the other hand, if the ERP is heterogeneously distributed across rms, then the resource will be a source of at least temporary competitive advantage for rms that possess the ERP. 3. Is the ERP system imperfectly mobile? In other words, if rms without the ERP are at no signicant disadvantage in acquiring, developing, and using it compared to rms that already possess this resource, then it will only be a source of temporary competitive advantage for the rms that originally implement it. Once the competing organizations implement ERP systems, the advantage will subside. 4. Finally, is the rm organized to exploit the full competitive potential of its ERP system? For example, is the rm organized to take advantage of the benets 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 benets 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). In addition, 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 rst question, Is the ERP system valuable? we looked for evidence of nancial benets, including return on investment, reduced costs, increased revenues, and payback. In terms of the second question, Is the ERP system heterogeneously distributed across competing rms? 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 getting easier, 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 rm organized to exploit the full competitive potential of its ERP system? we looked for evidence of management strategies contributing to the successful implementation of ERP systems and software. 3.2. ERP system value The rst 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 rms 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 benets 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 benet. 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 benets, the companies studied most often reported lower inventories, shorter delivery cycles, and shorter nancial closing cycles. However, the ERP system did not lead to reductions in work force or savings in operational costs in the short term. In a broader analysis of the business benets 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 nancial management (e.g. shorter nancial closing cycle, improved management reporting), and laying the groundwork for electronic commerce (e.g. providing the back ofce functions for Webbased 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 justication 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 benets 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 benets 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 crossfunctional coordination and business performance (Oliver, 1999). Other benets, such as the impact of better business rules and the effect of access to better nancial information, are difcult 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 benets are possible (Oliver, 1999). After examining a number of articles dealing with the benets of ERP, we have summarized some of the ndings 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 argue that the business benets 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 rms with a competitive advantage through the reduction of these rms costs below or by increasing these rms revenues above what would have been the case if these systems had not been implemented. Instead, the advantages cited are largely valueadded 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 rms that implement them. 3.3. ERP systems distributed across competing rms The second question posed in the VRIO framework of the resource-based model is whether ERP systems are heterogeneously distributed across competing rms. 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 ve 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 rms that have installed or will install ERP systems during this time frame.

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Table 1 Business benets of ERP Company Fujitsu Business benets 90% reduction in cycle time for quotation from 20 to 2 days 50% reduction in nancial closing times from 10 to 5 days Simplication of processes Inventory reduction; improved customer service 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 On-time product delivery rate increased to 99% Operating margins improved from 2.4 to 3.9% Delivery performance improved from 80% on-time to more than 95%; Lead times to customers were reduced from 6 to 2 weeks Repair parts were reduced from 2 weeks to 2 days; Work-in-process inventory dropped almost 60% Life of a shop order dropped from weeks to hours Inventory levels were reduced signicantly Lot sizes and machine allocations more efcient Growth in inter-facility coordination Reductions in lead time and inventory Reduction in headcount Source Jensen and Johnson (1999)

Boeing Pacic coast feather company IBM storage products company

Jensen and Johnson (1999) Jensen and Johnson (1999) Jensen and Johnson (1999)

Earthgrains

Bingi et al. (1999)

Par industries

Bingi et al. (1999)

Owens corning

Palaniswamy and Frank (2000)

Viskase

Palaniswamy and Frank (2000)

(continued on next page)

J.W. Beard, M. Sumner / Journal of Strategic Information Systems 13 (2004) 129150 Table 1 (continued) Company Business benets Integration of information Decision-making times are reduced signicantly Production-based decisions are tied to sales-based decisions in a timely manner Real-time access to data across the organization Better control of manufacturing processes Lower levels of inventory Improved customer satisfaction Faster, more accurate order processing Accurate and timely nancial information Reduction in paperwork related to order processing Ability of end-users to gain access to information Improved accuracy of nancial and inventory transactions Improved currency of manufacturing databases Source

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Diebold

Palaniswamy and Frank (2000)

Valenite

Palaniswamy and Frank (2000)

Leeson

Palaniswamy and Frank (2000)

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 rms in 17 countries implementing ERP (McNurlin, 2001), 34% of the organizations were satised with ERP, 58% were somewhat satised, 7% were somewhat unsatised, and only 1% were unsatised. Further, the study showed that 78% of the organizations that were very satised made a quantiable business case for ERP when they rst 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 eld 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).

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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 rms within these industries. However, rms may gain a temporary competitive advantage by implementing ERP 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 rms without an ERP are at no disadvantage in acquiring and developing an ERP compared with rms 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 rms to acquire the resource or replicate the rms capabilities. Given the number of rms 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 and have a payback schedule which may not be realized for some time. In the study conducted by Mabert et al. (2001), several rms 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 rms that implemented ERP systems rst would have a competitive advantage based upon the ERP system only until the competing rms 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 benets of the ERP system. Success during any phase is directly related to success during subsequent phases. One of the biggest 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 conguration 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 rm. 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, with the increased experience acquired by individuals and consulting rms implementing these systems, rms embarking on ERP projects can benet 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 rms, 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 congured, requiring the organization to reengineer its processes to t the software. As such, rms 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 rm 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 difculties 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 senior executives, effective management of supplier relationships, and the creation of crossfunctional teams. Others also note the critical role of realigning business processes, often signicantly, 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 conguration 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 rms 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 constant trade-offs between the implementers wanting zero modication and the client wanting 100% functionality, or custom modications. 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 nds 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 management leadership 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 rms who can address these challenges successfully.

4. Research summary and signicance 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 of the 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 rms, when the system is imperfectly mobile, and when the rm 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 rst question, we did not nd evidence that an ERP system reduces a rms costs below what would have been the case if the ERP system was not implemented. Most of the benets of ERP derive from value-added criteria, such as improved or leveraged information, more efcient 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 nd themselves at a competitive disadvantage. On the third question, there is ample evidence of the signicant 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 benet from these experiences by taking note of the critical success factors associated with ERP implementations. As such, rms just acquiring ERP capabilities do not necessarily face a competitive disadvantage in implementing ERP systems and may benet from the experience of their predecessors, consultants, and other models of successful implementation. Stated another way, the benets of being a rst 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 rms can learn from the experiences and mistakes of others. Instead, an opportunity to achieve a competitive advantage may exist in how a rm 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 of competitive advantage that were originally dened 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 difcult to imitate and provided the rm with a competitive advantage. The recommendation that organizations use the common systems approach, aligning their business processes with the software instead of trying to signicantly 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 interand 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 eld, i.e. a new dimension of competition. Therefore, in

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many industries, the decision to adopt an ERP may only be sufcient 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 signicant challenges associated with managing and implementing ERP projects may be the 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 ndings have practical signicance 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 the customization, while only a small percentage of the entire system, can be quite signicant 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 ne tune their ERP systems through selected, small-scale customization to match their own specic strategic and decision-making needs will be more difcult 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 is global in order to obtain a competitive advantage. Of course, all ERP implementations should yield improved data management. Therefore, the benet, 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 rene and use its capabilities, i.e. management. Once again, the causal ambiguity and social complexity of the decision-making processes within any specic 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 rms can obtain

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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 specic model, different benets 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. 34 45).

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 rms face and the issues currently faced by rms 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 efcient and effective management structure, among others. ERP systems are an obvious t with efforts to improve operational effectiveness, and much of 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 protability, 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 rm. 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

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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 rms 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 rm with the ERP system, or focusing on more rapid recovery of the rm following reengineering. They include 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 rm, and, nally, strategic advantages. It is an organizational learning process that is similar to the concept of doubleloop learning (Argyris and Schon, 1978). Double-loop learning is where organizations rst 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 the complexity 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 rms within a specic 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 customized features? 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 ve 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 rm? 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 difcult 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

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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 ow of accurate data. In this type of situation, an ERP system may enhance the organizations competitiveness. While uncommon, in this environment the ERP may be an important component in the rm 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 Careful project planning is important to successful ERP installation Organizations that have been reengineered to t the common systems model of a specic ERP have the best chance of successful implementation 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 Careful consideration should be made about the implications of reengineering the organization and that impact on the strategic direction of the rm. ERP systems should be aligned with the strategic direction of the organization Implications for Research How do you create a sustainable competitive advantage with an ERP system? More specically, what are the important characteristics of ERP systems that will create a sustained competitive advantage? Can you reengineer the organization without disrupting or destroying the characteristics that gave it a competitive advantage?

How can you continue to leverage the benets 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?

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? 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?

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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 advantage as others are also installing these enterprise-wide systems. Yet, many questions and opportunities remain to be explored.

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