Unpacking the ERP investment decision: An empirical assessment of the benefits and risks

Abstract Most leading organizations, in all sectors of industry, commerce and government are dependent upon ERPfor their organizational survival. Yet despite the importance of the decision to adopt ERP and its impact onthe entire firm’s performance the IT literature has been in the large part silent on the nature of the ERPinvestment decision. This study is the first of its kind to determine the preference structure of seniormanagers around the organizational benefits and risks of adopting ERP. We present the results which provideinteresting insights into how managers’ perceive the benefit and risk factors salient to the organization’sadoption decision. In line with prior research we found that improved productivity, and information andplanning are important drivers of the ERP adoption decision. Moreover our findings reveal that the benefitsof ERP are weighted almost twice as important as the risks when making an ERP investment decision.However when it comes to risk, interestingly managers consider issues such as top management commitmentand vendor support as more important than financial risks.

[1]  Elisabeth J. Umble,et al.  Enterprise resource planning: Implementation procedures and critical success factors , 2003, Eur. J. Oper. Res..

[2]  Jordan J. Louviere,et al.  Do managers behave the way theory suggests? A choice-theoretic examination of foreign direct investment location decision-making , 2007 .

[3]  Toni M. Somers,et al.  The impact of critical success factors across the stages of enterprise resource planning implementations , 2001, Proceedings of the 34th Annual Hawaii International Conference on System Sciences.

[4]  Mary Sumner,et al.  Seeking strategic advantage in the post-net era: viewing ERP systems from the resource-based perspective , 2004, J. Strateg. Inf. Syst..

[5]  Vijay Sethi,et al.  Developing Measures for Assessing the Organizational Impact of Information Technology: A Comment on Mahmood and Soon's Paper , 1993 .

[6]  D. J. Wu,et al.  Investment in Enterprise Resource Planning: Business Impact and Productivity Measures , 2002, J. Manag. Inf. Syst..

[7]  K. R. Hammond.  Human judgment and social policy , 1980 .

[8]  Patrick Y. K. Chau,et al.  Factors used in the selection of packaged software in small businesses: Views of owners and managers , 1995, Inf. Manag..

[9]  D. McFadden.  Conditional logit analysis of qualitative choice behavior , 1972 .

[10]  A. Tversky,et al.  Subjective Probability: A Judgment of Representativeness , 1972 .

[11]  Henry Mintzberg,et al.  The Structure of "Unstructured" Decision Processes , 1976 .

[12]  Erik Dane,et al.  Exploring Intuition and its Role in Managerial Decision Making , 2007 .

[13]  J. Louviere,et al.  Some probabilistic models of best, worst, and best–worst choices , 2005 .

[14]  J. Walsh.  Managerial and Organizational Cognition: Notes from a Trip Down Memory Lane , 1995 .

[15]  Amrit Tiwana,et al.  Relative importance of evaluation criteria for enterprise systems: a conjoint study , 2006, Inf. Syst. J..

[16]  William R. Avison,et al.  World views and crystal balls , 1976 .

[17]  J. L. Bower,et al.  Business policy: text and cases , 1973 .

[18]  John R. Rossiter,et al.  The C-OAR-SE procedure for scale development in marketing , 2002 .

[19]  Beverly B. Tyler,et al.  The effects of executives experiences and perceptions on their assessment of potential technological alliances , 1998 .

[20]  L. Thurstone.  A law of comparative judgment. , 1994 .

[21]  Jordan J. Louviere,et al.  Using a market-utility-based approach to designing public services: A case illustration from United States Forest Service , 2006 .

[22]  Thomas F. Gattiker,et al.  Understanding the local-level costs and benefits of ERP through organizational information processing theory , 2004, Inf. Manag..

[23]  Constance E. Helfat,et al.  Organizational Linkages for Surviving Technological Change: Complementary Assets, Middle Management, and Ambidexterity , 2008, Organ. Sci..

[24]  D. Street,et al.  Optimal and near-optimal pairs for the estimation of effects in 2-level choice experiments , 2004 .

[25]  H. Thomas,et al.  Competitive Groups as Cognitive Communities: The Case of Scottish Knitwear Manufacturers Revisited , 1989 .

[26]  Henry Mintzberg,et al.  Of strategies, deliberate and emergent , 1985, Strategic Management Journal.

[27]  José Esteves,et al.  An Updated ERP Systems Annotated Bibliography: 2001-2005 , 2007, Commun. Assoc. Inf. Syst..

[28]  Marinos Themistocleous,et al.  Benchmarking the benefits and barriers of application integration , 2001 .

[29]  Peter Weill,et al.  alignment: Learning , 2022 .

[30]  Y K ChauPatrick.  Factors used in the selection of packaged software in small businesses , 1995 .

[31]  A. Lederer,et al.  An Instrument for Assessing the Organizational Benefits of IS Projects , 1998 .

[32]  David J. Miller,et al.  Relating Porter's Business Strategies to Environment and Structure: Analysis and Performance Implications , 1988 .

[33]  Kenneth L. Kraemer,et al.  Executives’ Perceptions of the Business Value of Information Technology: A Process-Oriented Approach , 2000, J. Manag. Inf. Syst..

[34]  Vidyaranya B. Gargeya,et al.  Success and failure factors of adopting SAP in ERP system implementation , 2005, Bus. Process. Manag. J..

[35]  Frances J. Milliken,et al.  Executives’ Perceptual Filters: What They Notice and How They Make Sense , 1988 .

[36]  Atul Gupta,et al.  Enterprise resource planning: the emerging organizational value systems , 2000, Ind. Manag. Data Syst..

[37]  William F. McGhan,et al.  Using Conjoint Analysis to Evaluate Health State Preferences , 1999 .

[38]  Andrew Pettigrew,et al.  Strategy as Process, Power and Change , 2003 .

[39]  Peter Weill,et al.  An Assessment of the Contingency Theory of Management Information Systems , 1989, J. Manag. Inf. Syst..

[40]  Aleda V. Roth,et al.  Enterprise Resource Planning (ERP) Competence Constructs: Two-Stage Multi-Item Scale Development and Validation , 2002, Decis. Sci..

[41]  TaylorAlva,et al.  Organizational Linkages for Surviving Technological Change , 2009 .

[42]  Mo Adam Mahmood,et al.  A Comprehensive Model for Measuring the Potential Impact of Information Technology on Organizational Strategic Variables , 1991 .

[43]  Richard L. Priem,et al.  Is Organization Theory Obvious to Practitioners? A Test of One Established Theory , 2000 .

[44]  Ephraim R. McLean,et al.  Measuring e-Commerce Success: Applying the DeLone & McLean Information Systems Success Model , 2004, Int. J. Electron. Commer..

[45]  Frantz Rowe,et al.  ERP project dynamics and enacted dialogue: perceived understanding, perceived leeway, and the nature of task-related conflicts , 2001, DATB.

[46]  Peter B. Seddon,et al.  Assessing and managing the benefits of enterprise systems: the business manager's perspective , 2002, Inf. Syst. J..

[47]  D. Hensher,et al.  Stated Choice Methods: Analysis and Applications , 2000 .

[48]  Henry Mintzberg.  Strategy-Making in Three Modes , 1973 .

[49]  Yannis Bakos,et al.  Information Technology and Corporate Strategy: A Research Perspective , 2015, MIS Q..