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Abstract

When managers and stockholders consider making an investment in information technology (IT), as with any other investment, a major concern is whether this investment will add to the performance of their organization. However, it is difficult to identify the nature of the linkage between an investment in IT in general, and Enterprise Resource Planning (ERP), in particular, to an organization's performance. In this study we extend the work of Barua et al. , Lerch and Mangal, and Tallon et al. We develop a model to identify the value ERP applications add to Porter's organizational primary activities and the information systems (IS) applications related to ERP that help deliver added value through organizational characteristics. This new model should help in assessing the potential value of an ERP investment. We examine the relationship of ERP applications and organizational characteristics to an organization's primary activities by a path analysis of more than 200 medium and large sized manufacturing firms. The results of this investigation indicate that organizational characteristics mediate the relationship between IS applications and the value ERP can add to the organizational primary activities. Consequently, organizations with different characteristics may add different value to their primary activities by using ERP applications. We found that each primary activity was supported by some, though not necessarily all, IS applications included in most ERP packages. We conclude that, an organization's characteristics are related to the return that may be gained from the use of ERP systems. We offer recommendations on how organizations can use ERP to add value to their primary activities, based on their organizational characteristics.

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