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What Happens after ERP Implementation: Understanding the Impact of Interdependence and Differentiation on Plant-Level Outcomes Author(s): Thomas

F. Gattiker and Dale L. Goodhue Reviewed work(s): Source: MIS Quarterly, Vol. 29, No. 3 (Sep., 2005), pp. 559-585 Published by: Management Information Systems Research Center, University of Minnesota Stable URL: http://www.jstor.org/stable/25148695 . Accessed: 29/10/2011 12:07
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Gattiker & Goodhue/After

ERP

Implementation

_ Quarterly What Happens After ERP Implementation: the Impact of Inter Understanding and Differentiation dependence on Plant-Level Outcomes1
phase has occurred. Organizational information processing theory states that performance is influenced by the level of fit between information mechanisms and organizational con processing text. Two importantelements of this context are among sub interdependence and differentiation

By: Thomas F. Gattiker Department of Networking, Operations, and Information Systems College of Business Boise State University 1910 University Drive Boise, ID 83725
U.S.A.

units of the organization. Because

TomGattiker@boisestate.edu Dale L. Goodhue Department of Management Terry College of Business University of Georgia Athens, GA 30602
U.S.A. Systems

Information

when interdependence is high and differentiation is low. Our model focuses at the subunit level of the organization (business function or location, such as a manufacturing plant) and includes intermediatebenefits through which ERP's overall subunit impact occurs (in our case at the plant

ERP systems include data and process integration, the theory suggests thatERP will be a relatively better fit

dgoodhue@terry.uga.edu

level). ERP customization and theamount of time since ERP implementationare also included in the model. The resultingcausal model is tested using a questionnaire survey of 111 manufacturing plants. The data support thekey assertions in the
model.

Abstract
We present a model of the organizational impacts of enterprise resource planning (ERP) systems once thesystem has gone liveand the "shake-out"
the accepting senior editor for this Carol Brown was the associate editor. paper. Judy Scott served as a reviewer. The second reviewer chose to remain anonymous. 1 Peter Todd was

Keywords: Organizational information processing enterprise systems, ERP, data integration, theory, interdependence, differentiation,manufacturing planning and control

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Introduction

_-_

_-_ _ _ _

the entire enterprise (Davenport 1998). Further more, companies that implementthesystems have theopportunityto redesign their business practices imbedded in the software (often using templates called best practices) (Scheer and Habermann 2000). Among medium and largecompanies, ERP adoption is approximately 75 percent formanu facturingand 60 percent in services (Scott and Shepherd 2002) and is80 percent among Fortune 500 firms(META Group 2004).

Enterprise resource planning (ERP) systems are commercial software systems thatautomate and integrate many or most of a firm's business processes. Sometimes called enterprise systems, ERP systems promise integrationof business processes and access to integrateddata across

highly interdependent?that is, very on other subunits?may benefit subunits that are very substantially. However, different fromtheother subunits inthe ERP imple mentation may incurcosts (such as suboptimal business processes or dependence on employee In brief,our supposition is that work-arounds). dependent since ERP systems provide integration and stan their impactwill be influenced by the dardization, between sub interdependence and differentiation units of the organization?as depicted inFigure 1.

that are

a Before introducing model designed to test these we discuss twoprinciples on which our viork ideas, on this topic is based. To effectively study this issue, itisappropriate to (1) focus on intermediate benefits at a local level,as opposed to the lev.I of the organization as a whole, and (2) take a post implementationfocus.

Tanis (1999), forboth researchers and executives, one of the key questions is ERP will investments in off? Several firm-leveleconometric studies pay (Anderson et al. 2003; Hitt et al. 2002) suggest answer is yes?on average. that the most likely However, the impacts vary from firm to firm. Therefore, theexecutive's next questions are likely to be, How can Imaximize the positive impact? How do I avoid theproblems? Is there some way topredict what the ultimate impactwill be for my firm?

However, while some firmshave achieved impres ERP systems, others have sive benefits fromtheir ingaining the benefits they experienced difficulty expected. Thus, as suggested by Markus and

Intermediate Benefits at Individual Manufacturing Plants


Barua et al. (1995) argue that truly understanding how IT investments create value for the organi zation requires (1) a fine-grained unit of analysis:
the business function, rather than such the as operations a whole, or and marketing, firm as

(2) a research model that includes the intermediate benefits or intermediate variables (p. 8) through which the functional impacts occur. Understanding the intermediate benefits (the second recommendation above) helps us explain why certain overall impacts do or do not occur. At the aggregate level, an ERP might help a firm survive because it leads to higher profits. How ever, this resultdoes not happen automatically? there must be pathways through which ERP causes higher profits (and causes some firms to achieve them toa greater degree than their peers). Conceptually, since ERP systems provide inte grated data and (arguably) so-called best practice business processes, key intermediatebenefits for ERP might include higher quality data fordecision making, efficiency gains in business processes, and better coordination among differentunits of

These questions are worth addressing. As an attempt to do so, we draw on organizational infor mation processing theory (OIPT) (Daftand Lengel 1986; Galbraith 1973; Goodhue et al. 1992; Miller 1992; Thompson 1967; Tushman and Nadler 1978). One of the definingcharacteristics of ERP is the extensive integration it provides among the subunits (such as manufacturing plants or different OIPT functional departments) of a business. will fitsome suggests highly integrated systems organizational subunits better than others?and are two that interdependence and differentiation influence the levelof fit. characteristics that might Specifically, when ERP is implemented, subunits

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Interdependence

\ \+

1 ERP

I-J-1

\ I

Intermediate J Benefits ERP1_J


1

* ^'Sd ERP overal


I benefits_|

Differentiation

Figure

1. Conceptual

Model

of ERP

Impact at the Local

Level

the firm. By studying the factors leading to these intermediatebenefits, and theextent to which each intermediatebenefit contributes to overall impact, we can better understand the pathways through which ERP does (and does not) help organi
zations.

interdependence between a particular plant and the other parts of the organization (e.g., other In plants) (Tushman and Nadler 1978, p. 616). keeping with our goal of understanding inter we adopt mediate variables at the functional level,

Following the firstrecommendation of Barua et al., we use individual manufacturing plants as our unit an information of analysis. If system is to have a transformative effecton organizations, long-lasting then a substantial portion of that effect probably will come fromthe technology's impacton the core value-adding activities of the company, such as operations, ratherthanon administrative functions (Barua et al. 1995). Within manufacturing, we focus on the manufacturing planning and control area (as opposed to quality, engineering, and so on), which includes developing a general produc tion plan, detailed material and capacity planning (e.g., MRP, CRP), and execution (i.e., purchasing and shop floor) (Vollmann et al. 1992).

the latter conceptualization. Similarlywe concep as tualize differentiation a propertyof an individual

plant-?as the levelof differencebetween thatplant and the organizational norm on a number of key characteristics, such as the volume and variety of more depth products produced (as we describe in when we introduceour differentiation hypothesis). Similarly, itisappropriate toapproach theoutcome variables froma local level of analysis. For most

information systems, some positive impacts will accrue globally and some locally. For example, a global ERP benefitcould be the abilityof corporate

accounting to close the books more quickly because all inventory and order status information
is on one database, rather than on numerous site

A local (plant) level of analysis is consistent with our theorybase. One can approach interdepen

dence fromthe firm level?as a propertyof organi zations (e.g., as the overall or average level of interdependence among all plants of an organi zation). Or one can approach the construct as a property of subunits?by considering the level of

plants?perhaps with decreased expediting and overtime as a result. These local impacts add up to form a substantial portion of the total global effects. Understanding local effects is necessary to understand how the overall benefits occur.

specific legacy systems. By contrast, a local benefit would occur ifERP provides plant per sonnel with better visibilityof orders fromother

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Post-implementation

Focus

Recent literature reviews (Dong et al. 2002; Esteves 2001; Jacobs and Bendoly 2003), suggest that most existing ERP research focuses on selection and implementation,not on ERP's post implementation impacts. Selection and implemen
tation are critical areas, and numerous valuable

have emerged, includingthe importanceof insights relationshipswith consultants, core team charac
teristics, proach, training business change approach, process management top management reengineering approach, support, ap user pro

paper, we believe there are three important intermediate benefits throughwhich ERP could deliver overall plant level benefits to firms: better information(data quality), more efficient internal business processes (task efficiency), and better coordination between differentunits of the firm (coordination improvements). Thus we show arrows from each of them to local level overall benefits. Below we explain our rationale for the key links inthemodel.

ject champion, user involvement, package choice, module choice, package customization, project
management,

Interdependence ERP Benefits

Influences

et al. 2002; Scheer and Habermann 2000; Sumner 1999). In addition to improving implementation success itself, these factors influence laterresults. A number of articles suggest also that ERP systems go througha post-implementation break inphase, in which performance may not be typical of the longer-termeffects that the organization might experience (Cosgrove Ware 2003; Markus and Tanis 1999; Ross and Vitale 2000). According to Staehr et al. (2002), however, the ultimate the impacts of ERP on the organization?once has been implemented and has been system
"shaken down"?are not as

clearly stated business case (Akkermans and van Helden 2002; Brown and Vessey 1999; Gefen 2002; Hirtand Swanson 1999; Holland and Light 1999; Hong and Kim 2002; Ng et al. 1999; Robey

implementation

approach,

and

OIPT states that, in order toprosper, organizations must resolve uncertainty. The amount and types of uncertainty vary from organization to organi zation and

include the stability of the external of environment, the predictability core processes, how tasks are subdivided, and the level of inter dependence among those subdivisions (Galbraith 1973; Thompson 1967; Tushman and Nadler 1978). Therefore an organization must select and deploy the subset of information processing mechanisms (hierarchies, different schemes of
departmentalization, lateral relations, computer

systems, etc.) thatfits the particular uncertainties that itfaces (Daft and Lengel 1986). ERP sys
tems can be viewed as a

Therefore, in this paper, we focus on explaining differences in impacts among plants that have been runningERP for longenough to be through the implementationand break-in phase.

thoroughly

researched.

information processing mechanism. Thus OIPT suggests ERP's impact depends, at least inpart, on the amount and types of uncertainties at hand. Early OIPT theorists (e.g., Galbraith 1973, 1977) focused on uncertainty at the company level. Tushman and Nadler (1978) moved the focus to the subunit level. They suggest that the impactof
an

particular

class

of

Research Dependent

Model Variables

_ --

Figure 2 shows our general model of the local impactof interdependence and differentiation. In shows several other control variables, addition, it which are suggested by the existing ERP litera ture. As we suggested in the introductionto this

unit, such as a plant,may depend on the level of interdependence between that plant and other plants in the organization: The greater the inter dependence thatone subunit shares with another, thegreater the need forthem to share information, one subunitmay conditions in because changes in some adjustment in the other. In such require
cases, each subunit's information processing

integrative

coordination

mechanism

on a sub

mechanisms must facilitate the exchange of infor

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Intermediate i-' j-1 Interdependence Differentiation *) I-1 _ H2_ H1 ! ; I-1 ^j ;^--^^^ Task

benefits j

efficiency

-^!

H6a

Customization ^^^
Time elapsed
since implementation _^1 !

; 1-'

I Coordination~^ I :_,?r.?w?-,??tr.
improvements

;
^^^ '-_--' Data quality

I-1

. I---1

H6b
;
! H6c^^

?-

^**J
. --

level overall benefits

Local (plant) I

^^^

_^H5

^^

^^

Figure

2, Research

Model

mation across

subunit boundaries within the organization, and therefore highly integrated mechanisms would be beneficial (Tushman and Nadler 1978). For example, when two manu facturing plants within an organization serve a common customer or when one plant provides inputs to another plant, the level of interdepen dence between these two plants ishigh. Changes inthemaster production schedule or inventories of one plant may necessitate adjustments by the other plant, and an information system that integrates the data of both plants may thus
improve coordination.

capacity requirements planning system). However, when interdependencies such as these are not present or are less strong (i.e.,when A and
B do not have common materials, customers, and

or

so on), opportunities for ERP-enabled coordination


improvements are not as prevalent.

This perspective is proposed by Goodhue et al. (1992). Specifically, theirfirst proposition states, All other things being equal, as the inter dependence between subunits increases, the benefits of data integrationwill
increase and the amount of data

Applying this reasoning to ERP, we would expect ERP to improve coordination between one plant and others in the business because ERP increases information links among plants (and among other subunits inthe business). However, the degree to which these stronger information linksproduce a valuable benefitwill vary among organizations and even among plants within an organization because interdependence varies among them. For example, when plantA provides plant B with materials (such as a stamping plant supplying materials to an assembly plant), ERP

tion in rationalorganizations should also increase (p. 301). Note that this isa two-partproposition. Wybo and Goodhue (1995) investigated the second half of the proposition (i.e., thatgreater interdependence should lead to greater data integration)on the assumption that the first half was correct. However, they found no significant relationship. This makes a compelling case for explicitlytesting the first half of Goodhue et al.'s first proposition, which we do here. Inotherwords, is itreally true that the benefits of data integration increase with interdependence?

integra

enables A to lookat B's projected material needs (perhaps by accessing B's material requirements planning module), and ERP enables B to antici pate shipment quantities and late deliveries (per haps by accessing As master production schedule

To apply this issue to ERP, our firsthypothesis states that interdependence influences thedegree

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towhich intermediatebenefits from implementing ERP are realized. Specifically, In a plant within an ERP imple mentation, the greater the interdepen dence of one plant with other plants in the organization, the greater the ERP related coordination improvements accrued by that plant. H1a: we If were comparing plants thathad implemented ERP with plants thathad not,we would investigate the presence of an interaction between inter However, because we dependence and ERP. intendto test thisassertion only inplants thathave all already implemented an ERP (ERP implemen tation is held constant) what is conceptually a moderator effect becomes a main effect. more Inaddition to improving coordination, ERP is to enhance task efficiency when inter likely dependence is high. Without integratedsystems, interdependentsubunits need to resortto relatively time consuming methods of sharing information with one another (fax, telephone). By contrast, ERP can provide instantaccess to information, making employees more efficient.The more inter dependent plants are, themore ERP will improve
efficiency.

must also consider the possibility that therecan be a poor fit between an ERP and an individual plant's business conditions.

plants in those organizations (Davenport 1998). Existing research has documented that the fit between an ERP's standard processes and the organization's business conditions isan important issue (Somers and Nelson 2003). However, we

cope with itsparticular circumstances. By con trast, ERP systems tend to impose standard processes and data on organizations?and on the

Once organizations have chosen a particularERP vendor and system, they must configure2 the system by considering theoverall corporate needs. (We are assuming, fornow, that the organization avoids customization, bolt-ons, and the like.) In otherwords, standard processes and data defini tions are defined tomeet the needs of the overall

company and itsplants?a typeof intra-company consistency which many organizations consider beneficial (Cooke and Peterson 1998; Kumar etal. 2002; Mabert et al. 2000). However, because all subunits are subject to the same set of configu rationdecisions thatare made at the organization one plant has very different business pro level, if cesses than the majority, that plant may experi ence problems because the ERP gives itlittle local level flexibility (Gattiker and Goodhue 2002; Jacobs and Bendoly 2003; Jacobs and Whybark 2000).
For example, a high-volume repetitive manu

ating relationship becomes a main effectwhen ERP implementation is held constant. Thus H1b (which isparallel to H1a) states, In a plant within an ERP imple mentation, the greater the interdepen dence of one plant with other plants in the organization, the greater the ERP H1b: related task efficiency improvements accrued by that plant.

Again,

what

is conceptually

a moder

plantwas part of an ERP implementation facturing a in division that mostly consists of job shops. The ERP system apparently was configured mainly to fitthe needs of the job shops. Using the system created substantial operational problems for the "oddball" plant (Gattiker 2002). Another example comes fromsubunits that con sume or ship discrete inventoryitems thatneed to be denominated incontinuous units (e.g., feet or

Differentiation Influences ERP Benefits


when Tushman and Nadler (1978) also stated that an individualsubunit's local task characteristics or its local external environment differ from other organizational subunits, then thatsubunitmay well require unique, nonstandard systems inorder to

is the 2Configuration or modifying tables Configuration allows aries limited by what the software.

process of setting software switches that define workflows and so on. changes only within certain bound the vendor includes in capabilities

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pounds on hand rather than just the number of units on hand). A plant thatproduces engineered beams and cuts them to unique lengths foreach customer order (i.e., not to stock) has this inven In toryproblem (Gattiker and Goodhue 2004). advance of customer orders, the plant produces blanks ina few lengths,such as 48 feet. When a customer order arrives, beams are then cut to the customer-specified length. They are cut from over from material left either a new blank or from
when earlier orders were cut. Because

different part numbers indifferent plants). Misfits thatare both deep-structure and pervasive are the most problematic. Clearly many misfits between an ERP configurationand a manufacturing facility are deep structuremisfits because
fundamental tion processes). processes Furthermore,

theydeal with
transforma are pervasive

(i.e., physical many

remainders, the lengthsof leftoversare random, and thus there are no part numbers for them. Thus itisdifficult inventory for control personnel to track the lengths of individual leftovers in inven tory.This isa problem because, forexample, it is not enough to know that there are 40 linearfeetof a particular type of beam in remainder inventory. The plant must have a system that "knows" the

they are

because many plant-level business processes are tied to the products and markets forwhich the plant is responsible and these are determined by company-level strategy (Berryet al. 1991; Miller 1981). We do realize thatnot all misfits are deep
and pervasive. Certainly some intra structure

company process differences resultmerely from managerial preferences or divergent evolutionary drifts (forexample, there are rarely fundamental grounds for two plants to use inconsistent part

individual lengths of each remainder in stock, because, for example, having two 20-foot-long an sections will not allow the plant to fill order fora customer who needs a 24-foot continuous length. The plant has a relatively uncommon inventory

Inorder tomake our focus numbering systems). on deep structureand pervasive misfits clear, we as define differentiation between-plant differences thatare related to products produced and markets
served.

the plant ispart of trackingproblem. Therefore, if an ERP implementationthat includesmostly plants that produce standard-length discrete products (and thus do not have the same inventory may well experience difficulties. challenge), it

In general, when differentiation (product and market-related differences) between plants is greater, it is less likelythat a system that stan dardizes data and processes among plants will meet all plants' needs equally well. Thus, differ entiation moderates the degree towhich benefits from implementingan ERP are realized. As with

a When an ERP system isnot a good fitfor plant's unique business processes, making do might the compromise performance (for example, engineered lumber producer might rely on time consuming physical stock-checks before accepting Or plant personnel might revert to orders).
informal,

H1, when ERP implementation is held constant, this a moderating effect translates into main effect of differentiation.Specifically, In a plant within an ERP imple H2a: mentation, the greater the differen tiation of a plant from the other plants inan organization, the lower the ERP related coordination accrued by that plant. improvements

meet local needs but sheets, legacy systems) that do not facilitatecoordination beyond plant bound aries (Gattiker and Goodhue 2004; Soh et al. 2000). Eitherway there isa performance drop. Such misalignments are a serious problem (Berry and Hill 1992). Sia and Soh (2002) categorize ERP misfits as surface (having to do with user interfaceand the like) or deep structure (funda

nonintegrated

systems

(e.g.,

spread

mental misfit between the model/package and reality)and as pervasive (exogenous, stemming fromexternal sources) or non-pervasive (such as

H2b: In a plant within an ERP imple mentation, the greater the differen tiation of a plant from the other plants inan organization, the lower the ERP accrued

related task efficiency improvements by that plant.

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Translating differentiation(which OIPT theorists have conceptualized invery general terms) to the manufacturing domain requires turning to the product-process literature (Hayes andWheelwright 1979; Hill 2000; Miller 1991; Safizadeh et al. 1996; Van Dierdonck and Miller 1980), which states that forgood performance, a plant's processes should

We conceptualize customization as changes to the ERP system tomeet the needs of an individual plant. At this point we are considering ERP customization ingeneral terms ratherthan looking at the various means by which these systems
could be customized

be aligned with the characteristics of the products that the plant produces and of themarkets that it serves. Table A2 ofAppendix A enumerates key
strategy and process charac

These are fundamentaldimensions along teristics. which plants within an organization can and often do differ from one another (Hayes and Wheel wright 1979; Hill 2000; Taylor 1980; Turner 1998).

manufacturing

Ifthis type of customization is indeed an etc.). effective way todeal with local-levelERP-business misalignment (perhaps due to high differentiation), we then would expect tosee a positive relationship between customization and intermediatebenefits fromERP, especially when local differentiationis high. Thus, In a plant H3a (control hypothesis): within an ERP implementation, cus tomization moderates the negative of an individual plant's differ impact entiation on coordination improve ments from ERP accrued to that plant

(e.g.,

bolt-ons,

code

changes,

Control Variable: ERP Customization


Organizations have a varietyof options when they recognize that the process options within their ERP system are notwell aligned with the business process that the organization desires. These are Table 1. detailed in Options 1 through 3 can be carried out at the discretion of the plant, but may entail costs asso ciated with "makingdo" with a suboptimal process and/or sacrificing some of the potential func of tionality the ERP (Soh et al. 2000). Option 4 typically requires global-level authorization and
resources

In a plant H3b (control hypothesis): within an ERP implementation, cus the negative tomization moderates of an individual plant's differ impact entiation on task efficiency improve ments of ERP accrued to that plant.

Control Variable: Time Elapsed ERP implementation

Since

ISmanagement, programming expertise fromthe company's IS department) because thisapproach entails customization to the ERP itself. Customization (option 4 in the table) may be a between theorganization's response toa lackof fit business processes and those envisioned by the ERP package designers. However, customization could potentially also be used to bring the ERP with the requirements of a nonstandard into line
plant. Customization may, therefore, be an effec

(e.g.,

endorsement

from the company's

Several process models (Markus and Tanis 1999; McAfee 2002; Ross and Vitale 2000) suggest that ERP impacts on the organization may improve with time. A survey by CIO Magazine (Cosgrove most companies do not Ware 2003) suggests that achieve theanticipated benefits afterone year, but themajority do reap them beginning inthe second appears that companies (and year. Ingeneral, it the subunits that make up those companies) may after imple experience a performance dip initially

tive strategy fordealing with the unique needs of in the the extremely differentplants discussed
section. Since we have a theoretical

previous include

interest in differentiation,our model


customization as well.

needs

to

mentation (Ross and Vitale 2000). However, often We expect this performance improves thereafter. improvement to apply to both of our focal inter mediate benefits: coordination improvementsand task efficiency. Although time elapsed does not relate directly to our OIPT theoretical framework, it isan important control variable. Therefore,

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1. ERP Misfit Resolution (adapted from Figure 1 inC. Soh, S. S. Strategies and Misfits: Is ERP A Universal Solution," "Cultural Fits Kien, and J. Tay-Yap, of the ACM (43:4), 2000, p. 50. Copyright ? 2000, ACM, Inc. Communications Table Reprinted 1 2 3 by permission.) (adopting the new operating processes embedded in Adapt to the new functionalityinERP

ERP)

Accept shortfall inERP functionality(compromising on the requirements of the organization) without touching the ERP scripts Workarounds to provide the needed functionality Manual ("by hand" rather than using a computer system) an with the package ERP alternative (finding alternativeway to perform the function Customization to achieve the required functionality with add-on module or throughquery/report writer Non-core customization (interfacing facility) Core customization to amend the base code

In a plant H4a (control hypothesis): within an ERP implementation, greater time elapsed since ERP implementa tion is associated with greater coordi nation improvements of ERP accrued to that plant. In a plant H4b (control hypothesis): within an ERP implementation, greater time elapsed since ERP implementa tion is associated with greater task of ERP improvements efficiency accrued to that plant.

benefits.

This

is the basis

for the following

hypotheses: In a plant H5a (control hypothesis): within an ERP implementation, greater data quality is associated with greater coordination improvements for the
plant.

H5b (control hypothesis): In a plant within an ERP implementation, greater data quality is associated with greater task efficiency for the plant.

Control Variable:

Data Quality

Overall Benefits at the Local Level


Our ultimate dependent variable is local (plant) level overall benefits, which we define as the overall business impactof ERP on thatplant. Our model proposes that the overall benefits at the plant level will come substantially through the intermediatebenefits of task efficiency,coordina tion improvements, and data quality. Thus we present the followinghypotheses: In a plant within an ERP imple mentation, greater task efficiency is associated with greater local (plant) level overall benefits from ERP. H6a:

Inattempting todiscern the impacts of interdepen on dence and differentiation coordination and task it is importantto control forthe efficiencybenefits, effects of data quality on those benefits. Without data quality,many other benefits froman ERP will not likely occur (Vosburg and Kumar 2001). More specifically, without data quality (accurate and
relevant data), an organization is severely con

strained in the coordination and task efficiency can achieve from its ERP system. ERP benefits it provides easy access to corporate-wide data, but if that data is inaccurate or irrelevant to the business process inthe subunit, therewill be few

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H6b: In a plant within an ERP imple mentation, greater improvements in coordination with other subunits are associated with greater local (plant) level overall benefits from ERP. H6c (control hypothesis): In a plant within an ERP implementation, greater data quality is associated with greater local (plant) level overall benefits from ERP.

in43 items used tomeasure the 8 constructs in themodel as shown in Appendix A.

Data Collection
solicited from two Survey participation was different groups ofAPICS members and fromuser associations of two of the major ERP packages. APICS is theAmerican Production and Inventory Control Society, whose members are primarily materials and scheduling personnel at plant and
central levels, as well as consultants and em

and Data Analysis

InstrumentDevelopment

__ _ _

-!

Instrument Development
was developed to measure A survey instrument the constructs needed to test the above hypoth eses. We used Bagozzi's (1980) framework to develop and validate the instrument. Inorder to develop clear definitionsof theconstructs and their interrelationships in a well-specified theoretical context,we reviewed relevant bodies of literature, and we conducted four studies of ERP systems that were running in individual manufacturing plants infourdifferent companies (Gattiker2002; This Gattiker and Goodhue 2000, 2004). sharpened our understanding of how the relevant constructs occurred in practice, allowing us to
define and operationalize them accurately.

ployees of IT vendors. The user groups mostly consisted of IT staffbut did include some opera tions people. Potential participants were either sent or given a pencil and paper survey with a traditional cover letter,or were given an e-mail solicitation inviting them to visit a Web site with a parallel version of the survey. ITconsultants and non-operations people were removed from the pool of responses, as were individuals who indicated that their plant had not implemented ERP. This left 129 usable responses. (In six
cases, averaged two surveys to make from three the same plant were per responses?one

plant.) Surveys fromAPICS mailing lists and APICS list-servesaccounted for81 percent of the
usable responses.

Since e-mail solicitations were sent to list-serves and the composition of the listserve subscribers
facturing academics, (practitioners, versus service, consultants, and so on) manu is unknown,

We borrowed questions from existing scales where As an additional means of ensuring that possible. the questionnaire items corresponded to the we conducted theoretical constructs as intended, in local manu interviewswith nine managers facturingfacilities. (The positions of these individ uals mirroredwell the job titlesof the respondents we latersurveyed.) During the process, these that practitioners filled out a prototype questionnaire of and were asked to explain their interpretation the items. verbal descrip We also elicited informal
tions of interviewees' business environments and

ERP systems, and we compared these to their responses to the questionnaire items. The inter view process resulted in refinements of many questionnaire items.These finalchanges resulted

computing a response rate is problematic. Our response rateon pencil and paper surveys sent to approximately 9 percent. mailing lists was However, even among the traditional mailing lists, we could not cull out companies that had not these and presumably implemented ERP, individuals had littlemotivation to return the survey. Since computing theoverall response rate (especially the response among companies with ERP) is problematic, we need to consider the we have a response bias. Indeed, possibility that we may well have a bias. Even for individuals in organizations that have implemented ERP, the out the survey is probably higher motivation to fill when the system is relativelysuccessful. Thus we might assume that our results are reflective of

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successful organizations thathave been relatively with ERP. We follow up on this notion in the
discussion section.

Sample Characteristics
Inthefinalsample, each of the following industries was represented by at least 5 percent of respon
dents: automotive, chemicals, consumer, elec

tronics,and other processing. We did not collect more than one plant per company. The data from number of plants in the ERP implemen average tations represented was 7.3. All of the companies in this sample had implemented manufacturing modules as part of theirERP system. Over 70 percent had the following applications: MRP/ scheduling, purchasing, shop floor control, and accounting. Over 25 percent includedengineering applications and human resources in their sys tems. Tables 2 through5 characterize responses on other characteristics. Of the responses, 21 percent were forpackages that do not have the instantname recognition of SAP or JD Edwards and dominant vendors. Although these packages are consolidated as "other" inTable 4, respon dents indicated their package name on the survey. We looked these up on the Web site that describes software offeringsby vendor inorder to ensure that they were indeed ERP systems.

exploratory factor analysis, each question must loadmore stronglyon itsprimaryfactor thanon its secondary factor. Our criteria forscreening items using EFA were (1) that the item load on the expected factor (i.e., load with the other items intended tomeasure the intended construct) and (2) that the loading on the primaryfactormust be substantially greater (a difference of .50 or more) than the loading on any other factor. Further more, we omitted any question thatdecreased the (Cronbach's alpha) of the scale ofwhich reliability itis intended to be a part. As discussed below, the survey items generally performed as intended. Appendix A contains thewording of all itemsand were dropped. indicates the items that For the first level (Table 6), the interdependence items loaded as intended. The questions for customization split into two factors. After re was clear that the focus of examining the items, it items 1, 4, and 5 was on customization per se, while for the other factor (tapped by questions 2 and 3) the focus was on plant level user parti cipation in the implementation. We therefore dropped the user participation factor because factor2, ratherthan the user participation factor, is consistent with our a priori theoretical description of customization (presented inthe research model section of the paper). For the second level (coordination benefits, data quality, and task efficiency) three factors were extracted (Table 7). Task efficiencyand coordi nation benefits separated cleanly. The questions on data quality included both questions on accuracy and questions on relevant data. These all loaded on the same factor. While other research has shown these to be two distinct our study apparently do constructs, respondents in not distinguish between the two. Two of the data relevancy questions had high loadings on a secon dary factor (a difference of less than .50 in loadings on the primaryand secondary factors). Thus, these two questions were dropped as problematic froma discriminant validity point of

efficiency forthe second level,and overall impact for the third level.We conducted an exploratory factoranalysis for each level,using theeigenvalue cutoffof 1.00 to determine the number of factors, In an and SAS Promax (oblique) rotation.

Measurement Validity of the Constructs


Because of the sample size (n 129), we opted to use exploratory factor analysis and Cronbach's alpha toestablish discriminantvalidityand internal consistency (reliability).Our model includes con structs at three levels as shown inFigure 1 above: interdependence and customization for the first level3;coordination benefits, data quality,and task =

and time elapsed since implementation differentiation were in the exploratory not included factor analysis. is a formative construct as opposed to a Differentiation reflective construct, so there is no presumption that the indicators are correlated (Bollen 1991; Chin 1998). We have a single indicator formonths since implementation.

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Table

2. Frequency Breakdown Size in Employees by Company Company Size 1-1,500 29 1,500-10,000 10,000+_34 37 Percent of Total

Table

Respondents

3. Frequency Breakdown by Job Function (Plant Level) Job Function Percent of total 16 43

Scheduler/Planner/Buyer

Materials Manager/ Purchasing


Manager

Operations Manager Plant Manager 11

18

Other Manufacturing Position_12

Table

4. Frequency Software Vendor by Software Vendor

Breakdown

Table

ERP Since 5. Time Elapsed at Plant (ince "go-live") Implementation Percent of Time Elapsed (months) Plants

Percentof
Total SAP 39 19

ILess than 12 14.0

JD Edwards

QAD
Oracle Baan 5 5^ 5

12 to 17 217

18 23 I to
24 to35
36 to 47

V52
20.2

1Z4 10.9

IPeopleSoft Other_21

48 to 59 60 to

72_T8_

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2005 Vol. 29 No. 3/September MIS Quarterly

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Table

6. Rotated

Factor

Pattern:

Model

Level

1 > 1 Factor2 Factor3

3 Eigenvalues FactoM

CUSTOM 1_ CUSTOM2
CUSTOM3 |

0.07738 0.03274
-0.00112

[ | I |

0.90494 0.07652
-0.08509

"| "| "|


"[

-0.15156 0.85956
0.88020

CUSTOM4R j CUSTOM5 j INTER1 j INTER2 I


INTER3 INTER4 INTER5 INTER6R INTER7

| |

-0.07728 -0.00813 0.91012 0.81811


0.90680 0.90052 0.91360 0.83909 0.88784

0.86658 0.86773 -0.02091 -0.01940


-0.02740 -0.01864 -0.00149 0.03367 0.04985

0.00775 0.14714

-0.14463 0.10844
0.03864 -0.07271 -0.07501 0.04090 0.14168

Table

7. Rotated

Factor

Pattern:

Model

Level

2 > 1 Factor2 -0.09558 -0.08159 -0.03781 0.06097 0.11760 0.02913 Factor3 0.12735 0.02030 -0.01071 0.01805 0.32895 -0.09850

3 Eigenvalues FactoM ACdR ACC2 ACC3 ACC4 REL1 REL2R REL3R REL4R COOR1 COOR2 0.65325 0.84943 0.83765 0.81136 0.44071 0.82871 0.70097 0.63481 0.05358 -0.00108

0.06017 -0.03251 0.02294 0.87135 0.22796 0.00005 0.09741

CQQR3
COOR4 tsk_ef1 tsk_ef2

-0.04262
-0.00890 0.07944 -0.02698

""

0.87745

0.93462
0.92983 -0.10779 0.07292 -0.10807 0.85610 0.85658 ~

0.01362

TSK_EF3R tsk_ef4

-0.04889 0.17651

-0.06006 0.10620

0.84416

0.67323

"" |

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8. Rotated Model Level 3

Table

Factor

Pattern: > 1 0.92118 I 0.90726 0.67203


u ii.iimiimjl.i.nil i i

1 Eigenvalue
?????????????????????????

IMPACT1 impact2 impact3r

mi .i).in

IMPACT4

>

0.93242

Table

9. Construct

Reliabilities

and Descriptive No. of items 3 .93 7 .95 .934

Statistics Cronbach's Alpha Mean (1-7 scale) Std. Dev.

Construct Local level (plant) overall benefit Interdependence with other plants Improvements incoordination with other plants Customization Task efficiency
Data

4.7 1.3 4.2 1.8 4.4 1.7

3 .86

4.1

1.7

4 .86 4.6 1.4

quality_6__38_4_7_1.2

For the third level (overall impact), one factor was extracted, as expected (Table 8). Three of the questions loaded very highlyon that factor (above .90), and one question (impact3r) had a loading of .67. view. After EFA, we examined all of the remaining the questions to determine if value ofCronbach's alpha for any construct would be increased by dropping the question. Only one item (impact3r, the problematic itemmentioned in the previous paragraph), failed on this criterion so this item was dropped. Cronbach's alpha and descriptive statistics for the final scales appear inTable 9. The constructs have strong discriminant validity and reliability.

Testing theHypotheses
Several researchers (Markus and Tanis 1999; Ross and Vitale 2000) have presented com pelling evidence that performance dips imme diately after ERP "goes live" inan organization.

They suggest that organizations require sub stantial time to work through this initialshake down phase and that performance during this is not indicative of an organization's phase longer-term ERP situation. Thus, we might expect plants that have been runningERP less than 1 year to have any number of unpredictable problems that mightmask the systematic, longer lived impacts thatour model considers. There fore, inorder to focus on ERP impacts after the

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break-in period, we excluded 18 plants whose ERP systems had been inplace for less than 1 year. The 1-year cutoff is somewhat arbitrary. However, limited empirical evidence (e.g., Cos grove Ware 2003; McAfee 2002) seems to suggest that one year is sufficient time for would have to be more carefully Any other cutoff justified,and the ERP literature lacks the empi rical data to provide such justification. Table 10 displays the correlations among the constructs in the post 1-year data set. We tested the hypotheses using regression (SAS version 8.2, PROC REG procedure).4 A com posite was created foreach reflexive construct which factoranalysis was performed) (those for scores. by summing the factor-weighted indicator A straight sum was used fordifferentiation.The months elapsed since ERP implementation is a The regression resultsare shown single indicator. in Table 11.5 Statistically significantcoefficients are highlighted inFigure 3. Table 12 summarizes the results by hypothesis. The model contained fourhypotheses suggested
organizations to overcome break-in problems.

implemented. This was supported for coordi nation improvement (H1a), but not supported for task efficiency (H1b). H2a and H2b stated that differentiation negatively influences thedegree to which intermediate benefits are realized when ERP is implemented. This was supported for both of the intermediate benefits we examined: coordination improvement (H1a) and task efficiency (H1b). H3a and H3b suggested that customization would moderate the effect of differentiation. The data do not support this; however, there is a significantmain effect of customization on task efficiency.The model also controlled for time elapsed ERP since implementation (H4) and data quality (H5). Of these, only data qualitywas a significantpredictor of coordination improvements, but both were significant predictors of task efficiency. Finally, coordination benefits, task efficiency and data quality were all significant predictors of overall local impact,supporting H6.

Post Hoc Analysis


Time Elapsed Since ERP implementation

by organizational information processing theory: two for interdependence and two fordifferentia tion. Hlaand H1b stated that interdependence influences the degree towhich coordination and task efficiencybenefits are realized when ERP is

The ERP literature contains considerable discus sion about the effect of the time elapsed since implementationon various ERP outcomes. Our
data allow us to do some

modeling (SEM) tools such as LISREL to test the


There iscertainly disagreement about this. hypotheses. Different authors recommend different minimum sample at least 100 (Hair et al. 1998), at sizes for LISREL: freedom times of 55 or lower (MacCallum of parameters 1996), or 5 estimated Therefore we used et al. to be LISREL with

n 4The resulting sample size (n = 129 minus 18 equals = about using structural equation 111) raises questions

least 150 (Bollen 1989), at least 200 fordegrees of


the number

Due to the difficulties in interactions inSEM, we ran main modeling effects only regressions and compared them to a main effects only SEM. The SEM results indicate a good fit to the data (RMSEA .065, SRMR .071, RNI .964, NNFI are substantively estimates .959), and the parameter equivalent to the results found in the regression model.

and Edwards (Bagozzi 1998). we However, regression. compared results as a double-check. regression

the interactions (which are nonsignificant) 5Removing does not substantively the results. change

each coefficient. Each coefficient can be inter preted as the incremental impactof being inthat age group, compared with being in the 0 to 11 month age group. In otherwords, plants inthe 12 to 23 month group have task efficiency scores

the full data set with only these categorical variables as antecedents to task efficiency. The results are in Table 13 and Figure 4, which plots

this issue inorder to provide some potentially useful informationto future researchers. Our original analysis showed that timeelapsed since ERP implementation isa significant antecedent of task efficiency.To further we thiseffect, explore the observations intofive categories segmented (using (1,0) coding) based the number of years elapsed since implementation(Oto 11months, 12 to 23 months, etc.). We ran a regression using

exploratory

analysis

on

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Table

10. Correlation Overall

Matrix Coord

(n

111) Data Q Interdep Differ Custom Time

Task Eff

Overall Coord Task Eff DataQ Interdep .34 .77 .71 .11 .22 .22 .81 .60 .03 .02

Differ
Custom

-1.65
.11
Time_.10

-.03
.17
-.07_.29

-.25
.12

Tl6
-.04
-.02

^10
.14
-.10_.01

.16
.07_

Table

11. Regression p Value of Regression

Results Adj R2

(n

111)
Standardized Unstandardized

Dependent Variable

Independent Variables
Interdep Differ

Regression Coefficients
.81 -.09 .07 -.06 .01 .19 .04 -.19 -.01

Regression Coefficients
.44 -.06 1.41 .10 -1.27 0.28 .01 3.72.22 0.55 .02 -2.67 -.09

tValue
15.31 -1.78

p Value if Significant
< < .001 .05

P00rd Improvement

0.000

0.71

pnnrH Customization DiffXCustom. Time elapsed DataQual Interdep

<

.001

0.000

0.48

Differ

<

.01

Task Efficiency

Customization DiffXCustom.
Time elapsed

.14 -.09
.30 .57 .15

2.03 .15 1.32 -.01


4.34 .09 8.16.48 .09 2.73 .001 < .001 <

< .01
< < .001 .001 .01

DataQual Local (plant) level overall Coordlmprov 0.000 0.71 TaskEff_.52_.44_Sm_<

benefitS_DataQual_?6_?5_5.61

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2005 Vol. 29 No. 3/September MIS Quarterly

Gattiker Goodhue/After & ERP Implementation

I ,_,

. .

" I -

Intermediate

mechanisms .

Interdependence_

.81*** -09* \^^^ ^^*

.-.
^ Coordination

Differentiation ~ "

I ._I_. ^k_.

improvements ^\.15** ' i A ^^\_ ^??s.


l^^^ Q***

\s^ I_K " I

-.19**

Customization \i4*\ I_I ^^


Time elapsed
since

\
X.57 ^"^ I_I

Data quality \ I_,_I

F?

_;_^

>"

benefits < .05

Local (plant) level overall

I I
|

.30*** ^\*|
___^

^^ Task efficiency ^^
-

** p

***

< 01
<

I implementation Figure 3. Overview

nni

of Significant

Regression

Coefficients

(Standardized)

Table

12. Results

by Hypothesis Supported Hypothesis Results Yes a. Coordination Improvements b. Task efficiency X~~ a. Coordination Improvements b. Task efficiency X a. Coordination Improvements X ~ b. Task efficiency a. Coordination Improvements X b. Task efficiency X a. Coordination Improvements b. Task efficiency X a. Coordination benefits b. Task efficiency~F~
_c. Data quality_X_

No X

H1

Interdependence -> greater intermediate benefits Differentiation -> lower intermediate benefits DifferXCustomization -> greater intermediate Time elapsed benefits_ -> greater intermediate benef,ts

H2

H3 _

H4

H5

Data quality -> greater intermediate benefits Intermediatebenefits -> greater local (plant) level overall benefits

H6

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Table

13. Time Elapsed

Efficiency(n

Since

ERP

Implementation

as an Antecedent

to Task

129)
Coefficient (improvement over 1-12 month

Category (years elapsed since ERP implementation group) 12 to 23 months 24 to 35 months 2.62 3.96

36 to 47 months 5.16 48 or more months 5.44 = = Dependent Variable: Task Efficiency;Adjusted R2 0.10 ; p < .01; n 129

s _^_^_^_^_^_^H
A il 13 ? 2

__-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-__-_-_-_-_-_-_-_-_-_-_-_-_-_ __________________________________________________________________________

____________________________________

_^_^_^_^_^_^_^_^_^_^_^_^_H
___________________^_______________H _-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-!

__-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_

1 _^_^_^_^_^_^_^_^_^_^_^_^_^_^_H
_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-___ ___-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-__-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_i

1-11

12-23 I

24-35

3&47

48-60

Months since

ERP "go live"

I _._._._._. .

Figure 4. Effect of Time Elapsed

Since

ERP

Implementation

on Task

Efficiency

thatare 2.67 points higher than those in the 1 to 11 month group. Plants in the 24 to 35 month group have scores 3.96 points higher; and so on. These results clearly indicate that performance improves over the first year?increasing year by
year but at a decreasing rate.

Note that the adjusted R2 in Table 13 is0.10. As a point of comparison, we added the other

constructs from our a priori research model predicting task efficiency (interdependence, differ entiation, customization, and data quality). With these constructs added to the regression model in Table 13, the adjusted R2 jumps to .42. These results are instructive. A number of published articles have indicated thatERP impacts become increasinglypositivewith time.Our results support this. However, this analysis shows that elapsed

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time is far from thewhole story. By adding inter dependence, differentiation,customization, and data quality,we explain four times as much of the variance intask efficiencyas we can explain with timeelapsed alone.

uncorrected for multiple comparisons, none of the were significant six interactions when corrected.

* "differentiation time" and "interdependence * were significant (p < .05)when number-of-plants"

Additional Antecedents We

Tested

Discussion

We added these possible control implementation. variables one by one to the a priori regression models in Table 11. (We used dummy coding for categorical variables). Each variable was tested separately for effect on coordination improve and plant level ments, data quality, task efficiency, overall benefits. We had no a priori notions about the directionalityof effects so we used two-sided tests at p = .05. None of the potential predictors were significant, even without correcting for multiple comparisons. Inaddition, we investigated the effect of several possible interactions. Firstwe investigated inter actions between time elapsed since ERP imple mentation and our focal constructs of interdepen The question of interest dence and differentiation. here is whether the coordination or task efficiency impacts of interdependence or differentiation all. Beyond change with time?four interactions in these, we explored the possibility of two other interactions involving interdependence: (1) an interaction between interdependence and the number of plants in the ERP implementationand (2) an interactionbetween interdependence and the number of ERP modules. Each of these could be expected to increase coordination benefits or task efficiency.

tested the impact of several other possible explanatory factors: firmsize, division size, plant size (allmeasured as number of employees), ERP vendor, specific modules implemented,number of modules implemented,and number of plants inthe

Our model shows that, among plants that have cleared the implementationhurdle, task efficiency, coordination improvements, and data quality = explain a tremendous amount (R2 .71,Table 11) of the variance in overall plant level benefits. Further we explain a substantial amount of the variance intwoof these three predictors of overall plant level benefits.6

Differentiation explains a significant amount of plant-to-plantvariation inboth of the intermediate benefits we sought to predict (coordination improvements and task efficiency). Interdepen dence only affects coordination improvements. However, the cumulative impacts of interdepen dence and differentiationon plant level overall

benefits are roughly equivalent to one another (Multiplying the standardized regression coeffi cients on the path from interdependence to local level overall benefits inFigure 3 above yields .81 x .15 = .12. Doing the same on the paths from to differentiation local level overall benefits yields
.09 x .15 + .19x .52 = .11).

We suggested thatone way to respond to distinct local level needs is through ERP customization. However, our results do not show that customi zation moderates thateffectof differentiation. On the other hand, our findingsdo suggest thatERP customization (as a main effect) can improve local efficiency.We should point out thatour power for the interaction analysis is less that .30 (effectsize of approximately .015). Inotherwords, there isa less thanone inthree chance thatour sample size one exists. could detect a significant interaction if

comparisons (.05 divided by six interactionterms). Although the effect on coordination benefits of

Ineach case we added the interactionsone at a time to the baseline regression model in Table 10. To avoid getting significant results by chance, we used a threshold of p < .05 adjusted for multiple

the possi 6ln the data collection section, we discussed toward relatively successful bility of a bias inour sample ERP The relationships we findmay be implementations. most valid among such plants.

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ERP Implementation Gattiker Goodhue/After &

Continuing to examine the intermediatebenefits, task efficiency increases with the amount of time elapsed since ERP implementation. Data quality affects both coordination improvementsand task efficiency.

vidual subunit within the company are also impor tant. The development of a measure of differen tiation among manufacturing plants isan important measure could bene contribution.Of course, this fitfromadditional testingand refinement. To furtherrelate our study to other ERP scholar ship, we compare our perspective and results to the suggestions of Markus and Tanis (1999). They consider three theoretical perspectives which one could view ERP: rationalactor, through external control, and emergent process. They

Contributions

toAcademia

According to a number of literaturereviews (e.g., Dong et al. 2002; Esteves 2001; Jacobs and Bendoly 2003), the majority of published ERP research is descriptive or prescriptive. These studies have amassed valuable findings,but there is also a need to place the ERP phenomenon in the context of existing theoretical frameworksand to generate and test hypotheses.
We have provided a large-sample, cross-sectional

advocate the third perspective because unpredic table events (such as project champion or project leader departures) and external factors (such as vendor failure) can seriously affect ERP at any stage in its lifecycle. On itssurface, our study seems to contradict Markus
We average across

and

Tannis's

assertion.

many

unpredictable

study that investigates relationships posited by previous OIPT researchers. Tushman and Nadler that interdependence and (1978) proposed should affect the fitbetween parti differentiation cular informationprocessing mechanisms and particular companies or subunits. Goodhue et al. (1992) applied these ideas toa particular informa Our tionprocessing mechanism: data integration. study confirms the relationships posited by these
earlier scholars. The non-finding of Wybo and

events and, using only a few predictor variables, we are able to explain a large portion of the variance in ultimate impact?at least in one we remember that our But if functional area. survey data may have a response bias that focuses us on those firms that have successfully negotiated the difficulties of implementation, it becomes clear thatour findingsdo not necessarily contradictMarkus and Tannis's assertions. Their
focus was primarily on implementation success,

Goodhue (discussed earlier) regarding the absence of a relationship between interdepen dence and managerial decisions to implementdata makes our findings on the impact of integration on and differentiation data integration integration outcomes particularly important for scholars OIPT. interested in within theorganization Our focus on differentiation adds to the body of ERP-organization alignment research (Hong and Kim 2002; Koh et al. 2000; Sia and Soh 2002; Soh et al. 2000; Somers and This stream has taught the Nelson 2003). research community much about misfits, their
sources,

where

is emergent process perspective essential, because itisso hard to predict arguably implementation results inadvance. Our focus is on the impacts of those ERP systems after they are successfully implemented. Our results sug gest that a rational actor perspective is justified when studying successful ERP systems.

an

Contributions

toPractice

At the beginning of thispaper, we invokedMarkus and Tannis's executive, who asks, "WillERP pay off?"While there isalready some evidence (e.g.,

ever, most of this research has focused on the alignment of the assumptions intheERP package or with the firm division?treated as a single unitof misfits between analysis. Our results suggest that theorganization's ERP configurationand the indi

their severity,

and

their resolution.

How

want to understand why ERP results vary from company to company. Clearly the first part of the
answer is implementation practices?an area

the studies by Hitt et al. and Anderson et al. dis cussed earlier) that on average the answer is "yes,"we suggested that the executive will also

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others address but we do not. However, our model explains much of the plant-to-plant variation in ERP impacts among plants that have imple mented ERP successfully. The influenceof interdependence suggests that it is a mistake to expect large coordination-related benefits to accrue automatically fromsuccessfully ERP, even though these benefits are implementing highly touted by vendors and in the trade press. The level of interplant interdependence varies among and within organizations; therefore, the potential for reaping coordination-related benefits from ERP varies as well. This findingmay be particularly instructive for firms that implement ERP mainly for technical reasons (e.g., replacing aging infrastructure). In such cases, collateral impacts, such as coordination benefits, may not Wybo automatically materialize. Put differently, and Goodhue (1995) suggest that managers have not based decisions about integrationon inter dependence; our study suggests that theyshould.

measured customization directed at making the ERP fitbetterwith the organization as a whole. with time is Our findingthatERP benefits improve because itruns counter to hints in the significant results fromHitt et al. (2002) about ERP benefits after implementation. Those researchers found that after implementation some performance indicators seemed to drop back toward previous levels. However, Hitt et al. are quite cautious

about this particular findingdue to theirfew "after implementation"data points (p. 84). ERP-enabled interplant coordination improve ments lead to local level overall ERP benefits. However, coordination benefits do not predict overall ERP benefits as strongly as do task efficiency and data quality (as the standardized regression coefficients inFigure 2 indicate). This limitedrole is surprising, since improving coordi nation among subunits isan often-cited motivation for implementing ERP. One possible explanation is that,at the plant level, the operational conse quences of the interdependence between plants have been well understood and addressed by existing practices, such as those typicalof just-in

show thatERP can Our findings fordifferentiation create operational difficulties for a subunit that differs from its peers in itsproducts and manu facturing processes. Certainly some local level about new information systems are rooted protests in reluctance to change, inpower dynamics, and so on; however, our results suggest that IS imple

menters should not dismiss out of hand managers who claim, "It will notwork here because we are
different."

time. Ifthat is the case, ERP systems may not add as much incremental coordination benefit within the production function (Flynn and Flynn 1999; Piszczalski 2000). However, we suspect thatcoordination-related benefits are more impor tant forother types of relationships?for example, between plants and sales or between engineering
purchasing.

and

While we do not findthatcustomization moderates we do find that cus the effect of differentiation, tomization by itselfhas an impact (as a main effect). This is important since exhortations and against customization are plentiful in industry

Limitations and Future Research


Our study examines varying levels of interdepen dence and differentiation among plants with ERP We did not attempt tomeasure different systems. levels of data integration. Testing a model that captures different levels of data integrationisan importantitemforfuture research. We focus at the local (plant) level. As we men tioned earlier, our analysis does not includeglobal costs and benefits, such as the ability to quickly answer corporate-wide questions involving multiple

academia (e.g., Pereira 1999). Note, however, we do not investigatewhether this benefit of that customization outweighs the initial and ongoing IT costs related to programming, potential future and other risks. Since differ upgrade difficulties, entiation does not influence the relationship between customization and benefits, we should acknowledge the possibility thatour questionnaire did not measure customization for the benefit of the individualplant (as we intended), but rather

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plants. Additionally, the plant level isnot an appro priate level of analysis forcapturing ITcosts such given the arguments of Barua et al. and others dis we believe that the cussed in our introduction, tradeoffs entailed in a local focus enable us to make worthwhile contributions. Our measures of customization consider the role measures that of thisvariable generally. Including distinguished between different customization strategies would have increased our under standing of customization and may have increased the likelihood of detecting a stronger statistical effect of customization. We also recognize that ERP packages may have more built-in flexibility and capabilities than the companies represented
in our data are programming and maintenance costs. However,

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Virtuous Cycles in ERP Implementation: A Case Study of InterrelationsBetween Critical Success Journal of Factors," European Information Systems (11), 2002, pp. 35-46.
Anderson, M. C, Banker, R. D., and Ravindran, S.

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our

goal

was

to

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Past research has suggested that, on average, ERP outcomes appear tobe positive at theorgani zation level. However, the effects of ERP vary considerably from company to company. We sought explore some of the reasons why. We argued thatgaining this type of understanding is facilitatedby understanding why some local level intermediate benefits do (and do not) occur. information processing theory Organizational The theorysuggests that inter this inquiry. guided and differentiationboth affect the dependence level of benefit thatoccurs fromdata and process integration.Our analysis of data from 111 manu facturing plants supports the notion that inter is associated with increased plant dependence level benefits from ERP while differentiation is associated with the opposite. Our data also show a positive role for customization (considered generally) and the amount of time elapsed since ERP implementation?two variables' that have been the subject of much discussion in the ERP
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About theAuthors
Thomas F. Gattiker is an assistant professor in the Networking,Operations and Information Sys tems Department at Boise State University, where he teaches operations management and procure ment/supply chain management (hewas formerly employed at Miami Universtiy). His research Journal ofProduction The International appears in

at istration the University of Georgia's Terry Col of Business. He has published in lege Manage ment Science, MIS Quarterly, Decision Sciences, Sloan Management Review and other journals, and is an associate editor for Management Science and a former associate editor fortheMIS Quarterly. His research interests include mea

isa professor and Department Dale L. Goodhue Head of theMIS Department, and theC. Herman and Mary Virginia TerryChair of Business Admin

suring the impact of informationsystems, the impact of task-technology fit on individual per formance, themanagement of data and other IS and the impactof ERP infrastructures/resources,
systems on organizations.

Appendix
Questionnaire
The

A
Items^ ^ ^^IHHHBHBB^H^HBBHBi

items used to test themodel are shown below, with theirsources, if any. Except as noted, each a Likertscale: 1 = stronglydisagree to 7 = stronglyagree. "R" indicates reverse scoring for question used on the the analysis. Instead of being sorted by construct, as they are below, the itemswere intermixed was measured with the single open-ended item, actual questionnaire. Time elapsed since implementation how long (inmonths) has ERP been running live at thisplant.

we identified Based on manufacturing strategy and manufacturing systems literature, and refineda list of criticalproduct and process characteristics (Table A2). Our practitioner interview described inthe process, refinements.For each characteristic on the list, survey methodology section of the paper, resulted infurther respondents were asked to describe how theirplant compares to other plants thatare a part of theirERP = = on implementation a nine-point response scale (1 plant has much less of the characteristic; 9 plant has we much more of the characteristic). Inaddition to our ex ante practitioner interviews, examined correla tions among the items inour data inorder to ensure that they related to one another ina fashion that is consistent with theory.The itemsperformed as expected except forvolume, which was dropped. In the as the item overall manufacturing volume ratherthanvolume per unit pretest,many practitioners interpreted

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Gattiker Goodhue/After ERP Implementation &

(volume per end itemor end configuration). We attempted to reword the item to solve this problem, but apparently we did not succeed. Table A1. Reflexive Survey Items Data Quality acc1 R acc2 acc3 acc4 rel1 rel2R rel3R rel4 The information fromthe ERP system has numerous accuracy problems thatmake difficult employees to do theirjobs (based on Goodhue 1995) for The information that the ERP system provides to employees in this plant isaccurate The data plant employees receive from the ERP system is true The ERP data thatplant employees (planners, supervisors, etc.) use or would like to use are accurate enough for theirpurposes (based on Goodhue 1995) The data that the ERP system provides isexactly what plant employees need to carry out theirtasks (itemdeleted) It is difficult plant employees to do theirjobs effectivelybecause for need ismissing fromthe ERP system they The data accessible to plant employees some of the data it

fromthe ERP system lacks critical information would be useful that (itemdeleted)

The ERP system provides the right data tomeet plant employees' needs Task Efficiency

time1 time2 time3r time4

Since we implemented ERP, plant employees such as buyers, planners and production supervisors need less time to do theirjobs ERP saves time injobs likeproduction,material planning and production management we have ERP it ismore time-consuming to do work likepurchasing, planning Now that and productionmanagement ERP helps plant employees
more productive

likebuyers, planners, and production supervisors to be Impact of ERP on the Plant

Overall Business impactI impact2 impact3r impact4 In terms of itsbusiness

impacts on the plant, the ERP system has been a success

ERP has seriously improved this plant's overall business performance From the perspective of thisplant, the costs of ERP outweigh the benefits (Item Deleted) ERP has had a significantpositive effect on this plant ERP Customization to Meet Local Plant Needs with this plant The ERP system was altered to improve itsfit The ERP implementation team was responsive to the needs of this plant (itemdeleted) Individuals fromthisplant had a great deal of influenceon how the ERP system was set-up. (item deleted) A standard version of the ERP softwarewas implementedwithout changes being made to fitthe particular requirements of this plant When the ERP system was being implemented in this plant, the package was changed to bettermeet the needs of this plant

customI custom2 custom3 custom4r custom5

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Table

A1.

Reflexive

Survey

Items (Continued) Interdependence with Other Plants

InterI Inter2 Inter3 inter4 inter5 Inter6r Inter7

To be successful, this plantmust be inconstant contact with these other plants would Ifthis plant's communication linksto these other plants were disrupted things difficult. quickly get very exchanges with these other plants are essential forthis plant to Frequent information do itsjob Close coordination with these other plants isessential for this plant to successfully do itsjob Information provided by these other plants is critical to the performance of this plant (based onWybo and Goodhue 1995) This plantworks independentlyof these other plants The actions or decisions of these other plants have importantimplicationsforthe operations of this plant (based onWybo and Goodhue 1995) Improvements inCoordination with Other Plants ERP helps this plant adjust to changing conditions within these other plants ERP has improved this plant's coordination with these other plants fromthese other plants ERP makes thisplant aware of importantinformation helps this plant synchronize with these other plants

cb1 cb2 cb3 cb4_ERP

Table Volume

A2.

Differentiation

Items

Number of units produced monthly per model or configurationor formulation (item dropped) The number of different model numbers, configurations or formulationsproduced
The number of different active

Variety
Part number

complexity BOM complexity Postponeme nt strategy Design stability NPI's Mfg. Cycle time Lot control Dominant
technology

finished goods part numbers or finishedgoods code numbers Number of levels inthe typicalbillofmaterials

part numbers

or material

code

numbers,

excluding

The degree towhich products are made to customer specifications, instead of to stock The average number of design changes per month The number of new design introductions month per The average amount of time thatpasses production and the time it iscompleted between the timean order is put into

or The need to identify segregate material by individualpiece or lotrather than number merely by part Amount of production activitydedicated to processing (blending, purifying,
converting, etc.) as opposed to assembly or fabrication.

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