A Comprehensive Framework for Classifying the Benefits of ERP Systems
Shari Shang, Department of Information Systems, The University of Melbourne, firstname.lastname@example.org Peter B. Seddon, Department of Information Systems, The University of Melbourne, email@example.com
This paper presents a framework for assessing the business benefits of Enterprise Resource Planning (ERP) systems. After analyzing the features of ERP systems, the literature on IT benefits, data from 233 ERP-vendor success stories published on the web, and interviews with 34 ERP cases, we have produced a consolidated framework of five benefit dimensions. This framework tries to classify the types of benefit that organizations can achieve by using ERP systems and provide a comprehensive foundation for planning, justifying, and managing the system. The framework focuses on benefits only, from the point of view of management as stakeholders; it does not consider costs.
According to AMR Research, total revenue in the Enterprise Resource Planning (ERP) software and services market in 1999 was US$18.3 B (Gilbert, 2000). ERP system implementation costs are often reported to be five to ten times the cost of software licenses (Davenport, 2000). If so, organizations world-wide spent something like US$90-180 billion on ERP systems in 1999. Most organizations that have implemented ERP systems expect to continue using them for many years.
ERP systems are integrated, enterprise-wide, packaged software applications that impound deep knowledge of business practices accumulated from vendor implementations in many organizations. ERP systems are evolving to incorporate new technologies, such as E-commerce, data warehousing, and customer relationship management. ERP software is a semi-finished product with tables and parameters that user organizations and their implementation partners configure to their business needs. Implementation of ERP systems therefore involves both business and IT managers who work together to define new operational and managerial processes.
If organizations around the world spent US$100B or more on ERP systems last year, what sorts of benefits did they, or can they, achieve? To answer this question, this paper presents a comprehensive framework of benefits that organizations might be able to achieve from their use of ERP systems. This framework provides a meaningful benchmark of ERP benefits for comparing benefits across different firms. The framework could be used as a good communication tool and checklist for consensus-building in within-firm discussions on benefits realization and development.
The Literature on ERP System Benefits
The focus of this paper is on the business benefits of ERP systems only, not the costs. Seddon et al. (1999) argue that is not meaningful to talk of benefits of IT systems without identifying the stakeholder group in whose interest benefits are judged. Our goal in this paper is to develop a benefits classification that considers benefits from the point of view of an organization’s senior management.
We were forced to develop our own classification of ERP system benefits because there do not appear to be any rigorous methods for comparing benefits from ERP systems across organizations. In the 1980s, Ives, Olsen, and Baroudi (1983), Davis (1989), Baroudi and Orlikowski (1988), and Doll and Torkzadeh (1988) developed a number of general-purpose measures of success of information systems. However, these measures are too general purpose for benchmarking. In addition, they all focus on benefits from the point of view of individual users as stakeholders, not management, so they are inappropriate for our purposes.
Our search for a way of structuring the benefits management might expect to gain from use of ERP systems began with a wide-ranging review of the IT value literature since 1970. The result of this stage was the list of five different types...
References: Baets, W. and Venugopal, V. " An IT Architecture to Support Organizational Transformation," in Information Technology and Organizational Transformation, Galliers, R. D. and Baets, W. R. J. (eds.) John Wiley & Sons Ltd, , 1998, pp. 195-222.
Baroudi, J. J. and Orlikowski, W. J. "A Short-Form Measure of User Information Satisfaction: A Psychometric Evaluation and Notes on Use," Journal of Management Information Systems, 4, 1988, pp. 44-59.
Brynjolfsson, E. and Hitt, L. "Is Information Systems Spending Productive? New Evidence and New Results," in 14th International Conference on Information Systems, Orlendo, Florida, 1993.
Brynjolfsson, E. and Hitt, L. "Productivity, Business Profitability and Consumer Surplus: Three different Measures of Information Technology Value," MIS Quarterly, 20, 1996, pp. 121-142.
Clemons, E. K. and McFarlan, W. "Telecom: hook up or lose out," Harvard Business Review, July-Aug, 1986, pp. 91-97.
Davenport, T. H. Mission Critical-- Realizing the Promise of Enterprise Systems, Harvard Business School Press, Boston, Massachusetts, 2000.
Davis, F. F. "Perceived Usefulness, Perceived Ease of use, and User Acceptance of Information Technology," MIS Quarterly, 13, 1989, pp. 319-340.
Doll, W. J. and Torkzadeh, G. "The measurement of End User Computing Satisfaction," MIS Quarterly, June, 1988, pp. 259-274.
Earl, M. J. The Management Strategies for Information Technology, Prentice-Hall, London, 1989.
Ferdows, K. and Skinner, W. "The sweeping revolution in manufacturing," Journal of Business Strategy, 8, 1987, pp. 64-69.
Gartner Group "1998 ERP and FMIS Study--Executive Summary," in Gartner Group, 1998
Ginzberg, M. J. and Reitman, W. R. Decisions Support Systems, North Hollan Publishing Co., New York, 1982.
Gorry, G. A. and Scott-Morton, M. S. "A framework for Management Information Systems," Sloan Management Review, 13, 1971, .
Ives, B. ; Olsen, M. and Baroudi, J. J. "The Measurement of User information Satisfaction," Communications of the ACM, October, 1983, pp. 785-793.
Jaikumar, R. "Post-industrial manufacturing," Harvard Business Review, , 1986, pp. 69-76.
Keen, P. G. W. Shaping the Future: Business Design through Information Technology, Harvard Business School Press, Cambridge, MA, 1991.
Keen, P. G. W. and Scott Morton, M. S. Decision Support Systems: An Organizational Perspective, Addison-Wesley, Reading, MA, 1982.
Lichtenberg, F. "The Output contributions of Computer Equipment and Personnel: A Firm Level Analysis," Economics of Innovation and New Technology, 3:4, 1995, .
Malone, T. B. and Yates, J. "Electronic Markets and Electronic Hierarchies: Effects of Information Technology on Market Structure and Corporate Strategies," Communications of the ACM, 30, 1987.
Markus, L. M. and Tanis, C. "The Enterprise Systems Experience --- From Adoption to Success," in Peter Drucker Graduate School of Management, Claremont Graduate University, Claremont, CA, 1999, pp. 43,
McKay, D. T. and Brockway, D. W. "Building I/T infrastructure for the 1990 's.," in Stage by stage, 9, 1989, pp. 1-11,
Niedman, F. ; Brancheau, J. C. and Wetherbe, J. C. "Information systems management issues for the 1990s," MIS Quarterly, December, 1991, pp. 86-96.
Peters, T. and Waterman, R. In search of Excellence, Harper and Row, New York, 1982.
Pine II, J. B. Mass Customization : the new frontier in business competition, Harvard Business School Press, Boston, Massachusetts, 1993.
Porter, M. E. and Millar, V. E. "How Information gives you Competitive Advantage.," Harvard Business Review, 63, 1985, pp. 149-160.
Rackoff, N. ; Wiseman, C. and Ullrich, W. A. "Information systems for competitive advantage; implementation of a planning process," MIS Quarterly, 9, 1985.
Rockart, J. F. and DeLong, D. W. Executive Support Systems: The Emergence of Top Management Computer Use, Dow-Jones Irwin, Homewood, IL, 1988.
Seddon, P. ; Staples, S. ; Patnayakuni, R. and Bowtell, M. "Dimensions of Information Systems Success," Communications of AIS, 2, 1999.
Smith, F. W. " The distribution revolution: Time flies at Federal Express," in Time-Based Competition: The next Battleground in American Manufacturing, Blackburn, J. D. (eds.) Business One Irwin, Homewood, IL, 1991, pp. 237-238.
Venkatraman, N. "IT-Enabled Business Transformation: From Automation to Business Scope Redefinition," Sloan Management Review, 35, 1994, pp. 73-87.
Victor, B. and Boynton, A. C. Invented Here, Harvard Business School Press, Boston, Massachusetts, 1998.
Vitale, M. R. "American Hospital Supply Corp. The ASAP System," Harvard Business School Case Study, March, 1986, pp. 1-17.
Weill, P. Do Computers Pay Off?, International Center for Information Technologies, Washington, D.C., USA, 1990.
Weill, P. and Broadbent, M. Leveraging the New Infrastructure : How Market Leaders Capitalize on Information Technology, Harvard Business School Press, Boston, Massachusetts, USA, 1998.
Zani, W. "Blueprint in MIS," Harvard Business Review, November-December, 1970.
Please join StudyMode to read the full document