Resumen de la investigación: identifica de múltiples fuentes suposiciones de recursos y metodologías. Relaciona el conocimiento e información a los contextos específicos y globales del problema. http://0-search.proquest.com.millenium.itesm.mx/computing/docview/208156207/136BE92C0C346B484F8/17?accountid=11643 Ranganathan C, Brown CV. ERP Investments and the Market Value of Firms: Toward an Understanding of Influential ERP Project Variables. Information Systems Research 2006;17(2):145-161. This study contributes to the growing body of literature on the value of enterprise resource planning (ERP) investments at the firm level. Using an organization integration lens that takes into account investments in complementary resources as well as an options thinking logic about the value of an ERP platform, we argue that not all ERP purchases have the same potential impact at the firm level due to ERP project decisions made at the time of purchase. Based on a sample of 116 investment announcements in United States-based firms between 1997 and 2001, we find support for our hypotheses that ERP projects with greater functional scope (two or more value-chain modules) or greater physical scope (multiple sites) result in positive, higher shareholder returns. Furthermore, the highest increases in returns (3.29%) are found for ERP purchases with greater functional scope and greater physical scope; negative returns are found for projects with lesser functional scope and lesser physical scope. These findings provide empirical support for prior theory about the organizational integration benefits of ERP systems, the contribution of complementary resource investments to the business value of IT investments, and the growth options associated with IT platform investments. The article concludes with implications of our firm-level findings for this first wave of enterprise systems. [PUBLICATION ABSTRACT] Texto completo Traducir Texto completo Activar la navegación de términos de búsqueda Headnote This study contributes to the growing body of literature on the value of enterprise resource planning (ERP) investments at the firm level. Using an organization integration lens that takes into account investments in complementary resources as well as an options thinking logic about the value of an ERP platform, we argue that not all ERP purchases have the same potential impact at the firm level due to ERP project decisions made at the time of purchase. Based on a sample of 116 investment announcements in United States-based firms between 1997 and 2001, we find support for our hypotheses that ERP projects with greater functional scope (two or more value-chain modules) or greater physical scope (multiple sites) result in positive, higher shareholder returns. Furthermore, the highest increases in returns (3.29%) are found for ERP purchases with greater functional scope and greater physical scope; negative returns are found for projects with lesser functional scope and lesser physical scope. These findings provide empirical support for prior theory about the organizational integration benefits of ERP systems, the contribution of complementary resource investments to the business value of IT investments, and the growth options associated with IT platform investments. The article concludes with implications of our firm-level findings for this first wave of enterprise systems. Key words: business value; enterprise resource planning systems; enterprise systems; IT investments; market value; organizational impacts; project scope History: V. Sambamurthy, Senior Editor; Bruce Weber, Associate Editor. This paper was received on July 7, 2003, and was with the authors 15.5 months for 3 revisions. 1. Introduction As IT investments have grown to be the largest category of capital expenditures in United States-based businesses over the past decade, researchers have sought to document stronger evidence for IT contributions to business performance and firm value. Today, we have a growing body of research that seeks to establish a relationship between IT investments and either the potential value or the realized value of an investment at the firm level and at other levels of analysis (Dehning and Richardson 2002, Melville et al. 2004). Several researchers have argued recently that the business value of contemporary IT investments needs to take into account complementary resource investments, as well as the option value for future related investments. More specifically, IT investments typically involve additional investments in complementary organizational resources such as business process design, work flow, human capital, and other IT-business complementarities (Davern and Kauffman 2000, Melville et al. 2004, Wade and Hulland 2004). Some IT investments are also strategic technology positioning investments that provide growth options for future initiatives that can enhance a firm's competitive agility and innovativeness (Sambamurthy et al. 2003). The potential benefits and growth options from these additional resource investments will be incorporated into investors' valuations; thus, the market value of a firm provides a more accurate guide to a firm's change in business value than its balance sheet (Brynjolfsson et al. 2002, Chatterjee et al. 2002). This study focuses on one type of IT investment: enterprise resource planning (ERP) systems. Widely adopted by Fortune 1000 firms by the late 1990s (Davenport 2000), ERP packages were the first wave of a new kind of enterprise software that provides integrated modules for transaction processing support and real-time visibility to cross-functional business processes. When implemented across an enterprise, ERP systems provide a standard IT application platform for back-office functions that enables technical and business integration (Weill and Vitale 2002). ERP purchases for client-server architectures also position the firm for future business initiatives for IT-dependent supply chain and e-commerce capabilities (Taudes et al. 2000). However, we propose that not all ERP purchases have the same business value potential due to important choices about the ERP project that influence the integration potential and the option value for the initial ERP investment. The objective of this study is to build on prior theory as well as prior empirical IS research to hypothesize differences in stock market reactions to ERP investment announcements that contain information about three key project decisions: (1) the choice of modules (functional scope), (2) the choice of sites where the system will be implemented (physical scope), and (3) the choice of the vendor from whom to purchase the ERP package (vendor status). We test our hypotheses with public announcements of ERP investments over a five-year period (1997 to 2001) in which this type of enterprise system was a mature technology and the potential benefits were relatively well known. Based on our results, we argue that our findings have important implications for future research on the impacts of ERP investments and other enterprise system investments. 2. Theoretical Underpinnings and Prior IS Research Our study builds on recent theoretical perspectives on the organizational impacts of IT investmentsspecifically, the organizational integration potential of IT investments (Barki and Pinsonneault 2005) and IT platforms as option value generators (Fichman 2004). First we apply these theories to ERP investments, and then we review selected IS studies to identify prior empirical findings that can be used to develop our hypotheses. 2.1. ERP Systems and Organizational Integration Organizational integration (OI) is the extent to which distinct and interdependent components constitute a unified whole (Barki and Pinsonneault 2005). Firms that seek to integrate different components-functional units, business processes, people, technology, and partners-behave as a unified whole and achieve superior firm performance. Two kinds of OI have been associated with information systems in general, and ERP systems in particular: technical integration and business integration. Technical integration is fundamental to building an effective IT infrastructure; disparate or loosely coupled technologies impede collaboration among different organizational components. ERP packages can be used to establish an integrated and standardized IT infrastructure across internal organizational units, thus eliminating the need for custom application interfaces to transfer data to support decision making across an enterprise. Information systems also enable business integration. A hallmark of ERP packages is that they are designed to support cross-functional business processes, not just transaction processing for a single business function. Each ERP system module supports multiple process chains that represent a sequence of functional operations, and these chains are tightly coupled with process chains for other functions in other modules, resulting in high levels of process integration across interdependent organizational units (Park and Kusiak 2005). Investments in back-office ERP modules also hold the potential for data integration across an entire enterprise: Centralized data repositories capture the transactions processed by ERP modules within different business units at multiple sites. This results in an integrated database for multiple functions and business units, providing management with direct access to real-time information at the business process, business division, and enterprise levels. However, accomplishing this business integration typically requires significant investments in business process redesign, new workflows, and human skill sets-i.e., investments in complementary organizational resources in addition to the IT investment (Melville et al. 2004). 2.2. ERP Systems as Option Value Generators IS researchers have recently argued that some IT investments generate value as digital options. For example, IT platform investments can extend the reach of an organization's process capital by integrating activities and information flows across functional units, geographical locations, and external partners (Sambamurthy et al. 2003). An investment in a clientserver ERP platform therefore creates growth options for future investments in Web-based e-commerce and other e-supply chain functionality that could not be exercised by firms with a less modern integrated architecture (Taudes et al. 2000). The option value on an IT platform investment can be predicted based on four types of determinants (Fichman 2004): (1) strategic factors such as the radicalness of process improvements and the strategic importance of improved processes; (2) organizational learning factors such as knowledge barriers or burden of organizational learning required for implementation and the extent to which the knowledge gained has long-term strategic value (exploitable absorptive capacity); (3) technology bandwagon factors such as the prospects for vendor dominance; and (4) adaptation factors that yield increased payoffs over time. The option value increases as the variance in the potential business returns or the managerial flexibility for implementing a given IT platform, or both, increases (Fichman 2004). All four of these characteristics have been associated with ERP systems (Bendoly and Jacobs 2005, Brown and Vessey 2003, Davenport 2000, Markus and Tanis 2000, Shanks et al. 2003): (1) They are the first wave of enterprise-level software platforms that enable radical, cross-functional process improvements. (2) They require significant investments in complementary resources and organizational learning to overcome the risks of implementation failure and failing to achieve a competence in managing complex enterprise-level projects. (3) A bandwagon effect was documented within the Fortune 1000. (4) Multiphase ERP approaches and continuous improvement cycles have been associated with achieving long-term business payoffs. 2.3. Selected Empirical IS Research Our scanning of the prior research on the organizational impacts of IT investments yielded two sets of relevant studies: research on the impacts of ERP investments, and research on the market-value impacts of other types of IT investments. Table 1 summarizes five empirical studies that have examined the impacts of ERP investments on business value at different levels of analysis. The primary objective of the two ERP studies at the firm level was to provide statistical evidence of increased business value. Hayes et al. (2001) found positive market reactions for firms announcing ERP investments and Hitt et al. (2002) found higher financial performance and productivity gains, as well as higher market value, for SAP purchasers. The remaining three studies provided empirical support for increased value at the ERP module, business process, and subunit levels. Although theoretical explanations are not provided for the firm-level findings, the prior theories built on by researchers of intermediate-level benefits are congruous with the theoretical lenses we use here; that is, organizational information processing theory (Gattiker and Goodhue 2005) is congruous with an OI lens, and organizational learning theory (Cotteleer and Bendoly, in press) is congruous with an option value lens. In addition, the studies in Table 1 provide some preliminary support for the notion that ERP project variables influence the value of the ERP investment. Hitt et al. (2002) tested for differences due to functional scope and found that SAP purchases that included both value-chain modules (manufacturing modules) and support modules (finance, human resources, project management) had higher financial and market returns.1 Two studies document the potential importance of differences in value due to physical scope: Cotteleer and Bendoly (in press) provided evidence of using an ERP platform to integrate multiple geographic sites, and Gattiker and Goodhue (2005) found that greater business value is associated with ERP deployments that integrate plants with higher interdependence. These empirical findings on ERP impacts due to module selection and multiple sites are also consistent with prior conceptual studies.2 Finally, the study by Hayes et al. (2001) also provides some evidence that market-value increases are higher for ERP purchases from leading vendors. Table 2 describes five empirical studies that have examined the market-value impacts of other types of IT investments. As a group, these studies provide considerable support for a relationship between certain types of IT investments and increased market value at the firm level by the early 1990s. The finding that IT infrastructure investments yield higher market returns than application investments (Chatterjee et al. 2002) is most relevant for this study, because ERP investments would be classified as IT infrastructure investments.3 The authors' rationale for the positive market responses to IT infrastructure investments is that they are perceived by investors as platforms for value generation and growth over the long term-i.e., these investments generate growth options. 3. Development of Hypotheses Several prior IS studies provide preliminary support for the expectation that announcements about ERP investments in general will be associated with increases in market value at the firm level. From an OI perspective, ERP packages enable organizations to standardize on an IT platform with highly integrated modules for back-office transaction processing systems, contributing to a stable, shared application layer within an IT infrastructure (Weill and Vitale 2002). Unlike IT investments directed at single business applications, ERP systems also offer the potential for integrating business processes across multiple functions, as well as integrating distinct business divisions and geographic locations, to improve business performance. From an option value perspective, firms announcing ERP investments also signal their commitment to make radical improvements to their workflows, human resources, and process knowledge. An ERP platform adoption also generates growth options for future investments in e-commerce and other e-supply chain initiatives. This leads to our first hypothesis. HYPOTHESIS 1 (H1). The abnormal stock market returns to announcements of ERP adoptions will be positive. However, not all ERP purchases have the same organizational integration potential and option value due to three important decisions about the ERP system investment: its functional scope, its physical scope, and the ERP package vendor. 3.1. Functional Scope Here, the term functional scope refers to the types of ERP modules a firm chooses to purchase. Based on Porter's value chain concepts, ERP modules can be of two types (Brown and Vessey 1999): enterprisesupport modules (human resources; accounting and finance) and value-chain modules (materials management; operations; sales and distribution). The functional scope of an ERP adoption influences the potential value of a firm due to the technical and business integration potential of the investment. Hitt et al. (2002) found that purchasers of even one (SAP) module had greater market value than non-SAP purchasers, but found even greater returns for purchasers of multiple SAP modules. Furthermore, purchases that impact core value-adding activities are likely to have a longer-lasting impact on a firm's performance than modules for administrative activities (Barua et al. 1995). Barki and Pinsonneault (2005) made a similar inference based on Thompson's (1967) theory of work-flow interdependences. That is, sequentially and reciprocally, interdependent processes are more complex to integrate than pooled interdependences to integrate. Because most internaloperational (value-chain) activities are sequentially interdependent (Porter 1985), investments in two or more of these modules will have a greater OI potential than investments in enterprise-support modules. From an option value perspective, value-chain module investments will generate greater growth options due to the potential for more radical improvements in strategically important processes, greater investment in complementary resources, and organizational learning due to the implementation of cross-functional processes. In addition, value-chain modules serve as platforms for future digital investments in supply chain integration with trading partners and other e-commerce initiatives. Because stock market valuations are based not only on current earnings, but also on expected future options, ERP purchases that have a greater functional scope (more than one value-chain module) will be associated with greater increases in firm value. This leads us to our second hypothesis. HYPOTHESIS 2 (H2). The abnormal stock market returns will be greater for ERP adoptions with greater functional scope than for those with lesser functional scope. 3.2. Physical Scope Physical scope refers to the number of sites that a project envelops, defined here in terms of business divisions and geographies. Firms create distinct organizational components not only for different business functions, but also for different business products and for units operating in different geographical areas. For example, divisional entities may not behave as a unified whole due to accountabilities as separate profitand-loss entities, and business units (sales offices or manufacturing plants) within the same business division may not behave as a unified whole due to country differences (e.g., the United Kingdom versus Singapore). An OI lens thus implies that a firm that purchases ERP licenses for multiple business divisions or multiple geographic sites seeks to integrate processes and data across these distinct organizational components, as documented by prior ERP studies (Cotteleer and Bendoly in press, Gattiker and Goodhue 2005). By inference, then, these firms have a greater potential for OI benefits than firms that purchase ERP licenses for a single location. That is, business value is generated not only from business process changes, but also from integrating technology and business activities across multiple locations (Davern and Kauffman 2000). The option value of an ERP investment that involves multiple locations will also be greater because of the increased future options for digital process reach (Sambamurthy et al. 2003). An ERP investment is a positioning investment not only to scale up for future internal operations, but also to trade electronically with customers, suppliers, and other business partners. Increased organizational learning from implementing process changes across distinct organizational units, which are likely to require technology adaptations to accommodate exogenous and endogenous "misfits" (Sia and Soh 2003), will also increase the option value. Our own inspection of ERP adoption announcements reveals that information content about the number of sites or divisions to be involved in the ERP project is common. The inclusion of this strategically oriented, nonfinancial information signals the expected impact on firm value (Hayes et al. 2001). That is, multilocation projects (with multiple sites or divisions) have a greater potential for increased business performance gains than single-location projects. This leads to our third hypothesis. HYPOTHESIS 3 (H3). The abnormal stock market returns will be greater for ERP adoptions with multilocation projects than those with single-location projects. 3.3. Vendor Status ERP packages are typically viewed as infrastructure investments for the long term, with adopting firms investing in the vendor's ability to not only develop templates based on best practices, but also to provide initial and ongoing technical support, frequent upgrades with improved technical and business capabilities, and new modules to extend the range and reach of the IT platform. Prior IS researchers (Hayes et al. 2001) found greater market valuations for firms that announced investments in two top vendors (SAP and PeopleSoft) over the period from 1990 to 1998. From an OI lens, it could be argued that investing in an ERP package by a leading vendor would increase the likelihood that best practices for cross-functional business can be configured, thus increasing the potential for integration benefits. An option value lens provides an additional theoretical explanation. IT platforms from leading vendors are likely to have greater option value due to three bandwagon characteristics (Fichman 2004): prospects for the market dominance of the class of ERP systems, prospects for the market dominance of the specific package purchased, and the potential for increased value due to adoption of the same technology platform by other industry players. This leads to our fourth hypothesis. HYPOTHESIS 4 (H4). The abnormal stock market returns will be greater for adoptions of ERP packages by leading ERP vendors than by other vendors. Our study thus attempts to make several distinct contributions to the literature. First, we build on prior theory, as well as prior empirical IS research, to hypothesize differences in value at the firm level due to the potential influence of three ERP project variables. Second, we focus on the perceived value of the IT investment at the time of the adoption or purchase decision, based on two theoretical assumptions: (1) A firm's managers take into account potential gains in business value due to technical and business integration benefits as part of the initial ERP platform deployment, as well as the digital options gained for future related investments as they make ERP investment decisions; and (2) financial investors attempt to assess the potential for related investments in complementary organizational resources as well as the option value for follow-up initiatives in their assessments following the ERP investment announcement. Third, our study focuses on ERP investments during a period in which the capabilities for this first wave of enterprise systems were mature and well recognized: 1997 to 2001. By focusing on ERP announcements from this period, we are capturing investor responses to decisions about ERP packages for clientserver architectures that could include complete suites of integrated modules to support business processes for essentially all back-office functions. In contrast, the two prior ERP studies at the firm level (Hayes et al. 2001, Hitt et al. 2002) included ERP investments during a period when most vendors (e.g., PeopleSoft) offered only one or a few ERP modules and the packages were designed for mainframe architectures. 4. Methods An event study approach has been widely used to examine stock price changes to unanticipated business events. It is based on capital markets theory and the efficient-market hypothesis in which new information about a key corporate event, including an IT project that can potentially affect a firm's future earnings, is assessed by investors and is reflected in the changes to a firm's stock price (Binder 1998, Fama et al. 1969). A major strength of the methodology comes from the fact that, given rationality in the marketplace, a measure of the event's potential economic impact can be constructed using stock price changes observed over a relatively short period. It is therefore viewed as a complementary approach to capture linkages between managerial actions and market value creation for a firm (McWilliams and Siegel 1997). This method captures the overall assessment by a fairly large number of investors on the potential impacts of an event. However, stock price changes due to an event serve only as a consensus estimate broadly capturing future performance, rather than actual, realized benefits to the firm. An event study methodology has been widely used in strategy and finance, as well as in the IS studies in Table 2. The standard event study methodology was therefore selected to test our hypotheses about the market impact of ERP adoption announcements. 4.1. Data Collection and Screening The data used in this study were gathered from three sources: ERP investment announcements were drawn from the Lexis-Nexis Academic Universe database, and the stock market and financial data were obtained from the Center for Research in security Prices (CRSP) and COMPUSTAT databases. We assembled our data set of ERP announcements by performing a detailed search on the LexisNexis Academic Universe database that includes major newspapers and wired report services. We initially retrieved a few announcements using the terms "ERP" and "enterprise resource planning" to assess the patterns of word usage in the media and to develop a set of broader search terms. Our expanded set included terms such as enterprise systems and ERP systems, and their variants; names of ERP vendors and ERP packages; and verbs such as purchase, contract, license, install, etc. These terms and phrases was used to perform an exhaustive search on articles over a five-year period: from January 1, 1997, to December 31, 2001. This search yielded over 1,500 articles. All of the announcements were screened to ascertain the nature of the disclosures, and only those that dealt exclusively with ERP investments were included for further screening. The resulting set was further examined and reduced using multiple criteria. Only events for publicly traded firms for which stock market-related data were available in the CRSP database were retained. For each firm, we looked for other key corporate events (e.g., acquisitions, lawsuits, earnings announcements, senior executive changes, and other financial events) that could potentially confound the stock market reactions to ERP announcements. This search was done for a five-day period surrounding the event date. These procedures yielded a total of 159 ERP-related announcements for which we had usable market data from the CRSP database. These announcements were further screened to identify those that pertained to ERP adoption only. For instance, announcements about purchasing, selecting, or acquiring a system; signing a vendor contract; or a decision to implement in the future were classified as adoption events. Announcements about systems going live or having been installed, or completed projects, were classified as implementation events. Forty-three (27%) implementation events were eliminated, resulting in a total of 116 adoption announcements for this study. The demographics of the 116 firms in our sample are shown in Table 3 in terms of their size (revenue, employees), market capitalization, and industry. Our sample represents a diverse set of industry sectors, with almost two-thirds in nonservice industries. The distribution of the adoption events across the five-year period and characteristics of the announcements in terms of the three ERP project variables (functional scope, physical scope, ERP vendor) are also provided in Table 3. 4.2. Estimation Method The event window is the period over which the impact of the announcement on the stock price is measured. Usage of a shorter event period is recommended because longer windows can lead to considerable noise in the data (McWilliams and Siegel 1997). There can be a time lag between the event announcement that appears in the press and the timing of the actual announcement, with announcements over newswires occurring one day sooner than those in newspapers and other printed sources. Most of our announcements are newswire reports, rather than printed sources, so we would expect shareholder reactions to happen on the day of the event and one day following because some reports could be announced later in the workday, as captured in a two-day event window (0, +1). However, consistent with Chatterjee et al. (2002), and taking into account the possible event information leakage prior to the actual disclosure, we also use additional event windows with prior one- and two-day periods surrounding the event date to estimate CARs. The test statistic Z^sub t^sub 1^,t^sub 2^^ uses the standardized residual based on the standardized abnormal return (SAR^sub it^) that is computed by dividing firm i's abnormal return AR^sub it^, by its standard deviation. Z^sub ^sub t1^,t^sub 2^^ tests if CAR^sub (t^sub 1^,t^sub 2^)^ = 0 (see Im et al. 2001, McWilliams and Siegel 1997 for detailed computational procedures). 4.3. Measures The complete texts of the announcements were analyzed for the three ERP project variables and coded as described below. A sample set of adoption announcements and coding for these variables is provided in the appendix. 4.3.1. Functional Scope. Projects were coded as greater functional scope if they included (1) full suites (with or without a human resources module) or (2) a selected suite of two or more value-chain modules (with or without enterprise-support modules). Projects with only one value-chain module or one or more enterprise-support modules, or both, were categorized as lesser functional scope. 4.3.2. Physical Scope. Projects were coded as multilocation if they included more than one site or division. For example, a project was coded as multilocation (implying greater physical scope) if it was described as (1) enterprisewide and implemented for users at more than one site, (2) multidivisional but at the same geographic location, or (3) conducted at a division level but implemented for users at more than one site. No attempt was made to distinguish between multisite projects that were national in scope and those with multinational or global scopes. 4.3.3. ERP Package Vendor. During the dates of our sample (1997 to 2001), there were five leading ERP vendors: SAP, PeopleSoft, Baan, Oracle, and J. D. Edwards (Edmondson and Baker 1997, AMR Research 1999). ERP projects that involved purchases from one of these five leading vendors were coded as 1, and the others were coded as 0. There were four instances in our data set where firms had deployed a combination of ERP modules from multiple vendors. In all four instances, however, all the vendors belonged to the top-five leading vendor category. Therefore, these instances were also coded as 1. The two authors initially independently coded the announcements, based strictly on the information content of the announcement. Differences in coding were jointly reexamined and resolved. As seen in Table 3, 80 (69%) of the 116 adoption announcements were for purchases by one of the five leading vendors. All but three of the adoption announcements had content describing the functional scope, and all but 11 announcements had content describing the physical scope. The number of projects with greater versus lesser functional scope was almost equivalent (55 versus 58), but only 33 (28%) of the announcements were coded as single location. 4.3.4. Control Variables. Several of the IS studies that we reviewed found firm size and industry to be influential in realizing market returns from IT spending (see Tables 1 and 2). We therefore included size and industry as control variables. Two measures of firm size were used: the firm's revenues, and the number of employees in the most recent fiscal year ending prior to the event date (see Table 3). The logarithmic transformation of these measures was used in our analyses. Based on the two-digit SIC code, we identified the industry group. Firms with SIC codes between 40 and 89 were coded as 1 (services). Firms with SIC codes lower than 40 were coded as O (nonservices). 5. Analysis and Results Our results for the test of Hypothesis 1 are found in Table 4. The CARs along with Z-statistics are provided for all 116 ERP adoption announcements. Significant positive gains (1.47%) were found in the (0, +1) event period. Significant gains were also found for all of the expanded event windows: 1.38%, 0.83%, 1.49%, and 0.87% for the (0, +2), (-1,0), (-1,+1), and (-2, +2) event windows, respectively. Our findings from the parametric tests are also supported by the nonparametric tests: The number of ERP adopters with abnormal positive stock returns significantly outweighs those with excess negative returns in all event windows, although two of these are at the 0.10 significance level. Strong support is therefore found for H1. To test Hypotheses 2 through 4, we evaluated regression models with CARs using the event windows as our dependent variables for the two most significant windows for the adoption announcements ((0,+1) and (-1,+1)). As shown in Table 5, both models were statistically significant with adjusted R^sup 2^ values of 8.5% and 8.4%, respectively. The results for the functional scope and physical scope variables are positive in both models. Adoption announcements for ERP projects that had greater functional scope resulted in significantly increased positive returns than did announcements for ERP projects with lesser functional scope. Similarly, adoption announcements for ERP projects that included greater physical scope resulted in significantly increased positive returns than announcements for ERP projects that did not. Hypotheses 2 and 3 are both supported. However, the results for differences due to the status of the ERP package vendor were not significant. Hypothesis 4 was therefore not supported. Of the control variables, the industry variable was found to be statistically significant (p < 0.10) in one of the regression models. Our results for Model 1 indicate significantly higher market reactions to ERP adoptions in nonservice firms. The size variable was not statistically significant in either model. 5.1. Post Hoc Tests The additional post hoc tests in Table 6(a) for the two project scope variables provide further insights about our significant findings for Hypotheses 2 and 3. We divided our sample into two sets representing adoptions with greater functional scope versus adoptions with lesser functional scope, and evaluated the excess returns for these two subgroups for the same four event windows used for the Hypothesis 1 tests. Similarly, we divided our data into two sets based on physical scope (multilocation and single location) and did the same evaluations. These parametric test results show that firms announcing ERP adoptions with greater functional coverage, as well as adoptions with greater physical coverage, accrue significantly larger gains in shareholder wealth; these effects are significant for all five event windows. Finally, we subdivided the 105 adoption announcements that contained information about both functional and physical scope into four groups based on these two variables. Analysis of variance, followed by Scheffes tests, were performed to assess the differences in the CARs(0, +1) across these four groups. As shown in Table 6(b), these differences were statistically significant. The highest CARs (3.29%) were for the ERP adoptions with both greater functional and physical scope, with a significance level of 0.001. ERP adoptions with lesser functional scope but greater physical scope had positive CARs (1.02%) at the 0.10 significance level. In contrast, single-location projects with lesser functional scope resulted in a negative market response (-1.16%) at the 0.10 significance level. 6. Discussion The overall objective of this study is to contribute to our knowledge about the value of ERP investments at the firm level. Drawing on an organizational integration lens and options thinking logic, as well as prior empirical studies, we hypothesized that announcements of ERP adoptions would result in greater abnormal market returns. We also hypothesized that investors react more favorably to ERP adoptions that have larger functional scope (two or more value-chain modules) and larger physical scope (more than one site), as well as purchases from leading vendors. We then tested our hypotheses with stock market reactions to ERP adoption announcements during a five-year period (1997-2001) in which this type of enterprise system was a mature technology and the potential benefits were relatively well known. Our initial finding (H1) was that investors reward ERP adoption announcements: On average, ERP adopters gained 1.47% excess shareholder returns. ERP systems were the first wave of enterprise system solutions with integrated modules that enabled cross-functional integration across operational (valuechain) and administrative (enterprise-support) backoffice activities. During the early 1990s, many firms initiated business process reengineering projects only to discover that the systems that were needed to enable these process changes would require huge investments in IT resources to provide custom solutions. That is, many firms were willing to invest in organizational resources to change their business processes, work flows, and human skill sets, but they lacked the IT solutions to accomplish this type of business transformation. Announcements of ERP adoptions during 1997-2001 were therefore signaling to the marketplace that the firm was making a major IT platform investment to replace functional application silos with a more modern, flexible IT architecture that would enable real-time visibility to information across distinct organizational units. In addition, an ERP investment implied a firm's commitment to invest in complementary organizational resources to improve business processes (Melville et al. 2004) and increase business integration (Barki and Pinsonneault 2005). Furthermore, an ERP platform investment generated option value due to the potential for the strategic importance of the improved processes, and due to the organizational learning gained during the initial deployment that could be also applied to future enterprise system investments. As anticipated, investors viewed ERP adoption announcements positively. We also found strong evidence for differences in the value of the ERP investment due to the functional scope (H2) and physical scope (H3) of the ERP projects. Specifically, ERP projects that had a greater functional scope (two or more value-chain modules), a greater physical scope (multiple project locations), or both, received significantly higher increases in market value than projects of lesser scope. The market value for adopters announcing projects that had greater physical scope increased 2.34%; the market value for adopters announcing projects that had a greater functional scope increased 2.86%. These increases in market returns exceed those previously reported in event studies for other IT investments. As seen in Table 2, abnormal returns reported for innovative applications were 1.03% (Dos Santos et al. 1993), transformative investments were 1.51% (Dehning et al. 2003), and IT infrastructure investments were 2.01% (Chatterjee et al. 2002). Our post hoc findings provide some additional insights (see Table 6(b)). The 41 ERP projects with both greater functional scope and greater physical scope resulted in increased abnormal returns of 3.29%. That is, investors responded even more favorably to those ERP projects that had the greatest organizational integration potential-i.e., projects that included two or more value-chain modules that would be deployed at multiple locations. In contrast, the 24 ERP projects of lesser functional scope and lesser physical scope resulted in negative returns at the 0.10 significance level. Through an OI lens, the latter projects were viewed by investors as IT investments for which the potential business value gains would not be offset by the investment costs. Furthermore, by investing in only enterprise-support modules or a single valuechain module, or both, the ERP purchase would not generate the same option value for future investments. An investment in enterprise-support modules for a single location only, for example, can yield process improvements in the financial and human resource functions, but these are not value-chain activities that can yield significant gains in business value from either internal cost efficiencies or increased revenues. However, our post hoc findings also suggest that purchases with lesser functional scope that include multiple locations are likely to generate some value; this latter finding is consistent with the findings by Gattiker and Goodhue (2005). Thus, investors during the 1997-2001 period did not reward all firms that sought to take advantage of this first wave of enterprise system solutions. Rather, they rewarded those firms with ERP investments that held the potential for significant technology and business integration benefits not possible with earlier IT solutions, as well as those that were perceived to generate option value for related future initiatives. Contrary to our expectations, however, investors did not award increased returns to firms based on the status of the ERP package vendor (H4). One could therefore argue that by the late 1990s the ERP market had matured to the extent that both business and technical integration benefits could be achieved by suites of modules offered by many different vendors. Furthermore, the market dominance of a particular vendor at this time may not provide any distinct growth options to adopters, because other vendors could develop similar offerings. That is, by the late 1990s it was the not the specific ERP package choice that influenced the potential for OI, but the purchase decisions about the module scope and implementation sites. Finally, our industry control variable was statistically significant, but our size control variable was not. Our specific finding was that increases in market returns were associated with ERP investments by nonservice (versus service) firms. Two of the leading ERP vendor packages (SAP, Baan) had manufacturing origins, and this may have resulted in the perception that greater potential OI benefits from an ERP investment would accrue to manufacturing firms in general. Indeed, the three ERP studies in Table 1 that reported improved business value at intermediate levels were all based on outcomes within manufacturing firms. From an option value lens, this finding for the industry control variable may also reflect the greater potential for manufacturing firms to leverage an ERP platform for extended supply chain and other business-to-business capabilities in the future. The lack of a significant finding for firm size implies that an ERP investment during the period of our study held the potential for increased performance gains for both larger and smaller firms. By the latter half of the 1990s, special versions of ERP packages and new tools to help smaller firms were available. Therefore, irrespective of their size, both larger and smaller firms could benefit from ERP adoptions. Finally, one could argue that project size-in terms of potential users within an enterprise-would be expected to be an influential variable for investors, and that firm size would be a surrogate measure for project size. However, our study suggests that what is important for achieving business value from an ERP platform investment is not project size per se, but the degree to which distinct organizational units are being integrated via the ERP project. Investors are not positively responding to the potential benefits of large firms that are likely to be purchasing more licenses than small firms, just as they are also not influenced by projects that are larger just because they involve more modules. Rather, they are rewarding large and small firms that have an ERP project with two or more value-chain modules because these projects have an inherently different integration potential and option value than a project with two or more enterprise-support modules. Similarly, they are rewarding a project with licensed users at multiple locations because the project has an inherently greater integration potential, both after the initial deployment and with future investments, than a project with the same number of users at a single site. In summary, our results clearly support our hypotheses for differences in market value due to decisions about what ERP modules to purchase and what sites for which to purchase licenses. Specifically, our study provides strong empirical evidence that both of these early ERP project choices influence the market responses to ERP investment announcements. 6.1. Limitations Before discussing some implications of our study, several limitations need to be recognized. First, by adopting an event study methodology, the paper suffers from some of the broad limitations of using market-based measures for assessing firm value. Stock market returns, at best, capture the investors' perceptions of potential, future business performance. Our results therefore capture the potential value of ERP investments at the time of adoption, rather than the actual value realized from these ERP projects. Second, our analysis was based on public announcements about ERP adoptions in which a given firm might have provided only a partial picture of their ERP activities. For instance, a firm purchasing only one value-chain module from a vendor might intend to purchase other value-chain modules from the same vendor, or from a different vendor, at a future date, and might even make separate announcements. Our findings must be viewed in light of this potential for partial information disclosures. Third, the findings of our study are also limited by our data set. Though our sample size is comparable to some of the other event studies by IS researchers, a larger data set would have provided a richer perspective and allowed for more variables to be included. We also controlled for only two organizational context factors (size, industry), but other context variables not included in our research model could also potentially influence investor reactions to ERP investment announcements, including the general financial health of the firm or the IT role within the purchasing firm or industry. 6.2. Implications and Conclusion This article contributes to the emerging body of research on the impacts of ERP systems, as well as the broader research stream on IT investments and market value. Because this is the first known study to build on prior theory to predict the influence of multiple ERP project variables at the firm level, we believe that our findings have several important implications for IS research and practice. We found strong support for our predictions that ERP purchases that include multiple value-chain modules, as well as ERP projects that are implemented across multiple organizational divisions or multiple geographical sites, result in greater increases in market value of the adopting firm than ERP investments with lesser functional or physical scope. Our predictions were based on theoretical differences in the potential for organizational integration and the option value generated by ERP platform investments. Most ERP studies make reference to the integrated modules that are a hallmark of this first wave of enterprise system investments, yet only a few researchers have provided theoretical explanations for ERP impacts, and to date these have been for studies of intermediatelevel benefits. One of the implications of this study, then, is that the theoretical lenses we used for this study appear to provide useful grounding for explaining firm-level impacts for IT platform investments of this complexity. Furthermore, our findings suggest that unless both the functional scope and physical scope of ERP projects are taken into account, one cannot make valid predictions about firm-level benefits or meaningful analytical comparisons across projects in different organizations. In fact, our results provide evidence that investors do not expect some ERP projects to yield significant firm-level benefits, based on characteristics of the ERP purchase decision. However, ERP investments with greater functional and physical scope yield significant increases in market value that exceed the average returns from investments in single innovative or transformative IT applications, and IT infrastructure investments in general, as documented by prior IS researchers (Chatterjee et al. 2002, Dehning et al. 2003, Dos Santos et al. 1993). Furthermore, our findings suggest that announcements about firms investing in subsequent waves of enterprise systems-CRM and SCM systems-are also likely to generate increased market returns due to their organizational integration potential and the digital options that they generate. Similar to ERP systems, second wave enterprise-system projects that entail multiple value-chain (core) modules and multiple sites will have the greatest potential for generating business value. For example, CRM investments that include not just sales modules, but also marketing and customer service modules, and SCM projects that include dispersed manufacturing units and trading partners, are likely to yield greater firm-level value. Our findings also hold some important implications for the practitioner. First, greater contributions to business value are generated by enterprise system investments when there is a greater potential for technical and business integration across distinct organizational units. Single-site projects for modules that support administrative functions (finance, human resources) rather than value-chain activities may offer an acceptable ROI, but are much less likely to be able to exploit the technical and business integration potential of an ERP system and growth options from future initiatives that leverage an ERP platform. Multisite projects are likely to generate greater returns than single-site ERP projects involving the same modules. However, the greatest benefits accrue from ERP platform investments for multiple sites that also involve the purchase of two or more value-chain modules. For executives interested in enhancing shareholder value by announcing an enterprise system investment, which might also serve to generate buy-in to the project by multiple internal stakeholders, our findings suggest that investors will not merely be rewarding enterprise system investments per se, but will also reward the future returns from complementary investments in business processes and growth options that are associated with projects of significant functional or physical scope. In our study, the increased project risks associated with these more complex projects were not a concern; rather, investors rewarded the greater potential value of these investments with significantly higher market returns. For both researchers and practitioners, this study also suggests that the selection of a time lag between a project's go live date and the performance measurement date needs to take into account the physical and modular scope of the initial ERP project. That is, the complexity of the project in terms of the geographic dispersion and the nature of the interdependent components being integrated (e.g., pooled versus sequential) will influence the extent to which a given benefit can be realized over a specific period. Acknowledgments The authors thank the Senior Editor, Associate Editor, and the reviewers for their contributions in development of this manuscript. An earlier version of this study was presented at the 22nd International Conference of Information Systems in New Orleans, December 2001. Footnote 1 Hitt et al. (2002) classified SAP adopters into four levels based on the modules purchased. 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The resource-based view and information systems research: Review, extension, and suggestions for future research. MIS Quart. 28(1) 107-142. Weill, P., M. Vitale. 2002. What IT infrastructure capabilities are needed to implement e-business models? MIlS Quart. Executive 1(1) 17-34. AuthorAffiliation C. Ranganathan Department of Information and Decision Sciences, Liautand Graduate School of Business, University of Illinois at Chicago, 601 South Morgan Street, Chicago, Illinois 60607, ranga@uic.edu Carol V. Brown Information Systems Department, Kelley School of Business, Indiana University, 1309 East 10th Street, Bloomington, Indiana 47405, cbrown@indiana.edu Palanisamy R. Organizational Culture and Knowledge Management in Erp Implementation: an Empirical Study. The Journal of Computer Information Systems 2007 07;48(2):100-120. Enterprise Resource Planning (ERP) systems offer great promise to organizations wanting to gain competitive advantage by integrating the many elements that comprise business practice. ERP implementation is expensive and poses a big challenge for organizations because of its complexity. Knowledge management approach had been suggested to ensure effective ERP implementation. Four sets of "knowledge processes" were given in the knowledge management framework: (1) creation (2) storage/ retrieval (3) transfer, and (4) usage/application. Descriptive studies suggested a knowledge-friendly organizational culture as a major catalyst for the knowledge processes. This research examines the relationship between organizational culture and the four sets of "knowledge processes" in the ERP implementation context. Accordingly, this paper empirically tests the relationships among organizational culture, knowledge creation, storage, transfer and application in the context of ERP implementation. The empirical inputs were obtained through a questionnaire survey. The questionnaire was published using WebSurveyor Corporation's WebSurveyor software. The survey included responses from ERP project managers, project team members, IT professionals, CIOs, users, top management, vendors, and consultants associated with companies which had implemented the ERP systems. One-hundred and eighty two respondents from thirty-six different organizations participated in the survey. The survey results have shown that organizational culture influences the four sets of knowledge processes in the ERP implementation context. The implications for theory and practice are given. Keywords: Organizational culture, knowledge creation, knowledge storage, knowledge transfer, knowledge usage, ERP implementation. INTRODUCTION Enterprise Resource Planning (ERP) systems offer great promise to businesses wanting to consolidate and integrate the many elements that comprise business practice. The ERP systems are information systems used for enterprise integration and are enterprise online interactive systems that support cross-functional processes using a common database (54), that can integrate across multiple functional areas by focusing on processes, rather than the individual functions (64). ERP systems, as this typical description shows, are a "packaged business software system that enables a company to manage the efficient and effective use of resources by providing a total, integrated solution for the organization's information-processing needs" (25). Many organizations are using ERP systems to gain competitive advantage by integrating their business functional areas and providing the business with a consolidated holistic view of the enterprise and greater access to real time information (88). On the other hand, some are becoming wary of ERP solutions due to the enormous amount of time and money needed to implement these complex systems and their high risk for failure. The systems are so difficult to implement that, while some are successful, many have failed, causing multimillion dollar losses (67). The challenge of ERP solutions lie in implementation because they are complex, time consuming and expensive to implement (4, 54, 88). Many companies have enjoyed the benefits of such systems; but, many have also had to settle for minimum returns, complete abandonment of the system, or even bankruptcy (55). After implementing SAP AG's SAP R/3 system, Volkswagen AG experienced trouble delivering spare parts to car dealers (73). Sobeys Inc. and Hershey Food Corp. experienced similar processing problems resulting in stock shortages due to their SAP R/3 implementations (34, 73). Cases like these have sensitized the industry to the importance of understanding the problems that can arise and knowing how best to overcome them. These cases illustrate how complex and potentially dangerous ERP implementation can be. "The ERP journey can be amongst the most complex IT-related changes that an organization can undertake" (50). The software package alone runs in millions to buy while the implementation process can cost 10 times that much and take years to finish. Larger businesses may have the resources for such a costly implementation; however, a small to medium sized enterprise (SME) might have to tie-up all available capital in this process. Naturally, an implementation of this size and complexity will encounter problems, which is why the majority of ERP research has focused on implementation and pre-implementation issues. To mitigate the risks in ERP implementation, a knowledge management framework is suggested to be put in place to control the installation launch and fine tuning of the ERP. Businesses choosing to implement ERP must now consider utilizing knowledge management approach to ensure effective ERP implementation (64) and have to capture and share knowledge found within the organization (41). Besides, with the changing business environments, businesses need to capture and share knowledge at the nexus of relationships between parties (28). Knowledge management refers to identifying and leveraging the collective knowledge to help an organization to compete (90). Alavi and Leidner (3) give a knowledge management framework based on the view that organizations are "knowledge systems". According to this framework there are four sets of "knowledge processes": (1) creation (2) storage/ retrieval (3) transfer, and (4) usage/application. A knowledge-friendly organizational culture has been identified as a major catalyst to the success of knowledge management initiatives in organizations (17). In many organizations, a major cultural change maybe required to change ERP users' attitudes and behavior so that they willingly and consistently participate in "knowledge processes". What cultures foster the four sets of "knowledge processes"? This research examines the relationship between organizational culture and four sets of "knowledge processes" in the ERP implementation context. Accordingly, this paper empirically tests the relationships among organizational culture, knowledge creation, storage, transfer and application in the context of ERP implementation. RESEARCH MODEL FOR ORGANIZATIONAL CULTURE AND KNOWLEDGE MANAGEMENT IN ERP IMPLEMENTATION The research model shown in Figure 1 explains the concept that organizational culture not only influences knowledge creation and knowledge storage, but also influences knowledge transfer and knowledge application through intermediary variables of knowledge creation and knowledge storage. For example the organization might have in place a reward system for employees to contribute to the active process of knowledge management. This incentive would essentially motivate employees more to create more knowledge which would create more transfer of that knowledge. The proposed model will aid this research in determining the relationship between the five identified variables. Organizational Culture In the literature, several definitions are given for organizational culture. Kilmann et al. (47) defined corporate culture as "the shared philosophies, ideologies, values, assumptions, beliefs, expectations, attitudes and norms" that knit an organization together. Organizational culture is the shared beliefs, ideologies, rituals, myths, and norms that influence organizational actions or behavior (78); culture is a system of shared values that lead to organizational members' attitudes and behaviors (44); shared system of symbols and meaning; the way things are done in the business (35); and it is a pattern of shared assumptions produced and manipulated by top management (78). According to Schein (75), culture is "a pattern of basic assumptions - invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration that have worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems" (p.9). Triandis (87) has given another definition for culture: "culture is defined as an individual's characteristic way of perceiving the man-made part of one's environment. It involves the perception of rules, norms, roles, and values and it influences interpersonal behavior." (p.4). The organizational culture evolves over time as the glue that holds the organization together. Hofstede [35] defined culture as a collective programming of mind that differentiates members of one group from other. Uttal (89) defined it as a "system of shared values (what is important) and beliefs (how things work) that interact with a company's people, organizational structures, and control systems to produce behavioral norms." There are many more definitions for organizational culture, such as "the dominant values espoused by an organization," "the philosophy that guides an organization's policy toward employees and customers," "the way things are done around here," and "the basic assumptions and beliefs that are shared by members of an organization" (74). Davis and Devinney (19) provide the view that organizational culture is an evolutionary tool and it defines "the way business is carried out," "the nature of conduct with external publics," "how internal publics interact," "how individuals are developed," "the roles and norms of performance," and "the atmosphere of work." While no strong consensus has formed on a definition, in the present study organizational culture is defined as the pattern of shared values of the group lead people in the group to think and act similarly (81), and it is a system of perceptions, meanings, values and beliefs which facilitates individuals and groups to share the common experiences. It emerges from the social interaction of organizational members and is the product of shared symbols and meanings. Schein (75)'s suggestion that culture is something to be managed and changed to meet managerial needs is difficult, if not impossible. To change an organizational culture means to change employees' beliefs and values by management intervention (71). The culture changes very slowly over a period of years through intentional management interventions. The measures fororganizational culture were grounded on previous research. Hansen and Nohria (32) identified major barriers impending interactions and collaborations between units in a global company. The barriers are: unwillingness to seek input and learn from others, inability to seek and find expertise, unwillingness to help, and inability to work together and transfer knowledge. Detert et al.,(20) gave the dimensions of culture in their framework based on the content analysis of repeatedly emerged components of culture. This framework has given a basis for this study on organizational culture. Orientation to seek inputs and learn from other people People in organizations are change oriented and are characterized by a focus on continuous improvement (24). Organizational members are accustomed to change, especially in the ERP context, and view it as positive (13). Change often requires people to understand a new ways of performing tasks and processes, as well as how and why their processes have changed (42). During the change process, unwillingness to seek input and learn from others have been found to be a major barrier to create collaborative advantage in an organization (32). Accordingly, in order to understand the changes in the business processes and the tasks, individuals or groups need to seek inputs and learn from other people. Motivation to participate in generating new ideas People are intrinsically as well as externally motivated to perform well. Nonetheless, the environment within which they perform their job could spoil their motivational drive (31). Accordingly, the people's work environments are to be effectively structured. The barriers for motivation are to be removed; the weaknesses in systems and processes would be strengthened in order to enhance performance (20). Choice of reward systems would also determine the degree of motivation for the individuals. Knowledge culture - Contribution for creating, storing, and updating information Wang and Ho (93) provide a case study for ERP implementation in a context of global enterprise restructuring. In the implementation project, most experienced IT professionals quite often could not work in the implementation for personal reasons. Additionally, they have had good opportunities to acquire better positions in other enterprises with their unique experiences in implementing ERP in the global environment. Eventually, more than 70% of the IT staff members who participated in the ERP implementation processes resigned. Their experience was not at all documented for future use. The ERP literature provides many such case studies. Accordingly, the team members, who participated in ERP implementation, need to show preference for documenting their experiences by the ways of creating, storing, and updating their experiential information. Openness for welcoming new ideas Taylor and Wright (86) have identified some cultural issues to be considered when sharing knowledge. The organization's climate must be accepting new ideas where there is a motivation to contribute to organizational goals. Jones et al. (44) provide a case study where the team member's contributions were not welcomed or accepted thereby limiting the amount of information sharing throughout the implementation. Accordingly, showing openness for welcoming new ideas is a critical value to be practiced during ERP implementation. Reviews to examine the successes as well as failures Following the implementation of ERP systems, an organization would engage in post-implementation review. Reviewing the successes or failures would be unearthing the factors that driven the implementation. The review could help the organization to understand the quality of the implementation process and it influences appropriate modifications or enhancements that could improve the performance of the system or improve the project management and system development processes (58). Looking back at the steps or goals of the implementation process would help the organizations to identify the factors that critically determined implementation success or failure. Hofstede et al., (36) propose a model of culture that consists of values and practices. The individual member's practices are based on their beliefs about symbols, values and myths. Practicing the value of "review" could identify how well the implementation had been managed on the various issues during the project. The review could be conducted on overall project scope and planning, project development milestones, attained business benefits and organization-specific goals. Knowledge Creation Knowledge can be defined as a justified true belief, creating meaning (51), and as a capacity-to-act (83). Two types are: tacit knowledge and explicit knowledge (59, 62). Explicit knowledge is formal and systematic. Tacit knowledge is highly personal, context-specific, subjective, and difficult to verbalize or communicate (51, 62); it is the inductive knowledge that involves insights, intuition, hunches from individual's experiences (70). Tacit knowledge is expressed in the form of human actions such as evaluations, attitudes, points of view, commitments, motivation, etc (49). Normally it is difficult to articulate tacit knowledge through a formal use of language. However, the tacit knowledge could be represented in the form of metaphors, drawings, non-verbal communications and it is equivalent to practical expertise. Knowledge creation includes developing new knowledge or replacing existing knowledge within the organization's tacit and explicit knowledge (68). Knowledge is created, and shared through social activities. Nonaka (60) gives different ways of creating knowledge: socialization, externalization, internalization, combination. In socialization, tacit knowledge is converted to new tacit knowledge through everyday interactions among the people (e.g. brainstorming) ; in externalization, new explicit knowledge is created by applying previous tacit knowledge (e.g. verbalization of the best practices in ERP implementation) and; in internalization, new explicit knowledge is created by one's own understanding gained through readings and discussions (e.g. reading through implementation manuals, business process diagrams etc.); combination mode refers to the creation of new explicit knowledge from existing explicit knowledge. These four general processes could be directly applied to ERP implementations. ERP projects contain all the necessary factors to accomplish this implication. To speed up the process of knowledge transfer and creation, the following types of "ba" are identified: (1) Originating ba, (2) Interacting ba, (3) Cyber ba, (4) Exercising ba (61). Knowledge creation could be supported by better understanding of how each ba is formed. The knowledge creation behavior is shown by the pattern of shared values created through social and collaborative processes as well as an individual's cognitive processes. When people are hired, a new knowledge is created in the form of both explicit and tacit knowledge (11). Knowledge creation is the key to applying knowledge management in ERP implementation. Without the creation of new knowledge the implementation team as a whole will rely on old ways of accomplishing tasks that could be completed in a more efficient manner. Accordingly, the team needs to be motivated to participate in generating new knowledge. From the popular writings on organizational culture in the management literature, culture is widely characterized as an instrument to be used by management to shape and control in some beliefs, understandings, and behaviors of individuals, and the organizations to achieve specified ends (52). To help encourage the behavior of knowledge creation, the organization should provide an environment that allows creativity to flourish through informal spontaneous interactions. The organization could also help by allowing the employees to experiment with ideas and providing training and conference resources (11). As well organization's external relationships with customers, suppliers, or outsourcing are additional sources of new ideas. The values practiced have more impact on knowledge creation. For instance, if the dominant value among the employees is to use IT for various tasks, then knowledge creation efforts could be facilitated through the use of communication technology such as email, discussion forums, and video conferencing. Accordingly, organizational culture could be identified as a major catalyst for the specific behaviors of knowledge creation. Based on the above discussion, this study derives Hypothesis 1. Hypothesis 1. In ERP implementation, organizational culture influences knowledge creation. Knowledge Storage / Retrieval While people create and learn knowledge, they also forget (do not remember the created knowledge or lose track of the acquired knowledge) (16). Accordingly, memory (organizational and individual) is required in order to store, organize and retrieve peoples' knowledge (92). Organizational memory is the collection of individuals' memory and it is defined as "the means by which knowledge from the past experience, and events influence present organizational activities" (80). Organizational memory includes various forms of knowledge residing as written documents, structured databases, and codified human knowledge in the form of expert systems, documents of organizational procedures and processes (85). Individual memory is based on individual's observations, experiences, and actions (7). Accordingly, knowledge storage refers to the tacit and explicit knowledge that could be captured and documented. Storing knowledge is essential for use in future projects or implementations. This could include procedures, ways of doing things, formal documents, inventory information, files, and many other various types of storage. If the organization has a shared value of bringing new knowledge to the organizational memory by hiring, new knowledge could be stored by hiring new people (3). The chances are high for employee-turnover for an unfavorable organizational culture. When a highly valued employee either retires or leaves the organization it could dramatically impact the organization. When such employees leave they take with them the knowledge and expertise that had been developed over the years and if the organization had no system in place to retain that knowledge, then certain procedures or ways of doing things are now lost to the business (98). Besides, in case of using IT as dominant value among the employees, advanced IT tools such as databases, query languages etc. could be used as effective tools in enriching organizational memory and data retrieval. It allows for ERP users to connect and communicate over great distances thereby enabling the possible creation of new knowledge that might not otherwise occur. Based on the above discussion, this study derives Hypothesis 2. Hypothesis 2. In ERP implementation, organizational culture influences knowledge storage. Knowledge Transfer Knowledge transfer also known as knowledge sharing (39) follows a "source and recipient" generic model. Knowledge transfer is often interpreted as the transfer of knowledge from a source to a recipient (30). There are several views about knowledge transfer. It prevents reinventing the wheel (9), creates shared understanding (57), reduces uncertainty or turns individual learning into organizational learning (60). Szulanski (84) defines knowledge transfer as "dyadic exchanges of organizational knowledge between a source and a recipient unit in which the identity of the recipient matters." Knowledge transfer refers to the process of how previous knowledge acquired could be applied to a different situation (46). Knowledge transfer could be seen as "the process through which one unit (e.g., group, department, or division) is affected by the experience of another" (6). In this process, the source (or a contributor) shares knowledge that is used by an adopter (recipient). Knowledge transfer takes place when the recipient understands the ins and outs of the knowledge and its implications so that the transferred knowledge could be applied (5). Knowledge transfer occurs between individuals, from individuals to groups, across groups, and from the group to the organization (3, 97). For instance, in the ERP implementation context, consultants may transfer knowledge about configuration of the system for business processes to clients who could learn and apply this knowledge, as evidenced by clients running those business transactions. There are four ways of transferring knowledge: informal, formal, impersonal, and personal (37). Informal settings include unscheduled meetings and conversations which are good at promoting socialization. However this makes it hard to disseminate the knowledge to the whole organization (3). Through-out the use of cubical style office layouts conversations could be initiated or joined by others of the group that might not have happened in a more structured environment (44). This helps foster the socialization process and allows for further dissemination of knowledge that might have been possible. Formal transfer of knowledge such as meetings, training sessions, or seminars promotes greater distribution of knowledge but hinder creativity, which is needed in successful knowledge application. Personal channels are good for distributing context specific knowledge and impersonal transfer of knowledge uses knowledge repositories for readily generalized knowledge (3, 46). Jyrama and Ayvari (45) defined learning as "the process of creating knowledge" as it means to gain knowledge or skill by study, practice or being taught. Managing conversations following-through source-recipient model of knowledge transfer has been given as a major enabler for knowledge creation process (51). As the best way to create and transfer knowledge is through conversations, individual knowledge is turned into themes available to others through conversations (45). Based on the above discussion, this study derives Hypothesis 3. Hypothesis 3. In ERP implementation, knowledge creation influences knowledge transfer. Knowledge creation is actively constructed from information previously stored and new information drawn from the environment (72). A major component of knowledge creation process consists of learning from past experiences. This learning or new knowledge creation may take place through social and collaborative processes. This includes reviewing the successes or failures and recording the "lessons learned" to benefit the organization. Of course, an organization must first determine what lessons are important to retain and how best to retain them. When structuring the lessons, it is important to consider how the lessons will be retrieved by different groups of people. Functional and effective knowledge storage systems allow such kind of categorization and the enabling technologies for recording the lessons would be multimedia databases, query languages, decision support technologies, text index, search engines, data mining, pattern matching, automatic inference, concurrent engineering, process analysis, just-in-time learning and business research (3). Despite the availability of technology, potential gaps were identified in creating and storing knowledge in a health system (23). Limited documentation of "lessons learned" and good practices was found in the health system. Though the knowledge is created in abundance, serious flaws had been found in knowledge storage. Procedures and methods to make tacit knowledge explicit were weak; and no expertise database or mechanisms were used to preserve the knowledge of staff or experts leaving the health system. This discussion provides the basis for Hypothesis 4. Hypothesis 4. In ERP implementation, knowledge creation influences knowledge storage. Knowledge storage is similar to organizational memory and the accumulation of knowledge as recognized in learning curves (92). The process of knowledge storage leads to accumulated knowledge ranging from manually written files to digital media. Storing and distributing knowledge electronically lead to low marginal costs. The knowledge transfer process model is based on organizational learning and memory perspectives (92) that includes the stages of acquisition, storage, and retrieval. In this model, knowledge acquisition is done from external sources and stored in individual and organizational memory. The nature of knowledge transfer has been described in the literature of organizational memory and organizational learning (92). The stored knowledge serves as a source of competitive advantage if it could be reused by transferring the knowledge (14). The knowledge transfer between individuals, groups, or organizations begins as relevant knowledge storage sources have been identified (95). This discussion provides the basis for Hypothesis 5. Hypothesis 5. In ERP implementation, knowledge storage influences knowledge transfer. Organizational culture provides integrated framework that regulates the context for social interaction and goal accomplishment through creation of meaning and it is a major barrier to leveraging knowledge (30), especially it influences the behaviors central to knowledge creation and transfer (21). Organizational culture shapes assumptions about which knowledge is worth creating and how knowledge is transferred and utilized within the organization (1). Research results supported the idea that the technology is not a driver, but an enabler of knowledge creation and transfer. Ahmed at al. (2) argued that knowledge transfer could be promoted in an organization with a favorable culture and on the contrary if the wrong cultural norms exist, despite the good efforts to promote knowledge, little knowledge transfer is likely to happen as a result. Besides culture, a high level of cooperative behavior in social interactions for creating knowledge was emphasized for knowledge transfer (26). The new knowledge creation is facilitated by psychological safety in an organization and knowledge transfer has primarily focused on the culture of the organization ( 76, 77). This discussion provides the basis for Hypothesis 6. Hypothesis 6. In ERP implementation, organizational culture influences knowledge transfer through knowledge creation. According to Hansen and Nohria (32) the following cultural issues must be overcome to create an organizational collaborative advantage: unwillingness to seek input and learn from others, inability to seek and find expertise, unwillingness to help, inability to work together and transfer knowledge. Taylor and Wright (86) have also identified some cultural issues to be considered when sharing knowledge. The organization's climate must be accepting new ideas where there is a motivation to contribute to organizational goals. Jones and Price (43) provides a case study where the team member's contributions were not welcomed or accepted thereby limiting the amount of information sharing throughout the implementation. Not only should the organizations learn from what worked well but they must also learn from what didn't work well. Individual employees and organizational culture are two repositories of knowledge in knowledge storage (organizational memory) (92). Knowledge that is transferred has limited value and the value increases when it is available with organizational memory for present and future use (40). Concurrently, stored knowledge needs to be transferred for further use. Knowledge becomes valuable corporate asset only when it is stored and transferred (18). The value of knowledge increases when it is stored, networked, reused and integrated into business processes (22). Knowledge storage is changed when knowledge transfer occurs and the above discussion provides the basis for Hypotheses 7. Hypothesis 7. In ERP implementation, organizational culture influences knowledge transfer through knowledge storage. Knowledge Application Knowledge application refers to the integration of the organizations knowledge into their products, processes, and services (3, 10, 82). As mentioned ERP solutions offer a competitive advantage for organizations, as well, knowledge management could provide that type of advantage through applying the previously stored knowledge into the ERP systems, business processes, and services. Knowledge could be integrated or applied by the organizations in three different ways (29). First through directives, which are sets of rules, procedures, or instructions that have been developed by specialists in their field that are meant for non-specialist use, which is essentially repacking available knowledge into a new context. Examples of directives are hazardous waste disposal or airplane safety checks or user manuals for using a new product. A second way of applying knowledge is through organizational routines, which allow for individual's own knowledge to be applied to a situation without the need to communicate that information to others. Some examples would be a standard operating procedure for an assembly line, or for a more complex task like flying a passenger airplane. The final way to apply knowledge is through self-contained task teams. These teams are created to solve a problem that no directives or organizational routines exist for. The team is built by combining individuals with context specific knowledge needed to solve the problem. The team then could think freely and creatively to use its understanding to resolve the problem or integrate into the companies products, processes, or services (10). As knowledge comes primarily from the experiences of individuals, knowledge is created as people discover new ways of doing things. If the required knowledge is not available within the organization, then the external knowledge is brought in as in case of technology know-how transfers. The size of internal and external knowledge gaps influences knowledge-creation efforts and the capability to create knowledge refers to capacity to combine knowledge (tacit, explicit, individual, collective, internal and external) to develop new knowledge (62). Knowledge creation is associated with solving problems, devising strategies, discovering a pattern, and conducting evaluation activities (53). Only individuals could create knowledge and organizations apply the created knowledge effectively to create an impact of the change in the organization (48). Automatic inference expert systems, rule-based/case-based expert systems, workflow systems, workflow automation systems are some of the examples of the key enabling technologies for knowledge application (72). The above discussion provides the basis for Hypothesis 8. Hypothesis 8. During ERP implementation, knowledge creation influences knowledge application. Knowledge application is the deployment of knowledge for the benefit of the organization, enabling individual members to use the knowledge they possess in practice and to establish the need for more (65). The process of knowledge storage does not necessarily lead to enhanced performance of an organization and effective knowledge application does (3). The performance depends on applying the stored knowledge of the individuals as well as organizational memory and turning into effective actions. It has been recognized that organizations have gaps between what they have in terms of organizational memory and what they do by applying the stored knowledge (69). Reasons for not applying the stored knowledge are: distrusting the source of knowledge, lack of time or opportunity to apply knowledge, or risk aversion (17). Despite these reasons, knowledge applications are influenced by IT-enabled organizational memory on the behavior and performance of individuals and organizations. Sophisticated storage and retrieval techniques such as query languages, database management systems, and multimedia databases could be effective tools for applying the stored knowledge. This discussion provides the basis for Hypothesis 9. Hypothesis 9. During ERP implementation, knowledge storage influences knowledge application. Organizational culture has been identified as either a major catalyst or a major hindrance to knowledge creation and sharing (3). Successful knowledge management initiatives require organizational cultures that value the creation and use of knowledge (17). The challenge is to create a favorable culture for applying knowledge through knowledge creation (56). An explicitly acknowledged cultural values determines the type of knowledge to be applied and stored. For instance, trust and openness are commonly stated values to influence the behavior of knowledge application and storage (27). Failures in implementing knowledge management systems are often related to organizational culture; it is argued that people were unwilling to share their ideas or take the time to document their insights (44). It is important that the new culture promotes attitudes and behaviors that encourage and reward applying and creating knowledge. An individual employee must perceive that withholding the knowledge will not add any value to the organization. An employee must not perceive that his or her value to the organization is worth more if important knowledge is withheld. This discussion provides the basis for Hypothesis 10. Hypothesis 10. In ERP implementation, organizational culture influences knowledge application through knowledge creation. Organizations that want to implement knowledge management program need to provide a favorable knowledge culture that is capable of motivating their employees to apply the stored knowledge (12, 33). Knowledge hoarding need not be encouraged in organizations (96). Employees need to be assured that their use/application of stored knowledge will not be exploited. Trust and integrity are found to be critical values to be practiced in knowledge application (79). Employees need to be assured that all their ideas will be stored and applied. Each time someone apply the knowledge from the organizational or individual memory, it increases the common knowledge base and increases the trust among group members. For knowledge application in a group environment, individual members must understand that the viability of their group depends on their contribution in applying the knowledge from the organizational memory. This discussion provides the basis for Hypothesis 11. Hypothesis 11. In ERP implementation, organizational culture influences knowledge application through knowledge storage. Measures The following measures were developed from the literature. Though constructs for knowledge management systems (KMS) are found (38), a comprehensive measures of knowledge management constructs were not available at the time of the review. Accordingly the items that focused on the knowledge management constructs were identified from the existing literature. In general, measurements of knowledge management constructs are an area demanding research. For ready reference, the measures used in the survey are given in Appendix I. Knowledge creation Nonaka and his colleagues (63) propose that knowledge creation should be measured by the amount of time individuals in a firm spend on intellectual activities. Accordingly, the items included in the survey questionnaire for measuring knowledge creation are: (i) frequency of keeping a record of the problems and solutions (ii) frequency of updating the records of the problems and solutions (iii) frequency of problem solving through discussions and other social interactions and (iv) frequency of problem solving by applying previous lessons learned or best practices. These measures encompassed both product and process part of knowledge creation. Knowledge storage and retrieval Storage of the organizational knowledge is also referred to as organizational memory (92, 97), which is stored in various forms including human minds, written documentation, e-mails, structured information databases, expert systems, and organizational procedures (91). The following measures were used for knowledge storage and retrieval: (i) The extent of documenting the problems, solutions, and "lessons learned" ; (ii) Number of knowledge structures or "interpretive schemes" created to interpret the problems (66) prior to the implementation of ERP system ; (iii) Number of repositories created for the problems, solutions, and "lessons learned" (94); and (iv) frequency of adjusting/ updating the existing memories and repositories to changed environments (application areas) (94). (v) Frequency of ease of access and ease of searching the stored information in the repositories. Knowledge Transfer Alavi and Leidner (3) conceptualized the elements of knowledge transfer. Based on their work, the following measures are developed: (i) Extent of intentionally transferring knowledge by written communications, training, internal conferences, internal publications; (ii) Extent of unintentionally transferring knowledge by job rotation, stories, and informal networks; (iii) Level of perceived value of the source unit's knowledge; (iv) Level of willingness (or motivation) to share knowledge; and (v) Willingness to acquire knowledge from the source. Knowledge Application Knowledge must be applied to the management activities in the organizations to achieve optimal effects. Grant (29) identifies three mechanisms in coordinating specialized knowledge: (1) rules and directive, (2) routine, and (3) self-contained task team (29). Based on these mechanisms, the following measures were developed: (i) frequency of project generated knowledge that was turned into standardized rules or ways of doing similar tasks; (ii) frequency of project generated knowledge that was integrated into training materials; (iii) frequency of project generated knowledge that was turned into documents that can be used by non-specialists; and (iv) frequency of diverse individuals with differing expertise that were put together to solve a problem. Methodology For the purpose of testing the hypotheses statistically, empirical inputs were obtained through a questionnaire survey. The questionnaire was published using WebSurveyor Corporation's WebSurveyor software. This software was made available to the researcher through the University which allowed for the simplification of posting the questionnaire and effectively reducing research costs. The internet respondents were able to gain easy access and interact by incorporating radio buttons, check boxes, and comment fields. The respondents for the survey were randomly chosen. The survey included responses from ERP project managers, project team members, IT professionals, CIOs, users, top management, vendors, and consultants associated with several companies which had implemented the ERP systems. Ninehundred and seventy respondents from North America were contacted through email with simple instructions for completing the questionnaire. Email was used to take advantage of other features that are available through its use such as: speed, linking to website and reminders. Email reminders were sent out six days after initial contact which successfully increased the rate of response as initially expected. Of the 970 potential participants, 182 gave usable responses, giving response rate of 19%. This response rate ratio was accepted against non-response bias for a blind mailing (8). Thirty six public and private organizations from various industry sectors were participated in this survey. A Chi-square analysis of the industry distribution of the respondents revealed no significant difference from the industry distribution, thus indicating lack of non-response bias. The individual responses were kept confidential in order to encourage openness and disclosure; therefore the names of organizations are not given. To diminish the skewness on data from the same geographical region and to get views from widely scattered user population, the survey was conducted in a random manner. For the respondents' profile, the distribution of respondents from several industries is given in Table 1. Tables 2 and 3 show the profile of the organizations in terms of number of employees and annual sales (in millions) respectively. The internet questionnaire was organized into seven key areas surrounding formal and informal knowledge management. The seven areas are: general demographics, knowledge creation, knowledge storage, knowledge transfer, knowledge application, and organizational culture. The questionnaire used a mix of open-ended, boolean, check boxes, and frequency scale questions. Frequency scale questions used a 5-point Likert scale. Pre-study testing was done through 30 participants from various different academic fields to allow for a wide range of opinions, additions or possible corrections to the questionnaire. The content validity was ensured by incorporating the suggestions. The pilot testing was performed to ensure that the questionnaire items were understandable and measured the proposed variables. The measures of the pilot-tested instrument were used for the main survey. Reliability The quality of the measures was assessed by confirmatory factor analysis for each latent construct. The results of factor analysis estimated five confirmatory factor analysis models: (i) knowledge creation (ii) knowledge storage (iii) knowledge transfer (iv) knowledge application and (v) organizational culture. The extracted factors were explaining 71% of the variance in the questionnaire instrument. Data analysis was performed using SPSS. Cronbach alpha inter-item reliability coefficients were calculated for the constructs used in the questionnaire. These are shown in Table 4. The co-efficients ranged from 0.6 to 0.8, all considered acceptable. Since Cronbach's alpha coefficient analysis demonstrated sufficient reliability, no items were dropped from the analysis. Cronbach's Alpha determines internal consistency of the variables based on the average inter-item correlation. Statistical data analysis was performed on the internet questionnaire variables for descriptive statistics. Frequency analysis was performed to find the ERP software packages adopted in the surveyed organizations, implementation approaches followed, time duration for implementation, ERP modules implemented, the locations used for storing ERP implementation knowledge, and the types of knowledge storage-types. The findings are given in the following sections. ERP Software Packages Adopted Different organizations had adopted different ERP software. Table 5 gives the software adopted and it can be seen that SAP software had been adopted by 72% of the surveyed organizations followed by Peoplesoft (6.1%). Out of more than 100 ERP providers worldwide, SAP-AG, Oracle, JD Edwards, PeopleSoft and Baan - collectively called the "Big Five" of ERP software vendors control approximately 70 per cent of the ERP market share (Mabert et al., 2001) It is important to take into consideration that there are various reasons for the ERP software selection and the reasons for adoptions are driven by several sources including top management, users, consultants, competitors etc. 88% of the respondents told that their organizations made use of consultants during the implementation of the software. Implementation Approaches The survey results shown in Table 6 indicate that the surveyed organizations followed various implementation approaches including big bang, parallel, phased, and pilot. The majority (61.5%) of the surveyed organizations is risk avoiders and followed the less risky approach namely phased approach. This approach entails a series of "mini-bangs" that impact a logical portion of the organization. For instance, finance goes first and followed by manufacturing and customer support. Nearly 29% of the surveyed organizations followed big-bang approach. These organizations prepared, tested, trained and did everything possible to get ready, and then one fine morning the data in the old system was migrated to new ERP system. This option was found to be more risky and there are high chances for unforeseen and unexpected events to happen. Length of Implementation Table 7 shows the frequency analysis for the length of implementation of ERP software in surveyed organizations. It has been found nearly 60% of the surveyed organizations took time length between 6 to 24 months for implementing various modules. 18 % of the organizations took more than 24 months. The number of modules implemented and the time taken for the change management causes the time difference. ERP Modules Implemented Nearly 92% of the surveyed organizations implemented Financial accounting module, which was the first ERP module implemented by most of the companies; approximately 84% implemented materials management, and sales & distribution; and 73% implemented controlling module. As the organizations move to additional modules, there is a need for data integration with new modules. Results of the survey (Table 8) showed that, over the five main functional areas of Finance, Marketing/Sales, Human Resources, Production and Logistics, several different ERP modules were used: Finance, Controlling, sales & distribution, Material Maintenance, Customer Relationship Management (CRM), Human Resources, Project systems, Plant maintenance, production planning, Quality management, e-procurement, Business Warehousing, Funds management, Assets management and others. Knowledge Storage Locations (Organizational Memory Locations) Table 9 shows that the individual as well the organizational memory were stored in the form of word documents, structured databases, corporate internets, filing cabinets, MS outlook, Lotus notes, data-warehouse, web-portal, groupware and other storage locations. Out of all, the survey results indicate that word documents, structured databases, and corporate intranets were popular among the surveyed organizations. Knowledge Storage-types (Contents) The types of knowledge contents stored in the organizational memory are shown in Table 10. The survey results indicate that most frequently stored knowledge are specific software files, ERP implementation methodologies, client system documentation/ manuals, software templates, user education training manuals/ software, consultants' notes, and paper-based files. Univariate analysis of Constructs Tables 11 a), b), c), d), and e) show the questions from the internet questionnaire that make up each knowledge process constructs of knowledge creation, knowledge storage, knowledge transfer, knowledge application, and organizational culture respectively. Individual descriptive statistics for each construct variable are presented which include the number of valid responses (N), mean, and standard deviation. Data Analysis and Hypotheses Testing The survey results given in Table 12 indicate the levels of knowledge creation (3.7 in a scale of 0-5), knowledge storage (3.5 in a scale of 0-5), knowledge transfer (3.5 in a scale of 0-5), knowledge application (3.1 in a scale of 0-5), and organizational culture (3.4 in a scale of 0-5). The results of the data analysis and hypotheses testing are summarized in Tables 12, 13, and 14. The correlation coefficients shown in Table 12 support the model and validate the hypotheses HI through H11 at 0.001 level of significance. The data analysis validated the following hypotheses in the ERP implementation context: organizational culture is significantly related to knowledge creation (HI, r = .43); organizational culture is significantly related to knowledge storage (H2, r = .23); knowledge creation positively influences knowledge application (H3, r = .59); knowledge creation positively influences knowledge storage (H4, r = .47); knowledge storage positively influences knowledge transfer (H5, r = .26); organizational culture influences knowledge transfer through knowledge creation (H6, r = .17, indirect impact given in Table 13); organizational culture influences knowledge transfer through knowledge storage (H7, r = .06, indirect impact given in Table 13 ); knowledge creation positively influences knowledge application (H8, r = .59); knowledge storage influences knowledge application (H9, r = .4); organizational culture influences knowledge application through knowledge creation (H10, r = .11, indirect impact given in Table 14 ); organizational culture influences knowledge application through knowledge storage (H11, r = .09, indirect impact given in Table 14). The empirically validated research model with path coefficients is shown in Figure 2. Discussion Organizational Culture influences Knowledge Creation The study validated that organizational culture influences knowledge creation. In order to influence the ability to create new knowledge the organizational environment could be changed so that employees are able to freely talk and get feedback from others within the organization. This informal relationship allows for the potential to learn from other employees which propagates new tacit and explicit knowledge being created. Through creating an office environment where people are motivated and generation of new ideas is accepted, an increase in knowledge creation could also be obtained. Postmortem analysis was reported to have been done on average about half of the time during an ERP implementation. By taking advantage of post mortem analysis, organizations could influence an increase in the creation of new knowledge. Post mortem analysis should not only be done at the end of the implementation. It should also be done at the end of each milestone within the implementation. This would allow for the key stakeholders and implementation team to learn what has worked well within the project and what has not worked. The result would be new knowledge being created which will help avoid problems happening again during the current project and any future implementations. Knowledge creation could be done in several ways. One way is through the hiring process for new employees. Potential employees could be targeted according to their skill set. By hiring the needed skills the organization is acquiring new knowledge that could be applied to the ERP implementation. The hiring process as a way of creating new knowledge is effective, however if that new knowledge is not stored or transferred to other individuals it will be lost when that employee or implementation team leaves the organization. This is also true of the consultants hired for the project as ERP implementation consultants are relied upon to provide valuable information and knowledge. Through the use of consultants the organization is effectively buying knowledge. When the implementation is complete, in order to retain the knowledge without any formal knowledge management systems (KMS) in place, the organization would have to actively keep consultants on staff. New knowledge is also created through forming implementation teams and steering committees from various different functional areas. The survey results indicated that the value of individuals and groups that seek input and learn from others would be a facilitator for knowledge creation. Accordingly, by joining members from different areas, the environment that is formed enables new knowledge to be created through socialization, externalization, internalization, and combination. Knowledge creation could also be facilitated through joint application development (JAD) sessions. As with implementation teams and steering committees, the JAD members are free to brainstorm and contribute to new ideas, and thus enhancing knowledge creation. Also, the study results validated that creating an office environment where people feel motivated to participate in generating new ideas would potentially enhance the knowledge creation process. So, the JAD members, implementation teams, steering committees are better able to identify and overcome potential implementation problems that may cause difficulties in the future. This is an informal process that allows for the various members to engage in creating new knowledge in cooperation with others or individually. One company even utilized in-house software to create new knowledge; however the underlying repository of knowledge that created the new knowledge was not based on current information from the user community or implementation team. This type of system allows for the new knowledge to be generated easily; however a drawback is that the new knowledge created may not be up to date or relevant to the situation it is being applied to. The survey results indicated that even though there are limited formal and automated knowledge creation systems, it shows that new knowledge creation is an informal process resulting from socialization of the various individuals involved during implementation. Organizational Culture influences Knowledge Storage The survey results indicated that values practiced such as individual or group contribution to the storage of information such as updating or creating documents, updating a database, and posting information online facilitate the process of knowledge storage. Informal processes come in the form of storing paper files in filing cabinets, storing indexed Word documents on networks, storing information on corporate intranets for easy access, storing the documents used for the implementation blueprints, and as well as storing the documents that consultants provided them. Searching techniques are offered through information technology based storage such as corporate intranets in Word documents. For example, Word documents were indexed using filenames and file folders for easier access of the information. This type of storage could be compared to a well-organized filing cabinet structure. It offers category navigation based on the information being sought. However, it is still difficult to search for specific information without knowing, which category to start in. As well, one company made use of the ERP systems own built in searching capabilities. An inherent problem is that the use of this tool would be obtained without some of the ERP system being functional. Such searching capabilities do not provide any benefit in the early stages of the implementation. Organizations could make use of as-is and to-be analysis as their implementation strategies, which would create documents that could later be stored for future use. However the details of these documents are solely up to the details required by the ERP implementation project. For example, recent trends for ERP implementations are foregoing the as-is analysis with the assumption that it is not a necessity. Reasoning behind this is that ERP systems dramatically change how a business operates. If the organization deems it necessary to document some of the past ways of doing things, they may not require as much detail. This research indicates that storing knowledge is an informal process. However, by utilizing a formal knowledge management system all data could be stored in a central database or data warehouse. That would allow more efficient access to information when it is needed. Knowledge Creation influences Knowledge Transfer The most active type of knowledge transfer during the ERP implementation is between the project team members. This is an informal interaction between individual members, which is fostered by effective team dynamics. Socialization allows for tacit knowledge to be transferred effectively between various different team members. By having a team solely dedicated to the project, their attention could be focused on the tasks at hand, leading to greater interaction between the members. An increase in the amount of knowledge transferred could be realized through implementation team socialization. As mentioned, consultants aid in creating new knowledge. They also facilitate the transfer of knowledge. Consultants bring with them an expertise of ERP implementations gained through experience. This allows them to transfer previous knowledge to new situations. In addition to this, consultants, implementation teams, steering committees, and JAD members also allow the transfer of knowledge between individuals involved in ERP implementations. Through working closely with the other members of the group or other teams they would be able offer mentorship and provide valuable information that would otherwise not occur. As with knowledge creation, when the consultant's contract expires, or the implementation teams, steering committees, and JAD sessions are no longer needed the transfer of knowledge ceases to exist. This research indicates that the informal process of knowledge transfer is occurring mostly within close knit groups through various types of interactions such as meetings, team problem-solving, and one-on-one individual attention. Organizational Culture influences Knowledge Transfer Data analysis shows that during the ERP implementation there were frequent scheduled and unscheduled meetings. This shows that there is an environment for knowledge transfer to occur, through informal (unscheduled meetings) and formal (scheduled meetings) processes. Analysis also suggests that there is less frequent discussion of the project around coffee breaks or spur of the moment conversations. From this we could conclude that the knowledge that is transferred within an ERP implementation from one situation to another is tacit and would more likely happen in a meeting type of atmosphere rather than through normal social interaction. A formal KMS would provide the necessary infrastructure to disseminate knowledge between key stakeholders in the implementation. Information technology such as networks, communications, and email will greatly increase the capabilities for sharing knowledge within the ERP implementation and the organization as a whole. The KMS system could be designed in such a way that when new knowledge is created it will suggest the users that supplied with this information, which not only increases productivity from not having to go searching for related information but also aids in new knowledge generation. Organizational Culture influences Knowledge Application The survey results support that organizational culture influences knowledge application. When a self-contained task team is needed to solve a problem through applying context-specific knowledge the team has to be able to think freely and creatively. Organizational culture could promote openness and acceptance of new ideas, without this, the task team may take longer than needed to solve the problem or not even find a resolution. Organizational culture is an important aspect of ERP implementation. The organization's culture as a whole is responsible for the user community's acceptance of the new system. Users see information as power and by having a system that integrates all business functions. The users see themselves as losing their power and become reluctant to accept the new way of doing business. These types of perspectives seriously hinder the progress of the implementation such as not providing all relevant information needed in the planning phase. Involvement of all types of users in the implementation process could create greater acceptance of the project. Providing an environment free of criticism and ridicule that increases the ability to think freely in an open environment could have an impact on knowledge application within the ERP implementation. Consultants play an integral part in all aspects of ERP implementation. Application of knowledge could be increased through participation of consultants. By having the consultants, implementation team, steering committee, and JAD members play an active role in developing the education and training for the end-users, knowledge application could be effectively increased for all users involved. In addition to creating education and training materials, the online training might be used to help apply knowledge. Users that were deficient in particular skills were encouraged to participate in custom in-house online training that was built upon the organization of unstructured information and conversion of tacit knowledge into explicit knowledge. Through education, training materials and online user enhancement knowledge application could be seen as formal process. From this one could conclude that the user's own tacit knowledge is recognized as essential in ERP implementation. Organizational Culture's impact on Knowledge Creation and Application Organizational culture has an informal role in knowledge creation and knowledge application. Organizational culture is influenced by rules and policies set by the organization as well as office layout, and office code of conduct. However not all of organizational culture is formally documented. For example, part of the ERP implementation team's culture is to all gather for lunch after a milestone in the project has been completed. By the team getting together in their off time they might be engaged in socialization, which adds to the possibility for new knowledge. Organizational culture is informal in that it could only offer guidelines for socialization because people could not be forced to actively participate in the generation and application of knowledge. The survey results show that organizations seldom measure individual's contribution to knowledge application. A possible increase in knowledge application could be achieved by the organization through introducing incentives, motivations, and performance evaluations that relate to their contribution to knowledge application. Path analysis also reveals that organizational culture has an indirect impact on knowledge application through knowledge creation. Organizational culture as a whole has a substantial impact on knowledge application, meaning that not only does organizational culture directly impact knowledge application; it also indirectly impacts knowledge application through its impact on knowledge creation. From this research, we could conclude that organizational culture's impact on knowledge application is very significant within ERP implementations. The organization could influence knowledge creation and application by making small changes to how the ERP implementation proceeds. By creating an open environment that is accepting of new ideas, free from negative criticism and allows for team evaluation, knowledge creation would then see an increase during the implementation. This would also enable increased number of knowledge applications. The organization and ERP implementation would benefit from having a highly effective implementation team, one of the critical success factors for ERP Implementations. Organizational culture's role for ERP implementations would be to create an environment where employees feel motivated to contribute to the knowledge management (KM) activities (Chae et al. 2005) and the culture is accepting KM as a means of enabling employees to be more informed and efficient. Influence of Knowledge Creation on Knowledge Application Knowledge creation has a positive impact on knowledge application. Data analysis shows that the socialization process of solving problems through discussion with other users within an organization is happening just over half of the time during an ERP implementation. In this knowledge creation process, skilled users share their tacit knowledge by providing examples for various processes including how to use the systems and teaching the intricacies of the ERP systems. Even though this example also makes reference to knowledge transfer it also facilitates new knowledge creation. By promoting this type of interaction between key stakeholders involved in the ERP implementation an increase in knowledge creation could be realized. As with socialization, data analysis shows that the externalization process of solving problems by applying tacit knowledge through lessons learned or best practises is occurring just about half of the time during an ERP implementation. This is an informal individual process which is difficult for the organizational culture to increase because it is up to the individual to apply what they know. Both socialization and externalization influences on knowledge creation and knowledge application. Knowledge creation is shown to influence knowledge application but this influence could only come from individuals' informal processes. The knowledge being applied is a direct relationship to the employees' own willingness to participate in the application of knowledge to directives, organizational routines, and self-contained task teams. Data analysis also points out that application to the various different types of organizational knowledge is happening about half of the time during an implementation. A formal knowledge management systems (KMS) could help generate new knowledge during an ERP implementation. This process would change knowledge creation from an informal process of individual interactions to one that could have an automated knowledge creation process. The formal system would be able to combine tacit and explicit knowledge to develop possible solutions to the problems. The resulting knowledge could then be applied to directives, organizational routines, and made available to self-contained task teams. This would increase knowledge creation, storage and application during the ERP implementation. Influence of Knowledge Creation on Knowledge Storage The relationship between knowledge creation and knowledge storage flows from an informal process to a formal process. More creation equals more knowledge that could be stored formally. By having more storage or more information means that the employees could reinforce their own tacit knowledge through the process of formally storing it in either documents, a database, or any storage facility that allows for the documentation of the knowledge. Data analysis shows that access to the knowledge that has been stored is relatively easy. However, it is harder to search the required information than it is to gain access to it. A formal KMS could greatly increase knowledge storage capabilities. Every interaction with the KMS, from user input to screen sequence requests would be stored in the KMS' database/data-warehouse. Any formal KMS system whether built in-house or from a software package would have built in search capabilities to allow for easier access to specific information needed. Concluding Remarks The major limitations on this research could be mainly attributed to the responses obtained over the Internet, where the researcher had less control over the respondents. The future research could make an attempt to develop a prototype knowledge management expert system (KMES) for ERP implementation. The use of a combination of case-based reasoning (CBR) and rule-based reasoning (RBR) could be used for developing the prototype. Also, the future research could be conducted to determine the best way to design a KMS. The future research questions are: Whether the KMS should be completely automated or whether it could be a separate group within the implementation team whose sole purpose is to create, store, transfer, and apply knowledge during the implementation process. Another design possibility would be to combine both methods which would create a more efficient system than a group of experts / consultants by themselves. As seen from the analysis of the Internet questionnaire, currently there is a lack of use of any formal knowledge management systems (KMS) for ERP implementations. The research has shown that there is a place for a formal KMS. A KMS would be able to provide additional knowledge creation using automated reasoning, more efficient knowledge transfer through set of formal rules and procedures, and automated application. A formal KMS not only benefits the ERP implementation it also benefits the organization as a whole. It provides the implementation with more efficient and better decision making capabilities, as well the organization adds to it overall organizational memory which can be used in future endeavours. Another important variable in knowledge processes would be user involvement in ERP implementation. The organizational environment can be setup in the optimal way but users must have a reason or incentive to create, transfer and apply their knowledge in a more collective way. 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AuthorAffiliation RAMARAJ PALANISAMY St. Francis Xavier University Antigonish, NS - B2G 2W5, Canada Appendix APPENDIX I: MEASURES FOR THE CONSTRUCTS Organizational Culture Motivation to participate in generating new ideas Knowledge culture - Contribution for creating, storing, and updating information Openness for welcoming new ideas Reviews to examine the successes as well as failures Knowledge creation Frequency of keeping a record of the problems and solutions Frequency of updating the records of the problems and solutions Frequency of problem solving through discussions and other social interactions Frequency of problem solving by applying previous lessons learned or best practices Knowledge storage and retrieval The extent of documenting the problems, solutions, and "lessons learned" Number of knowledge structures or "interpretive schemes" created to interpret the problems prior to the implementation of ERP system Number of repositories created for the problems, solutions, and "lessons learned" Frequency of adjusting/ updating the existing memories and repositories to changed environments (application areas) Frequency of ease of access and ease of searching the stored information in the repositories. Knowledge Transfer Extent of intentionally transferring knowledge by written communications, training, internal conferences, internal publications Extent of unintentionally transferring knowledge by job rotation, stories, and informal networks Level of perceived value of the source unit's knowledge Level of willingness (or motivation) to share knowledge Willingness to acquire knowledge from the source. Knowledge Application Frequency of project generated knowledge that was turned into standardized rules or ways of doing similar tasks Frequency of project generated knowledge that was integrated into training materials Frequency of project generated knowledge that was turned into documents that can be used by non-specialists Frequency of diverse individuals with differing expertise that were put together to solve a problem. Tadjer R. Enterprise Resource Planning. InternetWeek 1998 Apr 13(710):PG.40-PG40. In its perfect state, enterprise resource planning promises one database, one application and a unified interface across the entire enterprise. A fantastic idea, it nevertheless poses significant problems when considering the needs of very large companies. Putting all business processes under a single application roof means integrating everything from human resources, accounting and sales to manufacturing, distribution and supply chain management. This is a careful exercise in strategic thinking, precision planning and interdepartmental negotiation. An explanation of ERP fundamentals is given, and some helpful hints for devising an ERP implementation strategy are presented. Texto completo Traducir Texto completo Enterprise Resource Planning is the Holy Grail of consolidated network application design. In its perfect state, ERP promises one database, one application and a unified interface across the entire enterprise. A fantastic idea, it nevertheless poses significant problems when you consider the needs of very large companies. Putting all business processes under a single application roof means integrating everything from human resources, accounting and sales to manufacturing, distribution and supply chain management. Implementing a system like this means more than just throwing money at the problem. This is a careful exercise in strategic thinking, precision planning and interdepartmental negotiation. What you'll find here is an explanation of ERP fundamentals and some helpful hints for devising your own ERP implementation strategy. To further help you in this quest, you'll find a small group of dedicated software vendors and consultants. These vendors define ERP as an enterprise re-engineering solution that applies business rules as part of network design. By creating business computing paradigms to integrate logistical and financial processes across a company's divisions and departments, an ERP system can enhance any corporate department. Although their software and expertise are expensive, their promise is huge. Bottom line: With an ERP system, a company can move any process, from manufacturing to asset management onto the network. ERP's genesis was when vendors created a means for company employees to get financial and logistical information pertinent to individual departments off a mainframe, put it into a program and distributed it electronically in a meaningful way. ERP also theoretically lets developers create interdepartmental access so that eventually all of a company's business processes run electronically. Such a huge promise-much like the ongoing fairy tale of the paperless office-invites skeptics, especially since ERP systems barely start at $100,000 and run into hundreds of millions of dollars in some cases. "I call those programs 'schmuckware.' Face it, you're going to have to write your own code and totally customize any system that honestly allows you to hoist the entire way you run your business onto a network," says Craig Williams, CEO of the Optical Image Network Group, an integrator that specializes in network environment development. Williams does not employ any ERP programs for his Fortune 500 companies or for himself. He resigns himself to writing lots and lots of code. A Web Revolution But now the four major ERP vendors-SAP, The Baan Co., PeopleSoft and Oracle-and second-tier vendors J.D. Edwards & Co., Lawson and QAD are debuting Web-enabled upgrades, ERP systems that are mostly Java-based and allow access via a browser. In this paradigm, developers receive a set of APIs that let them tie traditional ERP databases to the intranet/extranet and allow full browser access to the system. These ERP systems support browser database access either by providing read-write access or by importing the existing database into a larger data store. There are various architectural ways to make this happen, either by actually importing the database schema into a superset architecture or by using a "black box" application server. One of those servers-IBM's DataJoiner, for example-acts as server-based middleware and can dynamically translate any database query into a set of commands understood by any of its underlying databases. That means if you have a series of databases in, say, Oracle8, DB2 UDB, Sybase or even Microsoft Access, DataJoiner will sit between those engines and any querying database manager. Queries are automatically translated into whatever database format is needed to present the proper return, and DataJoiner is even smart enough to push query processing back to the core database server if it's faster to run it there. Web access brings an additional complication, however, between old and new ERP systems-namely, that the Web browsers are acting as a cheap, nonlicensing user-access point. APIs and security mechanisms also are new in that they let you make all of the ERP business processes part of the intranet. With these APIs-and in some cases, full modules you simply load onto a server-you can now create self-service functions. For example, say an insurance company wants to let its thousands of employees access their personnel files themselves. With a new and improved ERP system, developers can set up a function on the network, hand out permissions to each employee across the country, and employees can then click on their browser and get into the system. Instead of making phone calls to find out how many sick days or vacation days they have left, or how their 401K is performing, they just log on and launch their file. Need For Speed As you'd expect from such an example, a key issue when implementing one of these systems is performance. Tying such an array of decision support logic to a single database engine process can generate huge amounts of load on conventional systems. It gets worse if you're talking about a company that already had early versions of ERP in place. The real ancestry of ERP goes back to Material Requirements Planning (MRP) and Master Production Scheduling (MPS). These systems came up with the original idea that there needed to be a system in place to order the proper amount of materials for prebooked orders. Although they were revolutionary in their day, these systems are almost always a roadblock when implementing a new ERP system. The problem is that MRP and MPS systems are neither fast enough nor scalable enough to incorporate a Web paradigm. Modern businesses need a much faster and more dynamic decision structure-something that ERP supports but these earlier systems can't. To combat this, ERP vendors are creating new versions of MRP and MPS under a single umbrella dubbed Advanced Planning and Scheduling (APS). Though some of these engines are still being tested, they promise drastically faster response times and much better business results in the form of accurate inventory planning and precise delivery schedules. With faster background engines like APS combining with ubiquitous front-end Web browser access, you've got the foundation to build self-service business systems like the insurance example cited earlier. Companies that set up limited self-service functions today will have a competitive edge. The Big Browser Lie The real functional difference between old and new ERP is in user presentation. The vendors have ripped the client code from the rest of the system and updated it to run on the PC. For developers, this means no more decoding and no installing diskettes. Because the user presentation tier is written in HTML and Java, once the system is loaded on the server, users just click down from a browser. The big lie about browsers is that they make ERP systems easy to use for the average user. That kind of thinking will get IT staffers in lots of trouble. Regardless of new front ends, ERP vendors still need to overhaul the interface to their system. Even with a browser, employees and customers will get into the system and face the ugly underlined-text screen and immediately call tech support. Instead, make sure you plan for training time and expense when budgeting for ERP upgrades. What browser accessibility does mean is that the client side of the equation is cheaper because there's no software licensing necessary, and it is, of course, a no-brainer for the IT staff to set in place. But be careful on the licensing issue as well. Microsoft SQL Server, for example, will attempt to charge you a licensing fee for every browser connection made to the database by an employee. So even if the ERP vendor makes browser access a freebie, something else in the puzzle may take away that advantage. To Customize Or Not For new ERP buyers, the debate over whether to customize with APIs or whether to integrate a flexible suite of modules is a heated one. Integrators claim that really large companies are kidding themselves to think that any ready-made solution will truly enable their idiosyncratic business processes to function well. But some other integrators-the only real testers of these barely beta ERP upgrades-say to avoid customization at all costs and at least try a module if you're lucky enough to have the option. Their point is that you can always go back and work with the APIs to customize, but once you start you'll be writing and rewriting code with every upgrade. Version upgrades mean API changes due to modifications in underlying systems such as the core database. That means if you start by customizing the interface, you're buying into ongoing code maintenance. But remember that here we're talking about core API functionality. Customizing that code base is certainly a thorny question, but any chance you have to customize the front end should be exploited. That's the advantage of the Web browser, after all. ERP module vendors agree, as is evidenced by their new product lines. Baan Co., for example, represents the quintessential "suite of applications" module upgrade. Using Baan's strategy, network developers spend $100,000 or so and get a suite of six modules to load onto servers. All are integrated with Baan's ERP system and cover six basic features: - Java-based product catalog; - Order entry capability (integrated with the Baan order fulfillment system) - Product configurator; - Self-service lookups; - Push technology to push purchase orders to suppliers; and - Value Web, a fancy term for what's available to promise. This module looks at your inventory, manufacturing mechanism and capacity and determines what you can promise to clients, and how soon. The first two modules are capabilities-essentially a compilation of electronic forms that developers can tie to a data source and set ID and permissions for access. The components in the product configurator are the Definer and the Customizer. First, they define the structure of the product they're configuring-so if their company sells PCs, they define CPU, RAM, disk space, etc. Then they can define the constraints-say, price, for example. Then the product configurator creates the new data source. The fourth module, self-service lookups, makes the assumption that the data source is a Baan database. This module can easily be deployed for the personnel file example (employees looking up benefits) today and then be extended to different departments, and eventually to suppliers or customers via the Internet or intranet. If any module represents how browser-enabled ERP systems let developers set up a framework for total supply chain automation later, this module is it. Once the interface and application for self-service lookups are in place, developers can always add more lookup capability, either by correlating databases so users can access more cross-referenced information, or by extending the whole system so more users-external and internal-have authorized access. The push module for purchase orders assumes there's a purchase order creator system, like Baan's own, in place. Users can send a notification through push channels to suppliers. And anyone with Microsoft's Internet Explorer 4.0 can define a push channel. But even company representatives admit this is more showcasing what can be done than actually providing something useful. It will be more compelling when this module is extended so you can "push" accounts receivable invoices at suppliers. The available-to-promise module is for scheduling and is integrated with Baan's ERP scheduling system. This module uses the concept of the dock. The company's system carries the application while the supplier has the dock. When the latter applet arrives at a supplier's site, it must be authenticated and request service from the supplier's computer. The results travel back to the originating server and the employee who made the request. This will work even if the supplier has another ERP system. Once you get an idea of what can be done with these ready-to-use modules, the only real implementation question left is security. Never mind the day when you can extend these and other functions to an entire supply chain; the security issues are real even for the limited functions available, especially when you're talking about people accessing the ERP system externally. Some developers are focused on tunneling to ensure security for external access. But most of these upgrade versions have a module you install that steps you through automated security. These modules, like Baan's, have built-in firewall, encryption and permission options. Others give developers an API to use with whatever Web servers you want. Then you use ID-password security and patch it together. Life Made Easier Using the same example mentioned earlier-the personnel files now open to employees at an insurance company-it's easy to see the benefits that self-service functions provide in terms of functionality and automation. Say, in the insurance company example, that the company provides open enrollment for health care options. This means that rather than filling out forms and handing them in to human resources, employees can sit at their PCs, fire up their browsers and enroll. Developers can link the HR database to the personnel department, so once the employee updates health care options in HR, it also gets updated on the appropriate personnel file. Now, imagine this kind of automation applied to business-to- business collaboration. The self-service functions available with today's ERP upgrades can't do such collaboration yet-especially since EDI integration is pretty much nowhere as yet. But setting self-service functions in place slowly, one department at a time, and testing carefully can mean that developers are setting up the framework for total supply chain automation. Early adopters will be ready, and at this point vendors aren't going to create more upgrades unless they're integrated. They're motivated to build as fast as possible because they understand that public-leased lines, such as virtual private network services, are cheaper than private lines today so companies without a WAN can easily obtain one, including putting any business partner on the system. That means demand for ERP-style systems is rising every day. It's safe to say that ERP vendors are banking their futures on a piece of that action. Rivka Tadjer is a New York City-based freelance technology journalist. She can be reached at rivka@reportersink.com. SUMMARY Enterprising Solution - Enterprise Resource Planning is a powerful re-engineering solution that applies business strategies directly onto computing paradigms. - The latest ERP software releases are Web-enabled for easier installation and user access. - Custom ERP code is being challenged by plug-and-play ERP module developers using Java APIs to provide some level of customization. - Security remains an important third-party consideration for any ERP implementation. SIDEBAR: TECHtips Key Lessons From ERP Implementers - Avoid customization if you can. Remember that what separates Web-enabled ERP systems from traditional ERP is the set of APIs that let you tie the system to your intranet and let users access it with a browser. Many developers might decide to use the API's Java-based objects to customize. The problem is that what comes with every major upgrade release of ERP systems are minor API characteristics changes-mainly because the databases are different. So if you customize, you'll end up writing more code to deal with a new API every time you upgrade. - Use optioning instead of customization. ERP vendors have done a good job of creating options, such as choosing how search results will appear, so that choosing options can mean less need for customization. Although there's no support for customizing APIs, options are fully supported and don't often break. - Ask vendors to build modules for you. If the options aren't suiting your needs and you don't want to spend time writing code for customization, try pushing your vendor to build custom modules for you. Vendors in the competitive ERP market, such as Baan, PeopleSoft and SAP, are known for building to suit. - Lesson for first-time ERP buyers: Hand over the power. There is a standard horror story when it comes to implementing ERP systems. For every $1 of software there is $7 worth of implementation. Some veteran ERP users say the key to avoiding this scenario is a smart political move at the outset: Don't let the project fall under IT jurisdiction until it's in place. If you make the business department that wants the system spearhead the project while you act as the technology tester, then all the arguing about what needs to be put on the system will be done before you are responsible. You'll still have veto power over any vendor you don't want to deal with, and once it's in place, you'll take over. Another good political tip: Make sure there is a top-level company executive sponsoring and supporting the idea of buying into ERP systems. These systems can cost millions, they don't go in easily and when things get rough you want a high-level ally. - Choose a Web-enabled ERP vendor. Generally, if you have an ERP system in place, you go with the same vendor's new APIs and upgrade modules. There can be exceptions, though. PeopleSoft has a great HR module, and the company built it to seamlessly integrate with a SAP system. It has an implementation program that reads the SAP system, but you need to manually map in two or three places, such as options on how employees are tracked. Some of the PeopleSoft options don't match the SAP ones, so you need to pick a matching one. So if you have a specific department that has a lot of needs and going with your present vendor will mean a lot of customization, it's worth a look around to see if another vendor has a better option that integrates more easily. - Don't underestimate the importance of user training. The primary difference between Web-enabled ERP and traditional ERP is browser-accessibility. But that doesn't mean that once the user accesses the ERP system its interface is any better than it used to be. ERP project leaders often make the mistake of thinking that browser accessibility means that users will automatically understand how to navigate the ERP system once inside it. So they don't plan or budget for training and it comes back to haunt them. -Rivka Tadjer Copyright (c) 1998 CMP Media Inc. (Copyright 1998 CMP Publications, Inc. All rights reserved.)