Academic journal article European Research Studies

The Moderating Effect of Industry Environments on the Relationship between IT Asset Portfolios, Efficiency and Innovation in the ERP Context

Academic journal article European Research Studies

The Moderating Effect of Industry Environments on the Relationship between IT Asset Portfolios, Efficiency and Innovation in the ERP Context

Article excerpt

1. Introduction

Enterprise Resource Planning system (ERP System) is an integrated information system that designed to integrate all functional areas within an organization in order to achieve the highest point of effectiveness and efficiency. The last decade, a manufacturing company in Indonesia showed an increase in IT investment. Investments in such forms as SCM, CRM, and ERP is the key to success in business competition. Various types of IT investments such as the adoption of ERP system at the company have a different purpose. In the process of aligning IT with business strategy of the company, there are two different processes, namely exploitation and exploration (Benner and Tushman, 2003). During the process of exploitation, the company uses the knowledge to improve efficiency for the organization. Achjari and Wahyuningtyas (2014) stated that IT adoption in the form of ERP aims to cost efficiency and enhance productivity by streamlining and integrating internal business processes. On the other hand, the exploration process, companies are looking for new knowledge, develop new products to improve the market, and improving the performance of innovation (Benner and Tushman, 2003).

The company's decision to exploitation or exploration industry is influenced by environmental conditions. In a static environment, companies will tend to make the exploitation of IT to improve operational efficiencies (Xue et al., 2012). Instead, the environmental conditions are very complex and dynamic; companies tend to explore to improve innovation. Industry's environmental conditions in Indonesia last decade showed the trend of output products manufacturing company has a short life cycle. This shows that the company has led to innovations without abandon operational efficiency. The company orientation can be facilitated by investing in ERP software, because the ERP system is an integrated system that quickly provides information to respond the changing business environment. Xue et al. (2012) found that the level of dynamic industry's environment, munificence, and lower complexity, IT asset portfolio will further improve efficiency. Conversely, in an environment with a higher level of complexity, IT asset portfolio will further enhance the company's innovation. Based on the explanation, the researchers will conduct research expansion of Xue et al. (2012) with a focus on IT asset portfolio on companies that have invested in IT in the form of an ERP system.

Research related to investments in IT had been made by several researchers is mixed. Research conducted by (Barua and Lee, 1997; Brynjolfsson and Hitt, 1996; 1993; Lee and Barua, 1999; Lichtenberg, 1995; Menon et al., 2000; Kleis et al., 2012; Rodionova et al., 2015; Mihola et al., 2016), shows that investments in IT can increase the output to the company. Anatan and Ellitan (2008) stated that technology plays an important role in improving operational performance such as speed of production processes, reduction of defective products, timely delivery capabilities and increase productivity. On the other hand, several researchers stated that IT investment not associated with firm performance (Chae et al., 2014; Rai et al., 1996; Li et al., 2000; Richardson and Zmud, 2002; Li and Ye, 1999).

Formulating competitive strategy of a company is the most important thing that must be considered in view of the relationship between the company and its environment. The external environment is very influential in the company, so that the environmental changes that occur can give effect to all companies established in the same type of industry (Porter, 1998). The phenomenon of globalization and the revolution in IT make the scope of the manufacturing industries increasingly dynamic, competitive, and complex (Dess and Beard, 1984; Keats and Hitt, 1988; Cipovova and Dlaskova, 2016; Robertie, 2016; Bondarenko et al., 2017; Kolchanova and Kolchanova, 2015; Dasanayaka and Sardana, 2015). …

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