Differences in Drivers of Erp Adoption between Large and Small Firms

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ABSTRACT

Enterprise Resource Planning (ERP) systems have recently begun to be installed in small and midsize companies. Given the differing needs, resources, and implementation challenges between large and small firms, this study investigated the differences in the reasons or "drivers" of adoption given by managers in both large and small firms. Survey data on the adoption of ERP systems from 97 firms was analyzed. Of four fundamental drivers (internal integration, cost reduction, growth facilitation, and external linking), only the intention to reduce costs varied significantly between large and small firms.

INTRODUCTION

Enterprise Resource Planning (ERP) systems are quickly becoming the de facto technology standard in businesses around the world for resource planning and integrating systems and processes. Given the enormity of the task of successful implementation and its potential to contribute to a firm's competitive advantage (Atkins, 2000; Cooke & Peterson, 1997; Davenport, 1998; Gupta, Karimi, & Somers, 1997;Lomow& Casanova, 1999; Soh, Kien, & Tay-Yap, 2000), ERP is getting increased attention by both practitioners and scholars. As scholars strive to investigate the importance of implementation to the overall strategy of a firm, it is important to understand the forces driving ERP adoption and assess whether company characteristics influence such a choice.

While the reasons for adoption are numerous and interrelated, ERP systems were initially considered most appropriate for large firms. Large firms could better afford the high cost of purchasing and implementing these systems. Improved integration of large, complex organizations would also be relatively more beneficial. More recently, attention is also being given to smaller firms (Fleishaker, 1999; Parker, 1999). The price of ERP systems has fallen and there is recognition that external linking is important regardless of firm size.

This paper explores the issue of whether size relates to firms' reasons for adopting ERP systems. Responses from an IT company survey by the Rhode Island Technology Council conducted in the fall of 2001 are analyzed, and recommendations for follow-up research are outlined.

BACKGROUND

What Is ERP?

Enterprise Resource Planning (ERP) applications seek to relationally link all the data exchanges within an organization and between relevant external organizations. Data changes in any part of an organization are immediately reflected in the operational and/or planning data in other parts of the organization, or in external organizations linked with the system. ERP strives to yield one system for the whole company and present a single face to both customers and suppliers. The capability to efficiently and accurately coordinate complex systems on such a timely basis can provide competitive advantage over organizations that have not implemented ERP systems.

Even though some scholars believe that technology should be the driving force of change, and therefore the driving force of their firm's strategy (Fichman & Moses, 1999), the more prevalent view is that strategy should drive technology. In this latter perspective, ERP systems must be leveraged with other capabilities in the context of a firm's competitive strategy to become a core competency (Davenport, 1993; Porter, 2001). Unique adaptation and customization to fit one's business strategy is the best way to create sustainable competitive advantage from both the positioning (e.g., Porter, 1980) and resource based (e.g., Barney, 1986; Barney, 1991) strategy perspectives.

If pressures for competitive advantage drive ERP adoption, it stands to reason that the drivers or reasons of adoption would impact how ERP systems are implemented and adapted in an organization. The same technology has been found to appropriately support different strategies depending on how it is combined with other technologies and processes (Schroeder, Congden, & Gopinathm, 1995). …