SMU MBA ASSIGNMENTS

Answer :  Enterprise Resource Planning (ERP) systems have become a de facto standard for integrating business functions. But an obvious question arises: if every business is using the same so-called “Vanilla” software (e.g. an SAP ERP system) what happens to the competitive advantage from implementing IT systems? If we discard our custom-built legacy systems in favour of enterprise systems do we also jettison our valued competitive advantage from IT? While for some organisations ERPs have become just a necessity for conducting business, others want to exploit them to outperform their competitors. In the last few years, researchers   have begun to study the link between ERP systems and competitive advantage. This link will be the focus of this paper. We outline a framework summarizing prior research and suggest two researchable questions. In conclusion, we present some initial findings from two empirical case studies derived from part of the European food industry

Introduction

An Enterprise Resource Planning (ERP) system is a multi-module transaction-based application software that helps organisations to manage the vital parts of the business. Whaler systems are often the preferred solution (Holland et al., 1999), many of the legacy systems they replaced offered a great deal of value from their unique, bespoke features. For example, when Dow Corning implemented SAP, they found that their staff headcount rose: features of their legacy systems offered more functionality than the ERP that replaced them(Ross, 1999). While there has been extensive research on the issues concerning implementing these systems and achieving the promised benefits, less research has been done on ERPsystems in relation to competitive advantage (Killing, 2003).Different frameworks have been developed in this field of study defining competitive advantage (Mata et al., 1995; Porter, 1980; Porter, 1985). The latest contributions to the debate focus on the unique collection and dynamic management of an organisation’s resources and its evolving capabilities (Beard and Sumner, 2004; Longneck-Hall et al., 2004).

Many organisations invest vast amounts of resources in ERP solutions without analysing the linkage to competitive advantage. The fit between the ERP system and the organisation’s strategy is often ignored. We have investigated how and to what extent a company could achieve a competitive advantage by using ERP. Is an ERP just another tool that is necessary to stay in the market, “the cost of doing business” (Kumar and van Hillergesberg, 2000)? Is, as Carr (2003) claims, IT a commodity and therefore irrelevant, or can IT give a substantial advantage when used effectively? How do some organisations outperform their competitors that use similar ERP systems? In this paper after summarizing prior research we outline framework and we suggest two researchable questions. We begin to explore these by presenting some initial findings from two empirical case studies derived from part of the European food industry.

Competitive Advantage

Beard and Sumner (2004) suggest that ERP systems may eliminate the competitive advantages that organisations possessed before the implementation of the ERP system. They labelled this the “Common System Paradox”. This paradox has also been identified by other researchers (Longneck-Hall et al., 2004; Markus and Tanis, 2000 and Newman and Westrup,2006). Features that made the organisations unique and hard to imitate may be destroyed because of using a “vanilla” system.

The so-called five forces model (Porter, 1980) displays the competitive environment the organisations compete in. Porter also claimed that there are only two generic strategies to obtain competitive advantage: 1) differentiation and 2) cost-leadership. A limitation of this framework is Porter’s focus on industry and the neglect of the firm’s internal strengths and weaknesses including its IT systems (Kalling, 1999). In 1985, Porter published a new framework, the value chain, which focused on competitive advantage from an internal perspective of the organisation (Porter, 1985).Porter argues that effective control and structuring of these activities can enable organisations to deploy one of the two generic strategies described above. However, it does not take into account the specific and unique nature of the firm (Kalling, 1999). Processes that build up the structures, abilities and resources that allowed the organisation to perform one of the two generic strategies are not considered.

A new approach to competitive advantage has emerged in the last ten years called the resource-based view and this focuses on the resources behind the generic strategies. In this view, resources that enable an organisation to perform specific strategies are emphasised(Killing, 1999). Wernerfelt’s paper “A Resource-based View of the Firm” (1984) won theorize for the most influential papers published in Strategic Management Journal prior to 1990,and it suggested that firms should switch to resources rather than products (Werner felt, 1984,1995).

In this paper we use the resource-based view to define competitive advantage, building onto basic assumptions: the resources and the capabilities possessed by competing firms may differ (resource heterogeneity) and these differences may be long-lasting (resource immobility) (Mata et al., 1995).

 

 

Mata and his colleague’s framework (figure 1) has been used to define competitive advantage of IT in general (Mata et al., 1995; Powell and Dent-Micallef, 1997). It is built up of three basic criteria (or questions) that highlight the importance of the resource.

 

Figure 1: Resource-Based Model of Competitive Advantage (after Mata et al., 1995)

The first criterion in the framework is: Does a particular resource add value to the firm? This question is related to the possibility to reduce costs or increase revenue by product differentiation when exploiting the resource. The second criterion in the framework is: Is particular resource or capability heterogeneously distributed across competing firms? If all firms have access to the same resources, the resources will not give a competitive advantage. It will most likely result in competitive parity. The third criterion in the framework is: Is are source or capability imperfectly mobile? If firms without valuable resources have no problem in acquiring, developing, and using it compared with firms that already possess this resource, then it will only be a source of temporary competitive advantage for the firms that originally controlled it. If a resource is hard to imitate, the firms that control this resource are in a position to achieve a sustainable competitive advantage through this resource. Earlier research showed that the immobility criterion is often based on three conditions. These conditions make it hard, if not impossible, for competitors to imitate the resources (Barney,1991). The three conditions are presented below:

 

 The role of history.

A firm may be in the right place at the right time for acquiring and developing an important resource. Some resources can also only be developed over longer periods of time. Ebay.com, for example, was the first major mover in the development of internet-based auction software and has become highly successful in this domain. Amazon.com developed auction software later and has struggled to compete with EBay in this regard.

 

 Causal ambiguity.

The resources can be taken for granted but are not codified. They are invisible assets and are therefore a tacit capability of the organisation. The resource can be made up of many small decisions and actions that are hard to monitor. Competitors will not know what to imitate.

 Social complexity.

A resource may be so intertwined in social networks, cultures, relationships and so on, that it will be very hard for a competitor to deconstruct the social structures. Extensions to this framework have been made in later years (Kalling, 1999; Kalling, 2003; Beard and Sumner, 2004; Lengnick-Hall et al., 2004). The extensions are aimed at organisational and business resources that can lead to a competitive advantage based on ERP systems. The framework has been widely used in earlier research and has proved its value in the field of ERP and IT in general (Kalling, 1999). Kalling (2003) extended the framework with the question: Is the firm organised to exploit the full competitive advantage of the resource (e.g. an ERP)? This extension focuses on the organisational fit and management issues that are needed to derive the benefits from the resource (an ERP system). This extra criterion has also found favour with other researchers (Beard and Sumner, 2004; Ciborra and Jelassi, 1994). While we acknowledge the weaknesses of the resource-based view, we argue (above) that the framework is relevant for our paper and we will use it to define the term competitive advantage.

 

 

 

 

 

Q2. Evaluate the importance of integrated information systems in an organisation’s success

 

 

 

3.a. List the technologies that increase the power and effectiveness of an ERP system.

 

b. Differentiate between commercial and open source ERP

Q4. Describe the main functions of material management module.

Q5. Discuss the three types of information essential for a successful ERP system

Q6. Briefly describe the functioning of a ERP System