mason.gmu.edumason.gmu.edu/~mchen/web/papers/ERP-IMDS_final_version.doc · Web viewStudy the effect of ERP implementation to the relationship between gap in the interaction process

Impacts of ERP Systems on the Integrated-Interaction Performance of Manufacturing and Marketing

Li-Ling Hsu.National Kaohsiung First University of Science and Technology, Taiwan, R.O.C.

Minder ChenGeorge Mason University, U.S.A.

KeywordsSituational Variables, Interface Congruence, Resource Sharing, ERP Benefits, Integrated-Interaction Performance

Abstract

The effectiveness of interactions

between manufacturing and

marketing departments often

determines the competitiveness and

profitability of a firm. Enterprise

resource planning (ERP) systems

address integration issues of

business functions including

manufacturing and marketing.

Many benefits contributed by ERP

implementation found in literature

are similar to the benefits and

objectives achieved through the

integration of manufacturing and

marketing functions.

This research model based on contingency theory and socio-technical theory is used to study the effects of ERP implementation to marketing and manufacturing integration. An multiple-cases study of four companies in the electronic industry that have implemented ERP systems was conducted. The study shows that internal organizational and external factors affect the

interaction between manufacturing and marketing and reducing their gap that results in performance improvement. ERP systems facilitate the integrated-interaction performance between manufacturing and marketing. This study provides a new perspective of the factors that impacts the effectiveness of ERP systems.

Industrial Management &

Data System

Introduction

The Internet economy is a

customer-oriented

marketplace. Consumers are

increasingly engaged in an

active and explicit dialogue

with companies, its

marketing department or

even its manufacturing

department. The eFoundry

system from TSMC is an

example of such close

collaboration (TSMC, 2002).

The role of the consumer is

being transformed from

passive buyer to active

participant in creating added

values. The ability to provide

flexibility manufacturing

capability to enable mass

customization while still

being able to reduce costs

and improve quality is a

critical element for many

manufacturing firms to

compete in the marketplace

(Armacost et al., 1994;

Murakoshi, 1994; Whybark,

1994; Parente, 1996；Hsu，2000).

To respond quickly to

customer demands and

market changes requires

better integration of internal

functions and processes. In

the early 90s, business

process reengineering is the

1

approach taken by many

enterprises to achieve

dramatic performance

improvement, often through

process integration and

applications of some

enabling information

technology widely (Chen,

1999). Many BPR projects

have encountered an

insurmountable difficulty in

bring down the stovepipe-

like business processes and

the associated legacy systems

often referred to as "islands

of automation." ERP

systems emerging in the mid-

90s are becoming a possible

solution to integrate physical

production systems with

business processes via an

integration information

system. ERP systems often

consist of many modules

support business functions

such as manufacturing,

inventory management,

marketing, order processing,

etc. These modules are

integrated via a common data

model and database system

which indirectly supporting

the interactions among

various business functions.

Whether implementing ERP

systems really facilitate

better integration among

business functions and

improve the integrated-

interaction performance

performed jointly by these

departments are not

addressed by existing

research in ERP

2

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the

Integrated-Interaction

Performance of

Manufacturing and

Marketing

Industrial Management

& Data Systems

implementations.

This research is designed to

address the impacts of

information technologies, to the

integration business functions.

Since the integration between

manufacturing and marketing

processes are the key elements of

many firms' core business

processes. Our research is focus

on the effects of ERP systems to

the interactions and integration

between manufacturing

department and marketing

department. Implementing ERP

systems are very costly and time-

consuming, our research finding

may help researchers and

practitioners to gain insights of

how and why ERP systems in

improving firms' performances.

Our research goals include the

study of the relationships of

majors constructs defined in our

research model:

(a) study the internal and

external situational variables

and their relationships to the

gap in interaction process.

(b) examine the relationship

between gap in interaction

process and integrated-

interaction performance.

(c) Study the effect of ERP

implementation to the

relationship between gap in

the interaction process and

the integrated-interaction

performance.

Four case studies have been

conducted to verify the research

model proposed in this paper. The

literature supporting the

formulation of the research model

and the data collected from the

case studies are reported in this

paper. The analysis of the case

studies against the research

models and the implications of the

research results are discussed in

detailed in this paper.

Literature Review

Organizational integration is a

major challenge in modern

enterprises. Contingency theory

argues that the degree of

organizational integration is a

3

function of

environmental

uncertainty and

complexity. A resource-

based view would

suggest that the degree

of organizational

integration depends on

the costs associated

with integration and

resources availability.

Contingency theory

and socio-technical

theory are bases that

form the research

model of this study.

Contingency theory

addresses the impacts

of environmental

factors to an

organization and its

structures. Socio-

technical theory studies

the impacts of

technologies to

organizations and the

effects of

organizational process,

culture, and works to

technology

implementations

(Bostrom and Hensen,

1987a, 1987b). The

specializations of

functional departments

may become barriers

for corporations among

these departments

(Woodward, 1965; Thompson,

1967; Perrow, 1970). Socio-

technical theory suggests that

organizational characteristics of

various functional departments

may affect how they interact with

each other (Lorsch, 1965;

Lawrence and Lorsch,

1967,1986). Geser (1992)

conceptualized organizations as

social actors capable of

interacting with each other as well

as with individual actors.

Organization units (e.g., different

functional departments) are

differentiated actors that

participate simultaneously in

many different interaction

processes and they often have

contradictory values and rules.

Marketing department focuses on

meeting customer demands while

manufacturing department is

concerned with control the costs

and schedule of the production

process and inventory. The

interdependencies and interactions

based on different objectives are

the source of task conflicts

Li-Ling Hsu and

Minder Chen

Impacts of ERP Systems on the


Performance of Manufacturing

and Marketing

Industrial Management & Data

Systems

4


department and

marketing department.

Above statements, this

study considers the

ERP implementation

will be a useful

integrated tool to solve

some tough problems

of existing IS- islands

in many companies. As

Vosburg and Kumar

(2001) also pointed out

ERP implementation in

company replaced a

number of independent

mainframe legacy

systems

Contingency Theory and

Interaction process.

The interactions and

dependencies among departments

in an organization are contingent

upon internal and external factors

such as departmental structure,

task structure, specialization,

production structure, and

department objectives (Ruekert

and Walker, 1987; Kahn, 1994;

Parente, 1996). Kahn (1994) used

socio-technical and contingency

theory to interpret the interaction

and corporation performance

among departments. Parente

(1996) also used socio-technical

and contingency theory to develop

a research model to study cross-

functional interactions.

Organization Structure and

Interaction Process.

Literature on the interactions

between marketing department

and manufacturing department

often measure the organizational

structure based on degree of

formalization, centralization, and

specialization (Barclay, 1991;

Kahn, 1994; Parente, 1996). We

found that these three constructs

of organization structure are

highly correlated to gap in the

interaction process that includes

interface congruence gap and

resource sharing gap (Barclay,

1991; Kahn, 1994; Parente, 1996).

Organizational Climate and

Interaction Process.

Organization climate is the way

employees feel to work in an

organization. It is a set of

measurable characteristics of the

work environment, based on the

collective perceptions of the

people who work there that

influence their motivation,

behavior, and performance

(Wilkins and Ouchi, 1983). The

characteristics of organization

related to the fostering of

organizational climate include:

leadership style, job variability,

degree of decentralized decision

making and management,

individual's commitment to the

organization (Tyagi, 1985).

Barclay (1991) found that lack of

common culture among

departments makes these

departments to negotiate with

each others and has a positive

correlation to the gap in

interaction process. Although

Parente (1996) also suggested that

a more friendly organizational

culture has a positive effect on

achieving enterprise-wide

objectives and sharing common

values because the reduced gap in

interaction process should reduce

conflicts between manufacturing

and marketing. However,

according to Robbins (1998)

perspective of conflict

management, Hsu (2000) found

5

that certain degree of

conflicts may in fact

reduce the gap in the

interaction process


and marketing.

Market Turbulence

and Interaction

Process.

Market turbulence

can be measured by

customer loyalty,

changes in the

environments, and the

ability to forecast

market demand (Kahn,

1994). Parente (1996)

used a customer-

oriented definition of

market turbulence and

defined it as the

changing composition

of customers and their

preference towards

various products. Kahn

(1994) found that more

turbulent market

contributes to high

degree of uncertainty in

market information and

hence hinders the

interaction between

manufacturing and

marketing. However,

Parente (1996) pointed

that in order to serve

customers better in a

more turbulent market,

manufacturing Li-Ling Hsu and

Minder Chen




and Marketing


Systems

6

and marketing

department need to

interact more

frequently in order to

share information and

rescrouces, hence

reduce the gap in

resource sharing. Hsu

(2000) also found both

gaps in resource

sharing and interface

congruence are reduced

under more turbulence

market. Therefore, we

assume negative

correlation between

market turbulence and

gap in interaction

process.

Gap in Interaction

Process and

Integrated-

Interaction

Performance.

Literature in

manufacturing and

marketing interaction

research measures the

performance of the

interaction in the

following two

approaches. The first

approach is measured

the performance of

the interaction between

manufacturing and

marketing by

measuring the

performance of the whole

(Lawrence and Lorsch, 1967;

Bourgeois, 1980, 1985; Dess,

1987; Hrebiniak and Snow, 1982;

Ruekert and Walker, 1987; St.

John and Rue, 1991; St. John,

1991; St. John and Hall, 1991;

Bondra and Davis, 1996; St. John,

1999; Kumar et al., 2000).

Researchers using this approach

are assuming that the ultimate

goal for manufacturing and

marketing to work together is to

maximizing the profit of the firm.

However, there are many external

factors that may affect the firm

profit and internal factors among

employees and functional units

may also affect the profit of a

firm. Therefore, we prefer the

second approach that uses the

outcomes of the manufacturing

and marketing interaction as

performance indicators. These

outcomes include product quality,

timeliness of order delivery,

reliability, product line flexibility,

pricing, and customer services

(Hill, 1989). The activities

involve manufacturing and

marketing as well as interactions

between the two departments are

considered an import part of the

primary activities in a firm's value

chain. In our search, we only

measured the performance of the

integrated interaction between


department.

The indicators used to measuring

performance of the interaction

activities between manufacturing

and marketing are quite different

based on our literature review.

For example, Ruekert and

Walker（1987）use quality

management viewpoint to

measure the performance of


interactions and use Functional

Outcomes and Psycho-social

Outcomes as indicators.

Functional outcomes include the

degree of accomplishment of

manufacturing goals and

marketing goals, as well the joint

goals of the two departments.

Psycho-social Outcomes include

the perceived effectiveness the

relationships and degree of

conflicts between employees from


deapretment. Deaneet et al.

(1990) used Return On

Investment, Return On Sales,

Sales Growth, and Market Share

to measure the interaction

performance. Hill (1989)

suggested the use of quality,

delivery cycle time, reliability,

product line design, pricing, and

customer service level as

indicators for interaction

performance. Kohliand and

Jaworski (1990, 1993) adapted a

transaction process concept to

7

measure interaction

performance to include

indicators such as

customer responses,

business performance,

and employee

responses. St.

John（1991）reviewed

many literature and

proposed eleven

indicators such as

lower price, product

coverage, flexibility in

product design, product

line performance, and

after-sales service, etc.

St. John and Hall

(1991) used market

share and sales, profit

margin, product quality,

and production costs as

indicators of individual

department's

performance while

emphasized

customizability in

production scheduling,

total

Li-Ling Hsu and

Minder Chen




and Marketing


Systems

quality management standards,

handling of customer complaints,

new product development, cost

control, and inventory control as

performance indicators of joint

decisions by manufacturing and

marketing. Pinto et al., (1993)

used task outcomes and social

outcomes to measure the

performance of the cross-

functional task force. Task

outcomes are related to the

execution of project tasks and

social outcomes are related to

perceived satisfaction and values

by people involved in the task

force. Karmarkar (1996)

concluded that flexible

combination of quantity (i.e.,

cycle time, quality, and

flexibility), risk, and involved in

decision

marketing etc. as performance

indicators. Kahn and McDonough

(1997) studied the interactions

among production, marketing, and

R&D department and used

performance outcomes due to

interactions among departments

as indicators. These joint

performance outcomes include:

individual department level

performance, enterprise-level

performance, performance of

product development, product

pre-launch management, and post-

launch management, as well as

satisfaction of interactions among

8

departments.

ERP Benefits

ERP systems are

enterprise-wide

application packages

that are designed to

provide information

systems integrated

supports to various

business functions such

as

manufacturing, inventory

management, financial and

accounting, human resource

management (Tarn et al., 2002).

Gupta (2000) also described ERP

allows companies to integrate

various departmental information.

Common databases and data

models as well as consistent

cross-functional information flow

in ERP systems should assist

various departments to coordinate

their activities more (Hicks,

1997). Firms that implement ERP

systems would have built more

integrated value chain processes.

ERP solutions seek to integrate

and streamline business processes

and their associated information

and work flows (Al-Mashari,

2002). These integrated internal

processes are often integrated

with external systems from

trading partners to form an

industry-wide supply chain.

Information about supply and

demand of products and services

can be made shared with suppliers

and customers timely, accurately,

and consistently. Firms that

implement ERP can select

appropriate ERP features by

configuring systems parameters

differently to customize the

systems to support core business

functions to improve customer

services (Kumar and

Hillegersberg, 1999). ERP

systems have become a major

enabler to transform an enterprise

into an integrated, process-

oriented, information-driven and

real-time organization.

9

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


& Data Systems

Table 1. Benefits of ERP

Tangible

Benefits

Support production capacity planning; provide more accurate market demand

forecast; facilitate mass customization and improve manufacturing flexibility;

increase inventory turnover rate; decrease inventory level and cost; control and

improve product quality; speed up new product development cycle and time-to-

market; reduce the cycle time of order fulfillment; achieve operational excellence

Intangible

Benefits

Allocate enterprise resource better; increase communications among departments;

Integrate information across the enterprise; Increase the available of critical

operational and decision support information to provide visibility of enterprise

planning activities; Access to real-time business intelligent; Improve information

flow among departments; Increase response time to customer order and inquiries;

Improve service quality; Improve customer satisfaction and loyalty; growing

purchase from customers.

Source: this study

Firms' strategic objectives to

implement ERP are different

(Shang and Seddon, 2000),

therefore, the perceived and

realized benefits of ERP

implementation are different and

difficult to define. In this research,

we classify ERP benefits into

tangible and intangible benefits.

The summary of these benefits

based on our literature review are

shown in Table 1, (Davenport,

1998; Jeanne, 1999; Jeson and

Johnson, 1999; SAP INFO, 1999;

BCG, 2000; Davenport, 2000;

Poston and Grabski, 2001).

10

Research Model

and

Propositions

Literatures in

manufacturing and

marketing interaction

are built upon

contingency theory and

socio-technical theory.

We have synthesized

these two theories and

formulate the research

model, depicted in

Figure 1, to study the

impacts of ERP

systems on the

integrated-interaction

performance between

manufacturing and

marketing.

11

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


& Data Systems

Research ModelThe first half of the

research model is an

operational model showing

Internal and external con

Research Model

The first half of the research

model is an operational model

showing Internal and external

contingency factors that are linked

to the gap in interaction process


marketing. These links are

deduced from empirical

researches from

literatures (Woodward,

1965; Thompson, 1967;

Shapiro, 1977; Ruekert

and Walker, 1987;

Barclay, 1991; Rho et

al., 1994; Parente,

1996). The

relationships among the

constructs "Gap in

Interaction Process",

"Integrated-Interactive

Performance", and

"ERP Benefits" form

the conceptual model

derived mainly from

literature in ERP

implementation

research (Berry, 1991;

Pearce and

Robinson, 1991;

Crittenden 1992, 1993;

Rho et al., 1994; Bragg,

1997; Davenport, 1998;

Connolly, 1999; Jeson

and Johnson, 1999;

Jeanne, 1999; Piturro,

1999; Tom, 1999; SAP

INFO, 1999; BCG,

2000; Deloitte

Consulting, 2000;

Davenport, 2000;

Poston and Grabski,

2001).

Propositions of

Organization

Structures and

Interaction Process

In literature of organizational

design, organizations consist of

three structural factors:

formalization, centralization, and

specialization (Barclay, 1991;

Robbins, 1998; Kahn, 1994;

Parente, 1996) In the context of

Li-Ling Hsu and

Minder Chen




and Marketing


Systems

MIS implementation,

Kwon and Zmud

(1987) define

formalization as the

degree of functional

differentiation. More

formalized

organizations have

clear work definition

and standardized

procedures.

Centralization is the

degree of concentration

of decision making

activity.

Centralization may

increase the efficiency

of operations.

However,

decentralization has the

advantages of more

responsive to local

changes and creating an

environment nurturing

creative ideas (Choi

and Hong, 2002)

Specialization refers to

the division of labor

within organization for

efficiency reason;

however, potential for

increasing conflict may

be raised.

Formalized work and

procedure could reduce

the gap in interaction

process, indicating

negative correlation

between formalization and gap in

interaction process.

Centralization may decrease the

communication effectiveness

among departments; however, a

decentralized organization which

lacks a clear chain of command

may have less effective

interaction process between


(Robbins, 1998; Weber and

Pliskin, 1996). High degree of

centralization in organization

should reduce the gap in

interaction process (Lim, 2000).

Organization with higher degree

of specialization may have more

specialists and clearly define

departmental lines which make

the interaction difficult (Barclay,

1991; Kahn, 1994; Parente, 1996).

Hsu (2000) research found that

when the degree of specialization

is lower, the gap in interface

congruence and resource sharing

is bigger. However, in the context

of managing intellectual capital,

business intelligence, enterprise

integration, the manufacturing and

marketing department of an

organization with higher degree of

specialization, will be more

aggressive seeking opportunities

to work with each other in order

to reduce the gap in their

interaction process. In this

research, more rigorous

organizational structure means

that higher degree of

specialization of expertise, more

concentration of decision making

activity, higher degree of

functional differentiation with

more clearly defined work and

procedure, but less autonomy.

P1: The interface congruence

gap between manufacturing and

marketing department is smaller

when the organization structure

of a firm is more rigorous.

P2: The resource sharing gap



when the organization structure

of a firm is more rigorous.

Organizational climate can be

defined as the way that employees

feel to work in an organization or

more formally defined as a set of

measurable properties of the work

environment, based on the

collective perceptions of the

people who live and work there

that influence their motivation and

behavior. Organizational climate

is considered as a joint property of

both the organization and the

individual (Ashforth, 1985).

Existing researches have

theorized that a better

organizational climate has a

positive correlation with

interaction process gap (e.g.,

reduce the gap), however, this

proposition is not verified

empirically. TSMC (2002) is a

world-famous IC

foundtry firm and

concluded that

organization culture

with some degree if

conflicts may reduce

the

interaction process gap.

This company’s report

had made consistent

with conflict

management viewpoint

that maintaining certain

degree of conflict may

ensure employees'

innovation and

entrepreneurship

(Robbins, 1998). This

is reflected in our

research model

indicating that

organizational climate

has a

Li-Ling Hsu and

Minder Chen




and Marketing


Systems

positive correlation with the

interaction process gap. Two

propositions derived from the

model are stated as the following:




when the degree of conflict in

organizational climate is higher.




when the degree of conflict in

organizational climate is higher

Market turbulence can be

measured by the loyalty of

customers (such as customer

retention rate), market

predictability, and product

preference change by customers.

When a firm perceives high

market turbulence, the gap


marketing department interaction

process will be smaller (Hsu,

2000). More coordination


marketing are required via

interface congruence in order to

survive in the dynamic

marketplace. They also need to

share information and other

resources to understand customers

and markets better and to react to

market changes quickly.

Therefore our research model

indicates that market turbulence is

negatively correlated with

interaction process gap.

P5: The interface

congruence gap

between

manufacturing and

marketing department

is smaller when market

turbulence perceived

by a firm is higher.

P6: The resource

sharing gap between

manufacturing and


is smaller when market

turbulence perceived

by a firm is higher.

Technology

dynamics include how

fast technology related

to key product

components and

materials are changing,

as well as breakthrough

in manufacturing

process and mass

production techniques.

When technologies are

more dynamic, the

manufacturing and


tends to be more

cautious in working

with each others to

achieve interface

congruence. They will

also demand better

sharing of information

and other resources in

order to serve customer better.

High technology dynamics tends

to reduce gap in the interaction

process.




when technology dynamic

perceived by a firm is higher.




when technology dynamic

perceived by a firm is higher.

Literature in manufacturing and

marketing suggested that conflicts


marketing tend to decrease the

performance related to the

interaction between the two

departments (Dutton and Walton,

1966; Souder, 1981; Weinrauch

and Richard, 1982; Powers et al.,

1988; Berry, 1991; Pearce and

Robinson, 1991; Crittenden,

1992; Crittenden et al., 1993).

Integrated-interaction

performance is the measurement

used in judging the results of

interaction activities between


The smaller gap in interaction

process, the better performance

created by the interaction between


department. Therefore, we expect

negative correlation between gap

in interaction process and

integrated-interaction

performance.

P9: The functional output will

be higher when the interface

congruence gap between


department is smaller.

P10: The valuable output will be

higher when the resource

sharing gap between


department is smaller.

The activities involving both


Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


& Data Systems

departments as part of the

definition of interface congruence

between these two departments

include: capacity planning,

product customization, inventory

management, quality control,

product line change, marketing-

manufacturing improvement

projects, new product

development, and on-time order

delivery (Rho et al., 1994;

Parente, 1996; Hsu, 2000) The

tangible benefits of implementing

ERP systems cited in the literature

include shorten the product

development life cycle, increase

on-time order delivery, reduce

production costs, improve quality,

reduce inventory, better inventory

management. There benefits are

highly associated with the above-

mentioned activities related to the

interface congruence. The

activities involving both


departments as part of the

definition of resource sharing

between these two departments

include: sharing physical and

financial resources, information

and knowledge sharing, satisfying

customer needs, and creating add-

value for customers (Narver and

Salter, 1990; Parente, 1996; Hsu,

2000). The intangible benefits of

implementing ERP systems cited

in the literature include improving

service quality, faster response to

customer needs, sharing and

exchanging information,

providing information accurately,

timely, and consistently. These

intangible benefits are directly

supporting the need to share

resources. Thus, we believe that

ERP benefits are supporting the

reducing gaps in interaction

process between manufacturing

and marketing in term of interface

congruence and resource sharing,

which contribute to the

improvement of integrated-

interaction performance.

P11：The tangible ERP benefits

are enhancing the relationship

between interface congruence

and functional outcomes.

P12：The intangible ERP

benefits are enhancing the

relationship between resource

sharing and valuable outcomes.

Case Analysis

In-depth interviews using

structured and semi-structured

formal surveys are used to collect

primary data to verify the

proposed operational model and

the conceptual model. Interviews

are recorded for conducting more

detailed and accurate analysis.

Literature in

manufacturing/marketing

interactions and ERP as well as

documentations provided by four

companies studied are analyzed

and reported in this

paper. The structured

survey questionnaire

was developed based

on literature and

instruments used in

manufacturing/marketi

ng literature and the

validity of the

questionnaire is listed

in Table 1.

We conducted two

case studies as pre-test.

They are medium size

firms one in the electronic

industry and one in the more

traditional industry. We found that

the impacts of ERP to the

interaction between

manufacturing and marketing is

higher in the electronic industry,

probably due to more turbulent

market in the electronic industry

that dictates more interactions

between the two departments and

hence the needs for ERP system's

support for their integrations

(Hsu, 1998; Hsu, 1999; Hsu,

2000). Since companies have

implemented ERP systems in

recent years are large companies

that have complicated business

processes and facing global

competition, they see ERP

implementation as means to

achieve enterprise integration

(Davenport, 2000). Therefore, in

the formal case studies,

we decided to choose four "large"

firms in the electronic industry.

Induction to the Case Studies

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


& Data Systems

Table 2：Summary of Companies Background of Case StudiedCompany

BackgroundCompany A Company B Company C Company D

Years in Business 31 27 9 18

Total number of

employees3,501 – 4,000 3,501 – 4,000 2,001-2,500 2,001-2,500

Annual revenues in

US dollars300 million 300 million 30-150 million 30-150 million

Manufacturing and

Marketing TypeOEM OEM OEM OEM

Production Model BTO BTO BTO BTO

Company

BackgroundCompany A Company B Company C Company D

Main Products IC packagingNotebook

computerPower supplies Computer Peripherals

ERP System SAP/R3 SAP/R3 TIP TOP Oracle Applications

Implementation Costs 6~16 million 6~16 million 1.5 million 1.5 million

Implementation

Starting Time1997/12 1999/07 2000/05 2001/01

Unit in charge of

implementationERP Team

Process

Reengineering

Department

MIS Department MIS Department

No. of MIS

EmployeesLevel*

30-

401 70 1 2 3 9 1

* Level: Level is referring to the level of the unit in charge of implementation in the organization

hierarchy.

The formal interviews were

conducted in March and April

2002. MIS directors from four

case study firms are interviewed

for about three hours. The

backgrounds of these four firms

are summarized in Table 2. We

paired Company A and B as well

as Company C and D in our

analysis because of their similar

in size (large vs. medium size

enterprise) and resources. We will

be analysis propositions derived

from operational model and then

analysis propositions derived

from conceptual model based on

data collected.

Analysis of Propositions from the

Operational Model

The survey questionnaire

used a Likert-type scale from 1 to

7. The validity of operational

instruments used in the structured

questionnaire is summarized in

Appendix A. Table 3 summarized

the result of the survey results of

interaction process gap in regard

to the internal and external factors

from the four cases studied. The

propositions P1~p8 derived from

the operational model are

discussed in the following: Except

for P7 and P8 that are not

supported by data from Company

C and D, all propositions are

supported. We believe that the

reason that case study firm D just

finished implementing ERP for

three months, there were steep

learning curve for marketing and

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


& Data Systems

manufacturing department

employees to learn how to use the

information about both marketing

and manufacturing functions

provided by the ERP systems.

This may increase the gap in the

interaction process between


The impacts of ERP will be

discussed in the analysis of the

conceptual model.

Table 3: Verification of Operational Model PropositionsInternal and

External Factors

Interface Congruence

Gap

Resource

Sharing Gap

Verifi-

cation

Internal and External Factors

Interface Congruence

Gap

Resource

Sharing Gap

Verifi-

cation

P1

A > B

A < B V P1

C > D

C > D V

P2 A < B VP

P2C < D V

P

P3A < B

A < B VP

P3C < D

C < D V

P

P4A < B V

P

P4C < D V

P

P5A > B

A < B VP

P5C > D

C > D V

P

P6A < B V

P

P6V

P

P7A > B

A < B VP

P7C < D

C < D X

P

P8A < B V

P

P8C < D X

Analysis of

Propositions from the

Conceptual Model

Data collected from 4 cases

indicated that after the

implementation of ERP systems

the interface congruence gap


marketing is reduced; resource

sharing gap is smaller;

the valuable output of

the

integrated-interaction process

performance is higher. Therefore,

the proposition P9 and P10 are

supported by these case studies.

The assessment of ERP benefits

towards reducing gap in

interactive process and hence

improving integrated-interaction

performance in term of functional

outputs and valuable outputs are

summarized in Table 4.

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


& Data Systems

Table 4: Evaluation of ERP Systems' Contribution to Integrated-Interactive Performance in Four Case Studies

Integrated-Interactive

PerformanceA B C D

Integrated-Interactive

PerformanceA B C D

Functional Output

Capacity Planning 2 2 2 2 Valuable Output

Sharing Physical

Resource3 3 1 0

Product Customization 2 3 2 0 Information Sharing 3 3 3 3

Inventory Management 3 3 3 3 Knowledge Sharing 1 1 1 0

Quality Control 3 0 0 0 Satisfy Customer Needs 2 2 2 0

Product Line Change 3 3 3 3 Add Values to Customer 2 2 2 0

Master Production Plan

Change0 0 0 0

New Product

Development2 2 2 2

Timely Delivery 3 3 3 3

Note: 0: Not Used; 1 - Low; 2 – Medium; 3 - High

Based on the analysis of the

data tabulated in Table 4, we

conclude that ERP systems

have improved performance of

the following activities

involving manufacturing and

marketing department:

inventory management,

product line change, timely

delivery of ordered products,

and sharing information.

However, sharing knowledge

is an activity that ERP systems

do not seem to be very helpful.

ERP systems are basically

transaction processing

systems. Most recently ERP

vendors have started to add

business intelligence to the

ERP offering to provide better

analysis function of the

transaction data.

However, the unstructured or

semi-structured data or

documents and the messages

interchanges by employees

during a problem solving

process are not captured in the

ERP systems. These messages

and structured and

unstructured documents are

essential ingredients for

knowledge management

systems have not been

incorporate into ERP systems.

A synopsis of perceived

impacts of ERP systems on

five manufacturing and

marketing activities from case

studies interviews is presented

in Table 5.

Li-Ling Hsu and

Minder Chen

Impacts of ERP Systems on

the Integrated-Interaction


and Marketing

Industrial Management &

Data Systems

Table 5: Impacts of ERP Systems on Manufacturing/Marketing ActivitiesActivity Summary of Interviewees comments

Inventory

Management

ERP provides data regarding inventory turnover rate and inventory level; therefore

help manufacturing and marketing employees to improve the inventory management

processes. Such inventory information could not be provided by the old legacy MIS

systems in the past.

Product Line

Change

Manufacturing firms that produce for OEM market often rely on their customer's

forecast to determine the market demands. The actual demands may be different

from the forecasts, therefore the ERP systems can provide more accurate and timely

information to assist the manufacturing department to change the product mix and

provide the marketing department with capacity information and estimation or order

commit dates 。

Timely

Delivery

ERP systems integrate information regarding to inventory, orders, work-in-process,

and production schedule. Manufacturing and marketing departments can be alerted

with production problems such as part shortage so that they can handle the situations

in time to ensure timely delivery of products been ordered.

Information

Sharing

One major benefit of ERP systems is the integration and availability of information

to employees. Departments such as manufacturing and marketing will receive

consistent data to reflect business processes and transactions across functional areas.

The information sharing is very difficult to achieve before ERP implementation

when information systems are implemented just for one business function at a time

creating so called islands of automation.

Knowledge

Sharing

ERP systems can provide more timely and accurate information for managerial

decision making; however, it is still difficult to use ERP systems to share knowledge

between marketing and manufacturing departments.

Source: this study

Table 6: Summary of Verification of Propositions Derived from Conceptual Model

Case

PropositionsCompany A Company B Company C Company D

P9 Supported Supported Supported Supported

P10 Supported Supported Supported Supported

P11 Partial

Supported

Partial

Supported

Partial

Supported

Partial

Supported

P12 Partial

Supported

Partial

Supported

Partial

Supported

Partial

Supported

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


Systems Based on data presented in Table

4 and 5, we concluded that our

propositions P11 and P12 are

partially supported. The

verification of propositions

derived from conceptual model

based on this research is

summarized in Table 6.

Conclusions

This research supports most of

our propositions derived from

contingency theory and socio-

technical theory. More rigorous

the organization structure, higher

level of conflicts in organizational

climate, more turbulent market

and dynamic technology are

factors that most likely reduce the

gap in interaction process between

manufacturing and

marketing. Better

interactions between

manufacturing and


increase the integrated-

interactive performance

of the two departments

involved. The ERP

benefits is a moderator

variable that facilitate

the reduction of gap


and marketing

department's

interaction, hence

further improve the

performance due to the

integration and

interaction between

manufacturing and

marketing. The actual

contributions of ERP to

such performance are

different in the four

case studies. However,

the positive impacts of

ERP implementation to

the performance

improvement from

better integration and

interaction between

manufacturing and

marketing found in our

research are critical to

the understanding of

why ERP works from a

socio-technical

perspective.

We have identified four issues

based on our interview data that

deserve further research efforts:

1. How long that ERP has been

implemented shall be considered

as a factor that ERP benefits are

affecting the integrated-

interaction performance. The firm

D in our study was at the earlier

stage of ERP implementation and

did not show the impacts of ERP

on improving the functional

outputs or valuable outputs. This

led us to believe that the how long

that ERP has been implemented

should be a factor in future study

or a criteria in selected cases to be

studied.

2. The employees' experiences

and satisfaction with old systems

may affect the degree of

resistance they may have against

ERP implementation; hence the

degree of satisfaction they have

towards ERP systems.

3. Practitioners have not

developed a comprehensive

performance measures for

ERP systems. Implementing

ERP systems is costly and

time consuming. When the

4. expected benefits are not

realized after they are

deployed, it is difficult to

abandon the ERP systems

once the old legacy systems

have been replaced.

5. The expected benefits of ERP

systems often are not realized

after the ERP

implementation. First, ERP

systems were developed

based on some baseline

process and data models

which may not be consistent

with the models required by

firms that implement ERP

systems. Many firms could

either launch business

process reengineering (BPR)

projects in conjunction with

ERP implementation to

change their existing

processes to adapt to the

process embodied in the ERP

systems, or they could also

customize ERP systems to

adapt the application

packages to their work

processes. However, if the

gap between the ERP

baseline model and the firm's

business practices is too

large, the customization will

be too costly, we recommend

that other ERP systems

should be

Li-Ling Hsu and

Minder Chen

Impacts of ERP

Systems on the


Performance of

Manufacturing and

Marketing


& Data Systems

evaluated or custom-built

solutions should be considered.

This research has several

constraints that limited the

applicability of the case study

results. These constraints are:

1. Generalization: The four case

studies increase the

generalizability of case study

results comparing to a single case

study design. However, all 4 cases

are firms in the electronic industry

so that the result may be able to

generalize to other industries.

2. Cross-section study. Our

research is a cross-section

case study, in stead of

longitudinal study, which

limited our ability to study

time-varying effects of

constructs/variables in our

research model.

3. Subjects interviewed. We

have interviewed only some

marketing and manufacturing

managers in these four

companies because these

managers are located

separately in mainland China

and Taiwan and only

managers located in Taiwan

are interviewed.

Our research finding can be

very useful to practitioners that

are implementing ERP systems.

Firms that face more turbulence

market and dynamic technology

environments as well as have

more rigorous organization

structure and confrontational

organizational climate may have a

better chance to reduce the gap


marketing department's

interaction. The interaction

interfaces as well as resource and

information sharing mechanisms

should be careful examined before

ERP implementation. Functional

level managers from


should be involved in specifying

their requirements for the new

ERP systems. Information and

functions in different modules the

new ERP systems should be made

available to personnel cross

functional areas (under different

access privileges). Currently the

integration of manufacturing and

marketing function in ERP

systems is through a shared data

model and database.

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Appendix A: The Reliability of Operational Instruments in the Structured Questionnaire Used

in this Research

Research

Constructs

Literature

Organizational

StructureOrg.

Climate

Market

Turbulence

Technology

Dynamic

Gap in the Interaction

Process

Interface

Congruence

Resource

Sharing

A1 A2 A3 Manu

.Mark. Manu. Mark.

Narver and Slater, 1990* 0.73

Barclay, 1991 0.89 0.88 0.84 0.92

Kahn, 1994 0.67 0.82 0.31 0.68 0.84 0.92

Rho et al., 1994* 0.68

Strieter, 1995 －Parente, 1996* －－－ 0.89 0.88 0.79 0.61

Hsu, 2000* 0.61 0.69 0.75 0.60 0.57 0.73 －－ A1: Formalization; A2: Centralization; A3: Specialization

Manu.：Reliability of manufacturing department's response

Mark. : Reliability of the marketing department response.

Blank cells: indicate that the research cited did not include the corresponding construct.

—: The reliability of the construct was not provided in the research.

* For consistency, the data are rounded to two decimal places.

Source: this study

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