ERP systems as an enabler of sustained business process innovation: A knowledge-based view

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<ul><li><p>ERP systems as an enabler of sustained businessprocess innovation: A knowledge-based view</p><p>tion, and extension. Academy of Management Journal 27 (2), 185203], a theoretical framework is</p><p>* Corresponding author. Tel.: +66 2 231 1270 2; fax: +66 2 231 1273.E-mail addresses: (T. Srivardhana), (S.D. Pawlowski).</p><p>1 Tel.: +1 225 578 2507; fax: +1 225 578 2511.</p><p>Journal of Strategic Information Systems 16 (2007) 5169</p><p>$ - see front matter 2007 Elsevier B.V. All rights reserved.developed to specify the relationships between ERP-related knowledge impacts and potential/real-ized absorptive capacity for business process innovation. The implication of the knowledge-basedanalysis in this paper is that ERP systems present dialectical contradictions, both enabling and con-straining business process innovation. The model highlights areas where active management haspotential to enhance the capabilities of a rm for sustained innovation of its business processes.Future research directions are also outlined. 2007 Elsevier B.V. All rights reserved.</p><p>Keywords: Enterprise resource planning systems; Absorptive capacity; Business process innovationThongchai Srivardhana a,*, Suzanne D. Pawlowski b,1</p><p>a Graduate School of Commerce, Burapha University, Bangkok Education Center, 14th Floor,</p><p>United Center Building, Silom Road, Bangkok 10500, Thailandb Louisiana State University, Information Systems and Decision Sciences Department, 3185 CEBA,</p><p>Baton Rouge, LA 70803-6312, USA</p><p>Received 25 November 2005; accepted 20 January 2007Available online 6 March 2007</p><p>Abstract</p><p>This research examines the relationship between ERP systems and innovation from a knowledge-based perspective. Building upon the multi-dimensional conceptualization of absorptive capacity byZahra and George [Zahra, S.A., George, G., 2002. Absorptive capacity: a review, reconceptualiza-doi:10.1016/j.jsis.2007.01.003</p></li><li><p>52 T. Srivardhana, S.D. Pawlowski / Journal of Strategic Information Systems 16 (2007) 51691. Introduction</p><p>The research in this paper challenges conventional beliefs about the relationshipbetween enterprise resource planning (ERP) systems and business process innovation.While common views of ERP systems as constraining and inexible (like cement, the crit-ics say highly exible in the beginning, but rigid later (Davenport, 2000, p. 16) seemincommensurate with the notion of innovation, the analysis presented in this paper revealsa dierent picture. Rather than focusing exclusively on the structural constraints that thesesystems impose, we direct attention to the impacts of an ERP system on the knowledgecapabilities of the organization. In contrast to prevailing views, a knowledge-based per-spective reveals that ERP systems have the potential to signicantly enhance the capabil-ities of a rm for sustained innovation of its business processes. The implication of ouranalysis is that ERP systems present dialectical contradictions, both enabling and con-straining business process innovation. The theoretical model presented in this paper makesseveral important contributions. First, the model provides a foundation for understandingthe dialectical and often complex relationship between ERP systems and innovation.Moreover, the model highlights the ways that organizations can cultivate and leveragethe enabling elements to create enhanced business process innovation capabilities. Finally,the model provides a foundation for future empirical investigations to further explorethese relationships.</p><p>For many rms, an ERP system is critical to ongoing operations of the company andalso represents their largest IT investment. For these same organizations, knowledge capa-bilities (generation, combination-recombination and exploitation of knowledge) can pro-vide a source of competitive advantage (Conner and Prahalad, 1996; Grant, 1996; Kogutand Zander, 1996). The objective of the research in this paper, then, is to carefully examinethe relationship between the technological and operational capabilities provided by anERP system and the knowledge capabilities of the rm for sustained business processinnovation. Broadly dened, the process of innovation is the development and implemen-tation of new ideas in an organization, including inventions, imitations and adaptations(Van de Ven, 1986; Webster, 2004). The premise of the research presented in this paperis that an ERP system provides the potential for enhanced knowledge capabilities for busi-ness process innovation. The realization of these capabilities, however, is dependent on thedevelopment of associated social integration mechanisms for knowledge sharing, integra-tion and creation, and routines for innovation, learning and renewal. The research pre-sented here develops a theoretical framework to explore these ideas and to provide afoundation for future research to better understand organizational strategies to: (1) reducethe gap between the potential and realized knowledge capabilities enabled by ERP sys-tems, and (2) develop routines to utilize these capabilities for sustained business processinnovation. To this end, we build upon and extend the model of absorptive capacity byZahra and George (2002) to introduce a new theoretical framework ERP Systems andBusiness Process Absorptive Capacity. In alignment with the original framework, businessprocess absorptive capacity is viewed as a dynamic capability inuencing the rms abilityto create and deploy knowledge to build its business processes. The framework also incor-porates insights from prior research on ERP systems from a knowledge perspective andstudies on boundary spanning/knowledge brokering and information systems (Levinaand Vaast, 2005; Pawlowski and Robey, 2004; Volko et al., 2004). The resulting</p></li><li><p>theoretical framework provides a more holistic picture of both the enablers and inhibitorsto process innovation related to ERP systems over the long term.</p><p>Before beginning the exposition of these ideas, a caveat is in order. While the frame-work presents both ERP-related enablers and inhibitors to business process innovation,the primary focus in the discussion is to highlight the enabling elements. It is important,however, to keep in mind that some characteristics of ERP systems (e.g., tight coupling,diculty of customization) inherently create major challenges to some forms ofinnovation.</p><p>The paper begins with an overview of the conceptualization of absorptive capacitydeveloped by Zahra and George (2002) and a review of prior work on ERP systems froma knowledge perspective. The proposed theoretical framework is described next, includingpropositions. Finally, directions for future research are oered.</p><p>2. Background</p><p>2.1. Business process innovation, knowledge transfer and absorptive capacity</p><p>A business process is a set of logically related tasks performed to achieve a dened busi-ness outcome (Davenport and Short, 1990). Unlike product innovation, which is targetedtowards product development and commercialization activities, process innovation relatesto improving organizational processes, e.g., sequencing of work routines, informationow. Our understandings of business process innovation are informed by the growingresearch on organizational learning and knowledge management. While dierent assump-tions about knowledge and its management are reected in this research (Schultze and Sta-bell, 2004), information sharing/knowledge transfer (both within and across the boundaryof the organization) is seen as an essential element for innovation. Within an organization,cross-unit knowledge transfer can produce creative abrasion (Leonard-Barton, 1995),generate improvisational sparks (Brown and Duguid, 1991) and create new informationpatterns by rearranging information already in use and incorporating information previ-ously neglected (Isabella, 1990; Macdonald, 1995). Firms also actively seek externalknowledge, for example, by expanding their networks to learn about new practices andtechnologies (Kogut, 1988).</p><p>The challenge confronted by rms seeking to stimulate innovation through knowledgetransfer is captured in the concept of knowledge stickiness (Szulanski, 1996). Knowl-edge is sticky, or dicult to transfer, the more it is embedded in individuals, contexts,or locations, causing transfer to be slow, costly and uncertain (Kogut and Zander, 1993).One of the primary knowledge-related factors found to inhibit knowledge transfer withinan organization is the lack of absorptive capacity the inability of the recipient to value,assimilate and apply outside sources of knowledge (Cohen and Levinthal, 1990; Szulanski,1996; Zahra and George, 2002). Absorptive capacity is also important in the transfer andadoption of knowledge from sources external to the rm. Drawing from the absorptivecapacity thesis, for example, a study on the role of alliances in the interrm transfer oftechnological capabilities found similar resource bases among partners (a source of rmabsorptive capacity) to be a critical element in successful transfer/adoption (Moweryet al., 1996).</p><p>Absorptive capacity, the central concept in the model developed in this paper, was orig-</p><p>T. Srivardhana, S.D. Pawlowski / Journal of Strategic Information Systems 16 (2007) 5169 53inated by Cohen and Levinthal (1990) and dened as a rms ability to recognize the</p></li><li><p>54 T. Srivardhana, S.D. Pawlowski / Journal of Strategic Information Systems 16 (2007) 5169value of external knowledge, assimilate it, and apply it to commercial ends (p. 128). Theunderlying premise is that prior related knowledge is needed to absorb and utilize newknowledge. Initially applied at the level of the rm, the concept has also been appliedat the business unit and team level (see, e.g., Tiwana and McLean, 2005). Firms exhibita high degree of variance in their level of absorptive capacity, impacting key areas of per-formance such as new product development, patents, licenses, etc. (Cohen and Levinthal,1990; Easterby-Smith et al., 2000). As one example, Usselman (1993) contrasts the absorp-tive capacity of IBM and its competitor, NCR, in responding to the advent of electroniccomputer technology in the early 1950s. Whereas IBMs executives were able to recognizeand value opportunities in emerging computing markets, NCR was cautious in adoptingelectronic computer technology, even when heavily pressured by its major customers to doso. The experiences of GM in attempting to learn Japanese manufacturing and manage-ment skills in the early 1980s through its joint venture with Toyota (NUMMI) providesanother example of dierences in absorptive capacity aecting knowledge transfer andexploitation, in this case at the division level. Although Saturn was able to apply muchof the knowledge from NUMMI, GM had limited success in transferring those know-hows to its other divisions that lacked similar know-whys and know-wheres (Lubatkinet al., 2001, p. 1361).</p><p>Because organizational memory and the transfer of knowledge within a rm are crit-ical elements of organizational learning (Rousseau, 1997), rms with higher levels ofabsorptive capacity tend to learn and perform better than rms with lower levels (Cohenand Levinthal, 1990). Absorptive capacity depends not only on the availability of newknowledge/information, but organization members also need the ability to convey theirlearning to one another and to develop common cognitive structures regarding the appli-cation of shared knowledge (Goodman and Darr, 1996; Rousseau, 1997). A rms levelof absorptive capacity, therefore, is not simply a sum of the absorptive capacities ofindividual employees and a rm cannot depend only on their employees to developabsorptive capacity (Cohen and Levinthal, 1990). In order to enhance and sustainabsorptive capacity, rms must go beyond human development strategies to developorganizational routines and processes to acquire, assimilate, transform and exploitknowledge.</p><p>It is our contention that the implementation of an ERP system provides new opportu-nities to acquire knowledge from external sources, develop common cognitive structuresamong employees from dierent functional areas, and implement new routines and pro-cesses to signicantly increase the level of a rms absorptive capacity related to businessprocess innovation. ERP systems make new external knowledge available to an organiza-tion through the best practices embedded in the system as well as knowledge from ven-dors and consultants involved in system implementation and support. Moreover, thedeployment of an ERP system requires concerted energies throughout the organization,and intensity of eort (the amount of energy expended by organizational members to solveproblems) is one of the important elements contributing to the development of absorptivecapacity (Cohen and Levinthal, 1990; Kim, 1998). Furthermore, these enterprise systemscut horizontally across the organization, establishing new connections between organiza-tional units that may have been siloed in the past and creating opportunities for increasedabsorptive capacity of functional groups as knowledge that was local becomes morewidely shared.</p></li><li><p>T. Srivardhana, S.D. Pawlowski / Journal of Strategic Information Systems 16 (2007) 5169 552.2. Prior research ERP systems and organizational knowledge</p><p>The research in this paper was motivated by the insights of earlier work on ERP sys-tems from a knowledge perspective. As shown in Table 1, the number of studies is lim-ited and the majority of the research to date has focused on knowledge issuesencountered during the system implementation phase or the shake-out period imme-diately following implementation. While our objective is to understand the relationshipbetween ERP systems and knowledge capabilities in the long term, the insights of theseinvestigations of the early stages in the system lifecycle provide strong indications ofopportunities for more enduring capabilities. The importance of knowledge transferand barriers to knowledge transfer are seen as consistent themes in these studies, con-rming that ERP system implementation requires intense and dicult work aroundknowledge issues. As described in the next section, it is this organizational knowledgework initiated during the implementation project that begins to provide the foundationfor future knowledge capabilities.</p><p>3. Conceptual model and propositions</p><p>In this section we introduce a new theoretical model of the relationships betweenERP systems and absorptive capacity for sustained business process innovation (seeFig. 1). The model builds upon the model of absorptive capacity by Zahra and George(2002) and also integrates insights from prior research on ERP systems, includinginhibitors to innovation. In alignment with the original framework, business processabsorptive capacity is viewed as a dynamic capability impacting the rms ability tocreate and deploy knowledge to build its business processes. Also consistent with Zahraand George (2002), potential and realized absorptive capac...</p></li></ul>