A Study of How Underperforming Firms Follow Industry Leaders When Adopting ERP Systems and the Economic Effects of Their Adoption Decisions

Researchers have proposed but not tested that early-stage adopters of ERP systems tend to be higher-performing firms that adopt as a means of gaining or maintaining a competitive advantage. In contrast, they have proposed that late-stage adopters are underperforming firms that experience institutional pressures and make adoption decisions partly in response to those pressures and to try to improve performance and catch-up to industry leaders. In this study, we examine the relationship between firm performance and ERP adoption. We found that late-stage adopters tend to have lower financial performance relative to the overall market in the years leading up to adoption decisions as compared to early-stage adopters that tended to outperform the market in years leading up to adoption decisions. This finding demonstrates the relationship between firm performance and ERP adoption. We also found that, postadoption, the relative performance of late-stage adopters tends to improve more than early-stage adopters. This finding suggests that following the actions of industry leaders and adopting ERP systems can have economic benefits for underperforming firms.