ERP Investment: Business Impact and Productivity Measures

Enterprise Resource Planning (ERP) software system integrates key business and management processes within and beyond a firm’s boundary. While the business value of ERP implementations have been extensively debated in IT trade periodicals in the form of qualitative discussion or detailed case studies, there is little large sample statistical evidence on who adopts ERP and whether the benefits of ERP implementation exceed the costs (and risks). With multi-year multi-firm ERP implementation and financial data, it is found that larger firms (and those with slightly better performance) tend to invest in ERP. Even though there is a slowdown in business performance and productivity shortly after the implementation, financial markets consistently reward the adopters with higher market valuation (as measured by Tobin’s q). Due to the lack of midand long-term post implementation data, future research on the long run impact of ERP is proposed.