Business benefits of Enterprise Resource Planning

IMPLEMENTATION of Enterprise Resource Planning (ERP) requires a substantial investment of money and other organizational resources and is often fraught with a high risk of failure due to organizational change.

Despite numerous attempts to quantify the contribution of ERP investment to firm performance in both theoretical and empirical studies, the major question frequently ask is 'what is the return on ERP investment?'

The answer to this question is not simple. In fact there are three stakeholders of the ERP project, viz., Vendor, Implementation Partner and User Organization. The vendors and implementation Partners promise big business benefits such as enhanced enterprise productivity, more accurate business planning, improved customer services, increased value in stock market, etc. to the user organization.

While the implementation issues of ERP have been extensively studied and published worldwide, there is not much study reported and published on the business impact of ERP adoption. Although some research reports and case studies on the business impact of ERP have been published, majority of them were focused on larger firms.

The majority of these studies revealed that the ERP adopted company gives greater performance in terms of sales per employee, profit as well as operating margins, return on assets, inventory turnover, assets utilization, working capital turnover, accounts receivable turnover, etc. The studies further reveal that it takes about eight months to realize the benefits of the new system.

However, some of the studies found little or no improvement in business performance contributing to ERP investments. The causes for these contradictory outcomes were further examined and it was found that ERP implementation results into business performance improvement only when they are associated with organizational improvement efforts such as business process re-engineering, corporate restructuring, and creating strategic business units and so on.

It is now quite clear that merely acquiring and installing ERP does not provide any benefits to an organization. However, its proper implementation along with organization maturity and business process transformation can have a dramatic impact.

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