Journal of Strategic Information Systems 16 (2007) 5169

www.elsevier.com/locate/jsis

ERP systems as an enabler of sustained business

process innovation: A knowledge-based view
Thongchai Srivardhana

a,*

, Suzanne D. Pawlowski

b,1

Graduate School of Commerce, Burapha University, Bangkok Education Center, 14th Floor,
United Center Building, Silom Road, Bangkok 10500, Thailand
Louisiana State University, Information Systems and Decision Sciences Department, 3185 CEBA,
Baton Rouge, LA 70803-6312, USA
Received 25 November 2005; accepted 20 January 2007
Available online 6 March 2007

Abstract
This research examines the relationship between ERP systems and innovation from a knowledgebased perspective. Building upon the multi-dimensional conceptualization of absorptive capacity by
Zahra and George [Zahra, S.A., George, G., 2002. Absorptive capacity: a review, reconceptualization, and extension. Academy of Management Journal 27 (2), 185203], a theoretical framework is
developed to specify the relationships between ERP-related knowledge impacts and potential/realized absorptive capacity for business process innovation. The implication of the knowledge-based
analysis in this paper is that ERP systems present dialectical contradictions, both enabling and constraining business process innovation. The model highlights areas where active management has
potential 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.
Keywords: Enterprise resource planning systems; Absorptive capacity; Business process innovation

Corresponding author. Tel.: +66 2 231 1270 2; fax: +66 2 231 1273.
E-mail addresses: tobytcs@gmail.com (T. Srivardhana), spawlowski@lsu.edu (S.D. Pawlowski).
Tel.: +1 225 578 2507; fax: +1 225 578 2511.

0963-8687/$ - see front matter  2007 Elsevier B.V. All rights reserved.
doi:10.1016/j.jsis.2007.01.003

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T. Srivardhana, S.D. Pawlowski / Journal of Strategic Information Systems 16 (2007) 5169

1. Introduction
The research in this paper challenges conventional beliefs about the relationship
between enterprise resource planning (ERP) systems and business process innovation.
While common views of ERP systems as constraining and inexible (like cement, the critics say highly exible in the beginning, but rigid later (Davenport, 2000, p. 16) seem
incommensurate with the notion of innovation, the analysis presented in this paper reveals
a dierent picture. Rather than focusing exclusively on the structural constraints that these
systems impose, we direct attention to the impacts of an ERP system on the knowledge
capabilities of the organization. In contrast to prevailing views, a knowledge-based perspective reveals that ERP systems have the potential to signicantly enhance the capabilities of a rm for sustained innovation of its business processes. The implication of our
analysis is that ERP systems present dialectical contradictions, both enabling and constraining business process innovation. The theoretical model presented in this paper makes
several important contributions. First, the model provides a foundation for understanding
the dialectical and often complex relationship between ERP systems and innovation.
Moreover, the model highlights the ways that organizations can cultivate and leverage
the enabling elements to create enhanced business process innovation capabilities. Finally,
the model provides a foundation for future empirical investigations to further explore
these relationships.
For many rms, an ERP system is critical to ongoing operations of the company and
also represents their largest IT investment. For these same organizations, knowledge capabilities (generation, combination-recombination and exploitation of knowledge) can provide a source of competitive advantage (Conner and Prahalad, 1996; Grant, 1996; Kogut
and Zander, 1996). The objective of the research in this paper, then, is to carefully examine
the relationship between the technological and operational capabilities provided by an
ERP system and the knowledge capabilities of the rm for sustained business process
innovation. Broadly dened, the process of innovation is the development and implementation 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 paper
is that an ERP system provides the potential for enhanced knowledge capabilities for business process innovation. The realization of these capabilities, however, is dependent on the
development of associated social integration mechanisms for knowledge sharing, integration and creation, and routines for innovation, learning and renewal. The research presented here develops a theoretical framework to explore these ideas and to provide a
foundation for future research to better understand organizational strategies to: (1) reduce
the gap between the potential and realized knowledge capabilities enabled by ERP systems, and (2) develop routines to utilize these capabilities for sustained business process
innovation. To this end, we build upon and extend the model of absorptive capacity by
Zahra and George (2002) to introduce a new theoretical framework ERP Systems and
Business Process Absorptive Capacity. In alignment with the original framework, business
process absorptive capacity is viewed as a dynamic capability inuencing the rms ability
to create and deploy knowledge to build its business processes. The framework also incorporates insights from prior research on ERP systems from a knowledge perspective and
studies on boundary spanning/knowledge brokering and information systems (Levina
and Vaast, 2005; Pawlowski and Robey, 2004; Volko et al., 2004). The resulting

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53

theoretical framework provides a more holistic picture of both the enablers and inhibitors
to process innovation related to ERP systems over the long term.
Before beginning the exposition of these ideas, a caveat is in order. While the framework 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 of
innovation.
The paper begins with an overview of the conceptualization of absorptive capacity
developed by Zahra and George (2002) and a review of prior work on ERP systems from
a knowledge perspective. The proposed theoretical framework is described next, including
propositions. Finally, directions for future research are oered.
2. Background
2.1. Business process innovation, knowledge transfer and absorptive capacity
A business process is a set of logically related tasks performed to achieve a dened business outcome (Davenport and Short, 1990). Unlike product innovation, which is targeted
towards product development and commercialization activities, process innovation relates
to improving organizational processes, e.g., sequencing of work routines, information
ow. Our understandings of business process innovation are informed by the growing
research on organizational learning and knowledge management. While dierent assumptions about knowledge and its management are reected in this research (Schultze and Stabell, 2004), information sharing/knowledge transfer (both within and across the boundary
of 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 information
patterns by rearranging information already in use and incorporating information previously neglected (Isabella, 1990; Macdonald, 1995). Firms also actively seek external
knowledge, for example, by expanding their networks to learn about new practices and
technologies (Kogut, 1988).
The challenge confronted by rms seeking to stimulate innovation through knowledge
transfer is captured in the concept of knowledge stickiness (Szulanski, 1996). Knowledge 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 within
an 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 and
adoption of knowledge from sources external to the rm. Drawing from the absorptive
capacity thesis, for example, a study on the role of alliances in the interrm transfer of
technological capabilities found similar resource bases among partners (a source of rm
absorptive capacity) to be a critical element in successful transfer/adoption (Mowery
et al., 1996).
Absorptive capacity, the central concept in the model developed in this paper, was originated by Cohen and Levinthal (1990) and dened as a rms ability to recognize the

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value of external knowledge, assimilate it, and apply it to commercial ends (p. 128). The
underlying premise is that prior related knowledge is needed to absorb and utilize new
knowledge. Initially applied at the level of the rm, the concept has also been applied
at the business unit and team level (see, e.g., Tiwana and McLean, 2005). Firms exhibit
a high degree of variance in their level of absorptive capacity, impacting key areas of performance such as new product development, patents, licenses, etc. (Cohen and Levinthal,
1990; Easterby-Smith et al., 2000). As one example, Usselman (1993) contrasts the absorptive capacity of IBM and its competitor, NCR, in responding to the advent of electronic
computer technology in the early 1950s. Whereas IBMs executives were able to recognize
and value opportunities in emerging computing markets, NCR was cautious in adopting
electronic computer technology, even when heavily pressured by its major customers to do
so. The experiences of GM in attempting to learn Japanese manufacturing and management skills in the early 1980s through its joint venture with Toyota (NUMMI) provides
another example of dierences in absorptive capacity aecting knowledge transfer and
exploitation, in this case at the division level. Although Saturn was able to apply much
of the knowledge from NUMMI, GM had limited success in transferring those knowhows to its other divisions that lacked similar know-whys and know-wheres (Lubatkin
et al., 2001, p. 1361).
Because organizational memory and the transfer of knowledge within a rm are critical elements of organizational learning (Rousseau, 1997), rms with higher levels of
absorptive capacity tend to learn and perform better than rms with lower levels (Cohen
and Levinthal, 1990). Absorptive capacity depends not only on the availability of new
knowledge/information, but organization members also need the ability to convey their
learning to one another and to develop common cognitive structures regarding the application of shared knowledge (Goodman and Darr, 1996; Rousseau, 1997). A rms level
of absorptive capacity, therefore, is not simply a sum of the absorptive capacities of
individual employees and a rm cannot depend only on their employees to develop
absorptive capacity (Cohen and Levinthal, 1990). In order to enhance and sustain
absorptive capacity, rms must go beyond human development strategies to develop
organizational routines and processes to acquire, assimilate, transform and exploit
knowledge.
It is our contention that the implementation of an ERP system provides new opportunities to acquire knowledge from external sources, develop common cognitive structures
among employees from dierent functional areas, and implement new routines and processes to signicantly increase the level of a rms absorptive capacity related to business
process innovation. ERP systems make new external knowledge available to an organization through the best practices embedded in the system as well as knowledge from vendors and consultants involved in system implementation and support. Moreover, the
deployment of an ERP system requires concerted energies throughout the organization,
and intensity of eort (the amount of energy expended by organizational members to solve
problems) is one of the important elements contributing to the development of absorptive
capacity (Cohen and Levinthal, 1990; Kim, 1998). Furthermore, these enterprise systems
cut horizontally across the organization, establishing new connections between organizational units that may have been siloed in the past and creating opportunities for increased
absorptive capacity of functional groups as knowledge that was local becomes more
widely shared.

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55

2.2. Prior research ERP systems and organizational knowledge

The research in this paper was motivated by the insights of earlier work on ERP systems from a knowledge perspective. As shown in Table 1, the number of studies is limited and the majority of the research to date has focused on knowledge issues
encountered during the system implementation phase or the shake-out period immediately following implementation. While our objective is to understand the relationship
between ERP systems and knowledge capabilities in the long term, the insights of these
investigations of the early stages in the system lifecycle provide strong indications of
opportunities for more enduring capabilities. The importance of knowledge transfer
and barriers to knowledge transfer are seen as consistent themes in these studies, conrming that ERP system implementation requires intense and dicult work around
knowledge issues. As described in the next section, it is this organizational knowledge
work initiated during the implementation project that begins to provide the foundation
for future knowledge capabilities.
3. Conceptual model and propositions
In this section we introduce a new theoretical model of the relationships between
ERP systems and absorptive capacity for sustained business process innovation (see
Fig. 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, including
inhibitors to innovation. In alignment with the original framework, business process
absorptive capacity is viewed as a dynamic capability impacting the rms ability to
create and deploy knowledge to build its business processes. Also consistent with Zahra
and George (2002), potential and realized absorptive capacity are treated as distinct,
albeit related, concepts. This distinction is an important one, analogous to Marchs
(1991) dierentiation of exploration (e.g., search, experimentation, play) and exploitation (e.g., renement, selection, implementation, execution) activities. While a rm
may have the ability to continually renew its knowledge stock (potential capacity), it
may be unable to exploit that knowledge (realized capacity). Conversely, a rms prior
success at exploiting new knowledge does not assure that they will avoid falling into a
competence trap in the future, unable to deal with new environmental challenges without continued exploration and access to external knowledge (Ahuja and Lampert,
2001).
3.1. ERP systems implementation and the antecedents of absorptive capacity
In what ways does the implementation of an ERP system aect potential business process absorptive capacity? This question provides the starting point for the model. In their
general framework, Zahra and George (2002) propose three antecedent factors: (1) exposure to diverse and complementary external sources of knowledge, (2) experience related to
the locus of a rms technological search, and (3) the intensity of activation triggers that
encourage a rm to respond to specic internal or external stimuli. In the discussion that
follows, each of these factors is examined in the context of the implementation of an ERP
system.

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Reference

Knowledge focus

Phase ERP system lifecycle

Baskerville et al. (2000)

Impact of ERP on organizational knowledge (stock of knowledge, distribution,

learning processes)
Challenges of horizontal systems (e.g., ERP) as an information infrastructure
increasing interdependencies, reduced interpretive exibility of artifacts and need
to continuously negotiate and maintain interfaces
Relationships (contradictory and complementary) of an organizations ERP
system and a knowledge management system; impacts on eciency and exibility
Organizational knowledge sharing during implementation; sharing of tacit
knowledge among project team members and with organization members;
dimensions of organization culture that best facilitate knowledge sharing in ERP
implementation
Senior managers (vendor, consultant and client) understandings of knowledge
management in relation to ERP systems change management, corporate
information management, and integrating change/corporate information
management
Transfer of ERP implementation knowledge from consultants clients
Transfer and internalization of business knowledge in the ERP software package
to the adopting organization (types of knowledge transferred, resolution of
conicts with existing organizational knowledge, changed knowledge structure)
Relationship between social capital and knowledge integration within a project
team (bridging external; bonding internal)
Nature, structure and process of knowledge integration during ERP
implementation; embedded knowledge [in organizational processes, legacy system,
externally-based processes and the ERP system (post-implementation)]
Knowledge barriers related to the conguration of the ERP package, and barriers
associated with the assimilation of new work processes; approaches to address the
barriers
Knowledge transfer from the vendor and implementation partner client;
identied issues using Szulanskis (1996) taxonomy (sources of stickiness)
Knowledge transfer from an enterprise systems developer team to the users of the
new enterprise system (across dierent communities of practice)

Implementation and postimplementation

Implementation

Braa and Rolland (2000)

Huang et al. (2001)

Jones and Price (2004); Jones (2005); Jones
et al. (2006)

Klaus and Gable (2000)

Ko et al. (2005)
Lee and Lee (2000)

Newell et al. (2004)

Pan et al. (2001)

Robey et al. (2002)

Timbrell et al. (2001)

Volko et al. (2004)

Post-implementation
Implementation

Not specied

Implementation
Implementation

Implementation
Implementation and postimplementation
Implementation

Implementation
Implementation and postimplementation

T. Srivardhana, S.D. Pawlowski / Journal of Strategic Information Systems 16 (2007) 5169

Table 1
Knowledge-related ERP systems research

T. Srivardhana, S.D. Pawlowski / Journal of Strategic Information Systems 16 (2007) 5169

Activation
Triggers
Knowledge
Sources
Knowledge embedded in
the ERP system (e.g.,
best practices)
ERP system consultants
(vendor/implementation
partners)
------------------------------------Organizational
Knowledge/Memory
Expanded organizational
knowledge (individual
level)
Increased knowledge in
common (organizational
level)
Enhanced organizational
memory capabilities
shared, accessible
repository provided by the
ERP system

57

Industry Regimes
of Appropriability

BUSINESS PROCESS
ABSORPTIVE CAPACITY
P3

P1a, b
P2a, b, c

P6

Potential

Realized

Acquisition
Assimilation

Transformation
Exploitation

(PACAP-BP)

(RACAP-BP)

P5a, b

Sustained
Business
Process
Innovation

P4
P7

Social Integration Mechanisms

for ERP Implementation and Use
(emergent and formal)
Social networks (cross-functional)
Boundary spanning/knowledge
brokering
Communities of practice (crossfunctional)

ERP System Constraints

Integration/tight coupling
(system and processes)
Difficulty of system
customization/change

Adapted from Zahra and George (2002)

Fig. 1. Research framework ERP systems and business process absorptive capacity.

3.1.1. Exposure to external knowledge sources

The implementation of an ERP system provides an organization with two new sources
of external knowledge: (1) business knowledge embedded in the basic architecture of the
system and business process reference models (labeled best practices) (Lee and Lee,
2000), and (2) the knowledge and expertise of consultants from the ERP software vendor
rm and other implementation partners (Ko et al., 2005; Lee and Lee, 2000; Timbrell
et al., 2001).
ERP systems contain deep knowledge of business practices accumulated from vendor
implementations in a wide range of client organizations (Shang and Seddon, 2002,
p. 272). These software packages are a source of diverse business knowledge, typically containing hundreds of business reference models covering a wide range of business processes
and industries. Even though the initial exploration of these models may be limited, the
adopted set of models (often a standard conguration recommended by the vendor)
is likely to be very dierent from the rms legacy business processes. During implementation, both the explicit business processes in these models, as well as the implicit noncanonical processes inherent in the ERP models begin to be transferred into the rm
(Lee and Lee, 2000). Moreover, the full suite of models available in the package remains
available for examination and utilization in the future. Over the longer-term, new releases
of the software provide a continuing conduit for external knowledge as models are revised
or added by the vendor.
Consultants engaged to assist in the implementation of the ERP system are a second
major source of external knowledge. In addition to providing resources to complete implementation tasks, another objective of client rms is the acquisition of system-related
knowledge (implementation, operational, maintenance and training) (Ko et al., 2005;

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Sumner, 2000). Consultants expertise may also include business process knowledge not
directly related to the ERP system per se, including ideas and approaches garnered in
engagements at other companies. The exchange of knowledge between organization members and consultants is intensive during the transition to the new system (Baskerville et al.,
2000). Post-implementation, consultants may again be utilized to provide advice and support for adjustments to the system or upgrades to new versions of the software.
Exposure to the knowledge embedded in ERP business reference models and the expertise of consultants contributes towards potential absorptive capacity in two ways. First,
the diversity of knowledge available to the rm is increased. Knowledge diversity is a signicant factor in learning because it increases the possibility that new incoming information will relate to what is already known, and also enables individuals to make novel
associations and linkages (Cohen and Levinthal, 1990; Lane et al., 2001). Second, the
knowledge that can be drawn from these sources is complementary to existing knowledge
in the rm, directly relevant to the rms core business processes and industry-specic
practices, strengthening the foundation for the innovation of these processes. This leads
to the rst set of propositions:
Proposition 1a. Exposure to knowledge embedded in an ERP system (e.g., business
process reference models, system architecture) is positively related to a rms potential
absorptive capacity for business process innovation (PACAP-BP).

Proposition 1b. Exposure to knowledge from ERP system consultants is positively related
to a rms potential absorptive capacity for business process innovation (PACAP-BP).
3.1.2. Organizational knowledge and organizational memory
Prior experience and organizational memory aect a rms capabilities for future
knowledge acquisition by shaping both the locus of knowledge search and the process
by which information is interpreted and acted upon (Walsh and Ungson, 1991; Weick,
1979; Zahra and George, 2002). ERP systems impact the content and structure of organizational knowledge at the individual and organization levels (Baskerville et al., 2000; Lee
and Lee, 2000). First, the jobs of users of the system become more complex, requiring a
broader set of business knowledge as well as new technical/system knowledge (e.g.,
cross-functional knowledge of processes, system conguration options) (Baskerville
et al., 2000; Robey et al., 2002). Similarly, IT professionals who provide support for the
system require more extensive business knowledge as well as package knowledge
(ERP software and bolt-on software) (Baskerville et al., 2000). At the individual level,
these changes can expand the area of knowledge search and the ability to interpret and
act upon incoming information. From the perspective of the organization, knowledge
becomes more focused, or convergent, as the knowledge sets of system users and IT professionals encompass both technical (system) knowledge and business (process) knowledge
(Baskerville et al., 2000). Moreover, because ERP systems employ a single database for the
entire enterprise, they require data standards (e.g., common eld denitions and codes)
across the organization (Gattiker and Goodhue, 2005). These changes serve to reduce
the gaps between departmental/functional thought worlds in an organization, including
what they know (the fund of knowledge) and how they know (systems of meaning)
(Dougherty, 1992). The increase of knowledge in common, in turn, can lead to a more

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59

concerted and focused knowledge search, interpretation and action eorts from the perspective of the organization.
Information technologies such as ERP systems also help an organization constitute its
memory by providing a shared repository of organizational knowledge accessible to users
across the enterprise (Goodman and Darr, 1996; Walsh and Ungson, 1991). An ERP system has advantages in terms of information maintenance and retention over individuals,
who may either forget over time or leave the organization, and provides greater access to
stored information from the companys history relevant to its business processes.
Proposition 2a. Expanded organizational knowledge of individuals is positively related to
a rms potential absorptive capacity for business process innovation (PACAP-BP).
Proposition 2b. Increased organizational knowledge in common at the organization level
is positively related to a rms potential absorptive capacity for business process innovation (PACAP-BP).
Proposition 2c. Enhanced organizational memory capabilities provided by an ERP system
is positively related to a rms potential absorptive capacity for business process innovation (PACAP-BP).
3.1.3. Activation triggers and intensity of eort
The relationship between external knowledge sources and organizational knowledge/
memory and absorptive capacity is moderated by activation triggers, events that
encourage or compel a rm to respond to internal or external stimuli (e.g., organizational crises, dramatic advancements in technology) (Kim, 1998; Walsh and Ungson,
1991; Zahra and George, 2002). These events heighten the level of energy, or intensity
of eort, expended to solve the problems faced by the company (Cohen and Levinthal,
1990; Kim, 1998). In the presence of crises, rms must invest heavily in the acquisition of new tacit and explicit knowledge as well as in knowledge conversion activities
to overcome the crisis in the shortest possible time (Kim, 1998, p. 509). Several parallels to these ideas are seen in a rms implementation of an ERP system. First, the
decision to implement an ERP system may be triggered by threats to the survival of
the rm, perceived as do-or-die situations requiring the radical transformation of
business processes. In addition, an ERP system is one of the most dicult types of systems to implement, requiring the concentrated eorts of business units across the company (Gattiker and Goodhue, 2005; Lee and Lee, 2000; Pan et al., 2001). The
substantial investment required for the software and related services such as consulting,
implementation, training and system integration adds to the pressures and sense of
urgency (Pan et al., 2001).
A heightened intensity of eort extends well beyond system roll-out. The business situation that prompted the adoption of the ERP system (e.g., severe competition within
the industry) can remain a source of concern. Even more importantly, failures to achieve
intended system benets in terms of improved productivity and speed are common (Adam
and ODoherty, 2003; Newell et al., 2004), and the immediate post-implementation period
can be critical to the realization of these benets (Jasperson et al., 2005). During the postadoptive period, sustained organizational eorts involving training and change management eorts can be crucial (Jasperson et al., 2005). Based on their study of post-adoptive

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behaviors Jasperson et al. (2005), for example, recommend inducing periods of substantive
technology use within the user community to stimulate learning. These types of actions
can be likened to a series of internally-generated activation triggers (or crisis construction (Kim, 1998)) beyond the initial system roll-out.
Proposition 3. Activation triggers (during system implementation and post-implementation) will inuence the relationship between ERP-related knowledge sources/organizational knowledge impacts and potential absorptive capacity for business process
innovation (PACAP-BP). Specically, the intensity of the activation trigger(s) will be
positively related to the level of intensity to develop the requisite knowledge acquisition
and assimilation capabilities.
3.2. Potential realized absorptive capacity: social integration mechanisms
Potential and realized absorptive capacity are distinct but have complementary roles.
Not only must a rm develop capabilities to recognize, acquire and assimilate useful
external information (potential), capabilities must also be developed to transform and
exploit that knowledge in support of organizational goals (realized) (Zahra and George,
2002). We expect that the transition from potential absorptive capacity related to ERP
systems to realized absorptive capacity for business process innovation is moderated by
social integration mechanisms that facilitate knowledge sharing within the rm. A fundamental assumption underlying the relationship between potential and realized absorptive capacity is that benet is realized only when relevant knowledge is shared among
members of the rm and mutual understandings are developed (Garvin, 1993; Spender,
1996; Zahra and George, 2002). While one advantage of an ERP system is that it is a
repository of organizational knowledge (data, metadata, models, etc.) accessible to users
across the enterprise, access to common information does not ensure a level of mutual
understanding necessary for knowledge transformation and exploitation. Similarly,
although the implementation of an ERP system leads to an increased level of knowledge
in common across dierent functional areas, knowledge transformation and exploitation
requires cross-boundary learning and shared understandings beyond this initial level.
Social integration mechanisms become an essential element in the realization of absorptive capacity because of their role in creating those shared understandings. Mechanisms
may be formal (e.g., a committee of designated power users) or informal (e.g., an emergent social network of users). Irrespective of their form, the qualities of these social relationships are important since the success of knowledge exchanges and understanding
depends on factors such as the ease of communication and on the intimacy of the
overall relationship between the source and recipient (Adler and Kwon, 2002; Szulanski,
1996).
The implementation of an ERP system provides multiple opportunities for enhanced
social integration across the enterprise. The main drivers of these changes are the need
for knowledge transfer/integration during the project and increased cross-functional coordination following the implementation. Knowledge transfer/integration is essential to the
successful implementation of an ERP system and is also one of the most dicult project
challenges. These knowledge tasks take dierent forms in terms of knowledge sources/
recipients (e.g., vendor/consultants M organization; implementation team M users;
knowledge embedded in software (ERP system and legacy systems) organization,

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61

vendor/consultants; business unit M business unit),2 and the type of knowledge to be

transferred (e.g., codied, non-canonical/tacit) (Baskerville et al., 2000; Jones, 2005; Ko
et al., 2005; Lee and Lee, 2000; Pan et al., 2001; Timbrell et al., 2001). Compounding
the challenge is the need to understand and address misalignments between the best practices embedded in the software and existing business processes, practices, values and culture (Braa and Rolland, 2000; Hong and Kim, 2002; Jones et al., 2006; Liang and Xue,
2005; Newell et al., 2000; Soh et al., 2003; Stijn and Wensley, 2001).
Organizations employ a number of strategies during the project to meet these challenges. Fostering relationship development interpersonal relations (one-on-one) and
community relations (group-based) is an important issue during the implementation process (Pan et al., 2001). A common conguration for implementation teams, for example, is
to include organization members from dierent functional areas/divisions, working
side-by-side with IT professionals from the organization and external consultants. These
business unit members act as subject matter experts and provide bridges to their home
organizations (Newell et al., 2004). Team members may be co-located during the duration
of the project, working together in an open-oce environment or located into pods to
facilitate knowledge sharing, providing environments for the building of interpersonal
relationships and bonding (Jones, 2005; Newell et al., 2004). Other practices include
sequestering the core team during conguration, sleeping and eating together, leading
to strong camaraderie (Robey et al., 2002).
The need for increased social integration across the enterprise continues after the system becomes operational. The tight coupling of business processes creates new interdependencies with increased demands for collaboration and coordination across functional
boundaries and communities of practice (Braa and Rolland, 2000). The relationships
formed among users from dierent business units and IT professionals as they spend time
working together during implementation can provide a basis for ongoing social networks.
These users may continue in a boundary-spanning role as boundary-spanners-in-practice (Levina and Vaast, 2005), forming an informal, emergent community of practice
to share knowledge and coordinate activities across dierent units of the organization
(Pan et al., 2001; Wenger, 1998). Returning to their work groups, they can also increase
the absorptive and retentive capacity of those units by acting as consultants to members
of their business units and enabling the transfer of contextualized business and analytical
knowledge as well as technical knowledge about the software (Baskerville et al., 2000;
Volko et al., 2004). In some organizations, the ocial designation of a power user role
provides a formal structure for knowledge sharing and coordination following implementation (Baskerville et al., 2000; Jones and Price, 2004; Volko et al., 2004). In addition to
users, IT professionals who support the ERP system may be in a strategic position to act
as knowledge brokers, transferring organizational knowledge across the boundaries of
business units that may have been historically isolated from each other (Pawlowski and
Robey, 2004). Each of these social integration mechanisms related to ERP systems can
lower the barriers to information sharing and increase the eciency of transformation
and exploitation capabilities.

A B refers to as a one-way transfer of knowledge from source A to recipient B; A M B refers to reciprocal

knowledge transfer between A and B.

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Proposition 4. Social integration mechanisms (emergent and formal) related to ERP

system implementation and use moderate the relationship between potential (PACAP-BP)
and realized (RACAP-BP) absorptive capacity for business process innovation.
3.3. Realized absorptive capacity and sustained business process innovation
The nal segment of the model relates the two dimensions of business process absorptive capacity to sustained business process innovation. These two elements work in tandem, making distinct contributions to knowledge capabilities leading to innovation.
While knowledge transformation and exploitation (RACAP-BP) is the primary source
of process improvements, sustained business process innovation requires continued replenishment/renewal of knowledge stocks and assimilation into the rms knowledge base
(PACAP-BP) (Zahra and George, 2002). Firms must strike a balance between exploration-related capabilities and exploitation-related capabilities to maximize their performance (Vermeulen and Barkema, 2001).
Proposition 5a. Firms with more well-developed capabilities for business process-related
knowledge acquisition and assimilation (PACAP-BP) are more likely to sustain higher
levels of business process innovation than those with less-developed capabilities.
Proposition 5b. Firms with more well-developed capabilities for business process-related
knowledge transformation and exploitation capabilities (RACAP-BP) are more likely to
sustain higher levels of business process innovation than those with less-developed
capabilities.
The last two elements of the model are factors that moderate the relationship between
absorptive capacity and innovation regimes of appropriability and ERP system
constraints.
3.3.1. Regimes of appropriability
An important factor inuencing a rms decisions to act upon its capabilities for business process innovation is the regime of appropriability dominant in its industry (Zahra
and George, 2002). Teece (1986), the originator of the term, denes a regime of appropriability as the environment factors, excluding rm and market structure, that govern an
innovators ability to capture the prots generated by an innovation (p. 287). Here,
the issue is how able a rm can be in realizing advantage relative to its rivals through innovation of its business processes, including how long that advantage can be sustained. Innovations that can be quickly and easily imitated by other rms in an industry (a low regime
of appropriability) provide a lower incentive for a rm to invest its resources in becoming
the originator of innovations rather than a follower. In contrast, under high regimes of
appropriability (i.e., where knowledge spillovers are low and the rm is able to protect
its knowledge assets) these investments can generate positive economic returns over the
long run (Zahra and George, 2002). The level of appropriability in an industry is aected
by the availability and eectiveness of various appropriability mechanisms (e.g., secrecy,
regulation) to secure returns from innovative eorts (Cohen et al., 2000). Under strong
regimes of appropriability, then, we would expect a signicant positive relationship
between business process absorptive capacity and business process innovation; under weak

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63

regimes of appropriability, we would expect a weak, or non-existent relationship between

absorptive capacity and business process innovation (Zahra and George, 2002).
Proposition 6. Industry regimes of appropriability moderate the positive relationship
between business process absorptive capacity and sustained business process innovation.
Under strong regimes of appropriability, the relationship will be strengthened; under weak
regimes of appropriability, the relationship will be weakened.
As a nal comment on appropriability, it is important to note that while business process
innovations may be built upon ERP system best practices that are potentially available to
all rms in an industry, best practices by themselves do not determine actions or business
process innovation outcomes. Although the ERP system components may be easily copied
and imitated, other organizational factors that shape business processes are not (e.g., culture, organizational structures) (Levin et al., 1987; Damanpour, 1996; Tsai, 2001). Moreover, as ERP system-based practices are enacted and elaborated in organizations, much
of the associated knowledge becomes tacit, idiosyncratic and dicult for imitators to copy
(Nieto and Perez-Cano, 2004). The ability of rms in an industry to protect their advantages arising from knowledge creation/innovation of business processes will be specic to that
industry. The ease/diculty of imitation will depend on both the nature of the innovation
and the ecacy of protection (Teece, 1986). In some industries, business process innovations will be highly observable and hard to keep secret (weak regimes of appropriability),
while in other industries business processes may be dicult to imitate because of lower visibility or the skills/competences or complementary resources needed to exploit the knowledge (strong regimes of appropriability) (Levin et al., 1987; Zander and Kogut, 1995). Lead
time to implement changes and availability/form of legal protections are other examples of
industry dierentiators that may aect appropriability (Nieto and Perez-Cano, 2004).
3.3.2. ERP system constraints
Consistent with the fundamental idea advanced in this paper of ERP systems as facilitating and inhibiting business process innovation, the second moderator incorporates two
major constraints to innovation: (1) integration/tight coupling of the system and processes, and (2) diculty of system change, including customization and upgrades.
The implementation of an ERP system increases the level of interdependence in the pattern of interactions among organizational units/departments (Orton and Weick, 1990). An
ERP system is a structural coupling mechanism that provides a high level of integration,
where integration is dened as the process of achieving unity of eort among the various
subsystems in the accomplishment of the organizations tasks (Lawrence and Lorsch,
1967, p. 34). Moreover, ERP systems create two types of interdependence sequential
(the output of one unit becomes the input of another) and reciprocal (the outputs of each
part become the inputs of the others) that add to the complexity of the overall organizational system (Barki and Pinsonneault, 2005; Thompson, 1967). Integration can have
positive and negative impacts on an organizations ability to adapt/change. On the one
hand, organizational integration can promote responsiveness, enabling interdependent
organizational components to rapidly respond, adjust or adapt to the demands of other
components (Barki and Pinsonneault, 2005; Grant, 1996). On the other hand, specialization/independent action by individual units is highly constrained. Change must be coordinated among all of the units that will be aected by the change, thus requiring a high level
of cooperation that may be dicult to orchestrate.

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The second inhibitor for certain innovations is the inexibility and complexity of the
ERP software itself. Typically, vanilla implementations have been recommended, with
minimal customization, and changes can be dicult once the system is congured and
implemented (Kallinikos, 2004; Robey et al., 2002). Another obstacle to customization
is the eort required to reinstitute any modications with future upgrades of the software.
In the past, the most feasible option for many organizations has been to work within the
pre-specied range of conguration options provided by the software package. Although
customers can lobby their ERP vendor for changes to the package in future versions, there
is no guarantee that the vendor will decide to make the requested changes. Even in the best
scenario there will still be a time lag until the new version is released. The extent of these
constraints and the organizations ability to mitigate them depend on factors such as the
ease of reconguration, responsiveness of the vendor and in-house capabilities for IT support. These observations lead to our nal proposition:
Proposition 7. ERP system constraints (tight integration/coupling and arduousness of
system customization/change) moderate the positive relationship between business process
absorptive capacity and sustained business process innovation in such a way that the
relationship is weaker when the constraints are higher.
A few additional comments are warranted before leaving this topic. First, it is important
to recognize that while an ERP system can present constraints to some types of change,
innovation of business processes is possible without modications to the system itself. Some
process innovations do not have system implications and only require changes to elements
of the process external to the system. Secondly, even in situations where system customization is required to implement an innovation, adaptation choices vary widely in terms of level
of diculty and implications for future upgrades. Options for customization, for example,
can include: conguration, bolt-ons, screen masks, extended reporting, workow programming, user exits, ERP programming, interface development, package code modication and
linking the ERP system to other systems (Ahituv et al., 2002; Brehm et al., 2001). Third, one
of the most important evaluation criteria for ERP package selection is ease of customization
(Keil and Tiwana, 2006), and some ERP vendors are beginning to seek market advantage
through oering added customization features, including extensive customization capabilities without the need for source-code changes. New frameworks are also being developed to
aid in decision-making about customization choices and the capabilities required to implement them (see, e.g., Luo and Strong, 2004). As a nal note, while the structure of the system
constrains organizational and individual action, the eventual outcome is not simply one of
technological determinism but rather the result of the interaction of human agency and technological constraints (Markus and Robey, 1988). One of the key ndings of a study of an
ERP implementation in a government agency by Boudreau and Robey (2005), for example,
was that users engaged in a period of improvisation and reinvention of the system, enacting a number of tweaks and workarounds as a response to the technologys limitations and
their own limited knowledge as new users. The enactment of technology is an ongoing process and constraints are often malleable, at least to some degree.
4. Conclusion
The framework presented in this paper oers a new theoretical perspective of ERP systems and business process innovation. Employing a knowledge-based approach and Zahra

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65

and Georges (2002) multidimensional view of absorptive capacity, we seek to present a

more balanced and comprehensive picture of the impacts of ERP systems on innovation
capabilities. The main theme of this paper is that an understanding of the impacts of
ERP systems on innovation of business processes requires recognition of the opportunities
as well as the constraints. Overemphasis on the structural constraints presented by ERP
systems may hinder the pursuit of innovation of business processes by organizations. In
contrast, our analysis focusing on the concept of business process absorptive capacity
highlights the opportunities ERP systems can provide, enabling organizations to build
new capabilities to create and deploy knowledge to improve business processes. Clearly,
neither view alone provides an adequate understanding. Rather, new perspectives are
needed that incorporate the dialectical contradictions of ERP systems as enabling and
constraining business process innovation. The model presented in this paper is one step
in that direction.
The work in this paper also makes a valuable contribution by providing a conceptual
bridge between two important streams of research post-implementation ERP system
research and work on the organizational antecedents of absorptive capacity (Jansen
et al., 2005). Our adaptation of Zahra and Georges (2002) general model to the context
of ERP systems in organizations preserves the richness and multidimensionality of the
absorptive capacity concept, thus providing a foundation for cross-contributions between
IS/management studies on the topic. This is currently an active area of management
research that IS researchers can both draw upon and contribute to in the future. The
framework developed in this paper, for example, could be used in empirical studies to
understand the relationships of other IT-related organizational antecedents with the dierent dimensions of absorptive capacity. Our work also resonates with emerging theory on
the impacts of organizational integration as seen in the recent work by Barki and Pinsonneault (2005). Their analysis suggests that organizational integration can simultaneously
improve organizational eciency and exibility, two organizational performance concepts
frequently pitted against each other in the traditional organization theory literature
(p. 172). They specically identify higher innovation rates as one of the potential benets
of functional integration of administrative/support activities of a companys process
chain.
Based on our discussion, several topics for future research can be identied. The intent
is not to set a research agenda, but rather to suggest some broad areas of investigation.
The propositions provide a starting point for empirical examination of the knowledge
impacts of ERP systems and business process innovation. Three areas, in particular, have
potential to yield insights with important implications for practice and warrant deeper
exploration in the near term. The rst topic involves questions related to the antecedents
of potential business process absorptive capacity. Here, it is important to gain a better
understanding of the factors that inuence the assimilation of knowledge embedded in
an ERP system. Little is known, for example, about organizational practices surrounding
the visibility/adoption of new business reference models or about practices that foster
post-implementation learning by users beyond the immediate requirements of routine
tasks. A second topic deserving priority attention concerns the social interactive processes
related to ERP systems that enable cross-functional knowledge transfer and integration.
These investigations have the potential to contribute new insights into knowledge processes and learning involving complex boundary objects such as ERP systems and boundary spanning (formal and emergent) (Levina and Vaast, 2005; Star and Griesemer, 1989).

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Third, there is a need to broaden the scope of inquiry in ways that reect the dialectical
relationship between the structural constraints and enabling knowledge capabilities of
ERP systems related to business process innovation. Theories that can incorporate these
elements as mutually constitutive, such as adaptive structuration theory (DeSanctis and
Poole, 1994), may prove fruitful in understanding the organizational tensions that can
arise with these systems. Of particular interest in these studies would be the examination
of workarounds (at the individual and organizational level) to structural constraints.
Finally, returning to the key research question that motivated this paper, a critical element
of all of these inquiries will be to begin tracing the linkages of ERP-related knowledge
impacts on business process innovation outcomes.
In conclusion, this paper contributes an initial understanding of the relationship
between ERP systems and business process innovation. By viewing this relationship
through the lens of absorptive capacity, we draw attention to the potential of ERP systems
to provide knowledge capabilities to support business process innovation and set a foundation for advancing this line of inquiry. Given the complexity of ERP systems and the
constraints they present, the realization of these benets will be extremely challenging.
As organizations move more fully into the post-adoptive stage of the ERP system lifecycle,
the continued pursuit of this topic and the development of practical insights and guidance
for managers to help them deal with the complex organizational environment surrounding
these systems will become even more important.
Acknowledgements
This work was supported in part by Grant LEQSF(2002-05)-RD-A-07 from the
Louisiana Board of Regents.
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