Week 10: The impact of enterprise

systems on corporate performance:

A study of ERP, SCM, and CRM
system implementations (2006)
Kevin B. Hendricks, Vinod R. Singhal, Jeff K. Stratman

1.Introduction
Total of 406 implementations analyzed: 186 announcements
of ERP implementations, 140 SCM implementations, and 80
CRM implementations at publicly traded firms.
Performance effects are examined for both the
implementation and post-implementation periods.
More than US$ 38 billion in 2001 (Kraus and OBrian, 2002)
in ES investments.
Little empirical research that links investments in ES to
financial performance using objective financial performance
data.
Key issues: metrics used, methodology used to estimate
the performance effects, and time periods covered; most
research focuses on aggregate IT investment.

2. Literature Review
Commonly used measures:
- Objective performance data:
*stock returns
*accounting metrics
- Primary performance data:
*surveys
*experiments

2. Literature Review Stock Returns

Short window event study methods find 0.5% to 0.84%
increase in stock returns, indicating that the market
reacts positively to IT investment announcements.
BUT: assessment may not be complete, and market may
partially anticipate announcements -> need longer time
periods.

2. Literature Review Profitability

Poston and Grabski (2001) investigate effect of ERP
adoption on profitability.
BUT: They dont use any benchmarks -> Using
benchmarks to control for normal changes in
performance is a basic and minimum requirement in
estimating performance effects.
Matching sample and control firms on prior performance
is also key to avoid confounding.

2. Literature Review - Contributions

More comprehensive assessment of the effect of ES
adoption on financial performance.
Use of both stock returns and accounting measures
over long periods of time.
Performance effects for both implementation and postimplementation.
Authors control for prior performance.

3. Benefits of enterprise systems - ERP

systems
standardized firm-wide transactions,
centrally stored enterprise data greatly,
facilitate the governance of the firm,
clear view of the relative performance of the various
parts of the enterprise.

3. Benefits of enterprise systems SCM systems

Better operational and business planning,
do not require iterative adjustments to the master
schedule,
real-time planning capabilities,
increased revenue and productivity,
operational cost savings,
lower inventory, and
reduced order-to-fulfillment cycle time.

3. Benefits of enterprise systems CRM systems

facilitates long-term relationship building with customers,
sales force automation, data warehousing, data mining,
decision support, and reporting tools,
provide a centralized firm-wide database of customer
information independent of individual sales people,
opportunity for increasing revenues through cross-selling.
H1 (2 and 3). Investments in ERP (SCM and CRM)
systems lead to improvements in financial performance
as measured by stock returns and profitability.

4. Sample selection procedure and data

description
Nearly 98% of the announcements were made during
19951999.

5. Methodology for estimating

performance
effects of investments in ES
Choosing the period over which to measure
performance impacts.
Methodology for estimating the long-term stock price
effects.
Methodology for estimating the long-term operating
performance effects.

6. Empirical results - for investments

in ERP systems

6. Empirical results for SCM

6. Empirical results for CRM

6. Empirical results: Early Adopters

7. Conclusion
Some of the research issues that may obscure the
results are:
(1)the choice of the performance metrics (Bharadwaj et
al., 1999),
(2) the time period studied (Devaraj and Kohli, 2000),
(3) the method of analysis (Robey and Boudreau, 1999),
and
(4) the presence of important intermediate variables
(Barua et al., 1996; Bresnahan et al., 2002).