Integrating ERP and e-business: Resource complementarity in business value creation

a r t i c l e i n f o Keywords: Complementarity ERP Business integration IT integration Resource-based view (RBV) Business value We investigate the complementary effect between ERP and e-business technologies, and the impact of such effect on business value creation. Previous studies have examined the effects of ERP and e-business technologies independently, and show positive effects on business value from their use. However, both the resource based view and microeconomic theory as well as practitioner experience suggest that the impacts from their joint and complementary use should be much greater, but this proposition has not yet been examined empirically. We use two different approaches (product term and direct measure approaches) to measure the complimentary effect. Comparing results using firm performance accounting data with self-reported survey data of 150 U.S. manufacturing firms, we provide confirming empirical evidence that the complementary effect between ERP and e-business technologies in creating business value is stronger than the main effects of ERP or e-business technologies alone. We further find that the complementary use of these IT resources to build system and business integration capabilities can extract the most complementarity value for firms. These findings provide empirical support for the theory of competitive advantage that the resource based view (RBV) proposes. Furthermore, these findings provide practical guidance to firms on how to utilize and deploy ERP and e-business technologies in a mutually reinforcing manner. Enterprise resources planning (ERP) systems are large commercial software packages that standardize business processes and integrate business data throughout an organization [21,47,74]. These systems codify and organize an enterprise's business data into an integrated database, and transform the data into useful information that supports business decisions [68]. The ability to access information from various parts of an organization has helped firms to streamline their business processes and reduce inefficiencies [75]. In both large and medium size firms, ERP systems represent the largest portion of the application budget and about one-third of their IT budgets [41,53]. Although the benefits of ERP are considerable, traditional ERP systems that streamline and integrate internal processes improve efficiency only within the boundaries of an enterprise [21]. Because firms' value chains increasingly extend beyond their boundaries and include other firms within their business ecology, it is important to improve operational performance along the whole supply chain. Inventory turnover, asset utilization, and profitability depend on improved processes and information flows not only inside the focal firm, …