Enterprise Resource Planning Systems as a Strategic ...

Enterprise Resource Planning Systems as a Strategic Resource: The Case of Large Croatian Companies Nikša Alfirević, PhD. University of Split, Faculty of Economics, Matice hrvatske 31, 21000 Split E-mail: [email protected], [email protected]

Davor Jardas, BSc. – Chief Executive Officer SAP d.o.o. Hrvatska, Marulićev trg 10, 10000 Zagreb E-mail: [email protected]

Sergej Lugović, MBA – Marketing Manager SAP d.o.o. Hrvatska, Marulićev trg 10, 10000 Zagreb E-mail: [email protected] Abstract: In this paper, we look into the contribution of enterprise resource planning systems (ERPs) to the enterprise competitiveness, measured by the long-term, above-average financial performance. Rationale for our research is found in the fact that the ERPs and similar information systems (IS) are often labeled as the «ultimate competitive weapons», i.e. as strategically significant resources (in terms of the resource-based theory of competitive advantage). In order to realistically evaluate the potential of ERPs to enhance the enterprise competitiveness, we have embarked on a research project which should «move beyond» the vendor-based «value calculators» which provide (potential) software customers with information, such as software investment ROI. Namely, with the vendorbased tools being sharply criticized, we decided that the problem of evaluating an ERP investment calls for a more strict methodology. With this objective in mind, we started with the assumption that the Croatian enterprises, in order to follow their global competitors, should match their levels of information technology (IT) and ERP investments. From such an assumption, we have developed a benchmarking model, which provides indicators of IT and ERP investment for the large Croatian enterprises. At the other hand, we have looked into the competitiveness of the analyzed enterprises, which has been evaluated on the basis of financial performance. Finally, we have statistically evaluated the relationship between the ERP investment and competitiveness on a dataset consisting of 200 largest Croatian enterprises. Keywords: competitive advantage, enterprise resource planning systems, large Croatian companies 1. EXPLAINING AND MEASURING ENTERPRISE COMPETITIVENESS The concept of “competitiveness”, i.e.“competitive advantage” has been discussed for some time, either in terms of adding value above the amount of production costs [20], adding more value than the competitors [24], or achieving higher profitability than the other competitors (in a long term) [10]. There are many alternative theories, trying to explain the sources and the nature of the competitive advantage, which can be classified into four fundamental “schools of thought”, according to the key variable which determines the competitive success (or failure). Of those, two fundamental theories should be mentioned. At one hand, Porter [19] leads the theorists arguing that the environment and structural characteristics of the industry, in which an enterprise competes, determine its long-term performance. At the other hand, the resource-based view (RBV) starts with the assumption that the competitive advantage of a firm can be built on a set of strategically relevant resources, which can be defined as all tangible and intangible items connected with the enterprise. Starting with the assumption that all firms do not have a comparable access to the valuable and strategically relevant resources [3], different authors, led by Barney [3], Grant [9] and Peteraf [18], identify the theoretical characteristics required, if a resource should serve as the source of competitive advantage. Those include: 1

q q

q

q q

Value of resources, defined along the lines of exploiting environmental opportunities and/or neutralize environmental threats; Rareness of resources, describing how many competing firms possess particular valuable resources. In general, as long as the number of firms that possess a particular resource is lower than the number of firms needed to generate perfect competition dynamics within an industry, such a resource can be considered rare and a potential source of competitive advantage; Imperfect resource mobility, describing the value of resource if taken from the environment in which it was originally developed. A imperfectly immobile resource is potentially tradable, but more valuable within the firm that currently employs them, than they would be in any other firm. In other words, resources are imperfectly mobile when they are somewhat tailored to firm-specific needs [18]; Unsubstitability of resources, referring to the lack of adequate resources, which could, at a comparable cost, replace the “original” resource – a potential source of competitive advantage and Imperfect imitability of resources, which, simply, translates to the fact that the resource, as a potential source of competitive advantage, should not be subject to easy and/or cheap imitation by competitors.

2. THE ENTERPRISE RESOURCE PLANNING SYSTEMS Enterprise Resource Planning (ERP) systems are complex software systems composed of different modules, spanning majority of the business processes within an enterprise. The main objective of the ERP vendors is to provide their customers with the capability to integrate their data in a single system and make them accessible throughout the customer's organizational structure. In that manner, an ERP system replaces and/or integrates two or more (typically, several) legacy information systems (IS) and provides advanced capabilities for information processing, storage, reporting, etc. Some authors imply that the ERP systems have become ubiquitous companions of large enterprises, especially those which operate on a global scale [17]. Although there are varied definitions of an ERP systems, the overwhelming majority emphasizes their capability to integrate different enterprise functions and/or departments through a unified computer system [15]. Davenport [6] even talks about the “technological tour de force” based on a shared database, which serves as a source of data for different modular applications, which run according to an optimized workflow blueprint. We believe that, especially in the case of the ERP vendors who provide industry-specific solutions, one has to emphasize the “process knowledge” which comes with the software package. Therefore, the process blueprints and a shared database become the milestones of the resulting ERP structure, as demonstrated by Figure 1. Implementation of the ERP system is, thus, a complex and risky task, which, if inappropriately managed and/or carried out, leads to huge costs, which may outweigh the benefits of the data and process integration. The very complexity of the ERP implementation arises from the need to customize the system to the individual needs of the enterprise and manage change associated with the new organizational roles and behaviours. Following many disappointments with ERP systems [6], once perceived as “ultimate competitive weapons”, a growing body of work is built upon identifying critical success factors of ERP implementation [8; 16; 17]. However, it seems that the spirit of the research is best captured by a quote from Mudimigh et al. [16], who believe that the ERP implementation is radically different from the design of a “traditional” IS in a sense that it “involves a mix of business process change and software configuration to align the software with the business processes”. The recurring theme seems to be exactly the shift from the engineering discipline to the business process analysis and leveraging of the knowledge possessed by the ERP vendor and/or the integration consulting partner.

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IBM

Figure 1. Structural components of an ERP system and their interactions Without denying the importance of the successful implementation (and management of other stages of the ERP life-cycle), we believe that the links between the business strategy (and, consequently, the resulting competitive advantage) with the enterprise systems should become the focus of the further research in the area. Therefore, let us look back into the RBV of competitive advantage, which suggests that the role of ERP systems should be analyzed in terms of a strategic resource.

3. ENTERPRISE SYSTEM AS A STRATEGIC RESOURCE It seems that Davenport [6] remains one of the most cited authors in discussions regarding the strategic impact of the ERP systems. His most important arguments include: Ø lack of customization, i.e. imposing the system’s own logic over the processes which serve as a source of competitive advantage (and, thus, endangering the sources of the existing competitive success), as well as Ø proliferation of identical (or, at least, very similar) enterprise systems within an industry, which may lead to the standardization of business processes among the competitors, which, consequently, obliterates differentiation as a source of competitive advantage. Both arguments can be explained in the terms of the resource-based view (RBV) of competitive advantage. Namely, if the strategic integration (“fit”) by means of an ERP is considered a source of competitive advantage, it can be analyzed by applying a RBV-based framework. In such a framework, lack of customization conflicts with the criteria that should be met, if an ERP is to be classified as a strategic resource. Namely, non-customized, “off-the-shelf” ERP systems are characterised by high mobility and/or imitability, as the competitors are able to procure an equal resource, i.e. the ERP system, from the same vendor. Therefore, any potential advantage occurring from the operation of a “standardized” ERP could be only temporary, as all the competing firms have a comparable access to the same, non-customized, software functionality. The same conclusion can be applied to the argument of comparable ERP system “proliferation” within an industry. Instead of arguing that such a practice “destroys” the drivers of differentiation, the

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described strategic effect can be also explained in terms of high level of resource mobility and/or imitability. Although the stated arguments might lead to the argument that the ERP systems are strategically irrelevant, we argue that such a conclusion is not valid. Namely, although unification and/or standardization are often cited as the ruling principles behind the ERP systems, Sawhney [21] has already suggested that the synchronization of department data through a less unified system may be the key to the success of IS integration. On the basis of such theoretical insights and the lessons learned from the SAP business practice, we believe that the ERP systems can, indeed, make a competitive difference. In order to achieve such an objective, ERP vendors should try to enhance their customers’ and implementation partners’ competitiveness, as demonstrated by the local SAP d.o.o. practice in Croatia [1]. This can be achieved by developing the industry-specific ERP solutions and ensuring extensive connectivity of such solutions. E.g., SAP is opening up its architecture to the Internetbased standards (such as XML) and application platforms (such as Microsoft .NET and Java) through its NetWeaver initiative. However, the main responsibility for the more strategic role of ERP systems lies on the consulting firms and other ERP implementation partners. Their role should not be limited to the “technically correct”, but rather standard practices of ERP implementation, but rather expanded to the analysis of the ERP customers’ business processes and customizing the total ERP solution package to the individual requirements of sustaining the competitive advantage. On a more technical level, such a requirement translates to more “tolerance” toward the legacy systems, which might prove as strategically significant, as well as to more extensive orientation toward the development of individual modules, required by an ERP customer. Although the chance for total integration might be forgone by applying the “strategically-oriented” principles of ERP implementation, we believe that the price to be paid (which includes a somewhat longer and maybe more expensive implementation process, a need to build interfaces between strategically important legacy ISes and the ERP, etc.) is not prohibitively high. 4. EMPIRICAL RESEARCH OF THE ERP INFLUENCE TO THE COMPETITIVENESS OF

LARGE CROATIAN ENTERPRISES 4.1. ERP INVESTMENT IN THE CONTEXT OF THE IT BUSINESS VALUE DISCUSSION Although the discussion about the business value of information technology has not produced clear results, there is a literature stream being decisively critical about the contribution of IT to the productivity [22] and especially its influence to the enterprise profitability [23]. In the contemporary business environment, characterized by political instability, security threats and a global economic crisis, the decision-makers are looking for “hard evidence” justifying new investments and minimizing costs, especially in the IT field, which many see as not providing the strategic edge any more [4]. However, the authors believe that the relationship between IT and productivity (or competitiveness) often swings together with the pendulum of global economic cycles. The “dot.com” stock crashes at the end of the 1990s [7] and the current developments (Iraq war, outbreak of SARS, etc.) are bound to produce a “negative” climate, which calls for low IT investments and leverage of the existing infrastructure. Such a trend might change, as the new developments in the business environment take place. This papers has its roots in the authors’ intention to move beyond superficial assessments of the IT business value and take into account the specific features of the Croatian economy. The research undertaken also had to comply to a strict methodology, in order to avoid the identification of our approach to the “ROI tools” often provided by IT vendors to their potential customers. Such tools, offering to calculate the benefits vs. costs of a particular IT solution (and, thus,

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enable a decision-maker to calculate the return on a particular IT investment) are often being criticized as inaccurate and, sometimes, even misleading 1. 4.2. ASSESSMENT OF THE ERP INVESTMENT TRENDS IN CROATIA Taking into account a relatively unfavourable comparison of the IT development in Croatia to other developed Central- and East-European (CEE) countries (such as Czech Republic, Hungary and Slovenia – [14] 2), the gap between Croatia and countries with advanced market economy (such as EU members) seems to be a significant problem. Unaware of the existence of the research along these lines, the authors decided to develop a benchmarking model contrasting the gap between the global standards of IT investment and the existing IT investment in Croatia for the functional areas covered by a “typical” ERP application package. The global IT investment benchmark is estimated according to Gartner Research [13], with the ERP functional areas, thus, classified in line with Gartner’s taxonomy of software products. Those include “core” ERP functionalities extended by the Supply Chain Management capabilities, Customer Relationship Management software and eBusiness functionality (which takes into account both business-to-business and business-to-consumer segments. At the other, the existing level(s) of ERP investment at the industry level are taken from the SAP-proprietary market research data. As the large enterprises are usually seen as the “logical” arena for implementation of ERP systems (and, accordingly, for studying effects of such an investment), 200 largest Croatian enterprise (ranked by the revenue size)3 have been selected as an appropriate sample for such an analysis. The methodology for defining the gap between the global and local ERP investment level has been constructed in the following manner: 4 q On the basis of Gartner’s estimates [13], the amount of the “potential” ERP investment has been calculated for each of the three fundamental ERP functional areas for each of “top 200” Croatian enterprises; q On the basis of SAP proprietary market research data, for each of the three fundamental ERP functional areas, for each industry represented among the “top 200” enterprises, the existing ERP investment has been estimated (taking into account both the ERP systems provided by SAP, and other ERP vendors active on the Croatian market); q The “investment gap” has been calculated as the difference between the potential ERP investment (in the case of investing by following the global benchmark) and the existing ERP investment in the entire industry to which the enterprise belongs. Therefore, our results can not be explained in terms of a monetary value which could (should ?) be invested into ERP functionalities, but rather, should be treated as a relative indicator, which demonstrates how much does the Croatian economy lag behind the more advanced countries regarding the ERP investment. Table 1. illustrates the results obtained for the analysis of the financial year 2001. for the entire sample. Our sample, which represents the most successful part of the Croatian economy, seems to have an enormous potential for the further investment into ERP systems, which equals 2.055.971.638 HRK, or, according to the current exchange rate at the moment of writing, around 267 million EUR. Bearing in mind the relative nature of the obtained result, the

1 One of the IT consultancies, Nucleus Research, has devoted its research entirely to development of IT ROI methodologies and vendor assessments. Their Web site, http://www.nucleusresearch.com, represents a valuable resource in this area. 2 Although the 2000 data, quoted in IDC report for the Government of Croatia, are rather outdated, they still reveal interesting patterns. Namely, the entire Croatian IT market was, back in 2000, worth 323,6 million USD, while the same figure for Slovenia amounted 253 mill. USD, for Slovakia 432,5 mill. USD, for Hungary 1,38 billion USD, and for Czech Republic 1,77 bill. USD. However, Croatia compared well to other Slovakia and Slovenia regarding other significant IT indicators (such as the amount of PCs, telecommunication and Internet infrastructure, etc.), but still significantly lagged behind Czech Republic and Hungary. 3 The publicly available annual list of 400 largest Croatian enterprises and their financial performance in 2001, compiled by «Privredni vjesnik», has served as a data source for our analysis. 4 The «potential» ERP investment is being defined as a level of investment following the global ERP investments standards, as estimated by Gartner Research.

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figure itself is respectable, especially when compared to 360,1 million USD as the total value of the Croatian IT market in 2001, as estimated by IDC [14]. At this point, the obtained results need to be linked to the theoretical discussion about the business value of IT, especially of the ERP systems. The authors do not wish to imply any IT investment, including an investment into the ERP functionalities, as a prerequisite for the Croatian enterprises to reach the competitiveness of the developed market economies. However, the very size of the ERP investment gap seems as a too significant result to be easily dismissed. Therefore, we feel compelled to conclude that the current rhetoric of cutting down the “unworthy” IT investment(s) is not the right solution for IT management of enterprises in transitional countries.

ERP functionality Potential ERP investment for the “top 200” Croatian enterprises* Existing ERP investment for the “top 200” Croatian enterprises The ERP investment gap

Customer Relationship Management functionality

e-Business functionality

851.426.406 HRK

681.450.589 HRK

523.094.643 HRK

67.198.271 HRK

7.868.650 HRK

2.124.536 HRK

784.228.135 HRK

673.581.939 HRK

520.970.107 HRK

Core ERP and Supply Chain Management functionalities5

Table 1. The ERP investment gap between the existing and global ERP investment level compiled for the 200 largest Croatian enterprises (ranked according to revenue size) The previous analysis demonstrates the existence of a significant opportunity for improvement of the ERP infrastructure in the Croatian enterprises, which, therefore do not need to worry about the much touted unproductive IT investment, discussed in journals describing the situation in advanced market economies, and especially the United States. Just as Croatia (and other CEE countries) should not give up the chance of fostering its development through e-Business “just because” of the “Internet stock bubble” in the US in mid 1990s (Alfirević, Pavičić & Lugović, 2003), the Croatian enterprises should not give up the opportunity for strategic use of the ERP systems. Such an analysis serves well in comparing the “IT scene” in Croatia to global IT expenditures, but does not speak whether the existing Croatian ERP customers are already reaping some strategic benefits from their IT investment(s). In order to demonstrate the linkage between the competitive advantage and the existence (operation) of an ERP system on the sample of “top 200” Croatian enterprises, a comprehensive statistical analysis has been carried out, with some interesting patterns coming into sight. 4.3. ERP systems and competitive advantage of large Croatian enterprises: Preliminary results of an empirical investigation As a first step toward the analysis of ERP strategic aspects in Croatia, on the basis of internal SAP data, all the enterprises from the sample have been identified either as ERP users (without any distinction between the SAP-based and non-SAP ERP systems), or non-ERP users. According to the available data, compiled from different secondary sources and own market research, it turns out that, out of 200 largest Croatian enterprises (ranked by revenue), the majority (143 companies, i.e. 76,1 % 5 All the stated software functionality investments (ERP/SCM, CRM and e-Business functionalities) include hardware costs (i.e. costs of servers and client personal computers required to run the ERP information system), software license costs, consulting, services and other maintenance costs.

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of the sample) has not licensed an ERP system. The remaining 45 enterprises (22,5 %) has licensed one of the ERP systems available on the Croatian market, while 2 enterprises (1,1 %) could not be clearly classified as either ERP, or non-ERP users. These data have been correlated with the reported financial performance of the sampled enterprises (measured by the relative performance indicators - return on assets - ROA, return on equity - ROE and net profit margin/return on sales ROS), in order to reveal possible patterns, suggesting the existence of a relationship between the ERP investment and financial success. Taking into account that the existence of ERP investment has been measured on a discontinuous scale, the Spearman's correlation coefficient has been used, which is deemed a more appropriate statistical measure than the commonly used Pearson’s R correlation coefficient [11]. Contrary to initial expectations, the correlation between the ERP investment gap at the industry level with the financial performance (in financial year 2001) has not demonstrated a significant statistical relationship. The other results that have been obtained are rather common for this kind of research: each variable is, by definition, ideally and positively correlated with itself, while the significant correlation of different financial performance measures (shown by italics in Table 2) is also selfexplanatory. ERP investment gap 1,000

Net profit margin (ROS) ,095 1,000

ERP investment gap Net profit margin (ROS) ROE ROA ** Correlation is significant at the confidence level of 99%.

ROE

ROA

-0,124 0,658** 1,000

-,025 0,890** 0,851** 1,000

Table 2. Correlation between the ERP investment gap at industry level and relative financial performance of top 200 Croatian enterprises Table 3. illustrates the results obtained by correlating the existence of the ERP system (which may be interpreted as a strategic resource, i.e. the source of competitive advantage) with the financial performance (i.e. the evidence that an enterprise possesses the competitive advantage). Those results seem to confirm our hypothesis, as there are significant associations between the operation of an ERP system and the net profit margin (ROS), as well as return on total assets (ROA). However, these associations are not very strong, but not completely uninteresting, either. As the previous analysis has confirmed a certain association between the operation of an ERP system (i.e. a potential strategic resource) and the financial performance (as a measure of competitive advantage), the further research has concentrated into the nature of such a relationship. Results of a multiple linear regression, incorporating the already described ERP investment gap and the existing ERP investment level, both calculated at the level of industry to which the enterprise belongs, are shown in Table 4. and Table 5. These indicators are used as independent variables, while the financial performance, conceptualized as an expression of the competitive advantage and measured by the amount of pre-tax and net profit in financial year of 2001 takes the place of an dependent variable. Net profit margin (ROS) 1,000

ROE

0,658** Net profit margin (ROS) 1,000 ROE ROA Existence of an ERP system ** Correlation is significant at the confidence level of 99%.

ROA 0,890** 0,851** 1,000

Existence of an ERP system 0,296** 0,100 0,217** 1,000

Table 3. Correlation between the use of ERP systems and relative financial performance of top 200 Croatian enterprises

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The results demonstrate that all the analyzed regression models do not break the statistical assumptions (significance of the entire model measured by F-test, absence of multi-collinearity, normal distribution of residuals – see, e.g. Gupta, 1999) and can be considered highly significant (at the confidence level of 99%). Their predictive strength, measured by the R squared (amount of the variance explained), can be assessed as satisfactory for the net profit models and quite good for the models including pre-tax profit. Namely, they explain from 13.5% to almost 18% of the variance for the case of net profit and approximately 20% of the variance for the case of pre-tax profit, with the R squared of 23,5 % for the best model. However, some of their features are not easily explicable. The existence of an ERP system, which proved to be positively correlated with the relative performance indicators, seems to be the weakest predictor in the performance regression models. At the other hand, the amount of the ERP investment gap at the industry level accounts as the most strongest predictor of the enterprise financial performance, which can not be easily explained. Namely, positive relationship between these two indicators suggests that the financial performance (and, consequently, the competitive advantage of the enterprises in our sample) depends predominantly on the size of the ERP investment gap between the local and the comparable global industry. Such a result is not logical from the theoretical point of view and can not be easily interpreted. Therefore, the results obtained have proven to be rather inconclusive, which has motivated the authors to use a more sophisticated method, such as the analysis of variance (ANOVA). ANOVA allows for a strict statistical testing whether the difference among the mean values of a certain feature of several groups within the sample are significant enough to be generalized for the entire population. This is accomplished by comparing the sample variance estimated from the group means to that estimated within the groups. The results of the analysis of variance (presented in Table 6.) in financial performance between the ERP users and non-ERP users. Comparison on the basis of all three relative performance indicators used (ROE, ROA, ROS) provides statistically valid models, as the fundamental assumption about the equal group variances is met in all cases. Although the analysis demonstrates that the enterprises licensing the ERP systems perform better than the non-ERP users, all the performance differences can not be accepted as statistically significant. Only the differences in return on (total) assets can be assessed as statistically significant, with the confidence level of 90%. The differences of mean return on net profit (ROS) between the groups are at the very edge of accepting the statistical significance at the confidence level of 90%. The variance of performance indicators, consequently, indicates that the operation of an ERP system might be a significant factor for explaining the strategic performance of the 200 largest Croatian enterprises. Although the statistical evidence is not completely compelling, as the confidence level of 90% is often considered to be as not “strict enough” in the statistical analysis [11], the practical value of these conclusions is undisputable, as well as the need to further scientifically analyze the role of ERP systems in achieving the competitive advantage and strategic flexibility.

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Dependent variable

Ø Existence of the ERP

Net profit

Significant independent variables

Independent variables

system; Ø Existence of the industry ERP investment gap; Ø Existing ERP industry investment; Ø Amount of the ERP industry investment gap.

R2

Adjust ed R2

Model significance (F-test-based)

Multicollinearity ?

Distribution of the standardized residuals

18,8%

17,7%

0,000 àsignificant at the confidence level of 99%

Nonexistent

Normally distributed

17,4%

16%

0,000 à significant at the confidence level of 99%

Nonexistent


16%

15%


Nonexistent


14,5%

13,5%


Nonexistent


Ø Existence of the industry

ERP investment gap (confidence level of 95%); Ø Existing ERP industry investment (confidence level of 95%); Ø Amount of the ERP industry investment gap (confidence level of 99%). Ø Existence of the industry

Ø Existence of the

Net profit

industry ERP investment gap; Ø Existing ERP industry investment; Ø ERP industry investment gap. Ø Existence of the ERP

Net profit

system; Ø ERP industry investment gap. Ø Existing ERP industry

Net profit

investment; Ø ERP industry investment gap.

Ø

Ø

Ø Ø

ERP investment gap (confidence level of 95%); Existing ERP industry investment (confidence level of 95%); ERP industry investment gap (confidence level of 99%). Existence of the ERP system (confidence level of 95%); ERP industry investment gap (confidence level of 99%).

Ø ERP industry investment

gap (confidence level of 99%)

Table 4. Evaluation of multiple linear regression models between the variables describing the relationship between the existence of an ERP system, i.e. the level of ERP investment, with the net profit (2001) 9

Dependent variable

Independent variables

Significant independent variables

R2

Adjusted R2

Model significance (F-test-based)

Multicollinearity ?

Distribution of the standardized residuals

23,5%

21,7%


Nonexistent


21,9%

20,6%


Nonexistent


20,6%

19,7%


Nonexistent


19,4%

18,5%


Nonexistent


Ø Existence of the ERP system Ø Existence of the ERP

Pre-tax profit

system; Ø Existence of the industry ERP investment gap; Ø Existing ERP industry investment; Ø ERP industry investment gap. Ø Existence of the

Pre-tax profit

industry ERP investment gap; Ø Existing ERP industry investment; Ø ERP industry investment gap. Ø Existence of the ERP

Pre-tax profit

system; Ø ERP industry investment gap. Ø ERP industry

Pre-tax profit

investment; Ø ERP industry investment gap.

(confidence level of 90%); Ø Existence of the industry

ERP investment gap (confidence level of 95%); Ø Existing ERP industry investment (confidence level of 95%); Ø ERP industry investment gap (confidence level of 99%). Ø Existing ERP industry

investment (marginal 90% reliability); Ø ERP industry investment gap (confidence level of 99%). Ø Existence of the ERP system

(confidence level of 95%); Ø ERP industry investment

gap (confidence level of 99%). Ø ERP industry investment

gap (confidence level of 99%)

Table 5. Evaluation of multiple linear regression models between the variables describing the relationship between the existence of an ERP system, i.e. the level of ERP investment, with the pre-tax profit (2001)

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Variable being analyzed for mean differences

...among the groups of enterprises defined as...

Net profit margin (ROS)

(1) Non- ERP users (2) ERP users

ROE


ROA


Mean of group (1)

3,66 %

17,07 %

4,05 %

Mean of group (2)

Homogeneity of variance test

5,81%

YES, as the significance of Levene’s test > 0,05

18,18%


6,09%


Existence of significant group differences (on the basis of F-test) Questionable, as the F-test sign. = 0,125 > 0,10 à confidence level marginally lower than 90% NO, as the F-test sign. = 0,802 > 0,10 à confidence level significantly lower than 90% YES, as the F-test sign. = 0,060 < 0,010 à with the confidence level of 90%

Table 6. One-way analysis of variance in relative financial performance among the users and non-users of the ERP information systems 5. CONCLUSION In this paper, the enterprise resource planning systems have been analyzed in a strategic context, with the dilemma of “IS/data integration” vs. customizability of the ERP system as a main theoretical issue. On the basis of the resource-based view to the competitive advantage, the authors emphasize the role of ERP vendors and consultants (systems integrators) in customizing the ERP solution packages to the business processes and other individual requirements of ERP customers. The empirical part of the paper concentrates on the role of ERP systems in large Croatian enterprises. The major preliminary finding relates to the fact that the enterprises using the ERP systems perform better than the non-ERP users, although such a conclusion should be supported by further inquiry and analysis performed on a more substantial dataset, as the theoretical foundations imply that only the long-term above-average relative financial performance can be taken as a conclusive evidence of competitive advantage. However, it is believed that the major importance of this paper can be found in opening up a new field of inquiry within the IT field, as well as in developing and testing an appropriate methodology. REFERENCES: 1. Alfirević, N.; Pavičić, J.; Lugović, S. (2003): «The Role of Internet in Supporting KnowledgeBased Strategies Of Enterpreneurs In Countries In Transition: From the E-Business Myths to The Case Evidence from The Croatian High-Tech Industry», Proceedings of the Fourth International Conference «Enterprise in Transition», Faculty of Economics Split, pp. 231-233. 2. Bamberger, I. (1989): «Developing Competitive Advantage in Small and Medium-Size Firms», Long Range Planning, Vol. 22, No. 5, pp. 80-88. 3. Barney, J. B. (1991): “Firm Resources and Sustained Competitive Advantage”, Journal of Management, Vol. 17, No. 1, pp. 99-120. 4. Carr, N. G. (2003): «IT Doesn't Matter», Harvard Business Review, May, pp. 3-10.

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