(02) ERP Investments and the Market Value of Firms: Toward an Understanding of Influential ERP Project Variables

Question 1

The objective of this study is to build on prior theory as well as prior empirical IS research to hypothesize differences in stock market reactions to ERP investment announcements that contain information about three key project decisions. What are the key project decisions?

Answer 1

(1) the choice of modules (functional scope)
(2) The choice of site where the system will be implemented (physical scope)
(3) the choice of the vendor from whom to purchase the ERP package (vendor status)

Question 2

The option value on an IT platform investment can be predicted based on four types of determinants. What are the four determinants?

Answer 2

(1) strategic factors such as the radicalness of process improvements and the strategic importance of improved processes;
(2) organizational learning factors such as knowledge barriers or burden of organizational learning required for implementation and the extent to which the knowledge gained has long-term strategic value (exploitable absorptive capacity);
(3) technology bandwagon factors such as the prospects for vendor dominance; and
(4) adaptation factors that yield increased payoffs overtime.

Question 3

Findings:

Answer 3

ERP projects with greater functional scope (two or more value-chain modules) or greater physical scope (multiple sites) result in positive, higher shareholder returns. Furthermore, the highest increases in returns (3.29%) are found for ERP purchases with greater functional scope and greater physical scope; negative returns are found for projects with lesser functional scope and lesser physical scope. The choice of vendor was found to be of no influence.