Financial Analysis of Potential Benefits from ERP Systems Adoption

Past research findings indicate that the successful adoption of information technology to support business strategy can help organizations gain superior financial performance versus their competitors. Adopting enterprise-wide resource planning systems is considered a strategic investment decision because it represents a significant commitment of resources and can have a dramatic effect on business processes. These strategic investments may also influence a firm's performance over a long-term time horizon. This study examines the effect of adoption of enterprise systems on a firm's operational performance. Financial data of companies adopting enterprise wide systems and of a matched control group of firms were compared cross-sectionally across time periods before and after adoption. The results from a multivariate analysis show that firms adopting enterprise systems exhibit a significantly higher overall differential performance since the second year after adoption than a matched control group. A decomposition of overall performance into profitability and efficiency financial indicators shows that significant differences attained by the ERP adopting firms are due to higher profitability but not efficiency