Effective Value Chain equals Competitive Advantage Assignment

johansson_competitveadvantageerpvaluechain_47657951

 Use the APA formatted Microsoft Word document template in Doc Sharing: “Unit 3: Effective Value Chain equals Competitive Advantage Assignment” as the starting point.

•   
Write a 5-6 pages paper (exclusive of the Title and References pages) making a compelling argument as to why an effective value chain creates competitive advantage.

                     

Examine the concepts of a Value Chain, Competitive Advantage and Customer Delight.

                     Discuss the inter-relationship of the three elements.

                     Provide examples of companies that have been successful in this integration and at least one that has not.

Apply and cite at least three supportive, relevant and respected resources within your paper using APA in-text citation formatting and list the applied references on a References page using APA formatting.

 

Competitive advantage in the ERP system’s value-chain
and its influence on future development

Björn Johanssona* and Mike Newmana,b

aCenter for Applied ICT, Copenhagen Business School, Frederiksberg, DK-2000, Denmark;
bDivision of Accounting and Finance, Manchester Business School, Booth Street West,

Manchester, M15 6PB, UK

(Received 28 June 2007; final version received 13 May 2009)

Using the resource-based view, we present a set of propositions related to
enterprise resource planning (ERP) development, reflections on competitive
advantage and the di!erent roles that stakeholders play in the value-chain. This
has the goal of building a foundation for future research on ERPs and how
stakeholders’ desire to achieve competitive advantage influence ERP develop-
ment, especially when it comes to development of a more standardised or pre-
customised ERP system. The propositions also act as a foundation for increasing
our knowledge concerning the di”culty in developing improved ERP systems.

Keywords: competitive advantage; enterprise resource planning (ERP); ERP
development; resource-based view; value chain

1. Introduction

The paper uses the resource-based view of the firm (Barney 1991, Peteraf and Barney
2003, Wernerfelt 1984) to describe and explain how organisations, having di!erent
roles in the value-chain in an enterprise resource planning (ERP) system
development/implementation project, think about competitive advantage and how
this influences ERP development. In the value-chain for developing ERPs there are,
at least, the following three stakeholders: ERP software vendors, ERP resellers/
distributors and ERP end-user organisations. We suggest that these stakeholders
have di!erent approaches to gaining competitive advantage and that they influence
how ERP systems are improved. A critical question then is to define competitive
advantage as well as what it is that gives the stakeholders in the ERP system’s value-
chain a competitive advantage. This discussion relates to the on-going discussion
about how organisations receive competitive advantage from information and
communication technology (ICT) (Carr 2003, 2004, Mata et al. 1995, Smith and
Fingar 2003), and one theoretical base used for describing this is the resource-based
view of the firm. The resource-based view asserts that organisations gain and sustain
competitive advantage from valuable resources that are inelastic in supply (Ray et al.
2004). In this way, the resource-based view is closely related to core competence, as
described by Javidan (1998). Another area related to competitive advantage and

*Corresponding author. Email: bj.caict@cbs.dk

Enterprise Information Systems
Vol. 4, No. 1, February 2010, 79–93

ISSN 1751-7575 print/ISSN 1751-7583 online
! 2010 Taylor & Francis
DOI: 10.1080/17517570903040196
http://www.informaworld.com

ERP that has been in focus and discussed frequently is the question of finding the
‘right’ enterprise resource planning (ERP) system or, in other words, finding an ERP
system that fits the organisation and its business processes (Karimi et al. 2007, Luo
and Strong 2004, Rolland and Prakash 2000, Sleeper 2004, Soh et al. 2000). The way
ERP end-user organisations have solved this problem has, to a great extent, been
through customisation of a standard ERP system (Ashley 2005). This customisation
can be said to be in conflict with the initial principles of ERPs and what ERPs’ goals
are. One of the basic principles of ERPs is that these should be standardised systems
(Melin 2003). Light (2005) claims that the common view, at least from the vendors’
perspective, is that ERPs are most successfully implemented when the standard
model is adopted. Somers and Nelson (2004) propose three major business drivers
for adoption of ERPs: improving productivity, providing competitive advantage,
and satisfying customer demands. Wier et al. (2007) claim that the purpose of ERPs
is to support business process improvements. This suggests that customisation of an
ERP aims at creating and adopting an ERP that fits the end-user organisation’s
specific business processes, thereby maintaining or increasing its competitive
advantage when compared with its rival firms. The research question asked is:
what are the beliefs that di!erent stakeholders in the value-chain for ERP
development have about competitive advantage, and how do these beliefs influence
future developments of the ERP?

In this paper, we develop a set of propositions related to ERP development and
competitive advantage and the roles that the di!erent stakeholders play in the value-
chain. These propositions have the ambition of acting as a foundation for future
research on the development and implementation of ERPs and how di!erent
stakeholder thoughts regarding competitive advantage influence ERP development,
especially when it comes to the development of a more standardised ERP system.
The propositions also act as a foundation for increasing our knowledge about the
di”culties in developing future ERP systems.

The rest of the paper is structured as follows. Section 2 describes the ERP
development value-chain and the stakeholders involved. It also elaborates what
competitive advantage consists of for these stakeholders and provides suggestions
about their thoughts regarding competitive advantage derived from ERPs. This is
followed by Section 3 which defines ERPs and reports findings about ERP and
competitive advantage. Section 4 presents the resource-based view of the firm and
the value, rareness, imitability and organisation (VRIO) framework, and gives a
definition of competitive advantage. Section 5 then uses the resource-based view to
discuss ERP development and competitive advantage. Finally, Section 6 describes a
set of propositions that concludes the discussion and can be seen as o!ering a
direction for future research about competitive advantage and ERPs related to
stakeholders in the ERP development chain.

2. The ERP value-chain and its stakeholders

Development of ERPs can be described as a value-chain consisting of di!erent
stakeholders, as shown in Figure 1. An ERP value-chain can be described as the
ERP business model having at least three di!erent stakeholders: ERP software
vendors, ERP resellers/distributors, and ERP end-user organisations (or ERP
customers). This is an indirect sales model. An alternative to this is the direct sales
model using only two stakeholders. However, in this paper we focus on the indirect

80 B. Johansson and M. Newman

sales model. It can be said that all stakeholders in the value-chain, to some extent,
develop the ERP further from its original form or core. The software vendors develop
the core of the system that they then ‘sell’ to their partners that act as resellers or
distributors of the specific ERP. These partners quite often make changes to the
system or develop what could be labelled as add-ons to the ERP core. These changes
or add-ons are then implemented in order to customise the ERP for a specific
customer. In some cases also the customer develops the ERP system further either by
configuration or customisation. At this stage of the value-chain it can be argued that
the ‘original’ ERP system could have changed dramatically from its basic design. This
ERP development value-chain may result in the ERP software vendors not having as
close a connection to the end-user that they would prefer and do not always
understand what functionalities are added to the end-users’ specific ERP systems.

The stakeholders in the ERP value-chain have di!erent roles; accordingly, they
have di!erent views of competitive advantage gained from ERPs. One way of
describing this could be to use the resource-based view discussed as a core
competence (Javidan 1998). Developing ERPs are the ERP software vendors’ core
competence. The ERP reseller/distributors’ core competence should also be closely
related to ERPs, but it is unclear that development should be their core competency.
Their core competence could or should be implementing ERPs. However, this
probably varies between ERP resellers/distributors; for some it could be the
development of add-ons that constitute their ERP core competence. When it comes
to end-user organisations, it can be said that ERP development definitely does not
constitute their core competence. However, they are, directly or indirectly, involved
in the ERP development value-chain.

One reason why end-user organisations get involved in ERP development is that
they probably want to adjust their ERPs so that it supports their core competence
related to their business. This means that implementation is of importance and
thereby ERP resellers/distributors play a crucial role.

Beard and Sumner (2004) investigate whether a common systems approach for
implementing ERPs can provide a competitive advantage. The focus of their
research was to investigate what happens when a variety of firms within the same
industry adopt the same system and employ almost identical business processes.
They concluded that ERPs are increasingly a requirement for staying competitive
(i.e. competitive parity), and that ERPs can yield at most a temporary competitive
advantage. From this it can be suggested that the ERP end-user organisations want a
‘cheap’ system that they can use to improve their business processes, thereby making
a di!erence compared with other organisations in the same industry. But, since
ERPs force organisations to implement standardised business processes (so-called
‘best practice’; Wagner and Newell 2004), it could be that the organisations get
locked in by the usage of the system and then, depending on whether they are a first
mover or not, they receive only a temporary competitive advantage. This implies that

Figure 1. Stakeholders in the ERP value-chain.

Enterprise Information Systems 81

the ERP end-user organisation often implements an ERP with the objective of
having a ‘unique’ ERP system. But does the ERP customer actually want a unique
ERP system or not? Assuming that the customer believes they have a unique business
model, it follows that it would probably want a unique ERP system. However, it is
important to remember that they probably want a system with high interoperability
internally, as well as one which links with external organisations’ systems. This
means that the basic thoughts that are intrinsic in ERPs are attractive to ERP end-
user organisations. At the same time, it is possible that the end-user organisations
also want a system that is not the same as their competitors. This is then congruent
with what the ERP resellers/distributors want. They receive their competitive
advantage by o!ering customers the knowledge of how to customise an ERP using
industries’ best practices and, at the same time, how to implement functionality that
di!erentiates their ERP system from their competitors’ uses.

Mata et al. (1995) developed Figure 2, using Barney’s (1991) claims about
competitive advantage and ICT in general. The framework has been used extensively
by, for instance, Kalling (1999), Beard and Sumner (2004), Lengnick-Hall et al.
(2004) and Fosser et al. (2008a). What the research implies is that competitive
advantage can be di”cult but not impossible to achieve because the resource is
di”cult to reproduce (e.g. the role of history; causal ambiguity; social complexity).
As described by Fosser et al. (2008a), the real value is not the ICT in itself, but the
way the managers exploit it. We will describe this in more depth in relation to ERP in
Section 4 when we describe the resource-based view of the firm and the value,
rareness, imitability and organisation (VRIO) framework.

Quinn and Hilmer (1994) argue that organisations can increase the competitive
advantage by concentrating on resources which provide unique value for their cus-
tomers. Based on the discussion above and the statement made by Quinn and Hilmer
(1994), we have constructed Table 1 to show what the competitive advantage is and
how it is gained by the di!erent stakeholders in the ERP development value-chain.

Figure 2. Resource-based model of competitive advantage (after Mata et al. 1995).

82 B. Johansson and M. Newman

Levina and Ross (2003) describe the value proposition in outsourcing from a
vendor’s perspective. They claim that the value derived from vendors is based on
their ability to develop complementary core competencies. From an ERP
perspective, we suggest that vendors, as well as distributors (Figure 1), provide
value by delivering complementary core competencies to their customers.

When looking at the market share between the three di!erent stakeholders in the
ERP value-chain, it can be proposed that there are no direct conflicts amongst
stakeholders in what assists the respective stakeholder in gaining competitive
advantage. The reason is that they all work in di!erent markets and with di!erent
customers. Consequently they do not compete with one other. In reality, they have
each other as customers and/or providers, as described in Figure 1. For example,
further development of ERPs carried out by vendors could result in a higher degree
of selling directly to end-customers or other ways of delivering ERPs to end-
customers. At the extreme, the partners would be driven to insolvency and replaced
by, for instance, application service provision (ASP) (Bryson and Sullivan 2003) or
software as a service – SaaS (Jacobs 2005). The first step in this direction is probably
that more of the add-ons that partners deliver to end-customers are incorporated in
the core product. It can thus be concluded that there appears to be a conflict between
the di!erent parties in the value-chain when it comes to how di!erent stakeholders
think they gain competitive advantage and how that influences future ERP
development. To develop this proposition, the next section describes ERPs and
provides findings regarding competitive advantage from ERPs.

3. ERPs and competitive advantage from ERPs

Enterprise resource planning (ERP) systems had their introduction in the 1950s and
1960s when computers were introduced into organisations (Møller 2005). ERPs are
often defined as standardised packaged software designed with the aim of integrating

Table 1. ERP value-chain stakeholders and competitive advantage.

Stakeholder Competitive advantage Gained through:

ERP software
vendors

High level of market share in the
ERP market (e.g. the number
software licenses sold)

Competitively priced software
Highly flexible software
Ease of implementing the software
Ease of customising the software

ERP resellers/
distributors

High level of market share in the
ERP consultancy market
(e.g. consultancy hours
delivered)

Knowledge about the customer’s
business

High level of competence in
development of add-ons that are
seen as attractive by the ERP
end-user organisation

High level of competence at
customisation

ERP end-user
organisations

High level of market share in the
customer-specific market
(e.g. products or services sold;
rising market share; lower costs)

Being competitive in its market
Implementing an ERP system that
supports its business processes

Implementing an ERP system that
is di”cult for competitors to
reproduce

Enterprise Information Systems 83

the entire value-chain in an organisation (Lengnick-Hall et al. 2004, Rolland and
Prakash 2000). Wier et al. (2007) argue that ERPs aim at integrating business
processes and ICT into a synchronised suite of procedures, applications and metrics
which transcend organisational boundaries. Kumar and van Hillegersberg (2000)
claim that ERPs that originated in the manufacturing industry were the first
generation of ERPs. According to the authors, development of these first generation
ERPs was an inside-out process proceeding from standard inventory control (IC)
packages, to material requirements planning (MRP), material resources planning
(MRP II) and then eventually expanding it to a software package that aims to
support the entire organisation (second generation ERPs). This evolved software
package is then described as the next generation ERP labelled as ERP II which,
according to Møller (2005), could be described as the next generation enterprise
systems (ES).

This development has increased the complexity not only of usage, but also in the
development of ERPs. The complexity comes from the fact that ERPs are systems
that are supposed to integrate the organisation (both inter-organisationally as well as
intra-organisationally) and its business process into a one package (Koch 2001). It
can be assumed that ERPs as well as how organisations use ERPs have evolved
(Botta-Genoulaz and Millet 2006). These changes have created the renewed interest
in developing and selling ERPs. Thus, the ERP market is a market in flux. This
impacts not only the level of stakeholder involvement in an ERP value-chain (Ifinedo
and Nahar 2007, Somers and Nelson 2004), but also how these di!erent stakeholders
gain competitive advantage from developing, selling, or using ERPs. It is clear that
an organisation no longer achieves competitive advantage just by implementing an
ERP (Karimi et al. 2007, Kocakulah et al. 2006). Fosser et al. (2008b) present some
findings that support this and at the same time show that for some organisations
there is a need for implementing an ERP system for at least achieving competitive
parity. They also state that the way configuration and implementation is
accomplished can influence the possibility to gain competitive advantage from an
ERP system, and that an inability to exploit the ERP system can bring competitive
disadvantage. This is in line with the assumption from the resource-based view that it
is the utilisation of resources that makes organisations competitive (Mata et al.
1995). In this context, it means that ERP software vendors become competitive if
they utilise their resources to develop ERPs that are attractive to their potential
customers. ERP resellers/distributors need to utilise their resources to become
attractive partners when implementing ERPs. Further, ERP end-users need to utilise
the ERP system so that it supports their business. In other words, it is how end-user
organisations use the ERP that is of importance, and it could be that having a unique
ERP system (Table 1) is not that important. It may be that ERP end-user
organisations think it is more important than it actually is.

Millman (2004) posit that ERPs are the most expensive but least-value-derived
implementation of ICT support. The reason for this, according to Millman, is that a
lot of ERPs’ functionality is either not used or is implemented in the wrong way.
That it is wrongly implemented results from ERPs being customised to fit the
business processes, instead of changing the process so that it fits the ERP (Millman
2004). According to Light (2005), there are more reasons for customisation than just
the need for achieving a functionality fit between the ERP and the organisation’s
business processes. He believes that from the vendors’ perspective, customisations
might be seen as fuelling the development process. From the end-users’ perspective,

84 B. Johansson and M. Newman

Light describes customisation as a value-added process that increases the system’s
acceptability and e”ciency. Light further reasons that customisation might occur as
a form of resistance or protection against implementation of a business process that
could be described as ‘best practices’.

Mata et al. (1995) suggest that just implementing ERPs hardly gives any
competitive advantage at all. One reason for this could be that the number of
organisations that have implemented ERPs has exploded. Shehab et al. (2004) claim
that the price of entry for running a business is to implement an ERP, and they
purport that it can be a competitive disadvantage not to implement an ERP system.
Beard and Sumner (2004) argue, based on evidence collected in prior studies, that
through a reduction of costs or by increasing an organisation’s revenue, ERPs may
not directly provide organisations with competitive advantage. Instead, they suggest
that cited advantages could be largely described as value adding through an increase
of information, faster processing, more timely and accurate transactions, and better
decision-making. From this it follows that the resource-based view of firms would be
interesting to use when explaining competitive advantage in relation to future
development of ERPs.

The next section expands upon how the di!erent stakeholder thoughts in the
value-chain of ERP development about competitive advantage influence the
development using the resource-based view.

4. The resource-based view and the VRIO framework

The resource-based view of the firm describes an organisation as a collection of
productive resources with the central assumption that organisations gain competitive
advantage through their internal resources (Peteraf and Barney 2003). The core issue
in the resource-based view is how to identify and exploit existing resources more
e!ectively in the organisation (Hedman and Kalling 2002). Connor (1991) proposes
that the resource-based view is a strategic management approach that focuses on
resource allocation and emphasises economic performance and competitive
advantage in markets. This is also confirmed by Hedman and Kalling (2003),
adding that the resource-based view is part of strategy theory and, as such, deals with
explanations of firm performance in a competitive environment.

The resource-based view focuses on resources and capabilities and the linkage
between resources and capabilities in order to underlie persistent performance; it also
deals with the way in which organisations di!er from one other when it comes to
performance. Persistently high levels of performance are described by Peteraf and
Barney (2003) as a sustained competitive advantage. Noteworthy in the resource-
based view is that it builds on assumptions about competitive advantage and
heterogeneity of resources. The basic assumption is that the heterogeneity of
resources makes it possible to have competitive advantage. Johnson et al. (2003)
argue that since the economic environment is moving rapidly towards open markets,
resources are increasingly tradable, and that protection from market entry and
strategic imitation is declining. They suggest that from the resource-based view,
sustainable advantage must lie in micro assets that are hard to discern and awkward
to trade.

Barney (1991) proposes that in order to avoid confusion about basic assumptions
in the resource-based view, there are three concepts that need to be defined:
resources, competitive advantage and sustained competitive advantage. For ease of

Enterprise Information Systems 85

understanding the definition of these concepts, the resource-based framework, as
presented by Barney (1991), is shown in Figure 3.

In Figure 3 the assumptions of heterogeneity and immobility about resources and
the relationship to having sustainable competitive advantage are shown on the left
side. The resource-based view suggests that resources have the possibility to sustain
heterogeneity and also that they can be immobile. These assumptions are connected
to four attributes of resources: value, rareness, imperfect imitability and substitut-
ability. The model suggests an important distinction in the resource-based view, that
if a resource is to provide organisations with sustained competitive advantage, there
are di!erent attributes for the resources that have to be fulfilled. According to
Hedman and Kalling (2002), there are numerous resource attributes described in the
resource-based view literature that give a firm its competitive advantage. Barney
(1991, 2002), Cheon et al. (1995), and Hedman and Kalling (2002) identify the
following four attributes as relevant: valuable, rare, costly to imitate, and e”ciently
organised. These attributes constitute the basis of the VRIO framework described in
Table 2, which shows that if certain criteria of the resource attributes are fulfilled, it
is possible for organisations to retain control over their resources, and thus enjoy
sustained competitive advantage. But this depends to a high degree on how resources
are organised, as shown in the VRIO framework (Barney and Wright 1998).

The intention of the VRIO framework (value, rareness, imitability and
organisation) is to identify which resources do or do not provide sustained

Table 2. The VRIO framework (Barney 2002).

Is a resource or capability . . .

Valuable? Rare?
Costly

to imitate?
Exploited by
organisation? Competitive implications

Economic
performance

No – – No Competitive disadvantage Below normal
Yes No – Competitive parity Normal
Yes Yes No

Yes

Temporary competitive
advantage

Above normal

Yes Yes Yes Sustained competitive
advantage

Above normal

~

!

Figure 3. The relationship between resource heterogeneity and immobility, and sustained
competitive advantage (Barney 1991).

86 B. Johansson and M. Newman

competitive advantage. The VRIO framework aims at identifying resources with the
potential for having sustained competitive advantage by answering the questions
about resources or capabilities. If all answers are in the a”rmative, the specific
resource has the potential to deliver sustained competitive advantage to the
organisation. However, to do that, the resource has to be e”cient and e!ectively
organised. Barney (2002) describes this as exploiting the resource.

According to Barney (1991), a resource is valuable if it enables the organisation
to implement strategies that improve its e”ciency and e!ectiveness. The statement
that Barney (1991) makes somewhat contradicts this. He equates a resource with
value. The first question related to the value of the resource seems to be meaningless
if the basic assumption is that the resource has to be valuable if it is to be deemed a
resource. Barney and Wright (1998) claimed that value is created by either decreasing
the costs for producing the products, or the services, or by having the possibility of
increasing the price for its products or services. This is very much in line with the
basic value-chain thoughts as described by Porter (1985).

Rareness is defined as scarcity of resources by Barney (2002). Rareness is not
su”cient for a specific resource to deliver competitive advantage. According to
Peteraf and Barney (2003), the cost of using that specific resource could be so high
that the costs exceed the potential benefits. It is also possible that the specific
resource could be used in another context that provides the organisation with a
higher net benefit. This is described by Peteraf and Barney as the resource having a
higher opportunity cost of being employed in di!erent contexts. This suggests that
the level of rareness that a valuable resource needs to have in order to provide
organisations with competitive advantage could vary between situations (Barney
2002). Thus, when it comes to rarity, if a specific resource is not rare, it cannot
provide the organisation with sustained competitive advantage. But, it can provide
the organisation with competitive disadvantage if the organisation chooses not to use
that specific resource when the organisation’s competitors use that resource. ERP
usage is probably one occasion where this could happen. Web-sites for organisations
could exemplify this, as having a web-site does not always give competitive
advantage but it could do. On the other hand, not having a web-site could provide
the organisation with a disadvantage since most organisations have a web-site. The
same could probably be claimed for ERPs.

If a resource is found to be valuable and rare, it is not evident that it provides
sustainable competitive advantage. According to the VRIO framework, the resource
could be said to deliver temporarily competitive advantage. To deliver sustained com-
petitive advantage, the resource needs to have the attribute of being di”cult to
imitate. Barney (2002) describes two di!erent ways for an organisation to imitate
resources: duplication or substitution. (It is a little unclear whether Barney means the
imitation of usage of resources or strictly imitation of the resources as such.) Dupli-
cation means that the organisation uses the same ‘type’ of resource in the same way.
Whether the organisation will be successful or not depends on the cost of dupli-
cation, meaning that if the cost for duplication is higher than the potential benefits
from usage of that specific resource, the competitive advantage will be ‘wiped out’.
The competitive advantage for the organisation that first implemented the resource
will thereby be sustained. In the opposite case, if the development of the resource is
more costly than duplication the competitive advantage will be temporary. The other
way of imitating a resource is by substituting the resource with another ‘type’ of
resource. This happens when it is too costly to imitate by duplication. Substituting

Enterprise Information Systems 87

means that a resource is used as a replacement of other resources that competing
organisations use and have control over. This means that if a substitute exists and is
also not too costly to obtain, then the competitive advantage will only be temporary.
In the ERP case the example of open source ERPs could be said to describe this to a
large extent. It could also be that organisations instead of implementing an ERP
software package may implement specific software for a specific function.

However, the discussion above regarding competitive advantage depends to a
great extent on how competitive advantage is defined. A common definition of
competitive advantage is that it is a superior financial performance in a given market,
implying that organisations that have above-normal returns also have competitive
advantage. The definition that Peteraf and Barney provide is as follows:

An enterprise has a competitive advantage if it is able to create more economic value
than the marginal (breakeven) competitor in its product market.

align=(Peteraf and Barney 2003)

The concept of competitive advantage also needs to be understood from the
perspective of sustainability. Understanding sources of sustained competitive
advantage is, according to Barney (1991), a major area in strategic management
research. A common approach is to use the strengths, weakness, opportunities and
threats (SWOT) framework. There are, according to Barney, two assumptions in the
SWOT framework that are important to take into account when using it for analysing
competitive advantage. First, it suggests that all organisations within the same area
are identical when it comes to the strategic resources that they have and can control,
as well as which strategies they practise. Second, it suggests that if resource
heterogeneity is developed, that heterogeneity will be short lived because resources
are highly mobile. However, if we analyse these assumptions and findings according
to the resource-based view, even if the organisations are identical and that the specific
resource is highly mobile they can show di!erence in competitive advantage.

Relating this to ERPs and ERP development, we will now look into ERP and
competitive advantage seen from the resource-based view.

5. ERP and competitive advantage seen from the resource-based view

As Mata et al. (1995) and Kalling (1999) claim, whether an organisation gains
competitive advantage from software applications depends on how these resources
are managed. The conclusion Mata et al. (1995) draw is that among attributes
related to software applications – capital requirements, proprietary technology,
technical skills, and managerial software applications skills – it is only the
managerial software application skills that can provide sustainability of competitive
advantage. Barney (1991) concludes that sources of sustained competitive advantage
are and must be focused on the heterogeneity and immobility of resources. This
conclusion is made from the assumption that if a resource is evenly distributed across
competing organisations and if the resource is highly mobile, the resource does
produce sustained competitive advantage.

The evolution of ERPs has made these resources easier to imitate; however, a
major hindrance to imitation is the likely cost of implementation. This discussion can
be compared to Carr’s (2004) assertions about receiving competitive advantage by
software applications.

88 B. Johansson and M. Newman

The resource-based view says that a resource has to be rare if it is able to
provide competitive advantage. In the case of ERPs, it could be said that this kind
of resource is not rare. There are a lot of di!erent possibilities for organisations to
implement ERPs, and the evolution of ICT has made it more feasible for more
organisations to implement ERPs, that is, by decreasing the costs of usage of
ERPs. However, as described by Barney (2002) and Shehab et al. (2004), not
implementing an ERP can also lead to an organisation su!ering competitive
disadvantages.

Kalling (1999) suggests that the literature on resource protection focuses, to a
large extent, on imitation, trade and substitution. He proposes that development of a
resource can also be seen as a protection of the resource. Referring to Liebeskind
(1996), Kalling posits that the ability to protect and retain resources arises from the
fact that resources are asymmetrically distributed among competitors. The problem,
according to Kalling, is how to protect more intangible resources such as knowledge.
Relating this to ERPs, it follows that knowledge about a specific deployment of an
ERP would be hard to protect by legal means, such as contracts. Another way of
protecting resources is, as described by Kalling, to ‘protect by development’. This
means that an organisation protects existing resources by developing the resources in
a way that flexibility is increased by adjusting and managing present resources. In the
ERP case this could be described as customisation of the existing ERP, thereby
sustaining the competitive advantage gained from usage of the ERP. Kalling
describes this as a way of extending a time advantage for competitive advantage.
From the di!erent ERP stakeholders’ perspectives, it could be suggested that both
protection by development, as well as trying to increase the time advantage,
influences the development of ERPs.

Whether an organisation has competitive advantage or not from an ERP system
can, to a great extent, be said to depend on how we define competitive advantage.
There are many di!erent definitions of competitive advantage; however, a basic
definition is that the organisation achieves (as previously described) above normal
economic performance. If this situation is maintained, the competitive advantage is
deemed to be sustained. There are some conflicts between attributes for gaining
competitive advantage, such as developing ‘cheap’ software with high flexibility and
developing software that is easy to customise or to gain competitive advantage by
developing exclusive add-ons.

If the organisation is a first mover in the sense that it is the first organisation that
uses this type of resource in a specific way, it can quite easily gain competitive
advantage, but it will probably be short lived. The length of time that the competitive
advantage lasts is a question of how hard it is for others to imitate the usage of that
resource. This means that the question of how resources are exploited by the
organisation is the main factor when it comes to whether the competitive advantage
becomes sustainable or not. When it comes to development of ERPs, the conclusion
is that exploitation by organisations should be seen in terms of how resources are
organised and how governance and/or control over ERP development, implementa-
tion, and usage are e!ective.

6. Concluding propositions

In the introduction of the paper the question of what ‘competitive advantage’ means
was asked. It was suggested that it is crucial to define competitive advantage as well

Enterprise Information Systems 89

as what it is that gives the stakeholders in the ERP system’s value-chain competitive
advantage and how they gain or could gain competitive advantage. In the paper we
define competitive advantage and explain it from the vendor, reseller and end-user
perspective. We also describe thoughts di!erent stakeholders have about competi-
tive advantage in relation to the ERP value-chain. From the end-user perspective,
competitive advantage gained from ERPs could be described as the ERP having the
potential to deliver competitive advantage if the end-user’s business processes are
supported in such a way that they deliver increased performance. From the
vendors’, as well as the resellers’ perspectives, the ERP delivers competitive
advantage when they attract new customers or retain the old ones. This implies
conflicts between vendors and resellers when it comes to competitive advantage and
development of future ERPs. This can be explained by realising that ERP resellers/
distributors often develop add-ons which have a specific functionality solving a
specific problem for their customer. This can be seen as one way of customisation,
where resellers/distributors use their knowledge about the customer’s industry in
addition to their knowledge about the specific customer. This, in e!ect, allows
resellers to increase their competitive advantage and earn more money. Another way
is for resellers to sell the add-on to other resellers resulting in the resellers decreasing
their competitive advantage in the long run. It may be that the resellers who sell
their add-ons solution to other resellers would not see it as influencing their
competitive advantage, since they sell the add-on to customers already using the
same ERP system and this would not make ERP end-user organisations change
resellers. However, the question remains whether the same would apply if the
resellers sold the add-on to the software vendor. The answer would depend on
the incentives that the resellers had for doing that. The risk of selling the add-on to
the software vendor would be that it thereby would directly influence the customer
base the reseller had. If the add-on were to be implemented in the basic software
(core), the possibility of selling the add-on to end-user organisations, as well as to
other resellers, would disappear.

Competitive advantage of ERPs would probably be wiped out by duplication as
well as by substitution. If, for instance, the ERP resellers sold their add-on to the
ERP software vendor, the duplication of that add-on would be quicker, and the
competitive advantage that the ERP reseller had on being the one that delivered this
add-on would be wiped out. However, if they kept the add-on as ‘their’ solution,
other ERP resellers or the ERP software vendors would probably substitute the add-
on. One way for the resellers to earn some fees from the add-on would be to sell it to
other resellers.

We conclude the discussion with the following propositions:

Proposition 1: Both resellers and end-users (encouraged by resellers) in the ERP
value-chain see customisation as a way of achieving competitive advantage. This
results in resistance to providing software vendors with the information necessary for
them to develop ERPs further in the direction of standardisation, thereby decreasing
the resellers’ need to customise the system.

Proposition 2: The conflict between di!erent parties in the ERP value-chain and how
they think they will gain competitive advantage decreases the feedback in the ERP
value-chain. This tends to increase the cost for both development as well as
maintenance of ERP systems.

90 B. Johansson and M. Newman

The reasons for the cost for development and maintenance as being unnecessarily
high can be described as:

Proposition 3: End-users of ERPs and their basic assumption about how they receive
competitive advantage are encouraged by resellers of ERPs. Resellers want to sustain
their competitive advantage by suggesting and delivering high levels of ERP
customisation.

This can also be described as:

Proposition 4: The ERP end-users want to make sure that they can compete on
its market and they think having a unique ERP system will provide them with the
possibility to gain competitive advantage. The resellers support this idea with
o!ering unique adjustments to the standard software package – the ERP system. The
resellers also see this as a way of increasing their own competitive advantage.

The main conclusion can be formulated as the following proposition:

Proposition 5: The basic thoughts the di!erent stakeholders in the ERP value-chain
have about competitive advantage is that highly customised ERPs deliver better
opportunities for competitive advantage for the delivering reseller in the ERP value-
chain as well as for the ERP end-user organisations while it decreases the
opportunity for ERP software vendors to attain competitive advantage.

The discussion and propositions suggest that decision-makers in organisations and
their thoughts regarding how to gain and sustain competitive advantage by
customisation of ERPs are a major hindrance for development of future ERPs. This
conclusion emanates from the assumption that organisations protect what
customisation they have made as well as why they have customised their ERPs.
The reason for this is based on their belief that they will thereby sustain competitive
advantage gained by developing, selling or using customised ERPs. However,
returning to Table 1 and the suggestion on what it is that constitutes competitive
advantage for the di!erent stakeholders, it can be concluded that there are some
generic influencing factors. The conflicting goals of the three parties in the ERP
value-chain increase the complexity of the market place. From a resource-based view
perspective it can be said that first mover advantage could be seen as something that
influences all stakeholders and their possibility to gain and to some extent sustain
competitive advantage. The same could also be said about speed of implementation
and, for instance, at what speed changes by the ERP vendor are implemented in the
core product, as well as in what speed new add-ons are developed and implemented
by the reseller, but also the speed of implementing new versions of the ERP by the
end-user. The main conclusion is that even if the role of history, causal ambiguity
and social complexity influences organisations’ possibility to gain competitive
advantage, the management skills that the organisations have seems to be most
important. However, independent of that it can be claimed that the assumptions of
stakeholders in the ERP value-chain about competitive advantage influence
development of future ERP systems. In the future we will be exploring the above
propositions using evidence from case studies of the three stakeholders and their
relationships with special reference to the inherent conflicts in the value chain.

Enterprise Information Systems 91

Acknowledgements

This paper is part of the 3gERP project, www.3gerp.org, financially supported by the Danish
Advanced Technology Council and Microsoft. Their support is gratefully acknowledged.

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