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The Role And The Contribution Of Enterprise Resource Planning Within The Knowledge Creation


The Role And The Contribution Of Enterprise Resource Planning Within The Knowledge Creation Process

Silvia Margarucci Università Politecnica delle Marche, Facoltà di Economia Dipartimento di Management e Organizzazione Industriale P.le R. Martelli, 8 60121 Ancona (ITALIA)

Tel. (+39) 071.2207030 Fax. (+39) 071.2207199 s.margarucci@univpm.it

Director of Doctoral Programmes, Prof. Stefano Marasca s.marasca@univpm.it Supervisor, Prof. Stefano Marasca s.marasca@univpm.it

16th EDAMBA Summer Academy Soreze, France July 2007

Abstract This paper outlines ideas proposed for a research study and their philosophical and methodological implications. In essence, this research will investigate whether there exists a relationship between an ERP integrated information system and the process of knowledge creation, management and diffusion. Furthermore, it will study if and how the process of value creation begun in a firm can be facilitated by the knowledge that could be produced by the ERP system. The research will be conducted using a qualitative approach by means of a case study method and participant observation. Additional data will be collected through unstructured and semi-structured interviews.

Key Words: Enterprise Resource Planning Systems, Information, Knowledge Management, Value Creation

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1. Introduction If we consider the firm as a system, its information system can be conceived as a subsystem that considers only the information aspect of the firm (Cavalieri 1973, Marchi 1993). The facts regarding a firm are becoming more and more multi-faceted and the information that is furnished by traditional information systems is no longer sufficient for a thorough understanding of those facts; therefore, it is necessary for managers to "know" the business facts in depth in order to gather their hidden opportunities. This need has triggered a revolution (Drucker 1999): we have entered that post-industrial era which we can define the era of knowledge, in which knowledge and information, not just scientific knowledge, but news, advice, entertainment, communication, service, have become the economy's primary raw materials and its most important products (Stewart 1997). The focus has moved from data to information. There is a notable difference between "data" and "information". Data are the facts and figures of business activities and processes that are input into the information system. Information, instead, is something meaningful to management for decision making; a possible definition of information is "data that have meaning for the receiver" (Hollander – Denna – Cherrington 2000). However, a further step forward has been made and that is, knowledge creation. Information alone is not enough if it doesn't contribute to creating knowledge (Drucker 1999, Stewart 1997). It's not only that more people are doing knowledge work, but the knowledge content of the work is also increasing (Stewart 1997). To meet the demands for knowledge, produced at all levels of the organization, the ideation technology of business information systems has changed (Drucker 1999). In his 1992 Accounting Horizons article, Elliot begins by saying, "Information technology (IT) is changing everything." Elliot uses the image of a wave that is crashing over accounting’s shoreline (Hollander – Denna – Cherrington 2000). To face these problems, companies have moved towards ERP (Mabert – Soni – Venkataraman 2001). ERP1 (enterprise resource planning) systems are comprised of a set of integrated application modules which cover all business functions. All the modules are fully integrated and users can access real-time information on all aspects of the company; this is done with a single computer system that combines all the particular systems used by a function into a single, integrated software program that runs out of a single database. With the adoption of ERP systems a radical change of paradigm, starting from the way they are planned, has been brought about because it has become necessary to rethink the way of working and, above all, the relationships among functions (Tardivo 2002, Scapens – Jazayeri 2003).

The Gartner Group coined the term “Enterprise Resource Planning” in the 1990s to describe the new business software. Vincent A. Mabert, Ashok Soni, M. A. Venkataraman, 2001

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1.1 Theoretical background For a long time now international literature has been studying integrated information systems, analyzing, first of all, the specific features that differentiate them from every other information system. In particular, there are three dimensions that characterize such systems: - information integration, even if this does not always succeed in solving all of management’s accounting problems (Lukka 2007); - modularity of the application (Scapens – Jazayeri 2003); - configuration of the system (Lughlin 1999, Hong - Kim 2001). The costs that are necessary for the purchase and, especially, for the implementation of such systems are notable. But this purely monetary logic cannot be used because the benefits expected from their employment are greater than the sustained costs (Mabert – Soni – Venkataraman 2001, Antonelli – D'Alessio 2004, Murphy – Simon 2002). At any rate, the reasons that lead to the choice of adopting an ERP system are manifold and diversified. In general, the basic motivation is to improve the flow of business information through the various units (Gattiker – Goodhue 2004; Kanyanasanpetch – Igel 2003). Other motivations concern the opportuneness of introducing organizational changes and a general restructuring of the business processes inside a firm (Scapens – Jazayeri 2001, Beretta – Polo 2002), also allowing those changes inside the process structure that the developing competitive environment requires (Davenport – Short 1993). Certainly, the change in the role of the controller and, in general, of management control, is tied to the changes in the processes. (Marchi 2004). Granlund and Malmi (2002) suggest, nevertheless, that the impact of integrated information systems on the accounting systems and on the work of accountants is relatively modest, at least until managers and accountants change their existing organizational routines (Scapens – Jazayeri 2003, Quattrone – Hopper 2001). From an organizational point of view, efficiencies and synergisms are created by connecting the employees and the information they hold (Dewett – Jones 2001). Many ERP system implementation projects, however, do not produce the hoped-for effects (Hong – Kim 2001). Many authors believe that the failure of integrated information systems derives from the impact that these have inside the organization (Hong – Kim 2001, Gattiker – Goodhue 2002). In fact, one of the problems to be dealt with is the resistance to change encountered from the members of the organization itself, (Laughlin 1999); this is where a strong managerial sponsorship comes into play (Amigoni – Beretta 1998, Mabert – Soni – Venkataraman 2001). Sometimes the implementation fails because not all information systems are suitable and are able to solve business problems (Gattiker – Goodhue 2003); it is necessary to shape them “ad hoc”, according to the real needs of 4

the organization (Culasso 2004, Ravagnani 2000). However, there are many advantages, albeit not immediately recognizable, such as efficiency or increased revenues from the reduction of expenses (Laughlin 1999, Scapens – Jazayeri 2003, Murphy – Simon 2002).

2. Research Ideas The aim of my research is to understand the existing relationship between an ERP integrated information system and the process of knowledge creation, management and diffusion. In literature, there is an emphasis on the necessity to favour and to strengthen the factors that promote the creation and diffusion of knowledge (Nonaka – Takeuchi 1995, Davenport – Prusak 1998). Managing knowledge, according to what has been theorized by McElroy (1999) in his "supply-side KM", means distributing the correct information, obtained through the ERP system, to the correct people at the correct time. This process, that we can define "virtuous", is completed only if a spontaneous demand for knowledge is created within the firm in order to strengthen the capacity to produce new knowledge in a fluid way (Kautz – Mahnke 2003). In fact, knowledge and action are inseparable. Actions derive from a complex learning process through which knowledge is created "by doing"; at the same time, action is a form of knowledge because acting requires learned practices (Quattrone – Hopper 2001). Knowledge management must become a sort of "philosophy" of collaboration and of sharing in the workplace environment. The knowledge cycle can lead to the production of new knowledge by using the sharing and the processing of information as levers. This study tries to understand whether, and in what ways and under what conditions, ERP systems, precisely because of their characteristics of design and construction, can support the creation and the transfer of knowledge, both inside and outside the organization, or, in certain cases, block this process. A further research idea is to study if and how the process of value creation begun in a firm can be facilitated by the knowledge that could be produced by the ERP system (Ferrata – Meregalli 1996, Kanjanasanapetch – Igel 2003, Marchand 2001). The knowledge inside an organization is able to become a source of durable competitive advantage at the moment when a structure is created, with formal and informal mechanisms and when there exists an organizational philosophy that facilitates the flow of ideas, information and knowledge inside the organization (Bogner – Bansal 2007, Edvinsson – Banfour 2004). A company that uses IT becomes a real knowledge company only when it becomes aware and involved at a deeper level, where information is pursued for its intrinsic value and not simply to automate or report activities (Stewart 1997). However, value is only created when knowledge is shared in the firm at every single level (Grant 1996, Spender 1996, Teece 5

2000); in fact, the competitive advantage that can derive depends not so much on the creation of knowledge, but rather on its diffusion and application (Chen –Huang 2007). Some authors believe that the creation of new value must not be solely geared towards the company’s shareholders, but must also hold in suitable consideration the perspectives of the other stakeholders (Coda 1989, Dematté 1997, Agliati 1999), so that the creation of new value consists in the growth of the enterprise, which must also be accompanied by an overall growth which is of benefit to all the players (Tardivo 2002, Donna 1999). The concept of value that will be considered in the study, is not the economic, classic shareholder value, but the research will use, as a reference, the creation of value for all the stakeholders, i.e. for all those people that enter into a relationship with the firm, manifesting different kinds of interest (Clarkson 2000, Freeman 1984, Hinna 2005).

3. The case study The theoretical premise will be supported by the analysis of a case study referred to a company which has implemented an integrated information system. The case study method, in fact, allows for the immediate investigation of the research issues, both in searching for empirical evidence, as well as in gathering new aspects not explicitly outlined in the literary framework. The case study refers to an Italian medium-size firm, which produces large-content paper sacks, that has chosen to implement an SAP system to replace the old information system. The reasons that have led to this choice have essentially been the standardization of the company processes in order to create a single information hub which can be accessed by everybody. The firm manifested the need to create a single, standardized system of business management at all levels of the organization, also with a view to future acquisitions. Furthermore, the firm was lacking a management control system capable of solving fundamental issues such as product cost and prices calculations. The implementation has been total, for all the modules of the system at all levels of the organization, although the "Accounting and Finance" module was implemented first. The case study objective is to analyze what kind of technical and organizational issues were faced during the ERP system design and the implementation phases, so as to see whether SAP has supported the process of creation, management and diffusion of knowledge and if this will lead to an improvement in the company’s competitive advantage.

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4. Philosophical implications 4.1 Research approach From the philosophical point of view, the intended approach used in the research is interpretative. The interpretative school provides an alternative paradigm to the positivist one, affirming, in substance, that social sciences are, first of all, born as systems of knowledge of the person, on the person and on the social systems that it generates and to which it participates (Borgonovi 1998). From the ontological point of view, there does not exist a single reality, valid for everybody; there exists a plurality of realities, because the interpretative perspectives that can be used to interpret social facts are multiple. On the epistemological level, the objective of knowledge is not to observe or to discover reality by proposing laws, but to interpret it (Fattore 2005), looking for its various meanings. The researcher’s view also changes because his absolute objectivity and independence are no longer either necessary, as they were instead in the positivistic formulation, or even, desirable. The researcher, in fact, must become totally involved and interact with the object of the study and not remain detached.

4.2 Strategy and method Within this approach, the study proposed can be defined as exploratory (Fattore 2005) because, in this initial phase, it attempts to put forward some initial hypotheses for the understanding of the phenomena that are the objects of the research. The exploration will be both empirical and theoretical (Fattore 2005). The theoretical exploration will allow the creation of a conceptual framework in which the theories and the existing literature will be analyzed in an effort to give a theoretical base to the relationship between the ERPs and the process of knowledge creation, management and diffusion. The exploration will also be empirical. Indeed, the research uses the case study method to give empirical evidence to the results (Yin 2005). As early as 1989, Eisenhardt proposed a study in which the generation of the theory happens through the study of multiple cases (Fattore 2005). Eisenhardt, however, imposes certain "rules" such as, a clear definition of the research objectives and the establishment of a protocol, understood not only in terms of planning, but primarily as mechanism serving to guarantee the validity and reliability of the results. It is from this approach that Yin proposes the case study method as a complete research strategy, and not as a data gathering tactic or simply as a characteristic of a project, provided that the case study is characterized by methods and rigorous procedural rules that keep the arbitrary and subjective interpretation of the results in check.

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The case study is one which, besides being characterized by the object of study that is a specific empirical case, is also characterized by the method that uses multiple investigative tools, both quantitative and qualitative, in order to allow the researcher to observe and to measure multiple perspectives (Fattore 2005). The research will be mainly qualitative in nature; qualitative research uses an inductive approach to "discovery of the reality" according to which the theory emerges from the observation (Bryman 1989). The main challenge to qualitative data analysis is that there is no clear and accepted set of conventions for analysis corresponding to those observed with quantitative data (Hussey – Hussey 1997). The use of the case study in this research, actually derives from the opportunity to actively participate in the implementation of an integrated information system inside a firm. This opportunity allows for participant observation to be used as a data gathering technique. Corbetta (2003) affirms that participant observation is a research and data gathering strategy in which the researcher is inserted, in a direct way and for a relatively long period of time, in a specific social group. In this way, personal interaction takes place and relationships are established with the members of the group who can be observed in their natural environment, with the purpose of describing their actions and understanding their motivations through a process of identifying with them. This technique is fully in sync with the interpretative paradigm, because it tries to understand the subject under study through the direct involvement of the researcher. (Bryman 1989). In addition to this data gathering method, primary information will also be gleaned from the analysis of interviews that will be conducted on the various members of the organization, in order to gather further elements and aspects which are perhaps not immediately visible. Following the methods of the qualitative search, the interviews will mainly be unstructured and semi-structured, precisely in order to gain a more thorough understanding of the thoughts of those people who are the subjects of the interviews; structured interviews, in fact, do not allow for the gathering of more details than what is expressly being asked for in the questions (Bryman 1989). Moreover, business documents (blue prints for the application of the various SAP modules) will also be analyzed to get inside data and to check findings derived from other sources of data (Bryman 1989). The combined use of participant observation, interviews and data analysis allows the researcher to give more validity to the empirical analysis and the interpretation of the information.

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References

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