Impacts of ERP Systems on the Integrated-Interaction
Performance of Manufacturing and Marketing
Li-Ling Hsu.
National Kaohsiung First University of Science and Technology, Taiwan, R.O.C.
Minder Chen
George Mason University, U.S.A.
Keywords
Situational Variables, Interface
Congruence, Resource Sharing,
ERP Benefits,
Integrated-Interaction
Performance
Abstract
The effectiveness of interactions
between manufacturing and
marketing departments often
determines the competitiveness and
profitability of a firm. Enterprise
resource planning (ERP) systems
address integration issues of
business functions including
manufacturing and marketing.
Many benefits contributed by
ERP implementation found in
literature are similar to the benefits
and objectives achieved through the
integration of manufacturing and
marketing functions.
This research model based on
contingency theory and
socio-technical theory is used to
study the effects of ERP
implementation to marketing and
manufacturing integration. An
multiple-cases study of four
companies in the electronic
industry that have implemented
ERP systems was conducted.
The study shows that internal
organizational and external factors
affect the interaction between
manufacturing and marketing and
reducing their gap that results in
performance improvement. ERP
systems facilitate the
integrated-interaction performance
between manufacturing and
marketing. This study provides a
new perspective of the factors that
impacts the effectiveness of ERP
systems.
Industrial Management &
Data System
Introduction
The Internet economy is a
customer-oriented
marketplace. Consumers are
increasingly engaged in an
active and explicit dialogue
with companies, its
marketing department or
even its manufacturing
department. The eFoundry
system from TSMC is an
example of such close
collaboration (TSMC, 2002).
The role of the consumer is
being transformed from
passive buyer to active
participant in creating added
values. The ability to provide
flexibility manufacturing
capability to enable mass
customization while still
being able to reduce costs
and improve quality is a
critical element for many
manufacturing firms to
compete in the marketplace
(Armacost et al., 1994;
Murakoshi, 1994; Whybark,
1994; Parente, 1996；Hsu，
2000).
To respond quickly to
customer demands and
market changes requires
better integration of internal
functions and processes.
In the early 90s, business
process reengineering is the
approach taken by many
enterprises to achieve
dramatic performance
1
improvement, often through
process integration and
applications of some
enabling information
technology widely (Chen,
1999). Many BPR projects
have encountered an
insurmountable difficulty in
bring down the
stovepipe-like business
processes and the associated
legacy systems often referred
to as "islands of automation."
ERP systems emerging in the
mid-90s are becoming a
possible solution to integrate
physical production systems
with business processes via
an integration information
system. ERP systems often
consist of many modules
support business functions
such as manufacturing,
inventory management,
marketing, order processing,
etc. These modules are
integrated via a common data
model and database system
which indirectly supporting
the interactions among
various business functions.
Whether implementing ERP
systems really facilitate
better integration among
business functions and
improve the
integrated-interaction
performance performed
jointly by these departments
are not addressed by existing
research in ERP
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
implementations.
This research is designed to
address the impacts of
information technologies, to the
integration business functions.
Since the integration between
manufacturing and marketing
processes are the key elements of
many firms' core business
processes. Our research is focus
on the effects of ERP systems to
the interactions and integration
between manufacturing
department and marketing
department. Implementing ERP
systems are very costly and
time-consuming, our research
finding may help researchers and
practitioners to gain insights of
how and why ERP systems in
improving firms' performances.
Our research goals include the
study of the relationships of
majors constructs defined in our
research model:
(a) study the internal and
external situational variables
and their relationships to the
gap in interaction process.
(b) examine the relationship
between gap in interaction
process and
integrated-interaction
performance.
(c) Study the effect of ERP
implementation to the
relationship between gap in
the interaction process and
the integrated-interaction
performance.
Four case studies have been
conducted to verify the research
model proposed in this paper.
The literature supporting the
formulation of the research model
and the data collected from the
case studies are reported in this
paper. The analysis of the case
studies against the research
models and the implications of the
research results are discussed in
detailed in this paper.
Literature Review
Organizational integration is a
major challenge in modern
2
enterprises. Contingency theory
argues that the degree of
organizational integration is a
function of environmental
uncertainty and complexity. A
resource-based view would
suggest that the degree of
organizational integration depends
on the costs associated with
integration and resources
availability.
Contingency theory and
socio-technical theory are bases
that form the research model of
this study. Contingency theory
addresses the impacts of
environmental factors to an
organization and its structures.
Socio-technical theory studies the
impacts of technologies to
organizations and the effects of
organizational process, culture,
and works to technology
implementations (Bostrom and
Hensen, 1987a, 1987b). The
specializations of functional
departments may become barriers
for corporations among these
departments (Woodward, 1965;
Thompson, 1967; Perrow, 1970).
Socio-technical theory suggests
that organizational characteristics
of various functional departments
may affect how they interact with
each other (Lorsch, 1965;
Lawrence and Lorsch, 1967,1986).
Geser (1992) conceptualized
organizations as social actors
capable of interacting with each
other as well as with individual
actors. Organization units (e.g.,
different functional departments)
are differentiated actors that
participate simultaneously in
many different interaction
processes and they often have
contradictory values and rules.
Marketing department focuses on
meeting customer demands while
manufacturing department is
concerned with control the costs
and schedule of the production
process and inventory. The
interdependencies and interactions
based on different objectives are
the source of task conflicts
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial
Management & Data
Systems
between manufacturing
department and marketing
department. Above statements,
this study considers the ERP
implementation will be a useful
integrated tool to solve some
tough problems of existing ISislands in many companies. As
Vosburg and Kumar (2001) also
pointed out ERP implementation
in company replaced a number of
independent mainframe legacy
systems
Contingency Theory and
Interaction process.
The interactions and
dependencies among departments
in an organization are contingent
upon internal and external factors
such as departmental structure,
task structure, specialization,
production structure, and
department objectives (Ruekert
and Walker, 1987; Kahn, 1994;
Parente, 1996). Kahn (1994) used
socio-technical and contingency
theory to interpret the interaction
and corporation performance
among departments. Parente
(1996) also used socio-technical
and contingency theory to develop
a research model to study
cross-functional interactions.
Organization Structure and
Interaction Process.
Literature on the interactions
between marketing department
and manufacturing department
often measure the organizational
structure based on degree of
formalization, centralization, and
specialization (Barclay, 1991;
Kahn, 1994; Parente, 1996). We
found that these three constructs
of organization structure are
highly correlated to gap in the
interaction process that includes
interface congruence gap and
resource sharing gap (Barclay,
1991; Kahn, 1994; Parente, 1996).
Organizational Climate and
Interaction Process.
Organization climate is the way
employees feel to work in an
organization. It is a set of
measurable characteristics of the
work environment, based on the
collective perceptions of the
3
people who work there that
influence their motivation,
behavior, and performance
(Wilkins and Ouchi, 1983). The
characteristics of organization
related to the fostering of
organizational climate include:
leadership style, job variability,
degree of decentralized decision
making and management,
individual's commitment to the
organization (Tyagi, 1985).
Barclay (1991) found that lack of
common culture among
departments makes these
departments to negotiate with
each others and has a positive
correlation to the gap in
interaction process. Although
Parente (1996) also suggested that
a more friendly organizational
culture has a positive effect on
achieving enterprise-wide
objectives and sharing common
values because the reduced gap in
interaction process should reduce
conflicts between manufacturing
and marketing. However,
according to Robbins (1998)
perspective of conflict
management, Hsu (2000) found
that certain degree of conflicts
may in fact reduce the gap in the
interaction process between
manufacturing and marketing.
Market Turbulence and
Interaction Process.
Market turbulence can be
measured by customer loyalty,
changes in the environments, and
the ability to forecast market
demand (Kahn, 1994). Parente
(1996) used a customer-oriented
definition of market turbulence
and defined it as the changing
composition of customers and
their preference towards various
products. Kahn (1994) found that
more turbulent market contributes
to high degree of uncertainty in
market information and hence
hinders the interaction between
manufacturing and marketing.
However, Parente (1996) pointed
that in order to serve customers
better in a more turbulent market,
manufacturing
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial
Management & Data
Systems
and marketing department need to
interact more frequently in order
to share information and
rescrouces, hence reduce the gap
in resource sharing. Hsu (2000)
also found both gaps in resource
sharing and interface congruence
are reduced under more
turbulence market. Therefore, we
assume negative correlation
between market turbulence and
gap in interaction process.
Gap in Interaction Process and
Integrated-Interaction
Performance.
Literature in manufacturing and
marketing interaction research
measures the performance of the
interaction in the following two
approaches. The first approach is
measured the performance of
the interaction between
manufacturing and marketing by
measuring the performance of the
whole (Lawrence and Lorsch,
1967; Bourgeois, 1980, 1985;
Dess, 1987; Hrebiniak and Snow,
1982; Ruekert and Walker, 1987;
St. John and Rue, 1991; St. John,
1991; St. John and Hall, 1991;
Bondra and Davis, 1996; St. John,
1999; Kumar et al., 2000).
Researchers using this approach
are assuming that the ultimate
goal for manufacturing and
marketing to work together is to
maximizing the profit of the firm.
However, there are many external
factors that may affect the firm
profit and internal factors among
employees and functional units
may also affect the profit of a firm.
Therefore, we prefer the second
approach that uses the outcomes
of the manufacturing and
marketing interaction as
performance indicators. These
outcomes include product quality,
timeliness of order delivery,
reliability, product line flexibility,
pricing, and customer services
(Hill, 1989). The activities
involve manufacturing and
marketing as well as interactions
between the two departments are
considered an import part of the
primary activities in a firm's value
chain. In our search, we only
4
measured the performance of the
integrated interaction between
manufacturing and marketing
department.
The indicators used to measuring
performance of the interaction
activities between manufacturing
and marketing are quite different
based on our literature review.
For example, Ruekert and Walker
（1987）use quality management
viewpoint to measure the
performance of manufacturing
and marketing interactions and
use Functional Outcomes and
Psycho-social Outcomes as
indicators. Functional outcomes
include the degree of
accomplishment of manufacturing
goals and marketing goals, as well
the joint goals of the two
departments. Psycho-social
Outcomes include the perceived
effectiveness the relationships and
degree of conflicts between
employees from manufacturing
and marketing deapretment.
Deaneet et al. (1990) used Return
On Investment, Return On Sales,
Sales Growth, and Market Share
to measure the interaction
performance. Hill (1989)
suggested the use of quality,
delivery cycle time, reliability,
product line design, pricing, and
customer service level as
indicators for interaction
performance. Kohliand and
Jaworski (1990, 1993) adapted a
transaction process concept to
measure interaction performance
to include indicators such as
customer responses, business
performance, and employee
responses. St. John（1991）
reviewed many literature and
proposed eleven indicators such
as lower price, product coverage,
flexibility in product design,
product line performance, and
after-sales service, etc. St. John
and Hall (1991) used market share
and sales, profit margin, product
quality, and production costs as
indicators of individual
department's performance while
emphasized customizability in
production scheduling, total
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial
Management & Data
Systems
quality management standards,
handling of customer complaints,
new product development, cost
control, and inventory control as
performance indicators of joint
decisions by manufacturing and
marketing. Pinto et al., (1993)
used task outcomes and social
outcomes to measure the
performance of the
cross-functional task force. Task
outcomes are related to the
execution of project tasks and
social outcomes are related to
perceived satisfaction and values
by people involved in the task
force. Karmarkar (1996)
concluded that flexible
combination of quantity (i.e.,
cycle time, quality, and flexibility),
risk, and involved in decision
marketing etc. as performance
indicators. Kahn and McDonough
(1997) studied the interactions
among production, marketing, and
R&D department and used
performance outcomes due to
interactions among departments
as indicators. These joint
performance outcomes include:
individual department level
performance, enterprise-level
performance, performance of
product development, product
pre-launch management, and
post-launch management, as well
as satisfaction of interactions
among departments.
ERP Benefits
ERP systems are
enterprise-wide application
packages that are designed to
provide information systems
integrated supports to various
business functions such as
5
manufacturing, inventory
management, financial and
accounting, human resource
management (Tarn et al., 2002).
Gupta (2000) also described ERP
allows companies to integrate
various departmental information.
Common databases and data
models as well as consistent
cross-functional information flow
in ERP systems should assist
various departments to coordinate
their activities more (Hicks, 1997).
Firms that implement ERP
systems would have built more
integrated value chain processes.
ERP solutions seek to integrate
and streamline business processes
and their associated information
and work flows (Al-Mashari,
2002). These integrated internal
processes are often integrated
with external systems from
trading partners to form an
industry-wide supply chain.
Information about supply and
demand of products and services
can be made shared with suppliers
and customers timely, accurately,
and consistently. Firms that
implement ERP can select
appropriate ERP features by
configuring systems parameters
differently to customize the
systems to support core business
functions to improve customer
services (Kumar and
Hillegersberg, 1999). ERP
systems have become a major
enabler to transform an enterprise
into an integrated,
process-oriented,
information-driven and real-time
organization.
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
Table 1. Benefits of ERP
Support production capacity planning; provide more accurate market demand
forecast; facilitate mass customization and improve manufacturing flexibility;
Tangible increase inventory turnover rate; decrease inventory level and cost; control and
Benefits improve product quality; speed up new product development cycle and
time-to-market; reduce the cycle time of order fulfillment; achieve operational
excellence
Allocate enterprise resource better; increase communications among departments;
Integrate information across the enterprise; Increase the available of critical
operational and decision support information to provide visibility of enterprise
Intangible
planning activities; Access to real-time business intelligent; Improve information
Benefits
flow among departments; Increase response time to customer order and inquiries;
Improve service quality; Improve customer satisfaction and loyalty; growing
purchase from customers.
Source: this study
Firms' strategic objectives to
implement ERP are different
(Shang and Seddon, 2000),
therefore, the perceived and
realized benefits of ERP
implementation are different and
difficult to define. In this research,
we classify ERP benefits into
tangible and intangible benefits.
The summary of these benefits
based on our literature review are
shown in Table 1, (Davenport,
1998; Jeanne, 1999; Jeson and
Johnson, 1999; SAP INFO, 1999;
BCG, 2000; Davenport, 2000;
Poston and Grabski, 2001).
6
Research Model and
Propositions
Literatures in manufacturing and
marketing interaction are built
upon contingency theory and
socio-technical theory. We have
synthesized these two theories and
formulate the research model,
depicted in Figure 1, to study the
impacts of ERP systems on the
integrated-interaction
performance between
manufacturing and marketing.
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
Research Model
The first half of the research
model is an operational model
showing Internal and external con
Research Model
The first half of the research
model is an operational model
showing Internal and external
contingency factors that are linked
to the gap in interaction process
between manufacturing and
marketing. These links are
deduced from empirical
researches from literatures
(Woodward, 1965; Thompson,
1967; Shapiro, 1977; Ruekert and
Walker, 1987; Barclay, 1991; Rho
et al., 1994; Parente, 1996). The
relationships among the
constructs "Gap in
Interaction Process",
"Integrated-Interactive
Performance", and "ERP
Benefits" form the conceptual
model derived mainly from
7
literature in ERP implementation
research (Berry, 1991; Pearce and
Robinson, 1991; Crittenden 1992,
1993; Rho et al., 1994; Bragg,
1997; Davenport, 1998; Connolly,
1999; Jeson and Johnson, 1999;
Jeanne, 1999; Piturro, 1999; Tom,
1999; SAP INFO, 1999; BCG,
2000; Deloitte Consulting, 2000;
Davenport, 2000; Poston and
Grabski, 2001).
Propositions of Organization
Structures and Interaction
Process
In literature of organizational
design, organizations consist of
three structural factors:
formalization, centralization, and
specialization (Barclay, 1991;
Robbins, 1998; Kahn, 1994;
Parente, 1996) In the context of
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
MIS implementation, Kwon
and Zmud (1987) define
formalization as the degree of
functional differentiation. More
formalized organizations have
clear work definition and
standardized procedures.
Centralization is the degree of
concentration of decision making
activity.
Centralization may increase the
efficiency of operations. However,
decentralization has the
advantages of more responsive to
local changes and creating an
environment nurturing creative
ideas (Choi and Hong, 2002)
Specialization refers to the
division of labor within
organization for efficiency reason;
however, potential for increasing
conflict may be raised.
Formalized work and procedure
could reduce the gap in
interaction process, indicating
negative correlation between
formalization and gap in
interaction process.
Centralization may decrease the
communication effectiveness
among departments; however, a
decentralized organization which
lacks a clear chain of command
may have less effective
interaction process between
manufacturing and marketing
(Robbins, 1998; Weber and
Pliskin, 1996). High degree of
centralization in organization
should reduce the gap in
interaction process (Lim, 2000).
Organization with higher degree
of specialization may have more
specialists and clearly define
departmental lines which make
the interaction difficult (Barclay,
1991; Kahn, 1994; Parente, 1996).
Hsu (2000) research found that
when the degree of specialization
is lower, the gap in interface
congruence and resource sharing
is bigger. However, in the context
of managing intellectual capital,
business intelligence, enterprise
integration, the manufacturing and
marketing department of an
organization with higher degree of
specialization, will be more
8
aggressive seeking opportunities
to work with each other in order
to reduce the gap in their
interaction process. In this
research, more rigorous
organizational structure means
that higher degree of
specialization of expertise, more
concentration of decision making
activity, higher degree of
functional differentiation with
more clearly defined work and
procedure, but less autonomy.
P1: The interface congruence
gap between manufacturing and
marketing department is smaller
when the organization structure
of a firm is more rigorous.
P2: The resource sharing gap
between manufacturing and
marketing department is smaller
when the organization structure
of a firm is more rigorous.
Organizational climate can be
defined as the way that employees
feel to work in an organization or
more formally defined as a set of
measurable properties of the work
environment, based on the
collective perceptions of the
people who live and work there
that influence their motivation and
behavior. Organizational climate
is considered as a joint property of
both the organization and the
individual (Ashforth, 1985).
Existing researches have
theorized that a better
organizational climate has a
positive correlation with
interaction process gap (e.g.,
reduce the gap), however, this
proposition is not verified
empirically. TSMC (2002) is a
world-famous IC foundtry firm
and concluded that organization
culture with some degree if
conflicts may reduce the
interaction process gap. This
company’s report had made
consistent with conflict
management viewpoint that
maintaining certain degree of
conflict may ensure employees'
innovation and entrepreneurship
(Robbins, 1998). This is reflected
in our research model indicating
that organizational climate has a
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
positive correlation with the
interaction process gap. Two
propositions derived from the
model are stated as the following:
P3: The interface congruence
gap between manufacturing and
marketing department is smaller
when the degree of conflict in
organizational climate is higher.
P4: The resource sharing gap
between manufacturing and
marketing department is smaller
when the degree of conflict in
organizational climate is higher
Market turbulence can be
measured by the loyalty of
customers (such as customer
retention rate), market
predictability, and product
preference change by customers.
When a firm perceives high
market turbulence, the gap
between manufacturing and
marketing department interaction
process will be smaller (Hsu,
2000). More coordination
between manufacturing and
marketing are required via
interface congruence in order to
survive in the dynamic
marketplace. They also need to
share information and other
resources to understand customers
and markets better and to react to
market changes quickly.
Therefore our research model
indicates that market turbulence is
negatively correlated with
interaction process gap.
P5: The interface congruence
gap between manufacturing and
marketing department is smaller
when market turbulence
perceived by a firm is higher.
P6: The resource sharing
gap between manufacturing and
marketing department is smaller
when market turbulence
perceived by a firm is higher.
Technology dynamics include
how fast technology related to key
product components and materials
are changing, as well as
breakthrough in manufacturing
process and mass production
techniques. When technologies
are more dynamic, the
manufacturing and marketing
9
department tends to be more
cautious in working with each
others to achieve interface
congruence. They will also
demand better sharing of
information and other resources in
order to serve customer better.
High technology dynamics tends
to reduce gap in the interaction
process.
P7: The interface congruence
gap between manufacturing and
marketing department is smaller
when technology dynamic
perceived by a firm is higher.
P8: The resource sharing gap
between manufacturing and
marketing department is smaller
when technology dynamic
perceived by a firm is higher.
Literature in manufacturing and
marketing suggested that conflicts
between manufacturing and
marketing tend to decrease the
performance related to the
interaction between the two
departments (Dutton and Walton,
1966; Souder, 1981; Weinrauch
and Richard, 1982; Powers et al.,
1988; Berry, 1991; Pearce and
Robinson, 1991; Crittenden, 1992;
Crittenden et al., 1993).
Integrated-interaction
performance is the measurement
used in judging the results of
interaction activities between
manufacturing and marketing.
The smaller gap in interaction
process, the better performance
created by the interaction between
manufacturing and marketing
department. Therefore, we expect
negative correlation between gap
in interaction process and
integrated-interaction
performance.
P9: The functional output will
be higher when the interface
congruence gap between
manufacturing and marketing
department is smaller.
P10: The valuable output will be
higher when the resource
sharing gap between
manufacturing and marketing
department is smaller.
The activities involving both
manufacturing and marketing
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
departments as part of the
definition of interface congruence
between these two departments
include: capacity planning,
product customization, inventory
management, quality control,
product line change,
marketing-manufacturing
improvement projects, new
product development, and on-time
order delivery (Rho et al., 1994;
Parente, 1996; Hsu, 2000) The
tangible benefits of implementing
ERP systems cited in the literature
include shorten the product
development life cycle, increase
on-time order delivery, reduce
production costs, improve quality,
reduce inventory, better inventory
management. There benefits are
highly associated with the
above-mentioned activities related
to the interface congruence.
The activities involving both
manufacturing and marketing
departments as part of the
definition of resource sharing
between these two departments
include: sharing physical and
financial resources, information
and knowledge sharing, satisfying
customer needs, and creating
add-value for customers (Narver
and Salter, 1990; Parente, 1996;
Hsu, 2000). The intangible
benefits of implementing ERP
systems cited in the literature
include improving service quality,
faster response to customer needs,
sharing and exchanging
information, providing
information accurately, timely,
and consistently. These intangible
benefits are directly supporting
the need to share resources.
Thus, we believe that ERP
benefits are supporting the
reducing gaps in interaction
process between manufacturing
and marketing in term of interface
congruence and resource sharing,
which contribute to the
improvement of
integrated-interaction
performance.
P11：The tangible ERP benefits
are enhancing the relationship
between interface congruence
10
and functional outcomes.
P12：The intangible ERP benefits
are enhancing the relationship
between resource sharing and
valuable outcomes.
Case Analysis
In-depth interviews using
structured and semi-structured
formal surveys are used to collect
primary data to verify the
proposed operational model and
the conceptual model.
Interviews are recorded for
conducting more detailed and
accurate analysis. Literature in
manufacturing/marketing
interactions and ERP as well as
documentations provided by four
companies studied are analyzed
and reported in this paper. The
structured survey questionnaire
was developed based on literature
and instruments used in
manufacturing/marketing
literature and the validity of the
questionnaire is listed in Table 1.
We conducted two case studies
as pre-test. They are medium size
firms one in the electronic
industry and one in the more
traditional industry. We found that
the impacts of ERP to the
interaction between
manufacturing and marketing is
higher in the electronic industry,
probably due to more turbulent
market in the electronic industry
that dictates more interactions
between the two departments and
hence the needs for ERP system's
support for their integrations (Hsu,
1998; Hsu, 1999; Hsu, 2000).
Since companies have
implemented ERP systems in
recent years are large companies
that have complicated business
processes and facing global
competition, they see ERP
implementation as means to
achieve enterprise integration
(Davenport, 2000). Therefore, in
the formal case studies,
we decided to choose four "large"
firms in the electronic industry.
Induction to the Case Studies
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
Table 2：Summary of Companies Background of Case Studied
Company
Company A
Company B
Company C
Company D
Background
Years in Business
31
27
9
18
Total number of
3,501 – 4,000 3,501 – 4,000
2,001-2,500
2,001-2,500
employees
Annual revenues in
300 million
300 million
30-150 million
30-150 million
US dollars
Manufacturing and
OEM
OEM
OEM
OEM
Marketing Type
Production Model
BTO
BTO
BTO
BTO
Notebook
Main Products
IC packaging
Power supplies Computer Peripherals
computer
ERP System
SAP/R3
SAP/R3
TIP TOP
Oracle Applications
Implementation Costs 6~16 million
6~16 million
1.5 million
1.5 million
Implementation
1997/12
1999/07
2000/05
2001/01
Starting Time
Process
Unit in charge of
ERP Team
Reengineering
MIS Department
MIS Department
implementation
Department
No. of MIS
30-4
Level*
1
70
1
2
3
9
1
Employees
0
* Level: Level is referring to the level of the unit in charge of implementation in the organization
hierarchy.
The formal interviews were
used a Likert-type scale from 1 to
conducted in March and April
7. The validity of operational
2002. MIS directors from four
instruments used in the structured
case study firms are interviewed
questionnaire is summarized in
for about three hours. The
Appendix A. Table 3 summarized
backgrounds of these four firms
the result of the survey results of
are summarized in Table 2. We
interaction process gap in regard
paired Company A and B as well
to the internal and external factors
as Company C and D in our
from the four cases studied. The
analysis because of their similar
propositions P1~p8 derived from
in size (large vs. medium size
the operational model are
enterprise) and resources. We will
discussed in the following: Except
be analysis propositions derived
for P7 and P8 that are not
from operational model and then
supported by data from Company
analysis propositions derived
C and D, all propositions are
from conceptual model based on
supported. We believe that the
data collected.
reason that case study firm D just
Analysis of Propositions from the
finished implementing ERP for
Operational Model
three months, there were steep
The survey questionnaire
learning curve for marketing and
11
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
manufacturing department
employees to learn how to use the
information about both marketing
and manufacturing functions
provided by the ERP systems.
This may increase the gap in
the interaction process between
manufacturing and marketing.
The impacts of ERP will be
discussed in the analysis of the
conceptual model.
Table 3: Verification of Operational Model Propositions
Internal and Interface
Internal and Interface
Resource VerifiResource
VerifiExternal Congruence
External Congruence
Sharing Gap cation
Sharing Gap cation
Factors
Gap
Factors
Gap
P1
A<B
V
P1
C>D
V
A>B
PC > D
P2
A<B
V
C<D
V
P2
P
P
A<B
V
C<D
V
P3
P3
A<B
C<D
P
P
A<B
V
C<D
V
P4
P4
P
P
A<B
V
C>D
V
P5
P5
A>B
C>D
P
P
A<B
V
V
P6
P6
P
P
A<B
V
C<D
X
P7
P7
A>B
C<D
P
P
A<B
V
C<D
X
P8
P8
Analysis of Propositions from
the Conceptual Model
Data collected from 4 cases
indicated that after the
implementation of ERP systems
the interface congruence gap
between manufacturing and
marketing is reduced; resource
sharing gap is smaller; the
valuable output of the
12
integrated-interaction process
performance is higher.
Therefore, the proposition P9 and
P10 are supported by these case
studies. The assessment of ERP
benefits towards reducing gap in
interactive process and hence
improving integrated-interaction
performance in term of functional
outputs and valuable outputs are
summarized in Table 4.
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
Inventory Management
Quality Control
3
3
3
0
3
0
3
0
Product Line Change
Master Production Plan
Change
New Product
Development
Timely Delivery
3
3
3
3
0
0
0
0
2
2
2
2
3
3
3
3
Valuable Output
Functional Output
Table 4: Evaluation of ERP Systems' Contribution to Integrated-Interactive Performance in Four Case Studies
Integrated-Interactive
Integrated-Interactive
A
B
C
D
A
B
C
D
Performance
Performance
Sharing Physical
Capacity Planning
2
2
2
2
3
3
1
0
Resource
Product Customization
2
3
2
0
Information Sharing
3
3
3
3
Knowledge Sharing
Satisfy Customer Needs
1
2
1
2
1
2
0
0
Add Values to Customer
2
2
2
0
Note: 0: Not Used; 1 - Low; 2 – Medium; 3 - High
Based on the analysis of the
data tabulated in Table 4, we
conclude that ERP systems
have improved performance of
the following activities
involving manufacturing and
marketing department:
inventory management,
product line change, timely
delivery of ordered products,
and sharing information.
However, sharing knowledge
is an activity that ERP systems
do not seem to be very helpful.
ERP systems are basically
transaction processing systems.
Most recently ERP vendors
have started to add business
intelligence to the ERP
offering to provide better
analysis function of the
transaction data.
13
However, the unstructured or
semi-structured data or
documents and the messages
interchanges by employees
during a problem solving
process are not captured in the
ERP systems. These messages
and structured and
unstructured documents are
essential ingredients for
knowledge management
systems have not been
incorporate into ERP systems.
A synopsis of perceived
impacts of ERP systems on
five manufacturing and
marketing activities from case
studies interviews is presented
in Table 5.
Li-Ling Hsu and
Minder Chen
Impacts of ERP Systems on
the Integrated-Interaction
Performance of Manufacturing
and Marketing
Industrial Management &
Data Systems
Activity
Inventory
Management
Product Line
Change
Timely
Delivery
Information
Sharing
Knowledge
Sharing
Table 5: Impacts of ERP Systems on Manufacturing/Marketing Activities
Summary of Interviewees comments
ERP provides data regarding inventory turnover rate and inventory level; therefore
help manufacturing and marketing employees to improve the inventory management
processes. Such inventory information could not be provided by the old legacy
MIS systems in the past.
Manufacturing firms that produce for OEM market often rely on their customer's
forecast to determine the market demands. The actual demands may be different
from the forecasts, therefore the ERP systems can provide more accurate and timely
information to assist the manufacturing department to change the product mix and
provide the marketing department with capacity information and estimation or order
commit dates 。
ERP systems integrate information regarding to inventory, orders, work-in-process,
and production schedule. Manufacturing and marketing departments can be alerted
with production problems such as part shortage so that they can handle the situations
in time to ensure timely delivery of products been ordered.
One major benefit of ERP systems is the integration and availability of information
to employees. Departments such as manufacturing and marketing will receive
consistent data to reflect business processes and transactions across functional areas.
The information sharing is very difficult to achieve before ERP implementation
when information systems are implemented just for one business function at a time
creating so called islands of automation.
ERP systems can provide more timely and accurate information for managerial
decision making; however, it is still difficult to use ERP systems to share knowledge
between marketing and manufacturing departments.
Source: this study
Table 6: Summary of Verification of Propositions Derived from Conceptual Model
Case
Company A
Company B
Company C
Company D
Propositions
P9
Supported
Supported
Supported
Supported
P10
Supported
Supported
Supported
Supported
P11
Partial
Partial
Partial
Partial
Supported
Supported
Supported
Supported
P12
Partial
Partial
Partial
Partial
Supported
Supported
Supported
Supported
14
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
Based on data presented in Table
4 and 5, we concluded that our
propositions P11 and P12 are
partially supported. The
verification of propositions
derived from conceptual model
based on this research is
summarized in Table 6.
Conclusions
This research supports most of
our propositions derived from
contingency theory and
socio-technical theory. More
rigorous the organization structure,
higher level of conflicts in
organizational climate, more
turbulent market and dynamic
technology are factors that most
likely reduce the gap in
interaction process between
manufacturing and marketing.
Better interactions between
manufacturing and marketing
department increase the
integrated-interactive
performance of the two
departments involved. The ERP
benefits is a moderator variable
that facilitate the reduction of gap
between manufacturing and
marketing department's
interaction, hence further improve
the performance due to the
integration and interaction
between manufacturing and
marketing. The actual
contributions of ERP to such
performance are different in the
four case studies. However, the
positive impacts of ERP
implementation to the
performance improvement from
better integration and interaction
between manufacturing and
marketing found in our research
are critical to the understanding of
why ERP works from a
socio-technical perspective.
We have identified four issues
based on our interview data that
deserve further research efforts:
1. How long that ERP has been
implemented shall be considered
as a factor that ERP benefits are
affecting the
integrated-interaction
15
performance. The firm D in our
study was at the earlier stage of
ERP implementation and did not
show the impacts of ERP on
improving the functional outputs
or valuable outputs. This led us to
believe that the how long that
ERP has been implemented
should be a factor in future study
or a criteria in selected cases to be
studied.
2. The employees' experiences
and satisfaction with old systems
may affect the degree of
resistance they may have against
ERP implementation; hence the
degree of satisfaction they have
towards ERP systems.
3. Practitioners have not
developed a comprehensive
performance measures for
ERP systems. Implementing
ERP systems is costly and
time consuming. When the
4. expected benefits are not
realized after they are
deployed, it is difficult to
abandon the ERP systems
once the old legacy systems
have been replaced.
5. The expected benefits of ERP
systems often are not realized
after the ERP implementation.
First, ERP systems were
developed based on some
baseline process and data
models which may not be
consistent with the models
required by firms that
implement ERP systems.
Many firms could either
launch business process
reengineering (BPR) projects
in conjunction with ERP
implementation to change
their existing processes to
adapt to the process
embodied in the ERP systems,
or they could also customize
ERP systems to adapt the
application packages to their
work processes. However, if
the gap between the ERP
baseline model and the firm's
business practices is too large,
the customization will be too
costly, we recommend that
other ERP systems should be
Li-Ling Hsu and
Minder Chen
Impacts of ERP
Systems on the
Integrated-Interaction
Performance of
Manufacturing and
Marketing
Industrial Management
& Data Systems
evaluated or custom-built
solutions should be considered.
This research has several
constraints that limited the
applicability of the case study
results. These constraints are:
1. Generalization: The four case
studies increase the
generalizability of case study
results comparing to a single case
study design. However, all 4 cases
are firms in the electronic industry
so that the result may be able to
generalize to other industries.
2. Cross-section study. Our
research is a cross-section
case study, in stead of
longitudinal study, which
limited our ability to study
time-varying effects of
constructs/variables in our
research model.
3. Subjects interviewed. We
have interviewed only some
marketing and manufacturing
managers in these four
companies because these
managers are located
separately in mainland China
and Taiwan and only
managers located in Taiwan
are interviewed.
Our research finding can be
very useful to practitioners that
are implementing ERP systems.
Firms that face more turbulence
market and dynamic technology
environments as well as have
more rigorous organization
structure and confrontational
organizational climate may have a
better chance to reduce the gap
between manufacturing and
marketing department's
interaction. The interaction
interfaces as well as resource and
information sharing mechanisms
should be careful examined before
ERP implementation.
Functional level managers from
manufacturing and marketing
should be involved in specifying
their requirements for the new
ERP systems. Information and
functions in different modules the
new ERP systems should be made
available to personnel cross
functional areas (under different
16
access privileges). Currently the
integration of manufacturing and
marketing function in ERP
systems is through a shared data
model and database.
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Appendix A: The Reliability of Operational Instruments in the Structured Questionnaire Used in this
Research
Gap in the Interaction
Process
Organizational
Research
Structure
Interface
Resource
Constructs
Org.
Market Technology
Congruence
Sharing
Climate Turbulence
Literature
A1
A2
A3
Dynamic
Manu Mark. Manu. Mark.
.
0.73
Narver and Slater, 1990*
Barclay, 1991
0.89 0.88 0.84 0.92
 0.84
Kahn, 1994
0.67 0.82 0.31
0.68
*
Rho et al., 1994
0.68
Strieter, 1995
－
Parente, 1996*
－
－
－
0.89 0.88
*
Hsu, 2000
0.61 0.69 0.75 0.60
0.57
0.73
－
A1: Formalization; A2: Centralization; A3: Specialization
Manu.：Reliability of manufacturing department's response
Mark. : Reliability of the marketing department response.
Blank cells: indicate that the research cited did not include the corresponding construct.
—: The reliability of the construct was not provided in the research.
* For consistency, the data are rounded to two decimal places.
Source: this study
20
0.92
0.79
0.61
－