The hidden financial costs of ERP software

Document Type

Article

Publication Date

1-18-2008

Abstract

Purpose: The purpose of this paper is to detail how the adoption of enterprise resource planning (ERP) systems creates major distortions in the corporate decision‐making process.

Design/Methodology/Approach: The approach is to focus on the distortion in the capital – budgeting process of corporations emanating from the rigidity of ERP software. The rigidity negatively influences decision‐making because ERP software often dictates that the firm must change its core business procedures and processes to fit the software.

Findings: Lack of flexibility limits the introduction of new products, or targeting a new customer segment by increasing costs and imposing delays in implementation.

Research Limitations/Implications: Firms would benefit from performing detailed analysis of the impact of ERP systems on their ability to make operational decisions.

Originality/Value: This paper focuses on the problem of decreased flexibility in making changes in the production and accounting components of the firm when purchasing and installing ERP systems that cannot accommodate minor or major changes in the corporation.

Publication Title

Managerial Finance

Volume

34

Issue

2

First Page

78

Last Page

90

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