International Journal of Accounting Information Systems 9 (2008) 216–226

Contents lists available at ScienceDirect

International Journal of Accounting

Information Systems

Research issues on the use of ERPS in

interorganizational relationships
Andreas I. Nicolaou ⁎
Department of Accounting & Information Systems, Bowling Green State University, Bowling Green, Ohio 43403, United States

a r t i c l e i n f o a b s t r a c t

Article history: The use of enterprise resource planning systems (ERPS) is a critical
Received 21 July 2008 component of a firm's strategy for the proper management and
Received in revised form 23 September 2008 control of inter-organizational relationships. This research note
Accepted 28 September 2008
utilizes recent research findings that bear on the effectiveness of the
implementation and use of ERPS in business organizations and
Keywords:
extends these findings in the inter-organizational context. The major
Enterprise resource planning systems
Management accounting systems: Decision
purpose of this essay is to present theoretical bases on which future
management research could justify theoretical models and present theoretically-
Decision control sound arguments for the examination of the use of ERPS in the
Inter-organizational relationships management and control of inter-organizational relationships. The
implications of a number of theories are examined, including: (a) the
theory of co-opetition from organizational strategy, as it relates to
the necessity for carrying out simultaneous activities in inter-
organizational cooperation and competition, (b) the economic
theory of complementarity, as it emphasizes interactions in different
elements of organizational design and explains how different
elements of organizational strategy and management process relate
to one another, and (c) the real options theory from finance as it
relates to the degree of managerial flexibility in making infrastructure
investment decisions. Each of these theories offers important
implications for the examination of use of ERPS in inter-
organizational relationships. This essay develops a number of
research propositions in order to motivate research in this area.
Future research not only could benefit from these theoretical bases but
also could make contributions for the extension of these theories in
the use of ERPS for the management and control of inter-
organizational relationships.
© 2008 Elsevier Inc. All rights reserved.

⁎ Tel.: +1 419 372 2932; fax: +1 419 372 2875.

E-mail address: anicol@bgsu.edu.

1467-0895/$ – see front matter © 2008 Elsevier Inc. All rights reserved.
doi:10.1016/j.accinf.2008.09.003
 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226 217

1. Introduction

The advent of modern technologies for information collection, dissemination and monitoring allows
organizations to efficiently transact in interorganizational (I-O) markets. Enterprise resource planning
systems (ERPS) are touted as modern information systems which span the whole of organizational activities
and processes (Davenport, 1998; Kumar and Van Hillegersberg, 2000). The adoption and use of ERPS are
critical historical events in a firm's cycle; while ERPS may assist organizations by supporting efficient
collaborative capabilities in I-O settings, they may also create lock-in situations in a firm's interactions with
exchange partners. Instances of lock-in are well defined in the economics literature (e.g., Arthur, 1989), and
are usually associated with high switching costs, which may constrain flexibility in a firm's actions. As the
implementation and use of ERPS could have an enabling or a constraining impact on organizational function,
they do not just reflect issues of professional importance, but also present critical conditions in research
investigations.
In this research note I will focus on the role of ERPS in inter-organizational relationships (IORs),
especially as they might enable the design of management planning and control activities in I-O
environments. I will also analyze the role of ERPS in the development of complementary decision
coordination and control capabilities in an I-O environment and discuss how these might alter I-O
governance and affect the attainment of organizational goals. The use of ERPS may also enable financial
flexibility as exemplified by the positive impacts of post-implementation quality on financial performance
(Nicolaou, 2004a; Nicolaou and Bhattacharya, 2006, 2008), especially as they may be moderated by system
implementation planning and business process effectiveness activities (Nicolaou and Bhattacharya, 2008).
These issues have their theoretical basis on the organization integration benefits of ERPS, the contribution
of complementary forms of organizational design on the business value of IT investments, and on the
overall flexibility that is provided through real options associated with platform investments in ERPS. The
relevance of these issues to theoretical development offers a wide array of opportunities for future research
in this area. As a result, a number of research propositions are presented that could be examined in future
research studies. The remainder of this paper examines these issues in some depth and attempts to derive
testable propositions based on theoretical grounds.

2. The enabling role of ERPS in inter-organizational (I-O) strategic alliances

In I-O settings, firms enter into strategic alliances which are cooperative arrangements designed to allow
the sharing of resources and the attainment of common strategic goals (Ireland et al., 2002). A major issue in
alliance management relates to the fact that alliances are characterized by mutual interdependence, which
means each party is vulnerable to its partners. Mutual interdependence leads to shared control and
management of the collaborative relationship (Parkhe, 1993). Alliance partners not only cooperate but also
compete with each other to secure benefits; these observations led to the development of the “theory of co-
opetition” (Brandenburger and Nalebuff, 1996). The theory of co-opetition could support complementary
relationships in I-O alliances and help exemplify the role of ERPS in that relationship, as shown in Fig. 1.
Fig. 1 demonstrates the co-opetitive relationship between a firm and its alliance partners. Basic notions
from game theory were applied to analyze the interplay involved in such relationships and the term co-
opetition was coined to describe the interaction between the simultaneous need for cooperation and
competition (e.g., Brandenburger and Nalebuff, 1996).
The basic reasoning in the figure acknowledges that alliance partners are likely to be involved in third
relationships, beyond the one in the focal alliance. Other partners external to the focal alliance, although
indirectly connected to the alliance partner firms, could contribute toward enhancing the complementarity
of the relationship or stepping up the competition in the focal alliance. Consistent with the notion of
complementarity in economics (e.g., Milgrom and Roberts, 1992), a complementarity relation could exist
when the presence of a third alliance relationship increases the marginal returns attained from the focal
alliance. Thus, when a firm is involved in an alliance with a primary alliance partner but is also related to
other firms unrelated to the primary partner, these other firms could make contributions that in fact could
render the focal alliance more or less valuable. This could happen, for example, when a firm secondary to
218 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226

the focal alliance produces a product or offers a service which, in its presence, makes the product or service
offered by the primary alliance more or less valuable (Nalebuff and Brandenburger, 1997).
Nalebuff and Brandenburger (1997) make this point explicit by analyzing Intel's competitive strategy.
Intel's competitor strategy is to remain innovative and always a step ahead of the competition. Toward its
customers, it created the “Intel Inside®” brand that is a symbol of quality and has formed an alliance with
Microsoft to complement its product offerings. It was realized, however, that increased demand for faster
chips would not just happen from software alone; the needed push would come from video. As a result,
Intel has also created alliances with other software providers to create virtual reality video games and with
telecommunication providers to increase the capacity of fiber optic networks over which data would be
transmitted. Its focal alliance with Microsoft has thus been greatly complemented by these other alliances,
as they have not only pushed up the limits for faster chips but also for new software applications that would
take advantage of superfast processing cycles.
In such a dynamic I-O environment, firms require the exchange of information that will support not only
the management of the relationship but also the monitoring of actions taken and decisions made in the
alliance. The simultaneous need for cooperation and competition between partners creates complexity for
firms that face mutual interdependence. The resulting tension requires effective management of alliances
to realize benefits (Ireland et al., 2002). Organizational theory suggests that structural equivalence is an
important property that affects the dynamics of inter-firm competitive action (Gnyawali and Madhavan,
2001). Structurally equivalent firms share similar competitive profiles and behavior. To the extent that
collaborative support capabilities offered by ERPS can help level the competitive field in a firm's
environment (Subramani, 2004), the use of ERPS can ease inter-firm tensions and facilitate a firm's
potential to enhance performance via a strategic alliance. As a result, the argument could be presented that
the use of ERPS in I-O relations may affect a firm's I-O network structure by facilitating greater parity or
equivalence in I-O information sharing. Recent evidence in supply chain logistics relationships suggests
that active balancing, rather than entirely competitive or cooperative stances, positively impact strategic
information flows through customized IT, promote mutual trust, and enhance performance (Klein et al.,
2007). Absent other concerns about how the specific effects of ERPS might materialize, the following
generalized research proposition can be made at this point, regarding the enabling role of ERPS:

Research Proposition 1 (RP1). In general, the use of ERPS in inter-organizational relations will enable inter-
organizational action.

The next section analyses the role of MAS in IORs and the enabling impact of ERPS on the design of MAS
in I-O relations (IORs).

Fig. 1. Co-opetitive relationships in I-O alliances.

 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226 219

3. The enabling role of ERPS in the design of management accounting systems (MAS) in
inter-organizational relationships (IORs)

I will now argue that, within IORs, ERPS enable the design of a firm's management accounting system
(MAS). By this I mean that the use of ERPS provides tools and data that enable firms to design effective
MASs to help govern their IORs. This is because MAS design represents a critical tool for the management
and control of inter-organizational relationships. As RP1 has suggested, IORs are characterized by both
competitive and cooperative dynamic forces and ERPs can enable the design of MAS to provide the level of
information needed to effectively govern such relationships.
A management accounting system (MAS) is conceptualized as an information and communication
system (Davila and Foster, 2005) that is a subset of an organization's structural elements that make up its
overall management control system (Simons, 1995, 5). The simultaneous forces of cooperation and
competition that are present in I-O relationships generate complementary opportunities for partners
through improved decision management (DM) and decision control (DC) activities, which are two basic
components of a firm's MAS (Zimmerman, 1995, 2006). Coordination of plans (DM activities) and control of
partner actions (DC activities) are two major classes of activities that shape the design of a firm's MAS.
In modern organizations, information technology (IT), such as ERPS, plays a prominent role in support of
critical MAS functions by facilitating decision management and decision control both within an
organization and across organizations in an inter-organizational collaborative environment. IT-enabled
MAS could be conceptualized as an enterprise-wide system which provides for decision control and
decision management capabilities within the enterprise and across its inter-organizational partners. This is
not meant to ignore other types of enterprise systems which are part of what is termed integrated
information systems (Rom and Rhode, 2007). ERPS, however provide for information integration between
partners in an alliance and can offer the basis for building analytical tools beyond basic transaction
processing. Past evidence also suggests that use of ERPS increases flexibility of information provision
(Spathis and Ananiades, 2005).
ERPS thus serve a critical role in such environments as they help integrate business functions and
activities both internally within the organization's environment, and also externally, within the inter-
organizational environment where the organization exchanges information with business partners
(Nicolaou, 2004a). An organization's information infrastructure is thus built on critical capabilities offered
by process and data integration in ERPS (Davenport, 1998, 2000a,b). ERPS are part of the whole genre of
integrated information systems which also include analysis-oriented strategic enterprise management
systems and business intelligence applications (Rom and Rhode, 2007). The greatest usefulness of ERPS
implemented in the late 1990s has been on facilitating coordination and control at the operational level of a
business. Nicolaou (2004b) uses a sample of 124 ERP adopting firms and reports that expected benefits are
clustered into improved productivity and decision making, external integration, and internal integration/
improved customer service. The expansion of an organization's infrastructure (processes, skills, and
technologies) across the I-O environment, however, calls for an expansion of such benefits to also
encompass expected support for an organization's strategic planning and managerial control vision
(Anthony, 1988; Subramani, 2004). As a result, the use of I-O systems, such as ERPS, could be an integral part
of an organization's strategy which enables decision control and decision management capabilities in the
design of a management accounting system. The following proposition could thus be presented at this
point:

RP2. The use of ERPS enables the design of a firm's management accounting system in support of inter-
organizational relationships.

3.1. Use of ERPS and development of organizational capabilities

Traditionally, the argument was made that a fundamental tension underlies the dual role of MAS, in that
the goal of facilitating management decision making often conflicts with control goals (e.g., Zimmerman,
1995, p. 9). The traditional way of resolving such conflicts was to separate the exercise of decision rights
from the exercise of decision control (Fama and Jensen, 1983). In an inter-organizational exchange
220 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226

environment, however, two separate organizations engage in cooperative activity which requires a balance
between the optimum level of information sharing and control. The exchange of operational plans between
two partners in a business alliance, for example, assumes that a minimum level of mutual trust is present,
while each of the partners implements control mechanisms to monitor the other partner's actions (Coletti
et al., 2005). While earlier research has emphasized those aspects of control system design that are based
on assumptions of opportunistic behavior between partners within the context of bounded rationality
(Anthony and Govindarajan, 2004; Otley and Berry, 1980; Simons, 1995, 2000), the modern business
environment alters these dynamics in that there is a shift toward I-O decision making and control
(Hackansson and Lind, 2004; Hartmann and Vaassen, 2003).
The organizational strategy literature has also emphasized the importance of developing strategies that
allow the formation of organizational competencies over time (e.g., Swamidass and Newell, 1987). Realized
strategies, as defined by Mintzberg (1978), emerge through events and environmental interactions as they
unfold over time (Dent, 1990). Different organizations, therefore, may develop specific strategies that will
allow the formation of specific competencies over time. Prior research argues about the potentially
important effects of such specific strategies on the design of management accounting and control systems
(Abernethy and Lillis, 1995; Langfield-Smith, 1997). Empirical findings demonstrate that a firm's strategy
relating to the adoption of JIT production and EDI systems has significant direct and indirect effects on the
scope of use and perceived effectiveness of a cost management system (Nicolaou, 2002), while the fit
between manufacturing strategy and the use of cost management systems that support a firm's
information needs in strategic and operational decision making was found to influence a firm's ability to
attain desired objectives in its value chain (Nicolaou, 2003). A firm's system design strategy on using
integrated systems, furthermore, was found to strongly interact with both internal as well as inter-
organizational coordination and control constraints to determine perceived system effectiveness in the
provision of high-quality decision-facilitation and control information (Nicolaou, 2000). These findings
extend organizational strategy theories in the context of management accounting system (MAS) design and
suggest that the specific content of an organization's adopted strategy, as is the design of a MAS, is distinct
but closely related to organizational capabilities that allow for its successful implementation.
Recent research findings also suggest that the implied integration of business processes (Nicolaou,
2004a), increased information/control transparency (Nicolaou and McKnight, 2006), and other organiza-
tional changes (Rikhardsson and Krammergaard, 2006) that take place after ERPS implementation, may
have a significant effect on decision management and control processes (Spathis and Constantinides, 2004).
IT-enabled decision management and control become activities that are integrated with business processes
rather than remaining functionally separated (Caglio, 2003); thus, ERPSs define the logic by which decision
management and control are performed (Dechow and Mouritsen, 2005). As a result, the effective design of
management accounting systems in the I-O environment may depend on the development of IT-enabled
collaborative capabilities. In conclusion, it is prevalent from the above findings that the adoption and use of
ERPS may significantly impact choices in IT-enabled MAS design. As the use of ERPS streamlines internal
business processes and provides needed infrastructure for IT-enabled I-O processes, it may also be
proposed that they have a significant influence on MAS design and on the development of organizational
capabilities that could contribute to the attainment of a firm's goals in its value chain. As a result, the
following research proposition is presented:

RP3. As the use of ERPS characterized by integration and collaboration in the I-O environment affects the design
of I-O MAS, they will have a positive impact on the development of organizational capabilities and the
attainment of I-O exchange goals.

3.2. Use of ERPS and complementarity in choices in I-O MAS design

A MAS encompasses both decision coordination and decision control activities (Zimmerman, 1995, 2006).
The levels of decision management and control represent endogenous choices in MAS design. In modern
organizations, the effective coordination of plans and execution of control relate to capabilities that are
enabled by the use of integrated ERPS. The choice of a set of monitoring/control and coordination/decision
making practices, however, may not be done independent of each other. In terms of the economic theory of the
 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226 221

Fig. 2. The case of extreme complements and extreme substitutes. Notes: The crossing solid gray lines represent production functions
which determine the use of the two types of inputs shown in the graphs. The dotted lines represent either isoquant curves which
represent the various combinations of the two inputs that produce the same amount of output, or isocost curves which reflect what
input cost combinations could be possible given production budget constraints. The shape of the isoquant curves depends on the
degree of substitutability of the inputs; the graphs demonstrate the two extremes; however, in cases of imperfect substitutability, the
optimal combination of the two inputs depends on both their rate of substitution and their relative cost.

firm (Milgrom and Roberts,1990,1992,1995), such activities are increasingly viewed as complementary factors
of production. Two factors (or resources) are complementary when changes in the level of one factor affect
marginal returns due to the other factor; the primitive idea is described by the extremes in Fig. 2.
In Fig. 2, extreme complements are contrasted by extreme substitutes. A production function exhibiting
a zero elasticity of substitution (fixed coefficients) creates complements. In this situation, the relative price
of one factor to another can change without changing the ratio in which the factors are used (in Fig. 2, this is
shown by the orthogonal isocost curves in the first graph). This should produce a high positive correlation
between the two factors in cross-sectional data and very high positive correlation in time-series data. In
contrast, when factors are extreme substitutes for one another, they are price sensitive. With an infinite
elasticity of substitution, only the more economical factor is utilized over a broad range of relative prices.
When the relative price crosses a critical point however, the other factor suddenly becomes the more cost
efficient and a dramatic switch occurs (in Fig. 2, this is shown by the parallel isocost curves in the second
graph). For perfect substitutes, a zero correlation would typically be found in cross-section data with a high
negative correlation sometimes captured in time-series data. The observed correlation between a pair of
factors should help determine the level of complementarity between the factors and the nature of the
production possibilities frontier. The choice of decision control and decision management activities should
result in highly correlated factors, which are complementary.
Turning our view orthogonally to outputs instead of inputs, increasing returns to scale often accompany
complementarities (Milgrom and Roberts, 1990) when a good fit (or production mix) exists between
complements (Arthur, 1989). As past research has examined some of the links between control and
cooperation (Coletti et al., 2005), an enhanced level of decision control that induces enhanced decision
management will be expected to result in enhanced performance. If an organization, however, adopts an IT
strategy that is not consistent with complementary relationships in I-O decision management and control,
it is likely to not realize returns to scale (Milgrom and Roberts, 1995) and suffer a reduction in
corresponding I-O capability and subsequent performance. This is a similar effect as that observed in
organizations that have not aligned their information technology and strategy (Davenport, 2000a).
This observation may in fact moderate the effects proposed in RP3. In essence, the effects proposed in
RP3 could operate differently in different situations. This is because not all ERPS may result in the
development of organizational capabilities. The discussion in this section has shown that the effects of ERPS
could be conditioned on the level of complementarity between the types of decision management and
decision control activities that these systems empower. Consequently, a major issue in management
222 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226

accounting system design is to ensure that a certain degree of fit is achieved in making I-O decision control
and decision management choices. As a result, the following proposition may be advanced:

RP4. The complementarity in choices between decision control and decision management practices in MAS
design will enhance an organization's capability to interact in the I-O environment and positively influence the
attainment of I-O exchange goals.

3.3. Relationship of complementary MAS capabilities to I-O governance mechanisms

In I-O cooperative relationships, it is imperative that one considers shifts in governance structure
(Birnbirg, 1998; Cooper and Slagmulder, 2004). A governance structure is defined as the set of mechanisms
that create incentives to interact and safeguards that protect each party against the risk of opportunistic
behavior on the part of the other (Cooper and Slagmulder, 2004; Williamson, 1979).
Related organizational research has shown that a cooperation mechanism based on trust may
supplement traditional mechanisms of governance through opportunism, especially in situations where
neither partner can exert control over the other's actions (Sako and Helper, 1998). In the I-O exchange
literature, Cummings and Bromiley (1996) and Bromiley and Cummings (1995) rest their definition of inter-
organizational trust on the assumption that organizations understand the utility of acting with good-faith,
honesty, and limited opportunism. As a result, trust is defined as the belief that an organization makes
good-faith efforts to maintain commitments, whether explicit or implicit, is honest in negotiations that
might have preceded interaction, and does not take unfair advantage of another (p. 303). Zaheer et al.
(1998) also define inter-organizational trust as an expectation that encompasses the three components of
reliability, predictability, and fairness. The formation of partner trust in an I-O environment, therefore,
depends on how a partner feels about the other, what they believe that the other will do when faced with a
situation offering a “trust dilemma,” and whether the partner will operate in a fair manner. Similarly, in
organizational alliances, governance by trust implies that exchange partners do not exercise excessive
control over one another and therefore utilize trust as an informal control mechanism in order to enhance
the effectiveness of transactions (Das and Teng, 1998; Tomkins, 2001).
Alternative research perspectives have emphasized the presence of behavioral uncertainty in I-O
relations and the need to manage transaction risks (Gulati and Singh, 1998). The increased use of IT-enabled
I-O processes may increase uncertainty between business partners and accentuate motivation costs in the
business relationship (Garicano and Kaplan, 2001). Motivation costs are associated with informational
asymmetries and imperfect commitment (Milgrom and Roberts, 1992), which require additional levels of
control over the other business partner. Information sharing and information availability among exchange
partners, however, can improve perceptions about the quality of information being exchanged, which in
turn has been shown to reduce perceptions of risk in the exchange (Nicolaou and McKnight, 2006). I define
perceived risk as the extent to which one believes uncertainty exists about whether desirable outcomes
will occur. This definition includes part of Sitkin and Pablo's (1992) broader perceived risk concept, which
includes outcome uncertainty, outcome divergence likelihood, and extent of undesirable outcomes. As a
result, the availability and sharing of relevant monitoring information among exchange partners in an I-O
relationship, will act to decrease the level of risk that is perceived by each partner in the exchange and will
symmetrically disperse knowledge about necessary control actions and attainability of outcomes. As a
result, future research could adopt a construct of “risk sharing” to capture such effects.
An effective governance structure thus optimally depends on the types of interactions taking place in an
I-O exchange (cf. Williamson 1981, 1991). The choice of decision management and control in MAS design
defines an organization's I-O governance structure as it interacts with its trading partners. The degree to
which these choices are complementary, they may enable capabilities that allow for the dual objective of
controlling opportunistic behavior while also motivating cooperation among partners.
Although cooperative behavior may be created by conditions of interfirm trust (Das and Teng, 1998),
market competition may force firms to act opportunistically which may result in instability in the I-O
relationship. The variation in such dynamics in I-O relationships can therefore be not only explained by
economic complementarity theory but also by the management theory of co-opetitive relationships. As a
result, and consistent with research proposition #4, the following proposition can be made here:
 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226 223

RP5. The complementary choice of decision control and decision management capabilities in MAS design will
alter I-O governance structure through their effects on partner trust and risk sharing mechanisms in the I-O
exchange.

The role of ERPS is central to this discussion, as they might enable overall flexibility in organizational
action. The next section discusses issues of organizational flexibility that might be facilitated by ERPS and
presents propositions for new research in this area.

4. ERPS adoption events and flexibility in organizational action

The use of ERPS also enables financial flexibility as exemplified by the positive impacts of system
implementation factors on financial performance (Nicolaou, 2004a; Nicolaou and Bhattacharya, 2006,
2008). The degree to which an ERPS-adopting firm earns differential financial returns was shown in past
research to be moderated by various factors or decision choices during the ERPS implementation process
(Nicolaou, 2004b; Ranganathan and Brown, 2006). Closely related to the ERPS implementation process are
similar dimensions that operate during the post-implementation stage of system operation and act as
moderators of attained performance effects (Nicolaou, 2004a), especially as they relate to the timing and
nature of system transformation during the post-implementation period (Nicolaou and Bhattacharya,
2006) and to the occurrence of system implementation planning and business process effectiveness
activities (Nicolaou and Bhattacharya, 2008).
These issues would not only be significant moderating conditions of ERPS performance outcomes, but
they could also inform theory-based future research in this area. Specifically, this work can be further
developed based on theory about the organization integration benefits of ERPS, the contribution of
complementary forms of organizational design on the business value of IT investments, and the overall
flexibility that is provided to an organization through growth options associated with infrastructure
building (platform) investments in ERPS.
Investments in ERPs are valuable as these are associated with additional investments in complementary
organizational resources such as business process design, work flow, and other IT-business complementarities
(Melville et al., 2004). IT investments, such as ERPs, are also strategic positioning investments and provide
growth options for future initiatives that can enhance a firm's strategic agility and competitive flexibility or
innovativeness (Sambamurthy et al., 2003). However, not all ERPS will have the same value potential due to
important choices about the ERP project that influence the integration potential and the option value of the
initial ERP investment (Nicolaou, 2004b; Ranganathan and Brown, 2006). For example, Ranganathan and Brown
(2006) report that an ERP system's physical scope (choice of sites where the system is to be implemented) as
well as functional scope (choice of modules), are two key project decisions that significantly influence market
reactions to ERP investment announcements, while Nicolaou (2004b) uses moderating factors relating to
vendor choice (large or small ERP vendor), implementation goal (system-led or business-led), modules
implemented (functional scope), and implementation time period, to explain the conditions of ERPS success.
Functional scope has been operationalized in past research (Brown and Vessey, 1999; Nicolaou, 2004b)
using Porter's value chain concepts as the implementation of primary modules (addressing needs in core
value-adding activities, such as production and logistics) and enterprise support modules (such as human
resource management and accounting). Functional scope influences the integration potential of the ERP
investment, especially its business process integration (Ranganathan and Brown, 2006). An enhanced
functional scope may also generate greater growth options due to the potential for improvements in value-
chain digital investments with trading partners, greater investment in complementary resources, and
enhanced organizational learning due to the implementation of cross-functional processes.
Physical scope relates to the number of sites where the system is implemented. Using an organization
integration (OI) lens, Ranganathan and Brown (2006) argue that greater physical scope may be associated with
enhanced business process and data integration across the enterprise. As a result, greater physical scope may
have a greater potential for OI benefits and may be more closely related to an enhanced expectation of benefits
from the ERP investment. The option value of ERPs with greater physical scope could also be enhanced because
of flexibility in digital process reach (Sambamurthy et al., 2003). ERPS are platform investments that can enable
the organization to not only scale-up future internal operations but also to implement process changes across a
224 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226

firm's value chain. The organizational learning that might result from such process changes across distinct
organizational units will be a driving factor in enhancing the option value of the ERPS.
In conclusion, both the organization integration and option value perspectives could serve as appropriate
theoretical bases to assess the level of flexibility in organizational action that is associated with ERPS adoption
and continued use. Both of these theoretical perspectives presuppose that the ERPS that is in place is
continuously developed so as to achieve set objectives and offer the basis for future enhancements and growth,
while they are also informed by process changes and organizational learning that follow ERPS adoption and
enable the implementation of complementary add-on technologies. As a result, it is important to not only
examine the types of activities that occur subsequent to the implementation of the ERPS, but also to assess the
degree of quality in those activities and how well they would be consistent with theoretical expectations of
organizational integration and option value. A primary goal of ERPS post-implementation review activities is to
therefore formulate a set of critical conditions that would enable an organization optimize processes and
enhance learning which contribute to a stable information infrastructure and permit future growth. As a result,
the following research propositions are presented:

RP6a. ERPS-adopting firms which follow high-quality post-implementation practices should be able to exercise
a number of operating options during the post-implementation period (such as scale-up options, stage options,
or abandon options).

RP6b. The creation of ERPS-related operating options will lead to enhanced flexibility in the further deployment
of ERPS and/or add-on applications and enhance the value of the ERPS investment.

In prior work (e.g., Nicolaou, 2004a; Nicolaou and Bhattacharya, 2008), the argument was made that
organizations which follow a well-planned, high-quality post-implementation review process would also
expect to expand on the basic ERPS infrastructure and create opportunities for sustainable future growth
beyond any initial benefits that are anticipated. As RP6a and RP6b suggest, extensions of this work could be
based on real options finance theory that could help develop theoretical models about the option value of
ERPS investments (e.g., Fichman, 2004) and deal with multiple uncertainties (e.g., Benaroch, 2002) that
affect the long-run viability of these systems.

5. Conclusions

This note has identified a number of research issues associated with the use of ERPS in organizations and in
their relationships with exchange partners. The propositions highlight arguments that are based on extant
theories of organizations and present opportunities for future research. While the arguments presented here
draw from these theoretical bases, future research could extend these theories as they are further examined in
the case of ERPS implementation and use in inter-organizational settings.
The research propositions presented in this note integrate the current state of knowledge in ERPS
implementation, their use within and across organizations, and the potential effects ERPS may have on the
design of complementary forms of inter-organizational governance. While the use of ERPS and concomitant
changes in organizational function may significantly impact organizational capabilities and the form of
governance in inter-organizational relations, these systems still operate within organizations and decisions
about their adoption, extensions, and continued use often impact organizational effectiveness. The level of
managerial flexibility in making such decisions was presented as a key component for the success of these
systems and for their continued use in organizational settings.
While this note only identifies a few of the issues that could be pursued in future research studies, other
important research exists on the management of business-to-business relationships that is not examined
here. For example, earlier work on electronic data interchange could bear important relationships to the
types of risks involved in the implementation and use of ERPS (Khazanchi and Sutton, 2001). In addition,
related work on risk assessment in an extended enterprise environment has examined models for the
assessment of an organization's capabilities to reengineer extended processes and the evaluation of
business-level risks (Sutton et al., 2008). Such models also relate to the management and control of inter-
organizational exchange relationships and future research could also examine such related issues.
 A.I. Nicolaou / International Journal of Accounting Information Systems 9 (2008) 216–226 225

Acknowledgments

I would like to thank the delegates at the Fourth International Conference on Enterprise Systems,
Accounting, and Logistics for their feedback on my keynote speech that was the basis of this research
perspectives paper. Specifically, I would like to note the support of Professor Constantinos Stephanou who
provided encouragement for the delivery of the keynote speech at the conference. I would also like to thank
the Editor, Professor Steve Sutton, as well as Professors Somnath Bhattacharya, Nancy Lankton, and D.
Harrison McKnight, who all provided useful comments on this paper. Credit is also due to my long-time
advisor, Mike Masoner, for his help on the economic theories examined in the paper. Nonetheless, I retain
full responsibility for the limitations of the prior discussion.

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