FORUM: ERP SYSTEMS

PETER BOOTH, ZOLTAN MATOLCSY AND BERNHARD WIEDER

THE IMPACTS OFENTERPRISE

RESOURCE
PLANNING ON ACCOUNTING
SY~TEMS
PRACIICE- THE A u m EXPERIENCE

0 This paper reports on the enteqbrise

ver the past decade, enterprise resource
planning (ERP) system offerings from S N ,
Oracle, Peoplesoft, Baan, JD Edwards and resource planning (ERP) systems
others have become the dominant business informa- experiences of Australian companies.
tion system software platform for large companies and
government bodies in Anglo-American countries I t examines the degree of information
(Davenport, 1998).’ In Australia, for example, a 1998
survey by the GartnerGroup, CFO magazine and the
system integration and associated
ASCPA found an average ERP usage rate of 52.7%, benefits that respondent companies
ranging from a high of 71.4%in manufacturing to a low
of 29.6% in “other services” (Philipson 1999)? This believe they have achieved, and the
trend reflects an earlier wave of adoption of ERP soft- impact of ERP systems on the
ware in Europe and North America. This rise to dom-
inance of ERP systems represents a fundamental shift adoption of new accounting practices.
in the nature of business information systems. The results indicate that while ERP
Compared with the often in-housedeveloped legacy
systems they have supplanted, EFP systems offer sig- users report high levels of information
nificantly increased sophistication, enabling integra-
tion of the software and underlying relational databas-
integration for many functional areas,
es across all functional areas (accounting, human the pattern is similar to that of non-
resources, operations and logistics, sales and market-
ing). This potentially allows the organisation to have a users. Also, ERP systems seem to
“seamless integration” of all the information flowing perform better in transaction
through it, and presents “managers who have strug-
gled, at great expense and with great frustration, with processing and ad hoc decision-
incompatible information systems and inconsistent
support than in sophisticated
operating practices, the promise of an off-the-shelf
solution to the problem of business integration” decision-support and reporting.
(Davenport 1998, p. 121).
However, as Davenport and other commentators
Finally, ERP systems were found to
have noted, gaining such benefits is not without diffi- have little influence on the use of new
culties. ERP systems are complex software systems
presenting major technical challenges and usually accounting practices.
requiring large investments of time and money. More
important, they confront the organisation with a sig-
nificant management problem. To achieve their high
level of integration, ERP systems have their own inter-
nal logic of “best practice” business processes. When
implementing an ERP system, the organisation needs
to reconcile the technical imperatives of the system
with strategic and management needs. Unlike highly
customised legacy systems, ERP systems require the

4 AUSTRALIAN ACCOUNTING REVIEW VOL. 10 NO. 3 2000

organisation to adapt to the software rather than mod-
ifying the software to suit the organisation’s estab
lished practices. Where the organisation can success-
fully adapt to the software, significant gains in pro-
ductivity, speed of reaction, streamlined data flows
and direct access to real-time operating information
may be achieved. If the organisation fails to address
this imperative, or its strategy does not suit the gener-
ic ERP solution, then such operating and manage-
ment benefits can be elusive (Davenport 1998,
Scapens, Scapens and Jazayeri 1998).
The potential benefits suggest that ERP systems
would have attracted significant attention from
researchers in accounting. The promise of integrated,
flexible, real-time financial and operating information
offered by ERP systems addresses many of the tradi-
tional criticisms of management accounting systems.
Yet while many commentators on changes in man-
agement accounting have identified the potential for
modern software systems to fundamentally change
accounting practices (Atkinson et a1 1997, Booth
1995, FMAC 1994, Foster and Young 1997, ICAEW
1999), only in the past two years have a few confer-
ence papers provided some insights (Booth, Matolcsy
and Wieder 2000, Fahy and Lynch 1999, Fahy 2000,
Granlund and Malmi 2000. Lindvall2000. Maccarrone
2000) .3 These papers find some support for a range of
benefits from ERP system adoption in increased infor-
mation integration, improved quality of information
and management support and some changes in
accounting practices, but they also find that there are
inconsistencies in experiences between organisa-
tions. However, except for Booth et a1 (2000), these
papers suffer from three limitations: they are
exploratory, multiple-organisation, qualitative case
studies that limit cross-sectional insights; they con-
sider only ERP users’ experiences; and they do not
directly measure the level of information integration
that the ERP systems provide.
The purpose of this paper is to provide further
insights into the impacts of ERP systems on informa-
tion system integration, the benefits derived and the
adoption or non-adoption of “new” accounting prac-
tices such as ABC, EVA, balanced scorecard, etc. It
extends the emerging research in this area by con-
ducting the first cross-sectional, quantitative survey
of ERP impacts, by considering not only ERP users’
views but also the contemporaneous experiences of
non-ERP users, and by directly measuring the level of
information systems integration achieved by ERP
users and non-users.
INSIGHTS FROM RECENT
ACCOUNTING RESEARCH
ERP systems are software packages that use event-dri-
ven systems concepts to provide integration of an
organisation’s business information systems and all
associated data (Gelinas et a1 1999). In practice, it can
be difficult to classify software as either “ERP” or
“non-ERP”. Some use the extent of integration of func-
tional areas of business as the criterion for this classi-
fication (eg, Xenakis 1999), while others identify addi-
tional criteria such as the fleribili@ to respond to the
changing needs of an enterprise through client server
technology, Open Data Base Connectivity,etc., a mod-
ular and open system architecture, comprehensive
finctionality, beyond the company (interface with exter-
nal partners, ecommerce), integration of best business
practices, and simulation of reality (Akhilesh 1998).
Despite these conceptual difficulties, a wide range of
well-recognised “ERP” offerings now dominate the
business systems market for medium to large organi-
sations and are popularly believed to have had a major
impact on how such organisations operate.
Information systems integration in general and
ERP systems more specifically are among the most
important topics arising at the interface of informa-
tion systems and accounting (and other disciplines)
in the past 10 years.
“By accessing enterprise-wide information from
databases, IS integration is providing numerous
opportunities to coordinate organizational activities
by facilitating communication and information
exchange across departments without the need to go
up and down the vertical chain of command. The
access to timely, accurate and consistent information
is crucial in business process improvement and
accounting. IS integration, through communication
networks and database systems, enables organiza-
tions to create and sustain process improvement
through timely retrieval of consistent and accurate
information” (Bhatt 1995).
Given the potential significance of ERP systems for
accounting issues, it is surprising that so little
research has addressed the impact of ERP systems on
this domain.
The work that has started to emerge recently to
meet this challenge can be divided into two general
groups. The first mirrors the focus of broader infor-
mation systems research on ERP implementation
issues (Gamster 1999, Grabski, Leech and Lu 2000).
Gamster (1999) examined how activity-based cost
management concepts could be used to develop a
business case for the adoption and implementation of
ERP systems4 Grabski et a1 (2000) developed a
grounded theoretical model that drew on insights
from the complementarity and supermodularity theo-
ries to identify the major success factors and proce-
dures for ERP implementation. The second group
more directly addresses the issues of this paper by
examining the impacts of ERP systems on organisa-
tions (Fahy and Lynch 1999, Granlund and Malmi
2000, Lindvall2000, Maccarrone 2000) 3 These papers
used multiple case studies of European ERP users
(Fahy and Lynch 1999, Granlund and Malmi 2000,
Maccarrone 2000) and interviews with ERP consul-
tants (Lindvall2000) to examine the general benefits
and constraints of ERP adoption and the associated
changes in accounting practice.
AUSTRALIAN ACCOUNTING REVIEW 5
 All four papers start their arguments by noting the
high potential for ERP systems to have positive
effects on adopters as they are increasingly seen as
the transaction backbone for an organisation’s deci-
sion support systems, and that their power lies in
their “real-time integration, linking a company’s busi-
ness processes and applications, and supporting
immediate responses to change throughout the
organisation on a departmental, divisional or global
scale” (Fahy and Lynch 1999, p. 3). However, as no
analytic framework exists to examine such potential
benefits, they look for any benefits experienced by
adopters, using as a guide general lists such as that
proposed by Davenport (1998) (better support for
strategic planning and organisational change through
tighter integration of functions, enterprise-wide inte-
gration of information and systems providing
improvements in data integrity and reporting, cost
reduction and revenue enhancement from improved
management reporting, as well as increased efficien-
cy and timeliness of information, data rationalisation,
improved forecasting, and improved transaction pro-
cessing resulting in better cashflow control, etc.). In
particular, Lindvall (2000) and Granlund and Malmi
(2OOO) argue that such a common organisation-wide
information structure and integrated information sys-
tems could have significant benefits for global organ-
isations.
The papers suggest that if these general benefits
are realised, there should be flow-on benefits in terms
of changed accounting or managerial control meth-
ods, such as development of real-time EIS and a bet-
ter backbone for more complete and accurate deci-
sion-support systems. In particular, Granlund and
Malmi (2000) propose that as ERP systems provide a
standardised, more accessible data warehouse and
often had some advanced techniques built into the
software modules (for example, ABC), it should be
easier for organisations to implement newer manage-
ment accounting practices such as ABC, balanced
scorecards, target costing, valuechain analysis and
strategic management accounting practices in gener-
al. Finally, Granlund and Malmi (2000) propose that
all these changes might facilitate the movement of the
role of management accountants from “beancount-
ing” towards business support.
However, against these potential positive general
and accounting benefits all the papers note that
obtaining them may be difficult. The high costs of
ERP implementation and maintenance, implementa-
tion failures,6 and high system complexity have been
suggested in the professional literature as making it
difficult for companies to take full advantage of the
potential of ERP systems (for example, Scapens,
Scapens and Jazayeri 1998, Schneider 1999, Slater
1998). Also, as noted by Davenport (1998), several
propose that the high level of standardisation of busi-
ness processes may be a straitjacket for diverse oper-
ations, particularly in a global organisation, and that
the integration and automation of data processing
6 AUSTRALIAN ACCOUNTING REVIEW
may be problematic if it restricts the ability to adapt to
changing environments (Scapens, Scapens and
Jazayeri 1998).
Fahy and Lynch (1999), Maccarrone (2000) and
Granlund and Malmi (2000) report that ERP adopters
achieved many of the benefits identified by Davenport
(1998). For example, Fahy and Lynch (1999) found
increased functionality over legacy systems, a higher
quality of standardised information, streamlined
access to information for off-line analysis for ad hoc
reports, easier and more timely access to a wider
range of information, particularly non-financial,
streamlined business and financial processes,
increased processing efficiency and greater and more
timely control over operations.
On the other hand, the papers note significant varia-
tion in the level of benefits obtained and overall satis-
faction with their systems. The constraints on the
range of business processes ERP users could consid-
er, due to the standardisation of ERP systems, was
seen as one source of this variation in experiences.
However, Lindvall (2000) found that the tendency
towards harmonisation of practices across global oper-
ations was not as strong as could have been expected,
partly because of the increasing sophistication of ERP
systems which have now developed a large range of
“standard” business processes and industry solutions
from which to c h ~ o s e Finally,
.~ Maccarrone (2000)
noted that other potential explanations for the varied
experiences of organisations were the time since
implementation -the longer the time, the more posi-
tive the experience - and the completeness of the
implementation - the more functional modules
installed, the more positive the experience.
While these findings provide support in terms of
expected ERP benefits and constraints, there was less
clear evidence of significant flow-on effects on
accounting. Fahy and Lynch (1999) found no signifi-
cant improvement in regular management reports,
and the companies had introduced few new perfor-
mance metrics and advanced decision-support sys-
tems. In addition, they noted that some managers
now complained about information overload arising
from their ERP systems. Maccarrone (2000) found
that all his case organisations reported a refinement
of management control activities and responsibility
centres, and that the flexibility of the ERP system was
a benefit. However, the ERP systems had not led to
“deeper” management accounting systems in terms
of the greater use of non-financial measures.
Granlund and Malmi (2OOO) found that most of their
case organisations did not handle product or cus-
tomer-level cost and profitability accounting within
their ERP system, but that the ERP systems had
allowed more detailed and different analyses to be
done in stand-alone systems by providing better data
and better “drill-in” potential. In terms of ERP sys-
tems leading to more use of newer management
accounting practices, Granlund and Malmi (2000)
found little impact. Eight of the companies had some
form of AI3C system, but in all cases this was con- Given the complexity of ERP systems and their con-
ducted separately from the ERP system (but two were ceptually different nature from most stand-alone lega-
planning to incorporate it in the future). Similarly, cy systems, it is not surprising that ERP users take
while balanced scorecards were widely used, these some time to learn how to extract all potential benefits.
were being run independently of ERP systems. The Second, the ability to extract benefits will be reduced
only indication found of an area of change was that if only a limited set of ERP modules are implemented.
the business-process orientation of ERP systems facil- This again is not surprising, as most of the claimed
itates a valuechain approach to accounting, but only benefits of ERP systems over legacy and best-of-breed
one of the case organisations systems arise from their integration
appeared to have taken advantage of of information across functional
this benefit. areas. If information integration is
In terms of effects on the roles of not achieved because of limited
management accountants, Granlund COMPwExpry OF implementations, then all potential
and Malmi (2000) observed little benefits of ERP systems should not
impact, with daily routines being be expected. Finally, Fahy (2000) has
very similar as in previous systems. proposed a third explanation relating
However, all the management to new developments in strategic
accountants interviewed had target- enterprise management software
ed a movement of their time towards which attempt to address the deci-
greater and more sophisticated busi- CONCEFTUUY sion-support needs of organisations.
ness analyses as a benefit to be This new generation of software is
obtained from their ERP systems, designed to sit on top of ERP sys-
although achieving this was seen as tems to provide more value-adding
taking significant time after imple- and strategic information analysis.
mentation. Finally, Granlund and These developments explicitly signal
Malmi (2000) indicated that there that ERP systems by themselves
was some evidence of a segmenta-
MOSTSTAND- have limited capacities to meet such
tion of accountants arising from needs.
ERP systems, with a reduction in
the workforce for those involved RESEARCH ISSUES
with routine tasks. The discussion above indicates that
The overall conclusions from the there is a great deal of interest in the
studies by Fahy and Lynch (1999), NOT SURPRISING impacts of ERP systems on organisa-
Granlund and Malmi (2000), tions, particularly the benefits
Lindvall (2000) and Maccarrone obtained, the problems encountered
(2000) are that ERP systems provide and the changes to accounting
general benefits in terms of practices and accountants’ roles.
increased transaction processing However, the insights gained to date
efficiencies, higher quality and can at best be described as explora-
accessibility of information and TO LEARN HOW tory and should be considered in the
greater support for ad hoc reporting. light of particular limitations.
However, little impact has been First, the prior papers have been
found on the business-analysis and exclusively in the form of exploratory
decision-support areas of manage- case studies and a well-developed
ment accounting. In particular, the analytic framework of impacts has not
use of ERP systems appears to have informed their analysis. While the lat-
had only a minor effect on the use of BENEFITS. ter is to be expected at this early stage
newer management accounting of examination of these issues, and
practices, such as ABC systems, bal- while cases are a useful way of deal-
anced scorecard, value-chain analysis, etc., that ing with such problems, these limitations mean that it is
emphasise sophisticated manipulation of information difficult to compare findings systematically.
rather than simply extracting and reporting transac- Second, the studies focus only on ERP users. This
tional data. As Granlund and Malmi (2000) concluded, means that the reference point for assessment of ERP
“so far the greatest benefits of the new systems imply impacts is their legacy systems, which may or may
enhanced document mass processing. The true deci- not have been “good” information systems. Also,
sion support has remained limited” (p. 12). there is no comparison with organisations that have
Several of the studies identified possible explana- tried other solutions to information needs, either by
tions for this pattern of impacts. First, the longer the optimising their best-of-breed solutions or by using
time since implementation, the more likely it is that other means such as specialised software interfaces
greater and more sophisticated benefits are obtained. and middleware solutions.

AUSTRALIAN ACCOUNTING REVIEW 7

 Finally, the studies have looked at ERP systems as
a simple proxy for the main proposed driver of the
impacts they are expected to provide - high levels of
information standardisation and integration.
However, as several of the papers indicate, ERP sys-
tems are modular and difficult to implement.
Therefore, their simple ‘‘use’’ does not guarantee high
levels of information standardisation and integration.
In this paper we extend the exploratory insights into
the impacts of ERP systems by addressing some of
these limitations. First, we provide cross-sectional,
quantitative survey evidence. Second, we compare
ERP users’ views on impacts relative to their legacy
systems and with views of non-ERP users. Finally, we
directly measure the information integration that
organisations attribute to their information systems.
We use this refined approach to consider whether ERP
systems deliver benefits in increased information inte-
gration, improved quality of information and manage-
ment support, and whether ERP systems make it fea-
sible for organisations to adopt management account-
ing practices, such as ABC and the balanced score
card, that require greater and more flexible access to
information than more traditional practices.
Specifically, we consider the following research
questions:
Do organisations with ERP systems perceive high-
er levels of information integration than other
organisations?
Do organisations with ERP systems perceive their
system as being better in supporting strategic plan-
ning and decision-making, operational planning and
decision-making, reporting, flexibility and efficien-
cy compared with (i) their legacy systems, and
(ii) organisations without ERP systems?
How satisfied are organisations with ERP systems
with the transaction processing, reporting and deci-
sion-support capabilities of their systems in major
accounting areas (finance, financial accounting,
management accounting)?
Do organisations with ERP systems use more
“new” management accounting practices than other
organisations?
Does the use of ERP systems influence the adop
tion of “new” management accounting practices?
RESEARCH METHOD
The research questions required samples of organi-
sations with and without ERP systems. The Australian
survey conducted by the GartnerGroup, CFO maga-
zine and the ASCPA (Phillipson 1999) indicated a sig-
nificant level of usage of ERP across a wide range of
industries. Accordingly, it was decided to target a
broad population of organisations to enable sufficient
responses to be obtained from both ERP and non-ERP
users. CFOs were chosen as the target recipients as
they were best placed to provide informed responses
to the range of issues covered in the survey. A list of
8 AUSTRALIAN ACCOUNTING REVIEW
the CFOs of the 800 largest Australian corporations
was obtained from the IncNet database*.
The survey was mailed to the CFOs in October
1999. The package contained a letter explaining the
nature of the research and requesting assistance, the
survey and a reply-paid envelope for return of the sur-
vey. A follow-up letter was sent in November 1999
requesting their participation and asking them to con-
tact the authors, or download another copy from a
website if they had lost the survey.
The overall response rate to the survey was 74
firms, representing 9.25% of the initial, broad target
group. It was expected that the response rate could be
affected by Y2K and GST preparations, as well as
increased time pressures on accounting staff due to
reduced staffing levels over recent ye‘ars. Where
uncompleted surveys were returned and an explana-
tion given, these were common responses. Further,
the complexity of the survey probably contributed to
the low response rate. However, as the research aim
was to compare samples of ERP and non-ERP users,
the main issue was that the sample provided a useful
cross-section of both categories. As the profile of
respondents met this criterion, the low response rate
was not considered a major limitation. Nevertheless,
care should be taken in trying to extrapolate the find-
ings to Australian organisations generally.
The average size (sales revenue) of the respon-
dents was $1,942 million, ranging from $10.5 million
to $35,431.6 million; 70.3%of the respondents belong
to the service or public sectors, 20.3%to the manufac-
turing sector and 9.4% to the primary sector of the
economy; 75.7% of the corporations were Australian-
owned (52.7% fully Australian-owned, 18.9%majority
owned and 4.1% minority owned) and 20.3% were
wholly owned subsidiaries of foreign groups; 35.1%of
the respondents had a majority interest in, or fully
owned, subsidiaries in at least one other continent
and more than 50%of these subsidiaries were in Asia.
Overall, the respondents represent a broad cross-sec-
tion of Australian organisations.
Respondents were asked a series of questions
about their current ERP status. This enabled their
classification into five groups: 24 (32.4%) who had
never considered an ERP system, 8 (10.8%)who had
considered but rejected adoption, 11 (14.9%) for
whom system analysis was still in progress, 8 (10.8%)
who had adopted and were still in implementation
and 23 (31.1%) who had adopted and “gone live”.
Respondents in the “system analysis still in progress”
and “adopted and still implementing” groups were
excluded from analysis as they did not clearly repre-
sent either ERP or non-ERP users. The “never con-
sidered” and “rejected” groups were combined to
give 32 non-ERP users, who were then compared
with the 23 “gone live” ERP users (55 firms in total,
58% non-ERP and 42% ERP users). These two analy-
sis groups were then compared for any differences in
demographic profile and no significant differences
were found.
 SURVEY AND VARIABLE nal sources - ie, by the various functional areas and
software applications in the enterprise.
MEASUREMENT From this definition we developed three operational
The survey covered a wider range of questions than criteria of integration: software integration (common
reported in this paper. It contained seven sections: source codes, common protocols, seamless inter-
general organisation demographics (size, industry, faces, etc.), data integration (one common database
financial data, etc.), market and competition percep for all applications, integrity, common formats, prima-
tions, general IT features, information integration, ry keys, etc.) and information integration (actual
ERP, information systems change and accounting interchange and use of data and information generat-
practices. All sections were to be answered by all ed by functional areas/applications in the enterprise).
respondents, except that all but two questions in the A four-point ordinal scale (see Table 1) was developed
ERP section applied only to ERP users and the infor- by considering feasible combinations of these criteria
mation systems change section applied only to those and by ranking information integration as more criti-
using some form of integrated information system? cal than the other two.
Careful attention was paid to survey design and
TABLE 1: FOUR LEVELS OF OVERALL
development. The authors refined the survey through
INFORMATION INTEGRATION
several versions before pilot testing on a small sample
of CFOs of large Australian corporations using ERP
systems. The survey was adjusted to address the
feedback received before distribution.
The central variable of ERP use was determined by
asking a series of questions about organisations’ eval-
uation and adoption of ERP software. This enabled
the classification of respondents into five ERP groups.
Unlike other accounting ERP research, this paper
directly measured the informution integration that
organisations perceived they had achieved from their
information systems. It would be simplistic for sever- Using the four-point scale, respondents with ERP
al reasons to assume that the ERP users have higher systems were asked to score 10 paired combinations
integration than non-ERP users. First, the level of of five functional areas - financial management,
integration and sophistication of the software across logistics/production, marketing/sales, human
different ERP vendors is not fully equivalent. Second, resources management and general information man-
as ERP systems are modular and involve significant agement - for the level of integration achieved in
implementation complexity, not all implementations their company. As ERP users would be expected to
of the same software will necessarily obtain the same have different patterns of integration in the five func-
level of information integration. Finally, non-ERP tional areas (for example, some firms may attempt to
users can achieve information integration through integrate HRM, while some would not), the achieved
other software solutions (eg, middleware or cus- levels of integration were examined by focusing on
tomised interfaces). Thus, a direct measure of the each functional pair individually.
extent of integration actually achieved for each organ- To determine perceptions of the impact of the
isation is required. However, no prior work has devel- organisation’s information system on strategic plan-
oped such a measure of information integration. ning/decision-making, operational planning/deci-
A starting point for developing such a measure is sion-making, reporting, flexibility and efficiency,
Bhatt’s (1995) definition of enterprise information respondents were asked: “How would you generally
system integration as “the extent various information evaluate the impact on/support for” each area. They
systems are formally linked for the sharing of consis- responded on a fivepoint scale (1 = very good, 2 =
tent information within an enterprise. Enterprise good, 3 = adequate, 4 = poor, 5 = very poor) for their
information systems integration is conceptualized systems in use on 30 June 1999 and their previous sys-
along two dimensions: 1) data integration, and 2) tems. All responses were reversecoded so that larger
enterprise communication networking”. Enterprise numerical responses represented increased percep
communication networking consists of hardware and tions of the quality of the information system. The
software integration and flexibility. However, this def- current system rating for each area was then used to
inition considers only the technical dimensions of compare differences in perceptions between ERP
information management. From the business per- users and non-users.
spective, the impact of systems integration on the To determine perceptions of the performance of
quality of information is more important. For this rea- ERP systems in three major areas of their accounting
son, we introduce the term information integration, system (finance, financial accounting and manage-
which describes the scope of interchange and use of ment accounting), respondents with ERP systems
data and information generated by internal and exter- who had gone live were first asked whether each of

AUSTRALIAN ACCOUNTING REVIEW 9

the three areas was at least partly integrated into
the ERP system. If so, they were asked: "How do
you rate your ERP system in" three performance
dimensions - transaction processing, reporting
and decision support. They responded on a five
point scale (1 = very good, 2 = good, 3 = adequate,
4 = poor, 5 = very poor) for each of the three
dimensions for each major area. The responses
were then reversecoded so that larger numerical
responses represented increased perceptions of
the quality of the ERP system.
Finally, respondents' perceptions of the impact
of their information systems on the adoption of
"new" management accounting practices were
obtained from a series of questions on a list of 19
new practices adapted from those identified by
Chenhall and Langfield-Smith (1998) in their study
of the use of accounting practices in Australian
firms. All the practices selected for inclusion in
this study (see Table 5) have been topics of dis-
cussion over the past decade, although some of
them have their origin in the 1980s or even earlier.
For each practice, respondents were first asked
whether the practice was applied in their organisa-
tion (Yes = 1, No = 0).l0 If used, they were then
asked to indicate (Yes = 1, No = 0) whether their
ERP or other integrated system was (i) an incen-
tive for adoption, (ii) provided relevant data, and
(i) directly supported the practice. Answers to
the fust question were used to compare relative
accounting practices between ERP and non-ERP
users. Answers to the second set of questions were
used to compare the relative iniluence of ERP sys-
tems on accounting practice usage.
THE IMPACT OF ERP ON
SELECTED ACCOUNTING
PRACTICES: AUSTRALIAN
EVIDENCE
This section examines the findings for the five
research questions posed in this paper for impacts
of ERP systems on: levels of information integration
achieved; support for strategic planning/decision-
making, operational planning/decision-making,
reporting, flexibilityand efficiency; satisfaction with
transaction processing, reporting and decision-sup
port capabilities in major accounting areas; and use
of "new" management accounting practices.
Impacts on information integration
The fust area of ERP system impact considered is
the level of information integration achieved by
organisations using ERP systems. A fundamental
benefit claimed for ERP systems is that they offer
better information systems integration than either
stand-alone legacy systems with limited interfaces
or other approaches to integration using middle
ware solutions. We provide some insight to this
issue by comparing the perceived levels of informa-
AUSTRALIAN ACCOUNTING REVIEW
tion integration achieved by both ERP and non-ERP
users for 10 paired combinations of five functional
areas - financial management, logistics/produc-
tion, marketing/sales, HRM and general informa-
tion management. This was examined by cross-tab
ulating the level of integration reported by both
groups.11The findings are summarised in Table 2.
A feature of the findings in Table 2 is the high
degree of spread from none (NI)to high (FII) infor-
mation integration across all 10 functional pairs for
both ERP users and non-users. Encouragingly, the
tendency is for most organisations to achieve some
reasonable level of integration (FSI or FII) in many
of the functional pairs. Exceptions to this pattern
are logistics/production and marketing/sales,
logistics/production and HRM, marketing/sales
and HRM, marketing/sales and information man-
agement, and HRM and information management.
While these pairs may be less important opera-
tionally in many organisations, the patterns indi-
cate that there is significant room for improvement
in the information integration achieved in most
organisations.
Addressing the research question of whether
ERP users achieve higher levels of information
integration than non-users, the cross-tabulations in
Table 2 indicate that this is not the case. The only
exception is the marketing/sales and HRM func-
tional pair, but while there is a statistically higher
integration achieved for ERP users, overall very
few organisations report high levels of integration
for this pairing. While the pattern does not support
our ERP expectation, there is some indication that
ERP users are achieving greater levels of integra-
tion if only the two "high" levels of integration (FSI
and FII) are considered. For all 10 functional pairs,
a higher percentage of ERP users than non-users
reported achieving "high" integration. However,
as for the overall pattern, there are almost no sta-
tistically significant differences.12 These findings
support our arguments that using ERP-adoption as
a proxy for better information systems integration,
as implied in other ERP research, is too simplistic.
Impacts on information system quality
Next we consider the impacts of ERP systems on two
major areas of the perceived quality of the organisa-
tion's information system: (i) support for overall
strategic planning/decision-making, operational
planning/decision-making, general information
reporting, organisational flexibility and efficiency,
and (i) satisfaction with the ERP support for trans-
action processing, reporting and decision support for
finance, hancial and management accounting.
For the fust area, as suggested by other ERP
research, the higher quality of information from
ERP systems should provide better support for
overall strategic planning/decision-making and
operational planning/decision-making.As well,
their integrated nature and greater functionality
should provide greater support for general informa-
tion reporting and organisational flexibility and effi-
ciency. We consider these effects by comparing ERP
users’ evaluations of their systems relative to their
prior legacy systems and with those of non-ERP
users. In both cases these were examined by compar-
ing the mean responses for each area.13The findings
are summarised in Table 3.
The findings in Table 3 present an interesting pat-
tern. ERP users report a significant improvement in
the quality of information provided for strategic and
operationaldecision-makingover their legacy system,
as well as significantly improved information system
reporting, flexibility and efficiency. The mean rating
in all areas for the ERP system was greater than “ade
quate”, while that for the legacy system was less than
“adequate”.This suggests that ERP systems offer a
major improvement in information system quality for
their users, which is consistent with the qualitative
findings of earlier ERP case studies.
However, while ERP users report higher ratings
than non-users for three of the areas (strategic deci-
sion-making, operational decision-making and effi-
ciency), these differences are not signiiicant. This
may suggest that perceptions of significant informa-
tion system quality benefits of ERP systems may arise
AUSTRALIAN ACCOUNTING REVIEW 11
only because of their comparison with low-quality
legacy systems. In contrast, non-ERP users perceive
that they have adequate information systems.
Alternatively, this pattern could be interpreted as indi-
cating that users only become aware of the enhanced
information system quality provided by ERP systems
after their adoption, thereby resulting in a downward
revision of their rating of their legacy system. Further
research is needed to explain these different patterns
of information system quality perceptions.
The second area of information system quality con-
siders the impacts of ERP systems on three major
accounting functions (finance, financial accounting and
management accounting). Support for AIS is a critical
element of ERP systems. As argued previously, the high-
er levels of functionality and integration of ERP systems
(both withiin the AIS and with other information sys-
tems) should provide a higherquality AIS. We consider
these issues by examining how satisfied ERP users are
with the transaction processing, reporting and decision-
support capabilities of their systems for each of the
three functions. Descriptive statistics for ERP users’ per-
ceived satisfaction are summarised in Table 4.
12 AUSTRALIAN ACCOUNTING REVIEW
The findings in Table 4 indicate a very high level of
satisfaction with ERP systems for transaction processing
for all three areas of accounting, with all mean ratings
between “good and ”very good. There is still high sat-
isfaction with performance for reporting and decision-
support for all three areas, with mean ratings between
“adequate” and “good”. However, there is noticeably
less satisfaction for management accounting support in
general than for finance and financial accounting. As it
could be argued that the management accounting func-
tion requires the most complex and diverse information
system support, this pattern suggests that ERP users
experience good information system quality in the more
straightforward accounting areas, but still perceive sig-
nificant room for improvement in more demanding
areas. Again, this basic pattern of findings is consistent
with that of the prior qualitative case studies.
Impacts on management accounting practices
Finally, the impact of ERP systems on the use of
“new” management accounting practices is examined.
As argued previously, the greater level of information
integration, flexibility in information access and
greater functionality provided by ERP systems should
make it easier for organisations with ERP systems to
AUSTRALIAN ACC 0 UNTING REVIEW 13
Management accounting practice* ERP status Provides incentive Provides relevant data Directly supports practice
Yes NO Kendan’stau-b Yes No Kendall’s tau-b Yes NO hdall’s tau-b
Financial key performance indicators ERP 7 8 16 1 10 3
(46.7%) (53.3%) 0.244 (94.1%) (5.9%) 0.061 (76.9%) (23.1%) 0.155
Non-ERP 2 7 p = 0.200 10 1 p = 0.757 5 3 p = 0.488
(22.2%) (77.8%) (90.0%) (9.1%) (62.5%) (37.5%)
Non-financial key performance indicators ERP 5 10 8 8 8 6
(33.3%) (66.7%) 0.397 (50.0%) (50.0%) -0.135 (57.1%) (42.9%) 0.189
Non-ERP I 0 9 p = 0.009 7 4 p = 0.477 3 5 p = 0.367
(0.0%) (100.0%) (63.6%) (36.4%) (37.5%) (62.5%)
Formal strategic planning ERP 2 9 10 4 6 4
(18.2%) (81.8%) 0.302 (71.4%) (28.6%) 0.120 (60.0%) (40.0%) 0.100
Non-ERP 0 9 p = 0.119 6 4 p = 0.561 4 4 p = 0.671
(0.0%) (100.0%) (60.0%) (40.0%) (50.0%) (50.0%)
Benchmarking ERP 1 8 11 1 5 4
(11.1%) (88.9%) 0.218 (91.7%) (8.3%) -0.187 (55.6%) (44.4%) 0.055
Non-ERP I 0 6 p = 0.292 8 0 p = 0.298 3 3 p = 0.833
(0.0%) (100.0%) (100.0%) (0.0%) (50.0%) (50.0%)
Long-range planning ERP 1 9 6 8 5 5
(10.0%) (90.0%) 0.217 (42.9%) (57.1%) -0.169 (50.0%) (50.0%) 0.125
Non-ERP 0 8 p = 0.293 6 4 p =0.401 3 5 p = 0.592
(0.0%) (100.0%) (60.0%) (40.0%) (37.5%) (62.5%)
Customer satisfaction surveys ERP 1 8 3 8 1 6
(11.1%) (88.9%) 0.228 (27.3%) (72.7%) 0.025 (14.3%) (85.7%) 0.000
Non-ERP I 0 7 p = 0.290 2 6 p = 0.911 1 6 p = 1.0
(0.0%) (100.0%) (25.0%) (75.0%) (14.3%) (85.7%)
Customer profitability analysis ERP 3 5 10 10 8 1
(37.5%) (62.5%) 0.039 (50.0%) (50.0%) 0.000 (88.9%) (11.1%) 0.048
Non-ERP 1 2 p = 0.897 6 6 p = 1.0 6 1 p = 0.851
(33.3%) (66.7%) (50.0%) (50.0%) (85.7%) (14.3%)
Shareholder value analysis ERP 1 7 7 3 4 4
(12.5%) (87.5%) 0.240 (70.0%) (30.0%) 0.079 (50.0%) (50.0%) 0.000
Non-ERP 0 6 p=O.2877 5 3 p = 0.738 3 3 p = 1.0
(0.0%) (100.0%) (62.5%) (37.5%) (50.0%) (50.0%)
Activitybased budgets ERP 4 5 7 1 8 1
(44.4%) (55.6%) 0.163 (87.5%) (12.5%) 0.026 (88.9%) (11.1%) 0.272
Non-ERP 2 5 p = 0.505 6 1 p = 0.919 4 2 p = 0.313
(28.6%) (71.4%) (85.7%) (14.3%) (66.7%) (33.3%)
TABLE 6 (cont.): CROSS-TABUIATIONS OF INFORMATION !W!TEM INFLUENCES ON USE OF ‘NEW MANAGEMENT PRACI’ICES BY ERP AND NON-ERP USERS
Management accounting practice* . ERP status Provides incentive Provides relevant data Directly supports practice
YeS NO Kendan’sOaU-b YeS NO KendaU’stau-b YeS NO . Kendan’stau-b
Onepage monthly reports ERP 3 3 7 7 5 1
(50.0%) (50.0%) -0.250 (50.0%) (50.0%) 0.OOO (83.3%) (16.7%) -0.289
Non-ERP 3 1 p = 0.404 5 5 p = 1.0 5 0 p = 0.274
(75.0%) (25.0%) (50.0%) (50.0%) (100.0%) (0.0%)
Value-based management systems ERP 6 6 6 3 3 3
(50.0%) (50.0%) O.OO0 (66.7%) (33.3%) -0.141 (50.0%) (50.0%) O.OO0
Non-EW I 3 3 D = 1.0 4 1 D = 0.577 2 2 D = 1.0
(50.0%) (50.0%) (80.0%) (20.0%) (50.0%) (50.0%)
Product liiecycle analysis ERP 1 4 5 3 4 1
(20.0%) (80.0%) 0.258 (62.5%) (37.5%) 0.102 (80.0%) (20.0%) 0.632
Non-ERP 0 2 p = 0.299 1 1 p = 0.753 0 1 p = 0.190
(0.0%) (100.0%) (50.0%) (50.0%) (0.0%) (100.0%)
Balanced scorecards ERP 5 5 4 1 3 1
(50.1%) (50.1%) O.OO0 (80.0%) (20.0%) -0.316 (75.0%) (25.0%) 0.091
Non-ERP I 4 4 p = 1.0 4 0 Q = 0.265 2 1 p = 0.811
(50.0%) (50.0%) (100.0%) (0.0%) (66.7%) (33.3%)
Corporate infrastructure resource ERP 1 0 1 1 1 0
management (100.0%) (0.0%) 1.OO0 (50.0%) (50.0%) 0.OOO (100.0%) (0.0%) 0.250
Non-ERP 0 2 p = 0.014 4 4 p = 1.0 3 1 p = 0.361
(0.0%) (100.0%) (50.0%) (50.0%) (75.0%) (25.0%)
One-day financial reports ERP 3 2 6 6 6 6
(60.0%) (40.0%) -0.316 (50.0%) (50.0%) O.Oo0 (50.0%) (50.0%) O.OO0
Non-ERP 1 0 p = 0.273 2 2 p = 1.0 2 2 p = 1.0
(100.0%) (0.0%) (50.0%) (50.0%) (50.0%) (50.0%)
Valuechain analysis ERP 3 3 1 3 1 2
(50.0%) (50.0%) O.OO0 (25.0%) (75.0%) -0.250 (33.3%) (67.7%) 0.408
Non-ERP 2 2 p = 1.0 1 1 p = 0.552 0 2 p = 0.23
(50.0%) (50.0%) (50.0%) (50.0%) (0.0%) (100.0%)
Operations research techniques ERP 1 1 3 1 1 0
(50.0%) (50.0%) O.Oo0 (75.0%) (25.0%) 0.258 (100.0%) 0 .0%) 0.577
Non-ERP 4 4 p = 1.0 2 2 p = 0.450 1 2 p = 0.157
(50.0%) (50.0%) (50.0%) (50.0%) (33.3%) (66.7%)
Credit diaries ERP 1 1 3 0 3 0
(50.0%) (50.0%) 0.167 (100.0%) (0.0%) 0.447 (100.0%) (0.0%) 0.447
Non-ERP 1 2 p = 0.709 2 1 p = 0.221 2 1 p = 0.221
(33.3%) (66.7%) (66.7%) (33.3%) (66.7%) (33.3%)
use recent innovations in management accounting
practices. We first examined whether ERP users use
more “new” management accounting practices than
non-ERP users. Cross-tabulations of their responses
are summarised in Table 5.14
Table 5 indicates the wideranging use of the “new”
management accounting practices considered in our
survey. As would be expected, well-accepted practices
such as financial and non-financial performance mea-
sures were most used (more than 85%),with moder-
ate use for innovations such as activity-based budgets
(45%)and onepage financial reports (44%),and fairly
low levels of use for less well-known practices such as
valuechain analysis (22%) and credit diaries (16%).
However, consistent with the findings from the prior
qualitative case studies, the analysis shows that there
are few differences in the relative use of each of the
management accounting practices between ERP and
non-ERP users. The two exceptions are corporate
infrastructure resource management and non-finan-
cia1 KPIs. While, as predicted, non-financial KPIs are
used more by ERP users than by non-ERP users, the
reverse is true for corporate infrastructure resource
management. Thus, in terms of the “use” of a prac-
tice, having ERP systems does not seem to have any
significant effect on the patterns of adoption of innov-
ative management accounting practices.
However, it is possible that while ERP systems do
not lead to greater relative use of innovative manage
ment accounting practices, they still play a role by prc-
viding better information access and support for the
practices an organisation uses, and in some cases by
incorporating the practice in the software (Granlund
and Malmi 2000). We examined this by asking organi-
sations whether their ERPs or similar integrated sys-
tems were an incentive for adoption, whether they p r e
vided relevant data and whether the package directly
supported the practice. Cross-tabulations of ERP
users and non-users are summarised in Table 6.15
As found for relative usage, there were few signifi-
cant differences between the ERP users and non-
users in terms of whether they believed their infor-
mation system provided an incentive, relevant data or
directly supported the practice. The only significant
differences were for incentive provision, with varying
responses for corporate infrastructure resource man-
agement and non-financial key performance indica-
tors. The former has too few responses to interpret,
but the latter indicates that ERP systems did provide
some users with an incentive to increase their use of
non-financial performance indicators.
CONCLUSIONS
This paper reported the results of the first quantitative,
cross-sectional study of the impacts of ERP systems on
information systems integration, the perceived quality
of the organisation’s information system, and the use of
“new” management accounting practices. These
important issues, which have only recently attracted
the attention of accounting researchers, represent
what may be one of the most significant areas of
change in accounting practice over the past 10 years.
16 AUSTRALIAN ACCOUNTING REVIEW
Our findings for information integration indicate
that most ERP users believe they are achieving high
levels of information integration. However, relatively
few reach the full information integration that ERP
systems are technically capable of delivering. This out-
come was unexpected, but there are several plausible
explanations. One would be the well-documented diffi-
culties in implementing and “bedding down” ERP sys-
tems (for example, Davenport 1998, Scapens, Scapens
and Jazayeri 1998, Schneider 1999, Slater 1998). Other
possible explanations are that ERP users are not in
fact using this sophisticated feature of modern infor-
mation system architectures, or that they had put
them in place only recently and are yet to realise the
information integration benefits that can be achieved
(Granlund and Malmi 2000, Maccarrone 2000).
What makes this finding more surprising is that non-
ERP users reported a similar pattern of achieved levels
of information integration. This could be explained by
legacy information systems being integrated through
customised interfaces and/or modern middleware
solutions. On the surface, this suggests that ERP sys-
tems deliver few benefits over legacy systems in infor-
mation integration. However, an alternative plausible
explanation is that ERP users are not aware of, or are
not using, the advantages of the more flexible ERP inte
gration solution. In all, our findings suggest that first
understanding and then exploiting the technical infor-
mation integration advantages of ERP systems may be
difficult in practice. The prior research on ERP sys-
tems (Fahy and Lynch 1999, Granlund and Malmi
2000, hdvall2000, Maccarrone 2000) has tended to
ignore or underestimate this issue.
The recent qualitative case studies of ERP use (Fahy
and Lynch 1999, Granlund and Malmi 2000, Lindvall
2000, Maccarrone 2000) provided some insights into
ERP impacts on information system quality. They
found that ERP systems provide general benefits such
as increased transaction-processing efficiency, higher
quality and accessibility of information and greater sup
port for ad hoc reporting. Our findings also suggest
that ERP users believe that their systems have provid-
ed them with higher quality information systems.
Their ERP systems are perceived as providing all-
round better support for planning and decision-mak-
ing, higher quality reporting and organisational flexi-
bility and efficiency. They are also very satisfied with
the quality of their systems for transaction-processing
for finance, financial and management accounting func-
tions. These benefits can be seen as arising from the
greater process standardisation, efficiency and
automation of ERP systems, which are the state-of-the
art in terms of high-volume “transaction engines”.
In addition, our findings indicate that ERP users are
highly satisfied with reporting and decision support
for finance and financial accounting, but slightly less
so for transaction processing. However, they believe
that reporting and decision support are only adequate
for management accounting. This is similar to the
findings in prior qualitative studies that ERP systems
have had little impact on the business analysis and
decision-support areas of management accounting. It
seems that the current generation of ERP systems
provide a better platform for the reporting and deci-
sion-support needs of firms, but that they do not
directly provide a solution for these needs. This view
is consistent with Fahy’s (2000) arguments that
recent developments in strategic enterprise manage-
ment software, designed to sit on top of ERP systems,
are a recognition that ERP systems by themselves
have limited capacities to meet such needs.
Fially,the qualitative ERP case studies found that the
use of ERP systems appears to have had only a small
effect on the use of new management accounting prac-
tices that emphasise sophisticated manipulation of infor-
mation rather than simply extracting and reporting
transactional data Our Sndings also indicate almost no
support for the proposition that ERP systems lead to the
greater use of these practices. However, as many other
innovation drivers could influence such decisions, the
simple analysis used here and in the case studies should
be interpreted with caution. Our findings suggest that
simply having an ERP system is not sufficient to lead to
greater use of new management accounting practices.
This does not lead to any direct conclusion about
whether ERP systems are better able to support such
innovations. A more detailed examination of the role of
ERP systems in innovations in management accounting
practices was beyond the scope of this study.
A simple conclusion from our findings and from the
prior case studies is that ERP systems are capable of
delivering significant benefits to organisations. The
most significant benefits are in having more integrat-
ed transaction-processing systems that provide high-
er-quality and more accessible information for ad hoc
analyses. However, this only provides a platform for
the development of better reporting and decision-sup
port systems. Delivering on these higher-order infor-
mation system needs requires significant additional
value-adding effort by managers in organisations with
ERP systems, and may also require the use of more
advanced software solutions.
ERP systems are not a panacea for an organisa-
tion’s information system concerns, but they are a
useful first step. Nevertheless, it should be noted that
many of those organisations responding to our survey
without ERP systems also believed that their informa-
tion systems were delivering equal value. Thus, it
should be kept in mind that there might be other solu-
tions that could meet the information system needs of
organisations.
Peter Booth, Zoltan Matolcsy and Bernhard Wieder are
in the School of Accounting, Uniuersio of Technoloa,
Sydna Bze authors thank participants at the Bzird
European Conference on Accounting Information
Systems, Munich, and the School ofAccounting Seminar
Series, UTS, for comments on this research project, and
the School ofAccountingResearch Fund, UTS, forfinan-
cia1 support.
NOTES
ERP systems are now also rapidly becoming the
standard in medium-sizedorganisations as the user
interfaces are made more user-friendly and stan-
dardised implementation protocols are available.
This report does not indicate the size of firms
included in the survey, but the authors’ knowl-
edge of major ERP vendors’ sales patterns during
the 1990swould suggest that only large Australian
firms were surveyed.
The same is true for the management and infor-
mation systems literatures. Except for a limited
number of authors such as Davenport, reference
to ERP systems has been almost nonexistent until
the past couple of years (Klaus, Rosemann and
Gable 2000). Also, Klaus et al indicate that about
30%of the work that has appeared has focused on
the relatively narrow area of ERP implementation.
See also Rosemann and Wiese (1999) for an IS
paper that proposes that the balanced scorecard
can be used to evaluate the implementation and
use of ERP systems.
Fahy (2000) also addresses the impacts of inte-
grated information systems on management
accounting, but in the context of more recent
developments in strategic enterprise management
software that sits on top of ERP systems. Thus, it
is not reviewed in detail in this paper.
Note that the references to ERP implementation
failures refer more to implementationprojects run-
ning overtime and budget than to failure to deliver
an operating system. These have been less com-
mon in recent years as implementationconsultants
have become more skilled and have a wider range
of implementation experiences to draw on, and
ERP vendors have developed more customised
solutions and implementation procedures.
Lindvall (2000) proposed that the tendency for
harmonisation across operations was more around
an industry dimension, as industry solutions s u p
porting fundamentally different business process-
es force both homogeneity for ERP users within an
industry and heterogeneity between industries.
IncNet Australia provides commercially available
databases covering the leading 15,000public and pri-
vatesector organisations in Australia as determined
by employee size, revenue and selected other crite
ria. Information is available on around 30 different
managerial functions for each organisation.
While ERP systems are the best-known form of
integrated information system, it is possible to
achieve information integration by other means.
For example, middleware software platforms may
enable disparate best-of-breed systems to be inte-
grated to a reasonable degree.
10 Respondents were also free to add other practices.
No other practices were added, indicating that the
suggested list was relatively complete.
11 As the integration measure is ordinal, Kendall’s
tau-b is used to test for any signi!icant differences
AUSTRALIAN ACCOUNTING REVIEW 17
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