The Direct and Indirect Effect of Enterprise Resource Planning System Implementation on Firm Performance through the Organizational Capabilities as a Mediator

Abstract

In the midst of rapidly changing business environment and technological advancement, ERP becomes the solution for companies to improve efficiency and effectiveness by integrating existing system thus that companies can increase their performance. Using RBV approach, companies can properly manage their resources through the organizational capabilities also play an important role in improving firm performance. This paper aims to examine the effect of ERP system implementation on firm performance both directly and indirectly through the organizational capabilities as intervening variable at manufacturing companies listed on Indonesia Stock Exchange period 2013-2017 which consists of 100 samples of ERP Adopters and Non-Adopters. The conceptual model in this study tested and analyzed using PLS-based SEM. The results showed that the implementation of ERP system has significant effect on firm performance and organizational capabilities. Organizational capabilities also have significant effect on firm performance. In addition, organizational capabilities have proven to mediate the relationship between ERP system and firm performance. This shows that the implementation of ERP system makes the information system to be integrated thus it enable companies to be more efficient and will affect the organizational capabilities in maximizing the utilization of company resources that ultimately can improve the firm performance.

The Influence of Enterprise Resource Planning (ERP) Implementation System on Company Performance Mediated by Organizational Capabilities

“…However, they failed to find evidence that ERP implementation affected organizational capabilities and organizational capabilities on financial performance. In contrast to Suhendra et al (2019), they succeeded in showing ERP systems' implementation as significant to company performance and organizational capabilities. Furthermore, organizational capabilities also significantly influenced company performance, and organizational capabilities were proven to mediate the relationship between ERP systems and company performance.…”

“…This study is different from the research of Suhendra et al (2019) because it used sample selection criteria of the application of ERP keywords with "Enterprise Resource Planning" or ERP, while this study expanded the search by adding vendor keywords, such as SAP, Oracle, Peoplesoft, and others (Lu, & Jinghua, 2012) so that the sample criteria obtained were broader, and it is expected that the research also reveals different results. Furthermore, this study added to the year of observation to 2018 compared to previous studies.…”

“…Organizational capabilities can determine how an organization or company gains advantages over other organizations, and organizational capabilities can increase the impact of resource management that the company has (Rehman et al, 2019). Suhendra et al (2019) also revealed that organizational capabilities as a mediator could provide good value information in the relationship between ERP system implementation and company performance.…”

“…However, in Indonesian companies themselves, there are still differences in research findings. Some proved that ERP implementation could not improve company performance in terms of ROA and NPM (Kristianti & Achjari, 2017), while the rest revealed that ERP could improve company performance in terms of ROA, ROE, and NPM (Suhendra et al, 2019). It indicates that there are still inconsistencies in research results that identify the impact of ERP implementation on performance in Indonesia.…”

“…Organizational capabilities are used as a mediating variable because they can determine how an organization or company gets an advantage over other companies, and organizational capabilities can increase the impact of utilizing the company's resources on its performance (Rehman, Mohamed, & Ayoup, 2019). Suhendra, Filandari, Indrayani, and Maulana (2019) also revealed that organizational capabilities as a mediator could provide good value information in the relationship between ERP system implementation and company performance. Thus, organizational capabilities have a mediating role in increasing the impact of ERP system implementation on company performance.…”