Performance effects of using an ERP system for manufacturing planning and control under dynamic market requirements

Enterprise resource planning (ERP) systems have a controversial reputation. Critics say that even if ERP systems may be beneficial for organizations operating in stable conditions, they are surely detrimental to organizations that face dynamic market requirements. This is because ERP systems are said to impose such procedures and constraints on organizations that make business processes inflexible to change. In contrast, proponents argue that the information‐processing capabilities of ERP systems are crucial for organizations that face dynamic market requirements and also that the criticized procedures and constraints actually support process reengineering. These two contradictory arguments are often found in practitioner literature, but both of them can also be supported by management theory. The central tenets of the Organic Theory of organization design imply that ERP systems should be detrimental when market requirements change frequently, whereas the principles of Rigid Flexibility Theory suggest that they should be advantageous. In this study, we use cross‐sectional data from 151 manufacturing plants to determine which argument is more applicable in the context of manufacturing planning and control. The results strongly favor the use of ERP systems under dynamic market requirements. To facilitate the reconciliation of the two contradictory arguments, we discuss how the results may have been influenced by two contextual factors: the predominantly technical nature of the studied organizational system and the tight interdependence of the studied activities.