The impact of ERP implementation on organizational capabilities and firm performance

Purpose – The purpose of this paper is to examine whether the implementation of ERP impacts both business strategy and organizational capabilities which in turn enhance firm performance. Specifically, the paper investigates the mediating effect of business strategy and organizational capabilities on the relationship between ERP implementation and firm performance. Design/methodology/approach – Using secondary data collected from more than 400 firms, this study tests the relationships among these variables. Findings – ERP implementation has a positive impact when a firm employs a prospector business strategy. A prospector business strategy enhances the firm's ability to achieve organizational capabilities and enables the firm to achieve higher levels of financial performance. Practical implications – ERP implementation encourages and supports a prospector strategy. ERP not only supports cost control, but also supports new product development and introductions. The prospector firm seeks better information to support decision making, develop new and innovative products that drive revenue growth, and build efficient and effective operations that enhance return on assets. Originality/value – This paper reports the mediating effect of business strategy and organizational capabilities on the relationship between ERP implementation and firm performance. This study uses cybernetic control, resource‐based view of firm, and dynamic capabilities theories to develop and integrate this research.