Enterprise Systems and Labor Productivity: Disentangling Combination Effects

Company-wide packages of enterprise software for planning and controlling business processes, referred to as enterprise systems, are widely used in many different industries throughout many countries around the world. The economic literature has provided evidence indicating that the adoption and usage of enterprise systems has positively affected firms’ labor productivity. However, the three main enterprise systems Enterprise Resource Planning (ERP), Supply Chain Management (SCM) and Customer Relationship Management (CRM) have different impacts on productivity. In addition, the three systems might function as compliments or substitutes because of interacting functions and the usage of similar databases. Therefore, the productivity effects of the software applications might turn out to be even more heterogeneous if a firm uses more than one system at a given time.

This paper studies the relationship between enterprise systems and labor productivity. The analysis is based on a production function and focuses especially on productivity impacts due to the adoption of more than one enterprise system at a given time. Moreover, the analysis verifies the existence of complementarity or substitutability between the three different enterprise systems. The basis of the analysis is a German enterprise data set, containing enterprises of different industry branches from the manufacturing and service sector.

The results confirm the expected positive influence of the enterprise systems on labor productivity. In addition, a robust significant complementarity relationship between SCM and CRM is confirmed, especially if the necessary IT-infrastructure is provided through an ERP system. Thus firms which use all three enterprise systems together realize the highest productivity gains.

Engelstätter, Benjamin (2009), Enterprise Systems and Labor Productivity: Disentangling Combination Effects, ZEW Discussion Paper No. 09-040, Mannheim.