The implications of real options on ERP-enabled adoption

Current research on Enterprise Resource Planning (ERP) systems and real options focuses on valuation and justification issues that manager's face prior to project approval with existing literature attempting to demonstrate that ERP systems as technology positioning investments have option-like characteristics thus making such ERP systems unique and different from many IS technologies. Although studies have recognized that an ERP implementation is not a one-shot approach, rather it is a dynamic process where post-adoption decisions play a significant role in successful deployment. Yet, research on post adoption decisions and ERP extensions has been largely ignored. This study adds to the theoretical development and furthers the existing literature by using real option reasoning as a tool to examine ERP-enabled technology adoption. The study goes beyond IT valuation and examines the factors that influence the exercising of these options embedded in the technology. Given that options are already part of the initial ERP deployment, this work extends research on ERP adoption by examining factors that will influence the perceived relative advantage of subsequent technology as well as ERP-enabled adoption. Based on data collected from 549 MIS directors, this study empirically examines factors that will influence the perceived relative advantage of subsequent technology as well as ERP-enabled adoption. The results show that managerial flexibility and organizational ease of use influence the relative advantage of additional technologies. Furthermore, the result revealed that by applying formal real option analysis (ROA) as an evaluation technique during the initial ERP investment, firms can potentially deal with the high level of uncertainty associated with new additional technologies. Finally, the results indicate that organizational ease of use, organizational relative advantage and slack resources are key predictors of ERP-enabled adoption. This research contributes to academic literature in several ways. This research addresses a key theoretical gap in the adoption literature by integrating adoption decisions that go beyond the initial adoption. Using real options reasoning as a theoretical foundation this work explains the dynamic interplay where initial ERP systems create the platform for subsequent additional adoptions. Further, the study reveals key antecedents of organizational ease of use and organizational relative advantage that has been largely ignored by prior studies.