Wednesday, February 19, 2014

Enterprise Resource Planning's Role in Intellectual Captial

While teaching an intellectual capital management course I noticed some confusion are having over the role of enterprise resource planning (ERP) systems in intellectual capital. Some students are incorrectly categorizing ERP systems as a type of intellectual capital system; more specifically, a type of business intelligence (BI) system. In this post I will explain the relationship of ERP systems to intellectual capital systems in terms of the organization's processes as intellectual capital and as a type of BI system.

First, the role of ERP systems as an intellectual capital system for managing the organization's processes. One form of an organization's intellectual capital assets is its processes. The knowledge of these processes can be a strategic asset for the organization. ERP systems are used to standardize processes across the organization and this is where some confusion may exist. While ERP systems facilitate process standardization, these systems require adoption of more generic processes rather than unique processes organizations use to gain strategic advantage. The ERP systems are not used to develop innovative processes but rather the adoption of common processes and therefore are not contributing to the strategic process intellectual capital of the organization.

Secondly, the role of ERP systems as a type of BI system for supporting the development of new knowledge within the organization. ERP systems are transaction processing systems (TPS) used to conduct operational business in the organization. These systems yield large quantities of transactional data and this data can be used as an input source to enterprise data warehouses. However, the ERP systems themselves are not classified as a BI system since their primary role is transactional rather than informational. Additional tools can be used to make use of the transactional data but ERP systems are considered transactional systems with the potential of supporting BI practices.

It is clear that ERP systems contribute to developing an organization's intellectual capital but these systems are not intellectual capital systems by themselves. Organizational knowledge is very much associated with the development and implementation of these systems but, once in production, these systems primarily serve as transactional systems.