The critical success factors for ERP implementation: an organizational fit perspective

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Abstract

Since early 1990s, many firms around the world have shifted their information technology (IT) strategy from developing information systems in-house to purchasing application software such as enterprise resource planning (ERP) systems. IT managers responsible for managing their organization’s ERP implementation view their ERP systems as their organizations’ most strategic computing platform. However, despite such strategic importance, ERP projects report an unusually high failure rate, sometimes jeopardizing the core operations of the implementing organization. This study explores the root of such high failure rate from an “organizational fit of ERP” perspective. Based on the relevant literature, we define the concept of organizational fit of ERP and examine its impact on ERP implementation, together with ERP implementation contingencies. The results from our field survey of 34 organizations show that ERP implementation success significantly depends on the organizational fit of ERP and certain implementation contingencies.

Introduction

Under the pressure to proactively deal with the radically changing external environment, many firms have changed their information system (IS) strategies by adopting application software packages rather than in-house development [12], [25]. An application package such as enterprise resource planning (ERP) system is one solution to the information technology (IT) industry’s chronic problems of custom system design: reduced cost, rapid implementation, and high system quality [28]. Although application packages have these benefits over custom design of applications, packaged software has problems of their own: uncertainty in acquisition [14] and hidden costs in implementation [29].

In a survey of the IT managers responsible for managing their organization’s ERP projects, two-thirds of the respondents viewed their ERP systems as their organizations’ most strategic computing platform [47]. Despite such perceived importance, it was reported that three quarters of the ERP projects were judged to be unsuccessful by the ERP implementing firms [13]. What makes ERP implementation so unsuccessful? Swan et al. [46] argued that the root of such high failure rate is the difference in interests between customer organizations who desire unique business solutions and ERP vendors who prefer a generic solution applicable to a broad market. Such conflicting interests led us to explore an organizational fit perspective of ERP implementation.

An important criterion used in selecting an ERP system is the ERP fit with the current business processes [9]. Although the fit between ERP and the organizational context is believed to be critical for successful ERP implementation, few examined the organizational fit issues of ERP empirically. Soh et al. [44] suggested that the organizational fit of ERP might be worse in Asia, because the reference process model underlying most ERP systems is influenced by European or US industry/business practices, which are different from Asian business practices.

The relative invisibility of the ERP implementation process is also identified as a major cause of ERP implementation failures [13]. Markus and Robey [33] attributed such invisibility to the unpredictably complex social interaction of IT and organization. The critical challenge of ERP implementation is believed to be the mutual adaptation between the IT and user environment [49]. Such mutual adaptation process brings the organization’s existing operating processes and the packaged software’s embedded functionality into alignment through a combination of software configuration and organizational change [49]. But there are conflicting views on which type of adaptation, package adaptation or organizational adaptation, is more desirable in the different contexts.

ERP diffusion agencies including ERP vendors and consulting firms recommend strongly that ERP projects embody the universally applicable ‘best practice’ and should be implemented without extensive adaptation of the packaged software [1]. In contrast, some academics maintain that the notion of ‘best practice’ is illusory and potentially disruptive because ERP does not provide models for every process of every industry and most firms usually reconfigure or add new functionality to ERP systems for optimal use within their unique context [46].

Besides, since ERP philosophy is process-based, rather than function-based, ERP necessitates disruptive organizational changes [17], [49], [50]. Successful ERP implementation must be managed as a program of wide-ranging organizational change initiatives rather than as a software installation effort [18]. Such IT-driven initiatives require change of the organization’s socio-technical system, which is intertwined of technology, task, people, structure, and culture [7]. Thus organizational resistance to change is identified as a critical success factor for ERP implementation [26], [34]. In this study, we define the concept of organizational fit of ERP and empirically examine its impact on ERP implementation success along with the moderating roles of ERP implementation contingency variables such as ERP adaptation, process adaptation, and organizational resistance.

This paper is organized in five sections. First, ERP related literatures are reviewed. The next section introduces the research model and hypotheses. Research methodology is then described, followed by the presentation of the results. The paper concludes with the discussion of the research findings and implications for future research and practice.

Section snippets

Organizational fit of ERP

Because of the multiplicity of the organizational dimension, researchers studying IS contingencies have typically focused on the fit between specific organizational dimension and IS [21], [23]. In a review of the IS contingency research, Weil and Olson [51] found that over seventy percent of the studies followed a model assuming that the better the fit among the contingency variables, the better the performance. They categorized the contingency variables of interest to IS researchers into

Research model and hypotheses

This study examines the relationship between the organizational fit of ERP and ERP implementation success. The effects of three implementation contingencies on this relationship are explored as moderating variables. The research model is illustrated in Fig. 1 and discussed below.

Sample and data collection

The target of this study was the organization that has implemented ERP. We used the key informant method for collecting information on a social setting by interviewing (or surveying) a selected number of participants. Fifty firms were identified from the lists provided by the ERP vendors. We contacted the ERP project managers in charge of ERP implementation in each firm. About 350 survey questionnaires were sent to the ERP project manager of each firm, who forwarded our questionnaires to

Results

The correlation matrix between variables is presented in Table 5. A common concern of any regression analysis is the multi-collinearity that may exist among the independent variables [16]. In our model, multi-collinearity is not a problem since we have only one independent variable. Correlations among the proposed moderating variables do exist but would not pose a serious problem since their values are less than 0.5 [16] and each of them will be analyzed separately. The results from the normal

Discussion

Although ERP implementation has been one of the most significant challenges for IS practitioners in the last decade, relatively little research has been conducted about ERP implementation [49], [50]. In the previous section, we found that organizational fit of ERP has a significant effect on ERP implementation success. It was also found that while ERP adaptation is a quasi-moderator of the base relationship between organizational fit of ERP and ERP implementation success, process adaptation

Limitation and conclusions

There are many limitations in this study. First, we focus on a limited number of variables for ERP implementation success. More relevant variables associated with ERP implementation, for example, project team competence, may be added to improve the understanding of ERP implementation success. Second, we only used perceived project metrics in defining implementation success, leaving out factual aspect of success outcome in the IS research. This was due to the difficulty in securing the factual

Kyung-Kwon Hong is a doctoral candidate at the Graduate School of Management of the Korea Advanced Institute of Science and Technology (KAIST) in Seoul. He received his BS and MS degrees in Industrial Engineering from the Hanyang University and KAIST, respectively. He has worked for Korea Telecom during 10 years. His research interests include Packaged Software Implementation, Information Systems Innovation, and Knowledge Management.

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    Kyung-Kwon Hong is a doctoral candidate at the Graduate School of Management of the Korea Advanced Institute of Science and Technology (KAIST) in Seoul. He received his BS and MS degrees in Industrial Engineering from the Hanyang University and KAIST, respectively. He has worked for Korea Telecom during 10 years. His research interests include Packaged Software Implementation, Information Systems Innovation, and Knowledge Management.

    Young-Gul Kim is an Associate Professor at the Graduate School of Management of the Korea Advanced Institute of Science and Technology (KAIST) in Seoul. He received his BS and MS degrees in Industrial Engineering from Seoul National University, Korea and his PhD degree in MIS from the University of Minnesota. His active research areas are: Knowledge Management, IT Management, Data and Process Modeling and Customer Relationship Management. He has published in Communications of the ACM, Information and Management, Journal of MIS, Decision Support Systems, Database, etc.

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