The critical success factors for ERP implementation:

The critical success factors for ERP implementation:

an organizational fit perspectiveInformation & Management 40 (2002) 25-40

2005. 04. 28Yunmi Lee

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ContentsContents

Introduction Theoretical Perspectives Research model and hypotheses Research method Results Limitation and conclusions

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1. Introduction1. Introduction

Information system (IS) strategies Developing information system In-house -> Purchasing applications software packages

Two thirds of ERP project managers ERP systems as organizations' most strategic computing platform But, three quarters of the ERP projects -> unsuccessful

What makes ERP implementation so unsuccessful? The difference in interests

• Customer organizations who desire unique business solutions • ERP vendors who prefer a generic solution applicable to a broad market

In this paper Defined: The concept of organizational fit of ERP Examined: Its impact on ERP implementation success empirically

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2. Theoretical Perspectives : Organizational fit of ERP (1/2)

2. Theoretical Perspectives : Organizational fit of ERP (1/2)

In a review of the IS contingency research, over seventy percent of the studies followed a model The better the fit among the contingency variables, the better the

performance

ERP misfit The firm-, or country-specific requirements that do not match the

capabilities of ERP The conflicting interests of user organization and ERP vendors

The concept of organizational fit The core research construct to explain the implementation

success in diverse IT implementation contexts.

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2. Theoretical Perspectives: ERP implementation contingencies (2/2)

2. Theoretical Perspectives: ERP implementation contingencies (2/2)

Two alternative approaches to the implementation of packaged software Package adaptation to organizational needs Organizational adaptation to the package

ERP implementation Business process change (BPC) and ERP adaptation to align the

software with the business processes ERP vendors: Process adaptation User departments of the customer organization: ERP

adaptation Table 1. Operational definitions of variables

Variable Operational definition

Implementation success The degree of deviation from project goal in terms of expected cost, time, system performance and benefits

Organizational fit of ERP The degree of alignment between ERP model and organization needs in terms of data, process and user interface

ERP adaptation The extent of efforts and time spending in ERP alteration to align with organizational process needs except for ERP customization

Process adaptation The extent of efforts and time spending in process change to align with ERP

0rganizational resistance The strength of negative organizational response to ERP implementation

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3. Research model and hypotheses: ERP implementation success (1/4)

3. Research model and hypotheses: ERP implementation success (1/4)

A critical challenge in ERP implementation First, identifying gaps between the ERP generic functionality and

the specific organizational requirement Then, deciding how these gaps will be handled

For the successful implementation of ERP A high level ERP implementation success measure is required Organizational fit of ERP is important

Research model

Hypothesis 1. Organizational fit of ERP is positively related to ERP implementation success.

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3. Research model and hypotheses: ERP adaptation (2/4)

3. Research model and hypotheses: ERP adaptation (2/4)

ERP adaptation Increases the feature-function fit between ERP and the adopting

organization ERP implementation success

Depends on the type and extent of ERP adaptation ERP adaptation types

ERP extensions ERP modification

The low level of ERP adaptation Organizational fit of ERP will be more strongly associated with ERP

implementation success.Hypothesis 2. There is an interaction effect of the level of ERP adaptation on the relationshipbetween organizational fit of ERP and ERP implementation success.

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3. Research model and hypotheses: Process adaptation (3/4)

3. Research model and hypotheses: Process adaptation (3/4)

Implementation of a packaged software Some of its organizational processes adapts to fit the basic

business practices Other organizational components and their interactions must be

changed together The adaptation of organizational process in BPC

It emphasizes the need to take account of the management of organizational change

Change management is the most critical source of BPC implementation

The low level of process adaptation Organizational fit of ERP will be more strongly associated with ERP

implementation successHypothesis 3. There is an interaction effect of the level of process adaptation on the relationship between organizational fit of ERP and ERP implementation success.

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3. Research model and hypotheses: Organizational resistance (4/4)

3. Research model and hypotheses: Organizational resistance (4/4)

ERP implementation Affect most of the company's business functions Influence users directly

Resistance to a change stems from Change in the job content Uncertainty of the new system

The organization and process changes Force involuntary changes Frequently lead to different power and resource allocations

The low level of organizational resistance Organizational fit of ERP will be more strongly associated with ERP

implementation success.

Hypothesis 4. There is an interaction effect of the level of organizational resistance on the relationship between organizational fit of ERP and ERP implementation success.

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4. Research method (1/5)4. Research method (1/5)

Sample and data collection Interviewing (or surveying) a selected number of participants Sending about 350 survey questionnaires to the ERP project

manager of each firm Collecting one hundred and six questionnaires from 34 firms

Measurement development Conducting a series of in-depth interviews Developing the questionnaire items Conducting a pilot study

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ERP implementation success Measuring in terms of the perceived deviation from the expected project goa

ls Organizational fit of ERP

Examining in terms of data, process, and user interface fit of ERP before or at the initial implementation period

Characteristics of respondent firms Consisting of 25 manufacturing firms and nine non-manufacturing firms Using four ERP products: SAP R/3, UniERP, Oracle ERP, and Bann BPCS

Content validity Establishing through the adoption of the relevant construct in the literature,

a series of reviews with the help of business process experts with deep ERP knowledge, and a pilot pretest

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Reliability The internal consistency reliability was assessed by calculating Cronbach's a

lpha values The reliability results of the constructs are summarized in the fifth column The internal consistency (Cronbach's alpha) of the construct range

• 0.75 (for implementation success) ~ 0.93 (for process adaptation) Given the exploratory nature of the study, the result seems acceptable

Table 2. Summary of reliability and validity of the measurement

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Construct validity By relating a measuring instrument to a general theoretical framework Convergent validity

• Evaluated the item-to total correlation, based on the correlation of each item to the sum of the remaining items

• The correlations for each of research variables whose item-to-total correlation score was greater than 0.4

Discriminant validity• Was checked by factor analysis• Was confirmed when items for each variables loaded onto single factors with loa

dings of greater than 0.5.

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The result of factor analysis (Table 3)

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5. Results (1/5)5. Results (1/5)

Correlations matrix between variables (Table 4)

Correlations among the proposed moderating variables do exist but would not pose a serious problem since their values are less than 0.5

Each of them will be analyzed separately Testing the base relationship

The base relationship between organizational fit of ERP and ERP implementation success

• Significant , supporting the Hypothesis 1• The value of R2 and adjusted R2 was 0.26 and 0.24, respectively• 24% of the implementation success variance is explained by the

organizational fit of ERP

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Testing the contingency relationships The typology of moderator variables

• Cell 1: An intervening, exogenous, antecedent, suppressor, or predictor variable depending on its other characteristics• Cells 2-4: Moderator variables

– Cell 2 : Homologizer. Influences the strength of the relationship between the predictor and

criterion variables across homogeneous subgroups– Cell 3: Quasi moderator. Not only interacts with the predictor variable but is a predictor variables itself– Cell 4: Pure moderator. Interacts with predictor variables while having a negligible correlation with the criterion itself

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Testing the contingency relationships (Table 5) The test results of the moderated regression effects

• The test results of the three moderating effects are summarized• First line: the results of the regression run without interaction• Second line: the results of the regression run with the interaction

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Result ERP adaptation

• The interaction term was significant at the level of 0.01• Hypothesis 2 : In the correlation matrix, ERP adaptation was negatively

correlated with both organizational fit of ERP (-0.58) and ERP implementation success (-0.49)

• -> quasi-moderator

Process adaptation • The interaction term was significant at the level of 0.01• Hypothesis 3 : In the correlation matrix, Process adaptation is neither

associated with organizational fit of ERP nor associated with implementation success

• -> pure moderator

Organizational resistance • There is no interaction effect• In the correlation matrix, Organizational resistance is negatively associated

with both organizational fit of ERP and implementation success -> not a moderator

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Result Summaries of the moderated regression analysis (Table 6)

Related to either criterion or predictor

Not related to criterion and predictor

No interaction

with predictor

Organizational resistance is not moderator

Interaction with

predictor

ERP adaptation is quasi-moderator

Processa daptationis is pure moderator

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6. Limitation and conclusions6. Limitation and conclusions

Limitation Focus on a limited number of variables for ERP implementation

success • Ex) Project team competence

Used perceived project metrics in defining implementation success• Leaving out factual aspect of success outcome in the IS research

Has a common method bias• Because the dependent variable and independent variables rated by the

same respondent.

Conclusion Many ERP vendors just ignore the organizational fit concept and urge blind

trust on ERP from their clients For successful ERP implementation, ERP implementation managers should be

able to assess the fit between their organization and the target ERP system before its adoption

Once adoption is decided, should measure and manage the impact of ERP and process adaptations from a risk assessment approach to minimize the potential business disruptions and user resistance

The critical success factors for ERP implementation:

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