Delivering improved IT enabled business capabilities through IT projects, such as Enterprise Resource Planning (ERP) adoptions, remains difficult and often unsuccessful. Many organizations seem to be unprepared to successfully plan and implement their IS/IT investment strategies, which usually have far-reaching consequences for how the entity is structured and conducts its business functions (Chen, 2001). Many ERP adoptions lead to partial successes or even abandonments prior to completion (Barker and Frolick, 2003 and Dawson and Owens, 2008). Only 13% of firms characterized their ERP adoption as meeting their expectations in improving business processes or delivering the expected business value, with more than 50% of firms rating their ERP adoption as unsatisfactory (Panorama Consulting Group, 2009). In view of such high failure rate, both researchers and managers continue to seek evidence on the organizational characteristics that can foster success of ERP adoption.
Many prior studies have focused on the implementation project capabilities to improve how ERP is adopted in organizations. Specific IT project related criteria such as poor schedules, weak project management, and insufficient user involvement have been highlighted as critical failure factors in ERP implementations (Wong et al., 2005). Project management practices such as resource allocation, scope and risk management, and stakeholder involvement contribute to the success or failure of ERP adoptions (Chen et al., 2009). A less developed stream of research has highlighted the important role of organizational pre-adoption characteristics such as the planning capabilities including evaluation, decision making, budgeting, and strategy justification (Chen, 2001). These capacities are needed to recognize the value of new external information, to assimilate and apply it to generate business value (Cohen and Levinthal, 1990). However, it is still unclear how these and other pre-adoption capabilities directly and indirectly relate with improved IT enabled business capabilities.
Against this backdrop, we seek to gain a better understanding of how IT enabled business capabilities are influenced by selected ERP pre-adoption capabilities. Our research model includes the implementation project as a mediator by which the pre-adoption capabilities affect business value development. We therefore link IS/IT benefit development with the business transformation inherent in ERP project and explore the project's mediating role as the central mechanism. By doing so, we directly address the concern that a direct-effect model exploring capabilities–performance hypothesis is overly simple and neglect the important transformation characteristics internal to the organization (Garrido-Moreno and Padilla-Meléndez, 2011).
Theoretically, the management and IS literature provide a rich set of dynamic capabilities conceptions that enable organizations to improve business resources. Among these frameworks, our literature review offers a three-tier classification of “inside-out”, “outside-in”, and “spanning” capabilities (Wade and Hulland, 2004). For the fieldwork, we considered one capability from each of these domains by investigating the effects of external information acquisition as “outside-in” capability, decision making methods as “inside-out” capability, and IT governance as “spanning” capability. A quantitative empirical survey of 57 large Austrian ERP adopters serves as the primary data source.
This study offers three key contributions to the ERP adoption literature.
1
The paper introduces three distinct dynamic pre-adoption capabilities (external information acquisition, IT decision making, IT governance) needed for ERP implementation and relates these with contemporary taxonomies of dynamic capabilities.
2
The paper suggests project management as a missing link in the sense of a dynamic transformation capability to fully exploit the dynamic pre-adoption capabilities. It thereby offers a better understanding of relationships between dynamic capabilities, which are often missing in prior research.
3
It highlights the positive effects of each considered dynamic capabilities on ERP enabled business capabilities based on primary survey data. Moreover, we show that the positive effects of external information acquisition and IT governance depend on the implementation project as a mediator in the sense of a generative mechanism.
The main contribution of this paper is to explicate the
project process that potentially
underlies the positive associ-
ation between dynamic capabil
ities and ERP enabled business
capabilities. The findings show that the capacity for external
information acquisition proje
ct and IT governance mecha-
nisms influence ERP enabled bu
siness capabilities indirectly
by the ERP implementation proj
ect. Thus, the transformation
project as mediator serves to clarify the relationships betweenthose two dynamic capabiliti
es and ERP enabled business
capabilities. In terms of decisio
n making as the third capability
in our model, we could not confirm the same mediational
relationship. Decision making
exhibits a direct positive
association with ERP enabled b
usiness capabilities, but no
indirect relationship. Prior res
earch, to our knowledge, has not
yet provided the same analysis. The results advance our
understanding about the nature and direction of these relation-
ships, and we call for more research on co-presence conditions
related to dynamic capabilities a
nd transformation projects.
Next, we will discuss these findi
ngs and implications in more
detail.
The influence of
externalinformation acquisition
is dependent
on the performance of the ERP adoption project (supporting
H1
—
indirect effects). Theoretically, this finding adds to our
understanding about the critical ability of organizations to exploit
external knowledge (
Cohen and Levinthal, 1990
)byimplying
that external information gained at ERP project initiation should
be assimilated and exploited by the ERP implementation project
in order to generate ERP enabled business benefits. An effective
ERP project seems to offer the transformative and exploitative
learning and development processes that need to take place to
utilize external information for business value delivery (
Lane et
al., 2006
). External information acquisition seems to be most
regularly supported by vendor-driven information channels and
consultants. This suggests the information acquisition capability
for ERP may be a function of a dominating external gatekeeper's
role that facilitates the transfer of external information into the
ERP project and across the firm's internal boundaries. More
research is needed to investigate the roles and capacities of
project information integration and subsequent organizational
absorptive capacities.
Also in regard to our
IT governance
construct, the ERP project
as transformation process seems to be a full mediator for achieving
improved ERP enabled business capabilities (supporting H3
—
indirect effects). This finding can be explained by previously
identified linkages between governance and project success.
Governance structures are essential for organizational learning in
the context of technology sourcing (
Siriram and Snaddon, 2004
),
foster IT project success (
Bowen et al., 2007
), and may help
reduce conflicts and contradictions in ERP adoptions (
Besson and
Rowe, 2001
). The finding justifies more research into this
connection. Future study may investigate the constituent IT
governance elements (
Sohal and Fitzpatrick, 2002
), and their
properties and effect on IT program and project management
(
Verhoef, 2007
). Such a study improves understanding on how IT
governance effectively connects with the management of IT
driven business transformation projects.Analytical capacities reflected by
decision making
approaches
are found to have a positive direct relationship with ERP enabled
business capabilities only. They do not seem to be mediated by
project performance (supporting
Hypothesis 2
—
direct effects
only). In other words, the utiliz
ation of decision making methods
impacts business outcome regardle
ss of the transformation project.
We conceptualized decision making approaches in accordance to
two broad streams of research in the area of decision making
methods, where one focuses on mainstream financial accounting
and economics, and the other on a wider inclusion of subjective
and perceptual measures from behavioral science (
Davern and
Wilkin, 2010
).
Higher project performance is associated with better devel-
oped ERP enabled business capabilities (supporting
Hypothesis
4
). This hypothesis is a pre-condition for any mediation effects to
occur. ERP project performance metrics present a picture of
many successful ERP projects with high but not complete scope
achievements, good levels of plan performance and good levels
of achieved system related qualities. Consequently, we find that
management practice wishing to leverage business value from IT
should appreciate the value-generating mechanisms found in the
IT project. Prior research noted that the relationship between
dynamic capabilities and firm performance is mediated by
capability development (
Wang and Ahmed, 2007
). In our
study, capability development is achieved by the ERP imple-
mentation project when it comes to IT governance and external
information acquisition capacities. The generative transformation
mechanism of the IT project is needed to create value from these
“
spanning
”
and
“
outside-in
”
capabilities. Both capabilities tend to
be less transparent and not easily replicated since they are based
upon complex relationships between different stakeholders.
In general, firms seem to require the co-presence of other
complementary organizational resources (
Doherty and Terry,
2009
) and different capabilities exhibit different natures of
influences. This implies that the presence of a well developed
program/project management capability is a necessary (but most
likely not sufficient) condition for ERP enabled business valuegeneration. The well functioning communication systems needed
for effective ERP projects (
Johannessena and Olsenb, 2011
)
could be one reason why they influence the effects of dynamic
capabilities such as IT governance (
Huang et al., 2010
).
Finally, we need to acknowledge limitations of this study. A
common problem in empirical quantitative research is reliability,
in particular in relation to mediation models. We controlled
reliability with the following measures. As a start we used
random sampling procedures to ensure a good representation of
all targets and applied pre-tests. The conducted non-response bias
did not reveal any evidence of bias. We could not avoid the use of
a mono method and single respondent strategy in the survey,
which however is common in many studies of similar designs
(e.g.
Fink and Neumann, 2009
). Therefore, we strictly controlled
the role of the target person and semantically linked the relevant
questions to the ERP project, which is a more perceivable unit of
analysis than the whole organization. The interviewees for this
study were IT managers, which may have assessed ERP-related
benefits more highly than general managers. However, contem-
porary studies on ERP benefit perceptions report very similar
perceptions by IT and general management staff. This empirical
observation was partly explained by the increasing pervasiveness
of IT in the modern business (
Chang, 2006
). Also, the majority of
our sample firms come from the manufacturing sector. Further
studies may consider to investigate ERP benefits in specific
industrial sectors such as shipping and transport (
Ng et al., 2013
),
where IT is an important part of their operations. Our latent-
variable structuring approach requires multiple operational-
izations of each construct, which is seen to be more reliable
than single-indicator measurements especially in mediation
models (
Baron and Kenny, 1986
). Due to the breadth of the
subject, future study need a cumulative research strategy to better
understand how to generate value from interconnected dynamic
capabilities. More work is needed towards a validated and
converged capability framework for IT to make it easier for
management to identify how and where to begin with controlling
and optimizing IT-enabled business transformations
