Investigating the Impact of Organizational Culture on Enterprise Resource Planning Implementation Projects



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World Applied Sciences Journal 17 (9): 1125-1133, 2012 ISSN 1818-4952 IDOSI Publications, 2012 Investigating the Impact of Organizational Culture on Enterprise Resource Planning Implementation Projects 1 2 Shahin Dezdar and Sulaiman Ainin 1 Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia and Institute for International Energy Studies (IIES), Tehran, Iran 2 Department of Operations and Management Information Systems, Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur, Malaysia Abstract: The aim of this paper is to study the effect of organizational culture on ERP implementation. Empirical data was collected using a survey questionnaire which was distributed to ERP users in Iranian organizations. A total of 384 responses were collected and analyzed. A significant relationship was found between organizational culture and ERP implementation success. The more result-oriented, open system and employeeoriented an organization, the more likely ERP implementation will be successful. The outcomes of this study are useful to ERP vendors and consultants as they would be able to strategize future ERP implementation. Finally, the findings may be useful to ERP adopters in other Asian and developing countries. Key words: Enterprise Resource Planning Organizational Culture Developing country Iran INTRODUCTION overlooked in the discussions of ERP implementation and use [1]. It is important to study the effect of organizational The enterprise resource planning (ERP) system is an culture on ERP systems as the literature suggests that information technology platform that is being installed to organizations in the developing countries encounter many assist companies in better distributing and managing problems when adopting Western-developed IT enterprise-wide operational data to managers and decision applications which mainly are due to differences in the makers throughout the organization. Although ways things are done in [1, 6]. More and more ERP implementing an ERP system in a company can be of great vendors are extending their market to companies in benefit, achieving those benefits depends on the developing countries. In addition, more and more successful implementation of the ERP system [1, 2]. As companies in the developing countries are turning to ERP previous research shows, successful implementation of systems because of the benefits associated with it [3]. ERP systems is a relatively complicated job. A report Hence, the objective of this study is to examine the illustrates that, on average, ERP implementation projects relationship between oragnisational culture and ERP took 2.5 times longer than projected, were 178% over implementation success among Iranian companies. The budget and brought about only 30% of the agreed study would be able to provide a better understanding on benefits [1]. Obviously, there is an urgent need to identify the role of organizational culture in Iranian companies and and understand the factors that affect the success or its impact on the ERP success. In order to understand the failure of ERP implementation [2, 3]. A review of the environment in which the research is undertaken, the literature illustrates that there are many factors that affect paper proceeds by describing the Iranian culture and ERP ERP implementation success [4]. One of the most critical market in Iran. Then, research framework and hypotheses challenges faced by firms in ensuring the success of ERP are presented followed by the research methodology. is that of organizational culture. While organizational Next, data collection and analysis are described and culture has been shown to have an important role in IS findings are discussed. Finally, conclusions and development, implementation and use [5], it has been implications for future research are highlighted. Corresponding Author: Shahin Dezdar, No. 3D, GCB Court, Jalan Ampang, Kuala Lumpur 50450, Malaysia. Tel: +6-0173597157. 1125

Iranian Culture: Iran is situated in the Middle-Eastern Iran. It is slightly greater than regular (50), which indicates part of Asia. Persian (Farsi) is the official language of Iran, the society s moderate level of tolerance for uncertainty. which is an Indo-European language. According to Hofstede [9] recommended that uncertainty avoidance Yeganeh and Su [7], Iran has one of the world s most deals with people s patience for uncertainty. It points to varied set of ethnic groups ever brought together in one what degree a culture programs its components to feel country. The Iranian people comprise Persian, Turk, Gilaki, either comfortable or uncomfortable in unstructured Kurd, Lur, Baluch, Armenian, Arab and Turkoman [7]. conditions. Uncertainty avoidance is likely to affect the The religious groups are Shiite Muslims (95 percent), way in which people utilize information systems [1]. Sunni Muslims (4 percent), with the remainder being People in countries with a high rank of uncertainty Christians, Zoroastrians and Jews. A recent study found avoidance require more obvious information. They are that Iran is part of the South Asian cultural cluster inclined to install and use information systems across a including countries such as Malaysia, India and Thailand company and share the information with others across [8]. Based on Hofstede s findings [9], Iran is categorized different departments. as part of the near Eastern cluster containing Greece and Iranian companies started to employ ERP systems Turkey. According to Latifi [10], Iranian culture is a because the use of ERP systems has been considered as combination of three special cultures that have survived a key determinant of competitive advantage [23]. for many years, including Western Culture, with about 200 However, ERP systems have not occupied their years of history in Iran; Islamic Culture, with around 1,400 proper/rightful position within organizations and most of years of history; and Ancient Iranian Culture, with about the Iranian companies are still unfamiliar with the concept 6,000 years of history. A recent research claimed that Iran of ERP systems. Iranian managers are still inflexible and is a country in the Middle-East region which has also stick to the traditional management systems and many commonalities with its neighbouring Muslim demonstrate resistance to the necessary infrastructural countries [7]. Yeganeh and Su [7] found that there are two and organizational changes [7]. The leaders of Iranian dissimilar vectors in Iranian culture consisting of Islamism enterprises have a tendency to handle their business and and nationalism. The Islamist facet is comparatively operation decisions by experience and intuition [12]. young and dates back to the 7th century. On the other Iranian managers and executives often believe that hand, the nationalist feature of Iranian culture is information is personal and it is a source of power. So, connected to its Zoroastrianism heritage and Ancient they share the information just based on their own Persian civilization which date back to 3000-2000BC. Ali concerns. and Amirshahi [11] believed that Iran has developed a special culture due to its exclusive historical, racial and Analysis of Erp Market in Iran: At the point when this linguistic identities. In sum, Iran as one of the oldest research was carried out, there were no existing single civilizations in the world has been influenced by diverse source of information that one can refer, to identify cultures and it could be considered as a multi-faceted Iranian organizations that have implemented or are in the culture. process of implementing an ERP system. Since there was Hofstede [9] ranked Iran as 41 for the individualism no particular source, various sources was used to compile orientation, indicating that Iranian has a collectivistic a listing. The websites of top international ERP vendors culture. This aspect of Iranian culture has been validated companies and top local IS vendors companies, as well as by newer studies [7, 8]. Iranians are interested in Iranian governmental and non-governmental operating on the basis of individual relationships among organizations in charge of IT were searched. In addition, persons, rather than on the basis of impersonal the Annual Reports of public listed companies published associations. In addition, Hofstede [9] proposed that Iran by Tehran Stock Exchange was also examined. A primary is a high power distance society with a rank of 58. This list of 68 ERP adopting companies was compiled. All claim is also in harmony with other studies [7, 8]. The high 68 companies were telephoned and their CIOs were asked power distance among Iranians has its roots in several about the ERP systems and the status of their projects. features of Iranian history, mythology, religion, politics 22 companies replied that their systems were not an ERP, and family structure [8]. Moreover, Iranian society was but an MIS, Integrated Finance System, CRM and so on. recognized as a relatively feminine culture by Hofstede [9] Moreover, 15 companies replied that their projects were at with the rank of 43. Finally, uncertainty avoidance is the beginning stages of ERP implementation. Finally, another cultural dimension which was identified as 59 for 31 enterprises stated that they were in the go-live phase. 1126

The target companies included enterprises in a diverse projects [1]. The problem is that the ERP vendor s culture range of industries such as manufacturing (automotive, which is embedded in the ERP software conflicts with the petrochemical, home appliances, consumer products, customer s organizational culture [17]. Ke and Wei [5] agricultural machinery, basic iron and steel, basic precious claimed that the lack of a match between the and non-ferrous metals, detergents and cleaning and organizational culture of a company and the cultural glass products), the service sector (telecommunications, assumptions embedded within an information system can engineering and construction, distribution) and also the lead to a costly implementation failure. When an mining sector (iron ores and coal). information system clashes with a company s culture, Two kinds of ERP vendors exist in the Iranian market either the software will be abandoned or the software will [13]. The first kind is international ERP vendors that are be customized so that it matches the current mostly performing through an agent in the Iranian organizational culture. Dezdar and Ainin [12] believed that environment. Nine international ERP vendors were the ERP implementing company has two choices to bridge identified in the Iranian market including: SAP, Oracle, cultural diversity. First, the company could change its SAGE, IFS Applications, Logo Business Solutions, business process and organizational culture to fit into the Epicore Software Corporation, Mincom, Netsis Software ERP software package. Second, the company might and 3i Infotech. A number of them have their exclusive customize the ERP software to smooth alignment of the distributor and supporter in Iran and others are operating ERP functionality to the company s business under other authorization. The second kind of ERP vendor requirements. Several researchers have stated that is some of the Iranian IS companies which have troubles that have led to the failure of ERP adoption have developed their own ERP software. There are more than 10 happened when trying to adopt Western-developed IT Iranian companies which claim they present ERP systems applications in developing countries [1, 6]. As a result, in the Persian language. However, there are some reasons organizational culture was identified as a critical factor for why Iranian developed ERP systems cannot be labeled as the success of projects relating to any organizational ERP systems. Generally speaking, Iranian developed ERP changes like ERP system implementation. systems have been designed based on the current status According to Hofstede et al. [18], work practices of organizations and are not based on best practices in can be categorized as Process versus results orientation, the industry or improved processes. Moreover, the Employee versus job orientation, Parochial versus majority of them do not support operations and professional, Open versus closed system, Loose versus production management processes in manufacturing tight control, Normative versus pragmatic. Three of companies. In addition, most of the Iranian ERP systems the work practices are found to be more relevant in the just cover the inter-organizational processes and cannot ERP implementation context [1]. Thus this study support intra-organizational interactions with customers focused on them: Process vs. result orientation, and suppliers. In fact, they do not present modules such Open vs. closed system and Employee vs. job as supply chain management and customer relationship orientation. The process vs. result orientation refers to management. Furthermore, they have a number of whether an organization is more concerned about the limitations like the inability to support multiple languages processes to be followed to perform the work or the and multiple currencies which are critical for the targets that are tracked with this work. Results orientation multinational and international companies in Iran. is typical of risk-taking organizations, in which innovation is valued and mistakes are tolerated. An open Research Framework and Hypothesis Development: vs. closed system refers to the climate of communication Understanding the culture is very essential when within the institute. In open system culture information studying information systems because culture can streams through the organization without problems, influence the successful usage and implementation of ERP whereas closed cultures are more secret. The employee systems at the organizational and national levels [14-16]. vs. job orientation indicates whether the organization is Krumbholz and Maiden [17] emphasized that the ERP more concerned with the execution of work or the wellsystem reflects the national culture of its developer. Most being of the person. Committees or groups often make of the ERP packages are based on designs and important decisions in the employee-focused culture, developments that originated in North America or Europe. while job-oriented cultures tend to rely on top-down So they impose a Western culture and style of doing decisions. Based on the prior discussion and the aim of business. Such differences are an important factor this study, the research framework was developed as impacting on success and failure of ERP implementation shown in Figure (1). 1127

Result oriented culture Open system culture ERP Implementation Success Employee oriented culture Fig. 1: Research Framework for ERP Implementation Success The majority of ERP implementing companies are H2: Open-system culture of an organization is positively unlikely to have structures and processes compatible with related with ERP implementation success. the tools, structure and types of information from ERP ERP implementation projects teams are necessarily systems [17]. In line with this fact, firms implementing ERP cross-functional, as the ERP system integrates and are expected to reengineer their key processes to support accumulates a variety of functions within a company. To the ERP system requirements. Given that the take full advantage of the ERP system, cross-functional implementation of an ERP system involves substantial teams working on the implementation project should be changes in the company, it is common that there is able to work well as a group. So, cultural attributes such confusion and errors in the adopting company. Therefore, as collaboration, consensus and cooperation are essential it is very important that people are prepared to change. ingredients to achieve successful adoption of an ERP A result oriented culture which stands changes and system. Companies with employee oriented culture are mistakes is very essential to avoid resistance to change in more expected to facilitate coordination and teamwork ERP implementation. A result oriented culture facilitate the among cross-functional team members in an ERP carrying out of a project management plan, which implementation project [15]. Ramayah et al. [21] also supports changing processes [20] and accordingly raises confirmed that the organizational culture that contribute the probability of the ERP implementation success [15]. to the relationship between ERP adopting staff and ERP Consequently, the following hypothesis was developed. vendor s employees will result in a successful implementation of ERP. Accordingly, following H1: Result-oriented culture of an organization is hypothesis was defined: positively related with ERP implementation success. The complexity of ERP software forces almost all H3: Employee-oriented culture of an organization is enterprise staff to learn new methods of working and new positively related with ERP implementation success. tools. An organizational culture that supports openness in communication helps the organizational learning Research Methodology: The target population of this process, which contributes to the success of ERP system research is Iranian companies that have implemented ERP implementation. An open organizational culture systems i.e. companies that has installed at least three encourages improved relations and increased basic modules of the ERP system. A survey questionnaire communication, which accordingly assist in was utilized to collect data from the Iranian companies. communicating the multifaceted concepts of ERP systems The questionnaire consists of three sections: to the end-users. In addition, members of the organization Organizational Culture, ERP Implementation Success and need to share knowledge to make the necessary changes Demographics. The items for first and second sections in the company to achieve the long-term benefits of ERP. were adapted from relevant prior research [5, 15, 17, 20]. A company that eagerly accepts innovative models and All these items were measured using a seven-point Likertcan learn to adapt to new processes and tools, is able to type scale with anchors ranging from strongly disagree implement new organization-wide software more to strongly agree. ERP implementation success was successfully. On the other hand, a company that prefers based on two dimensions, i.e. organizational impact and to maintain the status quo and is doubtful about progress user satisfaction. It evaluates optimal success from the cannot implement a new ERP system effectively [15]. business and user perspective [14]. The questionnaire Thus, next hypothesis was defined: was translated to Persian language using the back-to-back 1128

technique to ensure the meanings are the same as the respondents have been illustrated in Table (1). There were original. To ensure the reliability of the questionnaire, a more male than female. This is reflective of the Iranian pilot study was conducted. The questionnaire was workforce. The results indicate that more than two-thirds distributed to 54 operational/functional/unit managers and of respondents were between 31-50 years old and more 37 completed questionnaires were collected. The data than three-fourths of the respondents have a university were tested using the SPSS software 16.0. It was found degree and had work for more than 6 years in their that all the variables Cronbach alpha values were above organizations. In addition, the majority of the respondents 0.7 hence the questionnaire was considered to be reliable are completely familiar with ERP system and its as suggested by Hair et al. [22]. In data collection phase, capabilities and outcomes. These figures illustrate that the 31 ERP user companies were contacted and asked to respondents have been using ERP, knew their identify a liaison person whom was required to help organization and the ERP system, hence, were the best distribute the questionnaire to all their operational/ informant to answer the survey questionnaire. functional/unit managers that use ERP systems. Assessment of the measurement model included Operational/functional/unit managers were chosen as evaluation of convergent and discriminant validity of each respondents because they are among the most of the measurement scales. Convergent validity was knowledgeable informants regarding ERP implementation assessed using three measures: factor loading, composite projects in organizations. After constant reminder, 411 construct reliability and average variance extracted [22]. completed questionnaires were collected. The The outcomes of convergent validity test are offered in questionnaires were reviewed and 27 questionnaires were Table (2). First, the entire factor loadings of the items in omitted as they were incomplete. Therefore, only 384 the measurement model were greater than 0.70 and each questionnaires were used for analysis. item loaded significantly (p < 0.01 in all cases) on its underlying construct. Second, the composite construct Data Analysis and Findings: The first part of analysis reliabilities were within the commonly accepted range involves the use of descriptive statistics showing the greater than 0.70. Finally, the average variances extracted frequencies and percentages of the demographic were all above the recommended level of 0.50. Therefore, variables. The second part of the analysis examines the all constructs had adequate convergent validity as factors that influence ERP implementation success, using recommended by Hair et al. [22]. To confirm discriminant structural equation modeling (SEM). The SEM analysis validity, the average variance shared between the was carried out in accordance with a two-step construct and its indicators should be larger than the methodology proposed by Hair et al. [22]. According to variance shared between the construct and other this procedure, after the model has been modified to constructs. The outcomes of convergent validity test create the best measurement model, the structural (Table 3) indicate that constructs share more variances equation model can be analyzed. The characteristics of with their indicators than with other constructs. Table 1: Characteristics of the operational/functional/unit managers who responded to the Survey Measure Categories Frequency Percent Cumulative (%) Gender Male 328 85.4 85.4 Female 56 14.6 100.0 Age Below 30 years old 43 11.2 11.2 31-40 years old 111 28.9 40.1 41-50 years old 150 39.1 79.2 Over 50 years old 80 20.8 100.0 Education Undergraduate 88 22.9 22.9 Graduate 184 47.9 70.8 Postgraduate (MS) 97 25.3 96.1 Postgraduate (PhD) 15 3.9 100.0 Employment with this company Less than 3 years 36 9.4 9.4 3-5 years 61 15.9 25.3 6-10 years 112 29.2 54.4 More than 10 years 175 45.6 100.0 1129

Table 2: Convergent Validity Test Construct Items Factor Loading Composite Reliability Average Variance Extracted (AVE) Result-Oriented Culture ROC1.815.928.684 ROC2.859 ROC3.775 ROC4.855 Open-System Culture OSC1.853.850.657 OSC2.785 OSC3.891 OSC4.854 Employee-Oriented Culture EOC1.766.833.645 EOC2.852 EOC3.850 EOC4.719 ERP Implementation Success SUC1.850.960.704 SUC2.812 SUC3.824 SUC4.807 SUC5.851 SUC6.861 SUC7.851 SUC8.832 SUC9.856 Table 3: Discriminant Validity Test Construct ROC OSC EOC SUC Result-Oriented Culture (ROC).827 Open-System Culture (OSC).514.811 Employee-Oriented Culture (EOC).439.506.803 ERP Implementation Success (SUC).689.768.734.839 Result-Oriented Culture H1* (ß=.271, t= 4.236) Open-System Culture H2* (ß=.414, t= 5.089) ERP Implementation Success Employee-Oriented Culture H3* (ß=.308, t= 4.651) * p < 0.001 Fig. 2: Path Analysis Results The proposed structural model was examined using threshold of 0.90. Overall, the hypothesized structural AMOS 16.0 software. The maximum likelihood method model provided an acceptable fit for the data. The SEM was employed to estimate all parameters and fit indices. path results, standardized path coefficients and t-values SEM fit indices measure the extent to which the of the relationship hypothesized in the model are shown covariance matrix derived from the hypothesized model is in Figures (2). In hypothesis (1), it was posited that resultdifferent from the covariance matrix derived from the oriented culture will positively influence the ERP sample. Based on the results of the SEM fit indices, the implementation success. The coefficient for this path is proposed model provided a good fit. The normed 2 was also significant ( =0.271, p<0.001) which support 2.047, which is within the recommended level of 3.0. The hypothesis (1). Moreover, hypothesis (2) proposed that RMSEA was 0.052 which is below the recommended cut open-system culture would have a significant effect on off of 0.08. The CFI was 0.979 that is greater than ERP implementation success. The results of SEM analysis 1130

support this hypothesis ( =0.414, p<0.001). Finally, that the companies value them, thereby encouraging them hypothesis (3) recommended that employee-oriented to be ensure the successful implementation of the ERP culture will positively influence the ERP implementation system. Evidence supports the view that the success. The coefficient for this path is also significant implementation of ERP software often brings changes in ( =0.308, p<0.001) which support hypothesis (3). the culture of the adopting firm. Consequently, ERP adopting companies must take into account the cultural DISCUSSIONS AND CONCLUSION diversity among ERP suppliers, consultants and themselves before deciding what ERP system to buy and The results of this study supported that there is implement. Otherwise, they should possibly reduce their positive relationship between result-oriented, open ERP implementation projects and accept minimum oriented and employee oriented culture and ERP paybacks, or even discard the system implementation as implementation success. These findings are in harmony stated by [15, 21]. with the findings of prior research in other developing This study resulted in important theoretical countries [1, 5, 15, 16, 21, 24]. Our findings are similar to contributions. First, this study has contributed to prior studies; mostly because Iranian companies have academic research by producing the empirical evidence to used ERP systems of international vendors which have support the theories of culture and ERP implementation similar features, quality and implementation procedure in success. This research re-confirms that organizational all countries. culture is positively related with successful ERP Implementation of the ERP system interrupts present implementation. Second, organizational culture has been work procedures and necessitates the development of overlooked in prior studies. Empirical proof from this new patterns and methods of management and control. study findings deepen our understanding regarding the So, there may be clashes and disagreements of interests impact of the organizational culture on the ERP in this process of reengineering. Accordingly, the implementation success and complement the growing success of ERP implementation requires a result-oriented body of knowledge in this area. This research also found culture which tolerates the risks and conflicts. A culture significant managerial implications. First, Iranian of tolerance of risks and conflicts promotes the creation companies and managers could gain an understanding of of innovative thought and stops the acceleration of the cultural issues in ERP implementation to avoid barriers conflicts. Furthermore, this culture provides an and increase the likelihood of achieving desired results. environment to test the possibility and efficiency of these Second, the results recommend that ERP adopter innovative thoughts. Companies implementing ERP have companies should be aware of the cultural dissimilarities to undertake additional training to fill the gap between embedded in ERP systems. Firms planning to adopt ERP what the firm knows and what the ERP software systems must ensure that result-oriented, open-system requires them to know. Companies must acknowledge and employee-oriented cultures are promoted in the that an ERP system is an enterprise-wide system which organization. The data from the study revealed that the differs from existing systems in their organizations hence likelihood of ERP implementation increases when the users of the system must be willing to learn how to organizations have such cultural attributes. Third, the use it effectively and efficiently. To do so, requires the outcomes of this study are also useful in making ERP company to have an open systems and not a closed one. vendors and consultants familiar with the difficulties of Having an open system means the employees would be implementation in developing countries and preparing able to adopt the system with minimal resistance thus some strategies to overcome the barriers. Fourth, ensuring successful implementation as confirmed by experiences revealed from this research can be useful to [5, 16, 24, 25]. An employee-oriented culture encourages other developing countries with similar cultural, economic employees to participate in and be committed to ERP and political environments, in the Middle-East and North implementation project. This involvement offers employee African region and other Muslim and developing a sense of possession and they feel more control of their countries. jobs, which encourages them to accept the ERP system, Although the findings of this study contribute to a thus increasing the ERP implementation success. Besides, better understanding of the successful implementation of an employee-oriented culture can decrease the fear of ERP systems, there is a limitation to this study which is its human resources and enhance their willingness to share generalizability. It is difficult to say whether our findings their knowledge with others. This culture also indicates can be generalized to other regions of the world. Since 1131

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