THE EFFECTS OF INTERNAL SUPPORT AND CONSULTANT QUALITY ON CONSULTING EFFECTIVENESS AND ERP SYSTEM QUALITY

Transcription

1 THE EFFECTS OF INTERNAL SUPPORT AND CONSULTANT QUALITY ON CONSULTING EFFECTIVENESS AND ERP SYSTEM QUALITY Eric T.G. Wang Jessica H.F. Chen Department of Information Management National Central University, Chung-Li, Taiwan 32054, ROC Abstract The implementation of ERP systems are inextricably linked to the management of change, and the human system of a firm is what makes or breaks the change initiative. It is a big challenge that requires absolute and complete support from top management and all the users. But the internal support alone is insufficient to overcome the deficiency of resource and ability of the client firm for implementing the ERP system. External human resources are required to facilitate a successful ERP implementation, and such external input should be considered as important as client input for delivering a high quality ERP system. In this paper, we establish a two-actor framework for identifying the synergistic linkages of internal human input (support of client firm) and external human input (service quality of consultants) to the communication effectiveness and conflict resolution in ERP consulting process and the resultant system quality. Through a study of 85 ERP implementation cases in the Taiwanese manufacturing industry, we empirically demonstrate that competent consultants not only facilitate the communication and conflict resolution during implementation but also increase the quality of the system delivered. Top management support can acts as a catalyst for resolving the conflicts occurred in the consulting process and effective conflict resolution in turn can enhance the final system quality. Also, although user support is beneficial to effective communication, more effective communication fails to influence the final system quality. Consequently, this study contributes to the ERP implementation by emphasis on the human system and shows how internal stakeholders and external experts can interact to deliver an ERP system with higher quality. Keywords: Enterprise resource planning; Consultant quality; Communication; Conflict resolution 1. Introduction In the past decade, companies have spent billions of dollars and countless worker-hours implementing integrated software packages known as ERP (Enterprise Resource Planning) systems. The integrated nature of ERP systems makes the system implementation more complex than implementing traditional packages. Firms will thus experience additional difficulties when implementing an ERP system, and find insufficient internal resource (knowledge, skill and time) to develop ERP systems successfully by themselves. In responding to this knowledge gap and resource constraints, mediating entities such as consulting firms come into existence and have played an important role in almost all ERP implementations. External consultants can act as knowledge providers in lowering the knowledge barrier or deficiency of the ERP adopting firms [12]. Most ERP related studies have focused on organizational aspects of the client such as top management support, while paying only scant attention to the role that consultants play in the ERP implementations. However, in the study of small business, Thong et al. [14] have found high-quality external experts are more important for IS effectiveness than top management support of client. To date, we are unaware of any other empirical studies that have directly examined the influence of the client, the consultant and their interplay in an ERP implementation. These have motivated us to perform an in-depth investigation into a two-actor framework for identifying the synergistic influence of the client and the consultant in an ERP implementation. Both internal (support of client firm) and

2 external human systems (service quality of consultants) are focused in our two-actor framework, because it has been argued that ERP implementations are about people, not processes or technology [2]. We seek to answer the following questions: how internal and external human systems affect the ERP system quality via effective consulting process? The rest of the paper is organized as follow: In the next section, we discuss the research constructs and issues employed to conduct the investigation. Section 3 outlines the systematic data collection methodology in this study. In Section 4 we develop a structure equation model to test the hypotheses. Section 5 discusses the findings and Section 6 concludes the paper. 2. Conceptual Background and Hypotheses 2.1 ERP System Quality Markus et al. [3] argue that no single measure of ERP success is sufficient for all the concerns a firm s executives might have about the system. They further indicate that different measures are needed at different stages in the system lifecycle. Similarly, DeLone and McLean [4] synthesize a six factor taxonomy of IS success from the diverse set of IS success measures, and note that the selection of IS success dimensions and measures should be contingent on the context of the empirical investigation. Since the focus here is on ERP system implemented, not on the ERP system in use, dimensions such as user satisfaction with system, individual impact and organization impact in the DeLone and McLean model will not be examined. Further, to explore the impact of a consulting process, the quality of the ERP system should be the focus rather than the organizational impact. ERP system quality refers to the desired characteristics of an ERP system including accurate data and information and sufficient functions. Ensuring the accuracy of data and information produced by an ERP system is crucial, because inaccurate data and information will cause an ERP system losing its credibility, which in turn make people to ignore the new system, easy give up, and continue to run the company under the old system [1]. 2.2 ERP Consulting Process An ERP consulting process inevitably involves substantial interactions between users and external consultants and may carry the risk of discord from role differences, which could create different interpretations and misunderstandings. Thus, the key to a successful ERP implementation is not just the brilliance, the conception, and the solution of a problem that addresses a need, rather it is to maintain an effective and smooth consulting process [5]. In the following, we address the two main dimensions of an ERP consulting process included in the study: communication effectiveness and conflict resolution, and then derive their effects on ERP system quality. Communication effectiveness Communication effectiveness refers to the ability and the willingness of the consultants to express their thought and to transfer their knowledge to the users clearly in the consulting process. Through open and clear communication, consultants can understand users requirements and keep users informed about the design and functionality of the system in a language that they can understand, and the change process will become a relatively smooth one. It is then necessary for user to convey their understanding and insights of business practices accurately and completely to the consultants who, in turn, translate the information into a desired configuration of the ERP system. Intensive information

3 and knowledge sharing between users and consultants are therefore prerequisites for the final system quality, making communication effectiveness critical to the success of ERP implementation. As Morgan and Hunt [6] have asserted that an easy flow of communication is an important characteristic of a strong relationship. Hence, we suggest: H1. Communication effectiveness is positively associated with ERP system quality. Conflict resolution Adopting an ERP system inevitably will have a major impact on employee workforce, the processes they have to perform, and their skill requirements [1]. Under these circumstances, employee resistance to change and conflicts with the consultants can easily arise. For example, conflict may arise from issues about whether matching the functionality of the ERP system to the firm s current processes or finding ways to change the current processes to fit the new software. Hence, it is critical for all ERP project members to effectively resolve conflicts during the consulting process. A successful conflict resolution in the ERP consulting process is defined as one where the conflicts are fully addressed to produce a settlement that can benefit both conflicting parties, consistent with implementation goals, and be resolved timely. We may view conflict resolution as a learning and team development process. Through the process, both parties learn about how to disagree over issues and situations and come up with a mutually beneficial solution [8]. As goal interference represses information processing capacity, effective conflict resolution can enhance information-processing capacity by facilitating goal congruence and establishing standards in the consulting process [9]. As such, effective conflict resolution increases both the quantity and the quality of information available to the team and is thereby instrumental in encouraging the integration of diverse views of the team members. As Robey et al. [8] have pointed out that behaviors of team-member conflict resolution in a system development are directly associated with project success. These suggest: H2. Conflict resolution is positively associated with ERP system quality. ERP consultants need to understand the details of the client s existing way of doing business, applicable software modules, and the change management strategies. The understanding, of course, can be speeded up through more open and intensive communication. As Lee and Kim [10] argue that intensive communication could lead to better-informed parties, which in turn would make each party more confident in the relationship and more willing to keep it alive. In addition, higher communication quality has been treated as an antecedent of trust [6]. Moorman et al. [11] have asserted that timely communication fosters trust by assisting in resolving disputes and aligning perceptions and expectations between organizations. Communication effectiveness thus works to the benefit of all the parties in the implementation team and facilitates change management and conflict resolution because of higher levels of trust and greater partnership quality in the team. These suggest: H3. Communication effectiveness is positively associated with conflict resolution. 2.3 Support from External Consultants Competent consultants are valuable to an ERP implementation because of the significant knowledge asymmetry exists between the client and the consultants. The knowledge asymmetry induces a client s dependence on consultants, and simultaneously increases the influence of the

4 consultant quality on the outcomes of ERP implementations. Because skillful and experienced consultants could not only demonstrate greater expert power but also show higher willingness to help the client, their proposed solutions would be more likely to be trusted and thereby well received by the client. As a result, this study suggests that high quality consultants should have a very positive influence on the resultant system quality because of their ability and knowledge to consistently and reliably deliver whatever is required for a successful ERP implementation. H4. Consultant quality is positively associated with ERP system quality. It is usual that when an information system fails, users tend to complain that consultants lack expertise, specialized knowledge or goodwill, and fail to meet their overall expectations [15]. Correspondingly, to avoid consulting failure, consultants must demonstrate their technical and management skills to establish expert power when communicating with users. Consultants with high expert power and communication skills can make it easier for them to develop a reasonable compromise, agreement, or shared understanding with users, increasing the likelihood of mutual understanding and timely conflict resolution. Incompetent consultants, on the other hand, are more likely to fail to conduct a proper business practice, recommend a solution that may later turn out to be ineffective, or manage implementation poorly [19]. When members of the client cannot trust the consultants recommendations and solution offered, communication and conflict resolution in the implementation will be inhibited. However, in addition to their skills and knowledge, consultants willingness to discover users needs, understand their requirements, and make effort to resolve conflicts can be more important for a successful implementation. As users perceive higher willingness to help from consultants, they will be more likely to be cooperative, leading to a better social relationship between users and consultants and thereby enhancing the effectiveness of the consulting process. Hence, we propose: H5a. Consultant quality is positively associated with communication effectiveness. H5b. Consultant quality is positively associated with conflict resolution. 2.4 Support from Internal Stakeholders In this paper, top management support and user support are combined to form the internal support of the client firm, which refers to the emotional commitment of the client s stakeholders toward to ERP adoption. Top management support Because ERP implementations usually trigger profound changes in the existing way of doing business embedded in a company, the role of top management should thus be more emphasized in the ERP implementations than in traditional IS projects. To implement an ERP system successfully, top management need to help the system meet organizational objectives and provide the necessary available resources to integrate the ERP system with business strategies and processes over time [17]. Sufficient resources for ERP implementations allow employees to spend more time helping the consultants to understand and specify their requirements, leading to improved communication between internal staff and external consultants. Further, visible top management support can encourage positive attitudes on the part of users toward the new system, increasing the chance of a smoother conversion from the existing work procedures [14]. This is especially true when a system is being built but users are not apt

5 to change. Hence, there is a need for proactive top management support in any IS implementation even when external consultants are engaged in the implementation [14]. By the virtue of their leadership role, top management can be the trigger of better communication among the stakeholders affected by the ERP system and act as a change agent to create a learning environment for a more effective ERP implementation [16]. On the other hand, perceiving a high degree of support from the client s top management, the consultants should also be more willing to resolve the conflicts with the users. H6a. Top management support is positively associated with communication effectiveness. H6b. Top management support is positively associated with conflict resolution. User Support An ERP system requires an organization s core business processes to be reengineered in line with those implicit in the software, and meanwhile the users need to change the way they work to realize its full advantage [1]. If the users do not appreciate the premises and purposes of the technology, they may use it in less effective ways, and the power inherent in the new ERP system may be wasted. Therefore, the importance of user support, which refers to the psychological state of users toward to change and use the new system, is more salient in the ERP implementations than in traditional information system development. Although users are relatively less influential in ERP implementation than in the development of tailor-made applications, lacking user support should still hinder the implementation because the effectiveness of a consulting process may to a large extent depend on the input supplied by users. When users psychological state is not ready to change and accept the new ERP system, their attitudes could hinder them from working along and resolving conflicts with the consultants, thereby keeping them from absorbing and exploiting knowledge from the consultants [19]. If user attitudes are defensive and not forthcoming in providing all the necessary information, the chance of a successful implementation is greatly reduced. H7a. User support is positively associated with communication effectiveness. H7b. User support is positively associated with conflict resolution. Given the above research hypotheses, the proposed research model is depicted in Figure Methods 3.1 Survey Procedures and Sample Characteristics Most of the measures were adapted from the literature and two senior ERP implementers (from the monitor industry, implementing SAP system) then examined the Chinese version for content and face validity before the questionnaire was mailed out. The final questionnaire with a cover letter was sent to the CIOs of 600 Taiwanese manufacturing firms randomly selected from the Directories of the Common Wealth 1000 largest manufacturing firms. The cover letter solicited the cooperation of the CIOs for helping us identify the ERP project leader if they are not the one in their firm. Eight-five questionnaires were returned, resulting in a response rate of 14.17%. To check possible non-response bias, t-tests were run to compare the number of employees and annual sales of the

6 Inputs User Support Top Management Support Consultant Quality H7b+ H7a+ H6b+ H6a+ H5b+ H5a+ Consulting Process Conflict Resolution H3+ Communication Effectiveness H4+ H2+ H1+ Consequence ERP System Quality Control Variable Local Package Figure 1.ERP Consulting Process Model respondents and the non-respondents. The results showed no significant difference in either of the variables. The sample was therefore believed to be representative of the large to medium-sized manufacturing firms in Taiwan. 3.2 Measures The seven-items scale of top management support focuses on measuring the willingness of top management to provide necessary involvement, resources, and authority for the ERP implementation, and was adapted from Lee and Kim [20]. The five-item scale for measuring user support intended to capture user attitudes toward change and the use of the ERP system and adapted from Jiang et al. [21]. An 18-items scale was adapted from the measure developed by Freeman and Dart [22] for measuring consultant quality. A four-items scale was adapted from Davison [23] for measuring communication effectiveness. Three items for measuring conflict resolution were drawn from Sussman and Guinan [7], and were designed to capture the extent to which divergences and conflicts were resolved in the consulting process. Finally, five items of ERP system quality were adapted from Shin and Lee [24], indicating the extent to which ERP system provided precise and accurate data, information and functions to the client. Table1: Descriptive statistics, intercorrelations, and Cronbach s alpha coefficients. Mean S.D Top Management Support (0.97) 2. User support ** (0.85) 3. Consultant Quality ** -0.59** (0.97) 4. Communication Effectiveness * 0.56** -0.63** (0.91) 5. Conflict Resolution ** -0.63** 0.85** -0.60** (0.96) 6. System Quality ** -0.48** 0.68** -0.44** 0.67** (0.85) Local Package * ** *: p < 0.05; **: p < 0.01

7 Since ERP systems are rigid, packaged software with only limited configurable options, adopting a foreign system even after implementation might leave the firm with more unfulfilled requirements than adopting a locally developed package [18]. A binary indicator (1= if the package is local; 0= otherwise) is therefore included to control for the potential confounding effect caused by the country-origin of the ERP systems. 4. Data Analysis Except for consultant quality, all other scales were postulated as single dimensional. For the single dimensional scales, exploratory factor analysis (EFA) with oblimin rotation was carried out to assess their factor structures. The items for the single dimensional scales all loaded on a single factor unambiguously with factor loading greater than 0.5, demonstrating the unidimensionality of the scales. The 18 items for consultant quality were factor-analyzed with oblimin rotation and treated as a single composite scale. The corrected item-total correlations of these 18 items were all greater than 0.7. Cronbach s alpha was then calculated as an indicator of internal consistency of the scales. All scales had a value of Cronbach s alpha greater than or equal to 0.85 as shown in Table 1. Although, there is a notably high correlation between conflict resolution and consultant quality, the level of discriminate validity can be demonstrated by showing that the correlation between any pair of scales is lower than the Cronbach s alpha coefficients of both the scales. Consequently it was concluded that all the scales used were acceptably reliable and valid. After ensuring that all the measures were sufficiently unidimensional and reliable, composite scales of the constructs were derived by averaging their corresponding item scores and then used for subsequent analysis. Descriptive statistics, correlation coefficients, and alpha coefficients are given in Table 1. Table 2: Summary of effects in the structural model a Direct c Indirect c Total PVE b Correlation effect effect effect % Communication effectiveness (R 2 =0.45) Effect of top management support.08 - Effect of user support.30** Effect of consultant quality -.48** Conflict Resolution (R2=0.76) Effect of top management support.19** Effect of user support Effect of consultant quality.66** Effect of communication effectiveness System Quality (R2=0.53) Effect of top management support.07* Effect of consultant quality.35*.24** Effect of communication effectiveness.03 - Effect of conflict resolution.37* Effect of Local package.18* a. Model fit indices: χ 2 /df = 0.306, SRMR=0.01, AGFI=0.97, NFI=0.99, NNFI=1.05, CFI=1.00, GFI=0.99. b. PVE = total effect/correlation. c. Standardized coefficient *: p < 0.05; **: p < 0.01 (one-sided test)

8 The structural model hypothesized was tested using EQS and the results are presented in Table 2. The absolute model fit indices and the incremental and comparative indices of the structural model all indicated that the overall model fits the data well. Also, the R 2 s indicate that the model explains a substantial portion of variance of the endogenous variables. Table 2 provides further information on indirect and total effects. Consultant quality has an overall significant impact on system quality through its direct impact on system quality and its contribution (indirect effect) to conflict resolution. In addition, through its impact on conflict resolution, top management support also has a significant indirect effect on system quality. We also computed the Percent Variance Explained (PVE) for each causal relationship in the model. The values of PVE show that the model explained 76%, 78% and 87% of the correlations between consultant quality and the three key antecedents (communication effectiveness, conflict resolution, and system quality). User support contributes 54% of variance of communication effectiveness. Conflict resolution and local package are also important to system quality (55% and 60%). 5. Findings The results show that both conflict resolution and consultant quality have direct, positive influences on the ERP system quality delivered (H2 and H4), but the postulated effect of communication effectiveness is nonsignificant (H1). Of course, this result may simply be caused by a high correlation between communication effectiveness and conflict resolution. Given such a high correlation between them, an even higher correlation between conflict resolution and ERP system quality gives conflict resolution greater power to explain system quality in the model. The result, therefore, suggests that though communication effectiveness might be important for an effective ERP implementation, resolving conflicts occurred during the implementation could be even more decisive in delivering a high quality ERP system. It is surprising that neither user support nor communication effectiveness shows a significant effect on conflict resolution (H7b and H3, respectively), even though the inter-correlations between these three variables are quite high. Again, this result might be due to an extremely high association between consultant quality and conflict resolution. Both consultant quality and top management support are positively associated with the extent to which conflicts can be effectively resolved in an ERP implementation (H5b and H6b). Even though a high correlation exists between communication effectiveness and conflict resolution, the association between consultant quality and conflict resolution is even stronger, giving consultant quality greater power to explain conflict resolution. Further, given that many organizational units are involved in an ERP implementation, visible top management support to the project should also be critical to inter-unit conflict resolution. Without the support from top management, many inter-functional and client-consultant conflicts might persist very long or be left unresolved even after the system has gone live. Further, both user support and consultant quality are shown to impact communication effectiveness positively (H5a and H7a). This result indicates that the willingness of users to support the project and accept the changes brought by the new system would motivate them to express themselves more frankly regarding what they think about and what they need from the system in the course of implementation.

9 Further, consultants who care for the client and have sufficient knowledge regarding the client s business as well as the ERP package should be able to communicate more effectively with the users, thereby reducing the chance of misunderstanding and increasing user engagement in the implementation. Top management support, however, fails to show any significant effect on communication effectiveness (H6a). It seems that as a leader and a facilitator, top management may not be actively involved in the daily process of implementation, thus lacking a direct influence on the communication quality in the implementation. As for the control variable, local package, the result shows that ERP system quality tends to be higher when firms adopt ae local package. Thus, due to the cultural effect, a foreign ERP system may contain business procedures and models that are relatively poorly matched with the common business practices in Taiwan, leaving the client s many requirements unfilled if the required customizations or process changes were too costly. 6. Conclusion While much of the ERP literature underplays the role of consultants, this paper shows that consultants do play a key role in shaping the consulting process and the system quality delivered. ERP consultants are not only important in influencing the effectiveness of communication in ERP implementations but also decisive in determining whether conflicts could be resolved effectively in the consulting process. Though having a relatively minor role compared with consultants, top management support can still impact system quality delivered indirectly through its effect on conflict resolution. Somewhat surprisingly, user support shows neither direct nor indirect effect on ERP system quality. This might indicate that with little knowledge regarding the ERP system, users probably, for most of the time in an ERP implementation, could only play a passive, receiving role, accepting whatever the recommendations and solutions offered by the consultants. The rigidity and the package nature of the ERP system might leave users even less power in influencing the final form of the system configuration. Several implications can be derived from our findings. First, with greater implementation experience and relevant expertise, ERP consultants can help their client to create a well-suited system configuration. They can also contribute to system quality through more effective conflict management. Consultants who can use their prior experiences to document ERP benefits for users may be considered more credible than internal top management. In such cases, the consultants may act as an arbitrator among cross-functional users, ensuring that the concerns of different functions are effectively addressed in implementation. Thus, given the critical role consultants play in ERP implementations, the detailed consulting process and its effect on the ERP implementations probably deserve a more thorough, systematic investigation. Second, a company should ensure its senior executives commitment before going ahead with an ERP project. Top executives must be ready to intercede when the project is not working properly, when a person or group refuses to cooperate, and when the implementation team cannot resolve a conflict by itself. Third, the complexity of the ERP system may dumbfound the users during the implementation process. Even though some key users may have a good understanding of information processing procedures, they might have the difficulty of understanding the configuration the

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