Impact of Organizational Culture on Strategic Advantage

Impact of Organizational Culture on Strategic Advantage Impact of Organizational Culture on the achievement of Strategic Advantages of ERP in Pakistan ABSTRACT This study looks at the relationship that organizational culture has with the achievement of Strategic advantages from implementing Enterprise Resource Planning (ERP) software. A sample of 30 organizations that implemented ERP was used to test the hypotheses. A competing values approach to measuring organizational culture was used to quantitatively measure an organizations culture profile. The results show that the organizations culture is significantly related to the achievement of strategic advantages from implementing ERP 1. Introduction This paper studies the relationship between Enterprise Resource Planning (ERP) and organizational Culture. ERP is buzz word now days with every company implementing from different models coined by different vendors in order to stay in the competition and to ensure that its operations are efficient and effective. Through ERP the organizations are able to achieve low costs of procurement, production, inventory distribution etc hence streamlines whole value chain that includes various primary secondary activities. These are pivotal in making any organization successful and taking it ahead of competition. Furthermore higher turnovers, reduced cycle times, inventory levels and financial operations can be given a face-lift to meet the challenges of the modern global recession the world is observing. ERP refer to the integrated way of carrying out all or major / core operations of the company. Organizations now regard ERP as a vital tool for the enhancement of their business operations by implementing most of its functions if not all of their processes under a single information system in an endeavor to benefit from the strategic advantages that ERP offers. Organizational culture is a vital notion in organizational analysis. In past few years, there has been a lot of focus on the development of organizational cultures that are conducive of achieving better results and higher performance motivational levels of the employees. Organizational culture can be described as an abstract composite of assumptions, values, and artifacts shared by its members [that] can be reliably represented by the valueswhich drive its members attitudes and activities (Howard, 1998, p. 234). The model proposed in this study advocates that there is an essential connection between an organizations culture and the achievement of strategic advantages from ERP. A Competing Values approach to measuring organizational culture is used to provide an empirical measure for an organizations culture (Quin and Spreitzer, 1991). The competing values approach provides a profile of four cultural archetypes occupied by a particular organization. These archetypes are group, hierar chical, developmental and rational cultures. The combination of the archetypes describes the organizations culture profile. The primary question this study attempts to answer is how does Organizational cultural profiles affects the achievement of strategic advantages of ERP. 2. Literature review: This segment will appraise the pertinent Literature touching ERP and Organizational Culture. 2.1 Enterprise Resource Planning (ERP) Enterprise Resource Planning (ERP) is relatively a new concept however now a days almost every organization ranging from small to large enterprise, devotes a major portion of its developmental budgets on the implementation of ERP software. ERP is not merely software but an approach of carrying out business operations in the modern times where technology plays a decisive role in making an organization a success story or failure. However An ERP software system can be described as a set of integrated business applications, or modules, to carry out most business functions, including inventory control, general ledger accounting, accounts payable, accounts receivable, material requirements planning, order management and human resources, among others. (Martin et al., 1999). ERP is a technique to bring all of an organizations data and IS /IT resources under a single Information system (Oliver, 1999). The author affirms that ERP systems evolved to help organizations manage their information t hrough-out the Company, from the plant to the back office, and or the front office. (Oliver, 1999, pg. 12). ERP intends to integrate its core if not all of an organizations processes under a single ERP system. The processes can be seen in terms of a value chain (Porter, 1985), which connects the suppliers to the organization to the customers. For example, imagine a system where the customer orders a product over the Internet (ecommerce). As soon as the customer places the order, it is automatically sent to the manufacturing department, while at the same time sent to the accounting department for billing- The use of materials by the manufacturing department depletes the stock, therefore a parts order is sent automatically to the supplier when reorder points are reached for replenishment of the stock. In traditional systems, time would be required for the sending of the messages between departments, for the reordering of the parts, and the billing of the customer. ERP intends to automate these systems to achieve a number of strategic advantages- Implementation of ERP software can allow an organization certain strategic advantages (Radding, 1999, Stein 1998). The literature tells us that organizations can benefit from greater flexibility, increased efficiency (Radding, 1999), improved communication, Lower operating costs, increased revenue (Oliver, 1999). Reduced cycle times, better collaboration and higher profit margins (Stein, 1998). These strategic advantages affect not only the organization, but can affect all members of an organizations value chain. ERP is a system that seeks to unite all of a value chains disparate processes. An organizations value chain represents all of the different processes that involve organizational resources and that are needed to support the organizations operations. Porter(1985) developed a model of an organizations value chain. This model of the value chain contains 9 processes; 5 primary processes, and 4 support processes. The organizations primary processes involve the production and delivery of the organizations products to the consumer (Bergeron, 1991). The processes involved in the primary activity are inbound logistics, operations, outbound logistics, marketing and sales, and customer service. The organizations secondary business processes represent the support processes for the primary activities and are, administrative coordination and support, human resource management, technology development, and procurement of resources. Implementation of ERP systems where carried a number of strategic nature of benefits, on the other hand it bears extreme risks. The growing numbers of Unsuccessful stories have compelled managers to take a deep look into the causes of it. ERP tries to push the logic that the system has which is conflicting with the Business. It may sometimes also lead to integration where decentralization fragmentation may best suite the organization. Furthermore, ERP may force the organization to go for generic processes than customization. Therefore ERP has to go along with technology and culture (Davenport, 1998). In contemporary organizations the data generation takes place at scattered places and the magnitude of the data is huge. Therefore a real time access to the data becomes imperative for the data in deal with such complex nature of information. ERP aligns all the information into various functions like finance, operations, sales, Customer relation etc subject to the nature of business an organization is into. Enterprise resource planning system (ERP), as a type III IS innovation, has strategic Significance for the organization due to their integration into the core business processes or strategies can directly impact the firms performance (Swanson 1994; Sambamurthy et al. 2003; Sample 1998). Consequently, many companies have started to develop strategy focusing on information technologies, with ERP adoption being a critical thrust (Bharadwaj 2000; Powell and Dent-Micallef 1997; Robey et al. 2002). on the other hand, whereas the firm is on the lookout for competitive advantages by adopting this sophisticated information system, the tangible experiences have reveal ambiguity – some organization are able to reap the true benefits of ERP whereas on the other hand majority of the firms face losses and failed to achieve the desired level of strategic and tactical benefits. (Scott and Vessey 2002). According to the survey conducted by Deloitte, the success rate of ERP implementation is le ss than 20%. Hence it is important for researcher to unlock the mystery of benefit realization in ERP adoption and theorize the important predictors effect on ERP implementation practice (Brown and Vessey 2003). Other than strategic benefit, ERP also contributes toward making an organizational structure more flatter flexible, enabling organization to streamline their management structures and more democratic organization. On the other hand it also involve the centralization of control over information and the standardization of processes, which are attributes more consistent with hierarchical command and control organization with uniform cultures (Davenport, 1998). 2.2 Organizational culture: Culture can be seen from a number of different levels. Of interest to business are the concepts of national culture and organizational culture. National culture is important due to a more global economy where communication technicalities have begun to evolve. It is also important to the study of information systems technology and management. For example, Watson et al. (1994) looked at national culture as king a dimension, in a study looking at Group Support Systems success. This experimental study involved looking at the differences between groups from the U.S. and Singapore. For the majority of the business Literature on culture the level of analysis has dropped to the organization. The importance of studying an organizations culture is, like ERP and BPR, a fairly new concept- An organizations culture can be defined by a number of constructs, such as the symbols, language, ideology, beliefs, rituals, and myths that affect an individuals behavior (Pettigrew, 1979). According to Pettigrew (1979), the culture constructs exist to provide some form of commitment to the established order. Hofstede et al. (1990) proposes a model of culture that is made up of values and practices. The practices reflect member beliefs about symbols, heroes and myths. In an exploratory analysis, Hofstede et aI. (1990) found three factors affecting the values, yet, the core of organizational culture was represented by six dimensions of organizational practices. The dimensions represent opposing ideologies as to what constitutes proper practices. Using the dimensions of organizational practices, Hofstede (1998) identified 3 distinct subcultures within 131 different work groups. The three subcultures represented include a professional subculture, an administrative subculture, and a cus tomer interface subculture. Quinn and Rohrbaugh (1983) developed a quantitative measure of organizational effectiveness, which was later successfully used to study organization culture (see Kalliath et al., 1999, Howard, 1998, Quinn and Spreitzer, 199 1, Zammuto and Krakower, 199 1, Yeung et al., 1991). Quinn and Rohrbaugh (1983) exploratory study revealed that organizational effectiveness cm be represented by three distinct dimensions, a focus dimension (internal vs. external point of view), a structure dimension (flexibility vs. control orientation) and a means vs. ends dimensions. The authors call the resulting approach the Competing Values Approach to measuring organizational culture. The model in figure 2 represents the competing values approach. In figure one, each quadrant represents an ideal type of culture. A particular organization need not be classified exclusively as having one type of culture, but can be considered as containing elements from the four culture types, yet one type may be dominant (Quinn and Spreitzer,1991, Cameron and Freeman, 1991, Yeung et al., 1991). Each culture type is measured using four items, which are aggregated to achieve a culture profile- The core values of the Group culture are belonging, trust and participation, which are motivated by factors of attachment, cohesiveness and membership (Denison and Spreitzer, 1991). Like the group culture, the developmental culture also emphasis flexibility but focuses its attention on the external environment. Productivity, performance, goal fulfillment and achievement are the important f actors for the rational culture. These cultures emphasize the pursuit and attainment of well-defined objectives. Finally, for the hierarchical culture, the focus is on the logic of the internal Organization and the emphasis is on stability- (Denison and Spreitzer, 1991, pg. 6) As the authors state, the motivating factors for this quadrant include security, order, rules, and regulations. A number of studies have been done, looking at and validating this framework. Quinn and Spreitzer (1991) performed a multitrait-multi-method analysis as well as multidimensional scaling on two competing values instruments (one using an ipsative scale measure, the other using a likert type scale measure), The authors found evidence for both convergent and discriminant validity. Zammuto and Krakower (1991) looked for relationships between culture and other organizational variables including, centralization, moral, administrator credibility, conflict, strategic orientation and culture strength- Authors state that evidence for construct validity exists due to the correlation of the competing values measure of cultur e and the other variables stated. Yeung et al. (1991) studied the competing values measure of culture in relation to organizational performance, culture strength and human resource practices- In a cluster analysis, the authors found that organizations from their study could be classified into 5 distinct culture types (or profiles). More recently, the competing values framework was again validated in two more studies (see Howard, 1998, Kalliath, 1999). The next section will look at some of the literature on assimilation and organizational culture change. Denison (1996) gave another perspective of culture by trying to research whether organizational culture and organizational climate were two different points of views or just a matter of perception. He further said that there are similarities differences at the time same time. Measurement of organizational culture is usually carried through qualitative analysis and deals with individuals set of beliefs, shared norms perception. Organizational climate on the other hand is measured through quantitative methods like questionnaire and print outs etc. Other factors also helped to differentiate these two topics in the literature. Culture researchers were more anxious with the progress of social systems over time (Mirvis Sales, 1990; Mohr, 1982; Pettigrew, 1979; Rohlen, 1974; Schein, 1985, 1990; Van Maanen, 1979), whereas climate researchers were generally less concerned with evolution but more concerned with the impact that organizational systems have on groups and individuals (Ekvall, 1987; Joyce Slocum, 1984; Koyes DeCotiis, 1991). The research also addressed to where does this organizational culture climate originates. Chatman (1989) says â€Å"In order for researchers to understand and predict behavior, they must consider both person and situation factors and how these factors interact. Even though organization researchers have developed interactional models, many have overemphasized either person or situation components and most have failed to consider the effects that persons have on situations. Using a Q-sort methodology, individual value profiles are compared to organizational value profiles to determine fit and to predict changes in values, norms, and behaviors†. By this we understand that both the organization individuals beliefs norms compliments each other and have an impact on over organizational environment which people and policies constitutes. Therefore the significance of any single factor can never be underestimated while evaluating the type of profile organization maintains in terms of its culture. Organizational effectiveness have long been a very vital area for the researchers to determine the causal relationship of organizational effectiveness higher level productivity with several variables. Among them organizational culture have well been under the consideration by the researchers. The increase in the research The intensification of research on organizational effectiveness has led to the formulation of theories about factors within an organization that can make a difference in performance. Organizational culture is one such variable that has received much attention in organizational behavior literature (Amsa 1986; Hofstede 1986; Hofstede, Neuijen, Ohayv and Sanders 1990; Jelinek, Smircich and Hirsch 1983; Kilman, Saxton and Serpa 1985; Ouchi 1981; Owens 1987; Schein 1990; Trice and Beyer 1984). This attention is mainly because researchers has postulated that cultural factors play a key role in determining levels of organizational outcomes. A common hypothesis about this r ole suggests that if an organization possesses strong culture by exhibiting a well-integrated and effective set of specific values, beliefs, and behavior patterns, then it will perform at a higher level of productivity (Dennison 1984). The development of theory to guide the definition of organizational culture, therefore, is of primary importance to improving organizational performance, espe- cially because the variables which comprise culture have been postulated to be under the control of organizational leaders (Deal and Kennedy 1982, Ouchi 1981, Owens 1987, Siepert and Likert 1973). Despite concern with achieving improved organizational productivity through fo- cusing on the development of cohesive organizational culture, determining the parameters of this construct has been problematic. The literature on organizational culture taps essential ideas, but the theory and technology to utilize the theory in improving organizations have remained fuzzy (Mackenzie 1986). As Trice and Be yer (1984) have argued, previous research on organizational culture has tended to focus on single, discrete elements of culture, while ignoring the multidimensional nature of culture, that is, a construct composed of several intimately interrelated variables (Schein 1990). Another problem has been that researchers are still not sure whether the association between culture and organizational performance reflects a cause-effect type of relationship (Saffold 1988). In fact, researchers have not really identified what specific variables comprise an effective organizational culture, nor have they provided convincing empirical evidence to suggest that if leaders in organizations increased the amount of time and quality of energy devoted to developing a particular type of organizational culture, then an organization would perform at a higher level of productivity (Barney 1986). There is presently little agreement, therefore, about what the concept of organizational culture means or how it should be observed and measured (Schein 1990). Because of the lack of agreement concerning theoretical formulations about organizational culture, its delineation, and its possible relationship to performance outcomes, no significant body of empirical research exists. Instead, researchers have primarily focused on defining and describing the variables of organizational culture and cautiously suggested a possible relationship between organizational culture and outcomes (Owens 1987). As Mackenzie (1986) argues, organizational culture as a concept may be a useful means of assessing the congruency of the organizations goals, strategies and task organization, and resulting outcomes. Without valid and reliable measures of the critical aspects of organizational culture, however, state- ments about its importance and effect on performance will continue to be based on speculation, personal observations, and case studies (Uttal 1983). As a consequence, management strategies and programs to cre ate organizational change through under- standing the organizations environment and strategically manipulating aspects of its culture will continue to be poorly focused and difficult to implement and evaluate.