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Information & Management 40 (2002) 25±40

The critical success factors for ERP implementation: an organizational ®t perspective
Kyung-Kwon Hong, Young-Gul Kim*
Graduate School of Management, Korea Advanced Institute of Science and Technology (KAIST), 207-43 Cheongryangri-Dong, Dongdaemun-Gu, Seoul 130-012, South Korea Received 20 May 2001; accepted 1 September 2001

Abstract Since early 1990s, many ®rms around the world have shifted their information technology (IT) strategy from developing information systems in-house to purchasing application software such as enterprise resource planning (ERP) systems. IT managers responsible for managing their organization's ERP implementation view their ERP systems as their organizations' most strategic computing platform. However, despite such strategic importance, ERP projects report an unusually high failure rate, sometimes jeopardizing the core operations of the implementing organization. This study explores the root of such high failure rate from an ``organizational ®t of ERP'' perspective. Based on the relevant literature, we de®ne the concept of organizational ®t of ERP and examine its impact on ERP implementation, together with ERP implementation contingencies. The results from our ®eld survey of 34 organizations show that ERP implementation success signi®cantly depends on the organizational ®t of ERP and certain implementation contingencies. # 2002 Elsevier Science B.V. All rights reserved.
Keywords: ERP implementation; Organizational ®t; ERP adaptation; Process adaptation; Organizational resistance

1. Introduction Under the pressure to proactively deal with the radically changing external environment, many ®rms have changed their information system (IS) strategies by adopting application software packages rather than in-house development [12,25]. An application package such as enterprise resource planning (ERP) system is one solution to the information technology (IT) industry's chronic problems of custom system design: reduced cost, rapid implementation, and high system
* Corresponding author. Tel.: ‡82-2-958-3614; fax: ‡82-2-958-3604. E-mail addresses: kyungkh@kgsm.kaist.ac.kr (K.-K. Hong), domino2@unitel.co.kr (Y.-G. Kim).

quality [28]. Although application packages have these bene®ts over custom design of applications, packaged software has problems of their own: uncertainty in acquisition [14] and hidden costs in implementation [29]. In a survey of the IT managers responsible for managing their organization's ERP projects, twothirds of the respondents viewed their ERP systems as their organizations' most strategic computing platform [47]. Despite such perceived importance, it was reported that three quarters of the ERP projects were judged to be unsuccessful by the ERP implementing ®rms [13]. What makes ERP implementation so unsuccessful? Swan et al. [46] argued that the root of such high failure rate is the difference in interests between customer organizations who desire unique business solutions and ERP vendors who prefer a

0378-7206/02/$ ± see front matter # 2002 Elsevier Science B.V. All rights reserved. PII: S 0 3 7 8 - 7 2 0 6 ( 0 1 ) 0 0 1 3 4 - 3

rather than function-based. With an exploratory survey of small business. Research methodology is then described. organizational infrastructure and processes. They categorized the contingency variables of interest to IS researchers into strategy. Attributing the inability to realize value from IT investments to lack of alignment between the business and IT strategies. The next section introduces the research model and hypotheses. followed by the presentation of the results.1. Successful ERP implementation must be managed as a program of wide-ranging organizational change initiatives rather than as a software installation effort [18]. task. Hong. Weil and Olson [51] found that over seventy percent of the studies followed a model assuming that the better the ®t among the contingency variables. Theoretical perspectives 2. size. emphasizing the multivariate ®t among business strategy. Organizational ®t of ERP Because of the multiplicity of the organizational dimension. which are different from Asian business practices. In ERP research. task. The paper concludes with the discussion of the research ®ndings and implications for future research and practice. In a review of the IS contingency research. Soh et al.26 K. 2. But there are con¯icting views on which type of adaptation. the better the performance. Henderson and Venkatraman [19] developed the `strategic alignment model'. [44] suggested that the organizational ®t of ERP might be worse in Asia. is more desirable in the different contexts. Besides. This paper is organized in ®ve sections. structure.50]. because the reference process model underlying most ERP systems is in¯uenced by European or US industry/business practices. and culture [7]. Such IT-driven initiatives require change of the organization's socio-technical system. Kim / Information & Management 40 (2002) 25±40 generic solution applicable to a broad market. respectively. environment. package adaptation or organizational adaptation. Such mutual adaptation process brings the organization's existing operating processes and the packaged software's embedded functionality into alignment through a combination of software con®guration and organizational change [49]. In this study. ERP diffusion agencies including ERP vendors and consulting ®rms recommend strongly that ERP projects embody the universally applicable `best practice' and should be implemented without extensive adaptation of the packaged software [1]. Y. IT strategy. few examined the organizational ®t issues of ERP empirically. First. Such con¯icting interests led us to explore an organizational ®t perspective of ERP implementation. Marius and Ashok [30] hypothesized that packaged software implementation success is positively associated with the degree of vendor ®t with user organization and the degree of software ®t with user organization. Thus organizational resistance to change is identi®ed as a critical success factor for ERP implementation [26. Markus and Robey [33] attributed such invisibility to the unpredictably complex social interaction of IT and organization. ERP necessitates disruptive organizational changes [17. since ERP philosophy is process-based. In contrast. and IT infrastructure and processes.34]. people. we de®ne the concept of organizational ®t of ERP and empirically examine its impact on ERP implementation success along with the moderating roles of ERP implementation contingency variables such as ERP adaptation.49. which is intertwined of technology. structure. some academics maintain that the notion of `best practice' is illusory and potentially disruptive because ERP does not provide models for every process of every industry and most ®rms usually recon®gure or add new functionality to ERP systems for optimal use within their unique context [46].-G. process adaptation. and individual characteristics. ERP related literatures are reviewed. researchers studying IS contingencies have typically focused on the ®t between speci®c organizational dimension and IS [21. and organizational resistance. Although the ®t between ERP and the organizational context is believed to be critical for successful ERP implementation. The critical challenge of ERP implementation is believed to be the mutual adaptation between the IT and user environment [49].23].-K. The relative invisibility of the ERP implementation process is also identi®ed as a major cause of ERP implementation failures [13]. technology. An important criterion used in selecting an ERP system is the ERP ®t with the current business processes [9]. Gattiker and Goodhue [10] suggested that while inter-dependences among sub-units .

or country-speci®c requirements that do not match the capabilities of ERP. software.49. From the duality perspective of technology.40].14. we de®ne ERP implementation success from the ERP implementation project perspective. knowledge. the concept of organizational ®t seems to be the core research construct to explain the implementation success in diverse IT implementation contexts. practice)'' [36]. 3. Y.6]. In the ERP implementation context. and maintained. In the adaptation stage of IT implementation model. the impact of organizational ®t of ERP was not empirically tested. Most studies on the implementation of application software packages emphasize the critical nature of the adaptation process [10. Typically. Thus. assumption.-K. Swan et al. [46] argue that organizational mis®ts of ERP exist due to the con¯icting interests of user organization and ERP vendors. Which direction is desirable depends on one's point of view and various implementation contingencies [27. early operational metrics. Kim / Information & Management 40 (2002) 25±40 27 give rise to better ®t of ERP with global operation needs. 1 and discussed below. based on Markus and Robey [32] de®nition.44. ERP implementation success While some ®rms announced ERP implementation success. An ERP implementation failure may be fatal to a ®rm: either wasting enormous sums of money or destroying the competitive advantage of the ®rm [5. that is: ``re-invention of the technology and simultaneous adaptation of the organization'' [27]. and then deciding how these gaps will be handled [1. The adaptation of ERP and organizational processes is an iterative process entailing on-going social action that is clearly constrained by both the structural properties of the organization and the built-in properties of the ERP [50]. A critical challenge in ERP implementation has to do with ®rst identifying gaps between the ERP generic functionality and the speci®c organizational requirement. 3. Adaptation may address the user' procedures. ERP is a ``technological artifact bundling material and symbolic properties in some socially recognizable form (e. In this paper. While there is a wide range of con®gurations available in any major ERP product. we de®ne organizational ®t of ERP as the congruence between the original artifact of ERP and its organizational context and will examine its impact on ERP implementation success empirically. an IT application is developed.K. Hong. ERP is frequently unable to model some of the adopting ®rm's existing procedures [10]. For the successful .1. the user departments of the customer organization would prefer ERP adaptation to process adaptation which will necessitate the signi®cant changes in their work environment.g. 2. Soh et al. however. There are two alternative approaches to the implementation of a packaged software: package adaptation to organizational needs and organizational adaptation to the package [7]. many others reported negative results of ERP implementation [5. To manage ERP implementation successfully. ERP implementation contingencies Implementation of a technical innovation is viewed as a dynamic process of mutual adaptation.2. installed. hardware.50].-G. [44] also suggest that ERP mis®t stems from the ®rm-. Research model and hypotheses This study examines the relationship between the organizational ®t of ERP and ERP implementation success.28]. The effects of three implementation contingencies on this relationship are explored as moderating variables. differentiation among sub-units develop poor ®t of ERP with local operation needs. organization members are trained both in the new procedures and in the new IT application [4].6]. The research model is illustrated in Fig. or relationships as well as physical aspects of the technology [48]. In this study. Markus and Tanis [34] argued that a minimum set of success metrics includes project metrics. and longterm business results. The adaptation concept is applicable not only to custom software but also to off-the-shelf packages [34]. a high level ERP implementation success measure is required [39]. ERP vendors recommend process adaptation and discourage ERP adaptation for fear of potential performance and integrity degradation as well as maintenance and future upgrade dif®culties. On the other hand. organizational procedures are revised and developed. ERP implementation also involves business process change (BPC) and ERP adaptation to align the software with the business processes [20].

ERP systems. Kim / Information & Management 40 (2002) 25±40 Fig. we expect a stronger the base relationship and expect the opposite when the level of ERP adaptation is high. when the level of ERP adaptation is low. we expect that organizational ®t of ERP will be more strongly associated with ERP implementation success. Thus. which is likely to result in lower resistance. It is also argued that re-invention or adaptation of an innovation might reduce mistakes resulting from the implementation uncertainty [40]. This leads to our ®rst hypothesis. In base relation. a specialized programming language and thirdparty bolt-on software to ®ll the gap between ERP functionality and organizational requirements. ERP extensions utilize the ``user exit'' function for local code. while there must be the minimum organizational ®t level which ERP implementation is destined to fail regardless of whatever adaptations. reduced training needs. Y.-K. In the case of low ERP adaptation. ERP customization (also called con®guration) is to choose among the reference processes and set the parameters in ERP without changing the ERP source code. 3. mitigating the effect of organizational ®t of ERP. we hypothesize that organizational ®t of ERP is positively related to ERP implementation success.-G. we expect that organizational ®t of ERP will not be as strongly associated with ERP implementation success as in low ERP adaptation because the high level of ERP adaptation would have reduced the gap between ERP and organization. extension. and modi®cation. Hypothesis 1. because the low level of ERP adaptation would not affect the initial organizational ®t of ERP value signi®cantly. [3] contend that ERP implementation success depends on the type and extent of ERP adaptation. Brehm et al.2. Glass [11] categorized ERP adaptation types into customization. implementation of ERP. Hong. But in the case of high ERP adaptation. ERP adaptation increases the feature-function ®t between ERP and the adopting organization. none of the ERP vendors acknowledge the fact or attempts to assess the implementation feasibility based on the organizational ®t of ERP. Organizational fit of ERP is positively related to ERP implementation success. ERP modi®cation changes the ERP source code.28 K. Besides. 1. There is an interaction effect of the level of ERP adaptation on the relationship between . identifying eight ERP adaptation types. organizational ®t of ERP is important. we restrict ERP adaptation to extension and modi®cation because customization does not change the basic ERP identity. In this paper. because organizational mis®t of ERP requires massive changes in the adopting organization's business process. ERP adaptation Technological adaptation is referred to as the adjustments and changes following the installation of a new technology in a given setting [48]. In contrast. While ERP vendors presume that ERP embodies the universally applicable best practices. Laughlin [26] regarded matching functionality with ERP as one of the major factors for ERP implementation. Hypothesis 2. most organizations adapt ERP to their unique organizational contexts [46]. Research model. less organizational adaptation [2]. or both [37].

When ERP implementation involves adapting the existing business processes to the standard business process of ERP. The adaptation of organizational process in BPC literature emphasizes the need to take account of the management of organizational change. There is an interaction effect of the organizational resistance on the relationship between organizational fit of ERP and ERP implementation success. Previous IS research. One case was dropped due to incomplete data entry. Organizational resistance ERP implementation will affect most of the company's business functions and in¯uence users directly.-K. we expect that organizational resistance will moderate the relationship between organizational ®t of ERP and ERP implementation success.18]. Any ERP project team will face a certain level of organizational resistance due to its disruptive change [26]. Sample and data collection The target of this study was the organization that has implemented ERP. She noted that the political perspective appears to be primarily applicable for cross-functional IS. ERP implementation usually triggers a diverse group of overt and covert opponents within the organization. based on the same reasoning for hypothesis two. we expect the stronger base relationship and expect the opposite when the level of ERP adaptation is high. Hong. In total. were identi®ed and replaced with the . one item for implementation success and another item for ERP adaptation. We used the key informant method for collecting information on a social setting by interviewing (or surveying) a selected number of participants. In a political perspective. Based on this realization. organizational culture. based on different theoretical perspectives. Since process adaptation induces the same effect on the relationship between organizational ®t of ERP and implementation success as ERP adaptation. [15] empirically found that change management is the most critical source of BPC implementation. Hypothesis 4. etc. we expect a stronger relationship and expect the opposite when the level of process adaptation is high. organizational structure. implementation of a packaged software requires that its implementing organization adapt some of its organizational processes to ®t the basic business practices that are embedded in such application packages [8.) and their interactions must also be changed together [17]. Process adaptation ERP implementation may cause radical organizational changes that need to be carefully managed [2. Markus [31] explains resistance to IT implementation in terms of power distribution mis®t of IS.g.3. Y. 3. training. Grover et al. In an MRP study.-G. Two missing values. measurement compensation. other organizational components (e.1. We contacted the ERP project managers in charge of ERP implementation in each ®rm. Unlike the design and development of a custom software. who forwarded our questionnaires to his/her project team members in charge of individual process. Fifty ®rms were identi®ed from the lists provided by the ERP vendors. Cooper and Zmud [4] suggested that organizational resistance and lack of MRP understanding had more explanatory power of inhibiting MRP infusion within its work environment than the task ®t of MRP.K. one hundred and six questionnaires were collected from 34 ®rms.17. Resistance to a change stems from change in the job content and uncertainty of the new system [22]. when the level of process adaptation is low. Research method 4. There is an interaction effect of the level of process adaptation on the relationship between organizational fit of ERP and ERP implementation success. has made a substantial progress in understanding the resistance introduced by IS implementation. Hypothesis 3. When the level of organizational resistance is low. 3. Since the organization and process changes induced by ERP implementation force involuntary changes and frequently lead to different power and resource allocations.4. 4. About 350 survey questionnaires were sent to the ERP project manager of each ®rm.28]. Kim / Information & Management 40 (2002) 25±40 29 organizational fit of ERP and ERP implementation success.

we measured ERP implementation success in terms of the perceived deviation from the expected project goals such as cost overrun. Process adaptation and organizational resistance measurements were developed and evaluated based on the relevant literature and validated through a series of in-depth discussion with different ERP project teams. Characteristics of respondent ®rms Respondent ®rms consist of 25 manufacturing ®rms and nine non-manufacturing ®rms.24. Some items were revised on the basis of the pilot result. process.4. Soh et al. Kim / Information & Management 40 (2002) 25±40 average value of the rest of the items.-K. [44] examined organizational ®t of ERP in terms of data. system performance de®cit. schedule overrun.6. and failure to achieve the expected bene®ts. Oracle ERP (6). Table 1 Operational de®nitions of variables Variable Implementation success Organizational fit of ERP ERP adaptation Process adaptation Organizational resistance a a 4. We then developed the questionnaire items based on the literature and the ®eld visits. 4.30 K. We con®rmed that the ERP adaptation instrument was applicable to different ERP systems through a series of the project team's reviews and pretests. Organizational ®t of ERP ERP technological artifacts are basically characterized as integration of data and process within and across functions of an organization [6. which normally include multiple parameters such as time. process. system performance and benefits The degree of alignment between ERP model and organization needs in terms of data. Hong.3. and user interface ®t of ERP before or at the initial implementation period. Y. Bann BPCS (1). Considering that user interface plays an increasingly critical role for the missioncritical enterprise systems such as ERP. Implementation project success is frequently de®ned in terms of the achievement of some predetermined goals. time. process and user interface The extent of efforts and time spending in ERP alteration to align with organizational process needs except for ERP customization The extent of efforts and time spending in process change to align with ERP The strength of negative organizational response to ERP implementation Reverse scale. The survey questionnaire was revised through four rounds of line-by-line discussion with the help of business process experts with signi®cant ERP project experience. 4. we operationalized the organizational ®t of ERP construct in terms of data.34]. the dependent variable in this study.5. The operational de®nitions of the variables used are summarized in Table 1. Implementation contingencies We identi®ed the type of ERP adaptation based on the industry expert interviews and developed the ERP adaptation measurement. To pretest the reliability and validity of the instruments. function [34]. ERP implementation success ERP implementation success. we conducted a pilot study. 4. three or four persons per ®rm participated in our survey (Appendix A). Table 2 shows pro®les of the respondent ®rms in terms of annual revenue and number of total employees. and output. using the 32 questionnaire responses from six ®rms. Firms were using four ERP products: SAP R/3 (14). In a traditional software application perspective. Measurement development We ®rst conducted a series of in-depth interviews with various ERP project managers and members to examine the external validity of our research model. In this study. On the average. is different from the traditional IS success measure in that it is not evaluated by the general users but by the project team members. cost. including service and distribution ®rms. . 4. Operational definition The degree of deviation from project goal in terms of expected cost.2. UniERP (13). as well as the comments gathered from the interviews.-G.

and a pilot pretest. These results con®rm that each of these construct is unidimensional and factorially distinct and that all items used to operationalize a particular construct is loaded onto a single factor. The internal consistency (Cronbach's alph) of the construct ranged from 0.-K.5 for each construct. indicating good discriminant validity. Y. the result seems acceptable. The reliability results of the constructs are summarized in the ®fth column of Table 3. we conducted factor analysis to check the unidimensionality of the items.-G. Hong. In order to obtain evidence of the construct validity of an instrument. based on the correlation of each item to the sum of the remaining items. Content validity Content validity means how representative and comprehensive the items were in creating the scale. The content validity of the instruments was established through the adoption of the relevant construct in the literature. Given the exploratory nature of the study.K. 4. In Table 3.8. Table 4 provides the factor pattern matrix that shows the loadings of each item on independent and dependent variables.000 100 to below 1000 Less than 100 Total Frequency 6 14 11 3 34 2 8 21 3 34 Percentage 17. discriminant validity was con®rmed when items for each variables loaded onto single factors with loadings of greater than 0. Five factors emerged with no-cross construct loadings above 0. Instrument validation Instrument validation is a prior and primary process in empirical research. Correlations among the proposed moderating variables do exist but would not pose a serious problem since their values are less than 0. multicollinearity is not a problem since we have only one independent variable. we evaluated the item-tototal correlation. The instrument also demonstrated convergent validity with factor loadings exceeding 0.9 23. For convergent validity. A common concern of any regression analysis is the multi-collinearity that may exist among the independent variables [16].6 41. a series of reviews with the help of business process experts with deep ERP knowledge. 4. The internal consistency reliability was assessed by calculating Cronbach's alpha values.75 (for implementation success) to 0.7.000 and above 1000 to below 10. Table 3 shows the correlations for each of research variables whose item-to-total correlation score was greater than 0. Reliability Reliability is the accuracy or precision of a measuring instrument. We followed Straub's [45] guidelines to validate the instruments used in our research.4. 4. Kim / Information & Management 40 (2002) 25±40 Table 2 Pro®le of respondent ®rms Range Annual revenue More than $1 billion and above $100 million to below $1 billion $10 million to below $100 million Less than $10 million Total Number of employees 10.5 [16] and each of them will be analyzed separately.8 100 5.9.5 61.10. Results The correlation matrix between variables is presented in Table 5.8 8. that is the extent to which the respondent can answer the same or approximately the same questions the same way each time [45]. 5. Since each variable was measured by the multi-item constructs.2 32.4 8.93 (for process adaptation). In our model.8 100 31 4. a researcher must make use of both a convergent validity and a discriminant validity [35].5. This approach assumes that the total score is valid and thus the extent to which the item correlates with the total score is indicative of convergent validity for the item. Construct validity Construct validity is established by relating a measuring instrument to a general theoretical framework in order to determine whether the instrument is tied to the concepts and theoretical assumption they are employing. .5 [16]. Discriminant validity was checked by factor analysis.

0. 0.767.83 0.90 0.904. 0. 0.746 0.26 1. 1.06 3. 0. 0.881.603 Reverse score.892.93 0.620.748.737. 0. 0. 0.D. 0.33 S.95 3.845. 0. Hong.32 1.82 0. 0. 0.825.759.814. 0.890.854.600. 0.551 0. Kim / Information & Management 40 (2002) 25±40 Table 3 Summary of reliability and validity of the measurement Measure Implementation success (R)a Organizational fit of ERP Process fit Data fit User fit ERP adaptation Process adaptation Organizational resistance a Items 4 11 4 4 3 6 5 5 Mean 4. 0.826. 0. 0. Y.637 0.49 3. 0.655.682.790.60 1.603 Discriminant validity (factor loading on single factors) 0. 0.804.666 0. 0.548 0.865. .32 K.854 0.71 4. 0.896. 0. 0.33 1.806. 0. 0. 0.75 0.775 0.57 4.624.702 0. 0.89 Convergent validity (correlation of item with total score-item) 0. 0.844.894.802.590. 0.822. 0. 0.714.515.36 1. 0.50 Reliability (Cronbach's alpha) 0. 0.857 0.-G. 0.903. 0. 0.889. 0.797.842. 0.890.773 0.613. 0.74 0.836.890.63 4.-K.768. 0. 0. 0.726 0. 0.637.595.830.451.798.798. 0.46 1. 0.724.741.89 0.799. 0. 0.823 0.

230 À0.090 0.096 À0.126 À0.156 À0.166 0.023 0.847 0.34 7.357 À0.063 À0.256 0.010 À0.792 0.24.196 À0.786 0.055 À0.778 À0.1 Extraction method: principal component analysis.172 À0.083 0.546 0.079 0.294 À0.203 0.203 À0.068 0.169 À0.262 0.117 À0.115 0.118 0.361 0.015 À0.217 0.2.212 0.265 À0. P > 0:200).106 0.806 0.260 0.057 0.216 4.220 0.278 À0.321 0.011 0.066 0. Testing the contingency relationships For analysis of the moderator variables.788 0.585 0.089 0.039 0.048 0.063 0.37 14.237 À0.012 0.184 4.258 À0.114 0.060 0.160 À0.555 2.091 0.323 5.346 0.079 À0.2 59 5 0.018 À0.168 À0. rotation method: varimax with Kaiser normalization. 5.635 0.113 À0.037 À0.081 0.083 0.187 0.780 0.2 3 À0.027 0.069 À0.-K.250 À0.019 0.737 0.752 0.003 0. 5.1 33. Y.91 19.781 0.248 0. P < 0:002).015 À0.124 À0.030 À0.128 0.015 0.191 À0.137 0.035 À0.446 À0.071 0.217 0. supporting the Hypothesis 1.800 0.066 À0.059 À0.199 À0.629 0.038 À0. The results from the normal probability plot and Kolmogorov±Smirnov test indicated no violation of normality for the regression model (statistic ˆ 0:54±0.087 0.230 À0.187 0.189 À0.735 À0.9 47 4 0.081 À0.050 À0.648 0.1 19.061 À0.040 À0.070 0.049 0.26 and 0.744 0.7 0.848 0.714 0.077 À0.104 À0. The base relation between organizational ®t of ERP and ERP implementation success was signi®cant (r ˆ 0:51.027 0.186 À0.058 0.754 0.189 0.180 0.048 0.1.347 À0.162 À0. we will use the typology of moderator variables and the method .681 0.177 À0.72.745 0.235 À0.199 0.270 0.255 À0.175 0. the value of R2 and adjusted R2 was 0. Kim / Information & Management 40 (2002) 25±40 Table 4 The result of factor analysisa Scale items Factors 1 ORGFIT1 ORGFIT2 ORGFIT3 ORGFIT4 ORGFIT5 ORGFIT6 ORGFIT7 ORGFIT8 ORGFIT9 ORGFIT10 ORGFIT11 ERPADPT2 ERPADPT3 ERPADPT4 ERPADPT5 ERPADPT6 ERPADPT7 PROCADPT1 PROCADPT2 PROCADPT3 PROCADPT4 PROCADPT5 ORGRST1 ORGRST2 ORGRST3 ORGRST4 ORGRST5 PJTSUC1 PJTSUC2 PJTSUC3 PJTSUC4 Eigenvalues Percentage of variance explained Cumulative percentage a 33 2 À0.062 À0.052 0.K.059 À0.745 0.838 0.-G.846 0.192 0. Testing the base relationship Correlation analysis was used for testing the base relationship between organizational ®t of ERP and ERP implementation success.669 0.135 À0. Hong.871 0.29 13.056 À0.335 3.061 0.165 0.220 0.314 0.100 À0.139 0.205 À0. In simple regression of organizational ®t of ERP on implementation success.228 À0.643 0. It indicates that 24% of the implementation success variance is explained by the organizational ®t of ERP.145 0. respectively.756 0.78 12.5 66.

In contrast.01. moderator variables in cells 3 and 4 in¯uence the form of the relationship between the predictor and criterion variables.002 0.243 R2 0. ORGRST.26 0.26 0. Table 6 The test results of the moderated regression effects Regression modela ORGFIT ORGFIT ‡ ERPADPT ‡ interaction ORGFIT ORGFIT ‡ PROADPT ‡ interaction ORGFIT ORGFIT ‡ ORGRST ‡ interaction a b (interaction) À0. suppressor. Fig. P < 0:01. supporting the Hypothesis 2. [42].42* 0. antecedent.49** À0.50 À0. organizational ®t of ERP.-G. To test the three contingency variables. process adaptation.47 0. organizational resistance.18 0. exogenous. ERPADPT. Cell 4 is referred to as pure moderator. implying a signi®cant interaction between the moderator and predictor variables.11 ORGFIT.006 0. Fig. 2 depicts this typology. which interacts with predictor variables while having a negligible correlation with the criterion itself.44 0.-K. Kim / Information & Management 40 (2002) 25±40 Table 5 Correlations matrix between variables (1) Implementation success (1) Organizational fit of ERP (2) ERP adaptation (3) Process adaptation (4) Organizational resistance (5) * ** (2) (3) (4) 0. These two facts suggest that ERP adaptation is a quasi-moderator of the base relationship between organizational ®t of ERP and implementation success.26 0. for identifying moderator variables developed by Sharma et al. we followed the four-step procedure for identifying moderator variables [42] (described in Appendix B).002 0. ERP adaptation was negatively correlated with both organizational ®t of ERP (À0.58 À0. The target variable in cell 2 is referred to as homologizer. While the ®rst line in each pair of regression models of the table shows the results of the regression run without interaction. In the ®rst pair of regression models.39* 0.58** À0.49) at the level of signi®cance 0. it is found that the interaction term was signi®cant at the level of 0.46** À0.18 0.25 p (interaction) 0. The target variable in cell 1 is referred to as an intervening. In the correlation matrix of Table 5. PROADPT.42* P < 0:05.58) and ERP implementation success (À0. . which not only interacts with the predictor variable but is a predictor variable itself.21 0. Variables in cells 2±4 are referred to as moderator variables. The test results of the three moderating effects are summarized in Table 6.51** À0.002 0.000 0.005 0.37 p (model) 0. which has two dimensions: whether the target variable is related to a criterion (dependent) variable and whether the target variable interacts with the predictor (independent) variable. Hong. Typology of moderator variables.003 DR2 0. ERP adaptation. or predictor variable depending on its other characteristics.22 À0. Cell 3 is referred to as quasi-moderator. Y.34 K.36* À0. which in¯uences the strength of the relationship between the predictor and criterion variables across homogeneous subgroups. the results of the regression run with the interaction term are in the second line.000 0. 2.01.

relatively little research has been conducted about ERP implementation [49. In the third pair of regression models. Kim / Information & Management 40 (2002) 25±40 Table 7 Summaries of the moderated regression analysis Related to either criterion or predictor No interaction with predictor Interaction with predictor Organizational resistance is not moderator ERP adaptation is quasi-moderator 35 Not related to criterion and predictor Process adaptation is pure moderator In the second pair of regression models. . increasing each adaptation is predicted to have a positive impact on implementation success given the same level of organizational ®t of ERP.K. antecedents. In the previous section. or predictor variable types.50]. exogenous. 3 and 4 represent the family of the base relationships between organizational ®t of ERP and implementation success for different values of Fig. there is no interaction effect. In the range of ``below the in¯ection point''. respectively.3. We will discuss these facts in detail below. 4. Interpreting the moderating effects To properly test a contingency hypothesis. Family of base relationships across process adaptation. And the correlation matrix in Table 5 shows that organizational resistance is negatively associated with both organizational ®t of ERP and implementation success. Hong. Discussion Although ERP implementation has been one of the most signi®cant challenges for IS practitioners in the last decade.-G. Organizational resistance was not found to have a moderating effect. In the range of ``above the in¯ection point''. 6. supporting the Hypothesis 3. process adaptation works as a pure moderator of the base relationship. So we believe that process adaptation is a pure moderator of the base relationship between organizational ®t of ERP and implementation success. suppressor. it was also found that the interaction term was signi®cant at the level of 0. We ®nd that the relationship between organizational ®t of ERP and ERP implementation success changes from ``positive'' to ``negative'' as the level of adaptation (both ERP and process) intensi®es. Based on these facts.01. we found that organizational ®t of ERP has a signi®cant effect on ERP implementation success. we suggest that organizational resistance is not a moderator of the base relation but one of the intervening. Table 7 summarizes the results of these moderated regression analyses. Family of base relationships across ERP adaptation. it is necessary to display interaction term graphically as well as to examine it mathematically [41]. ERP adaptation and process adaptation. The correlation matrix in Table 5 shows that process adaptation is neither associated with organizational ®t of ERP nor associated with implementation success. Y. Fig. 3 and 4. Figs. We plotted the joint effect of the main and interaction term in Figs. 3.-K. It was also found that while ERP adaptation is a quasi-moderator of the base relationship between organizational ®t of ERP and ERP implementation success. increasing each adaptation has a negative impact on implementation success given the same level of organizational ®t of ERP. 5.

Organizational resistance Because organizational resistance did not interact with organizational ®t of ERP to explain ERP implementation success but had signi®cantly negative association with ERP implementation success. thorough mis®t analysis and resolution plan based on ERP knowledge will mitigate the escalating project risk over the course of implementation.36 K. 26% of the implementation success variance was signi®cantly explained by the organizational ®t of ERP. Y. More relevant variables associated with ERP implementation.-G. It might be interesting to explore ERP functionality enhancement process issues [43] for ERP implementation success. Hong. Besides.1. leaving out factual aspect of success outcome in the IS research. must evaluate organizational ®t of ERP and plan for appropriate type and level of adaptation. 7. We investigated the potential mediating effect of organizational resistance between organizational ®t of ERP and implementation success. it was found to be a pure moderator of the base relation.84. we speculate that ERP adaptation may have stronger explainability on ERP implementation success than process adaptation. This speculation is supported by the comparison of R2 change of the models one and two in Table 6 (0.84 and positive in its range below 2.18. ERP adaptation might be more exposed to threats and risks than process adaptation. the impact of process adaptation on implementation success mono- tonically decreased in the higher range of organizational ®t of ERP and monotonically increased in the lower range. the practice of adapting software package has become increasingly common in reality [46]. This might imply that. 6. The impact of ERP adaptation on ERP implementation success was negative in the organizational ®t range above 2. respectively.-K. we focus on a limited number of variables for ERP implementation success.3. we only used perceived project metrics in de®ning implementation success. may be added to improve the understanding of ERP implementation success. From a resource dependence view. Organizational ®t of ERP In the simple regression. Second. Since process adaptation was not associated with organizational ®t of ERP or ERP implementation success. [28] found some support for the role of organizational mis®t of production system package in the implementation process. managers can also utilize the proof of concept methodology [38]. we conclude that it is not a moderator variable. Soh et al. because ERP adaptation requires heavier dependence upon uncontrollable resources such as consulting ®rms or ERP vendors than process adaptation. ERP adaptation and process adaptation Despite the ERP vendor's caution. Since organizational resistance also had a signi®cantly negative relationship with organizational ®t of ERP. project team competence.2. Since ERP adaptation as a quasi-moderator has interaction effect as well as direct effect on ERP implementation success while process adaptation has only the interaction effect. the higher ERP adaptation only leads to the lower implementation success. Before ERP adoption. before embarking on an ERP implementation project. they can focus on the key process features of the organization in advance of ERP adoption. where instead of developing and evaluating the exhaustive list of functional requirements. for example. project managers. This study found that there is a signi®cant threshold interaction effect of ERP adaptation on the relationship between organizational ®t of ERP and ERP implementation success. To assure organizational ®t of ERP. Lucas et al. This was due to the dif®culty in securing the factual data from the participating .21 and 0. respectively). 6. First. the extended models with interaction term (ERP adaptation and process adaptation) signi®cantly explained 47 and 44% of the implementation success variance. beyond a certain level of organizational ®t. [44] argue that mis®t analysis requires both comprehensive understanding of critical organizational processes and detailed knowledge of the complex ERP. Limitation and conclusions There are many limitations in this study. Kim / Information & Management 40 (2002) 25±40 6. we believe it is an intervening variable between organizational ®t of ERP and implementation success with very marginal effect (DR2 ˆ 0:08) on improving the predictive validity of the model. Similar to the ERP adaptation. Because the organizational ®t of ERP was found to have a signi®cant effect on ERP implementation success.

sales report).K. the link between organizational ®t of ERP and ERP implementation success was not empirically validated. Therefore. this was due to the dif®culty of securing data from both ERP project members and operating department personnel. In addition. User interface of the ERP is well designed to the business needs of our company. User interface of the ERP is well designed to the user capabilities of our company. 4. The system performance of ERP is signi®cantly below the expected level. The processes built in ERP correspond to the business practices of our company. more adaptation will only lead to lower implementation success. The anticipated bene®ts of ERP have not been materialized. 10. Signi®cant time and effort have been required to alter ERP data items to align with our organizational process needs. since ERP adaptation also shows a signi®cantly negative direct correlation with implementation success (while process adaptation only shows interaction effect). User interface structures of the ERP is well designed to the work structure required for conducting business in our company. Signi®cant time and effort have been required to append new ERP data items to align with our organizational process needs. (User interface ®t) 9. 2: disagree. The input data items of the ERP correspond to those of the documents used in our company. 3: somewhat disagree. The ERP project took signi®cantly longer than expected. for successful ERP implementation. Y. Again. The processes ¯ow built in ERP correspond to ¯ow of organizational processes. . The processes built in ERP meet all needs required from organizational processes. [3] to minimize the potential business disruptions and user resistance. ERP adaptation (seven-point Likert type scale) 1. The form and format data items of the ERP correspond to those of the documents used in our company. 4. The output data items of the ERP correspond to those of the documents used in our company. Despite the fact that more and more companies are investing in ERP for replacing their custom-built legacy systems. an sales order sheet. we found that organizational ®t of ERP is indeed critical in explaining ERP implementation success. Hong. In this study. Appendix A. 2. We also learned that.-G. 6. Beyond a certain level of organizational ®t. should measure and manage the impact of ERP and process adaptations from a risk assessment approach as suggested in Brehm et al. we found that both ERP and process adaptations interact with organizational ®t of ERP on ERP implementation success. 4: neutral. We learned that ERP and process adaptation are only effective when organizational ®t of ERP is relatively low. 7. 7: strongly agree. 3. 11. 8.e. 2. 5: somewhat agree. Implementation success (seven-point Likert type reverse scale) 1. the research in organizational ®t of ERP has been generally overlooked. 3. The cost of ERP project was signi®cantly higher than the expected budgets.-K. Survey instrument The different opinions are indicated by the numbers 1: strongly disagree. this paper has a common method bias because the dependent variable and independent variables rated by the same respondent. Kim / Information & Management 40 (2002) 25±40 37 organizations. once adoption is decided. The name and meaning of the ERP data items correspond to those of the documents used in our company (i. as many ERP vendors have claimed. ERP implementation managers as well as top management should be able to assess the ®t between their organization and the target ERP system before its adoption and. (Data ®t) 5. The processes built in ERP accommodate the change required from organizational processes. Organizational ®t of ERP (seven-point Likert type scale) (Process ®t) 1. process adaptation may be a safe choice than ERP adaptation when organizational ®t of ERP is low. While it is recognized that organizational ®t of ERP is a critical selection criterion for ERP [9]. Many ERP vendors just ignore the organizational ®t concept and urge blind trust on ERP from their clients. 2. 6: agree. Third.

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and Knowledge Management. Young-Gul Kim is an Associate Professor at the Graduate School of Management of the Korea Advanced Institute of Science and Technology (KAIST) in Seoul. He received his BS and MS degrees in Industrial Engineering from the Hanyang University and KAIST. . Kim / Information & Management 40 (2002) 25±40 Kyung-Kwon Hong is a doctoral candidate at the Graduate School of Management of the Korea Advanced Institute of Science and Technology (KAIST) in Seoul. Decision Support Systems. Database. Data and Process Modeling and Customer Relationship Management. IT Management. Korea and his PhD degree in MIS from the University of Minnesota. etc.-K.-G. Information and Management. He has published in Communications of the ACM. He received his BS and MS degrees in Industrial Engineering from Seoul National University. Information Systems Innovation. He has worked for Korea Telecom during 10 years. His active research areas are: Knowledge Management. Journal of MIS. Hong.40 K. Y. respectively. His research interests include Packaged Software Implementation.