contingency theory.pdf

International Journal of Information Management 28 (2008) 391402

Implications of the fit between organizational structure and ERP:A structural contingency theory perspective

Neil A. Morton, Qing Hu!

Department of Information Technology and Operations Management, Barry Kaye College of Business,Florida Atlantic University, Boca Raton, FL 33431-0991, USA

Abstract

Despite the tremendous popularity and great potential, the field of Enterprise Resource Planning (ERP) adoption and implementationis littered with remarkable failures. Though many contributing factors have been cited in the literature, we argue that the integratednature of ERP systems, which generally requires an organization to adopt standardized business processes reflected in the design of thesoftware, is a key factor contributing to these failures. We submit that the integration and standardization imposed by most ERP systemsmay not be suitable for all types of organizations and thus the fit between the characteristics of the adopting organization and thestandardized business process designs embedded in the adopted ERP system affects the likelihood of implementation success or failure.In this paper, we use the structural contingency theory to identify a set of dimensions of organizational structure and ERP systemcharacteristics that can be used to gauge the degree of fit, thus providing some insights into successful ERP implementations.Propositions are developed based on analyses regarding the success of ERP implementations in different types of organizations. Thesepropositions also provide directions for future research that might lead to prescriptive guidelines for managers of organizationscontemplating implementing ERP systems.r 2008 Elsevier Ltd. All rights reserved.

Keywords: ERP; ERP implementation; Contingency theory; Organizational structure

1. Introduction

Enterprise Resource Planning (ERP) systems havebecome the backbone of IT infrastructure in most large-and medium-sized organizations across the world. ERPsystems are essentially software packages that integrateinformation flow across business functions and unitboundaries, and even among business partners. Thebenefits associated with ERP systems are both tangibleand intangible (Murphy & Simon, 2002), and could bereflected in operational, managerial, strategic, infrastruc-tural, and organizational dimensions of a business (Shang& Seddon, 2002). When implemented successfully, ERPsystems can reduce cycle time, enable faster businesstransactions, facilitate better management, and enablee-commerce integration (Davenport, 2000). However, the

successful implementation of ERP systems has proven tobe a difficult task. In one estimate, over half of ERPimplementations are judged to be failures (Scheer &Habermann, 2000).The implementation of an ERP system generally requires

an organization to adopt the standardized business processesembedded in the software and to move away from a function-based organizational structure in favor of an integrated,process-oriented structure (Al-Mashari, 2003; Benders,Batenburg, & van der Blonk, 2006; Davenport, 1998). Whilesuch effects may be desirable to many organizations, theymay not be appropriate for all (Davenport, 1998; Davison,2002). Researchers have long recognized that a criticaldeterminant of an information systems success within anorganization is the fit between the design of the system andthe organization (Markus & Robey, 1983, 1988).Accordingly, the internal structure of an ERP system is

not necessarily aligned with the implementing organiza-tions existing structure (Soh, Sia, & Boh, 2003). However,because of the promising strategic and operational benefits

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!Corresponding author. Tel.: +1561 297 3675; fax: +1 561 297 3043.E-mail addresses: [email protected] (N.A. Morton), [email protected]

(Q. Hu).

that may occur after the implementation of an ERP system,an organizations top management is often tempted toadopt ERP without understanding the consequences of apotential misfit between the system and the organization. Acomplex technological innovation, such as ERP, may beadopted by an organization without justifications ofperformance related benefits but under the pressure ofinstitutional forces (DiMaggio & Powell, 1983; Gosain,2004; Teo, Wei, & Benbasat, 2003). Indeed, inappropriateadoptions of ERP have been noted in the press andacademic studies, along with reports of implementationfailures and significant financial losses.As a consequence, ERP success has been a focal point of

academic research over the last decade. Multiple streams ofresearch exist on the critical factors required for successfulERP implementation as well as the impact of ERP onvarious performance and effectiveness measures (Al-Mashari, 2003; Hitt, Wu, & Zhou, 2002; Holland & Light,1999). Unfortunately, most of the research on criticalsuccess factors is void of a strong theoretical foundation(Robey, Ross, & Boudreau, 2002). Some of these studieshave investigated the issue of fit or alignment between ERPsystems and organizations. One notable example is a studyby Hong and Kim (2002). The authors found that the fitbetween ERP and organization, in terms of data, process,and user interface, had a significant effect on implementa-tion success. Another is Soh, Sia, and Tay-Yap (2000) whoargued that the misfit between ERP and organization isgreater in Asia, because the underlying structure of mostERP systems is influenced by the US and Europeanbusiness processes which in many cases are substantiallydifferent from those prevalent in businesses in Asia.However, few researchers have addressed the critical issueof fit between ERP and organizational structure with astrong theoretical lens. We argue that it is important forboth researchers and practitioners to understand: (1) whichtypes of organization may fit with ERP systems and whichmay pose significant challenges? (2) from what dimensionscould the fit between an organization and an ERP systembe examined? and (3) what precautions could an organiza-tion take to mitigate the risk of misfit? For this purpose, wedraw from Mintzbergs (1979) work on ideal organizationstructural types and Donaldsons (2001) work on structuralcontingency theory to examine the issue of fit betweenorganizational structures and ERP systems. In doing so, wehope to fill a significant gap in the current discussion onERP implementation and open new paradigms for futureresearch on this important issue.The balance of the paper is arranged as follows. We first

review the literature on the relationship between technologyand organizational structure and structural contingencytheory, from which we develop our research framework. Wethen identify contingency variables associated with ERPsystems and their related structural characteristics ordimensions. Propositions concerning the relationship be-tween ERP systems and a set of organization structuraltypes are developed based on the framework and the

variables identified. Finally, we submit concluding observa-tions and discuss potential future research directions.

2. Theoretical background

2.1. Technology and organization structure

The fundamental issue in this study is the relationshipbetween information technology and organizational struc-ture. Leavitt and Whisler (1958) argued that informationtechnology could have a significant impact on the shape oforganizations and the nature of managerial jobs. Theypredicted that entire levels of middle management would beeliminated, and centralized decision-making would resideat the highest levels of the corporate hierarchy. Subsequentliterature produced mixed findings on nearly all aspects ofthis relationship (Attewell & Rule, 1984). The prediction ofcentralization has proven true in some instances, whilegreater decentralization has occurred in others. Someresearchers agreed with the prediction of centralization(Reif, 1968), suggesting that the accurate informationproduced by the use of computers promotes control byupper management because it makes information morereadily available to high levels of authority.Other researchers (Markus & Robey, 1988) argued that

the computers ability to take over routine low leveldecision-making enables lower and middle level managersof organizations to handle higher level decisions, resultingin decentralization. More recently, researchers have putforth a more complex explanation of the relationshipbetween information technology and organizational struc-ture, suggesting that organizational design is an emergentprocess, with the organizational form being the result of acomplex interaction between the technological and socialenvironments (Lucas & Baroudi, 1994; Robey & Boudreau,1999). We submit that understanding the impact ofinformation technology on organizational structure re-quires a finer framework and analysis of the structuralcharacteristics of the focal organization and informationtechnology.

2.2. Dimensions of organizational structure

Organizational structure is more complicated thandistinguishing between centralized and decentralized op-erations or decision-making. Other commonly cited struc-tural dimensions include specialization, standardization,formalization, hierarchical levels, and span of control(Donaldson, 2001). Given the number of proposedstructural dimensions and the variety of their definitions,identifying a definitive set of organizational dimensions isdifficult without specific context and objectives (Blackburn,1982). For the purpose of our study, we argue that thedimensions developed in the structural contingency theoryliterature are appropriate starting points. Within thestructural contingency literature, the main organizationalcontingencies are specialization, formalization, structural

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differentiation, and decentralization (Donaldson, 2001). Inthis study, the dimensions of formalization and specializa-tion are merged into a single dimension of formalization, asis used in the technology-structure literature (Fry, 1982).This is because formalization and specialization are usuallyhighly correlated, thus a distinction between them is notalways made (Donaldson, 2001). In this paper, formaliza-tion is defined as the standardization of work processesand documentation (Donaldson, 2001), structural differ-entiation is defined as the difference in goal orientationand in the formality of the structure of the organizationalunits (Lawrence & Lorsch, 1967, p. 10), and decentra-lization is defined as the extent to which power overdecision-making in the organization is dispersed among itsmembers (Mintzberg, 1980, p. 326).In order to examine the fit between organizational

structures and ERP systems, it is useful to group thedimensions of structure into the common types generallyfound in organizational structure literature. Mintzberg(1979) conducted a synthesis of research on organizationdesign from which he developed five structural configura-tions that can be treated as a typology of ideal or pureorganizational types. These five basic configurationsprovide a useful framework of organizational structuresfor the purposes of this research. Although Mintzburg(1979) suggested four possible ways of using theseprototypes, we focus on the second applicationtreatingthe set of configurations as ideal typesas the startingpoint for our discussions. The ideal types and theirpertinent characteristics are presented in Table 1.

2.3. Structural contingency theory

Contingency theory posits that organizational effective-ness is achieved by matching organizational characteristicsto contingencies. Contingency is defined as any variablethat moderates the effect of an organizational character-istic on organizational performance (Donaldson, 2001, p.7). The structural contingency theory of organizationsargues that the performance of an organization isdependent upon the fit between organizational structureand contingencies. According to Donaldson (2001), threemain elements form the core paradigm of structuralcontingency theory: (1) there is an association betweencontingency and the organizational structure; (2) contin-gency impacts the organizational structure; and (3) there isa fit of some level of the structural variable to each level ofthe contingency, where high fit leads to effectiveness andlow fit leads to ineffectiveness. It is important to note,however, that effectiveness in contingency theory has awide-ranging meaning that includes efficiency, profitability,and worker satisfaction (Donaldson, 2001).A number of potential contingencies have been identified

in the literature (e.g., technology, innovation, environ-mental change, size, and diversification). Donaldson (2001)argues that size, environment, and technology are theunderlying contingencies in the structural contingency

literature. While size is relatively straightforward, the waysresearchers operationalized the environment and technol-ogy contingencies have been a source of problems(Pennings, 1975). Donaldson (2001) suggests that manycontingencies, excluding size, can be divided into twoaspects of organizational tasks; task uncertainty and taskinterdependence. Along with size, task uncertainty and taskinterdependence make up the underlying contingencies ofthe structural contingency literature.

3. Research framework and propositions

Applying the structural contingency theory in thecontext of ERP implementation, we can see that ERPsystems possess characteristics that relate to the task

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Table 1Ideal types of organizational structures (Mintzberg, 1979)

Ideal type Salient characteristics

Simple form ! Small, simple! Low formalization! Highly centralized! Unsophisticated technical systems

Machinebureaucracy

! Perform routine operating tasks! Highly formalized! Relatively centralized decision-making! Automated and integrated technology! Highly differentiated structure! Standardized work processes used for coordination! Operate in stable environments! Regulating, non-automated technical system

Professionalbureaucracy

! Decentralized decision-making! Standardization of skills used for coordination! Highly skilled workers who value autonomy! Nonregulating, nonsophisticated technical system

Divisionalizedform

! Centralized headquarters! Semiautonomous, loosely joined divisions! Little interdependence or close coordination

among divisions! Main goal of headquarters is to coordinate goals of

divisions with that of its own without sacrificingautonomy

! Standardized outputs of divisions used forcoordination

! Divisions are generally machine bureaucracies! Technical system separated into segments, one for

each division

Adhocracy ! Operates as a cohesive group working together! Mutual coordination and cooperation! Innovative! Workers are trained experts from different

specialties! Ad hoc project teams! Low formalization! Decentralized decision-making! Operate in dynamic environments! Sophisticated and often automated technical

system (in the administrative adhocracy)

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uncertainty and task interdependence contingencies, as wellas to the structural dimensions of formalization, structuraldifferentiation, and decentralization. From the discussionsof organizational types and structural contingency theorypresented above, the core research framework of this studyemerges. We posit that the fit between organizationaldimensions and characteristics of ERP systems hassignificant implications for the success or failure of ERPimplementation in organizations. In the context of ERPimplementations, organizational structures that have lowlevels of business integration and relatively non-standar-dized work processes will encounter high resistance fromwithin, as the ERP pushes the organizations to integratefunctions and units and adopt the standardized businessprocesses embedded in the system (Gattiker & Goodhue,2004). An organization that already uses a cross-functionalstructure might still face resistance as it is forced to changeits businesses processes in accordance with the onesembedded in the ERP modules to be implemented.However, such resistance could be much less significantthan the one in the previous case.Political conflicts and organizational resistance to

change have been identified as a critical success factor forERP implementation success (Hong & Kim, 2002; Lee &Myers, 2004) and other IT projects (Backhouse, Hsu, &Silva, 2006; Markus, 1983). Successful implementationdepends on emotions and politics as much as on rationaldecision-making (Markus & Robey, 1983). If the informa-tion system fits well with the organization, then the powerstructures, responsibilities, and job definitions will notchange as significantly (Leifer, 1988). The greater thechange the system imposes, the greater the resistance; thegreater the resistance, the less chance for implementationsuccess (Markus, 1983; Markus & Robey, 1983). Theseideas are presented in Fig. 1.

3.1. ERP characteristics, structural dimensions, andcontingencies

In this paper, for the benefit of theory development anddiscussion, we make the strong assumption that ERPsystems and their implementation in organizations are intheir pure forms. In its pure form, we assume the fullfunctionality of a single ERP package is implemented

throughout an organization. In practice, ERP vendorsusually offer a certain degree of customization to clientsand not all modules of an ERP package need to be installedin a particular implementation. For instance, SAP R/3systems contain 12 standard modules that are marketed asa single package, yet organizations may choose to installonly a few of them (Benders et al., 2006). However,focusing on a full ERP implementation enables us toexplicate the key issues and develop more generalizablepropositions.Before we discuss the contingencies of ERP implementa-

tion success, a clear definition of success is in order.Information system success is a complex and multidimen-sional variable in IS research that has been the focus ofmuch discussion and debate (DeLone & McLean, 2003).Accordingly, numerous frameworks of IS success havebeen presented in the extant literature. The DeLone andMcLean (1992) IS success is one particular framework thathas been referenced in numerous studies. This frameworkidentifies six different ways in which IS research hasconceptualized IS success: information quality, systemquality, information use, user satisfaction, individualimpact, and organizational impact. In this study, weexamine success in terms of the implementation project.Therefore, we define ERP success from an implementationproject perspective. Implementation project success is oftendescribed in terms of the achievement of some pre-determined goals, such as time, cost, and function (Markus& Tanis, 2000). ERP implementations that do not meetproject goals in terms of expected cost, time, and systemperformance are considered unsuccessful.The cross-functional and integrated nature of ERP

systems enable unified view of firms and force organiza-tions to move away from function-based system towardsprocess-oriented integration (Al-Mashari, 2003). Suchintegration imposed by the implementation of ERPincreases interdependencies among functional units. Scho-lars have long argued that information systems increaseinterdepartmental coordination (Saunders, 1981), and thisphenomenon is relatively more pronounced for ERPsystems due to the strong requirement for integration bythe very nature of ERP systems. Interdependence isdefined as a condition where actions taken within one unitaffect the actions and work outcomes of another unit

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OrganizationStructure

ERP System

Structure ERP Fit ERPImplementation Success

Fig. 1. Framework for organizational fit and ERP implementation success.

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(McCann & Ferry, 1979). Interdependence is clearly aresult in even the most basic implementations of ERPsystems.The cross-functional and integrated nature of ERP has

significant impacts on business processes. Standardizationof data and business processes is necessary to enable ERPsoftware to handle transactions and data storage across thevarious functions and units of an organization (Gattiker &Goodhue, 2004). It is well known that the implementationof an ERP system generally requires an organization tomodify its internal processes to accommodate the standar-dized processes embedded in the ERP software (Al-Mudimigh, Zairi, & Al-Mashari, 2001; Benders et al.,2006; Hong & Kim, 2002). It should be noted that someorganizations may prefer to keep their current businessprocesses and customize ERP software to match theirexisting business processes, thus avoiding the need to makesignificant changes in their work environment (Swan,Newell, & Robertson, 1999). However, this could be acostly and risky proposition. Researchers often recommendthat organizations change business processes to match thestandard business processes embedded in the ERP systemin order to increase the likelihood of ERP implementationsuccess (Benders et al., 2006; Davison, 2002; Hong & Kim,2002).Both characteristics of ERP systems identified, standar-

dization of business processes and integration of businessfunctions, fit the definition of a contingency as defined inthe structural contingency literature. These two character-istics correspond to the key contingency aspects oforganizational task as defined in Donaldson (2001): taskuncertainty and task interdependence. Task uncertaintyrefers to the difference between information needed tocomplete a task and the amount of information alreadypresents (Galbraith, 1977). By standardizing and integrat-ing information flows in real time throughout theorganization, ERP essentially reduces task uncertainty.The low task uncertainty associated with ERP is predictedto be a good fit with organizational structures that have ahigh degree of formalization and low levels of decentraliza-tion (Donaldson, 2001). On the other hand, taskinterdependence refers to the degree that activities in anorganization are connected with each other. ERP requiresinterdependence, close coordination, and cooperationamong the functional departments and units of anorganization in order to efficiently and effectively performtasks (Stefanou, 2001). Sharma and Yetton (2003) havenoted that ERP systems are characterized by high levels oftask interdependence. The high degree of task interdepen-dence imposed by ERP is predicted by structural con-tingency theory to be a good fit with organizationalstructures characterized by low formalization, low struc-tural differentiation, and low levels of decentralization.The prediction that ERP will fit relatively unformalized

structures is contradictory with both the ERP literatureand the task uncertainty contingency. However, taskuncertainty is considered to be a stronger contingency

factor than is task interdependence (Donaldson, 2001).Furthermore, the standardized processes of ERP are bynature highly formalized since the standardization ofprocesses necessitates the formalization of many organiza-tional rules, policies, and procedures (Umble, Haft, &Umble, 2003).The argument that ERP is associated with low levels of

decentralization is also supported by the literature. Sia,Tang, Soh, and Boh (2002) suggest that while ERP mayenable both empowerment and centralization, it is thetechnology that perpetuates management power. Benderset al. (2006) also note the link between ERP implementa-tion and increased centralization. One case in point, DellComputer attempted to implement an ERP system butfound that it would not fit with its decentralized manage-ment model. Dell eventually decided to drop the project(Davenport, 1998).In summary, the literature and theory suggest that due to

the task interdependence and task uncertainty contingen-cies, ERP systems will be a better fit with organizationspossessing the structural dimensions of high formalization,low structural differentiation, and low decentralization.Organizations that possess these structural dimensionswould be a good fit with ERP systems, should facerelatively low resistance to change, and would haverelatively high likelihood of implementation success. Onthe other hand, organizations that do not possess thesestructural dimensions could face relatively high resistanceto change due to the poor fit between the system and theorganizational structure, and thus would have a relativelylow likelihood of implementation success. These argumentsare summarized in Table 2 and developed more fully in thenext section.

3.2. Fit between ERP systems and organizational types

In this section, we elaborate on the contingency fitbetween ERP and organization types presented in Table 2.A set of propositions are developed regarding the like-lihood of ERP implementation success in different types oforganizations. To provide support for our propositions, weuse case examples of ERP implementations reported in thebusiness press and peer reviewed journals. Admittedly,these cases are ad hoc evidence at best, but they do serve asthe starting points for more rigorous validation with largersample sizes in the future.

3.2.1. Machine bureaucracyThe organizational structure that most closely represents

the dimensions of high levels of formalization, low levels ofdecentralization, and low levels of structural differentiationis the machine bureaucracy in Mintzburgs ideal forms.Machine bureaucracies are often found in mature, large,mass production companies residing in stable environ-ments. The machine bureaucracy satisfies the criteria offormalization because it is already characterized by highlevel of formalization. The machine bureaucracy is

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relatively centralized because it has limited horizontaldecentralization, so it fits the decentralization contingencyas well. The machine bureaucracy fits moderately well withstructural differentiation. The organizational structure of amachine bureaucracy is only moderately differentiatedbecause there is an emphasis on following formal programsand plans, and integration is affected mainly through theseprograms (Miller, 1986). Still, the functional responsibil-ities are only brought together at the highest levels of theorganization (Mintzberg, 1980), so ERP will likely pushtowards lower levels of structural differentiation, causingmoderate but not severe resistance to change. This leads to:

Proposition 1. The organizational structure of machinebureaucracies has a higher degree of fit with ERPcharacteristics and thus is likely to have a positive impacton ERP implementation success.

A significant amount of case evidence exists thatsupports this proposition. The ERP implementation atMotts North America Inc. is one of these cases. Motts is alarge producer of juice and applesauce. The industry ismature and relatively stable. As indicated above, largeproduction firms in mature, stable industries are typicalmachine bureaucracies (Mintzberg, 1979). The companyimplemented a US$10 million SAP R/3 project to cut ITsupport costs, reduce head count, and move to a singlecorporate system. Officials reported that the implementa-tion was a success and had significantly contributed toorganizational efficiency (Stedman, 1999). Guide Corp. isanother exemplar of a successful ERP implementation in amachine bureaucracy. Guide Corporation is an automobilelighting systems manufacturer with manufacturing opera-tions in Indiana, Louisiana, and Mexico. It is an oldcompany in a mature industry, and has about 35,000employees. The company supplies a limited number ofproducts. These attributes suggest a machine bureaucraticstructure. Guide implemented ERP software from QADInc. to handle everything from shipping to operations onthe shop floor. The company says the system is a completesuccess (Fox, 2001).

3.2.2. Professional bureaucracyAs a whole, professional bureaucracies do not fit well

with ERP systems. They have low levels of formalizationand low levels of task interdependence. Moreover, profes-sional bureaucracies have high levels of structural differ-entiation because professionals work relativelyindependently of their colleagues and are more or less freeto set their own goals and to structure their work as theysee fit. Typical examples of such an organization includelaw firms, accounting firms, and universities. Imposingformalization on a professional bureaucracy would likelydraw significant resistance from professionals. In contrastto the utilization of formalized procedures, the standardsestablished by professionals are formalized by theirprofessions, not the organizations by which they areemployed (Mintzberg, 1979). Attempts to increase theinterdependence among professionals would meet withsignificant resistance. Highly trained professionals demandconsiderable autonomy in their work. Professionals workrelatively freely not only from other divisions, but alsofrom their own colleagues (Mintzberg, 1979). Thus,professional bureaucracies are a poor fit with ERP in alldimensions, and professional bureaucracies that attempt toimplement ERP are likely to encounter political conflictsand significant resistance. This leads to our next proposi-tion:

Proposition 2. The organizational structure of a professionalbureaucracy has a lower degree of fit with ERP character-istics and thus is likely to have a negative impact on ERPimplementation success.

Typical cases of professional bureaucracy are found inthe education, finance, law, and healthcare industries. Anarticle describing the implementation of an ERP system atan Ivy League university (Wagner, 2003) supports thisproposition. In 1999, the university adopted an ERPsystem from Oracle. Implementation of the system at thisuniversity was met with significant resistance because itinfringed on the autonomy of many faculty researchers.Resistance was also attributed to fact that the systemshifted administrative efforts to academic departments.

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Table 2A framework of contingency fit between ERP and organizational types

Organizational type Structural dimensions Degree of fit andlikelihood of ERP success

Formalization Structuraldifferentiation

Decentralization

Machine bureaucracy High Medium Low HighProfessional bureaucracy Low High High LowProfessional bureaucracy support staffcomponent

High Medium Low High

Divisionalized form Medium High High LowAdhocracy Low High High LowAdministrative adhocracy operatingcomponent

High Medium Low High

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The system managed to temporarily squash the valuedacademic freedom of many faculty researchers despite theirpower within the wider university community (Wagner,2003). The faculty ultimately rejected the ERP system,resulting in the need for radical design modifications tocreate a workable system. The creation of the workablesystem was costly in both monetary and human terms,leading the authors to question the appropriateness of ERPfor a university or higher education organizations ingeneral (Wagner, 2003).However, as indicated above, the support staff of the

professional bureaucracy is characterized by structuraldimensions distinct from the rest of the organization. Inmany professional bureaucracies, such as universities andlarge consulting firms, the support staffs tend to work in amachine bureaucratic structure side by side to its profes-sional bureaucracy counterpart (Mintzberg, 1980). Sincethe support staff component of a professional bureaucracyis essentially a machine bureaucratic component within theprofessional bureaucracy, based on Proposition 1, thesupport staff component is likely to be a good fit with ERPsystems. Thus we suggest:

Proposition 2a. The support staff component of professionalbureaucracies has a higher degree of fit with ERPcharacteristics and thus is likely to have a positive impacton ERP implementation success.

The University of Basels ERP implementation is a casein point. The university implemented an ERP system fromSAP to facilitate the processes of student administration,fee collection, applications distribution, and data exchange(SAP, 2003). Acceptance of the system was high, and isreported as a success. While this professional bureaucracysimplementation was a success, none of the cited benefits aredirectly concerned with the core operating work of theprofessionals. Rather, the benefits are primarily related toadministrative and support tasks performed primarily bythe non-professional support staff.

3.2.3. AdhocracyAdhocracies have very little formalization, high struc-

tural differentiation, and high decentralization. There isvery little formalization of behavior or standardization ofwork processes in adhocracies to encourage integration.Imposing formalization on an adhocracy would result insignificant resistance. Adhocracies have high levels ofstructural differentiation because people with vastlydifferent goals and time horizons work together (Miller,1986). Reducing this structural differentiation would likelydraw significant resistance from members of an adhocracy.Imposing centralization on an adhocracy would also drawsignificant resistance because the power in an adhocracy isdecentralized (Miller, 1986). Thus, we propose:

Proposition 3. The organizational structure of adhocracieshas a lower degree of fit with ERP characteristics and thus is

likely to have a negative impact on ERP implementationsuccess.

This proposition is supported by the case of AgilentTechnologys ERP implementation. Agilent is an innova-tive high tech company that was spun off by HP. It is arelatively young company operating in a complex, dynamichigh tech environment. The above attributes are allindicative of an adhocracy. Agilent both develops andmanufactures its high tech products to serve its customers,suggesting an administrative adhocracy in which themanufacturing work of the operating core is largelytruncated from the more innovative component of theorganization. Agilent implemented an ERP package fromOracle. The implementation was problematic and costly(Songini, 2002). The company says the ERP implementa-tion resulted in shortfalls of US$105 million in revenue,US$70 million in operating profits, and huge additionalprogramming costs. The company spent an unexpectedUS$35 million in programming costs related to theproblems. Agilent says the problem was not with thequality of the Oracle software. Rather, the case highlightsissues concerning people, processes, policies, and thecompanys culture as the culprits leading to implementa-tion difficulties. Such issues are indicative of a significantmisfit between the system and the design of the organiza-tion.Another case is Microchip Technology Inc., a maker of

embedded microcontrollers that installed a Baan IV ERPsuite. It is a young, small technology company. Smalltechnology companies are typically adhocracies (Min-tzberg, 1979). The implementation of the ERP systemrevealed a misfit between the organization and the system.As noted by Microchips manager of business operations,ythe functionality and business logic of the modulesdidnt always fit the companys needs (Gill, 1999). Whilethe company was able to implement the system, it reliedheavily on a phased implementation approach andcustomization of modules due to the misfit between thesystem and the organization.There are, however, administrative adhocracies in which

the operating component is separated from the rest of theorganization. This component, which usually has thestructure of the machine bureaucratic form, is isolated soas to allow the administrative component to function freelyas an adhocracy. Since the operating component of theadministrative adhocracy is essentially a machine bureau-cratic component within the administrative adhocracy,based on Proposition 1, the operating component of theadministrative adhocracy is likely to be a good fit withERP systems. Thus, we propose:

Proposition 3a. The organizational structure of the operat-ing component of administrative adhocracies has a higherdegree of fit with ERP characteristics and thus is likely tohave a positive impact on ERP implementation success.


The case of ERP implementation at Thermacore is anillustrative example for this proposition. Thermacore is asmall company involved in the design and production ofinnovative thermal management solutions for electronicsOEMs worldwide. It develops extremely complex, innova-tive products in a dynamic environment, indicating anadhocracy. Although the company is based in Lancaster,PA, its manufacturing plant is located in Mexico. Thecompanys design and manufacturing functions are sharplydistinct, suggesting an administrative adhocracy. Thecompany implemented an ERP from SAP. According tothe company, the system was implemented to get productsto the right place at the right time and price. The systemsimplementation was a success, and the company was quickto realize payoffs (Engler, 1999). Thermacore did not letthe project exceed its scope. It was careful to refrain fromimplementing the system in areas where implementationwas not crucial. By focusing the system on getting productsto customers accurately and efficiently, the effects of thesystem on the more innovative tasks performed by thehighly trained project groups are mitigated.Another example is the ERP implementation by

Novartis Pharma K.K. Incorporated in 1997, NovartisPharma K.K. is a subsidiary of Novartis Pharmaceuticals,the fifth ranked company in the global pharmaceuticalsmarket. The adhocracy form is often found in companiesdeveloping new pharmaceuticals, as they must rely onhighly trained scientists to innovate in highly complex,dynamic environments. The drug development processrequires highly trained experts to work together and tocoordinate via mutual adjustment. The company developsits products to serve its clients, indicating an administrativeadhocracy, in which there is a sharp distinction between theresearch activities and the day to day work of the operatingcore. The company successfully implemented SAP R/3 forfinancial accounting, controlling, sales and distribution,material management, production planning, and ware-house management. The company notes that the ERPsystem did not impose on its drug development process. Anofficial from the company stated: Our current SAPsolution does not affect our drug development process.(SAP, 2004) This essentially mitigates the fit issuesotherwise posited for ERP implementations in an adhoc-racy.

3.2.4. Divisionalized formThe focus thus far has been on organizational structures

at the business unit level. However, the divisionalized formis more of a superimposition of one structure on othersrather than a complete structure unto itself (Mintzberg,1980). For this reason, the focus for the analysis of thedivisionalized form is the structure at the corporate level.The divisions within a divisionalized organization generallyserve different markets and thus receive relatively littleclose coordination and a fair amount of autonomy(Mintzberg, 1980). However, despite granting a fairamount of autonomy to individual divisions, the head

office of a divisionalized organization seeks to formalizethe behavior of divisions through standardized proceduresand methods to improve control over divisions wheneverpossible (Miller, 1986). The result is a moderate level offormalization. Structural differentiation is high, and thedivisional form is relatively decentralized. Increasedformalization may be an attractive option to headquarters,but will likely draw fierce resistance from divisionalmanagers who control the divisions.Similarly, decreased structural differentiation and de-

creased decentralization will not be opposed by head-quarters, but will be opposed significantly by the divisionalmanagers. In fact, headquarters is likely to view favorablythe opportunity to increase centralization and reducestructural differentiation. A primary task of headquartersis coordinating the goals of the divisions with those of itsown (Mintzberg, 1979). Moreover, an important problemfor headquarters is getting accurate information so that itmay make better decisions. Increasing centralization andreducing structural differentiation are attractive ways toaccomplish this. However, the resistance by divisionalmanagers combined with the relatively poor fit of ERPwith the structural dimensions of divisionalized organiza-tions will make successful implementation difficult. There-fore, we suggest:

Proposition 4. The organizational structure of the divisio-nalized form has a lower degree of fit with ERP character-istics and thus is likely to have a negative impact on ERPimplementation success.

There are a number of cases that provide support for thisargument. An ERP implementation at WestinghouseElectric Corp. is one case in point. Westinghouse ElectricCorp. is a multidivisional electric and electronics conglom-erate. In 1994, the company began the installation of anSAP R/3 system encompassing six of its divisions.Westinghouse was organized in a highly decentralizedfashion, allowing each of its divisions to control its ownfinances and resources. Divisional managers severelyresisted the system upon realizing it would infringe ontheir control of their respective divisions. Divisionalmanagers haggled over system standards and systemprocesses. When the ERP project team needed informa-tion, divisional managers were of little help and slow torespond. The result was a drawn out implementationexceeding the planned budget by about US$4 million(Schneider, 1999).Another case is an ERP implementation by an Atlanta-

based forest products manufacturer. The company adoptedan ERP system from SAP to integrate each of its 12divisions. Eleven months into the implementation, divi-sional VPs revolted against the system upon realizing itwould infringe on their autonomy. The project was haltedand the company had to write off US$120 million insoftware development costs (Schneider, 2000).However, there is an important caveat that must be

made concerning the proposition for the divisionalized


form. This proposition suggests that organizations of thedivisionalized form do not fit well with ERP systems. Itshould be emphasized that this does not suggest thatindividual divisions will have difficulty in implementingERP. In fact, many of the large multidivisional firms havechosen approaches to ERP implementation that do notfully integrate the data and processes across the entireenterprise (Markus, Tanis, & Fenema, 2000). Perhapsrealizing that the one size fits all approach to ERP is apoor fit with their organizational structures, some firmshave turned to less comprehensive ERP solutions. Forexample, Kraft Foods planned to install a single ERPsystem at each of its 53 manufacturing sites, but found thatthe operations of its eight product divisions were toodiverse for the one size fits all ERP system. Kraft electedto implement a single ERP financial module, but imple-mented different ERP configurations for each of itsdivisions to allow for diversity in business unit operations(Stedman, 1999a). When multidivisional firms implementERP at the divisional level, the fit and likelihood ofimplementation success are dependent on the character-istics of the divisions, which could be classified into any ofthe preceding three organizational types.

4. Discussion

4.1. Dynamics of organizational structure

In the preceding discussions about the fit between ERPand organizational types, for theoretical and methodolo-gical clarities, our treatment of organizational structureand ERP implementation is static and ideal in two primaryaspects. First, in our application of Mintzbergs (1979)configurations, we have treated the configurations as atypology of ideal types, and thus the dynamic aspectsconcerning these configurations have been addressed onlytangentially. However, dynamic forces are an importantelement of these configurations, particularly in the otherapplications of Mintzberg framework: (1) as a set of fivepulls, (2) as a set of five pure types that reflect the structuresof many organizations, (3) as the basis for describinghybrid structures, and (4) as the basis for describingstructural transitions (Mintzberg, 1979). In this study, wehave focused on the second of the four suggestedapplications only for the purpose of theoretical clarityand simplicity.In reality, however, the dynamic aspects of organiza-

tional configuration could become the major complicatingfactors in ERP implementation success. While a compre-hensive treatment of the dynamic aspects is beyond thescope of our study, some key points should be noted here.In particular, the structural configurations can be con-ceptualized as a set of five forces that pull organizations indifferent structural directions: (1) the pull exerted by thestrategic apex to centralize and to coordinate by directsupervision in order to retain control over decision-making; (2) the pull exerted by the techno-structure to

coordinate by standardization; (3) the pull exerted by theoperators to professionalize; (4) the pull exerted by middlemanagers to Balkanize, or to divide the structure intomarket-based units; and (5) the pull exerted by the supportstaff (and by the operators as well in the operatingadhocracy) for collaboration in decision-making. Intheory, most organizations will be dominated by one ofthese pulls, and consequently will design structures close toone of the configurations. The fact that the types mayremain ideals that are never fully realized in practice neednot diminish their orienting role, as they provide aframework for human thinking about organizations. Thus,in this sense, the propositions based on the ideal types forma conceptual guide for management when consideringimplementing ERP systems in an organization, but notnecessarily a prescriptive guide for predicting the finaloutcome.

4.2. The duality of technology

In this study, we have treated organizational structuresprimarily as social facts that possess an objective existenceindependent of ongoing social relationships. This stemsfrom our guiding theoretical lens, structural contingencytheory, which is primarily a static view (Barley, 1990).Alternative theories take more dynamic views in whichorganizational structure and human action are inextricablylinked. One such theory, the theory of structuration(Giddens, 1984), has been a particularly influentialtheoretical lens for viewing the link between socialstructures and human actions. The theory views socialreality as constituted by both subjective human actors andby objective institutional properties. Giddens proposes theduality of structure concept, which sees the structure orinstitutional properties of social systems as created byhuman action, which subsequently serves to shape futurehuman action. Structuration describes a continuoustension between conscious human action and institutionalstructures. Human action is seen as both forming and beingformed by institutional properties.Drawing from the theory of structuration, Orlikowski

(1992) describes what she refers to as the underlying dualityof information technology. This duality conceptualizesinformation technology as both an antecedent and aconsequence of organizational action. More specifically,information technology has a constituted nature (it is aproduct of social interaction within a specific structuraland cultural context), and also plays a constitutive role (itis simultaneously an objective set of rules and resourcesinvolved in mediating human action and hence contribut-ing to the creation, recreation, and transformation of thesecontexts). In essence, information technology both shapesand is shaped by organizational action.The duality view of technology is especially silent in the

context of ERP implementation. During the ERP imple-mentation process, organizations not only can and often docustomize the modules to fit their business processes, but


also reconfigure and redesign some business processes toaccommodate and take advantage of the best practicesembedded in the software. In this sense, the propositionsdeveloped in this study based on a static view of theorganizational structure and ERP software may not havestrong predictive power. However, they indeed call theattention of managers and vendors to the potential pitfallsof misfit between organizational structure and systemcharacteristics and serve as warnings regarding what couldhappen if no appropriate customization or processredesigning or reengineering takes place. Furthermore,these propositions form a foundation for future researchthat takes into the consideration of the dynamic andinteractive view of technology and organizational struc-ture.

5. Conclusion

In this paper, we have developed a set of propositionsabout the relationships between the characteristics of ERPsystems and the dimensions of organizational structurebased on structural contingency theory and Mintzbergs(1979) ideal structural types of organization. It is suggestedthat ERP systems are a good fit with some organizationtypes, but a poor fit with others. Organizations whosestructures are a better fit with ERP systems are likely tohave greater chances of successful implementations.Organizations whose structures are a poor fit with ERPsystems are likely to face organizational resistance to thesystems and thus increase the chances of unsuccessfulimplementation. Notwithstanding the caveat of static andideal views of organizational structure and ERP systems,this analysis provides a baseline for ERP planning andimplementations in various types of organizations. It fills agap in the research literature and contributes to theknowledge of ERP implementation in organizations inboth management practice and academic research.From a practical perspective, this study directs manage-

ments attention to the importance of recognizing andaddressing the issue of fit between organizational structureand ERP package. Our findings suggest that organizationsimplementing ERP must consider the fit with theirstructures, the consequences of changing their businessprocesses, and the potential resistance from within. Suchorganizations must recognize that the implementation ofERP systems is likely to induce conflicts within theirorganizations and consequently impose difficulties andeven result in failure in the implementation process if aninitial misfit exists. Managers within an organization mustbe able to determine if a proposed ERP system is a good fitwith their organizational structure, or if it may only be agood fit with certain parts of the organization, or ifsignificant customization and process redesigning orreengineering will be required. While we do not recom-mend specific practical prescriptions for managers, webelieve our framework is relevant in that it is a novel view

of ERP-structure fit that allows managers to enhance orrestructure the mental models they use in practice.From a theoretical perspective, Robey et al. (2002) note

the lack in the research literature of theoretical frameworksin the area of ERP implementations in general and thecritical success factors in particular. This study partiallyfills this void as it draws from established theory to developsuch a framework for one critical success factor, namelythe fit between organizational structure and ERP system.Furthermore, the proposed framework indirectly suggeststhat different critical success factors may be more or lessimportant depending on the type of organizationalstructure in which the ERP system is implemented, anissue which has not attracted much deserved attention inthe research literature. In general, our work serves as abasis for future empirical and theoretical work in this area.Some caution should be used when observing these

findings. The proposed relationships between organiza-tional structures and ERP are not empirically tested, eventhough they are theoretically based and supported byanecdotal case evidences. Empirically testing the proposedrelationships will be an important subject of futureresearch, and should add significantly to the validity ofthe propositions. As mentioned above, this paper studiedERP in its pure form, and compared it to Mintzbergsstructural types in their ideal forms, despite evidence thatsuch pure and ideal forms do not always exist in reality.With this caveat, the proposed relationships between ERPsystems and organizational structures should provideguidance for future research, and provide insight as towhich types of organizations are likely to benefit fromERP, on what scale ERP should be implemented, and howmuch resistance organizations may expect from ERPimplementation.

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Neil Andrew Morton is a Ph.D. candidate in the Department ofInformation Technology & Operations Management, Barry Kaye Collegeof Business at Florida Atlantic University. He received an M.B.A. fromthe University of Montana. His research interests include the adoptionand use of information technology by individuals and groups. He isparticularly interested in the adoption and use of healthcare informationsystems that allow individuals a greater role in the healthcare process. Hisresearch also looks at the impact of information technology on

organizational strategy and structure. He has published manuscripts inJournal of International Technology & Information Management andStructural Equation Modeling, and presented his research at AmericasConference on Information Systems, the Academy of ManagementMeeting, and the Decision Sciences Institute Meeting.

Qing Hu is Professor of Information Systems in the Department ofInformation Technology & Operations Management, Barry Kaye Collegeof Business at Florida Atlantic University. He earned his Ph.D. inComputer Information Systems from the University of Miami, Florida,USA. His research interests include electronic commerce, economics ofinformation technology (IT), information security, and IT managementstrategies, especially in the areas of the impact of information technologyon organizational strategy, structure, and performance. His researchwork has been published in leading academic journals including MISQuarterly, Information Systems Research, Journal of the AIS, Commu-nications of the ACM, California Management Review, Journal ofManagement Information Systems, IEEE Transactions on SoftwareEngineering, Journal of Strategic Information Systems, and other interna-tional academic publications.


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