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The Importance of Organizational Culture in ERP Success

The apparel and fashion industry today is functioning as a highly competitive and rapidly changing environment. As we move into a new age of technology, companies are considering new Enterprise Resource Planning (ERP) systems. ERP is one of the most valuable and strategic tools organizations can deploy in order to deliver a significant competitive advantage.

In the “Tech and Innovation” edition of the Fashion Mannuscript, we pointed out some ERP success factors. One of those factors is organizational culture. In this article, we would like to elaborate further.

Recently, “culture” appears to have become even more of a buzzword when it comes to ERP organizational change. There are many great articles, blogs and posts that generally, and correctly, point out the significance of organizational culture. While it is certainly true that culture is a critical component of the ERP organizational change triad (culture, process, technology), culture is often used as a misunderstood buzzword. Why does it even matter? Because it directly impacts ERP success.

Corporate culture is defined by Ke and Wei in “Organizational Culture and Leadership in ERP Implementation” as an elaborate system of norms and values that evolve over time and is the collective binding that governs the values, ideals and beliefs shared within the organization. For instance, phenomena at individual, group, organization and society levels determine the use of ERP systems, according to Howcroft, Newell and Wagner in “Understanding the Contextual Influences on Enterprise System Design, Implementation, Use and Evaluation.” Similarly, in their article in the Journal of Manufacturing Technology Management, Annamalai and Ramayah established that the organizational culture regulates the relationship between success factors and assimilation success of the ERP projects. The importance of culture in the context of ERP organizational change success is well understood and documented.

Organizational performance is a component of, and driven by, organizational culture. ERP organizational change research suggests that a significant factor in success is having an organizational culture that promotes teamwork and performance and encourages employee participation. A significant value and benefit of ERP solutions is that they can provide a tool in which to contribute, support and improve operational and financial goals and metrics. But the ERP is just a tool. Organizational performance starts with a healthy culture supported by ERP. The technology can provide a strong competitive advantage for an organization, and the benefit is enhanced with strong organizational culture. Research provides compelling evidence linking organizational culture to financial performance metrics, such as return-on-assets (ROA), sales growth and market-to-book ratio (MtB). Culture has not only a short-term impact on performance, but lasting effects as a competitive edge.

There is also direct evidence that culture has a significant impact on innovation, a key influence on ERP organizational change (according to Denison Consulting Research Notes “Organizational Culture & Innovation: Understanding the Link”). An organization’s ability to innovate is crucial to their long-term survival. To be truly innovative, an organization must not only be creative, but also be able to successfully implement those creative ideas. Successful ERP organization change must support these ideas.

Healthy culture begets employee engagement (also according to Denison Consulting Research Notes). Organizations scoring high in engagement tend to foster a sense of freedom and autonomy that is important for idea generation. They also utilize teams to get work done, placing value on working cooperatively and on mutual accountability. This integration of employees promotes a sharing of ideas and responsibility. High-engagement cultures tend to build a sense of capability and ownership in their employees and therefore create an environment in which creativity can occur. Employee engagement is promoted with clearly stated mission, vision, shared goals and objectives.

If organizational culture is so important, this means that we all should want to be able to measure and improve it, right? The good news is that we can. Organizational culture research pioneer and expert Dan Denison explains that there are culture measures that can be examined when an ERP organizational change is being considered.

“Every firm’s context or particular situation is unique, but one big consideration must be how well they understand the primary drivers of change affecting their specific business,” Denison said.

Therefore, an important question to consider is: what kinds of culture measures might you need to better assess your firm’s ERP change readiness? Denison states that research shows us organizations “can measure culture in a way that is useful to managers because it links culture with other bottom-line performance measures.” It is these bottom-line performance measures that are critical to ERP organizational change.

“I have been told by some executives that they were ready for such a big change initiative simply when they all decided they were indeed ready,” said Denison. “Unfortunately, this sort of arbitrary and vague declaration of change readiness yields little useful knowledge to others outside of that internal decision-making team.”

We have to do better than that by making change readiness something tangible and useful. Organizational culture and related organizational influences are necessary to understand because as described by Denison and team, organizational culture characteristics, which can be measured and monitored, may have a predictable impact on the effectiveness of organizational change. With ERP organizational change, “culture” is not just a buzz word — it is a quanitfiable solution.

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