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Strategic Enterprise Management Systems: new directions for research
Management Accounting Research 15 (2004) 225–240
Strategic Enterprise Management Systems: new directions for research夽 Stan Brignall a,∗ , Joan Ballantine b a
Aston Business School, Aston University, Aston Triangle, Birmingham B4 7ET, UK b Queens University Belfast, Belfast, UK Received 21 May 2003; accepted 13 October 2003
Abstract In a world obsessed with performance, many organisations welcome systems that claim to offer a structured solution to improving performance, such as Strategic Enterprise Management (SEM). But while much has been written about how to measure performance, little is known about the interaction between performance measurement and management (PMM) and the many ways in which organizations strive to improve their performance. This paper studies the interrelationships among SEM systems, PMM and organisational change programmes within Pettigrew’s “context, content, process” model. The problems of SEM design, implementation and use are explored using the insights of several theories, following the arguments of Hammersley [Handbook of Qualitative Research Methods, The British Psychological Society, 1996] that such an approach permits a richer understanding of management practice. Having also identified potential solutions for the design, implementation and use of SEM systems, we develop a number of research questions to be explored in future research. © 2003 Elsevier Ltd. All rights reserved. Keywords: Strategic Enterprise Management; Context, content, process; Institutional theory; Complementarities theory; Performance measurement and management
1. Introduction In this age of anxiety, performance is an obsession. From schools to universities, businesses to government departments we have become an audit society (Humphrey and Owen, 2000; Power, 2000) absorbed in performance measurement and the assessment of relative success, which can affect the allocation of resources, and the fates of institutions and individuals. 夽
A previous version of this paper was presented at the MARG Conference, Aston Business School, 11–12 September 2000. Corresponding author. Tel.: +44-121-359-3011x4918; fax: +44-121-333-5708. E-mail addresses: [email protected] (S. Brignall), [email protected] (J. Ballantine).
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1044-5005/$ – see front matter © 2003 Elsevier Ltd. All rights reserved. doi:10.1016/j.mar.2003.10.003
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The drivers creating such cultures of continuous improvement are familiar. In the private sector global competition means that pressures to learn and change are continuous. Managers respond by closing factories, de-layering and merging (Pettigrew, 2000). In the public sector, league tables (Clatworthy and Mellett, 1997)—and naming and shaming—are the order of the day. More positive change agendas aim to create more agile, knowledge-conscious and creative organisations in the never-ending search for a sustainable competitive advantage (Mohrman et al., 1998). The constant drive for competitive advantage and performance improvement has created an imitative market for new management techniques (Pettigrew, 1999a), which profit consultants but sometimes de-stabilise sources of competitive advantage. Two such innovations have been models of multi-dimensional performance measurement and management (PMM: e.g. Fitzgerald et al., 1991; Lynch and Cross, 1991; Kaplan and Norton, 1992) and the dissemination of Enterprise Resource Planning (ERP: Fahy, 2000) and, more recently, Strategic Enterprise Management (SEM) software, whose vendors claim to offer a structured solution to improving organisational performance (Fahy, 2001). Such software is changing the way top managers manage and is affecting the roles and skills of management accountants, who are variably involved in PMM and organisational change (Chenhall and Langfield-Smith, 1998; Brignall et al., 1999). While much has been written in recent years about how to measure performance, little is known about the interaction between PMM and the many ways in which organisations strive to improve their performance, often under the heading of an “organisational change programme”. Successful change programmes may involve many individual performance drivers, such as new leadership, clear objectives, a new strategy, improved human resource management practices, process changes, IT/IS investment (e.g. ERP or SEM systems), and so on (Pettigrew, 1999a,b; Whittington et al., 1999). However, the links between PMM and these change techniques are only now beginning to be systematically studied, yet their alignment may be crucial to competitive success. The findings of such studies should be directly relevant to the success or failure of ERP systems (Scheer and Habermann, 2000) and their strategic offspring, SEM systems (Fahy, 2000, 2001; Gould, 2003). Gould (2003) argues that “while precise definitions cannot communicate the full nature of SEM, a working definition could be: an approach to strategic management which focuses on creating and sustaining shareholder value through the integrated use of best practice modelling and analysis techniques, technologies, and processes in support of better decision making” (p. 6). SEM systems (SEMSs) have a strategic focus, and are designed to sit on top of the operationally focused ERP systems introduced by so many large companies in the 1990s to replace their previous Materials Requirement Planning (MRP) systems. SEMSs typically apply a particular set of performance-enhancement techniques (such as Business Process Redesign, Customer Relationship Marketing, Supply Chain Management, Value-Based Management, Activity-Based Management and the Balanced Scorecard: Fahy, 2000, 2001) to their corporate purchasers. But even if these techniques are appropriate for all organisations, knowing what sets of changes need simultaneously to happen (the change content) is only half the performance-improvement battle. From a policy point of view we also need the answers to a set of questions about the process and context of changing (Pettigrew, 1985). These questions imply that SEMSs may not only suggest remedies that are irrelevant to the problems faced by an individual organisation (i.e. wrong content), but that they ignore important issues of context and process as well. For these reasons, we will argue, SEMSs can only be regarded as partial solutions to organisational performance improvement. In what follows we first outline our research objective and identify relevant theories with which to explore it. We then define what a SEMS is, and describe Pettigrew’s (1985) “context, content, process” model for successful organisational change. In the main body of the paper we go on to explore the
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relationship between PMM and SEM within three sections in which the parts of the model are applied. These sections on context, content and process identify various potential problems with SEM and PMM, and in them we develop some research questions to pursue in search for their solution. Our conclusions with ideas for future research follow.
2. Research objective and conceptual theorization The objective of this research note is to explore the relationship between PMM and SEM within Pettigrew’s (1985) “context, content, process” model for successful organisational change and performance improvement. This model is felt to be appropriate in the context of SEMSs as it has been applied to understand successful organisational change (Pettigrew et al., 1992; Orlikowski, 1993), which is what SEMSs are intended to promote. The three parts of Pettigrew’s model are used to help identify potential problems and possible solutions in the areas of SEM design, implementation and use. Given the complexity of the relationships between PMM and SEMSs, we draw on stakeholder, institutional, contingency and complementarities theories to explore these issues and develop a series of research questions to be pursued in subsequent research. Stakeholder theorists advocate a pluralistic approach to performance measurement (Doyle, 1994; Atkinson et al., 1997) so we use stakeholder theory to explore the context within which SEMSs are applied, given that SEMSs recognise multiple stakeholders. However, stakeholder theory does not deal with inequalities of power (Meyer and Rowan, 1977; Scott, 1987; Covaleski et al., 1996) among stakeholders and their likely impacts in de-coupling integrated systems such as SEMSs. For example, Meyer and Rowan (1977) propose “that externally legitimated, formal assessment criteria such as management accounting information plays an important but ritualistic role in a variety of settings as organisations grope to find, conform to, and demonstrate for their internal and external constituents some form of rationality in order to gain legitimacy” (as cited in Covaleski et al., 1996, p. 11). Hence we use neo-institutional sociology to gain further insights into the internal and external contexts in which SMESs are designed, implemented and used. We also use the insights of contingency theory as applied to control systems, with some suggesting that they should be designed bearing in mind the relationships between contextual factors and structural characteristics (Gordon and Miller, 1976; Waterhouse and Tiessen, 1978). SEMSs are concerned with strategic control of organisations hence we use contingency theory to study such contextual factors. Finally, within the performance measurement literature, the complementarities approach initiated by Milgrom and Roberts (1995) has emphasised the need to understand that performance may be improved in many ways involving many disciplines and functions. Indeed, the notion of performance is multi-faceted and what constitutes “good” performance will vary from stakeholder to stakeholder. SEMSs apply various tools and techniques to the improvement of performance, hence a key question is how to manage the interactions amongst these performance improvement tools and techniques. Complementarities theory argues that the managers of successful companies will implement multiple performance improvement techniques simultaneously and in our subsequent research we will wish to investigate this aspect of the process by which SEMSs are designed, implemented and used. The theories we cite above are drawn from different research paradigms. For example, contingency theory is situated within traditional structural functionalism whereas neo-institutional sociology draws on the interpretive tradition (Burrell and Morgan, 1979). Morgan (1980) “theorized that different paradigms both address different sorts of problems and, where paradigms address common problems, portray them
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in fundamentally different ways and thereby offer differing insights into their nature. Thus, what is called for is . . . paradigmatic pluralism as a way of enhancing our understanding of issues in the social sciences. Consequently, we offer the various paradigms . . . as alternative ways of understanding the multiple roles played by management accounting in organisations and society” (as summarised in Covaleski et al., 1996, p. 24). In so doing we are following the triangulation, facilitation and complementarity arguments of Hammersley (1996), in the belief that such an approach permits a wider and richer understanding of management accounting practice than a singular approach. The supporters of a mixed methodology in social science research claim that one of the primary benefits of such an approach derives from “triangulation”. The term “triangulation” was originally used in psychological research by Campbell and Fiske (1959) and developed for wider application in social science by Denzin (1970). The concept refers to the extent to which research findings can be confirmed by the simultaneous application of multiple methods, multiple investigators, multiple data sets or multiple theories (Denzin, 1970). The idea behind triangulation is that, subject to the resolution of paradigmatic conflict, empirical evidence may be strengthened by the use of different approaches to the same problem. In particular, in this research note we will show how different theories may be applied to create a wider set of plausible explanations for phenomena that may be observed in later empirical research. Many eminent writers across the social sciences (such as Giddens, 1984; Bhaskar, 1989, 1994) or in the accounting literature (Berry et al., 1991; Laughlin, 1995) now dispute the idea that the researcher is forced to choose between opposing views of reality. Paradigm fixation among researchers may just be a function of habit and fear of change as much as belief in a particular paradigm. It could be argued that greater flexibility in approach would lead to a better fit between research problems and the methods chosen to investigate them (Burgess, 1984; Brannen, 1992). A more flexible approach to the use of theory in the research process may result in the development of richer theories, more closely related to the extant conditions studied. Finally, following Weaver and Gioia (1994), we reject possible charges of ‘paradigm incommensurability’. Using Giddens’s (1984) ‘structuration theory’, Weaver and Gioia suggest that paradigm incommensurability is as much a socially constructed device as any of the other frameworks within which researchers attempt to classify, model and understand the social world. In this context, paradigm incommensurability is seen as a socially constructed barrier to inter-disciplinary research communication, which is difficult to justify on theoretical grounds.
3. What are Strategic Enterprise Management Systems? The vendors of ERP systems claim they provide “an integrated solution for planning, executing, and controlling business processes horizontally across the value chain. . . . SAP R/3 (the market leader) integrates processes such as sales and materials planning, production planning, warehouse management, financial and management accounting, and HR management” (Norton and SEM, 1999, p. 38). SEM “. . . will extend these principles vertically to support strategic management processes, such as strategic planning, risk management, performance monitoring and value communication” (ibid.). Its vendors claim that “It allows a two-way flow of information: corporate strategists can monitor performance continually using feedback from the business execution systems, and adjustments to the strategy can be driven down to the operational level via new targets and KPIs” (Norton and SEM, 1999, p. 38). Fahy (2001) argues that the “SEM approach seeks to effectively link performance measurement and control to strategic objectives, in an attempt to ensure that operational decision-making is fully focused
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on delivering strategic objectives” (p. 173). SEMSs are similar in concept to earlier executive decision support software such as executive information systems. However, SEMSs improve on earlier systems in two ways: first, the technology itself has vastly improved, and second, they have drawn on the unsuccessful implementation lessons with earlier technologies “by recognising the primacy of the executive and relegating the technology to a supporting role” (p. 5). For a system to qualify as an SEM system we believe that it should have the following attributes. First, it should be built on an ERP system, that is, a common database that integrates management information across all functions and disciplines in the organisation. However, ERP systems have been more concerned with transaction processing than decision support. In order to provide this functionality, a series of other attributes are required. Thus, a second attribute is that SEMSs rely heavily on the use of data warehousing tools, where the data warehouse acts as a repository and data transformation tool to perform company or activity specific consolidations such as activity-based management cost pools. It also acts as the delivery point for external data such as market share and competitor information and supports the need for multi-dimensional analysis of such data. Third, SEMSs have a range of integrated applications and tools including activity-based management; profitability, planning and simulation; workforce analytics; customer relationship management; shareholder value analysis; the balanced scorecard and reporting and analysis tools. Fourth, they have both an internal and an external market focus. Finally, they are intended to support executive strategic decision-making. SEMSs are sold by many leading suppliers of ERP and other software, which at the time of writing include PeopleSoft, Hyperion, Gentia, Corvu and Oracle, as well as SAP. For example, the market leader in ERP systems, SAP AG, is currently offering an integrated Strategic Enterprise Management System (SEMS) with mySAP.com that has five main applications and associated tools: • Business Planning and Simulation (BPS), which integrates strategic and operational planning, with modelling, simulation and scenario planning facilities. Activity-based management is used to add a process view to the functional view of an organisation, which is reflected in resource planning. • Business Consolidation (BCS) for financial reporting internally and externally, including value-based accounting. • Corporate Performance Monitoring (CPM), providing support for the definition, analysis, visualization and interpretation of key performance indicators, both financial and non-financial, internal and external. The Balanced Scorecard (Kaplan and Norton, 1992) is a key tool here, together with associated chains of cause and effect among multiple performance dimensions (Kaplan and Norton, 1996, 1997) useful during the planning process. • Business Information Collection (BIC), which collects structured and unstructured business information from internal and external sources. • Stakeholder Relationship Management (SRM), which supports the stakeholder communication process. Fig. 1 illustrates how SAPs version of SEM (which we will take as representative of such systems) supports strategic change management and integrated management processes aligned with strategy, based on the core concept of the Balanced Scorecard. Experience to date indicates that many SEMS implementations have been treated as technology projects rather than as means of managing strategic change (Fahy, 2001). However, successful SEM adoption requires a wider perspective with a well-designed and executed implementation process that recognises the needs of the particular organisation. Some aspects of this wider change perspective follow.
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Fig. 1. SAP’s Balanced Scorecard solution for Strategic Enterprise Management (Source: Norton and SEM Product Management, 1999).
4. Pettigrew’s ‘context, content, process model’ for successful organisational change Pettigrew (1987) has criticised the acontextual, atheoretical and aprocessual nature of mainstream managerial approaches to the study of organisational change and proposed that instead “theoretically sound and practically useful research on change should explore the context, content, and processes of change together with their interconnectedness through time” (p. 268). Pettigrew’s model for successful organisational change was developed during his seminal longitudinal study of radical strategic change at ICI plc (Pettigrew, 1985). Since that time this model has been applied by various researchers, for example, Pettigrew et al. (1992) and Orlikowski (1993). Pettigrew et al. (1992) define context as the “why and when” of change, and differentiate between the inner and outer contexts. Outer context refers to aspects such as prevailing macro economic circumstances, the particular competitive environment faced by an organisation and social and political environments, whereas inner context is concerned with internal influences such as organisational resources, capabilities, structure, culture, and organisational politics. Content is defined as the “what” of change and is concerned with the areas of transformation and the tools and techniques used to effect change. Finally, process is described as the “how” of change and refers to
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actions and interactions of the various stakeholders as they negotiate proposals for change. The model reminds those who seek to effect change successfully that it is important to consider the complexities of organisational life, and to have regard for the characteristics of an organisation’s internal and external environment. We will examine a variety of issues relating to SEMS design, implementation and use using a range of possible explanatory theories under the three parts of Pettigrew’s context, content, process model.
5. The context of change 5.1. Institutional stakeholders Various authors have argued that to manage performance strategically and so ensure continuous improvement the multiple dimensions of performance recognised by the various PMM models (e.g. Fitzgerald et al., 1991; Lynch and Cross, 1991; Kaplan and Norton, 1992) and SEMSs should be used at both the planning and performance measurement stages. This means recognising that alternative strategic plans have differing interactions and trade-offs among the performance dimensions, that choosing among the plans requires the tracing of their likely chains of cause and effect across multiple performance dimensions, and that appropriate PMs and targets must be developed and monitored for the chosen strategy within the SEMS. However, the tracing of such chains of cause and effect is problematic (Norreklit, 2000; Brignall, 2002), even at the level of a performance measurement system, and these problems may be enhanced when such systems are operated within a SEMS. It has been argued that the use of a contingent approach to information systems design (Brignall, 1997) may help performance measurement systems (PMSs) meet the needs of multiple stakeholders (Kanter and Summers, 1987; Doyle, 1994; Brignall and Ballantine, 1996; Atkinson et al., 1997), such as shareholders, customers and employees (Heskett et al., 1994). While SEMSs recognise the importance of a range of organisational stakeholders, perhaps more important from the point of successful systems implementation and performance management is the fact that most recent advances in the PM, ERP and SEM literatures originating from private sector practices have neglected the insights of institutional theory. Unlike stakeholder theory, institutional theory (in its neo-institutional sociology form) explicitly recognises the importance of relative bargaining power in determining whose interests will predominate in an organisation and the consequent effects on what aspects of performance are measured, reported and acted upon (Di Maggio and Powell, 1983; Meyer and Zucker, 1989; Powell, 1991; Brunsson, 1994). This has important implications for balance and integration in PMSs, and hence for the possibility of finding an easy implementation process for SEMSs. Following the influential criticisms of Johnson and Kaplan’s (1987) “Relevance Lost”, the upsurge of interest in the early 1990s in multidimensional PM in the management accounting literature was dominated by efforts to design effective systems for this purpose (e.g. Fitzgerald et al., 1991; Lynch and Cross, 1991; Kaplan and Norton, 1992). The resulting PM models generally adopted a “rational actor” approach in which the co-operation of managers and employees in performance measurement and improvement on behalf of a (small) range of stakeholders was assumed to be un-problematical. Industry literature on SEM also assumes that stakeholders can be managed straightforwardly by managers via Corporate Communications or Investor Relations departments. Potential clashes of interest among internal and external stakeholders are implicitly ignored in both the PM (e.g. Otley, 1999) and SEM industry literatures. Some of the academic PM literature has been informed by contingency theory (Fitzgerald et
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al., 1991; Brignall and Ballantine, 1996; Atkinson et al., 1997; Brignall, 1997) in which such variables as the business life cycle (which affects the competitive environment and competitive strategy) and process type are seen as relevant to the design of an organisation’s PMS. However, comparatively little attention has been paid to the social processes whereby PM (and SEM) systems are implemented (Otley, 1980; Ittner and Larcker, 1998) or how they come to be used in the way they are. The approach guiding previous PM research and SEMS design is mainly one of instrumental rationalism. As a result, power relationships and political bargaining processes among managers and stakeholders, studies of which would enhance our understanding of PM and SEM systems implementation and use (Markus and Pfeffer, 1983; Baier et al., 1986), have largely been ignored. In a recent paper, Brignall and Modell (2000) examined the impact of institutional pressures exercised by different groups of stakeholders on the use of performance information in organisations. Writing in the context of PMM in the “new Public Sector”, Brignall and Modell expanded the traditional two-party institutional analysis (funders, service providers: Scott, 1995) to include the institutional purchasers introduced by recent purchaser:provider splits. The three parties also correspond to the three key stakeholders identified in much private-sector PM literature, notably the employees, customers and shareholders in the “service-profit chain” (Heskett et al., 1994; see also Lynch and Cross, 1991; Kaplan and Norton, 1992). Consequently, their arguments should also apply in the private sector. Brignall and Modell (2000) focus on the way that interrelationships among the three direct institutional stakeholders may influence the balance and integration of performance information in an organisation, or lead to its de-coupling. While balance and integration have several possible meanings, they are clearly separate but linked conceptual constructs. The link between them would seem to be that some degree of integration is necessary to secure a balanced approach to realising the differing interests of the various stakeholders. However, there may be considerable problems associated with achieving balance and integration in PM/SEM system design and use, not least because the rational instrumentalism informing most research on PM offers few insights into issues of power and institutional processes which might prevent balance and integration and cause some PMs to be de-coupled. Applying this reasoning to SEMSs, difficulties may be expected in integrating the various parts (such as activity-based management, value-based management and the Balanced Scorecard) and in balancing the interests of the key stakeholders across the parts. The arguments developed above led us to suggest the following research question. Research question 1. What insights do institutional and stakeholder theory offer to the issues of integration and balance of PMSs when designing and implementing SEM systems? We shall return to this question in a later section. 5.2. Contingent variables relevant to the design of PMSs and SEMSs Many management writers have recognised the influence of a range of contingent variables on the design and implementation of management information systems and management accounting systems (e.g. Otley, 1980; Drury and Tayles, 2000), and the consequent need for system-customisation. However, if previous experience with ERP is any guide, the design of SEMSs has almost certainly failed to fully reflect the extensive range of variables that need to be allowed for. For example, ERP systems have been criticised for adopting a traditional, hierarchical, functional view of organisations (Kumar and Hillegersberg, 2000), and for assuming that Western business practices and cultures operate universally, whereas practices and cultures in Asia are different (Soh et al., 2000). They have also been criticised for
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failing to understand that what constitutes an ’enterprise’ may be defined differently from organisation to organisation (Markus et al., 2000). Brignall (1997) argued that there are two classes of contingent variables that should affect the design of integrated costing and performance measurement systems. The first of the two classes are variables related to the product and business lifecycle (e.g. the competitive environment, business mission and generic strategy type—aspects of Pettigrew’s outer and inner “context”). The second class of variables are those related to a business’s production or service delivery process type (e.g. professional, shop or mass service: Silvestro et al., 1992). We propose that these arguments also apply to SEMSs. Accordingly, the nature of the competitive environment and thus the nature of the business mission and appropriate strategy will tend to vary among organisations at any point in time and within any one organisation over time as it moves through its life cycle (Govindarajan and Shank, 1992; Adamany and Gonsalves, 1994). In consequence, SEMSs will need to vary among organisations and change over time as the organisation and its products/services move through their lifecycle. The customisation of proprietary SEMSs such as those supplied by SAP is thus necessary to enable each organisation to align the SEMS to its relevant contextual contingent interacting variables, and may be guided by reference to the variables identified above. Our arguments above may be summarised in the following research question. Research question 2. To what extent are SEM systems customised to reflect an organisation’s external and internal contextual variables, such as its competitive environment, business mission and strategy, process type, and so on?
6. The content of change The vendors of SEMSs are providing a bundle of tools and techniques (e.g. the Balanced Scorecard and Activity-Based Management). Whilst SEMs vendors claim they are promoting industry best practice by providing a bundle of tools and techniques within SEM, their adoption is likely to be problematic in practice. For example, there are various problems with the “chains of cause and effect” in Balanced Scorecard (BSC) Strategy Maps (see, for example, Norreklit, 2000; Brignall, 2002) and the top-down management style of Activity-Based Costing (ABC) (Johnson, 1992), but more importantly they are not applicable to all organisations in all circumstances. For example, Brignall et al. (1991) argued that Activity-Based Costing (and, by extension, activity-based management) is not suitable for all service delivery process types. The Balanced Scorecard has also been subject to numerous other criticisms, such as a failure to consider the performance of competitors, or the employee or supplier perspectives, or environmental performance (Ballantine and Brignall, 1995; Kennerley and Neely, 2000; Brignall, 2002). But a more worrying aspect is that the interactions among these tools and techniques—and other performance drivers which organisations may already be using—are implicitly assumed to be un-problematical. This may partly be because of the history of management research until recently, which has usually been conducted along single discipline or single function lines: truly interdisciplinary research has been rare. In line with the above, we would wish to investigate the following research question. Research question 3. Which of the various tools and techniques have been adopted by companies, and why, and what problems or conflicts have arisen when doing so?
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Performance drivers such as information systems like SEMSs or HRM practices such as empowerment have hitherto usually been studied univariately or unithematically (Pettigrew et al., 1999). An example of a strong unitheme is the work seeking to link human resource management practices to performance, which has been studied from economic (Ichniowski et al., 1997), psychological (Jackson and Schuler, 1985) and strategic human resource (Delaney and Huselid, 1996) perspectives. Sometimes such work focuses on a single HRM variable and its links with performance, for example, appraisal systems (Bricker, 1992) or selection (Terpstra and Rozell, 1993). Later, more sophisticated studies seek to bundle together various HRM activities and argue that firms with multifaceted HRM strategies perform better (MacDuffie, 1995; Ichniowski et al., 1997). More importantly, Collins and Porras (1994) have argued that such bundles must embrace not just multifaceted strategies across one theme but multifaceted strategies across multiple themes, such as strategy, structure, IT systems, HRM practices and BPR. The significance of this argument has recently been reinforced by the writings of Milgrom and Roberts (1995) and empirical research based on their arguments.
7. The process of change 7.1. The complementarities approach A recent analytical treatment of performance drivers is the work by Milgrom and Roberts (1995), whose complementarities approach is being picked up in different streams of research, for example human resource management (Ichniowski et al., 1997), performance management systems (Abernethy and Lillis, 1998), and in recent international studies of new forms of organising and company performance (Whittington et al., 1999). These streams of research have implications for the design, implementation and use of SEMSs. The complementarities approach rejects the notion of singular performance drivers, realistically recognising that performance may be improved in many ways involving many disciplines and functions. Indeed, the notion of performance is multi-faceted and what constitutes “good” performance will vary from stakeholder to stakeholder and over time. The complementarities approach recognises the potentially mutually reinforcing effect of sets of factors in explaining performance differences. Thus in the work on innovation and performance (Whittington et al., 1999), it is assumed that certain innovations need to happen at a similar time if the synergies are to be enjoyed. SEMSs follow this thinking in their promotion of multiple methods of performance improvement (such as the Balanced Scorecard, ABM and VBM) applied simultaneously and in an integrated fashion. However, Milgrom and Roberts (1995) argue that such activities are complementary when changes that increase the effectiveness of some activities in a group promote the adoption and improvement of other activities. The vendors of SEMSs have yet to demonstrate that this is the case for their systems, whether in terms of their internal coherence, or in terms of their coherence (or “fit”) with the other performance improvement techniques already in place in any one organisation intending to install a SEMS: hence the need for research in this area. Accordingly, such research would need to consider the complementarities among the various applications of the SEMS (e.g. BPS, CPM, SRM) and those performance improvement techniques in place in the organisation but outside the SEMS, such as improved HRM practices or a new organisational structure. Milgrom and Robert’s (1995) main complementarity propositions, which might be relevant to future SEMS research, are:
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• Higher performing organisations will not just be doing the right kinds of things but combining more of them and doing so differently. • Superior performance is to be gained not by changing individual parts in isolation, but by simultaneously combining all the elements together. • Practices associated with positive performance when combined with their complements may be found to have negative effects when taken individually. In fact Whittington et al. (1999) show that piece-meal change not only does not deliver higher performance, but actually leads to negative performance effects. So system-wide change involving the transformation of structures, processes and boundaries can deliver substantial performance gains, and might be aided by the implementation of a new information system such as a SEMS (Pettigrew, 1999a; Pettigrew and Fenton, 2000). But knowing what sets of changes need simultaneously to happen (the change content, or what applications and tools should be contained in a SEMS) is only half the battle. From a policy point of view we also need the answers to a set of questions about the process and context of organisational change, and how the two should be aligned to ensure a good “fit”. What can we discover about the learning and change capacities of organisations that are able to sustain an ambitious change agenda through time and still improve their competitive performance while implementing a SEMS? Which features of top management commitment and skill in handling change seem to be crucial to the successful implementation of a SEMS? If ERP implementation problems are a guide, research indicates that “the sheer size and scale of such implementations may encourage organisations to tackle the layers (e.g. strategic versus technical) independently, contributing to many failures and partial successes of these complex business and technical projects” (Markus et al., 2000, p. 42). Indeed, research suggests that, because of the size and scale of these projects, “truly enterprise-wide implementations of ERP systems in large, complex organisations are the exception rather than the rule” (Markus et al., 2000, p. 43). To summarise the above discussion, we know that complementarities theory implies innovating in sets, but there are many detailed research questions that flow from this. For example, how are the initial sets (in a SEMS) chosen and why? What follows the initial change sequence in successful SEMS implementations, and why? Was energy focused on making the initial set of changes work, or was there sufficient foresight to accumulate the next set of complements and design processes to meet the new set of changes in the ever evolving context of the organisation? (Pettigrew, 1999b). The foregoing leads us to: Research question 4. In line with complementarities theory, do successful SEM adopters implement multiple applications of an SEM system simultaneously as opposed to a modular fashion? 7.2. Stakeholders and institutions Answers to this fundamental process question must recognise that the strategic management of organisational change and performance improvement involves managerial choices through which they pro-actively influence their relations to different constituencies (Oliver, 1991; Abernethy and Chua, 1996). However, such choices are not uncontroversial among members of the senior management team and key internal and external stakeholders. One way of achieving consensus might be to adopt Interactive Planning (IP) (Ackoff, 1979) as an over-arching planning and decision-making process, where interactive planning aims “to design a desirable future and invent ways of bringing it about” (Ormerod, 1995, p. 278) through the participation of a range of stakeholders in order to gain consensus.
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ERP and SEM systems can be seen as a way of promoting transparency within an organisation, but this runs counter to de-coupling in institutional theory mentioned in the section on context above. A critical issue is: transparency to whom? This is where the issue of power comes in: who controls access to the information in the various parts of the SEMS (or ERPS)? Is transparency always desirable from the point of view of senior management? Strategic decision-making has long been regarded as a key function and prerogative of senior management, so the sharing of that information with other stakeholders via a SEMS could be seen as a serious weakening of senior management power. It may be that SEMSs are in the process of becoming institutionalised (i.e. standardised and perhaps ritualised) in their own right, with discernible isomorphic tendencies. This raises the issue of the implications of various modes of SEMS implementation, which may be linked to differing organisational (Tolbert, 1988) or national (Hofstede, 1983, 1984, 1994) cultures. Are these systems implemented in a coercive, normative or mimetic fashion? (cf. Di Maggio and Powell, 1983) Outcomes are likely to vary depending on implementation mode and hence one may see various types of couplings between various parts of SEMSs. Consequently, how “partial” the solution to organisational performance improvement is will depend on the type of coupling (both within the SEMS and between the SEMS and its outer and inner context). De-coupling will occur if a SEMS is merely used for external legitimacy seeking (Meyer and Gupta, 1994), but if there is also an element of ‘real’ (i.e. partial) use by stakeholders other than senior managers some form of loose coupling (Orton and Weick, 1990) will occur. Tight couplings will only occur if the SEM system is used in the way its designers intended, permeating all levels of management and having the kind of significant change impact its vendors claim for it. The above leads us to: Research question 5. To what extent are the various applications of an SEM system de-coupled and what are the implications of this for the integration and balance of the performance measurement system? However, the mode of implementation will often not be determined by senior managers alone (who may in any event disagree among each other), but will rather be affected by stakeholder power and conflicts and the organisational culture. A deciding factor here may be the possibility of managers resisting institutional pressures (Oliver, 1991), which may vary from organisation to organisation. In consequence, the form of coupling will be affected both by the mode of implementation and managers’ degree of control over that decision. Differing organisational (Tolbert, 1988) or national (Hofstede, 1983, 1984, 1994) cultures may play a determining role in this respect. Future researchers may wish to explore the extent to which those implementing SEM systems sacrifice integration for balance, and whether this is linked to the incidence of the three forms of de-coupling mentioned above.
8. Conclusions and research implications We have argued that the design, implementation and use of SEMSs may usefully be studied using Pettigrew’s “context, content, process” model for successful organisational change and performance improvement. We have developed a series of five research questions under the three parts of Pettigrew’s model. The process questions raised above and the complex issues discussed in the earlier context and content sections imply that future research on what determines the success of SEM initiatives might usefully combine two research methodologies. Large sample multivariate statistical studies could be used to
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identify the ‘what’ of the complementarities among their component parts while an associated set of longitudinal case studies might help answer the questions about the process and context of successful change and performance improvement using SEM. These case studies might be “matched pairs” (Pettigrew and Whipp, 1991) of successful and unsuccessful SEM organisations. Until such research has been carried out, SEMSs are at best a partial solution to the quest for performance improvement, a solution which implies more questions about the context, content and process of organisational change and performance improvement than their vendors are currently able to answer. While this paper has considered a number of issues relevant to the successful implementation of SEMSs, it has given scant coverage of other issues that have been shown to be relevant to the success of ERP systems. For example, the paper has not considered the potential problems of integrating ERP, SEM and other systems, or the problems caused by tight implementation schedules, the need for data standardisation and the time-consuming and costly nature of systems implementation. A complete analysis of the problems inherent in SEMS design and implementation would need to consider these issues as well as those covered in more detail in the main sections of the paper above.
Acknowledgements Stan Brignall is grateful for ideas generated in previous collaborations with Lin Fitzgerald, Janet Harvey, Bob Johnston, Sven Modell and Andrew Pettigrew. The authors are grateful for the comments of Sven Modell and David Otley on a previous version.
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Strategic Enterprise Management Systems: new directions for research夽 Stan Brignall a,∗ , Joan Ballantine b a
Aston Business School, Aston University, Aston Triangle, Birmingham B4 7ET, UK b Queens University Belfast, Belfast, UK Received 21 May 2003; accepted 13 October 2003
Abstract In a world obsessed with performance, many organisations welcome systems that claim to offer a structured solution to improving performance, such as Strategic Enterprise Management (SEM). But while much has been written about how to measure performance, little is known about the interaction between performance measurement and management (PMM) and the many ways in which organizations strive to improve their performance. This paper studies the interrelationships among SEM systems, PMM and organisational change programmes within Pettigrew’s “context, content, process” model. The problems of SEM design, implementation and use are explored using the insights of several theories, following the arguments of Hammersley [Handbook of Qualitative Research Methods, The British Psychological Society, 1996] that such an approach permits a richer understanding of management practice. Having also identified potential solutions for the design, implementation and use of SEM systems, we develop a number of research questions to be explored in future research. © 2003 Elsevier Ltd. All rights reserved. Keywords: Strategic Enterprise Management; Context, content, process; Institutional theory; Complementarities theory; Performance measurement and management
1. Introduction In this age of anxiety, performance is an obsession. From schools to universities, businesses to government departments we have become an audit society (Humphrey and Owen, 2000; Power, 2000) absorbed in performance measurement and the assessment of relative success, which can affect the allocation of resources, and the fates of institutions and individuals. 夽
A previous version of this paper was presented at the MARG Conference, Aston Business School, 11–12 September 2000. Corresponding author. Tel.: +44-121-359-3011x4918; fax: +44-121-333-5708. E-mail addresses: [email protected] (S. Brignall), [email protected] (J. Ballantine).
∗
1044-5005/$ – see front matter © 2003 Elsevier Ltd. All rights reserved. doi:10.1016/j.mar.2003.10.003
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The drivers creating such cultures of continuous improvement are familiar. In the private sector global competition means that pressures to learn and change are continuous. Managers respond by closing factories, de-layering and merging (Pettigrew, 2000). In the public sector, league tables (Clatworthy and Mellett, 1997)—and naming and shaming—are the order of the day. More positive change agendas aim to create more agile, knowledge-conscious and creative organisations in the never-ending search for a sustainable competitive advantage (Mohrman et al., 1998). The constant drive for competitive advantage and performance improvement has created an imitative market for new management techniques (Pettigrew, 1999a), which profit consultants but sometimes de-stabilise sources of competitive advantage. Two such innovations have been models of multi-dimensional performance measurement and management (PMM: e.g. Fitzgerald et al., 1991; Lynch and Cross, 1991; Kaplan and Norton, 1992) and the dissemination of Enterprise Resource Planning (ERP: Fahy, 2000) and, more recently, Strategic Enterprise Management (SEM) software, whose vendors claim to offer a structured solution to improving organisational performance (Fahy, 2001). Such software is changing the way top managers manage and is affecting the roles and skills of management accountants, who are variably involved in PMM and organisational change (Chenhall and Langfield-Smith, 1998; Brignall et al., 1999). While much has been written in recent years about how to measure performance, little is known about the interaction between PMM and the many ways in which organisations strive to improve their performance, often under the heading of an “organisational change programme”. Successful change programmes may involve many individual performance drivers, such as new leadership, clear objectives, a new strategy, improved human resource management practices, process changes, IT/IS investment (e.g. ERP or SEM systems), and so on (Pettigrew, 1999a,b; Whittington et al., 1999). However, the links between PMM and these change techniques are only now beginning to be systematically studied, yet their alignment may be crucial to competitive success. The findings of such studies should be directly relevant to the success or failure of ERP systems (Scheer and Habermann, 2000) and their strategic offspring, SEM systems (Fahy, 2000, 2001; Gould, 2003). Gould (2003) argues that “while precise definitions cannot communicate the full nature of SEM, a working definition could be: an approach to strategic management which focuses on creating and sustaining shareholder value through the integrated use of best practice modelling and analysis techniques, technologies, and processes in support of better decision making” (p. 6). SEM systems (SEMSs) have a strategic focus, and are designed to sit on top of the operationally focused ERP systems introduced by so many large companies in the 1990s to replace their previous Materials Requirement Planning (MRP) systems. SEMSs typically apply a particular set of performance-enhancement techniques (such as Business Process Redesign, Customer Relationship Marketing, Supply Chain Management, Value-Based Management, Activity-Based Management and the Balanced Scorecard: Fahy, 2000, 2001) to their corporate purchasers. But even if these techniques are appropriate for all organisations, knowing what sets of changes need simultaneously to happen (the change content) is only half the performance-improvement battle. From a policy point of view we also need the answers to a set of questions about the process and context of changing (Pettigrew, 1985). These questions imply that SEMSs may not only suggest remedies that are irrelevant to the problems faced by an individual organisation (i.e. wrong content), but that they ignore important issues of context and process as well. For these reasons, we will argue, SEMSs can only be regarded as partial solutions to organisational performance improvement. In what follows we first outline our research objective and identify relevant theories with which to explore it. We then define what a SEMS is, and describe Pettigrew’s (1985) “context, content, process” model for successful organisational change. In the main body of the paper we go on to explore the
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relationship between PMM and SEM within three sections in which the parts of the model are applied. These sections on context, content and process identify various potential problems with SEM and PMM, and in them we develop some research questions to pursue in search for their solution. Our conclusions with ideas for future research follow.
2. Research objective and conceptual theorization The objective of this research note is to explore the relationship between PMM and SEM within Pettigrew’s (1985) “context, content, process” model for successful organisational change and performance improvement. This model is felt to be appropriate in the context of SEMSs as it has been applied to understand successful organisational change (Pettigrew et al., 1992; Orlikowski, 1993), which is what SEMSs are intended to promote. The three parts of Pettigrew’s model are used to help identify potential problems and possible solutions in the areas of SEM design, implementation and use. Given the complexity of the relationships between PMM and SEMSs, we draw on stakeholder, institutional, contingency and complementarities theories to explore these issues and develop a series of research questions to be pursued in subsequent research. Stakeholder theorists advocate a pluralistic approach to performance measurement (Doyle, 1994; Atkinson et al., 1997) so we use stakeholder theory to explore the context within which SEMSs are applied, given that SEMSs recognise multiple stakeholders. However, stakeholder theory does not deal with inequalities of power (Meyer and Rowan, 1977; Scott, 1987; Covaleski et al., 1996) among stakeholders and their likely impacts in de-coupling integrated systems such as SEMSs. For example, Meyer and Rowan (1977) propose “that externally legitimated, formal assessment criteria such as management accounting information plays an important but ritualistic role in a variety of settings as organisations grope to find, conform to, and demonstrate for their internal and external constituents some form of rationality in order to gain legitimacy” (as cited in Covaleski et al., 1996, p. 11). Hence we use neo-institutional sociology to gain further insights into the internal and external contexts in which SMESs are designed, implemented and used. We also use the insights of contingency theory as applied to control systems, with some suggesting that they should be designed bearing in mind the relationships between contextual factors and structural characteristics (Gordon and Miller, 1976; Waterhouse and Tiessen, 1978). SEMSs are concerned with strategic control of organisations hence we use contingency theory to study such contextual factors. Finally, within the performance measurement literature, the complementarities approach initiated by Milgrom and Roberts (1995) has emphasised the need to understand that performance may be improved in many ways involving many disciplines and functions. Indeed, the notion of performance is multi-faceted and what constitutes “good” performance will vary from stakeholder to stakeholder. SEMSs apply various tools and techniques to the improvement of performance, hence a key question is how to manage the interactions amongst these performance improvement tools and techniques. Complementarities theory argues that the managers of successful companies will implement multiple performance improvement techniques simultaneously and in our subsequent research we will wish to investigate this aspect of the process by which SEMSs are designed, implemented and used. The theories we cite above are drawn from different research paradigms. For example, contingency theory is situated within traditional structural functionalism whereas neo-institutional sociology draws on the interpretive tradition (Burrell and Morgan, 1979). Morgan (1980) “theorized that different paradigms both address different sorts of problems and, where paradigms address common problems, portray them
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in fundamentally different ways and thereby offer differing insights into their nature. Thus, what is called for is . . . paradigmatic pluralism as a way of enhancing our understanding of issues in the social sciences. Consequently, we offer the various paradigms . . . as alternative ways of understanding the multiple roles played by management accounting in organisations and society” (as summarised in Covaleski et al., 1996, p. 24). In so doing we are following the triangulation, facilitation and complementarity arguments of Hammersley (1996), in the belief that such an approach permits a wider and richer understanding of management accounting practice than a singular approach. The supporters of a mixed methodology in social science research claim that one of the primary benefits of such an approach derives from “triangulation”. The term “triangulation” was originally used in psychological research by Campbell and Fiske (1959) and developed for wider application in social science by Denzin (1970). The concept refers to the extent to which research findings can be confirmed by the simultaneous application of multiple methods, multiple investigators, multiple data sets or multiple theories (Denzin, 1970). The idea behind triangulation is that, subject to the resolution of paradigmatic conflict, empirical evidence may be strengthened by the use of different approaches to the same problem. In particular, in this research note we will show how different theories may be applied to create a wider set of plausible explanations for phenomena that may be observed in later empirical research. Many eminent writers across the social sciences (such as Giddens, 1984; Bhaskar, 1989, 1994) or in the accounting literature (Berry et al., 1991; Laughlin, 1995) now dispute the idea that the researcher is forced to choose between opposing views of reality. Paradigm fixation among researchers may just be a function of habit and fear of change as much as belief in a particular paradigm. It could be argued that greater flexibility in approach would lead to a better fit between research problems and the methods chosen to investigate them (Burgess, 1984; Brannen, 1992). A more flexible approach to the use of theory in the research process may result in the development of richer theories, more closely related to the extant conditions studied. Finally, following Weaver and Gioia (1994), we reject possible charges of ‘paradigm incommensurability’. Using Giddens’s (1984) ‘structuration theory’, Weaver and Gioia suggest that paradigm incommensurability is as much a socially constructed device as any of the other frameworks within which researchers attempt to classify, model and understand the social world. In this context, paradigm incommensurability is seen as a socially constructed barrier to inter-disciplinary research communication, which is difficult to justify on theoretical grounds.
3. What are Strategic Enterprise Management Systems? The vendors of ERP systems claim they provide “an integrated solution for planning, executing, and controlling business processes horizontally across the value chain. . . . SAP R/3 (the market leader) integrates processes such as sales and materials planning, production planning, warehouse management, financial and management accounting, and HR management” (Norton and SEM, 1999, p. 38). SEM “. . . will extend these principles vertically to support strategic management processes, such as strategic planning, risk management, performance monitoring and value communication” (ibid.). Its vendors claim that “It allows a two-way flow of information: corporate strategists can monitor performance continually using feedback from the business execution systems, and adjustments to the strategy can be driven down to the operational level via new targets and KPIs” (Norton and SEM, 1999, p. 38). Fahy (2001) argues that the “SEM approach seeks to effectively link performance measurement and control to strategic objectives, in an attempt to ensure that operational decision-making is fully focused
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on delivering strategic objectives” (p. 173). SEMSs are similar in concept to earlier executive decision support software such as executive information systems. However, SEMSs improve on earlier systems in two ways: first, the technology itself has vastly improved, and second, they have drawn on the unsuccessful implementation lessons with earlier technologies “by recognising the primacy of the executive and relegating the technology to a supporting role” (p. 5). For a system to qualify as an SEM system we believe that it should have the following attributes. First, it should be built on an ERP system, that is, a common database that integrates management information across all functions and disciplines in the organisation. However, ERP systems have been more concerned with transaction processing than decision support. In order to provide this functionality, a series of other attributes are required. Thus, a second attribute is that SEMSs rely heavily on the use of data warehousing tools, where the data warehouse acts as a repository and data transformation tool to perform company or activity specific consolidations such as activity-based management cost pools. It also acts as the delivery point for external data such as market share and competitor information and supports the need for multi-dimensional analysis of such data. Third, SEMSs have a range of integrated applications and tools including activity-based management; profitability, planning and simulation; workforce analytics; customer relationship management; shareholder value analysis; the balanced scorecard and reporting and analysis tools. Fourth, they have both an internal and an external market focus. Finally, they are intended to support executive strategic decision-making. SEMSs are sold by many leading suppliers of ERP and other software, which at the time of writing include PeopleSoft, Hyperion, Gentia, Corvu and Oracle, as well as SAP. For example, the market leader in ERP systems, SAP AG, is currently offering an integrated Strategic Enterprise Management System (SEMS) with mySAP.com that has five main applications and associated tools: • Business Planning and Simulation (BPS), which integrates strategic and operational planning, with modelling, simulation and scenario planning facilities. Activity-based management is used to add a process view to the functional view of an organisation, which is reflected in resource planning. • Business Consolidation (BCS) for financial reporting internally and externally, including value-based accounting. • Corporate Performance Monitoring (CPM), providing support for the definition, analysis, visualization and interpretation of key performance indicators, both financial and non-financial, internal and external. The Balanced Scorecard (Kaplan and Norton, 1992) is a key tool here, together with associated chains of cause and effect among multiple performance dimensions (Kaplan and Norton, 1996, 1997) useful during the planning process. • Business Information Collection (BIC), which collects structured and unstructured business information from internal and external sources. • Stakeholder Relationship Management (SRM), which supports the stakeholder communication process. Fig. 1 illustrates how SAPs version of SEM (which we will take as representative of such systems) supports strategic change management and integrated management processes aligned with strategy, based on the core concept of the Balanced Scorecard. Experience to date indicates that many SEMS implementations have been treated as technology projects rather than as means of managing strategic change (Fahy, 2001). However, successful SEM adoption requires a wider perspective with a well-designed and executed implementation process that recognises the needs of the particular organisation. Some aspects of this wider change perspective follow.
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Fig. 1. SAP’s Balanced Scorecard solution for Strategic Enterprise Management (Source: Norton and SEM Product Management, 1999).
4. Pettigrew’s ‘context, content, process model’ for successful organisational change Pettigrew (1987) has criticised the acontextual, atheoretical and aprocessual nature of mainstream managerial approaches to the study of organisational change and proposed that instead “theoretically sound and practically useful research on change should explore the context, content, and processes of change together with their interconnectedness through time” (p. 268). Pettigrew’s model for successful organisational change was developed during his seminal longitudinal study of radical strategic change at ICI plc (Pettigrew, 1985). Since that time this model has been applied by various researchers, for example, Pettigrew et al. (1992) and Orlikowski (1993). Pettigrew et al. (1992) define context as the “why and when” of change, and differentiate between the inner and outer contexts. Outer context refers to aspects such as prevailing macro economic circumstances, the particular competitive environment faced by an organisation and social and political environments, whereas inner context is concerned with internal influences such as organisational resources, capabilities, structure, culture, and organisational politics. Content is defined as the “what” of change and is concerned with the areas of transformation and the tools and techniques used to effect change. Finally, process is described as the “how” of change and refers to
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actions and interactions of the various stakeholders as they negotiate proposals for change. The model reminds those who seek to effect change successfully that it is important to consider the complexities of organisational life, and to have regard for the characteristics of an organisation’s internal and external environment. We will examine a variety of issues relating to SEMS design, implementation and use using a range of possible explanatory theories under the three parts of Pettigrew’s context, content, process model.
5. The context of change 5.1. Institutional stakeholders Various authors have argued that to manage performance strategically and so ensure continuous improvement the multiple dimensions of performance recognised by the various PMM models (e.g. Fitzgerald et al., 1991; Lynch and Cross, 1991; Kaplan and Norton, 1992) and SEMSs should be used at both the planning and performance measurement stages. This means recognising that alternative strategic plans have differing interactions and trade-offs among the performance dimensions, that choosing among the plans requires the tracing of their likely chains of cause and effect across multiple performance dimensions, and that appropriate PMs and targets must be developed and monitored for the chosen strategy within the SEMS. However, the tracing of such chains of cause and effect is problematic (Norreklit, 2000; Brignall, 2002), even at the level of a performance measurement system, and these problems may be enhanced when such systems are operated within a SEMS. It has been argued that the use of a contingent approach to information systems design (Brignall, 1997) may help performance measurement systems (PMSs) meet the needs of multiple stakeholders (Kanter and Summers, 1987; Doyle, 1994; Brignall and Ballantine, 1996; Atkinson et al., 1997), such as shareholders, customers and employees (Heskett et al., 1994). While SEMSs recognise the importance of a range of organisational stakeholders, perhaps more important from the point of successful systems implementation and performance management is the fact that most recent advances in the PM, ERP and SEM literatures originating from private sector practices have neglected the insights of institutional theory. Unlike stakeholder theory, institutional theory (in its neo-institutional sociology form) explicitly recognises the importance of relative bargaining power in determining whose interests will predominate in an organisation and the consequent effects on what aspects of performance are measured, reported and acted upon (Di Maggio and Powell, 1983; Meyer and Zucker, 1989; Powell, 1991; Brunsson, 1994). This has important implications for balance and integration in PMSs, and hence for the possibility of finding an easy implementation process for SEMSs. Following the influential criticisms of Johnson and Kaplan’s (1987) “Relevance Lost”, the upsurge of interest in the early 1990s in multidimensional PM in the management accounting literature was dominated by efforts to design effective systems for this purpose (e.g. Fitzgerald et al., 1991; Lynch and Cross, 1991; Kaplan and Norton, 1992). The resulting PM models generally adopted a “rational actor” approach in which the co-operation of managers and employees in performance measurement and improvement on behalf of a (small) range of stakeholders was assumed to be un-problematical. Industry literature on SEM also assumes that stakeholders can be managed straightforwardly by managers via Corporate Communications or Investor Relations departments. Potential clashes of interest among internal and external stakeholders are implicitly ignored in both the PM (e.g. Otley, 1999) and SEM industry literatures. Some of the academic PM literature has been informed by contingency theory (Fitzgerald et
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al., 1991; Brignall and Ballantine, 1996; Atkinson et al., 1997; Brignall, 1997) in which such variables as the business life cycle (which affects the competitive environment and competitive strategy) and process type are seen as relevant to the design of an organisation’s PMS. However, comparatively little attention has been paid to the social processes whereby PM (and SEM) systems are implemented (Otley, 1980; Ittner and Larcker, 1998) or how they come to be used in the way they are. The approach guiding previous PM research and SEMS design is mainly one of instrumental rationalism. As a result, power relationships and political bargaining processes among managers and stakeholders, studies of which would enhance our understanding of PM and SEM systems implementation and use (Markus and Pfeffer, 1983; Baier et al., 1986), have largely been ignored. In a recent paper, Brignall and Modell (2000) examined the impact of institutional pressures exercised by different groups of stakeholders on the use of performance information in organisations. Writing in the context of PMM in the “new Public Sector”, Brignall and Modell expanded the traditional two-party institutional analysis (funders, service providers: Scott, 1995) to include the institutional purchasers introduced by recent purchaser:provider splits. The three parties also correspond to the three key stakeholders identified in much private-sector PM literature, notably the employees, customers and shareholders in the “service-profit chain” (Heskett et al., 1994; see also Lynch and Cross, 1991; Kaplan and Norton, 1992). Consequently, their arguments should also apply in the private sector. Brignall and Modell (2000) focus on the way that interrelationships among the three direct institutional stakeholders may influence the balance and integration of performance information in an organisation, or lead to its de-coupling. While balance and integration have several possible meanings, they are clearly separate but linked conceptual constructs. The link between them would seem to be that some degree of integration is necessary to secure a balanced approach to realising the differing interests of the various stakeholders. However, there may be considerable problems associated with achieving balance and integration in PM/SEM system design and use, not least because the rational instrumentalism informing most research on PM offers few insights into issues of power and institutional processes which might prevent balance and integration and cause some PMs to be de-coupled. Applying this reasoning to SEMSs, difficulties may be expected in integrating the various parts (such as activity-based management, value-based management and the Balanced Scorecard) and in balancing the interests of the key stakeholders across the parts. The arguments developed above led us to suggest the following research question. Research question 1. What insights do institutional and stakeholder theory offer to the issues of integration and balance of PMSs when designing and implementing SEM systems? We shall return to this question in a later section. 5.2. Contingent variables relevant to the design of PMSs and SEMSs Many management writers have recognised the influence of a range of contingent variables on the design and implementation of management information systems and management accounting systems (e.g. Otley, 1980; Drury and Tayles, 2000), and the consequent need for system-customisation. However, if previous experience with ERP is any guide, the design of SEMSs has almost certainly failed to fully reflect the extensive range of variables that need to be allowed for. For example, ERP systems have been criticised for adopting a traditional, hierarchical, functional view of organisations (Kumar and Hillegersberg, 2000), and for assuming that Western business practices and cultures operate universally, whereas practices and cultures in Asia are different (Soh et al., 2000). They have also been criticised for
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failing to understand that what constitutes an ’enterprise’ may be defined differently from organisation to organisation (Markus et al., 2000). Brignall (1997) argued that there are two classes of contingent variables that should affect the design of integrated costing and performance measurement systems. The first of the two classes are variables related to the product and business lifecycle (e.g. the competitive environment, business mission and generic strategy type—aspects of Pettigrew’s outer and inner “context”). The second class of variables are those related to a business’s production or service delivery process type (e.g. professional, shop or mass service: Silvestro et al., 1992). We propose that these arguments also apply to SEMSs. Accordingly, the nature of the competitive environment and thus the nature of the business mission and appropriate strategy will tend to vary among organisations at any point in time and within any one organisation over time as it moves through its life cycle (Govindarajan and Shank, 1992; Adamany and Gonsalves, 1994). In consequence, SEMSs will need to vary among organisations and change over time as the organisation and its products/services move through their lifecycle. The customisation of proprietary SEMSs such as those supplied by SAP is thus necessary to enable each organisation to align the SEMS to its relevant contextual contingent interacting variables, and may be guided by reference to the variables identified above. Our arguments above may be summarised in the following research question. Research question 2. To what extent are SEM systems customised to reflect an organisation’s external and internal contextual variables, such as its competitive environment, business mission and strategy, process type, and so on?
6. The content of change The vendors of SEMSs are providing a bundle of tools and techniques (e.g. the Balanced Scorecard and Activity-Based Management). Whilst SEMs vendors claim they are promoting industry best practice by providing a bundle of tools and techniques within SEM, their adoption is likely to be problematic in practice. For example, there are various problems with the “chains of cause and effect” in Balanced Scorecard (BSC) Strategy Maps (see, for example, Norreklit, 2000; Brignall, 2002) and the top-down management style of Activity-Based Costing (ABC) (Johnson, 1992), but more importantly they are not applicable to all organisations in all circumstances. For example, Brignall et al. (1991) argued that Activity-Based Costing (and, by extension, activity-based management) is not suitable for all service delivery process types. The Balanced Scorecard has also been subject to numerous other criticisms, such as a failure to consider the performance of competitors, or the employee or supplier perspectives, or environmental performance (Ballantine and Brignall, 1995; Kennerley and Neely, 2000; Brignall, 2002). But a more worrying aspect is that the interactions among these tools and techniques—and other performance drivers which organisations may already be using—are implicitly assumed to be un-problematical. This may partly be because of the history of management research until recently, which has usually been conducted along single discipline or single function lines: truly interdisciplinary research has been rare. In line with the above, we would wish to investigate the following research question. Research question 3. Which of the various tools and techniques have been adopted by companies, and why, and what problems or conflicts have arisen when doing so?
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Performance drivers such as information systems like SEMSs or HRM practices such as empowerment have hitherto usually been studied univariately or unithematically (Pettigrew et al., 1999). An example of a strong unitheme is the work seeking to link human resource management practices to performance, which has been studied from economic (Ichniowski et al., 1997), psychological (Jackson and Schuler, 1985) and strategic human resource (Delaney and Huselid, 1996) perspectives. Sometimes such work focuses on a single HRM variable and its links with performance, for example, appraisal systems (Bricker, 1992) or selection (Terpstra and Rozell, 1993). Later, more sophisticated studies seek to bundle together various HRM activities and argue that firms with multifaceted HRM strategies perform better (MacDuffie, 1995; Ichniowski et al., 1997). More importantly, Collins and Porras (1994) have argued that such bundles must embrace not just multifaceted strategies across one theme but multifaceted strategies across multiple themes, such as strategy, structure, IT systems, HRM practices and BPR. The significance of this argument has recently been reinforced by the writings of Milgrom and Roberts (1995) and empirical research based on their arguments.
7. The process of change 7.1. The complementarities approach A recent analytical treatment of performance drivers is the work by Milgrom and Roberts (1995), whose complementarities approach is being picked up in different streams of research, for example human resource management (Ichniowski et al., 1997), performance management systems (Abernethy and Lillis, 1998), and in recent international studies of new forms of organising and company performance (Whittington et al., 1999). These streams of research have implications for the design, implementation and use of SEMSs. The complementarities approach rejects the notion of singular performance drivers, realistically recognising that performance may be improved in many ways involving many disciplines and functions. Indeed, the notion of performance is multi-faceted and what constitutes “good” performance will vary from stakeholder to stakeholder and over time. The complementarities approach recognises the potentially mutually reinforcing effect of sets of factors in explaining performance differences. Thus in the work on innovation and performance (Whittington et al., 1999), it is assumed that certain innovations need to happen at a similar time if the synergies are to be enjoyed. SEMSs follow this thinking in their promotion of multiple methods of performance improvement (such as the Balanced Scorecard, ABM and VBM) applied simultaneously and in an integrated fashion. However, Milgrom and Roberts (1995) argue that such activities are complementary when changes that increase the effectiveness of some activities in a group promote the adoption and improvement of other activities. The vendors of SEMSs have yet to demonstrate that this is the case for their systems, whether in terms of their internal coherence, or in terms of their coherence (or “fit”) with the other performance improvement techniques already in place in any one organisation intending to install a SEMS: hence the need for research in this area. Accordingly, such research would need to consider the complementarities among the various applications of the SEMS (e.g. BPS, CPM, SRM) and those performance improvement techniques in place in the organisation but outside the SEMS, such as improved HRM practices or a new organisational structure. Milgrom and Robert’s (1995) main complementarity propositions, which might be relevant to future SEMS research, are:
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• Higher performing organisations will not just be doing the right kinds of things but combining more of them and doing so differently. • Superior performance is to be gained not by changing individual parts in isolation, but by simultaneously combining all the elements together. • Practices associated with positive performance when combined with their complements may be found to have negative effects when taken individually. In fact Whittington et al. (1999) show that piece-meal change not only does not deliver higher performance, but actually leads to negative performance effects. So system-wide change involving the transformation of structures, processes and boundaries can deliver substantial performance gains, and might be aided by the implementation of a new information system such as a SEMS (Pettigrew, 1999a; Pettigrew and Fenton, 2000). But knowing what sets of changes need simultaneously to happen (the change content, or what applications and tools should be contained in a SEMS) is only half the battle. From a policy point of view we also need the answers to a set of questions about the process and context of organisational change, and how the two should be aligned to ensure a good “fit”. What can we discover about the learning and change capacities of organisations that are able to sustain an ambitious change agenda through time and still improve their competitive performance while implementing a SEMS? Which features of top management commitment and skill in handling change seem to be crucial to the successful implementation of a SEMS? If ERP implementation problems are a guide, research indicates that “the sheer size and scale of such implementations may encourage organisations to tackle the layers (e.g. strategic versus technical) independently, contributing to many failures and partial successes of these complex business and technical projects” (Markus et al., 2000, p. 42). Indeed, research suggests that, because of the size and scale of these projects, “truly enterprise-wide implementations of ERP systems in large, complex organisations are the exception rather than the rule” (Markus et al., 2000, p. 43). To summarise the above discussion, we know that complementarities theory implies innovating in sets, but there are many detailed research questions that flow from this. For example, how are the initial sets (in a SEMS) chosen and why? What follows the initial change sequence in successful SEMS implementations, and why? Was energy focused on making the initial set of changes work, or was there sufficient foresight to accumulate the next set of complements and design processes to meet the new set of changes in the ever evolving context of the organisation? (Pettigrew, 1999b). The foregoing leads us to: Research question 4. In line with complementarities theory, do successful SEM adopters implement multiple applications of an SEM system simultaneously as opposed to a modular fashion? 7.2. Stakeholders and institutions Answers to this fundamental process question must recognise that the strategic management of organisational change and performance improvement involves managerial choices through which they pro-actively influence their relations to different constituencies (Oliver, 1991; Abernethy and Chua, 1996). However, such choices are not uncontroversial among members of the senior management team and key internal and external stakeholders. One way of achieving consensus might be to adopt Interactive Planning (IP) (Ackoff, 1979) as an over-arching planning and decision-making process, where interactive planning aims “to design a desirable future and invent ways of bringing it about” (Ormerod, 1995, p. 278) through the participation of a range of stakeholders in order to gain consensus.
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ERP and SEM systems can be seen as a way of promoting transparency within an organisation, but this runs counter to de-coupling in institutional theory mentioned in the section on context above. A critical issue is: transparency to whom? This is where the issue of power comes in: who controls access to the information in the various parts of the SEMS (or ERPS)? Is transparency always desirable from the point of view of senior management? Strategic decision-making has long been regarded as a key function and prerogative of senior management, so the sharing of that information with other stakeholders via a SEMS could be seen as a serious weakening of senior management power. It may be that SEMSs are in the process of becoming institutionalised (i.e. standardised and perhaps ritualised) in their own right, with discernible isomorphic tendencies. This raises the issue of the implications of various modes of SEMS implementation, which may be linked to differing organisational (Tolbert, 1988) or national (Hofstede, 1983, 1984, 1994) cultures. Are these systems implemented in a coercive, normative or mimetic fashion? (cf. Di Maggio and Powell, 1983) Outcomes are likely to vary depending on implementation mode and hence one may see various types of couplings between various parts of SEMSs. Consequently, how “partial” the solution to organisational performance improvement is will depend on the type of coupling (both within the SEMS and between the SEMS and its outer and inner context). De-coupling will occur if a SEMS is merely used for external legitimacy seeking (Meyer and Gupta, 1994), but if there is also an element of ‘real’ (i.e. partial) use by stakeholders other than senior managers some form of loose coupling (Orton and Weick, 1990) will occur. Tight couplings will only occur if the SEM system is used in the way its designers intended, permeating all levels of management and having the kind of significant change impact its vendors claim for it. The above leads us to: Research question 5. To what extent are the various applications of an SEM system de-coupled and what are the implications of this for the integration and balance of the performance measurement system? However, the mode of implementation will often not be determined by senior managers alone (who may in any event disagree among each other), but will rather be affected by stakeholder power and conflicts and the organisational culture. A deciding factor here may be the possibility of managers resisting institutional pressures (Oliver, 1991), which may vary from organisation to organisation. In consequence, the form of coupling will be affected both by the mode of implementation and managers’ degree of control over that decision. Differing organisational (Tolbert, 1988) or national (Hofstede, 1983, 1984, 1994) cultures may play a determining role in this respect. Future researchers may wish to explore the extent to which those implementing SEM systems sacrifice integration for balance, and whether this is linked to the incidence of the three forms of de-coupling mentioned above.
8. Conclusions and research implications We have argued that the design, implementation and use of SEMSs may usefully be studied using Pettigrew’s “context, content, process” model for successful organisational change and performance improvement. We have developed a series of five research questions under the three parts of Pettigrew’s model. The process questions raised above and the complex issues discussed in the earlier context and content sections imply that future research on what determines the success of SEM initiatives might usefully combine two research methodologies. Large sample multivariate statistical studies could be used to
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identify the ‘what’ of the complementarities among their component parts while an associated set of longitudinal case studies might help answer the questions about the process and context of successful change and performance improvement using SEM. These case studies might be “matched pairs” (Pettigrew and Whipp, 1991) of successful and unsuccessful SEM organisations. Until such research has been carried out, SEMSs are at best a partial solution to the quest for performance improvement, a solution which implies more questions about the context, content and process of organisational change and performance improvement than their vendors are currently able to answer. While this paper has considered a number of issues relevant to the successful implementation of SEMSs, it has given scant coverage of other issues that have been shown to be relevant to the success of ERP systems. For example, the paper has not considered the potential problems of integrating ERP, SEM and other systems, or the problems caused by tight implementation schedules, the need for data standardisation and the time-consuming and costly nature of systems implementation. A complete analysis of the problems inherent in SEMS design and implementation would need to consider these issues as well as those covered in more detail in the main sections of the paper above.
Acknowledgements Stan Brignall is grateful for ideas generated in previous collaborations with Lin Fitzgerald, Janet Harvey, Bob Johnston, Sven Modell and Andrew Pettigrew. The authors are grateful for the comments of Sven Modell and David Otley on a previous version.
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