Information system integration, enabling control and performance
Introduction
Approaches to information system integration (ISI), such as Enterprise Resource Planning (ERP) systems, which integrate and draw data from a common database, are fundamentally bound up with organisational processes of accounting. They seek to systematise and co-ordinate record keeping, the design and implementation of structures of categorisation and aggregation of transactions, ultimately allowing for the generation and manipulation of comprehensive virtual perspectives on the nature and flow of operations and resources (Chapman, 2005). Such ISI has been argued to potentially tighten traditional forms of control, since it constrains opportunities for individual choice, simultaneously enhancing the hierarchical visibility of those choices that remain (Orlikowski, 1991, Sotto, 1997). However, ISI has also been argued (by vendors not least) to support flexibility and innovation. ISI potentially allows for the discovery and testing of assumptions and relationships, allowing managers to drill down from abstract summary data through progressively more detailed records of organisational activity (Davenport, 1998). Thus, ISI has been seen to present apparently contradictory potentials of flexibility and control (Orlikowski, 1991).
Studies of the effects of such systems in practice show that neither flexibility nor control, organisation nor disorganisation, flow directly from developments in technology (e.g. Bashein et al., 1997, Knights and Vurdubakis, 2005). ISI does help to spread standardised information architectures, and these do act to shape organisational priorities and procedures, providing what Dechow and Mouritsen (2005) refer to as a ‘Techno-logic’. ISI is not a direct cause of behaviour, however, but might be better considered as a formative context (Ciborra & Lanzara, 1994). Field studies of technology and control amply demonstrate the complex nature of the relationship between technology and management practice (e.g. Caglio, 2003, Dechow and Mouritsen, 2005, Granlund and Malmi, 2002, Orlikowski, 1991, Quattrone and Hopper, 2001, Quattrone and Hopper, 2005).
The limited number of studies that have attempted to test the relationship between ISI, such as ERP, and performance have also demonstrated the complex nature of this relationship. Poston and Grabski (2001), for example, found no significant improvement following ERP adoption in terms of residual income, an effect that has become known in subsequent studies as the “productivity paradox”. They do find an effect whereby the ratio of cost/sales is improved after a three year period. In discussing this effect they note the fact that ERP represent not just an integrated information architecture, but may also entail business process re-engineering which may have caused the effect that they found. Hunton, Lippincott, and Reck (2003) explore these ideas further, observing a difference in performance effect between adopters and non-adopters. In their study, however, these statistical effects were caused not by increased performance of adopters, but by decreased performance of non-adopters. In their discussion, Hunton et al. (2003) partially explain this effect through the bundling of the technical aspects of ERP with the idea that ERP might also represent an innovative business strategy.
In considering the possible performance implications of ISI then, the literature suggests that it offers the potential to enhance performance, but that realising this potential is dependent on the ways in which people work. This intuition is reinforced by the literature on the Resource Based View of the firm that holds that Information and Communication Technologies do not represent a source of competitive advantage since they are too easy to replicate (Barney, Wright, & Ketchen, 2001). What would be required to support competitive advantage would be the development of managerial competence.
Newell, Huang, Galliers, and Pan (2003) offer empirical support for this line of reasoning. They report on the mutual dependence of the information processing efficiency emphasis (arising from an ERP implementation) together with the development of organisational knowledge exploration and exploitation capability (arising from a simultaneous exercise in knowledge management) in their case company. Adler and Borys (1996) offer a more specific framework for thinking through the notion of ISI-related managerial competence. Drawing on analysis in the field of human machine interface design Adler and Borys (1996) discuss an enabling approach to control. Their framework is particularly relevant since it is developed from detailed analysis of technical design characteristics together with an overarching philosophy of control through which these technical characteristics may be expected to shape action.
The overarching concept of enabling control is articulated through four design principles. Each of these are premised on a notion of control that works with rather than replaces user’s intelligence and experience: repair, internal transparency, global transparency, and flexibility. Repair refers to the breakdown of control processes, providing capabilities for fixing them. Internal transparency is about understanding of the working of local processes. Global transparency refers to the understanding of where and how the local processes fit into the organisation as a whole. Flexibility attends to the organisational members’ discretion over the use of control processes (i.e., to the extent that they can turn them off).
In the restaurant chain that they study (Ahrens & Chapman, 2004) find that an enabling approach to control helped committed employees to do their jobs more effectively offering managers the chance to contribute to objectives of both flexibility and efficiency. Whilst developing the implications of enabling control in the context of management control systems through their analysis of a longitudinal field study, they suggest the potential of the framework to inform future questionnaire-based research looking at the role of management control systems (MCS).
A particular challenge in approaching such research lies in the measurement of performance. In this study we build on the observation by Ittner, Larcker, and Randall (2003) that whilst past research has often examined perceived system success as an outcome variable, its relationship to actual performance (as demonstrated in their own analysis) is unclear. They call for further research that might begin to unpick the relationship between the causal factors behind the technical and organisational factors that contribute to perceived system success and those related to actual performance. In this study we analyze associations between ISI, enabling budgeting, system success, and business unit performance.
We report below on the findings of a questionnaire-based study that sought to test these ideas through a cross-sectional questionnaire. The empirical results presented are based on partial least squares analysis of the 169 (56.3%) usable questionnaires returned by a sample of Finnish managers. Consistent with the extant literature, discussed further below, the level of ISI is found to have a positive direct effect on perceived system success, however, we find that it does not have direct links to business unit performance. Instead we find it has direct positive associations with three of the individual design characteristics of an enabling approach to control, which in turn have links to perceived system success, and also to business unit performance.
Section snippets
Hypotheses development
A common claim made for ISI is that it enables more sophisticated and flexible forms of analysis leading to enhanced performance. The guiding intuition behind our hypotheses (summarised in Fig. 1 below) is that it is the integrated data architecture characteristics underlying ISI that support these capabilities, and that these in turn will positively affect perceived system success. That is to say the system will be perceived to be doing a better job of fulfilling its role. Given the complex
Research design
The target sample of the mail survey consisted of 300 business unit level senior managers from 86 industrial companies. The selected companies were identified using the Research Institute of the Finnish Economy’s (ETLA’s) database of the largest companies in Finland. The targeted companies were selected randomly from the following industries: electronics, food products, chemistry and plastics, metal, forest, multiple businesses, construction materials, and textile. The initial targeted managers
Analysis of results
In the second phase of our PLS analysis, the adequacy of the structural model was assessed with standardised β-statistics, used as path coefficients and generated by the PLS, from ordinary least squares regression (OLS). Fig. 1 shows the full PLS model tested. Bootstrapping using 500 samples with replacement was used to assess the significance of the path coefficients. As recommended in the PLS-graph user’s manual (Chin, 2001, p. 14), each sample consisted of the same number of cases as our
Discussion and conclusions
This study aimed to improve understanding of how information system integration assists managers in enhancing performance. We analyzed direct associations between these variables as well as whether ISI is associated with the four design characteristics of enabling control systems, and whether these, in turn, are associated with performance. In developing our hypotheses and statistical analysis we explicitly sought to unpack the difference between system success and performance as suggested by
Acknowledgements
The authors thank the Academy of Finland and the second author also the Foundation of Economic Education for financial support. We would also like to thank participants at the American Accounting Association Management Accounting Section Midyear Meeting, January 2006, Clearwater Beach, Florida. In particular we would like to thank Anne Lillis, Habib Mahama and Sally Widener for their valuable comments, and Pekka Taipale for research assistance. Finally, we also gratefully acknowledge the many
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