The influence of governance equilibrium on ERP project success

Authors:
Eric T. G. Wang;Jessica H. F. Chen
Affiliations:
Department of Information Management, School of Management, National Central University, Chung-Li, 32054, Taiwan, ROC;Department of Information Management, School of Management, National Central University, Chung-Li, 32054, Taiwan, ROC
Venue:
Decision Support Systems - Special issue: Economics and information systems
Year:
2006

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Abstract

As the ERP adopter and ERP consultancy combine their efforts and resources to achieve mutually desirable goals, the problem of governance, which has been mainly identified as an intrafirm problem, is recognized to be an interfirm problem. To investigate the relationship between various governance mechanisms and their capacity to relieve project hazards, we propose a covariance model of ERP governance. The constructed model analyzes the complementary contributions of different governance mechanisms on ERP project success. Four governance mechanisms are studied, including explicit contracts, implicit contracts, reputation, and trust. This study holds that the virtue of one mechanism will grow into the gap of another, forming an equilibrium of governance structure. Then, the governance equilibrium plays a mediating role between ERP project hazards and ERP project success. Empirical analysis based on 122 ERP implementation projects shows a significantly positive relationship between governance equilibrium and ERP project success. Further, in support of transaction cost theory (TCT), the results indicate that governance equilibrium tends to be aligned with exchange hazards, specifically those associated with specialized investments and uncertainty. The empirical evidence suggests that governance equilibrium, when treated as a multidimensional construct, can provide a holistic representation of complex interfirm governance and allow researchers to match broad predictors with broad outcomes, leading to greater explanatory power of governance mechanisms on ERP project success. Implications, limitations, and future research directions of the study are discussed.