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[020-0444]
Adopting ERP with Informality in order to Foster Both Efficiency and Flexibility
Operations
Yucan Wang
Operations & Information Management Group, Aston Business School, AstonUniversity, B4 7ET, Birmingham, West Midlands, United Kingdom
Tel: +44 07515734286, email: [email protected]
Andrew Greasley
Operations & Information Management Group, Aston Business School, AstonUniversity, B4 7ET, Birmingham, West Midlands, United Kingdom
Emmanuel Thanassoulis
Operations & Information Management Group, Aston Business School, AstonUniversity, B4 7ET, Birmingham, West Midlands, United Kingdom
POMS 22nd Annual ConferenceReno, Nevada, U.S.A.
April 29 to May 2, 2011
Stream: Technology management
ABSTRACT
This paper discusses whether efficiency and flexibility can be improved simultaneously when
adopting ERP based systems. ERP systems are known for their ability to achieve efficient
business performance by enabling standardized business process design, but at a cost of a
possible loss of flexibility in operations. Efficiency and flexibility may seem incompatible in that
they are different business objectives and may exist in different organizational environments.
However, based on case study research, this paper investigates the objectives and characteristics
of ERP and informality and how they can lead to improvements in both operations objectives of
efficiency and flexibility.
Keywords:
Enterprise Resource planning, efficiency, flexibility, informality, social networks
1. INTRODUCTION
Enterprise resource planning (ERP) has become a popular IT system that improves efficiency by
integrating business processes and enables better data sharing from a centralized platform[20]
[13]. In the practical world, ERP is known for implementation failures, especially in new
markets, such as SMEs, or firms in the developing countries [25] [11]. In response to this ERP
suppliers (for example Oracle and SAP) sell tailored modules for small firms [1] and some small
system vendors provides customized in-house ERP implementation for firms in the developing
countries in order to satisfy their special requirement [27]. However, ERP is derived from
manufacturing firms’ material requirement planning (MRP) systems and was originally designed
for large organizations. This application facilitates the standardization of processes and satisfies
the needs for management control in large organisations by concentrating all information into
one system [5]. Generally it can be seen that ERP achieves an increased efficiency in business
performance, but with a possible of loss of flexibility due to conforming to a standardized
business process design [13]. However, in an effort to maintain competitive advantage, there has
been an increasing need for firms to maintain flexibility so that they can quickly response to
changes in the market. [12]
One aspect of organizational behaviour that is seen as important in achieving flexibility is the
concept of informality. Mullins (2007) [8] defines informality as a feature of organizations that
can break exiting norms and behaviours and informal procedures exist without formal
documentation. Informality can also ‘jump start’ stalled initiatives within social networks. SMEs
typically have a mass of informal business processes. Entrepreneurs play a vital role in
supporting informality with experience and tactical knowledge [12]. However current ERP based
systems might not be able to retrieve informal business processes without formal documentation
in the existing standardized system. Moreover, according to Slack et al., (2010) [16], some of the
‘inappropriate’ informal processes will lead to non-efficiency such as high costs and long delays.
However, there is a need for a system that can eliminate the waste owing to informality. ERP
seems to be such a solution to improve the efficiency of these processes, but there is a challenge
to not lose the benefits of flexibility as well.
Thus the paper will explore what are the contradictions and complementarities between ERP and
organizational informality in related to efficiency and flexibility, and why and how adopting
ERP with informality could improve both of these objectives.
The remainder of paper is structured as follows. Section 2 critically reviews the theories of ERP,
informality, how they are related with efficient and flexible operations, and the theoretical debate
on efficiency and flexibility. Then section 3 provides the research approach and process. In
section 4, we outline the case description and how adopting ERP along with informal business
activities can improve efficiency and flexibility complementarily. Section 5 interprets the
findings from a case study and provides a summarized matrix. Section 6 contains the discussion,
conclusion, and implications as well as further studies.
2. LITERATURE REVIEW: COMPLEMENTARY AND CONTRADICTORY OF
ADOPTION OF ERP SYSTEMS WITH INFORMALITY
2.1 CONTRADICTIONS
Traditionally there is a view that efficiency and flexibility might be contradictory. Firstly, ERP
and informality focus on different issues. ERP is focused on efficiency of business performance
with standardized business process design. [13] According to Greasley (2009), efficiency is
related to the use of resource and actual output. [1] ERP achieves efficient performance by
providing optimal resource planning and streamlined business processes. [2] In contrast,
informality highlights flexibility and connects people in a loosely structured organization [8].
The flexibility requires firms to be quick to adapt to market changes and to cope with
emergencies, such as capacity shortfalls, equipment breakdown or component shortage, etc [1].
In additional, the business achievements are pre-defined in an ERP based system,[22] while
informality depends on unplanned interactions in the social network [8].
Furthermore, the organizational decision-making methods are different. ERP provides a formal
method to support top managements through systemic analysis, which could integrate with
business intelligence tools [22].The decision-making of informal organization is related to
experience and intuitions, and the engagement of front-line employees [10]. Moreover, there are
distinctions to be drawn between communication systems. ERP achieves effective
communication with information and knowledge sharing and business collaboration based on the
integrated information system [16]. Knowledge here is explicated such that it could be codified
into the system [21]. However, informality provides decentralized method to communicate called
the “grapevine”. It can rapidly transmit information in the social network and skip the entire
organizational chart. The knowledge and information in the informal network is tactical, and is
hard to retrieve, because it is embedded in the human’s mind and diffuse in the social
communities [6].
What is more, from a traditional perspective, efficiency and flexibility strategies fit different
organizational environments [24][7][18][14].In Morand (1995)’s research [3], informality entails
with a loosely structured, spontaneous and social interaction between organic organizations,
while Al-Mashari [13] ERP based systems is related to standardized processes and formal
interaction that is in a tighter, deliberate, and impersonal mode of bureaucratic organization.
2.2 COMPLEMENTARITY
Although currently studies do not directly discuss complementarity between ERP based systems
and informality, they allude to the possibility of achieving mutual benefits between informality
and ERP based systems. A leagile strategy is a typical example to integrate flexibility and
efficiency in supply chain management. Based on this, ERP and informality might be able to
integrate together to achieve complementary benefits.
First of all, ERP also supports flexibility, while informality contributes to efficiency
management. As an enterprise system, ERP is able to integrate all significant resource planning
systems in an organization. It is able to provide optimal resource scheduling and better business
process management. [16] The optimal resource scheduling benefits in speeding up the supply
chain response and to flexibly adjust production and services to satisfy customer demand.
[2]Moreover, it is able to redesign business processes to streamline and speed up operation
procedures. Better process management will eliminate the waste of inappropriate flexible
procedures. [16]Informality could also improve efficiency. It could improve management
resource through frontline experts’ experience and intuition. Also informality is able to reduce
costs and simplify procedures by cutting through complex and inappropriate formal procedures,
and benefits to increase the outcomes through improve market satisfaction. [8]
Although ERP and informality use different communication methods, both of them could
improve information and knowledge sharing, and build organizational collaboration. ERP
contributes to building cooperation based on the integrated communication platform and cross-
functional support in the organization [2]. What is more, an informal network could establish
network collaboration beyond technology [23]. Informal organization is through lateral
communication in the social network. [8] The communication combines social interactions to
build trust between participants in the network. [19] Consequently, trust could enhance the
cohesion of organizational work. Trust based social network is able to reinforce technical based
network [26].Therefore an informal network could improve the integration capability of ERP
through psychological networks.
Finally, ERP and informality could provide complementary benefits to organizational
management On the one hand, ERP enables organizational transformation to form the new
institutional arrangement with organizational dynamics [15]. The new organization will place
emphasis on decentralized management to improve competitiveness, because ERP provide a
central platform to collect different groups of interests including both internal managements,
staffs, customers and suppliers. Informality needs an open organization environment that
motivates frontline employees to join in the business interactions to support flexibility within the
social networks [9]. Therefore ERP could enhance informality through better cooperate people to
work together on the central platform. On the other hand, informality contains never-ending
social interactions, learning and knowledge sharing [4]. It benefits to ERP based system to make
improvements continuously. The resistance of change management will be reduced, since
frontline employees’ informal interactions could be involved in. Consequently, it will benefit
ERP in aligning with business practices. Chan (2002) [2]6 also pointed out that informality
contribute to improve IS excellence with flexibility and fluidity. He introduced “socio-technical”
system, which comprises various informal structures, connections and procedures with a formal
technical system. For example, people could get their work done in social networks,
communities of practice, cross-department relationships, unofficial agreed-on processes, and
flexible divisions of work. Informal activities are not strict in predetermining responsibilities and
procedures. But they could flexible in adapting internal and external organization changes.
Moreover, informality could multiply, overlap and reinforce links through social network [26].
Therefore informality could strength the capability of ERP to integrate and align with high-
performances in both of internal and external units over time.
To conclude, ERP and informality have tangible differences, by which ERP focuses on
efficiency while informality highlights on flexibility. The two strategies are a fit to different
organizational environments. However, there are mutual benefits between ERP and informality.
ERP as an integrated enterprise system may provide optimal resource planning to flexibly
respond to supply chain and process management, to mitigate waste due to inappropriate
informal activities, while informality supports the ERP integration capability in order to provide
multiple links between units in the social network, and reinforce the links through psychological
trust. Moreover, informality may assist ERP implementation in dynamic environment. Informal
interactions, learning, and knowledge sharing will benefits ERP in improving its’ business
process design continuously. Table 2 summarizes the contradictions and complementarities in
detail.
Contradiction Complementarity
ERP Efficiency focus: maximizing
resource capacity utilization and
actual output
Standardized business process
Also support for flexibility
Optimal scheduling benefits for speed,
flexibly adjust to customer service
based on demand and rapid response
design
Predefined business procedures
Decision-making based on
systemic analysis
Integrated information system:
effective communication and
collaboration
Stable environment
in the supply chain
Better process management to
eliminate waste
Integrated platform enables lateral
communication
Form new institutional arrangement:
increase employees’ utilization rates
Informality Flexibility focus: quickly adapt to
market changes
Informal and loosely structured
activities
Unplanned business
interactions
Decision-making based on
intuition
Decentralized system through
grapevine
Open environment
Also support for efficiency
Effective resource management
through informal procedures based on
frontline experts’ experience
Reduce costs by simplifying business
processes
Increase outcomes by improving
market stratification
Trust based communication and social
network
Make continuous improvement of ERP
Improve ERP integration and
alignment
Table 1. Contradictions and complementarity between ERP and informality implicated from
existing literatures
3. RESEARCH APPROCH
The research approach employs an in-depth case study to generate a theoretical model of how to
adopt ERP with informality to achieve both efficient and flexible operations. More specially,
first of all, semi-structured interviews are conducted of managers and key staff within business
activities. These focus on understanding how informal activities work in terms of flexibility.
Then data is gathered from business documentations, ERP systems implementation blueprints,
and transcripts of meetings.
4. CASE DESCRIPTION
Jinsheng has a number of furniture shopping centres in China. It has established a one-stop
“Home furnishing” shopping format to provide a range of merchandise, including building
materials, furniture, fixtures and fitting, bedroom and bathroom products and electrical
appliances. Rather than directly selling goods for customers, Jinsheng provides trading platforms
and relevant services for tenants and manufacturers.
4.1 AS-IS MODEL (FIGURE 1)
Figure 1 shows current business activities in the company. HQ controls and manages branches’
activities. However, branches have some informal activities with green lines. Some of them are
essential for the organization to maintain business relationships and flexibility to deal with
market demand.
4.2 TO-BE MODEL (FIGURE 2)
The company here has a customized ERP system combined with an OA (office assistant) system
to examine and approve these informal activities through experts and top managers. The time for
the experts to examine and approve procedures is restricted to one day in order to maintain high-
speed services related to flexibility. The urgent issues will be approved by an Operations
Director by phone message if the relevant costs are no more 5000 RMB. If the costs range from
5000 to 10000 RMB it will be approved by the Vice-President. Otherwise all these issues needs
to direct report to the CEO. If they agree informal activities can operated, staffs will use OA
system to transfer data of informal activities into ERP system.
Figure 1. “To-be” model: Jinsheng current business process
Figure 2. As-is model: ERP adoption with informality
5. CASE ANALYSIS
This paper focuses on why and how adopting ERP based systems with informality could enhance
efficient and flexible operations. This section is structured on this basis to discuss: (1) objectives
and characteristics of ERP and informality, (2) complementary impacts on ERP and informality
in improving both operation objectives
5.1 The objectives and characteristics of ERP and informality
Objectives and characteristics of ERP Objectives and characteristics of informality
Improve information sharing to enhance
efficiency
Reduce the waste through systemic
redesign/streamline business process and
filter inappropriate business activities
Reduce data conflicts, so establish a
common IT infrastructure
Enhance business performance measure
with visible data flow
Assist to decision-making with systemic
intelligent tools
Improve cooperation in the integrated
environment
Maintain the flexibility with engagement
of frontline experienced employees
Make continuous improvements for ERP
based system
Add additional channel for communication
Improve internal satisfaction with trusted
based informal groups
Build long term strategic relationships with
external partners
Establish social committee with open and
harmonious culture
Table 2 objectives and characteristics of ERP and informality
Table 2 summarises the objectives and characteristics of ERP and informality in the case study
organisation. It can be seen that the major reason the company uses an ERP based system is to
achieve efficient operations through effective management of data and information on an
integrated platform and to provide a systemic analysis of the informal activities to eliminate the
waste and measure business performance in the branch shops. For example, the data conflicts
between finance and marketing occur in the organization due to different data structures and
calculation standards. In order to deal with this problem senior management set up a group of
people to collect daily incomes and validate the mass of reports. However, there is some
information related to informal activities which is invisible and is hard to collect and verify. The
CEO always complains “ I don’t know how much I earn today.” In additional, there are huge
amounts of reports for top managers to decrease the rental fees or adjust the payment methods
from every year to every quarter in the new contract, and to request for more social fees with
certain tenants. Thus the huge amount of data conflicts and expenditure motivates management
to decide to implement enterprise management systems to improve cooperation between
departments, to share information, and provide systemic management supports.
On the other hand, the informality aims to maintain the flexibility in the organization. The
frontline business experts can be flexible when implementing a wide range of services and can
quickly adjust rental fees and services to market changes. Then, informal groups are formed
spontaneously. They may consist of experienced frontline experts, critical business actors in
Jinsheng, and key business external partners, such as leaders in the industry committee, groups
of customers, high reputation furniture retailers. The leaders in the groups are not formally
defined by Jinsheng, but it is related to personality and prestige. Thus internal employees’
stratification will be improved. The group leaders may have social interactions to establish long
term relationships with key tenants and customers. Consequently, the social committee is trusted
based in an open and harmonious environment. Jinsheng returns more from these informal
networks. More high reputation furniture companies are willing to sign longer rental contract
with Jinsheng. Jinsheng’s reputation will increase along with these famous furniture companies.
Even more, some manufacturers are willing to set up their direct-sale branches, which are able to
pay relative stable rental fees and expand market along with Jinsheng. If there is any change in
the furniture market, the industry leaders will share their information immediately, and assist to
Jinsheng to overcome the changes. For example, they will contribute their goods and provide
huge reduction in price to assist Jinsheng to deal with commercial war. That is to say, the
informality and flexible performances are needed to maintain in the organization. It is not
feasible to provide standardized business rules for the organization.
5.2 THE COMPLEMENTARY BENEFITS OF ERP WITH INFORMALITY IN
IMPROVING EFFICIENT AND FLEXIBLE OPERATIONS
However, the finding suggests two initiatives are not incompatible in the case. The mutual
benefits of ERP based systems and informality in the case is analyzed in the following.
ERP SUPPORTS FOR INFORMALITY AND FLEXIBLITY
Firstly, ERP benefits on optimal resource planning with increase speed and flexibility to adjust
productions and services based on the demand. In the case, ERP based systems could accurate
analyze the tenants’ sales and Jinsheng’s income. As most of tenants’ sales are increased, there
will more demands for the renting in the shopping centers. Then the new contracts’ rental and
services fees will be increased. Moreover, as the demand is increased, Jinsheng will invest on
expanding market in new locations. ERP based system also could analyze the business resources
(including assess and tenants resources) assist to report when to flexible adjust the rental fees and
services, and how to speed-up to expand market are appropriate.
Additional, ERP in particular contributes to the sharing of information between different
divisions [17]. In the case, it improves the cooperative activities between departments and
informal groups. It enables the sharing of information and provides accurate data flows between
departments. Also it contributes to connecting the interactions between the informal groups.
Informal groups just work in their autonomies. The key tenants and customers information
sharing are limited between the groups. Each division still has their informal activities and work
occur within social groups. However the organization is horizontally linked by the integrated
ERP systems. As a result, ERP could connect all key business partners within the network. The
shared information, services, and common visions are developed based on the integrated
management infrastructure. The small-scale informal activities in each social group might
change to large-scale business informality to enhance to achieve business targets in the entire
organization. It benefits for large-scale of flexibility in the organization with common targets,
rather than in small groups.
Finally, Mattila et al., (2010) [26] coined that ERP based enterprise systems acts on
organizational de-institutionalization to increase the employee utilization rate, because they serve
for resource management process in practice. When ERP is implemented in the case,
management needs to highlight the importance of frontline employees, because the system
combines the interests of managers, staffs, and external stakeholders. The actual efforts of the
experienced staff implementing informal activities on business interactions could be reflected in
the reports. It benefits the organization to measure flexible operations to implement most
appropriate informal activities by most valuable staff.
INFORMALITY SUPPORT FOR ERP BASED SYSTEMS AND EFFICIENCY
The effectiveness of informality in adoption with ERP based system can be summarized as:
Firstly, efficiency is referred to output of a process with low resource utilization [1]. In the case,
if most tenants’ sales are increased, the rental fees in the entire shopping mall will be increased
as well. However, it does not always happen. Some tenants with higher sales do not increase
their rental fees, because they may provide more potential values for the organization, while
some tenants with poor sales, the rental fees will be increased, because there are more valuable
furniture retailers or manufacturers wants to set up their branches in shopping centre. The system
could not take account of these situations. It needs of experienced staffs to use informal method
to treat these tenants differently. As a result, these tenants will return more to Jinsheng, such as
improving market reputation, providing leading roles to support Jinsheng business activities
(reducing prices in large-scale, providing cheap but qualitative goods for group of customers),
setting up numbers of branches in the Jinsheng, or having ability to expand market along with
Jinsheng. The outcomes of Jinsheng will be improved as these valuable tenants could promote
the development of furniture market. These informal activities break the general business rules in
order to improve satisfactions to valuable tenants. Consequently, efficiency is improved, because
the outcomes are increased, and the minimal resources are used on satisfying small-scale
valuable customers.
Also informality benefits on make continuous improvement for system [26]. ERP system
contains lots of business process designs. [13] In the case, informality is related to the un-
documented the business process in the organization. The organization allows accepting the
informal activities. Moreover, if the activities are appropriate, the firm will change the ERP
based systems. For example, the general rule for duration for contract is one year, and it is annual
payment. The system just accepts processing the contracts that are not in the rules. However,
furthermore, they found home-furniture centres that sell with large products (including sofa, bed)
always not abide the rule, because they are new market for Jinsheng, and customers adapt to buy
these productions traditional state-own department stores with good services guarantee, rather
than in Jinsheng. Thus Jinsheng change the systems to provide special contract rules for tenants
who sell for these large goods. The tenants will pay less in one time. The duration of contract is
adjusted to be quarterly, rather than yearly. As a result, the organization will save time of
verifying the informal activity and deal with the contracts information manually. As the system
designs are continue improved to adapt with business changes, the efficiency could improved by
simplifying business processes.
Finally, according to Tsai (2002) [19], informality also contributes establish an open
environment with trusted social network. In the case, ERP provides an integrated environment
and connect informal groups to share information and cooperate with common business targets.
The informal interactions between the groups will enhance the psychological network, and
improve cooperation in the ERP integrated platform. Also the business management is not just
relay on the system. In the case, the organization implements both of business intelligence tools
and OA communication porters to support manager to make decisions. Systemic reports and
frontline employees’ knowledge ARE integrated together to support organization development.
It enhances the efficiency from better enterprise systems management that overcome the social
resistance in an open environment, but also maintains the flexibility from experienced staffs.
6. CONCLUSION AND IMPLICATIONS FOR FURTHER RESEARCH
The paper has discussed how the combination of ERP and informality can lead to the mutual
benefits of efficiency and flexibility in operations. ERP enhances efficiency through the effective
management of operational data and a reduction in data conflicts, while informality supports
flexibility that provides a response to market demands. However, ERP based systems can also
enhance flexibility in operations by providing an accurate and systemic analysis of market
demands, while informality contributes to efficiency by implementing informal activities to
satisfy customer demands. As a result, the organization can still maintain flexibility, because it
allows staff to work in their informal groups, and ERP could provide horizontal supports for
these informal groups with shared information and business visions. Thus the informal groups
can be cooperative as well. Also it assists to measure informal performances. Additionally, if
informal activities are appropriate and accepted in a large-scale, the system will be continuously
improved. What is more, informality has essential contributions to the development of ERP
based systems in an open and trusted based society. It is to combine system management and
knowledge supports in organization. Thus it could enhance the efficiency from better enterprise
systems management that overcome the social resistance in an open environment, but also
maintains the flexibility from experienced staffs. The paper contributes to expend ERP based
systems with flexibility by organizational informality.
However, the company just implements the combined business model in the initial stage. It needs
to long term critical studies the risks and emerged problems of adoption ERP with informality in
the future. Also it will try to explore how to balance between ERP related efficient operations
and informality related flexibility, and how to mitigate the risks.
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