Enterprise Resource Planning in a large construction …...Construction Management and Economics (July 2003) 21, 511-521 Spon Press l.iylraMrsririiC.itKip Enterprise Resource Planning

Construction Management and Economics (July 2003) 21, 511-521Spon Pressl.iylraMrsririiC.itKip

Enterprise Resource Planning in a large constructionfirm: implementation analysis

HANS VOORDIJK'*, ARJEN VAN LEUVEN^ and ALBERTUS LAAN^

'Twente University, Technology and Management, P.O. Box 217, 7500 AE Enschede, The Netherlands'Balance & Result, P. O. Box 2382, 7500 CJ Enschede, The Netherlands

Received 10 June 2002; accepted 22 January 2003

In most large Dutch construction firms, Enterprise Resource Planning (ERP) systems have replaced non-integrated information systems with integrated and maintainable software. The implementation of ERPsystems in such firms is a difficult task. So far, ERP implementations have yielded more failures thansuccesses. This study tries to understand the factors that lead to the success or failure of ERP in largeconstruction firms by focusing on the fits between the following pairs of elements in ERP implementations:business and IT strategy, maturity of the IT infrastructure and the strategic role of IT, and the implementationmethod and organizational change. The premise of this study is that for an ERP implementation to besuccessful these elements must somehow fit together. Empirical research was conducted through a casestudy of three ERP implementations in different business units of a Dutch-based construction firm.Implementing different systems within one company is typical of the way large construction firms in theNetherlands have dealt with ERP. The study shows that the success of ERP implementations depends onconsistent patterns between: IT strategy and business strategy, IT maturity and the strategic role of IT,and the implementation method and organizational change.

Keywords: Enterprise Resource Planning, construction, information technology

Introduction

In recent years, most of the large construction firms inthe Netherlands (firms having more than 1000 employees)have implemented an Enterprise Resource Planning(ERP) system (Dolmans and Lourens, 2001; Depart-ment of Economic Affairs, 2002 ). An ERP system maybe defined as a packaged business software system thatenables a company to manage the efficient and effectiveuse of resources (materials, human resources, finance,etc.) by providing an integrated solution for the organi-zation's information processing needs (Fui-Hoon Nahet al., 2001). ERP systems provide firms with two new anddifferent types of functionality: a transaction processingfunction, allowing for the integrated management ofdata throughout the entire company, and a workflowmanagement function controlling the numerous processflows within the company. ERP facilitates the flow of

*Author for correspondence. E-mail: [email protected]

information between all the processes in an organization.ERP systems can also be an instrument for transformingfunctional organizations into process-oriented ones. Whenproperly integrated, ERP supports process-orientedbusinesses effectively (Al-Mashari and Zairi, 2000).

Recently, several practitioners have stated that ERPimplementations have so far yielded more failures thansuccesses in large construction firms. A typical ERPimplementation in a large construction firm takes betweenone and three years to complete and costs tens to hun-dreds of thousands of euros. For these reasons, there isan urgent need to understand the underlying factors thatlead to the success or failure of ERP implementations insuch firms. This study seeks an understanding of thesefactors by analysing the fits between the following pairsof elements in ERP implementations: business and ITstrategy, maturity of the IT infi-astructure and the stra-tegic role of IT, and the implementation method andorganizational change. In the theoretical framework, itwill be argued that the fit between these elements is an

Comtruciiim Managemem and EcoitomicsISSN 0144-6193 print/ISSN 1466-433X online «:: 2003 Taylor & Francis Ltd

http://www.tandf.co.uk/ioumalsDOl: 10.1080/0144619032000072155

512 Voordijk et al.

important condition for a successful ERP implementation(Drazin and Van de Ven, 1985).

Empirical case study research was conducted usingthree ERP implementations in different business units ofa Dutch-based construction firm. The implementationof different ERP systems within one company is typicalof large construction firms in the Netherlands. The datacollection methods used in this case study researchincluded both desk and field research (Yin, 1994). Basedon the results of this study, factors leading to the successor failure of ERP in a large construction firm are relatedto concepts in the existing literature on IT and strategy.The paper is structured as follows: the theoretical frame-work is presented first. Following this, attention is focusedon the case study research design. In the subsequentsections, the cases are presented and analysed. Finally,insights from the case studies are combined with thetheoretical framework and conclusions drawn.

Thoretical framework

Following the strategic alignment model of Hendersonand Venkatraman (1999), the basic premise of this studyis that a successful implementation of IT depends ondifferent effective patterns of logical links, or 'fits',among the following 'domains' of a firm: businessstrategies, IT strategy, organizational infrastructure andprocesses, and IT infrastructure and processes. We trans-lated these fits into factors for success or failure of ERPimplementation by focusing on the 'fit' between thefollowing pairs of elements:

• the fit (or lack of it) between business strategy andIT strategy;

• the fit between the level of maturity of the ITinfrastructure and the strategic role of IT inrelation to ERP;

• the fit between the methods used for implementingERP and the change in organisational processes.

Each ERP implementation can be characterised in termsof these three pairs of elements or 'fits'.

Business and IT strategy

The extent to which IT strategies are aligned with afirm's strategies varies widely among firms (Earl, 1989;Betts, 1999). These differences reflect the three evolu-tionary roles that IT plays in firms Johnston andCarrico, 1988; Grover et al, 1994; Gupta et al, 1997).These differences can also be seen in the role of ERP. A'traditional' role for ERP would be a supportive one withno integration between ERP and business strategy. An'evolving' role would reflect a one-way link: ERP supportsthe strategy but does not infiuence it. An 'integral' role

refiects the integration of ERP and corporate manage-ment in order to improve organizational effectiveness.ERP may also contribute to the three generic competitivestrategies of Porter (1985): cost leadership, differendadon,and focus. ERP, as part of a cost leadership strategy,aims to achieve the lowest cost of production. In adifferentiation strategy, ERP contributes to the develop-ment of a unique product or service, and long-term cus-tomer relationships- In a focus strategy, the contributionof ERP will be limited to certain segments (in products,in clients, or in geographic markets).

In addition to generic competitive strategies, distinctgeneric IT strategies can also be identified. The genericIT strategies identified by Parson (1987) representdifferent approaches to managing IT resources. Thisstrategy typology can also be used to analyse differentERP implementations. The six IT strategies identifiedby Parson are:

• Free market: users determine their own needs andhow to satisfy them. IT specialists competeagainst outside vendors for users' customers. Afirm buys its IT at the lowest possible costs fromthe software products market.

• Scarce resource: IT resources and expenditure areconstrained, and their use determined by resourceallocation procedures, such as ROI criteria. Any ITproposal must clearly define expected costs savings.

• Necessary evil: IT is not used unless there is noaltemative.

• Centrally planned: a central decision-making unitintegrates business needs with IT capabilities fromits understanding of die competitive opportunitiesand requirements of the firm, and die potential ofIT for creating or increasing competitive advantage.

• Leading edge: state of the art IT is developed tocreate new business opportunities.

• Monopoly: an internal IT group is set up as thesole source for meeting IT demands within reason-able costs. An IT development programme ismanaged by an internal IT group that reviews ITdemands in terms of their potential contribution tothe business strategy.

Porter's competitive strategies and Parson's IT strategiescan be combined into one matrix (see Table 1). In thisstudy, it is initially assumed that the fit between businessand IT strategy is an imponant condition for the successof ERP.

The level of IT maturity, and the strategic roleof IT

Since IT was first introduced into organizations, therehas been an ongoing effort to understand the managerialissues associated with the evolution of IT and the

ERP in a large construction firm

Table 1 Relationship between generic competitive strategies and generic IT strategies

Competitive strategies

IT strategies

Cost leadership Differentiation

Free marketScarce resourceNecessary evil

Centrally plannedLeading edgeMonopoly

Focus

Depends on thechosen strategy

513

organization. The growth curve of Gibson and Nolan(1974) has become a standard, and widely known, tnodelfor analysing this computing evolution within organiza-tions. In this study, the Nolan model is used to analysethe level of IT maturity both before and after theimplementation of ERP.

The Nolan model offers a framework in which dif-ferent stages of IT maturity can be discussed. Nolancharacterizes each stage in terms of slack and control.The four stages are (Nolan, 1979; Reynolds, 1992):

(1) Initiation: the computer is placed in the organ-ization. Applications are the replacement ofexisting manual systems (low slack) and arepaid for out of a discretionary budget (low con-trol). In this stage, the focus is on functionalcost-reduction applications.

(2) Contagion: a period of rapid and controlledgrowth in the number and kinds of informa-tion system apphcations developed. In order tonurture widespread use of computer applicationsin the firm, slack is high. Control remains lowin order to promote extensive experimentationwith applications in multiple functional areas.

(3) Control: top managetnent gains control over infor-mation system resources by implementing formalcontrol processes and standards that stifle nearlyall new information system projects. Managementactions aim to control and reduce slack.

(4) Integration: the use of information resourcesincreases rapidly, providing new benefits andsupporting the overall business strategy. Theresponsibility for operating the systems is trans-ferred to the users. Conventional data processingactivities are tightly controlled.

Nolan has modified his curve several times, due to tech-nical developments and a better insight into computerbudgeting. The central idea, however, has remained thesame and so the focus remains on the four stages detailedearlier. Nolan's approach can be used to indicate thetransition from one stage to the other (see Figure 1).After implementing ERP, the level of IT maturity isexpected to increase.

An increasing level of IT maturity may result in achanging strategic role for IT. IT can have differentstrategic roles inside firms, and these can be categorisedusing the framework of McFarlan and McKenney(1983). This framework contains two criteria. The firstis that for some firms the existing IT operations arecrucial for survival, for others not. The second criterionis that new IT applications under development are forsome firms of great strategic importance for future com-petitive success, for others not. When the two criteria areintegrated into one framework, four roles for IT can beidentified (see Table 2). This typology will be used toanalyse the changing strategic role of IT within a firmfollowing ERP implementation.

Building theappiicationsporifoiio

Buiiding theorganization

Buiiding thedept.managementpianning andcontroi

Deveiopinguserawareness

Stage IInitiation

StageContagion

StageControl

Stage iVIntegration

Time

Figure 1 The Nolan growth curve

514 Voordijk et al.

Table 2 Existing and future roles of IT systems (McFarlanand McKenney, 1983)

Future strategic role of IT

Low High

Existing strategic Low Support Turnaroundrole of IT High Factory Strategic

Where IT plays a strategic role, it is essential forexecuting current strategies and operations, and forfuture competitive success. The IT strategy, the back-bone of such a firm's competitive success, will receiveconsiderable attention from senior management. WhereIT plays a turnaround role, a firm is not absolutelydependent on the functioning of the IT to achieve itsoperating objectives. New IT applications, however, areessential to enable the firm to achieve its strategic objec-tives. This role fits with the transition of the IT functioninside a firm from computer management to informationmanagement (from stage three to four on the Nolancurve). If IT plays a turnaround or a strategic role, the ITmaturity inside a firm is likely to be high. The IT func-tion has evolved from data-processing into a strategicone (McFarlan et al., 1982; McFarlan and McKenney,1983).

Where IT plays a factory role, firms are heavilydependent on cost-effective, fully reliable, IT supportto enable internal operations to run smoothly. The ITapplications under development are, however, not funda-mental to a firm's ability to compete in the future. WhereIT plays a support role, a firm could continue to operatein the event of a major IT failure. There is no commit-ment to linking IT to the business strategy. Th.e factoryand support strategic IT roles fit with the early stages ofthe Nolan growth curve: the strategic impact of IT onoperations and future strategy is low.

Implementation method and organizational change

The main differences in IT implementation methods arein their revolutionary or evolutionary nature, and the riskand time needed to implement a system. A 'revolution-ary' method requires a fundamental process change.An IT implementation method is labelled evolutionarywhen no fundamental process changes are required, andonly pre-existing processes are automated. Using thesecriteria, the following strategies can be identified foruse in ERP implementation.

In the implementation method known as BusinessProcess Redesign (BPR), IT is used as an agent for stra-tegic change. IT systems enable firms to be more focusedon enhancing their customer-service offerings, expand-ing into new industries, and entering into mergers andacquisitions (Zairi and Sinclair, 1995). BPR leads to

fundamental changes in many aspects of the organization(Soliman and Youssef, 1998). In the case of BPR, ITmanagement works closely with corporate managementin formulating and implementing an IT enabled orfacilitated strategy (for example e-procurement). Thethrough-put time and the risk of failure (i.e. the desiredresults not being realized) of this revolutionary imple-mentation method are high. Here, implementation is aniterative process, particularly in the design stage: thesame steps are repeated several times until the optimalsolution is found.

In the method known as As Soon As Possible (ASAP),the implementation time needed is the critical factor.Implementation starts with a predefined model, and theERP system is adapted to this standard. If processesdiffer from this standard, they are redesigned. Fromthis perspective, ASAP can be seen as a revolutionaryimplementation method. When implementation starts,some iterations are possible. The subsequent stages ofthe implementation process are linear: the process iscomposed of a series of distinct steps in one sequence.

In the AS-IS method, ERP implementation is aimedat automating existing processes. An important differ-ence to BPR is the evolutionary nature of this method,and the lower risk attached. This implementation methodis related to the traditional and supportive orientationof IT towards strategy. IT is not linked to the businessstrategy. IT primarily serves as a utility (i.e., efficiencyand reliability are paramount). The implementationprocess is linear.

Characteristics of the ERP implementation methodsare summarized in Table 3.

As the need for organizational change, and the strate-gic interest in an ERP implementation, increases, a moreiterative implementation model can be expected. In thisapproach, all the possibilities of an ERP system arethoroughly checked for their potential contribution tothe business strategy. Therefore, it is anticipated thatcompanies who are pursuing an integral role for ERPin their business strategy will undertake a more carefulanalysis of the systems to be implemented.

Case study: research design

Research approach

ERP is a relatively new topic for research, and mostof its implications have hardly been researched atall (exceptions being Soliman and Youssef (1998),Al-MashaH and Zairi (2000), and Soliman etal. (2001)).As such, an exploratory research approach is consideredappropriate and, for this reason, a qualitative case studytechnique was used for data collection to gain insightsinto the topic investigated (Yin, 1994). In this case study,three business units of a large Dutch-based construction

ERP in a large construction firm 515

Table 3 Aspects of ERP implementation methods

BPR ASAP AS-IS

Involvement of themanagement

User participation

Training and instructioninterftity

Number of implementationtools used

Implementation process

Organizational change

High: create support for thesystem

High: particularly in thedesign stage

High: learning new processesand skills

High: laboratory tests, pilotprojects, prototyping, andprocess simulations

Iterative: particularly in thedesign stage

High: fundamental changes

Middle: convince employees to Low: the system supportsuse the new system

Low: users only evaluate thenew system

Low: learning new skills

Low: predefmed models areused

Iterative at the start, subsequentstages linear

Middle

existing rules andstructures

Low: users only approvethe software used

I-ow

Low: existing processesstarting point

Linear

: no changes inprocesses or structures

firm were investigated. These business units itnple-mented ERP in very different business environments.The implementation of different systems within onecompany is typical of the way large construction firmsin the Netherlands have dealt with ERP. By focusing ondifferent business environments, it is possible to analysethe different patterns of logical links between: businessand IT strategies, the level of IT maturity and the stra-tegic role of IT, and the implementation methods andorganizational change.

Case study design

The selection of the case study company was theory-driven, rather than on the basis of statistical or randomsampling. Armed with the 'ex ante constructs', asEisenhardt (1989) calls them, we wanted to see if therewere different patterns of logical links between ERPand the IT and business strategy, the level of IT maturityand the strategic role of IT, and the implementationmethod and organizational change. Therefore, aconstruction firm was selected since it was known tobe operating under different conditions in various sectorsof the construction industry.

This case firm is one of the leading construction firtnsin the Netherlands, and appears here under the fictitiousname of VL Construction Group. Its activities aredivided into four clusters: infrastructure, construction,consultancy and engineering, and trade and industry.The case study focuses on the infrastructure cluster. Thispart of the firm we call VL Infrastructure and it is amajor player in the field of infrastructure in the Nether-lands. VL Infrastructure is an integrated provider ofcivil engineering works, maintenance, and services; andon the basis of this experience is also active in transportsystems. Over 2100 employees work on projects; covering,all aspects from involvement in the design phase to

implementation, plus subsequent maintenance. Theturnover of VL Infrastructure is €250 million (£166million). VL Infrastructure is divided into seven auton-otnous business units that work closely together. Themultiple case study focuses on the following threebusiness units: Projects, Services, and Equipment.

The Projects unit focuses on large-scale constructionand renovation infi-astructure projects. This business unithas 400 employees and a turnover of €90 million (;C60million). In this business unit, the most imponant busi-ness functions are calculation, purchasing, and projectcontrol. The major cost categories are personnel (35%),equipment (15%), and materials (50%).

The Services business unit has 1200 employees and aturnover of about felOO million (jC66 million). Its majorservice product is the maintenance and repair of civilinfrastructure and related installations. In this businessunit, the most important business functions are mainte-nance management, activity planning, and engineering.The major cost category is personnel (80%). Other costscover equipment (10%) and materials (10%).

The Equipment unit has 200 employees and a turnoverof €23 million (;C15 million). It is responsible for sup-plyitig equipment to the other business units inside VLInfrastructure. This business unit also supplies equip-ment to Dutch competitors of VL Infrastructure. Otheractivities include the maintenance and development ofequipment for other business units and third parties. Themost important business functions are resource platining,maintenance planning, logistics, and inventory control.As in Services, the major cost categories are personnel(80%), equipment (10%), and materials (10%).

ERP systems analysed

Two types of ERP system have been implemented inthe business units. Services implemented Baan ERP, a

516 Voordijk et al.

product fi:om the Baan Company. Projects and Equip-ment implemented Metacom 6. Metacom 6 is an ERPsystem supplied by a Dutch niche player. This nicheplayer dominates, with SAP and Baan, the ERP marketin the Dutch construction sector. Modules included inthe Metacom system follow the different stages of abuilding project: acquisition, calculation, purchasing,planning of the project and resources, and fmancialadministration. Baan ERP has the following three basicmodules: purchasing, logistics, and services.

Both systems qualify as ERP systems when applyingthe definition of Markus and Tanis (2000):

• Both ERP systems are commercial packages: thatis, they are purchased from software vendorsrather than developed in-house from scratch.

• The systems are built to support generic businessprocesses that differ fi-om the way the unitsanalysed do business.

• The systems integrate the software, not thecomputing platform on which it runs.

• The integration depends on 'configuring' (settingup) the system in particular ways. Configurationmeans certain modules are installed.

• ERP systems are rapidly changing architecturallyand in terms of functionality. Baan and Meta-com are pursuing a strategy of componentization,consisting of an open 'backbone' to which theofferings of other vendors can be connected. Bothvendors are releasing extensions to their coreproducts designed to handle 'front office' (i.e.sales management), 'supply chain' (i.e. advancedplatining and scheduling), data warehousing, andother flinctions.

Data collection

The main approaches used for data collection weresemi-structured interviews, observations, and documentsrelated to ERP implementations. In each business unit,tnanagers were interviewed who were knowledgeableabout both the ERP system itself and its implementationprocess: senior managers in the business unit includingthe IT manager, the project manager(s) of the HRPitnplementation, and core users. The interview questionsconcerned the business and IT strategy, the level of ITmaturity, and different aspects of the implementationmethod.

In analysing the business and IT strategy, a process-oriented assessment of IT business value was followed(see Tallon et al, 2000). This process-oriented approachalso provided information on the strategic role of IT inthe business units analysed. Following this approach, thefocus in the interviews was on the contribution of ERP:to process planning and support (improving internal

co-ordination and management decision-making), to theoperations of the firm (enhancing operational fiexibility,improving labour productivity, enhancing utilization ofequipment), to product and service (reducing titne tomarket for new products/services, etihancing product/service quality), on supplier relationships (developingcloser relationships with suppliers, improved tnonitoringof the quality of products/services firom suppliers). Basedon this analysis, the dominant goal of the ERP systememerged. Information about the business strategy wasgained by interviewing senior management and analysingthe firm's strategy documents. This information wasconfronted with the IT strategy being followed.

The maturity of the IT infrastructure was analysedby framing interview questions in terms of the bench-marks that characterize the different stages of the Nolancurve. These benchmarks are the information processingtechnology, data-processing organization and expend-iture, IT use, data processing and control, and theorganization's ponfolio of applications (Wiseman, 1985;Sabherwal and Kirs, 1994). By determining where abusiness unit fits on the various benchmark scales, beforeand after the ERP implementation, Nolan's approachcould be used to indicate the transition from one stageto another. This information was confi-onted with dataon the strategic role of IT inside the business unit, basedon the process-oriented approach mentioned above.

The implementations of the difi"erent ERP systemswere analysed by discussing the items given in the imple-mentation methodologies used by the ERP vendors.Interview questions focused on: the project organization(involvement of senior management, steering and work-ing committees, project management); the training ofproject members, core users and final users; the analysisof relevant processes to be supported; the role externalof consultants; and the implementation tools used.In addition to these aspects of the implementationitself, pre- and post-implementation documents wereanalysed: implementation proposals, justification forthe implementation, test reports, and formal reviewsafter implementation. The required change in theorganization was confronted with the characteristicsof the implementation method.

The Projects unit

Business and IT strategy

The ERP system was implemented because of theneed to replace the existing IT system. Examined moreclosely, this ERP impletnentation was not the result of astrategic choice by the management but rather a responseto the need to upgrade several outdated systems. Externalfactors (no support for the outdated systems by the

ERP in a large construction firm 517

software supplier, market demand, and millenniumbugs in the old software) cotnpelled this business unit tofind a new system. The IT strategy used can be charac-terized as that of a necessary evil. Management reactedto external factors and did not have a strategic focus onstate-of-the-art IT solutions. Managerial attention wasprimarily focused on cost control.

The level of IT maturity and strategic role of IT

Before implementing the ERP system, the IT maturity ofthe Projects unit was at stage 2 ofthe Nolan model witheach department using a number of isolated IT applica-tions. The level of IT tnaturity did not improve afterERP implementation: the firm stayed at stage 2. TheERP system integrated only the software modules oftheCalculation and Finance departments. Purchasing (40%ofthe turnover of this business unit) and overall projectplanning were not linked with each other through theERP. This means that delivery schedules would not beadapted following changes in the project planning. Sen-ior management feared a weakening of their negotiatingposition if purchasing was linked to external suppliers.Since only Calculation and Finance were now linkedwith each other, this ERP implementation is only thestart of a transition from stage 2 to 3. Further integrationand standardization of IT applications is needed tocomplete this transition. In terms of strategic roles, ITstill has a support function. Both before and after ERPimplementation, IT was not of strategic importance tothe organization.

Implementation method and organizational change

As mentioned earlier, this ERP implementation was areplacement for an outdated IT system, and as such wasa typical example of an AS-IS implementation. In anevolutionary approach, that lasted about two years, theERP system had to be adapted to existing businessesprocesses. The implementation focused on supportingthe existing processes of the Calculation and Financedepartments. It was planned that Purchasing wouldbe the next department to use ERP. The Projects unitwanted to implement the system itself, and hardlyany external advisers were hired. Management fearedhigh consultancy costs and the leaking away of sensitiveinformation. This led to a strong intra-company focus.This was also the reason why a supply chain context forthe ERP implementation was not developed since suchan implementation would require co-ordination withsuppliers and customers. The implementation started asa very structured process with regular meetings of themanagement, the internal project leader, and a smallgroup of core users (representatives of the differentdepartments). Few implementation tools were used, and

training and instruction were limited. The process couldbe characterized as a linear process: software was adaptedto existing processes - starting on a general level andending on a very detailed one. Developing customizedsoftware overcame the final obstacles. During implemen-tation, this structured approach became weakened dueto time constraints and business schedules.

The Services unit

Business and IT strategy

In interviews, managers stated that ERP was neededto increase control and transparency ofthe processes inthe Services unit. With more control and transparency.Services could react faster to changing market demands.Following the liberalization of the market for infrastruc-ture maintenance services, foreign firms have beenentering the Dutch market. The ERP implementationwas part of the strategic answer to this increasingcompetition. The IT strategy of this business unit canbe characterized as a free market strategy. Services triedto integrate different business functions into one ERPsystem. The management, however, gave the differentdepartments freedom to buy and use tools other thanthose provided by the ERP system. The resulting systemthus consisted of different IT tools bilaterally linkedto the ERP system.

The level of IT maturity and strategic role of IT

A few years ago. Services could be placed at stage 2 onthe Nolan growth curve. Since then, the implementationof ERP has led to substantial integration of localized ITfunctions. The company has been redesigning its workprocesses to enable further integration and standardization.As noted, the ERP system is supported by a number ofother software tools due to missing functionalities in theERP system. Baan ERP bave supported and integratedtbe financial aspects of tbe sales function, the technicalmaintenance ofthe infrastructure objects, and the invoiceand report function. Strict labour regulations and theirregular working hours ofthe employees of this businessunit partly explain the use of IT tools that are not sup-ported by the ERP system. In particular, purchasingand product quality (measurements ofthe services deliv-ered) required non-ERP software. The widespread useof IT tools is an aspect of stage 2 of the Nolan model.Implementing an ERP philosophy that integrates thesetools into one system reflects the organisation being intransition from stage 2 to stage 3. The role of IT haschanged from support to factory. IT has become muchmore important in tbe daily operations ofthe firm. In thelong term, IT may even achieve a strategic position

518 Voordijk et al.

where the applications become fundamental to the firm'sability to react to changing market demands.

was used as an internal tool to increase productivity byimproving the planning process.

Implementation method and organizational change Implementation method and organizational change

According to the management, the ERP implementationhad to be part of a BPR methodology. In their vision,the BPR would rely heavily on the use of IT to createradically different working methods in order to achieveorganizational improvements. Redefining business proc-esses was one of the objectives of this implementation.Several aspects of existing processes were, however, dif-ficult to change (strict labour regulations and irregularworking hours). Using the/ret; marker IT strategy, theexternal and internal project managers for this imple-mentation gave much freedom to the core users involved.Management delegated their responsibility to an externalproject manager, and user participation, training, andinstruction intensity were low. Various implementationtools were used. Overall, the approach became a typicalexample of a linear AS-IS implementation: softwaretools were adapted to existing processes.

The Equipment unit

Business and IT strategy

The Equipment unit followed a centrally plannedIT strategy. Senior management chose a centralizedapproach and, in their view, ERP was a tool that hadno direct relationship with the business strategy. Thefocus was on increasing the efficiency of the planningprocess. The management compelled the employeesto work with only the new system. Importing datafrom the earlier IT systems (used before the ERPimplementation) into the new one was forbidden.

The level of IT maturity and strategic role of IT

Before implementation. Equipment used three systemsthat could not exchange information with one another.These different, isolated, applications have been replacedby one ERP system. In order to get all the IT applica-tions included in this system, a tailor-made ERP systemwas developed by a software firm. The main objective ofimplementing ERP was to improve the planning, theplanning process, and the link between planning andfinance- In terms of Nolan, Equipment advanced fromstage 2 to stage 3. IT has been centralized, and currentERP implementation efforts are focused on furtherintegration and standardization. Following implementa-tion, the role of IT had changed from support to factory.The importance of IT increased in the daily operations,but had little impact on future business strategy. ERP

The implementation method used could be characterizedas AS-IS (existing processes were the starting point) withsome elements of BPR. The BPR elements included werean iterative implementation method and high user par-ticipation. Right from the start of the implementation,core users were involved. These users acted as inter-mediaries between the departments and the softwaresupplier and they commented on the system prototypeon behalf of their departments. Since the old systemfunctioned well, there was much resistance to change.The high level of user participation was an attempt todecrease this resistance. The low level of training andinstruction, and the limited use of implementation tools,were typical AS-IS elements.

Discussion

Using the data from the case studies, the success orfailure of the ERP implementations can be explained byanalysing the fits between the following pairs of ele-ments: business and IT strategy, the maturity of the ITinfrastructure and its strategic role, and the implementationmethod and organizational change.

Business and IT strategy

From the case studies, it is concluded that only thenecessary evil IT strategy of the Projects unit fits withthe actual competitive strategy of this firm: the focus ison cost control (see Table 4, Business and IT strategycolumn). There appears to be misfits between xh^ freemarket IT strategy of Services, and the centrally plannedIT strategy of Equipment, and their respective competi-tive strategies. Services wanted to implement ERP inorder to react faster to market demands. The businessstrategy, focusing on differentiation, is not aligned withthe IT strategy that fits with cost leadership. In theEquipment unit, the misfit is the other way around. Thebusiness strategy focuses on increasing efficiency andlowering costs, while the IT strategy is one that normallyfocuses on creating new business opportunities. As aresult of these misfits, the implementations of integratedenterprise systems were not a success in the Servicesand Equipment units, and they had to deal with muchresistance.

The misfits between the IT and business strategiescan be explained by the dominance of cost strategies inthe construction industry. Of the cases analysed, onlyServices had the option of following a non-cost strategy

ERP in a large construction firm

Table 4 The case study results

519

Cases Business and IT strategy IT maturity and thestrategic role of IT

Implementation methodand organizational change

Projects Fit Fit• Cost control• Necessary evil

Services Misfit Fit• Differentiation strategy• Free market

Equipment Misfit Fit• Cost control• Central planning

Stage 2 to 3Support

Stage 2 to 3From Support to Factory

Stage 2 to 3From Support to Factory

Fit• AS-IS• No process changeMisfit• BPR• No process changeFit• AS-IS + some BPR elements• Planning process changed

since this business unit was not so dependent on publicbids. Services had longer-term contracts. The dominantstrategy of most other contractors is, using Porter'sstrategy typology, a low-cost one for all segments ofthe market. This cost-driven nature of the industrymakes a fit between a firm, and IT strategies that focuson product or service differentiation, unlikely.

The level of IT maturity and strategic role of IT

The second element of the analysis focuses on the fitbetween the level of IT tnaturity and the strategic roleof IT. Employing an ERP philosophy that integratesdifferent IT applications into one system refiects that allthe business units are in transition frotn stage 2 to stage3 (see Table 4, IT maturity and the strategic role of ITcolumn). Of the three units. Equipment had transformeditself most clearly fi-om stage 2 to stage 3. In all the casesanalysed, the IT does not have a strategic focus. Bothbefore and after ERP implementation, IT was not ofstrategic itnportance for Projects. For the Services andEquipment units, IT has become tnuch more importantin their daily operations. The position of IT has changedfrom one of support to one of factory. In all three cases,the strategic IT roles match the early stages of the Nolangrowth curve. In these stages, refiecting a relatively lowlevel of IT maturity inside a firm, the strategic impact ofIT on operations and future strategy is low. IT mayachieve a strategic position for Services in the future.Whether the unit advances from the support to either thefactory or the strategic role depends on whether Servicescontinues to roll out new strategic uses for IT. If thishappens, the IT maturity will increase substantially.

In all three cases, the ERP implementation focused onthe back-office processes of the construction company.The functionalities provided by the ERP system supportand integrate traditional back-office functions such ascost control, equipment planning, and calculation. Thesefunctions are recurrent and stable, and can thereforebe standardized. They are not frustrated by industrycharacteristics such as the temporary coalitions formed to

realize construction projects, location-bound production,and the one-off nature of much of the work. Back-officefunctions do not, however, have the primary attention ofthe management. The cases show that ERP is used as anintra-company tool, whereas the primary processes in theconstruction industry are characterized by inter-companyrelationships. This explains why ERP does not play astrategic role in the three units analysed, and why ITmaturity remains low. Inter-organizational IT tools inthe construction industry require a high level of ITmaturity and a strategic orientation.

Implementation method and organizational change

The itnplementation methods used in the Projectsand Equipment business units can be characterized asAS-IS since software tools were adapted to the existingprocesses. Projects followed this method most clearly.Equipment basically followed an AS-IS approach butincluded some elements of BPR. Services tried to use aBPR method but, in the end, the implementationturned into a typical example of AS-IS (see Table 4,Implementation method and organisational change column)

Adopting BPR methods seetns to be difficult becauseit necessitates changing areas related to strategy, techno-logy, culture, management systems, human resources,and structure. The focus on technical aspects, at the costof change management elements, is a tnajor reason fora sub-optimal implementation process. There are twoother reasons why AS-IS implementation methods aredominant. First, processes have to become transparentand standardized within firms when implementingERP. Infortnal agreements are no longer possible. Forthis reason, ERP is the source of much resistance insideorganizations. Second, construction firms operate suchthat each department has its own domains of expertise.These professional, organizational, and functionalboundaries are rarely crossed. Since ERP requires theseboundaries to be crossed, this inflexibility is a majorobstacle to radically changing processes and implementingintra-organizational IT.

520 Voordijk et al.

Conclusion

In this study, the factors leading to the success or failureof ERP implementations in the construction industryhave been explained by focusing on the fits between thefollowing pairs of elements: business and IT strategy,maturity of the IT infrastructure and the strategic role ofIT, and the implementation method and organizationalchange. From this fit analysis the following can beconcluded:

• If the strategies of a firm are of a cost-drivennature then a fit between the business and ITstrategies that focus on differentiation of productsor services is less likely. When the business strat-egies of a construction company change from alow-cost strategy for all market segments, to adifferentiation strategy for one or a few marketsegments, the use of ERP and inter-organisationalIT tools will be stimulated.

• ERP will play a strategic role within constructionfirms if they adopt tools for the inter-organizationalstandardization of primary processes (their front-office activities). Inter-organzsational IT toolsrequire a high intra-organizational IT maturity.ERP will not fill a strategic role if IT efforts areaimed at standardizing the back-office functionsof a construction firm. In this situation, the ITmaturity of a construction firm will remain low.

• When a firm is still on the lower stages ofthe Nolan curve, one should expect the AS-ISimplementation method to be used. During thesestages, IT is aimed at automating existing proc-esses and cutting costs. BPR can be anticipatedwhen firms begin to move from stages 2 or 3 tohigher levels of computer evolution, since IT isthen used as an agent for radical change. ERPis appropriate for firms at the higher stages ofthe Nolan curve when it can transform die ITfunction within firms fi-om computer managementto infonnation management.

Inter-organizational IT tools require a high intra-organizational IT maturity. It is claimed that theapplication of the Capability Maturity Model enablesfirms to increase their IT maturity and thus build aneffective IT infrastructure (Parzinger et al, 2001).Another approach for improving IT maturity withinfirms is the emerging international standard for softwareprocess assessment known as ISO 15504, being devel-oped as part of the SPICE fi-amework (Software ProcessImprovement and Capability dEtermination) (Kuvaja,1999). SPICE focuses on the assessment of softwareprocesses and can be used by organizations for improvingthe development, operation and evolution, and support ofsoftware.

From an inter-organizational perspective, construc-tion organizations have yet to reach the first stage ofthe Nolan curve. The temporary and multiple nature ofthe organizational structure (a result of the dominanceof cost strategies) impedes a high IT maturity at theproject level. Non-technological aspects, such as stablenetworks and central co-ordination, are essential pre-conditions for the development of inter-organizationalERP. Once these preconditions are met, opportunitiesfor ERP systems to manage inter-com^pany processes maybe realized.

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