leadership type for a successful software implementation

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LEADERSHIP TYPE FOR A SUCCESSFUL ENTERPRISE SOFTWARE IMPLEMENTATION Wilbur A. Reid Regent University ABSTRACT The growth of enterprise software packages from third party vendors has led to enormous opportunities and challenges in the past 20 years. Excitement about the capabilities of ERP systems such as SAP or Oracle has been tempered with stunning failure rates in implementations. Even high ROI and quick project payback pricing optimization projects have struggled in some recent implementations. This study shows that there is a strong correlation between successful enterprise software implementations and leadership type, and that relationship is mediated by readiness for organizational change. Lack of leadership leads to failure and simply managing the details of the project is not statistically significant for success, but leading the people involved with the project is critical. INTRODUCTION Since 1990, there has been a dramatic corporate shift from in-house developed enterprise software development to off-the- shelf, configurable software (Holland & Light, 1999; Hong & Kim, 2002). These software packages include broad enterprise resource planning (ERP) systems, as well as specialized best-of-breed systems that perform functions such as pricing or inventory optimization. Although a successful implementation of ERP or specialty software will have quick and substantial payback, many implementations have failed (Aladwani, 2001; Finney & Corbett, 2007), and the high failure rates of ERP implementations are “widely cited in literature” (Nah, Lau, & Kuang, 2001, p. 285). While there is an abundance of research showing the relationship between leadership and organizational change, there are no known 1

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Page 1: Leadership Type for a Successful Software Implementation

LEADERSHIP TYPE FOR A SUCCESSFUL ENTERPRISE SOFTWARE IMPLEMENTATION

Wilbur A. Reid

Regent University

ABSTRACT

The growth of enterprise software packages from third party vendors has led to enormous opportunities and challenges in the past 20 years. Excitement about the capabilities of ERP systems such as SAP or Oracle has been tempered with stunning failure rates in implementations. Even high ROI and quick project payback pricing optimization projects have struggled in some recent implementations. This study shows that there is a strong correlation between successful enterprise software implementations and leadership type, and that relationship is mediated by readiness for organizational change. Lack of leadership leads to failure and simply managing the details of the project is not statistically significant for success, but leading the people involved with the project is critical.

INTRODUCTION

Since 1990, there has been a dramatic corporate shift from in-house developed enterprise software development to off-the-shelf, configurable software (Holland & Light, 1999; Hong &Kim, 2002). These software packages include broad enterprise resource planning (ERP) systems, as well as specialized best-of-breed systems that perform functions such as pricing or inventory optimization. Although a successful implementation of ERP or specialty software will have quick and substantial payback, many implementations have failed (Aladwani, 2001; Finney &Corbett, 2007), and the high failure rates of ERP implementations are “widely cited in literature” (Nah, Lau, & Kuang, 2001, p. 285). While there is an abundance of research showing the relationship between leadership and organizational change, there are no known studies that have considered the relationship between leadership and the success of software implementations.

This study considers 60 large enterprise software implementation projects, with participants providing insight into the level of success of the project, the leadership within the project, and the readiness of the organization for change prior to the implementation. Finney and Corbett (2007) sought to determine the critical success factors (CSFs) of ERP implementations and determined that much of the existing literature on the topic is flawed because researchers have only surveyed senior managers, and they determined that all of the stakeholders in the implementation should be surveyed for a broader and more balanced response. Therefore, participants in this study included a broad cross-section of project leaders: business leaders, IT leaders, executive sponsors, and 3rd party project managers.

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LITERATURE REVIEW AND THEORY

Although there is little research specifically targeting leadership type to the implementation of enterprise software, there is ample research on the topic of leadership type and organizational change that would be required for a successful implementation (Bennett,2009). There is also ample research into the success and failure of enterprise software implementations. The following analyses of these studies provide a foundation to build hypotheses to project the outcome of the relationship between leadership type and successful implementations.

Studies have shown that leadership type can influence employee performance (Bass,1985; Burns, 1978; Bass & Avolio, 1993) and that leaders play a critical role in helping organizations adapt and succeed in growing and changing environments (O'Reilly, Caldwell,Chatman, Lapiz, & Self, 2010; Muller & Turner, 2007).

The Independent Variables: Leadership Type

Avolio and Bass (2007) developed what they call a full range leadership model that addresses perceived short-comings of previous leadership models that do not account for all of the leadership characteristics that should be accounted for. This model begins with identifying three broad types of leadership: (a) transformational, (b) transactional, and (c) passive / avoidant (laissez-faire). Passive individuals avoid engaging in leadership behaviors and are the least effective leaders. Transactional leaders focus on errors and exceptions, exchanging rewards for effort and results, and can be effective leaders. The most effective type of leadership is transformational because followers are inspired, challenged, and stimulated to pursue a vision (Avolio & Bass). Table 1 summarizes the difference between transactional and transformational leadership.

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These three broad types of leadership contain sub-types of leaderships that are called full range leadership model factors and are summarized in table 2 (Avolio & Bass, 2004; Bass &Avolio, 1995).

A transformational leader is proactive and seeks to optimize performance by leading individuals to achieve higher results. The five factors within transformational leadership that describe how that happens are all labeled with words beginning with the letter “I”, so they are called the five I’s of transformational leadership. Questions related to Idealized Attributes (IA) seek to determine if the leader is able to instill a certain way of thinking within the followers, such as a sense of pride, respect, and interest in others. Idealized Behavior (IB) is more action oriented, and searches for behaviors such as talking about the values of the group, considering moral implications of decisions, and having a collective sense of mission. Inspirational Motivation (IM) captures enthusiasm, optimism, and confidence that goals will be achieved. Intellectual Stimulation (IS) is about seeking different perspectives to solve problems and suggesting new ways of doing things. Individual Consideration (IC) is about spending time with others in teaching and coaching, and valuing the input of others in the group (Avolio & Bass,2007).

Transactional leaders utilize rewards and punishment to lead followers to a desired outcome. Transactional leadership may take the form of Contingent Reward (CR) or Management-by-Exception: Active (MBEA). Contingent Reward utilizes specific goals and objectives and provides incentives to reward followers for obtaining those objectives. Management-by-Exception: Active focuses on exceptions and mistakes and directs attention toward failures so that standards can be met (Avolio & Bass, 2007). Passive – Avoidant Behavior is reactive and ineffective, and can be divided into two types. Management-by-

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Exception: Passive (MBEP) waits until there is a problem and then responds to it. Laissez-Faire (LF) represents a vacuum of leadership and is not responsive at all (Avolio & Bass).

Howell and Avolio (1993) noted that previous research showed transactional leadership provided mixed results in predicting performance, but that “substantial evidence now exists” (p.893) to show that transformational leadership will positively predict performance. A literature review by Slvanathan and Fekken (2002) concluded that “transformational leadership has consistently shown advantageous effects on a range of individual and organizational outcomes” (p. 198). Bennett (2009) noted that transformational leadership motivates and inspires employees more than other leadership type. Muller and Turner (2007) proved that leadership type was significant to project success and that different types of leadership types may be appropriate for different project types. The transactional leadership type appeals to subordinates personal desires, with rewards based on performance (Burns, 1978).

To measure these different types of leadership, the Multifactor Leadership Questionnaire (MLQ) was developed and has been enhanced over the past 25 years based on research in the leadership fields (Avolio & Bass, 2004). Hinkin and Schriesheim (2008) note that “the vast majority of published empirical research of the topic (transformational leadership) has utilized the Multifactor Leadership Questionnaire (MLQ)” (p. 501). The current and most frequently used version of the Multifactor Leadership Questionnaire is the MLQ-5X, which is also known as the 45-item short survey (Muenjohn & Armstrong, 2008). The MLQ-5X may refer to individual or team leadership. For example, one question on the team leadership assessment is: We instilled pride in others for being associated with us. The answers choices are: (a) not at all, (b) once in a while, (c) sometimes, (d) fairly often, (e) frequently, if not always.

The Dependent Variable: Project Success

Numerous studies have been conducted to determine the success factors in software implementation, but the dependent variable of success has always been an elusive one to define (DeLone & McLean, 1992). The problem is not a lack of definitions of success available, but that there is a different definition in nearly every study. Using a database of 180 diverse articles and 100 unique studies, DeLone and McLean organized a comprehensive taxonomy and found six categories of software implementation success: (a) system quality, (b) information quality, (c) use, (d) user satisfaction, (e) individual impact, and (f) organizational impact. Of the 100 studies that were analyzed, only 28 of them attempted to measure multiple categories, with only one study measuring results from as many as four categories. The focus of most of the studies utilizing one category allows a coherent basis for measuring success, but does not take into account the various levels of success of a project. Umble, Haft, and Umble (2003) summarize the literature on determining implementation success by stating that there are generally two ways to categorize success or failure: (a) the project achieves a substantial proportion of its benefits or (b) the system achieves the level of Return on Investment (ROI) identified in the project approval phase. Most projects are neither wildly successful nor an abysmal failure, but lie somewhere in the middle (Kotter, 2007).

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The Mediator: Readiness for Organizational Change

With the staggering growth of information availability, the internet, communication capabilities, and the globalization of the economy, leaders in organizations today face unprecedented challenges in change management within their organizations and the rate of change has never been greater (Kotter, Rathgeber, & Wyman, 2006). Schumpeter (1911, 1950) began the discussion of change when he noted that economies have dynamic disequilibrium and that change is required to maintain health. Haynes (2002) built upon Schumpeter’s idea and contended that change is necessary for organizations to remain healthy. However, Beer and Nohria (2000), Kee and Newcomer (2008), Oakland and Tanner (2007) and Bunker (2009) show the failure rate of organizational change initiatives to be between 66% and 90%. Kee and Newcomer identified a “resistant organizational culture as the chief culprit” in causing initiatives to fail, and Kotter (1996) estimated that half of all large-scale organizational changes fail because the leaders failed to establish sufficient readiness. Readiness is a “combination of ability and motivation” (Grow, 1991, 1996), and the type of management and leadership preparing for change should be appropriate for the readiness of the organization.

The Model

Summarizing the model of the variables, the dependent variable of software implementation success is related to the independent variable of leadership type. Readiness for organizational change mediates this relationship.

Table 3

Independent Variable Mediator Dependent Variable

Readiness f or Organizational Change

Leadership Type Sof tware I mplementation Success

Hypotheses

Since research to this point indicates that transformational leadership is the most effective in organizations, it is reasonable to believe that it will also be the most effective in leading the change that an organization must go through to implement an enterprise software system. A commonly held opinion among business leaders, though undocumented or proven to this point in

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time, seems to be that transactional leadership is also a key to successful software implementation. In other words, a successful project contains both transactional leadership that insures that the software is properly implemented, as well as transformational leadership that leads the organization through the change management that is necessary to recoup the substantial financial investment that the company has made in the project. Mediating this relationship between leadership and successful results is the organization’s readiness for change. If the people within the organization are not ready for a significant organizational change, then even the most effective leader will have difficulty in leading the organization to a successful result (Kotter,1996). Likewise, if the organization is ready to embrace change, even a mediocre or poor leader may be able to have a successful outcome.

• H1: Successful project implementation is positively related to transformational leadership.

• H2: Successful project implementation is positively related to transactional leadership.

• H3: Readiness for organizational change mediates the relationship between leadership and successful project implementation; so that a higher degree of transformational leadership leads to readiness for organizational change which leads to higher success in implementation.

METHOD

To determine the relationship between leadership and software implementation, participants from large enterprise software implementations were surveyed. A total of 85 people participated from 60 different projects. Responses from the same projects were consolidated into one response for the project so that N = 60 in the analysis. The participants served various roles in the projects: (a) business or functional leader (47% of participants), (b) I.T. or technical leader (15%), (c) vendor or 3rd party leader (18%), (d) consultant (13%), or executive (7%). There were 12 different types of projects represented, with pricing packages from PROS, Zilliant, and other pricing vendors representing 48% of the projects. Other software packages included SAP (12%), Oracle (7%), and Sage (7%). The companies that implemented these projects included distributors (32%), manufacturers (32%), services (23%) and others (13%). Although there was a wide range of project costs, 77% of the projects were less than $9 million. The survey consisted of 5 sections: (a) project success, (b) leadership effectiveness, (c) leadership type, (d) readiness for organizational change, and (e) general and demographic information.

Project Success

Five questions were used to determine the dependent variable of implementation success: (a) project completed on time, (b) project completed within budget, (c) project achieved budgeted return on investment, (d) users adopted the new software, and (e) executives satisfied with the results of the project. Participants rated the project success for each of these criteria and

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the numbers were then aggregated into one number that was used as a score of success for the project. These five variables make a reliable scale, with a Cronbach’s alpha of .835.

Leadership Type

The 45 question MLQ-5X survey was used to identify the leadership type. Scores were tabulated to identify transformational, transactional, and passive-avoidant leadership types. Scores were also identified at the nine factor levels that make up the three leadership types. Each question on the MLQ-5X was answered on a 5 point Likert scale, with an average score of the appropriate questions attributed to each leadership type.

Readiness for Organizational Change

Readiness for organizational change is measured by the 25 question survey from Holt, Armenakis, Field, and Harris (2007), with four factors: (a) appropriateness of change, (b) management support, (c) change efficacy, and (d) personally beneficial. Each question on the this survey was answered on a 5 point Likert scale, with an average score of the appropriate questions attributed to each type of readiness for organizational change. This scale of organizational change is reliable, with a Cronbach’s alpha of .803.

ANALYSES AND RESULTS

Relationship of Project Success to Leadership Type

The first step of analysis is to determine the relationship between the dependent variable of success and the independent variable of leadership type. Table 4 shows that transformational leadership is positively correlated to successful project implementation with a Pearson’s correlation of .415 and significant to the 0.01 level. This supports hypothesis 1. Transactional leadership is also positively correlated, though to a lesser degree at a Pearson’s correlation of .260 and 0.05 level of significance. This supports hypothesis 2. Passive-avoidant leadership is negatively correlated, at a Pearson’s correlation of -.295 and 0.05 level of significance.

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Table 4

SuccessTransformational

LeadershipTransactional Leadership

Passive-Avoidant Leadership

Readiness for organizational

changePearson Correlation .415** .260* -.295* .543**

Sig. (2-tailed) .001 .044 .022 .000

N 60 60 60 60

Pearson Correlation .628** -.583** .622**

Sig. (2-tailed) .000 .000 .000

N 60 60 60

Pearson Correlation -.330** .351**

Sig. (2-tailed) .010 .006

N 60 60

Pearson Correlation -.582**

Sig. (2-tailed) .000

N 60

Pearson Correlation

Sig. (2-tailed)

N

Correlations of Dependent, Independent, and Mediating Variables

Transactional Leadership

Passive-Avoidant Leadership

Success

Transformational Leadership

Readiness for organizational change**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

When the leadership types are broken down into the 9 factors, the most interesting finding is within the two factors of transactional leadership. Contingent rewards (CW) is correlated significantly with success, but Management-by-Exception – Active (MBEA) has a slight negative correlation with success, but is not statistically significant. Therefore, linking rewards to goals leads to success, but focusing on exceptions and errors to meet standards does not seem to have any correlation with success. All of the transformational factors are positively correlated to project success. Not surprisingly, a lack of leadership (MBEP, LF) is negatively correlated with success, indicating a higher probability of project failure.

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Table 5

IA IB IM IS IC CR MBEA MBEP LF

Pearson Correlation .431** .362** .380** .450** .259* .461** -.050 -.300* -.270*

Sig. (2-tailed) .001 .005 .003 .000 .046 .000 .703 .020 .037

N 60 60 60 60 60 60 60 60 60

Pearson Correlation .751** .825** .838** .777** .724** .156 -.501** -.550**

Sig. (2-tailed) .000 .000 .000 .000 .000 .233 .000 .000

N 60 60 60 60 60 60 60 60

Pearson Correlation .737** .761** .678** .683** .191 -.467** -.572**

Sig. (2-tailed) .000 .000 .000 .000 .144 .000 .000

N 60 60 60 60 60 60 60

Pearson Correlation .699** .627** .685** .108 -.463** -.516**

Sig. (2-tailed) .000 .000 .000 .412 .000 .000

N 60 60 60 60 60 60

Pearson Correlation .705** .722** .161 -.578** -.601**

Sig. (2-tailed) .000 .000 .219 .000 .000

N 60 60 60 60 60

Pearson Correlation .735** .147 -.333** -.420**

Sig. (2-tailed) .000 .262 .009 .001

N 60 60 60 60

Pearson Correlation .168 -.472** -.521**

Sig. (2-tailed) .198 .000 .000

N 60 60 60

Pearson Correlation .040 -.064

Sig. (2-tailed) .762 .630

N 60 60

Pearson Correlation .830**

Sig. (2-tailed) .000

N 60

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

Correlations of Leadership Type Factors to Success of Implementation

MBEP

IB

IM

IS

IC

CR

MBEA

Success

IA

Standard multiple regression shows that the variance in success that is predicted by leadership type and readiness for organizational change is 30.5% (r squared = .305) and that this is statistically significant. It is interesting to note that readiness for organizational change is the only statistically significant variable in this regression.

Table 6

Model R R SquareAdjusted R

SquareStd. Error of the

Estimate1 .553a .305 .268 .35420

Model Summary

a. Predictors: (Constant), Readiness for organizational change, Transactional Leadership, Transformational Leadership

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Table 7

Sum of Squares df Mean Square F Sig.Regression 3.088 3 1.029 8.206 .000a

Residual 7.026 56 .125

Total 10.114 59

ANOVAb

Model1

a. Predictors: (Constant), Readiness for organizational change, Transactional Leadership, Transformational Leadership

b. Dependent Variable: Success

Table 8

Standardized Coefficients

B Std. Error Beta(Constant) .645 .285 2.266 .027

Transformational Leadership

.054 .088 .105 .613 .543

Transactional Leadership

.018 .086 .030 .211 .834

Readiness for organizational

.199 .061 .467 3.277 .002

Model

Unstandardized Coefficients

t Sig.1

a. Dependent Variable: Success

Coefficientsa

Mediation of Readiness for Organizational Change

The correlation of the variables and the standard multiple regressions clearly show that readiness for organizational change is a significant influence on the likelihood of project implementation success. There are three steps to demonstrating that readiness is at least a partial mediator between leadership and success: (a) leadership and success are correlated, (b) leadership and readiness for change are correlated, and (c) readiness for change and success are correlated (Baron & Kenny, 1986).

Hierarchical multiple regressions were used to assess readiness for change as the dependent variable, transformational leadership is seen as having a statistically significant impact on readiness. Transformational leadership does not add a statistically significant amount of predictability to the model. As a result of the correlations between leadership type, readiness for organizational change, and success, hypothesis 3 is supported.

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Table 9

Standardized Coefficients

Beta(Constant) 4.776 .000

Transformational Leadership

.622 6.054 .000

(Constant) 4.435 .000

Transformational Leadership

.663 4.988 .000

Transactional Leadership -.066 -.493 .624

a. Dependent Variable: Readiness for organizational change

Coefficientsa

1

2

Model t Sig.

Controls

The variables in this standard multiple regression were controlled by six other variables, including project size, company size, and the type of software being implemented. These variables added 4% to the predictive capability of the model, from r squared of .305 to .345, but none of the individual control variables were statistically significant.

Table 10

Model R R SquareAdjusted R

SquareStd. Error of the

Estimate1 .588a .345 .212 .36760

Model Summary

a. Predictors: (Constant), What was the general size of the project, including internal and external costs?, Readiness for organizational change, How did external economic variables impact the project?, Which software package was implemented?, How would you describe the experience of the project team that led the implementation?, Which best describes the company that implemented this project?, Transactional Leadership, What are the annual sales of the part of the organization that implemented the software?, Passive-Avoidant Leadership, Transformational Leadership

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Table 11

Standardized Coefficients

Beta(Constant) 1.255 .215

Transformational Leadership

.204 1.002 .321

Transactional Leadership -.033 -.201 .841

Readiness for organizational change

.459 2.776 .008

Passive-Avoidant Leadership

.042 .261 .795

Which software package was implemented?

.033 .243 .809

How would you describe the experience of the project team that led the implementation?

-.070 -.555 .582

How did external economic variables impact the project?

.034 .273 .786

Which best describes the company that implemented this project?

.025 .179 .858

What are the annual sales of the part of the organization that implemented the software?

-.068 -.477 .635

What was the general size of the project, including internal and external costs?

-.156 -1.139 .260

Model t Sig.1

a. Dependent Variable: Success

Coefficientsa

Conclusion of Analysis

Analysis of the data shows that transformational and transactional leadership leads to readiness for organizational change, and that a lack of leadership is negatively correlated to readiness for organizational change. Readiness for organizational change leads to successful software implementations. Transformational leadership and transactional leadership are positively correlated with success, while passive-avoidant leadership is negatively correlated.

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Table 12

Independent Variable Mediator Dependent Variable

Readiness f or Organizational Change

Leadership Type Sof tware I mplementation Success

** standardized coeffi cient Beta is signifi cant at the .01 level.

* standardized coeffi cient Beta is signifi cant at the .05 level.

Standardized Coeffi cients

transformational: β= .622**transactional: β = .351**

passive avoidant: β = -.582**

β= .543**

transformational: β= .415**transactional: β = .260*

passive avoidant: β = -.295*

DISCUSSION

This study demonstrates that readiness for organizational change is a critical factor in predicting the success of a large enterprise software implementation, and people are more likely to be ready for change if they are led by transformational leadership. The research also shows that people are not just going to be ready for change if there is a void of leadership. Although many corporate managers and executives focus on the type of software being implemented, eliminating exceptions or errors during implementation (MBEP), or external economic conditions, the results indicate that these types of variables are not statistically significant and that they should be focusing on change management. In other words, it is not as much about the processes and details as it is about the people.

The strength of this study is that it is the first to consider the role of leadership types on software implementations utilizing a broad range of participants within the project. The results are consistent with the theory derived from other leadership studies. Limitations include the fact that the results are based on self-reported surveys that could suffer from common method variance or simply pride of ownership. People that have given a year or two of their lives to bring a project plan to reality do not want to admit that it was less than successful, so results could be inflated. Future study in this topic should include independently gathered determinations of project success and failure, as well as a more comprehensive analysis of each individual project and the leadership from multiple points of view. Further analysis could also be performed on the leadership factors, such as contingent rewards and MBEA. The importance of leadership within software implementations is going to continue to grow in importance in the business community, so research needs to continue to be developed.

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