Impact of top management team on firm performance in small and medium-sized enterprises adopting commercial open-source enterprise resource planning

Abstract

Based on the large number of small and medium-sized enterprises (SMEs) in the United States, their increasing interest in enterprise-wide software systems and their impact on the US economy, it is important to understand the determinants that can facilitate the successful implementation and assimilation of such technology into these firms' daily operations. The purpose of this study was to examine the impact of the top management team in SMEs that have adopted and implemented commercial open-source enterprise systems and to investigate the impact assimilation has on firm performance. Our results represent a significant contribution to understanding the use of open-source enterprise resource planning (ERP) software for SMEs, as these data are not publicly available. Findings suggest that (1) the information technology (IT) experience and knowledge of the team and the absorptive capacity of the SME play a significant role in the ability of the firm to assimilate open-source ERP systems, (2) assimilation mediates the role between customisation and operational performance and (3) the more aligned the open-source ERP system to the SME's business processes, the greater the opportunity to assimilate the technology and achieve higher levels of performance.

Keywords:

• top management team
• commercial open-source enterprise software
• small and medium-sized enterprises (SMEs)
• enterprise resource planning (ERP)
• software

Notes

1. A packaged ERP system is defined as an enterprise software suite (e.g. PeopleSoft, SAP, JD Edwards and Baan) that is used in conjunction with business process reengineering techniques to upgrade big chunks of a company's supporting systems (Brown 2001). We define and discuss commercial open-source ERP systems in the next section.

2. We differentiate adoption and implementation of technology from assimilation in that adoption and implementation by themselves do not guarantee its usage. Assimilation measures instead the firm's use of the technology beyond the adoption and implementation stage towards routinising the technology in the firms' day-to-day operations (Raymond 2005).

3. To test for non-response bias, we compared the variances and means on all measured variables between early and late responses using the Levene's test for equality of variances (Snedecor and Cochran 1980). We found no significant differences between the means for these two groups, which provides weak evidence that our results are not biased by non-responses.

4. Formative indicators define (or ‘cause’) the construct (Hulland 1999, p. 201). In contrast, reflective indicators (measures) are believed to reflect the unobserved, underlying construct, with the construct giving rise to (or ‘causing’) the observed measures.

5. We also ran an alternative PLS model including a direct path between ITEXP and ABSCAP (omitting the direct path between ITEXP and ASSIM). The results of the new model indicate that the original predicted paths are still significant; however, the added path between ITEXP and ABSCAP is not significant.

6. We also performed PLS analyses including the control variables, and the results are substantively similar to those reported in Figure 1, with the exception that organisational impact is significantly related to performance.