The effects of inter-organizational coordination on IT project performance

Introduction

The implementation of IT projects is often complex, costly, and risky for most organizations. It is widely known that a large percentage of IT implementation projects are completed late and over budget. Some of them do not satisfy business user requirements even if they have been completed. Increasingly, consulting firms are employed by organizations to provide technical expertise and project management skills that are necessary for the successful implementation of IT projects.

According to the Gartner group, US companies spent over $70 billion on IT consulting, development and integration in 2003 and it is expected to grow to $83 billion by 2007 (Gartner 2003). For IT projects involving consulting firms, client organizations face additional challenges in managing such projects. For example, the key players involved in the day-to-day operations of IT projects include associates from consulting firms as well as participants from the client organization such as business users and IT staff. Since the members of the project team are based in different organizations with differing objectives, work processes, and prior experiences and expectations with IT, coordination between the consulting firm and its client organizations may be more complex than that found in software development within a single organization.

Coordination strategy has been shown to affect IT project performance (Nidumolu 1996; Nidumolu and Knotts 1998; Andres and Zmud 2001). Coordination refers to “the linking together of different parts of the organization to accomplish a collective set of tasks” (Van de Ven, Delbecq, and Koenig, 1976). The coordination mechanisms used in a project can be characterized by the degree to which they are horizontal and organic or vertical and mechanistic in nature. Horizontal and organic coordination involves informal, cooperative, and decentralized mutual adjustment and communication activities, while vertical and mechanistic coordination involves formal, controlling, and centralized coordination activities and the use of well-defined procedures and rules (Nidumolu 1996, Andres and Zmud 2001). The effectiveness of the coordination strategy is found to be contingent upon factors such as project uncertainty, goal conflict, task interdependence, and so on. Most studies of coordination, however, have focused on IT projects within a single organization.

The purpose of this research is to identify the circumstances under which different coordination strategies are associated with project success. We report on an exploratory study that examines the effect of trust, project uncertainty, and different coordination strategies on the success of consultant-client projects. In the following section, we will review relevant literature on coordination in IT projects. The methodologies employed in the study, preliminary results, discussion, and conclusions are presented in subsequent sections.

Literature Review

Coordination is often conceptualized as the management of interdependence among different activities to accomplish certain objectives (Thompson 1967; Galbraith 1973; Van de Ven et al., 1976; Malone and Crowston 1994). March and Simon (1958) identified coordination by programming and coordination by feedback as the two primary coordination approaches in organizations. Coordination by programming refers to the use of plans, schedules, policies, and procedures as the primary coordination mechanism and thus follows the mechanistic strategy. On the other hand, coordination by feedback approach relies on mutual adjustments among individuals and groups through vertical and horizontal communications. Van de Ven et al., (1976) found that coordination by feedback was more expensive in terms of management time and should be employed for uncertain and highly interdependent tasks.

McCann and Galbraith (1981) suggested that coordination strategies could be characterized along three dimensions. The degree of centralization dimension defines the organization level at which coordination takes place. The formality dimension specifies the use of formal or informal communication channels. Finally, the degree of control dimension refers to the extent of the use of unilateral actions and hierarchical relations. A coordination strategy that employs centralized structure, formal communications, and unilateral decision making is referred to as a mechanistic strategy, whereas a coordination strategy that utilizes decentralized structure, informal communications, and cooperative decision making is referred to as an organic coordination strategy (Andres and Zmud 2001).

Given that IT implementations often involve cross-functional teams, coordination among team members is a key project management issue. Kraut and Streeter (1995) categorized coordination techniques into five groups: formal impersonal procedures, formal interpersonal procedures, informal interpersonal procedures, electronic communication, and interpersonal networks. They examined the use of various coordination techniques in software development teams and found that formal procedures and interpersonal networks were used in larger projects and interpersonal procedures were employed in the planning stage of the project. Interpersonal networks were used more when the project was highly uncertain and involved a lot of interdependent tasks. All coordination techniques were found as valuable.

Based on a survey of 64 software development projects, Nidumolu (1996) and Nidumolu and Knotts (1998) examined the effects of vertical and horizontal coordination strategies on IT project performance from the structural contingency and risk-based software engineering perspectives. The vertical coordination strategy refers to the use of well-defined roles such as project managers and steering committees, whereas the horizontal coordination strategy utilizes more mutual adjustments and communications for coordination. Their results showed that vertical coordination enabled project teams to reduce project risks as well as project uncertainty. On the other hand, horizontal coordination had a direct effect on improving project performance, which was defined as process control and product flexibility. Project uncertainty was found to be an important factor affecting project performance. Higher project uncertainty increased performance risk and reduced project performance.

Andres and Zmud (2001) conducted a laboratory experiment to explore the effect of task interdependence, goal conflict, and organic and mechanistic coordination strategies on software project team productivity and satisfaction. Their study found that the organic coordination strategy produced significantly greater satisfaction as well as higher productivity than the mechanistic coordination strategy. Their results suggested that an organic coordination strategy allowed software development teams to have open and decentralized communication that enabled them to share and integrate knowledge among team members. This study also found that there was an interaction effect between organic coordination and task interdependence; i.e., organic coordination was especially effective when the projects involved highly interdependent tasks. The explanation was that organic coordination enabled team members to better pool available knowledge and skills and reduced the effects of complexity associated with interdependent tasks.

While studies in software development teams reviewed above focused on the relationship between IT department and business users, IT implementation projects that involve consulting companies can introduce additional variables that might affect the project outcomes. Gefen (2002) explored the role of clients' trust and its impact on clients' perception of consulting companies' engagement success for ERP systems customization projects. It was found that perceived responsiveness and dependability of the consulting companies influenced clients' trust of the consultants, which in turn had a significant impact on their perception of project success.

Coordination in projects that involve consulting companies is more complicated because it spans multiple organizations. Such interorganizational coordination often requires unique coordination structures (Alexander 1998). Alexander (1995, 1998) identified three levels of interorganizational coordination. At the meta-level, interoragnizational coordination structures can range from communities with shared goals and values to market-oriented mutual adjustments to mandated hierarchical organization with defined authorities. At the meso-level, interorganizational networks such as interlocking board memberships and industrial associations can be used to coordinate the activities of multiple organizations. Finally, at the micro-level, liaison or boundary-spanner and designated interorganizational groups such as steering committee or task forces play an important role in interorganizational coordination. For IT implementation involving consulting companies, the focus is at the micro-level interorganizational coordination.

Nooteboom (2000) suggested that the purpose of interorganizational coordination was to align the competencies and intentions of members from multiple organizations in order for a complex project to work. Six forms of interorganizational coordination were identified. Evasion is a form of coordination that attempted to minimize the interdependence between organizations. Integration, on the other hand, unifies the control of organizations through mergers or acquisitions. Contracting defines the legal responsibility and obligation of each organization. Management by self-interest aligns the interests of each organization so they share the same goals and objectives. Trust coordinates the activities of organizations through reputation, shared values, and integrity. Finally, network structures such as associations can be used to coordinate organizations by involving a third party. It is likely that organizations would employ multiple forms of coordination for a specific project.

Research Model

Based on the literature review, we developed a research model shown in Exhibit 1. Project uncertainty consists of requirement uncertainty and technical uncertainty (Nidumolu and Knotts 1998). Requirement uncertainty refers to the uncertainty about the application requirements of the client organization, whereas technical uncertainty refers to the project team's experience with the software package and its implementation. Horizontal coordination is the extent to which coordination between clients and consultants is undertaken through mutual adjustments and communications within the project team (Van de Ven et al., 1976). Vertical coordination is the extent to which coordination between client and consultants is undertaken through designated coordination groups and committees and often above the project team level (Van de Ven et al., 1976). Trust is “an expectancy held by an individual or group that the word, promise, verbal or written statement of another individual or group can be relied on” (Rotter 1971, p. 444), and it can be conceived as combining beliefs in ability, integrity, and intentions (Gefen 2002).

There are two aspects of project performance: goal achievement and project outcome. Goal achievement refers to the degree of achievement of those goals identified at the outset of the project. Project outcome consists of the process outcome, which reflects the quality of project management, and the product outcome, which is the satisfaction with the IT application as implemented (Nidumolu and Knotts 1998).

Exhibit 1: Research model

This model hypothesizes that vertical coordination and horizontal coordination positively impact trust and project performance, whereas project uncertainty negatively impacts trust and project performance. Finally, trust is hypothesized to directly and positively impact project performance.

Research Method

A survey methodology was employed to test the research model presented in Exhibit 1. The IT projects targeted for this study were systems integration projects that involved external consultants and had been completed within the past 12 months or were near completion. Survey respondents were project managers who were directly involved in implementing such IT projects in business or other organizations. The respondents included both external consultants working on the implementation as well as managers from the client organizations. The respondents were drawn from two sources. First, the members of the Chief Information Officer (CIO) advisory council at the authors’ university were asked to identify relevant IT project within their firm for this study. The project managers of the identified projects were then contacted to fill out an online survey. Second, with the cooperation of PMI's Information Technology & Telecommunications (IT&T) special interest group, we solicited their members to participate in the study and complete the online survey.

The set of survey questions used in this study is provided in Appendix A. Project uncertainty was measured using nine items that captured requirement uncertainty and technical familiarity. Trust was measured using seven items adapted from Gefen (2002). Horizontal and vertical coordination were measured using ten items that were adapted from Nidumolu and Knotts (1998). Project outcome was measured using two items that reflected the quality of the project management process and the quality of the application. All of these questions were measured using a 1–7 Likert scale. Finally, the respondents were asked to rank order the top three goals of their project, and then indicate the extent to which each of these goals were achieved using a 1–7 Likert scale. The levels of achievement of the stated goals were weighted using their rank to create a score for goal achievement.

Data from 25 projects have been collected to date, including eleven respondents from member firms of the CIO advisory council and 14 from members of PMI's IT&T special interest group. Twelve of the respondents identified themselves as clients, while the remaining 13 are consultants. The profiles of the 25 projects are presented in Exhibit 2. Most of the projects were quite large in size, which was not unusual for systems integration projects. The types of the applications involved in the projects included Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Supply Chain Management (SCM), billing systems, and document/workflow management systems.

Exhibit 2: Project profiles

Reliability tests were conducted to ensure the consistency of the measures. For most scales, Cronbach's alpha was above 0.7. However, measures of vertical coordination did not produce a reliable scale. In order to reach an acceptable level of reliability, three items were removed from further analysis. The results of the reliability tests are shown in Exhibit 3.

Exhibit 3: Reliability of measures

Preliminary Results

Due to the limited sample size, we were unable to completely specify and test the model shown in Exhibit 1. However, we were able to perform preliminary analysis of the data using descriptive statistics and correlation analysis. The descriptive statistics for the variables included in this study are reported in Exhibit 4. Overall, the project outcome and goal achievement were somewhat above average as was the level of trust between the clients and consultants. The minimums and maximums for these three variables covered the range of possible values. The project uncertainty across the sample was about average with somewhat limited variation. The results showed that the projects in the data set represent a mix of project results, trust between the parties, and degree of uncertainty.

Interestingly, the average score for vertical coordination was much larger than the score for horizontal coordination. This indicates that coordination tended to occur more through defined processes and management channels above the project team level. The maximum reported value of horizontal coordination was less than the average level of vertical coordination, while the minimum value of vertical coordination was higher than the average level of horizontal coordination. These comparisons further illustrate the reported differences between the two measures.

Exhibit 4: Descriptive statistics

The correlation matrix for the variables reported in the study is given as Exhibit 5. Project outcome and goal achievement were significantly correlated (p=0.001) as expected. The results showed a positive correlation between vertical coordination and project outcome as expected, but this relationship was not significant. However, horizontal coordination was negatively, but not significantly correlated with project outcome. Goal achievement was uncorrelated with vertical coordination and negatively but not significantly correlated with horizontal coordination.

Trust was strongly and positively correlated with both project outcome and goal achievement (p=0.01). Uncertainty was negatively correlated with project outcome and goal achievement as expected, but only significantly correlated with the latter (p=0.05). Trust was also negatively and significantly correlated with uncertainty (p=0.05), and positively and significantly correlated with vertical coordination (p=0.05) as expected. However, horizontal coordination was negatively but not significantly correlated with trust.

Exhibit 5: Correlation matrix

Discussion

The preliminary results of our study showed that vertical coordination was more important than horizontal coordination in managing systems integration projects that involve clients working with consultants. This may indicate that it is necessary for senior managers to be involved in coordination efforts, and that coordination should not only occur at the project team level. However, the results showed that vertical and horizontal coordination were not directly related to project performance, measured either as project outcome or goal achievement. In contrast, Nidumolu and Knotts (1998) found that horizontal coordination positively impacted project performance. Also, in their experimental study, Andres and Zmud (2001) found that organic coordination, which tends to be horizontal in nature, leads to higher productivity and software development process satisfaction. The difference in findings between the latter studies and the results discussed here may be attributed in part to the types of projects studied: internal software development vs. systems integration with external consultants.

Trust was found to be the only significant determinant of project performance. This result is consistent with Gefen's (2002) finding that the level of clients’ trust of consultants significantly affects engagement success of customized ERP systems. Since our respondents included both clients and consultants, trust was measured from both perspectives. Our findings suggest that establishing mutual trust between clients and consultants is critical for IT projects that involved multiple organizations.

The results of our study also showed that trust between the clients and consultants might be affected by project uncertainty and vertical coordination. On the one hand, project uncertainty might reduce the trust between the parties. It is not surprising that one party would be more likely to doubt the other party's capability when the project is viewed as highly uncertain. On the other hand, the use of vertical coordination seemed to help clients and consultants build trust among themselves. High-level management involvement in the project could be an important way to show benevolence towards each other.

The results concerning trust, project performance, and vertical coordination seemed to suggest that there is an indirect relationship between vertical coordination and project performance through trust. However, the limited sample size prevented us from fully testing this relationship.

Conclusions

This exploratory study has examined the effects of interorganizational coordination, project uncertainty, and trust on project performance. Our results showed some important differences between software development projects within a single organization and systems integration projects involving external consultants. Trust was found to be the most critical factor in determining project performance. Vertical coordination had a positive relationship with trust that suggested an indirect relationship with project performance. However, the results of this study have to be interpreted with caution. Due to the small sample size, only correlation analysis among the variables was performed. Our data collection process is still in progress. As data from more projects are collected, we should be able to fully test our model using structural equation modeling or other analysis tools.

Appendix

Project Uncertainty

1. The project team was inexperienced with the software package
2. It was difficult to satisfy the needs of all users of the project
3. The project team had implemented several similar systems before
4. The project team was familiar with the software package implementation
5. The application requirements of the project were quite different for different groups of users
6. The application requirements of the project had to be reconciled in order to satisfy the needs of various users
7. The application requirements were well known at the outset of the project
8. The application requirements changed quite a bit during the project
9. The application requirements identified at the beginning of the project were quite different from those existing at the end

Trust

1. Our partners are competent in their field
2. Our partners are knowledgeable concerning the application
3. Our partners put their interests before ours*
4. Our partners are honest about their problems
5. Our organization can count on our partners to be sincere
6. We can count on our partners to consider how their decisions will affect us
7. Our partners are open in dealing with us

Horizontal Coordination

1. Team members were engaged in coordinating with our partners
2. I coordinated more with members of our project team than with my managers
3. Coordination between partner organizations took place at the team member level
4. I worked interactively with my counterpart from the partner organization on important aspects of the project
5. Coordination between partner organizations took place at the project manager/leader level

Vertical Coordination

1. Designated individual(s) within the project team (e.g., a project manager) was/were responsible for coordination with the partner organization
2. A designated committee or group (e.g., a steering committee) outside of the project team was responsible for coordination with the partner organization
3. There were established rules and procedures for coordination between the partner organizations
4. Coordination between partner organizations took place above the project leader level
5. Senior managers were engaged in coordinating with our partners

Project Outcome

1. The quality of the project management is excellent
2. We are completely satisfied with the application implemented in the project

Goal Achievement

Please indicate in rank order the top three goals for your project and the degree to which you agree or disagree that they were achieved