Advances in Economics, Business and Management Research, volume 196

Proceedings of the International Conference on Emerging Challenges: Business Transformation and

Circular Economy (ICECH 2021)

The Impact of Enterprise Risk Management Implementation on Organization

Performance by Moderating Role of Information Technology

Tran Anh HOA1, Tran Thi Phuong THANH2, Pham Tra LAM3*, Dau Thi Kim THOA4

1
Department of Management Accounting, School of Accounting, University of Economics Ho Chi Minh city, Ho Chi
Minh, Vietnam
2
Department of Financial Accounting, School of Accounting, University of Economics Ho Chi Minh city,
Ho Chi Minh, Vietnam
3
Department of Accounting Information Systems, School of Accounting, University of Economics Ho Chi Minh city,
Ho Chi Minh, Vietnam
4
Department of Public Sector Accounting, School of Accounting, University of Economics Ho Chi Minh city, Ho Chi
Minh, Vietnam
*
Corresponding author: phamtralamais@ueh.edu.vn

Abstract
Research purpose: The main purpose of this paper is to examine the path modelling of Enterprise Risk Management
(ERM) implementation, Information Technology (IT) structure and organization performance as well as some primary
factors which might influence ERM implementation.
Research motivation: In the unpredictable change of environment, enterprises need to have prudent preparations to
control and deal with risks. An effective ERM system and good IT structure are believed to support businesses to
achieve this purpose. However, literature review shows that there are not many empirical studies combining the effects
of ERM implementation, IT structure and organization performance, especially in emerging economies. Therefore,
investigating the effects of ERM implementation, IT structure, and organization performance in the context of emerging
countries should be studied.
Research design, approach, and method: Data for this research was obtained from a cross-sectional survey with
respondents working in enterprises. The analysis of data and hypothesis testing were empirically conducted using
partial least square structural equation modelling (PLS-SEM) approach with survey data from 158 business firms in
Vietnam.
Main findings: This study has two key findings. First, IT structure is a partial mediator for the relationship between
ERM and organization performance. Second, both organizational change capacity and knowledge management (KM)
process capability had positive relationships with ERM.
Practical/managerial implications:
This paper provides insights into the value of implementation of ERM among organizations in improving IT structure
and performance of enterprises, especially in the context of a transition market like Vietnam. In addition, this study
provides implication in terms of manager’s planning and decision making to consider ERM implementation and IT
structure as two of the critical success factors of performance.
Keywords: Enterprise Risk Management, IT Structure, Organization Performance, Organizational Change
Capacity, Knowledge Management Process Capability

1. INTRODUCTION reporting and poor risk management of the great

The corporate failure of the early 2000s such as Enron corporate entities (Ahmed et al., 2016; Chapman,
and WorldCom and the Global Financial Crisis 1 of 2012). The failure of world popular enterprises has
2007-2009 has exposed the inadequacies of corporate undermined the trust of shareholders and they accused
governance practices, the lack of integrity of financial managers of greed, recklessness, and dysfunction in

Copyright © 2021 The Authors. Published by Atlantis Press International B.V.

This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 221
 Advances in Economics, Business and Management Research, volume 196

their managerial roles (Ahmed et al., 2016). In performance (e.g., Bromiley et al., 2015; Mikes et al.,
addition, nowadays, the interconnectedness of the 2014; Baxter et al., 2013; Ellul and Yerramilli, 2012).
dynamic global business environment and rapid The relationship between ERM and firm performance
technology changes also lead to a significant increase is more complex than the direct link between them
in operational risks of a large number of firms (Saeidi et al., 2020). Many researchers recognized that
worldwide (Saeidi et al., 2019; Ahmed et al., 2016). the interconnectedness between ERM implementation
Before these phenomena, risk management seems to and firm performance was significantly influenced by
have become a central issue among organizations and many other internal factors (Saeidi et al., 2020; Farrell
there is a development in enacting international & Gallagher, 2019; Saeidi et al., 2019). Accordingly,
regulatory and standards to improve risk management technology element can play a role as mediate
(Ahmed et al., 2016; Chapman, 2012). variables in this relationship which was found from
The traditional risk management method, which is some past works (Saeidi et al., 2020; Khan & Ali,
fragmented following simple management functions of 2017). Regarding the RBV, IT which is a critical
organizing, is not appropriate in today’s complex organizational factor, has a significant influence on the
context. The interdependence between risks of the effectiveness of ERM (Saeidi et al., 2019). Wilkinson
types including operational, financial, and technical (2011) and Rolland (2008) also supported that there is
risk have been ignored and made many mixed results not an effective ERM if without existence an effective
for enterprises (Jean-Jules & Vicente, 2020). To solve IT. However, up to now, there are less empirical
this problem, ERM emerged as a suitable alternative to studies about the relationship between ERM, IT, and
the traditional risk management method (Jean-Jules & performance outcomes (Saeidi et al., 2019). In more
Vicente, 2020). ERM is a combination of risks that detail, IT structure, which is one of the dimensions of
shifts the attention of the risk management task from IT, did not address in many previous studies, excepting
being defensive to being more offensive and calculated research of Saeidi et al. (2019).
(Saeidi et al., 2019; Liebenberg and Hoyt, 2003).
There is a higher adoption rate of ERM in the
From the advantages of ERM, many works focused on
developed countries in comparison with developing
exploring factors which could improve ERM adopting
countries (Mikes et al., 2014). Futhermore, many
efforts (Bromiley et al., 2015; Liebenberg and Hoyt,
research has yet identified consistent benefits from
2003). Several academic scholars who have applied the
ERM implementation (Ahmed et al., 2016; Hoyt &
contingency theory in researching organizational and
Liebenberg, 2015). Hence, it is difficult to draw a
management control, asserted that performance of
general conclusion about effectiveness of ERM
ERM adoption significantly depends on organizational
because of endogeneity, methodology, and the mixed
context (Mikes et al., 2014; Chenhall, 2003). The
results found in recent studies (Bromiley et al., 2015).
implementation of ERM is considered as a dynamic
In the context of Vietnam, there are a few studies
and continuous process between the innovation and its
focusing on the risk management, instead of ERM,
business environment (Jean-Jules & Vicente, 2021).
however, it has never been adequately concerned. From
Moreover, in the 21st century, the business environment
the above analysis, it is necessary to do more extensive
is competitive and rapidly changing. Therefore, the
studies on ERM implementation and firm performance
change capability is one of the most primary factors
relationship in emerging countries like Vietnam. This
within an organization to respond to these changes
work aims to combine the contingent theory and the
(Heckmann, Steger, & Dowling, 2016; Balugon &
BRV to determine whether some key internal factors
Hope Hailey, 2004). According to Jean-Jules and
including knowledge management process capability
Vicente (2021) and Judge and Elenkov (2005),
and organizational change capacity affect ERM
organizational change capability was expected to
implementation or not. Furthermore, exploring the role
implement ERM more easily and successfully. In
of IT structure in the relationship between ERM
addition, knowledge management process capability
implementation and organization performance.
was evaluated that it enhanced effective ERM
implementation through creating, sharing, The structure of this paper is as follows. Following this
transforming, transporting knowledge, and applying introduction, section 2 describes the literature review
knowledge within an organization (Jean-Jules & and hypotheses. The next section presents research
Vicente, 2021; Kim et al., 2012; Gold, Malhotra, & methodology including measurement and sampling.
Segars, 2001). Based on the Resource Based View Then, research results and discussion from analysing
(RBV), these capabilities were important competitive data are shown in section 4 and 5. Lastly, in section 6,
advantages of an enterprise to obtain and defend conclusions on study outcomes are presented.
resources and capabilities (Kim et al., 2012;
Wernerfelt, 1984).
2. LITERATURE REVIEW AND
In recent years, the real effectiveness of implementing HYPOTHESIS DEVELOPMENT
ERM in enhancing business performance has been
suspected (Ahmed et al., 2016). Therefore, several 2.1 Enterprise Risk Management (ERM) and ERM
empirical studies have attempted to examine the implementation
relationship between ERM adoption and firm’s

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Enterprise Risk Management (ERM) value of listed companies. Other studies concerned
factors associated with ERM implementation to find an
According to the Committee of Sponsoring
explanation for organizations’ responses to changing
Organizations of the Treadway Commission
risk profiles by implementing ERM (Jean-Jules &
Framework (COSO) (2017), ERM is defined as “the
Vicente, 2020).
culture, capabilities, and practices, integrated with
strategy-setting and its execution, that organizations Recent research has paid attention to the way that
rely on to manage risk in creating, preserving, and organizations actually implement ERM. For example,
realizing value” (Hunziker & Balmer, 2018). From the Altuntas, Berry-Stolzle, and Hoyt (2011) investigated
ERM definition of the COSO, some authors suggested the ERM implementation of German property-liability
ERM as an integrated method that raises organization insurance companies, including the sequence evolving
value by reducing the uncertainties inherent in the risk management process. However, these papers fail to
conventional method, lessening the stock return consider the factors (social or technical factors) within
volatility, enhancing the efficiency of capital the organization in terms of their concerns about the
management, and maximizing shareholders value ERM integration requirements. Moreover, no study has
(Hoyt & Liebenberg, 2011). systematically proposed factors that are critical to
achieving ERM implementation.
Although different models for ERM are introduced by
many researchers, one of the most accepted models is According to Jules and Vicente (2020), the ERM
the COSO’s ERM integrated framework that was implementation faced two potential challenges. The
issued in 2004 and updated in 2017 (Saeidi et al., first challenge concerns business integration such as
2019). The COSO’s 2004 ERM framework defined and management’s ability and work groups (Markus &
discussed essential ERM components, key ERM Tanis, 2000), while the second challenge relates to
principles, and provided clear direction and guidance social integration (Elbanna, 2007). The nature of ERM
for ERM; while the 2017 framework emphasized the is that the creation and application processes take
ERM strategy and performance by providing greater place in close proximity to the human or social element
insight into the links between strategy, risk, and (Jean-Jules & Vicente, 2020). This synergy between
performance (Jean-Jules & Vicente, 2020). the technical elements and the social elements gives
rise to a socio-technical system (Scribante, Pretorius, &
The COSO’s 2004 ERM framework suggested that an
Benade, 2019). As this system, ERM is considered as a
organization’s ERM system should be positioned to
practical system with practical problems arising from a
attain the following four objectives: (1) Strategy: high-
gap between the current state and the desired state, as is
level goals which are in line with the organization’s
perceived by the social element involved (Jean-Jules &
mission; (2) Operations: high-level goals that are
Vicente, 2020).
related to the effective and efficient usage of the
organization’s resources; (3) Reporting: reliability of The social subsystem includes many factors such as the
the organization’s reporting system; (4) Compliance: attributes of people (attitudes, values, skills), people
organizational compliance with accepted laws and relationship, rewards systems, and authority structures
regulations. To meet these objectives, ERM (Bostrom & Heinen, 1977), whereas the technology
infrastructure is measured based on eight components subsystem concerns the relationship between machines
including internal environment, objective setting, event and the process to transform input to output (Bostrom
identification, risk assessment, risk response, control & Heinen, 1977). Specifically, it comprises the set of
activities, information and communication, and physical and organizational elements with a view to
monitoring (COSO, 2004). achieve organizational objectives. In the context of
ERM development and implementation, risk
In general, the objectives and components of ERM
management involves complex interaction among
mentioned in COSO 2017 are not significantly
departments and functional units. The ERM
different from the 2004 version. Therefore, this study
implementation relies on integration of internal
considers all eight components of ERM as presented by
activities, involving the integration of knowledge and
COSO (2004) to assess ERM, which can lead to ERM
management systems (Iansiti & Clark, 1994).
in the company being re-evaluated more reliably and
Therefore, two components of technical systems that
legally.
are an organizational change capacity and knowledge
ERM implementation management process capacity seem to be the most
relevant integrative capabilities to ERM development
Implementation is the process whereby target users
and implementation (Jean-Jules & Vicente, 2020).
adopt, accept, and routinize an innovation into their
normal working procedures (Kwon & Zmud, 1987). Many previous researchers approached the topic of
Many previous studies have examined various aspects ERM from the viewpoint of assessing the value
of ERM implementation. Some research focused on the implications of ERM plan, determining an
relationship between ERM implementation and market organization’s risk appetite, or identifying and
value of a company, particularly the extent to which examining risk from an ERM perspective. They paid a
the level of ERM implementation positively affects the little attention to describe ERM in technical terms

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(Jean-Jules & Vicente, 2020). Therefore, in our study, studies seeks to identify the performance implications
we consider factors related to technical issues including of ERM implementations with mix results. The third
organizational change capacity and knowledge and emerging stream of ERM research uses small
management process capacity that are associated with sample or field studies to understand risk management,
ERM development and implementation. These factors as an organizational and social practice, and has
are critical to achieving successful ERM compiled sufficient evidence to suggest risk
implementation. management practices vary considerably across firms
or within an industry (Mike & Kaplan, 2013).
2.2 Underlying theory
Thus, by adopting the contingency theory, we avoid
The Resource Based View (RBV)
recommending a universal risk management system
This theory explores the usefulness of analysing firms that should be applied in all circumstances. Instead, we
from the resource side rather than from the product size choose the second stream according to Mike and
(Wernerfelt, 1984). This theory has emerged as an Kaplan (2013) and conduct research for the specific
underlying theory in the risk management field (Saeidi circumstances, specifically in Vietnam, that would
et al., 2019). It emphasized the company’s resource guide the selection of an appropriate risk management
portfolio, resource identification, deployment, and system for an individual company.
development in order to increase organizations returns
2.3 Hypothesis and Research model
(Fahy, 2000). According to Barney (1991), rare and
simultaneously valuable resources c ould create Knowledge management process capability
competitive advantages, and if these resources are also
The characteristics of knowledge may lead to
difficult to transfer, irreplaceable and hard to imitate,
innovative solutions within a functional unit such as
they will sustain the advantages. Such resources are
marketing, production, and finance. This affects
known as strategic assets (Barney, 1991). Regarding
problem solving and knowledge creation across
ERM adoption, ERM can be considered as a strategic
functions (Carlile, 2002). Furthermore, interfaces
asset which could increase competitive advantage and
between risk management steps which ERM follows
organizational performance. The RBV has the main
such as risk identification, assessment, response, or
contribution for ERM research is that when all
treatment can constitute knowledge boundaries. Thus,
organizations have access to similar economic
in the ERM implementation, the organization must
resources, only differences in management such as risk
create a common language to describe risks. Besides,
management can determine sustainable competitive
the interpretation and relevance of knowledge located
advantage. Hence, this study confirms that the RBV is
on either side of the boundary needs to be exchanged
the underlying theory for ERM research, especially the
across the semantic boundary based on a translation
relationship between ERM and organization
process. Knowledge integration capability (KIC) can
performance.
create a mutual understanding, at least regarding risk
The contingency theory management. This is mandatory for successful ERM
implementation (Jean-Jules & Vicente, 2020).
Contingency theory originated in organizational theory.
KIC means knowledge that comes from outside or is
This theory is based on two central findings. Firstly,
accumulated within the organization is analysed and
there is not one best way to organize or manage an
synthesized by an organization’s combinative
organization. Secondly, each specific method an
capability. KIC includes knowledge management
organization could choose to organize or manage is not
process capability (KM process capability), learning
equally effective (Galbraith 1973). Researchers have
culture, and technological capability. Among these
utilized the contingency theory in significant topics
factors, the KM process capability including creation,
including systems planning, systems design, systems
codification, transfer, and sharing of organizational
implementation, performance, and user involvement
knowledge is the selection process through which
(Dwivedi et al., 2009).
knowledge is valuable to an organization (Kim et al.,
Academic studies of ERM, following the long-standing 2012). Because the KM process capability is a
approach of contingency theory in organizational and component of KIC, it is identified, developed, and
management control research, have investigated the accumulated to enhance ERM adoption. Hence, we
dependence of ERM performance outcomes on propose following hypothesis:
organizational context (Chenhall, 2003). Mike and
H1. KM process capability is a positive influence
Kaplan (2013) classified ERM literature into three
on the level of ERM implementation.
categories, corresponding to three common
contingency approaches that are selections studies, Organizational change capacity
congruence studies, and longitudinal field studies. In
In addition to the KM process, organizational change
the first stream, studies have identified few significant
capacity is also the factor of technological issues
and design relevant ERM variables, attempting to
considered in this study. Organizational change
match organization’s ERM to firm specific
capacity means the way an organization can use its
contingencies. The second stream of large sample
managerial and organizational capabilities to

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implement the kinds of changes that are necessary to financial indicators (Ping & Muthuveloo, 2015). We
achieve ERM adoption (Jean-Jules & Vicente, 2020). propose the development of the following hypothesis:
Moreover, organizational change capacity is also
H3. ERM implementation has a positive and
considered as a generalized dynamic organizational
significant impact on organization
capability that enables an organization to react to
performance.
environmental changes and anticipate opportunities
(Judge & Elenkov, 2005). Because one significant ERM and IT Structure
aspect of ERM is the combination of all risk
management activities into one integrated framework Previous research determined different factors to
to support the identification of risks that originate measure IT including IT infrastructure, IT capabilities,
IT resources, IT investment, IT acquisition (Saeidi et
mostly from a firm’s external environment, the
al., 2019). According to Saeidi et al. (2019) and
successful ERM implementation relies on the
Bergerona et al. (2004), IT could be classified into two
organization’s capability to monitor its external
groups: IT strategy and IT structure. IT structure is
environment (Jean-Jules & Vicente, 2020). Therefore,
organizational change capacity is expected to allow the divided into IT planning and control and IT acquisition
changes that are necessary to adopt ERM more and implementation (Bergeron et al., 2004).
successfully within the firm. From above discussion, Sugumaran and Arogyaswamy (2003; 2004)
we believe a strong signal for the second hypothesis: identified an IT effectiveness model based on the
relations of the contingent variable external
H2. Organizational change capacity is a positive
environment, strategy, structure, and culture between
influence on the level of ERM implementation.
the modes of IT deployment. Furthermore, Otley
ERM and Organization performance (1980) argued that IT must be predicated on the
effectiveness of the organization as well as the
Performance is one of the key indicators that show the
interrelation of the typical contingency variables
level of society development (Ahmed & Manab, 2016).
including technology, environment, organizational
The performance of a firm is an indication that helps to
form, and organization objectives. In the context of
evaluate and measure how an organization succeeds in
ERM, environment, organizational form, and
achieving business objectives to all its related parties
organization objectives are considered as components
(Saeidi, Sofian, & Rasid, 2014; Antony &
of ERM. Therefore, ERM might have an impact on IT
Bhattacharyya, 2010). Organization performance is a
structure based on Otley’s study. Furthermore, Saeidi
key concept and the major concern of strategic
et al. (2009) concluded that proper IT structure would
management (Venkatraman & Ramanujam, 1986). An
result in strengthening ERM implementation and their
influence of ERM on organization performance has
effect on competitive advantage in firms. Inheriting
various results from previous studies. However, most
from studies of Otley (1980) and Sugumaran and
studies support that ERM implementation creates value
Arogyaswamy (2004), we believe that ERM impacts
and enhances performance of a firm (Ping &
on IT structure as following hypothesis:
Muthuveloo, 2015). Furthermore, Lai (2011) showed
that successful ERM implementation will create value H4. ERM implementation has a positive and
for stakeholders by reduced capita cost and enhanced significant impact on IT structure.
firm performance.
IT Structure and Organization performance
Organization performance is measured in different
The role of IT in creating organizational value has been
types of performance indicators. Some researchers use
the subject of many studies in recent years. IT is
financial measures to explain organization performance
considered as a tool to create a firm’s performance
such as return ratios (Saeidi et al., 2014). However, for
a more comprehensive measurement, it is necessary to (Saeidi et al., 2019; Bhatt & Grover, 2005). According
use both financial and non-financial indicators. to Bhatt and Grover (2005), advanced IT features
permit organizations to react quickly towards harmful
Moreover, non-financial measures are better
threats or grasp available opportunities. Successful IT
forecasters of a long run firm’s performance (Hussain
structure leads to improve in organization performance.
& Hoque, 2002). For instance, Judge et al. (2003) used
Based on this argument, we propose:
both financial and non-financial indicators to measure
firm performance such as process improvements, H5. IT structure has a positive and significant
customer satisfaction, capacity utilization, and product impact on organizational performance.
service quality (Judge, Naoumova, & Koutzevol,
2003). Adapted from the study of Ping and Inheriting from the contingency theory, the RBV, and
Muthuveloo (2015), this study measured organization related empirical studies, the empirical model for this
performance by both financial indicators and non- paper is following:

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IT Structure

Knowledge management
process capability Organization
ERM performance
Organizational change
capacity

Fig. 1. The proposed research model

3. METHODOLOGY systems thinking (ST), accountable culture (AC), and

3.1 Measures systems communication (SC).
The scales of five latent variables in this research With respect to KM process capability (KMP),
model used existing validated items from popular measurement is inherited from the scales in research of
previous studies. The 5-point Likert scale is employed Kim et al. (2012). Lastly, to evaluate IT structure
for all items in this research ranging from 1 (strongly (ITS), this work applies scale by following Bergerona
disagree) to 5 (strongly agree). Firstly, the items for et al. (2004). These two variables are in one dimension
ERM are adopted by scale development research of scale form.
Saeidi et al. (2019). This scale has eight dimensions
3.2 Sampling
including internal environment (IE), objective setting
(OS), event identification (EI), risk assessment (RA), This study aims to identify and measure the impact of
risk response (RR), control activities (CA), information ERM on organization performance through the support
and communication (IC), and monitoring (MO). The of IT structure, so the online survey questionnaire is
organization performance variable encompasses two designed and sent to employees and managers. We
components. The first dimension is firm performance use an online survey because of the many advantages
(FP) whose questionnaire is based on instruments of this mode of data collection (Bhattacherjee, 2001)
provided by Lee and Choi (2003) and another one is and COVID – 19 pandemics. The self-administered
operational performance (OP) which uses scale from survey was conducted for 186 respondents. To ensure
Chuang (2013). For organizational change capacity data quality, we exclude participants who declined to
(OCC) measurement, its scale was discovered from thoughtfully provide their best answers, who appear to
study of Judge and Douglas (2009) consisting of eight not be providing considered responses or provided
dimensions: trustworthy leadership (TL), involved answers that indicated a lack of content responsiveness
mid-management (IMM), capable champions (CC), (Parsons et al., 2014). After performing data
innovative culture (IC), trusting followers (TF), processing, 158 observations were guaranteed to be
relevant and used for data analysis.
Table 1. Sample descriptive statistics
Characteristics Frequencies Percentage
Sector
Manufacturing – Trade 18 11.4
Services 68 43.0
Manufacturing – Trade 24 15.2
- Services
Education 7 4.4
Medical 9 5.7
Construction 5 3.2
Others 27 17.1
Business type
Private company 98 62.0
Foreign invested 22 13.9
company
State enterprise 17 10.8
Business and 14 8.9
administrative unit
Others 7 4.4
Location
HCM city 138 87.3
Other provinces 20 12.7
Our data set includes participants working in different accounted for 69.6% of the total. M ost of them are
business sectors. Among 158 enterprises surveyed, private enterprises (62%), while other types of business
manufacturing, trade, and services enterprises account for 38%. Moreover, 87.3 percent of companies

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are located in Ho Chi Minh city where is the largest these respondents are quite high. Specifically, 25.9%
and most developed city in Vietnam (Table 1). respondents have working years less than 2 years,
35.4% of them work for 2-5 years, 38.7% account for
For the surveyed respondents’ positions in companies,
greater than 5 working years. Finally, 75.9 per cent of
approximately 76.6% participants are employees,
participants are females, and 24.1 per cent are males.
whereas business directors, managers, and vice
The diversity of individual demographic shows the
managers account for 24.4%. The experience years of
high representative level of the sample (Table 2).
Table 2. Demographic profiles of the respondents
Characteristics Frequencies Percentage
Position
Director/Head 2 1.3
Deputy Director/Deputy Head 2 1.3
Head of Department 24 15.2
Deputy Head of Department 9 5.7
Employee 121 76.6
Working year
< 2 years 41 25.9
2 – 5 years 56 35.4
5 – 10 years 35 22.2
> 10 years 26 16.5
Gender
Male 38 24.1
Female 120 75.9
4. ANALYSIS AND RESULTS employed statistical techniques to examine common
This study analysed the data in two stages. First, we method variance (CMV) (Sharma, Yetton & Crawford,
started with assessing nonresponse bias and robustness 2009). Based on the result of Harman’s single-factor
test. Second, to perform a statistical analysis on the test, we found no apparent bias in our data (Malhotra,
collected data, we used Structural Equation Modelling Kim & Patil, 2006). One factor only accounted for
(SEM) and Partial Least Square (PLS) (Hair et al., 32.8% of the total variance, which justified that CMV
2012). The empirical results were evaluated through was not a serious problem (Podsakoff & Organ, 1986).
the following two steps: examining the validity and Moreover, the Variance Inflation Factor (VIF) was also
reliability of the scales (measurement model), and used to test CMV in the context of PLS (Kock, 2015).
hypotheses testing (structural model) (Hair et al., All these VIF indexes are lower than the acceptable
2016). thresholds of 3.3, therefore, CMV did not exist in this
study.
Nonresponse and Robustness test
Second, regarding the structural model estimate’s
We tested for possible nonresponse bias through an robustness, FIMIX-PLS technique was applied to test
independent sample t-test. Based on Armstrong and unobserved heterogeneity as proposed by Hair et al.
Overton (1977), survey responses were split into early (2017). Running FIMIX-PLS dropped in the two
and late respondents, and analysed for differences in segments solution as the segment size of the third
key demographic and study variables. The SPSS segment solution is too small (5.5%) which is lower
analysis results showed that the t-test did not yield than the threshold of a reasonable segment of 25%. The
statistically significant mean differences between the results shown in Table 3 indicate that all criteria
groups. Therefore, nonresponse was not biased in this including AIC, AIC3, AIC4, BIC, and CAIC are
study. highest at the first segment solution in comparison with
To improve the value of these research findings, some the second segment solution. Overall, in combination
robustness methods were also conducted in this study. these results indicated that heterogeneity was not
First, our research design also made the data prevalent in this research data.
susceptible to mono-method bias. We frequently

Table 3. Results of unobserved heterogeneity test

Segment 1 Segment 2 Segment 3

AIC (Akaike's Information Criterion) 6,147.950 4,910.986 4,416.505

AIC3 (Modified AIC with Factor 3) 6,196.950 5,009.986 4,565.505
AIC4 (Modified AIC with Factor 4) 6,245.950 5,108.986 4,714.505
BIC (Bayesian Information Criteria) 6,298.017 5,214.183 4,872.831
CAIC (Consistent AIC) 6,347.017 5,313.183 5,021.831
HQ (Hannan Quinn Criterion) 6,208.894 5,034.118 4,601.825

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MDL5 (Minimum Description Length with Factor 5) 7,290.286 7,218.970 7,890.138

LnL (LogLikelihood) -3,024.975 -2,356.493 -2,059.252
EN (Entropy Statistic (Normed)) 0.993 0.999
NFI (Non-Fuzzy Index) 0.995 1.000
NEC (Normalized Entropy Criterion) 1.086 0.154
In PLS-SEM, relationships between constructs can take accountable culture (AC1), involved mid-management
various forms that might be linear relationships or (IMM3 and IMM4), internal environment (IE3 and
nonlinear relationships. Therefore, we tested whether IE5), information and communication (ICO1),
nonlinear relationships occur or not. The analysis objective setting (OS1 and OS2), risk assessment
indicated that nonlinear effects did not exist in our data (RA1), risk response (RR4), IT structure (ITS4 and
because the quadratic effects of exogenous variables in ITS9), and operational performance (OP2) due to
the model were not significant (Hair et al., 2017) insufficient factor loadings or cross-factor loadings.
(Table 4). The factor loading ranged from 0.701 to 0.926
Table 4. Results of Evaluation of Nonlinear Effects which met the adequate value above 0.7 (Hair et al.,
2017) and AVE from 0.559 to 0.805 which is higher
T Statistics P Values than the minimum 0.5 thresholds (Fornell & Larcker,
ERM_quadratic -> ITS 0.220 0.826 1981) (Table 5). Convergent validity is also verified
ERM_quadratic -> PER 1.702 0.089 through the t-statistic for each factor loading. The t-
statistic for each outer loading had to get statistical
ITS_quadratic -> PER 1.269 0.205
significance (Hair et al., 2016). In this research, the
KMP_quadratic -> ERM 0.971 0.332 loading of each item is significant at the p < 0.001
OCC_quadratic -> ERM 1.431 0.153 level.
Internal consistency reliability was traditionally
evaluated with the Cronbach’s alpha (CA) criterion
Measurement model evaluation (Hair et al., 2014; Cronbach, 1951) which suggested to
Table 4 shows descriptive statistics of constructs from be more than 0.7 for each variable. Table 5 indicates
158 responders. Mean of all constructs are from 3.733 that CA values reach the value higher than 0.7. We also
to 4.139 and Std. Deviation fluctuations were [0.657; used an alternative measure of internal consistency
0.915]. reliability, i.e., composite reliability (CR) as suggested
In order to assess the measurement model, the by Hair et al. (2017). A CR of all the constructs is also
indicators were subject to convergent and discriminant higher than 0.7, as suggested by Fornell and Larcker
validity along with reliability analysis. Following Hair (1981). Overall consideration, it can infer that all
et al. (2017), the convergent validity of this study was criteria of the measurement model including the
calculated through factor loading and Average validity and reliability of instrument and constructs
Variance Extracted (AVE) for all items (questions) and were verified.
constructs. We eliminated items comprising
Table 5. Results of measurement model evaluation
Internal consistency
reliability
No. of
Constructs
items
Mean SD Cronbach’s Composite AVE
Loadings
Alpha Reliability
0.6 – 0.95 0.7– 0.95
KM Process Capability (KMP) 5 3.902 0.693 0.799 - 0.874 0.898 0.924 0.710
4 3.954 0.743 0.762 - 0.848 0.822 0.882 0.652
Trustworthy leadership (TL)
Involved mid-management 4 3.992 0.663 0.886 - 0.902 0.749 0.888 0.799
(IMM)
4 4.139 0.673 0.816 - 0.878 0.871 0.911 0.720
Capable champions (CC)
4 3.992 0.743 0.704 - 0.872 0.820 0.882 0.653
Innovative culture (IC)
4 4.044 0.657 0.721 - 0.881 0.847 0.898 0.688
Trusting followers (TF)
4 3.886 0.728 0.710 - 0.869 0.833 0.888 0.667
Systems thinking (ST)
4 4.041 0.698 0.866 - 0.885 0.852 0.910 0.770
Accountable culture (AC)
4 4.084 0.699 0.796 - 0.920 0.906 0.935 0.783
Systems communication (SC)
Internal Environment (IE) 5 3.782 0.915 0.814 - 0.879 0.804 0.885 0.719

Objective Setting (OS) 7 4.051 0.738 0.770 - 0.874 0.891 0.920 0.698

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Event Identification (EI) 3 3.939 0.744 0.816 - 0.869 0.798 0.882 0.713

Risk Assessment (RA) 4 3.733 0.838 0.818 - 0.847 0.779 0.872 0.694

Risk Response (RR) 4 3.911 0.670 0.775 - 0.904 0.767 0.866 0.684

Control Activities (CA) 4 3.907 0.755 0.752 - 0.793 0.774 0.855 0.596
Information and Communication 5 3.863 0.762 0.742 - 0.817 0.792 0.865 0.616
(ICO)
4 3.951 0.692 0.760 - 0.809 0.800 0.870 0.626
Monitoring (MO)
IT Structure (ITS) 18 3.914 0.710 0.701 - 0.812 0.950 0.955 0.559

Firm Performance (FP) 5 3.848 0.781 0.877 - 0.926 0.917 0.942 0.801

Operational performance (OP) 3 3.873 0.703 0.893 - 0.901 0.757 0.892 0.805

The assessment of the discriminant validity was

conducted via Heterotrait-Monotrait Ratio (HTMT)
criterion, Fornell and Larcker's test at the construct
level and Cross-loading at the item level (Hair et al.,
2017). Table 6 shows that all HTMT of constructs were
importantly smaller than 1 (Henseler et al., 2016). The
AVE square root for each variable was greater than the
squared correlations for all pairs of variables (Fornell
& Larcker, 1981). In addition, cross loadings on
corresponding constructs were higher than the cross-
factor loadings. This justifies sound discriminant
validity of scales.

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 Table 6. Results of discriminant validity (HTMT)

AC CA CC EI FP IC ICO IE IMM ITS KMP MO OP OS RA RR SC ST TF

CA 0.611
CC 0.637 0.553
EI 0.377 0.515 0.430
FP 0.313 0.430 0.319 0.271
IC 0.672 0.525 0.781 0.423 0.505
ICO 0.603 0.803 0.501 0.559 0.561 0.660
IE 0.514 0.708 0.509 0.555 0.363 0.432 0.673
IMM 0.674 0.710 0.746 0.552 0.529 0.694 0.628 0.663
ITS 0.561 0.614 0.517 0.463 0.538 0.656 0.682 0.509 0.617
KMP 0.543 0.612 0.541 0.455 0.397 0.579 0.616 0.535 0.706 0.756
MO 0.621 0.740 0.677 0.567 0.474 0.705 0.783 0.724 0.715 0.739 0.708
OP 0.396 0.507 0.348 0.350 0.677 0.607 0.638 0.386 0.502 0.623 0.531 0.589
OS 0.607 0.698 0.630 0.609 0.472 0.631 0.672 0.599 0.690 0.555 0.597 0.766 0.418
RA 0.486 0.622 0.411 0.708 0.394 0.399 0.627 0.481 0.601 0.525 0.494 0.592 0.456 0.618
RR 0.585 0.679 0.584 0.771 0.379 0.573 0.729 0.531 0.625 0.669 0.603 0.729 0.493 0.730 0.619
SC 0.783 0.682 0.743 0.396 0.533 0.696 0.546 0.529 0.779 0.642 0.651 0.706 0.529 0.672 0.543 0.527
ST 0.679 0.630 0.585 0.433 0.499 0.743 0.510 0.471 0.615 0.729 0.633 0.700 0.578 0.603 0.547 0.558 0.702
TF 0.695 0.684 0.837 0.393 0.532 0.886 0.645 0.527 0.794 0.675 0.625 0.795 0.561 0.635 0.487 0.617 0.738 0.742
TL 0.550 0.675 0.650 0.461 0.487 0.744 0.612 0.623 0.785 0.575 0.595 0.711 0.574 0.546 0.445 0.488 0.586 0.718 0.668
Advances in Economics, Business and Management Research, volume 196

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 Advances in Economics, Business and Management Research, volume 196

Structural model (hypotheses testing) same direction to ERM implementation, confirming H2

To test the hypotheses, a path-weighting scheme was and H1.
utilized in this study. In the structural model, the The hypothesis of ERM (β = 0.278, p < 0.01) has a
bootstrapping technique with 5,000 resamples was positive significant effect on organization performance,
used to estimate the magnitude and significance of path supporting H3. ERM implementation also impacts on
coefficients (β) at the confidence level of 95%. Fig. 2. IT structure (β = 0.684, p < 0.001) (H4 is accepted). In
shows that both organizational change capacity (β = addition, IT structure has influence on organization
0.602, p < 0.001) and knowledge management process performance (β = 0.380, p < 0.001).
capability (β = 0.256, p < 0.01) significantly affect the
IT Structure
46.7%

Knowledge management
process capability
Organization
ERM performance
Organizational change 63.1% 36.6%
capacity

Note: *** p < .001.; ** p < .01; * p < 0.05

Fig. 2. Results of PLS path modelling
Mediated variables analysis performance. To further substantiate the type of partial
Mediation analysis of IT structure in the model, we mediation, we next computed the product of the direct
tested the significance of the indirect effect and direct and indirect effects. Because both the direct and
effect in two situations - existing IT structure and no indirect effects are positive, the sign of their product is
existing IT structure (Hair et al., 2017). Following the also positive. Therefore, IT structure represents
results displayed in Table 7, IT structure partially complementary mediation of the correlation of ERM
mediated the relationship from ERM to organization and organization performance.

Table 7. Testing the role of mediated variables

Direct effects Indirect effects
Mediation model Path Path Conclusion
P Values Sig. P Values Sig.
Coefficient Coefficient
Partial mediation
ERM  ITS PER 0.537 0.000 Yes 0.278 0.002 Yes
(Complementary)

Post-hoc analyses Table 8. Effect size and variance inflation measures for
We ran several additional tests to examine our data the structural models
sets. First, this paper examined coefficients of Effect size VIF
determination and effect size. The coefficients of
determination test determined the amount of variance ERM ITS PER ERM ITS PER
of the dependent variable explained by the independent KMP
variable. Generally, this value is known as R square 1.000 1.766
(R2), which varies between 0 and 1 (Hair et al., 2017). OCC
The results indicated the strong explanation of the 0.556 1.766
model as R2 of ERM, IT structure, and organization ERM
0.877 0.065 1.000 1.877
performance were relatively high at 0.631, 0.467, and
0.366, respectively. Furthermore, this study examined ITS
0.121 1.877
the effect size (f2) measures the contribution of an
exogenous construct to the R2 value of an endogenous Second, Q2 values were used to evaluate the predictive
latent variable (Hair et al., 2017). According to Chin related matter of the path model . The findings
(1998), the f 2 values can be interpreted as follows: > indicated that Q2 values of ERM, IT structure, and
0.02 = weak effect; > 0.15 = moderate effect; > 0.35 = performance are 0.226, 0.232, and 0.216, respectively
strong effect. Table 8 shows that while there is a weak that are considerably above zero. Therefore, they
effect of ERM on organization performance, the effect provided support for the model’s predictive relevance
size of IT structure is 0.121 for organization regarding the endogenous latent variables (Hair et al.,
performance which is almost a strong effect size. For 2016).
explaining ERM, both organizational change capacity Third, we checked for multicollinearity through the
and knowledge management process capability have VIF index. The collinearity diagnostics given in Table
strong effect size. Finally, ERM has a strong impact on 8 shows that VIF for the independent variables is
IT structure. higher than 0.20 (lower than 5) which further suggests

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that multicollinearity does not exist among the that the positive relationship between ERM
independent variables (Hair et al., 2016). implementation and organization performance was
Finally, we used the goodness-of-fit index (GoF) to affected by IT structure as a mediating variable.
investigate the quality of the whole model. According Specifically, IT structure represented complementary
to Tenenhaus et al. (2005), this value is calculated by mediation of this relationship. There is a support for
taking the geometric mean of AVE for latent variables contingency theory system approach that researchers
and the average R2 for endogenous variables. The GoF should have an overview of contingencies and
value was 0.583 and exceeded the cut-off value performance relationships in order to better understand
of 0.36 for the large effect of R2 (Wetzels et al., 2009). the organizational variables and their functions (Saeidi
It supported that the proposed research model was et al., 2019). The evidence from our study revealed that
highly relevant (Hair et al., 2016). IT structure could be considered as contingencies
variables which can enhance ERM implementation
effectiveness on organization performance. This result
5. DISCUSSION AND IMPLICATIONS was supported by the RBV and studies like Saeidi et al.
5.1 Discussion (2019).
In this paper, we investigated whether a firm ERM
process is linked to firm performance. We also 5.2 Research implications
examined the interaction role of IT structure in this The findings of this study provide several implications
relationship and factors that influence ERM regarding both theoretical and practical implications.
implementation. We found that both organizational Referring to theoretical contributions, this work
change capacity and knowledge management process developed an empirical model to explore the mediate
had significant impacts on ERM. These effects were role of IT structure in ERM implementation and
confirmed in the study of Jean-Jules and Vicente organization performance relationship. Furthermore,
(2020) and Kim et al. (2012). Therefore, this study this study also reveals that the successful ERM
provided evidence that the successful ERM implementation is influenced by two primary
implementation relies on an organization’s capability organizational factors including organizational change
to monitor its external environment as well as the capacity and KM process capability. These results
valuable knowledge selection process for that supported and shed additional light on evidence which
organization. were discovered from previous studies. Besides, the
The results of data analysis revealed that ERM combined application of both the contingency theory
implementation displayed a significantly positive and the RBV into this work to explore constructs of the
impact on organization performance, thus giving research model, it can be further confirmed that these
support to the theoretical claims by prior researchers two theories can be used in ERM research and pointed
regarding performance implications associated with the out that both theories are suitable for research ERM in
implementation of ERM (Judge, Ping & Muthuveloo, developing countries, namely Vietnam. Therefore, our
2015; Saeidi et al., 2014; Lai, 2011; Naoumova, & analysis has contributed valuable references to the
Koutzevol, 2003; Hussain & Hoque, 2002). This worldwide literature on ERM, especially for emerging
finding inferred the higher the effectiveness of an markets such as Vietnam, where ERM research is still
organization’s ERM, the greater the ability of the infant.
organization to achieve its goals. Regarding the practical aspect, this work supplements
several valuable implications for top managers of
The impact of ERM implementation on IT structure
organizations. The results of this research showed
was reliably confirmed by the contingency theory and
that variance of organization performance was
previous studies (Sugumaran and Arogyaswamy, 2004; explained at 36.6% by exogenous variables in this
Otley, 1980). It means that the successful ERM research model. Among these exogenous variables,
implementation would lead to an IT effectiveness
ERM has a significant positive effect on organization
system.
performance with an impact level of approximately
Furthermore, the effects of IT structure on organization 27.8%. These findings help managers understand more
performance were also found to be positive and clearly of the ERM system and its important potential
significant. This result explained that the firm role in motivating their company’s performance.
performance could be greater by improving its Hence, managers should focus on developing and
technology. In contrast, inefficient, obsolete, and boosting ERM implementation to enhance overall
outdated technology could be a source of decreasing organization performance.
organizational results. The positive relationship In addition, this study explored that IT structure not
between IT structure and organization performance only has direct significant influence on firm
could be interpreted as a support to past research such performance (38.0%), but also acts as a mediate
as Saeidi et al. (2019) and Bhatt and Grover (2005). variable in the complementary form in the relationship
between ERM implementation and organization
Finally, based on the findings, this study concluded performance. Due to the importance of IT structure is

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emphasized in this research, managers should consider 6. CONCLUSION

utilizing and investing in IT structure as an instrument The current research constitutes one of the first
to increase the influence of ERM implementation on empirical steps toward a greater understanding of ERM
organization performance. Moreover, this investment implementation, IT structure, and performance of
strategy is also useful to help their firms respond to enterprise. PLS analysis certified that IT structure is a
uncertainties and rapid changes of business and complementary mediate variable in the influencing
technology environment in the current digital era. from ERM implementation to organization
ERM implementation is impacted significantly by performance. In addition, both organizational change
organizational change capacity and knowledge capacity and KM process capability are significant
management process capacity with impact level 60.2% factors that control the variability of ERM systems.
and 25.6%, respectively. These factors considerably Overall, this study could be the reference point for
explain the variance of ERM implementation at 63.1%. academic and non-academic in the field of ERM, IT,
Hence, managers need to understand that improving and performance.
the scope and effectiveness of organizational change
capacity and knowledge management process capacity As with any empirical study, this research has some
within their organization could lead to successful ERM weaknesses that need to be considered in further
implementation. They should pay attention to these two studies. First, as the present study was conducted in
factors in the development and implementation of Vietnam, there is a possibility that the result may be
ERM in their organization. different in other countries. Second, the responses to
In addition, the research will be a useful reference for this study were voluntary, and thus, inevitably subject
policymakers and regulatory agencies in establishing to self-selection variance. Third, this study is cross-
proper policies to motivate organizations to develop sectional, which allows the elaboration of correlations
ERM as well as IT structure to have an effective ERM between variables but lacks confidence in causality
system and organization performance. exploration. We suggest that future scholars should
explore relationships among ERM, IT structure, and
organization performance in a longitudinal design to
yield a more lucid understanding.
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