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shew/3‘14 LIBRARY
I Michigan State 9
University

This is to certify that the
dissertation entitled

THE IMPACT AND IMPLICATIONS OF INFORMATION
TECHNOLOGY FOR SUPPLY CHAIN MANAGEMENT SYSTEMS
ON CHANNEL RELATIONSHIPS
AND FIRM MARKET PERFORMANCE

presented by
Daekwan Kim

has been accepted towards fulﬁllment
of the requirements for the

Ph D degree in Marketing

4%)”, @W /

Major Professor’s Sig@§ure

 

 

 

6/27/03

 

Date

MSU is an Afﬁrmative Action/Equal Opportunity Institution

PLACE IN RETURN Box to remove this checkout from your record.
TO AVOID FINES return on or before date due.
MAY BE RECALLED with earlier due date if requested.

 

DATE DUE DATE DUE DATE DUE

 

AUG 0 8 2006

 

13524 Us

 

CT 2 3 25:2

 

 

 

 

 

 

 

 

 

 

 

 

6/01 cJCIHC/DatoDuopBS-sz

THE IMPACT AND IMPLICATIONS OF INFORMATION TECHNOLOGY FOR
SUPPLY CHAIN MANAGEMENT SYSTEMS ON CHANNEL RELATIONSHIPS
AND FIRM MARKET PERFORMANCE

Daekwan Kim

A DISSERTATION

Submitted to
Michigan State University
in partial fulﬁllment of the requirements
for the degree of

DOCTOR OF PHILOSOPHY
Department of Marketing and Supply Chain Management

2003

ABSTRACT
THE IMPACT AND IMPLICATIONS OF INFORMATION TECHNOLOGY FOR
SUPPLY CHAIN MANAGEMENT SYSTEMS ON CHANNEL RELATIONSHIPS
AND FIRM MARKET PERFORMANCE
By

Daekwan Kim

Although the impact of information technology (IT) on ﬁrm activities is known to
be radical, practitioners and researchers have claimed that IT has a weak or no impact on
ﬁrm performance. This study explores how IT for supply chain communication systems
(SCCS), a critical component of supply chain management systems (SCMS), affects
channel relationships and ﬁrm market performance. Adopting the resource-based view of
the ﬁrm as the theoretical framework, the current study hypothesizes that ﬁrm IT
resources (e.g., IT advancement, IT appropriability, and SCCS integration) facilitate
internal channel capabilities such as interﬁrm information exchange, interﬁrm
coordination, and supply chain responsiveness, which in turn affect ﬁrm market
performance.

The empirical research is based on 184 responses from a survey with corporate
supply chain managers and logistics managers. The results suggest that the impact of IT
advancement on channel capabilities (i.e. interﬁrm information exchange and interﬁrm
coordination) is mediated by SCCS integration as no direct relationship was found
between IT advancement and channel capabilities. In contrast, IT appropriability for
SCCS enhances interﬁrm information exchange and coordination activities directly,
without such mediation by SCCS integration. The inﬂuence of IT advancement on

channel capabilities through SCCS integration is weaker than the direct impact of IT

Daekwan Kim

appropriability. Furthermore, although signiﬁcantly mediated by SCCS integration, the
impact of IT advancement is not strong enough to affect either supply chain
responsiveness, which is an immediate outcome variable of IT resources and other
channel capabilities, or ﬁrm performance. On the other hand, IT appropriability
inﬂuences both supply chain responsiveness and ﬁrm performance.

The implication is that ﬁrms which depend upon IT advancement for channel
capabilities are more likely to experience incremental improvements in those capabilities
as well as ﬁrm market performance. Therefore, IT investment directed toward
appropriability is more likely to have a signiﬁcant impact on performance than that
directed toward IT advancement. However, managers should not overlook the role of IT
advancement as a facilitator of SCCS integration, which also has a signiﬁcant impact on
supply chain responsiveness and ﬁrm performance. These ﬁndings explain when and
how ﬁrm’s investments in IT resources enhance ﬁrm capabilities and performance.
Moreover, the results reveal that a strategic IT investment in SCMS is key to the

improvement of ﬁrm channel capabilities and performance.

Copyright by
DAEKWAN KIM
2003

This dissertation is dedicated to
my wife, Soojin, precious son, Urim (Joseph), and lovely daughter, Erin,
in appreciation of their patience, sacrifice, support, and encouragement;
and to my mother, Yonghee Won, father, Kiman Kim,
mother-in-law, Choonja Park, and father-in-law, Dukno Yoon,

in appreciation of the encouragement they offered to me.

ACKNOWLEDGEMENTS

A dissertation is an incredibly challenging endeavor. Accordingly, completing
such a demanding mission is virtually impossible without superior mentors and coaches
to guide the way. In that sense, I truly thank God for the opportunity to study at
Michigan State University where I have had the opportunity to work with many patient
and excellent counselors. First of all, I would like to extend sincere thanks and gratitude
to my dissertation committee members, who not only guided me, but also challenged me
in my dissertation work during the last two years.

Dr. S. Tamer Cavusgil, my dissertation chair, has illustrated to me the
characteristics of a true mentor. Like a father, he has been very patient and supportive.
As a goal setter, he has always been standing ﬁrmly behind me with a strength of
purpose, while offering any necessary assistance. I am truly indebted to him for his
mentorship over the past four years. Dr. Roger Calantone, my dissertation co-chair, has
been a constant source of encouragement; most importantly whenever I faced particular
challenges in the program, he helped me ﬁnd my way. His academic leadership trained
me well to see the world from a different perspective. I would like to express my
gratitude to Dr. David Closs, who challenged me to raise my standards. My thanks also

go to Dr. Tomas Hult for his help and advice that allowed me to reinvigorate my

vi

academic goals. Additionally, I thank Dr. Fang Wu, who shared her research expertise in
eCommerce with me for my dissertation.

I would like to further extend my thanks to Dr. Robert Nason, Dr. Cornelia Droge,
and Dr. Joseph Bonner for their assistance and quality education. I would also like to
thank the department’s administrative staffs, especially Kathy Waldie for her willingness
to always be of help and for her bright smile. Finally, I would like to thank the Center for
International Business Education and Research (CIBER) at Michigan State University for
its generous support of my dissertation research and other valuable academic activities at
Michigan State University.

I know it would not have been possible to achieve this milestone without all the
education, assistance, encouragement, challenge and support. Thank you all for your

kindness and generosity.

vii

TABLE OF CONTENTS

 

 

 

 

 

 

LIST OF TABLES X
LIST OF FIGURES XI
CHAPTER 1
INTRODUCTION 1
INTERORGANIZATIONAL INTERACTION AND CORPORATE INFORMATION SYSTEMS ................... 4
FROM ELECTRONIC MARKET TO ELECTRONIC HIERARCHY ...................................................... I 1
KEY RESEARCH QUESTIONS ....................................................................................................... 15
DOMAIN OF THE STUDY ............................................................................................................. 17
Information Technology ........................................................................................................ I 7
Methods .................................................................................................................................. 21
EXPECTED MANAGERIAL CONTRIBUTIONS ................................................................................ 21
EXPECTED THEORETICAL CONTRIBUTIONS ............................................................................... 23
CHAPTER 2
MODEL AND HYPOTHESES 25
CONCEPTUAL FRAMEWORK ....................................................................................................... 25
IT RESOURCES OF FIRMS ............................................................................................................ 27
I T Advancement ................................................ . ..................................... . ............................. 28
IT Appropriability ................................................................................................................. 30
SCCS integration ................................................................................................................... 34
CHANNEL CAPABILITIES OF FIRMS ................................................................... ' ......................... 37
Information Exchange ........................................................................................................... 38
Coordination .......................................................................................................................... 40
SCCS Integration as a Mediator ........................................................................................... 41
Supply Chain Responsiveness ............................................................................................... 42
MARKET PERFORMANCE AS THE ULTIMATE OUTCOME ............................................................ 44
PARTNER CRITICALITY AS A MODERATOR ................................................................................ 47
CHAPTER 3
RESEARCH METHODS 50
UNIT OF ANALYSIS ..................................................................................................................... 50
SAMPLING FRAME AND SAMPLING METHOD ............................................................................. 50
Web Survey Advantages ........................................................................................................ 51
Web Survey Disadvantages .................................................................................................... 52
Implementation of web survey .............................................................................................. 52
MEASURES .................................................................................................................................. 53
Questionnaire Development .................................................................... . ............................. 53
Measurement Items ............................................................................................................... 54
CHAPTER 4
ANALYSIS AND FINDINGS 60
DATA COLLECTION AND NONRESPONSE BIAS ........................................................................... 60
MEASUREMENT MODEL ....................................................................... . .................................... 62

viii

STRUCTURAL MODEL ................................................................................................................. 67

 

 

 

THE MODERATING EFFECTS OF PARTNER CRITICALITY ............................................................ 72
INDIRECT EFFECTS OF IT RESOURCES ON INTERMEDIATE AND OUTCOME VARIABLES ............ 76

CHAPTER 5

DISCUSSION AND IMPLICATIONS - 81
THE IMPACT OF IT ADVANCEMENT ON CHANNEL CAPABILITIES .............................................. 81
THE IMPACT OF IT APPROPRIABILITY ON CHANNEL CAPABILITIES .......................................... 84
SCCS INTEGRATION As A MEDIATOR ........................................................................................ 85
THE IMPACT OF IT RESOURCES ON SUPPLY CHAIN RESPONSIVENESS AND PERFORMANCE ..... 87
THE EFFECTS OF COORDINATION, INFORMATION EXCHANGE, AND PARTNER CRITICALITY.... 88
MANAGERIAL IMPLICATIONS ..................................................................................................... 90
THEORETICAL IMPLICATIONS ..................................................................................................... 95
SCM SPECIFIC IMPLICATIONS .................................................................................................... 99

CHAPTER 6

FUTURE RESEARCH AND CONCLUSION 103
STUDY LIMITATIONS ................................................................................................................ 103
FUTURE RESEARCH ................................................................................................................. 104
CONCLUSION ............................................................................................................................ 107

APPENDICES 109
APPENDIX 1: FIRST EMAIL REQUEST FOR THE WEB-SURVEY ................................................. I 10
APPENDIX 2: REMINDER EMAIL FOR THE WEB-SURVEY ......................................................... 1 1 1
APPENDIX 3: INTRODUCTION PAGES FOR THE WEB-SURVEY .................................................. 112
APPENDIX 4: START-UP PAGE FOR THE WEB-SURVEY ............................................................ 1 17

REFERENCES 118

 

ix

LIST OF TABLES

 

 

 

 

 

 

 

 

 

 

TABLE 1: CORPORATE INFORMATION SYSTEMS 7
TABLE 2: KEY RESEARCH QUESTIONS 17
TABLE 3: PROPOSED HYPOTHESES 49
TABLE 4: NON-RESPONSE BIAS ASSESSMENT 61
TABLE 5: INDUSTRY DISTRIBUTION OF RESPONDENTS A 61
TABLE 6: GOODNESS OF FIT INDEXES OF CFA FOR IT CONSTRUCTS 63
TABLE 7: GOODNESS OF FIT INDEXES OF CFA FOR CHANNEL CAPABILITIES AND
PERFORMANCE - -v _ _ 64
TABLE 8: MEASURES AND COMPOSITE RELIABILITIES 66
TABLE 9: PROPOSED HYPOTHESES AND TEST RESULTS 70
TABLE 10: Two GROUP ANALYSIS ON THE MODERATING EFFECTS OF PARTNER
CRITICALITY 75
TABLE 11: INDIRECT EFFECTS OF IT RESOURCES ON OUTCOME VARIABLES.............. 79

TABLE 12: INDIRECT EFFECTS OF IT RESOURCES ON CHANNEL CAPABILITIES 80

LIST OF FIGURES

FIGURE 1 - CONCEPTUAL FRAMEWORK OF THE STUDY WITHIN RESOURCE-BASED

VIEw ............................................................................... 15
FIGURE 2 — SCCS AS A KEY ELEMENT OF SCMS ........................................ 19
FIGURE 3 — OPERATIONAL MODEL AND HYPOTHESES .................................. . 26
FIGURE 4 - HYPOTHESIS TEST RESULTS ................................................... 71
FIGURE 5 - Two-GROUP ANALYSIS ......................................................... 72
FIGURE 6 - IT STRATEGY FOR IT ADVANCEMENT AND APPROPRIABILITY .......... 85
FIGURE 7 - IMPACT OF IT ADVANCEMENT AND SCCS INTEGRATION ................. 87

xi

CHAPTER 1
INTRODUCTION

Recently the role of information technology (IT) has received a great deal of
attention from researchers as a potential enabler of competitive advantage for ﬁrms
(Humphreys, Lai, and Sculli 2001; Sanders and Premus 2002). IT provides various
interfaces that enhance not only ﬁrms’ relationships with consumers or partners but also
their competitive advantages, through the improved internal capability that results when
IT is adopted and used effectively (I-Iumphreys, Lai, and Sculli 2001; Porter 2001). The
rapid adoption of the Internet for communication with customers and/or partners seems to
reﬂect the perceived potential of this communication medium. Practitioners and scholars
alike have high expectation for the beneﬁts of the Internet, and the growing popularity of
dot-coms in stock markets seems to echo that optimism. Certainly, there are apparent
beneﬁts of IT: the signiﬁcant expansion of geographic market boundaries, efﬁcient
communication, and improved management tools, such as enterprise resource planning
(ERP), customer relationship management (CRM), and supply chain management
(SCM). If deployed adequately, IT is expected to give ﬁrms a clear competitive
advantage (Porter 2001; White 1999).

Despite the wide availability of and investments in IT, some are pessimistic about
the potential beneﬁts of IT. For example, the Financial Times (e. g., “Forget IT, it is Wal-
Mart behind US Miracle,” October 17, 2001), and other popular business media cast
doubt on the contributions of IT to ﬁrm performance. A growing number of scholars
claim that the real value of IT (Chircu and Kauffrnan 2000) is questionable (Baker and

Abrahams 2001; Baker and Sinkula 1999; Kettinger et al. 1994; Powell and Dent-

Michallef 1997). Thatcher and Oliver (2001) note that the “IT productivity paradox” has
been debated in the literature since the 19705. Since then, concerns about IT productivity
have spread from the economy level to the industry, ﬁrm, and activity level (Thatcher and
Oliver 2001) as researchers report either no impact or even a negative inﬂuence of IT on
productivity (Baker and Abrahams 2001; Brynjolfsson 1993; Kettinger et a1. 1994;
Loveman 1991; Mukherj cc 2001; Panko 1991; Powell and Dent-Michallef 1997; Kai
1997; Rai, Patnayakuni, and Patnayakuni 1996; Roach 1987; Roach 1991; Strassmann
1990). Speciﬁcally, Kettinger et al. (1994) report that 21 ﬁrms out of 30 experienced
negative consequences of IT investment on market share or proﬁts within ﬁve years of IT
deployment. Powell and Dent-Micallef (1997) also found a signiﬁcant negative
relationship between IT and overall store performance in their survey with retailers.
Moreover, the sharp decline of the stock market in 1999 and the erosion of interest in IT
among practitioners and researchers have raised questions about the vital role of IT
within a ﬁrm (Porter 2001).

A gap seems to exist between the expectations of researchers and practitioners
and the real role of IT despite its substantial potential. This gap stems from several
different factors: the slow diffusion of IT across industries and markets, the relatively
slow development of IT, and the lack of physical interaction between parties.
Nevertheless, these do not fully explain the rapid decline of interest in dot-coms or
broadly IT because the development of IT is still better than initially expected, and the
diffusion of IT has been relatively rapid in North American markets. Furthermore, the

deﬁciency in physical interaction is not an unexpected characteristic for IT. What is, then,

the real value of IT in the modern business enterprise? Do ﬁrms derive positive returns
from IT investment?

According to the resource-based view (RBV) of the ﬁrm, internal resources give
the ﬁrm competitive advantage only when they are unique and inimitable by competitors
(Barney 1991; Collis 1994; Porter 1991). These resources include ﬁrm’s various assets,
capabilities, organizational processes, knowledge, technologies, and information (Barney
1991; Collis 1994). RBV argues that when IT facilitates information exchange and
sharing, it can lead to such internal capability of ﬁrms as information collection and
knowledge creation. RBV further maintains that resources will provide competitive
advantage to the ownng ﬁrm only if they are inimitable by competitors, durable enough
to promise future advantages, unique to the owner, and immobile across ﬁrms (Barney
1991; Collis 1994). The theory is powerful in explaining how a ﬁrm’s resource
advantages relate to performance, especially in terms of efﬁciency and effectiveness. In
the similar vein, DiMaggio and Powell (1983) argue that ﬁrm performance or other
beneﬁts from a technology will decrease over time as it diffuses across ﬁrms. In other
words, a resource becomes less valuable for the owner as more ﬁrms deploy it.
DiMaggio and Powell (1983) and RBV share the viewpoint that the uniqueness of a
resource is critical to maximize its return.

RBV seems to explain the recent dramatic devaluation of dot-coms (Porter 2001).
Although IT (i.e. the Internet) was viewed as a tool to improve ﬁrm performance in the
introductory stage, the busting of the bubble should not have been unexpected given the
rapid diffusion of it across ﬁrms with its wide compatibility and availability. According

to RBV, uniqueness, immobility, and inimitability are key features of resources for

sustainable competitive advantages of ﬁrms (Barney 1991; Barney, Wright, and Ketchen
2001; Collis 1994). As a major breakthrough in IT, the Internet has signiﬁcantly
improved communication between parties, and the efﬁciency and effectiveness of
communication in general. Yet, its massive adoption has made the deployment of the
Internet, for instance, only a necessary but not a sufﬁcient condition for the creation of
competitive advantage (Andersen and Segars 2001; Porter 2001). That is, unless the IT is
unique to an organization so that it cannot be imitated by competitors or is immobile
across ﬁrms, its value for competitive advantage will decrease signiﬁcantly as more ﬁrms
adopt the same technology (DiMaggio and Powell 1983; Porter 2001). In such case,
RBV argues that ﬁrms need to ﬁnd unique ways to utilize the advanced IT that will lead
to competitive advantages considering the extensive availability of IT (Andersen and
Segars 2001). Despite the demand on IT research, studies on how IT enhances ﬁrm’s

internal capabilities and thus inﬂuences ﬁrm performance remain sparse.)

Interorganizational Interaction and Corporate Information Systems

With recent advances in IT, more ﬁrms are interested in achieving efﬁcient and
effective communication with their partners (Bowersox et al. 1995; Cunningham and
Tynan 1993). Manufacturers need to work closely with their suppliers and distributors to
reduce unnecessary inventory, which usually leads to cost reduction and, then, ultimately
to competitive price of their products (Porter and Millar 1985). In addition, without
active information exchange with partners, manufacturers are likely to lag behind
competitors due to slow reaction to market and/or environmental changes, and less

competitive new product development due to lack of market information shared among

channel members (Bowersox, Closs, and Stank 1999; Cunningham and Tynan 1993;
Humphreys, Lai, and Sculli 2001). Distributors have to work closely with their inbound
suppliers and outbound retailers to postpone the point of sale to end-consumers as far as
possible in order to reduce inventory cost (Heskett 1977; Waller, Dbaholkar, and Gentry
2000). Retailers also need to Share information about customer preference to serve them
better by incorporating those preferences into products (Chandra, Kumar, and Smimov
2001). Brieﬂy, interorganizational interaction among channel members is more critical
than ever before (Bowersox et al. 1995; Bowersox, Closs, and Stank 1999; Chandra,
Kumar, and Smimov 2001; Cunningham and Tynan 1993; Humphreys, Lai, and Sculli
2001; Steinﬁeld, Kraut, and Plummer 1995).

Contemplating this need for interorganizational interaction, interorganizational
systems (IOS) are designed to facilitate information sharing between partners in order to
serve customers better and to reduce costs (Cunningham and Tynan 1993; Humphreys,
Lai, and Sculli 2001; Johnston and Vitale 1988; Lewis 2001). By working closely with
their partners, supplying them with internal information, and transmitting information to
and retrieving it from partner’s systems directly, ﬁrms can shorten delivery time and
incorporate critical market information into their production by increasing
communication efﬁciency and effectiveness through IOS (Humphreys, Lai, and Sculli
2001; Truman 2000).

108 is a type of corporate information systems (CIS). A CIS consists of media
(the ﬁrm’s computer hardware and software), actors (users), and content (information)
stored in hardware and software. There are many popular types of CIS that directly and

indirectly support interorganizational interaction: enterprises resource planning (ERP)

systems, customer relationship management (CRM) systems, supply chain management
(SCM) systems, and selling (chain) management systems (SMS) (Rayport and Jaworski
2001). Similarities and differences among various CIS are compared and contrasted in
Table 1.

ERP systems focus on sharing ﬁrm’s internal information in a uniﬁed manner
(Rayport and Jaworski 2001; Robinson and Winson 2001). Through standardized
processes and codiﬁed information, ﬁom top management to managers across functional
areas, internal decision makers have full access to necessary information, usually through
their corporate intranet. ERP systems with this deﬁnition are not necessarily an 108.
However, some researchers consider ERP systems as an IOS by including
interorganizational resource planning concept in its deﬁnition (Bowersox, Closs, and
Cooper 2002). That is, although ERP systems are focusing on internal information
sharing, the systems Should be able to interface with other channel partners’ systems to
facilitate decisions making adequately, accessing the inventory information of partner’s
systems, the current stock level of retailers for production planning, or changes in

customer preference.

TABLE 1: CORPORATE INFORMATION SYSTEMS

 

System Components

 

 

 

 

 

 

 

 

 

 

 

Primary
Ob ective
Media Actors Content j
Internal In temal
ERP Systems hardwzrrle1( ) Internal users Internal information information
software (SW) sharing
CRM Internal Internal users Information about Customer
Systems HW and SW customers relationships
Internal
Procurement HW and SW Internal users Information about Limited
S + network + and suppliers and collaboration
ystems . , . . , . .
supplrer s supplrers suppliers products wrth suppliers
HW and SW
Internal Coordination
Selling Chain HW and SW Internal users . . .
Information about wrth Internal
Management + network + and
. . , . . products users and
Systems distributor s drstrrbutors distributors
HW and SW
Information about
both ﬁrm’s own and
partner’s
Internal Internal users, products, Collaboration
HW and SW Su liers roduction and relationshi S
SCM Systems + network + pp d ’ P ’ . 1. p
artner’s . an Inventory. wrth supp rers
HEV and SW drstrrbutors customers, and drstnbutors
planning,
forecasting,
replenishment

 

 

CRM systems are another type of CIS and emphasize efﬁciency and effectiveness
in dealing with customers. The ultimate goal of CRM systems is to improve customer
proﬁtability through effective customer service by understanding their customers better
based on customer account information and by increasing coordinated actions across
functional areas (Rayport and Jaworski 2001). In the competitive business environment,
a ﬁrm cannot serve customers effectively without talking to its business partners.
Therefore, ideal CRM systems should be connected to key partners in order to share
critical information. For example, if amazon.com were not connected to their suppliers’
systems, its CRM systems would take orders from their online shoppers without knowing
the current inventory level of suppliers. Under this situation, effective promotion
activities would not be feasible for amazon.com, let alone efﬁcient customer service.
Therefore, although the main purpose of CRM systems is to enhance customer service by
collecting and maintaining relevant customer information, they do not rule out
interorganizational interaction for adequate system performance.

Another increasingly popular type of CIS is SCMS, which is the focus of the
present study. These systems are designed to help ﬁrms gain a competitive position in
the market by increasing the efﬁciency of information and product ﬂow across channel
members, from the inception to distribution of a new product (Humphreys, Lai, and
Sculli 2001; Rayport and Jaworski 2001). Traditional electronic data interchange (EDI),
a typical SCCS, plays a key role in the success of SCMS and information sharing across
channel members (Humphreys, Lai, and Sculli 2001; Roberts and Mackay 1998).
Recently, EDI technology has advanced signiﬁcantly. Especially the emergence of

Internet-based EDI has lowered the initial entry barriers that most proprietary EDI

systems have (Humphreys, Lai, and Scu11i2001; Lewis and Talalayevsky 1997). The
barriers include initial investment in hardware and software, and employee training. As
they are usually transaction-speciﬁc, the EDI requirement for transactions has been seen
as a barrier for many ﬁrms. However, the improved compatibility of Intemet-based EDI
no longer requires high transaction-speciﬁc investment (Gudmundsson and Walczuck
1999B). But, the disadvantage is that each partner can be opportunistic in transactions,
and therefore long-term commitment or relationship is unpredictable (Clemons and Row
1992) because of the low initial transaction-speciﬁc investment. EDI is now moving
toward extensible markup language (XML) technology, which seeks complete
elimination of the software compatibility issue. As ﬁrms reassess the importance of
interﬁrm collaboration in the supply chain along with new technology such as XML,
SCMS will play an increasingly critical role (Humphreys, Lai, and Sculli 2001).

Other types of CIS are selling chain management systems and procurement
systems. Selling chain management systems is aimed at increasing efﬁciency in a ﬁrm’s
selling activities including pricing, quoting, and service. It allows more efﬁcient team
selling or sales force coordination (Rayport and J aworski 2001). Procurement systems are
specialized for a ﬁrm’s procurement or purchasing activities. By reducing paperwork
and processing time through streamlined approval process, procurement systems increase
efﬁciency and effectiveness in procurement. However, both selling chain management
systems and procurement systems are likely to be a part of above major CIS. Especially,
sophisticated SCMS are embracing the major functions of both selling chain management
systems and procurement systems as dynamism in a supply chain that seeks an improved

competitive position requires the integration of selling activities and procurement

activities with supply chain activities. F urthermore, the close integration of ERP and
CRM systems with SCMS should improve the efﬁciency of all three systems
simultaneously (Roberts and Mackay 1998) although SCMSiS key for active electronic
interorganizational interactions with various internal information collected and
maintained by ERP systems or CRM systems (Bowersox, Closs, and Cooper 2002).
Overall, it is worth noting that an SCMS connects ERP and CRM systems across channel
partners using supply chain communication systems (SCCS) and integrates procurement
systems and selling chain management systems within a ﬁrm (Bowersox, Closs, and
Cooper 2002). Table 1 highlights each type of CIS in terms of media, actors, and content.
Bowersox et al. (2002) share the view that SCMS is internally and externally
integrated systems. But, they identify four different subsystems of SCMS: ERP or legacy
systems, communication systems, execution systems, and planning systems, depending
on the functions of those subsystems of SCMS. According to Bowersox et al. (2002),
legacy systems include the mainframe systems adopted before the 1990s for order
management (e.g., order entry and processing, warehousing, inventory management,
transportation, and other order-related activities). Communication systems are those that
facilitate efﬁcient interﬁrm communications for transactions, forecasting, and planning.
Subsequently. typical communication systems include EDI, the Internet, and/or satellite
technology (Bowersox, Closs, and Cooper 2002). Execution systems include warehouse
management systems, transportation management systems, and yard management
systems that facilitate efﬁcient logistics functions in conjunction with other CIS, such as

ERP or communication systems (Bowersox, Closs, and Cooper 2002). Finally, planning

10

systems refer to the systems that support production scheduling, inventory resource
planning, and transportation planning (Bowersox, Closs, and Cooper 2002).

Although different classiﬁcations and terminologies are used in the literature, it
seems that SCMS comprises various content from different internal systems, media like
EDI systems or communication systems, and actors who Operate the systems. However,
the current study explores the media aspect of SCMS rather than actors or content aspects.
The media aspect of SCMS (i.e. communication systems) is the key component for the
interorganizational interaction among channel partners, allowing an effective

investigation on the impact of IT on channel relationships.

From Electronic Market to Electronic Hierarchy

According to the IT literature, electronic interorganizational interaction can be
carried out in two forms: electronic hierarchy and electronic markets (Malone, Yates, and
Benjamin 1987). Under an electronic hierarchy, the interaction is governed by
management decisions of participating ﬁrms (Malone, Yates, and Benjamin 1987;
Steinﬁeld, Kraut, and Plummer 1995), while those decisions are based on such strategic
reasons as reliable supply, quality control, and inventory cost reduction. Therefore, the
relationship under an electronic hierarchy is long-term (Steinﬁeld, Kraut, and Plummer
1995). A good example of the electronic hierarchy is the partnership between
amazon.com and toysrus.com. The two independent ﬁrms formed a partnership in which
amazon.com represents transactions made on its website from order acceptance to
customer service for the products offered by toysrus.com, and toysrus.com provides

online product information and connections between its suppliers and amazon.com to

11

make the online transactions possible (Bonisteel 2001). Under this partnership, price,
supply and demand, and competition are less important for the transactions made at
amazon.com website for the toysrus.com products. Only predetermined arrangements
between the two ﬁrms control the electronic interaction between them.

On the other hand, under an electronic market, the electronic interorganizational
interaction is primarily determined by such market mechanisms as price and/or supply
and demand. Consequently, the interaction under electronic markets is not necessarily
long-term, because a better price or other favorable transaction conditions may lead to
transactions with other sellers or buyers (Malone, Yates, and Benjamin 1987; Steinﬁeld,
Kraut, and Plummer 1995). A typical example of electronic market would be NASDAQ,
the electronic stock trading systems in the US, which has buyers or sellers who do not
even know the identity of the other party to the transaction. Most of the interactions are
extremely short-lived for most buyers and sellers. And, price is the only determinant of
transactions within the systems (Steinﬁeld, Kraut, and Plummer 1995).

The literature ﬁirther argues that high coordination costs for transactions favor
electronic markets, because interconnected systems make such coordination activities as
searching for products in the systems cost-effective, which is referred to as the electronic
brokerage effect (Steinﬁeld, Kraut, and Pltunmer 1995). Alternatively, when there is a
high need for integration between ﬁrms, an electronic hierarchy offers a synergy effect,
the primary beneﬁt, from systems interconnection, which is referred to as the electronic
integration effect (Steinﬁeld, Kraut, and Plummer 1995).

In general, electronic markets provide more business opportunities at lower

transaction-speciﬁc investment as corporate systems continue to adopt highly compatible

12

technology. Competition can be severe, however, because market entry and exit are
made more freely than in traditional markets with signiﬁcantly lower switching costs. In
other words, due to a Si gniﬁcant expansion of geographic market boundaries in electronic
markets, ﬁrms are able to buy from more potential suppliers and sell their products to
more potential customers (Humphreys, Lai, and Sculli 2001). At the same time, the low
market entry barriers can result in more competition and greater uncertainty.

For instance, in the intemet service provider (ISP) industry, low-cost market entry
and exit meant that even small fmns could resell the Internet access service to end-users
easily, with small margins on the wholesale price from national service providers. Due to
the low entry barrier, the price of the Internet access service declined rapidly to well
below $10 a month. Even free Internet service providers, with and without banner ads,
expanded their shares very quickly (Kong 1999). Yet, competition in the industry did not
allow most ISPs to stay in business more than a few years because most of them had to
compete on price, while any difference in quality of service among ISP carriers did not
seem to be very discernible to end-users. Although it was easy to enter the market, it was
extremely hard for most of them to survive in Such extremely competitive market. Major
ISP ﬁrms in the industry are now forming alliances to compete effectively in the
broadband market (Angwin 2002).

On one hand, ﬁrms that can handle severe competition gain the beneﬁt of low
entry cost and expanded opportunities in electronic markets. On the other hand, ﬁrms
that cannot bear the loss from the increased competition in the markets would prefer an
electronic hierarchy, with close ties to a limited number of channel members and high

switching costs (Humphreys, Lai, and Sculli 2001). Electronic markets offer relatively

13

free market entry and exit and have a high level of uncertainty, whereas an electronic
hierarchy requires a new type of transaction-speciﬁc investment in terms of goal
alignment, a high level of information sharing, acceptance of dependence, and strategic
integration (Chandra, Kumar, and Smirnov 2001; Humphreys, Lai, and Sculli 2001).
Although some researchers strongly predict the popularity of electronic markets
(Bakos 1991; Malone, Yates, and Benjamin 1987; Steinﬁeld, Kraut, and Plummer 1995),
there seem to be some forces that drive electronic transactions toward electronic
hierarchy. AS ﬁrms perceive the gain from an electronic hierarchy greater than the
beneﬁts ﬁom an electronic market, more ﬁrms are likely to prefer the stability of an
electronic hierarchy. While strategically critical components for their products require
trustworthy and reliable suppliers, transactions for these components in electronic
markets may result in the loss of strategic information to suppliers (Humphreys, Lai, and
Sculli 2001). Historical data support this argument that more ﬁrms prefer an electronic
hierarchy to an electronic market (Steinﬁeld, Kraut, and Plummer 1995). This preference
may indicate that the uncertainty inherent in electronic markets is more costly than the
transaction-speciﬁc investment required in electronic hierarchies (Humphreys, Lai, and
Sculli 2001). In short, there are forces in electronic buyer-seller relationships that drive
ﬁrms to electronic hierarchies such as the uncertainty embedded in the electronic market
and a strategic need for reliable relationship (Humphreys, Lai, and Sculli 2001). This

justiﬁes the focus of the Current study on electronic channel relationships.

14

Key Research Questions

A CIS helps ﬁrms cultivate electronic interactions among channel members. The
increased electronic interaction between ﬁrms through IOS is likely to affect both the
nature of channel relationships and their performance in the market (Chandra, Kumar,
and Smirnov 2001; Cunningham and Tynan 1993; Humphreys, Lai, and Sculli 2001;
Malone, Yates, and Benjamin 1987; Roberts and Mackay 1998). Thus, the current study
explores the impact of IT on ﬁrm channel relationships and performance in the RBV

framework, as shown in Figure 1.

Figure 1: Conceptual Framework of the Study within the

 

 

 

Resource-Based View
IT Channel Firm
—> —>
Resources Capabilities Performance

 

 

 

 

 

 

 

 

 

Note: Drawn from Amit and Schoemaker 1993; Barney 1991; Barney et al. 2001; Collis 1994; Grant 1991; Porter 1991

Speciﬁcally, the current study investigates how ﬁrm IT resources such as IT
advancement and IT appropriability affect its strategic integration with channel partners

and its internal channel capabilities including interﬁrm information exchange,

15

coordination activities, and supply chain responsiveness. This study also addresses
whether or not IT resources affect ﬁrm performance through interﬁrm integration and
channel capabilities within the RBV framework by asking the following key research
questions. The ﬁrst research question of this study is whether or not ﬁrm internal
capabilities are enhanced by IT and related resources. If so, how does IT improve those
capabilities? More speciﬁcally, what IS the effect of IT for supply chain communication
systems, an essential element of SCMS, on channel relationships? This set of questions
explores the empirical relationship between IT as a resource and capability as a mediator
that will link IT to ﬁrm performance. Furthermore, as channel relationships become
increasingly vital for strategic movements and as more ﬁrms recognize the importance of
interﬁrm collaboration in dynamic and uncertain market conditions (Humphreys, Lai, and
Sculli 2001; Sarkar 1999; White 1999), these research questions will investigate the
signiﬁcance of IT resources for adequate channel relationships.

The second research question explores how a ﬁrm’s deployment and
appropriability of advanced IT inﬂuences ﬁrm performance through enhanced channel
relationships. As a stream of literature and the recent decline in dot-com stocks suggest
weak or no link between IT investment and ﬁrm performance (Andersen and Segars
2001; Baker and Abrahams 2001; Fisher 2001; Loveman 1991; Panko 1991; Weill 1991),
this study attempts to refute the argument by exploring the empirical relationship between
IT and ﬁrm capabilities. That is, this study will argue that a ﬁrm’s deployment and
appropriability Of IT resources leads to ﬁrm performance if they are adequately integrated

into the existing capabilities Of the ﬁrm.

16

Finally, the extent to which IT is a resource for ﬁrm competitive advantage will
be evaluated ﬁom the RBV perspective. Actually, RBV argues that IT is not likely a
source of ﬁrm competitive advantage (Barney 1991). However, when IT is well
embedded into a ﬁrm’s core competency or decision-making process, it is likely to
provide a distinctive beneﬁt to the owner as a possible resource (Barney 1991).
Therefore, an investigation of the conditions under which IT gives the owner competitive
advantage will provide valuable implications for both researchers and managers. Table 2

summarizes the main research questions asked in this study.

TABLE 2: KEY RESEARCH QUESTIONS

Research Question 1: Are ﬁrm internal capabilities enhanced by IT
and related resources?

Research Question 2: How does the deployment and appropriability of
IT inﬂuence ﬁrm performance through enhanced
channel relationshijg?

Research Question 3: Under what conditions does IT become a source
of ﬁrm competitive advantage?

 

 

 

 

 

 

Domain of the Study
Information Technology

Despite the importance of electronic hierarchical relationships and the critical role
of IT for them, the impact of IT on channel relationships is not well understood. That
may be due to the fact that IOS has a relatively short history, and the electronic market
alone has been the focus of attention. As a result, how IOS changes channel relationships
remains to be explored.

Contemplating the need for research on interorganizational interaction especially

under electronic hierarchies, this study investigates the impact and implications of IT

17

resources on channel relationships and ﬁrm performance in the context of supply chain
communication systems (SCCS), a key element of SCMS for electronic interﬁrm
interactions. This study views SCMS as an internally and externally integrated system
that helps ﬁrms gain a competitive position in the market by increasing efﬁciency in
information and product ﬂow across channel members, from the inception to distribution
Of a product (Bowersox, Closs, and Cooper 2002; Humphreys, Lai, and Sculli 2001).
The operational deﬁnition of an SCCS for this study is an information system that is
involved in a ﬁrm’s interactions with channel partners in order to carry out electronic
transactions, quality and cost calibration, and collaborative forecasting and planning
(Bowersox, Closs, and Stank 1999; Roberts and Mackay 1998; Stank, Daugherty, and
Autry 1999; Tang, Shoe, and Tang 2001). It incorporates elements of and interfaces with
various CIS such as enterprises resource planning (ERP) systems, customer relationship
management (CRM) systems, advanced planning systems (APS), transportation
management systems (TMS), and warehouse management systems (WMS) for the
purpose of sharing information with channel partners. The most typical SCCS is EDI,
which plays a key role in the success of SCMS and information sharing within the
channel (Humphreys, Lai, and Sculli 2001; Roberts and Mackay 1998). AS ﬁrms
reassess the importance of interﬁrm collaboration within their supply chain and of new
technology such as XML, SCCS will play an increasingly critical role (Humphreys, Lai,

and Sculli 2001). Figure 2 illustrates the role of SCCS for SCMS.

l8

Figure 2: SCCS as a Key Element of SCMS

 

CRM
Systems

ERP Order. Partner A J]
Systems Processrng
Quality and Cost Partner B
Calibration
Collaborative
Forecasting Partner C
Collaborative
Planning Partner D

 

SCCS

e20

\

 

 

 

 

 

Supply Chain Management Systems

 

SCCS in this study refers to both the hardware and software of the focal ﬁrm and
partners (suppliers and distributors), plus the network infrastructure that links the ﬁrms.
It includes elements of and interfaces with various CIS components that provide
information, the imperative content of SCMS. That is, an SCCS is a critical element of
the SCMS that is internally and externally integrated CIS for electronic transactions and
collaborative business activities, such as forecasting and planning. An SCCS includes
any computer-mediated transaction systems but not such traditional communication
systems as fax or telephone. Furthermore, the way in which the content is collected and

maintained within a ﬁrm by such systems is beyond the scope of this study.

The focus of the current study on SCCS is justiﬁed for several reasons. First,
SCCS is the most typical IOS that involves two or more independent channel partners
(Humphreys, Lai, and Sculli 2001). This means that the impact of IT on channel
relationships can be investigated more effectively in the context of SCCS. Second, SCCS
is a CIS type with great potential. Along with ERP and/or CRM systems, it integrates
information internally across functional areas and externally across channel partners
(White 1999). Although ERP systems can integrate a ﬁrm’s internal activities across
ﬁmctional areas, it has limited capability in sharing information with the systems of other
channel partners. Furthermore, while CRM systems are crucial for adequate customer
service, they also have a weakness in sharing relevant information with channel partners
unless they are integrated with SCCS. SCCS plays the role of key integrator within and
across ﬁrms by linking various CIS internally and externally (Bowersox et al. 2002). This
makes it very likely that IT advancement for SCCS will lead to ﬁrm competitive
advantage. Finally, because SCCS is one of the most widely deployed CIS types, it
offers beneﬁts in terms of data collection and validity of study. Although the SCCS
industry is still growing, many ﬁrms have adopted these systems for a stronger
competitive position in today’s competitive markets (Moran 2001; White 1999). This
will provide the current study a sufﬁcient size of sampling frame. Furthermore, key
informants are likely to have adequate experience with SCCS. In sum, a study of SCCS
will contribute to the literature by providing a number of implications for both

practitioners and researchers.

20

Methods

This study will use survey methodology for data collection. Particularly, web
survey will be deployed as its primary means of data collection. Data will be collected in
the United States. The unit of analysis is the ﬁrm’s supply chain partnerships. As a
collaborative supply chain involves more than one party (e. g. buying ﬁrm and selling
ﬁrm) in most cases, this study explores both selling and buying ﬁrms perspective,
focusing on down-stream channel members (i.e., distributors) as well as up-stream
members (i.e., suppliers).

The primary respondents of the study are supply chain managers. However,
although increasing, not many ﬁrms have supply chain manager. In many ﬁrms, supply
chain management is still a broadly accepted concept that oversees procurement and
logistics activities as a whole for efﬁcient collaboration across channel members. Thus,
some ﬁrms are still conducting supply chain management activities as a part of either
procurement or logistic functions. A number of large ﬁrms use the title, supply chain
manager, for those managers who supervise all channel relationships from the ﬁrm’s
strategic point Of view. In the absence of that position, respondents will be logistics
managers. Therefore, the sampling frame of this study will consist of major ﬁrms with a
supply chain manager, or a logistics manager from different industries in the United

States.

Expected Managerial Contributions
This research is expected to provide important implications for managers in SCM

and IT. First, it will reveal empirical evidence that IT investment leads to ﬁrm

21

performance, refuting the weak or no link between IT investment and ﬁrm performance
claimed in the literature. The study further seeks when and how IT investments facilitate
performance. These will help more managers make informed decisions on IT
investments that will lead to an adequate level of ﬁrm performance.

By identifying the optimal level of IT advancement and/or appropriability, this
study will inform ﬁrms about both efﬁcient and inefﬁcient investment in IT resources.
Furthermore, by pinpointing the ideal level of information exchange between partners for
the best ﬁrm performance coupled with the optimal level of IT investment, it will enable
ﬁrms to benchmark their IT investment. Collaboration emphasized under market
uncertainty requires a certain amount of information exchange with channel partners.
But, too much exchange may result in leaking its competency while less-than-required
information exchange is likely to cause ineffective collaboration. Therefore, locating the
optimal levels of IT advancement and IT appropriability that lead to an adequate level of
information exchange will explicate how ﬁrms become competitive in the markets with
minimum level of risk of exposure.

Finally, this study will highlight the role of mediators (i.e. channel capabilities) in
gaining adequate beneﬁts from IT investment. Only when IT investment is directed to
appropriate channel activities such as information exchange and coordination, the impact
of IT resources will be realized in the form of ﬁrm performance. The research will,
therefore, reveal the importance of each mediating construct that links IT resources to the

ﬁrm level performance.

22

Expected Theoretical Contributions

The ﬁrst theoretical contribution of this study is the evaluation of IT advancement
and IT appropriability as ﬁrm resources for competitive advantage. RBV claims that
internal information and production-related technology can be resources for competitive
advantage of ﬁrms. However, the RBV literature has not considered the technology
associated with interﬁrm information exchange and other channel activities as another
type of resources for competitive advantages. If IT resources are linked to ﬁrm
performance through improved channel capabilities, then there is a theoretical
justiﬁcation for IT investments directed to ﬁrm capabilities.

This study ﬁrst attempts to test the impact of IT resources on performance
through channel capabilities. Previous work has investigated the direct link between IT
adoption and ﬁrm performance (Davis 1989; Davis, Bagozzi, and Warshaw 1989; Lucas
and Spitler 1999), focusing on the technology adoption process of ﬁrms or individual
consumers. Therefore, by examining whether or not IT has an impact on ﬁrm
performance in the context of IT and supply chain management, the study will contribute
to the RBV literature.

Although they are assumed in the literature (Dennis, Hihner, and Taylor
1997/ 1998; Mohr and Nevin 1990; Shin 1999), empirical studies on the impact of
interﬁrm information exchange and coordination on ﬁrm level performance are also
sparse. Filling this gap in the literature, this study explores how interﬁrm information
exchange and coordination activities affect ﬁrm performance both directly and indirectly
through supply chain responsiveness, an immediate supply chain level outcome. Even if

this study expects both direct and indirect impacts of them on performance, it will be also

23

interesting if the impacts of interﬁrm information exchange and coordination are totally
mediated by supply chain responsiveness, invalidating the assumption in the literature.
Finally, there is no comprehensive work on IT in the context of SCMS, let alone
SCCS. Academic research so far has only contemplated the conceptualization of SCMS.
Therefore, the current study will contribute to the literature by investigating the impact
and implications of SCCS on channel relationships and ﬁrm performance empirically in

the context of supply chain management for the ﬁrst time.

24

CHAPTER 2
MODEL AND HYPOTHESES
Conceptual Framework

Drawing on the resource-based view (RBV) of the ﬁrm, the proposed conceptual
framework of this study consists of ﬁrm IT resources, channel capabilities, and ﬁrm
performance, as was depicted in Figure 1. In accord with RBV, this study postulates that
ﬁrm internal IT resources enhance internal channel capabilities and the enhanced
capabilities in turn inﬂuence ﬁrm performance (Amit and Schoemaker 1993; Barney
1991; Barney, Wright, and Ketchen 2001; Collis 1994; Grant 1991). Supporting this
framework, Barney (1991) argues that a ﬁrm’s resources lead to competitive advantage
while Collis (1994) claims that various ﬁrm capabilities are a source Of competitive
advantage. In the similar vein, Amit and Schoemaker (1993) maintain that “capabilities
are often developed in functional areas (e.g., brand management in marketing) or by
combining physical, human, and technological resources at the corporate level (p. 35).”
They further assert that “resources, information and people are combined and sequenced
over time in order to evolve speciﬁc capabilities (p. 39).” Grant (1991) also supports the
framework by identifying resources and capabilities as the foundation for ﬁrm strategies
and postulating that capabilities depend on resources.

The operational model of the study is presented in Figure 3. It claims that ﬁrm IT
resources such as IT advancement, IT appropriability, and SCCS integration are expected
to facilitate ﬁrm channel capabilities such as interﬁrm information exchange,
coordination, and supply chain responsiveness. As illustrated in the framework, the

enhanced capabilities, then, lead to favorable ﬁrm performance.

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26

IT Resources of Firms

According to Barney (1991), ﬁrm resources include “all assets, capabilities,
organizational processes, ﬁrm attributes, information, knowledge, etc. controlled by a
ﬁrm that enable the ﬁrm to conceive of and implement strategies that improve its
efﬁciency and effectiveness (p. 101).” This deﬁnition has a broad view on resources that
embraces all assets and capabilities among others. On the other hand, Amit and
Schoemaker (1993) contend that the strategic assets of ﬁrms include resources and
capabilities providing a possibly inconsistent view on the relationship between ﬁrm
assets and resources with Barney (1991).

However, note that Amit and Schoemaker (1993) adopt and use “strategic assets”
whose characteristics are different from “assets” that are part of resources according to
Barney (1991). Barney (l991)’s deﬁnition of assets focuses on tangible and intangible
ﬁrm assets as an input to gain competitive advantages while Armit and Schoemaker
(1993)’S deﬁnition of strategic assets deals with strategic competencies acquired ﬁ'om
resources and capabilities. The difference between them becomes clearer as Amit and
Schoemaker (1993) argue, in discussing the deﬁnition of resources, that “these resources
consist, inter alia, of knowhow that can be traded (e.g., patents and licenses), ﬁnancial or
physical assets (e.g., property, plant and equipment), human capital, etc. (p. 35)”
Therefore, although they adopt similar terms, “strategic assets” of Amit and Schoemaker
(1993) rather mirror “resources” of Barney (1991). Consequently, the deﬁnition of
resources for Amit and Schoemaker (1993) is narrower than that of Barney (1991) as it
does not include ﬁrm capabilities. Adapting Barney (1991)’s deﬁnition of resources into

the current study context, this study deﬁnes IT resources as various ﬁrm speciﬁc and

27

scarce IT knowhow, tangible and intangible IT assets, and IT capitals including IT
department, that provide the owning ﬁrm a unique competitive position (Barney 1991).
For example, IT skills, a type of intangible IT assets, are resources as they are uniquely
embedded in the owning ﬁrm.

According to RBV, resources can be classiﬁed into three types; physical capital
resources, human capital resources, and organizational capital resources (Barney 1991;
Becker 1964; Tomer 1987; Williamson 1975). Barney (1991, p. 101) explains that,

physical capital resources include the physical technology used in a ﬁrm, a ﬁrm's plant
and equipment, its geographic location, and its access to raw materials. Human capital
resources include the training, experience, judgement, intelligence, relationships, and
insight of individual managers and workers in a ﬁrm. Organizational capital resources
include a ﬁrm's formal reporting structure, its formal and informal planning, controlling,
and coordinating systems, as well as informal relations among groups within a ﬁrm and
between a ﬁrm and those in its environment.

RBV further emphasizes that resources are distributed heterogeneously and are
not perfectly mobile across ﬁrms (Barney 1991; Barney, Wright, and Ketchen 2001;
Collis 1994). This resource heterogeneity and immobility can be a source of sustained
competitive advantages of the ﬁrm (Amit and Schoemaker 1993; Barney 1991; Barney,
Wright, and Ketchen 2001; Collis 1994; Grant 1991). Nonetheless, not all physical
capital, human capital, and organizational capital contributes to competitive advantages
of the ﬁrm (Barney 1991). Therefore, it is critical to understand the conditions under
which IT resources can serve as a source of competitive advantage in order to receive the
full beneﬁts the IT resources can create.
IT Advancement

IT advancement for SCCS is deﬁned as the extent to which a ﬁrm adopts the most
sophisticated available technology. It concerns the degree of proactive adoption or use of

the most advanced IT to build new technical solutions to answer partners’ needs ahead of

28

competitors. IT advancement is likely to be an important ﬁrm resource as the literature
argues that ﬁrms with advanced technology outperform their competitors (Rogers,
Daugherty, and Stank 1993).

Recognizing the critical role of IT, more ﬁrms are investing in IT for their SCCS
and are building expensive IT departments than ever before in an effort to accrue the
internal skills to utilize the advanced technology fully. Barney (1991) argues, however,
that information processing systems alone can not be a resource for competitive
advantage because of their availability in the market to any ﬁrm and, thus, their
homogeneity (Pow ell and Dent-Michallef 1997). He further stresses that only
information processing systems that are closely embedded into a ﬁrm’s managerial
process can provide a competitive advantage. Therefore, according to RBV, IT by itself
is not likely to be a resource that leads to competitive advantage of the ﬁrm.

Then, under what conditions does IT provide competitive advantage? One way to
make IT unique and imperfectly mobile across ﬁrms is to adopt new technology ahead of
competitors, receiving the exclusive beneﬁts from the advanced IT. The advanced
technology can be a resource for competitive advantage as long as it makes ﬁrm activities
more efﬁcient than those of competitors (Amit and Schoemaker 1993; Barney 1991;
Barney, Wright, and Ketchen 2001; Collis 1994). However, early adoption of IT requires
tremendous ﬁnancial investment. Furthermore, it may result in ﬁ'equent technology
updates, which can also cause inefﬁcient user training as the ﬁrll migration to new
technology always takes time and expensive training.

Until recently, the transition of SCCS from proprietary EDI to Intemet-based EDI

was widely observed across industries (Lancioni, Smith, and Oliva 2000) seeking a better

29

system compatibility. However, the more sophisticated XML technology has now been
introduced. The XML technology is known to be very ﬂexible, with various operating
system platforms, and provides powerful interaction capability to channel members
(Xml.org 2002). It is likely that in several years Internet-based EDI systems may give
way to XML technology. There are some other emerging technologies such as satellite
technology and radio frequency data communication technology that will replace current
IT in the near future (Bowersox, Closs, and Cooper 2002).

Although it may not be a cost-effective strategy, early adoption of new IT for
SCCS can lead to competitive advantage of the ﬁrm. That is, by deploying the newest
technology especially before it is diffused widely across competitors, ﬁrms are expected
to be more efﬁcient than their competitors in interﬁrm information exchange and
coordination activities, both within the ﬁrm and with channel partners (Boone and
Ganeshan 2001; DiMaggio and Powell 1983; Porter 2001).
IT Appropriability

Another way to have unique IT within a ﬁrm is to maximize IT appropriability.
Firms vary in the degree of resource utilization. Some receive the full beneﬁts a resource
can create while others gain only a fraction of the beneﬁts. Therefore, the ultimate goal
for many ﬁrms that deploy a new resource is to receive the full beneﬁts improving
resource appropriability. Grant (1996A) deﬁnes resource appropriability as “the ability
of the owner of a resource to receive the beneﬁt equals to value created by the resource.”
In this study, IT appropriability of ﬁrm refers to the ability of the ﬁrm that deploys IT to

exploit the potential of the IT resource fully.

30

Firms can enhance IT appropriability in various ways. For example, hardware
and/or software based on the advanced technology can be developed internally, or IT
deployment can be tailored to the ﬁrm’s core competencies or capabilities. These
processes involve long-term investment and knowledge accumulation. Moreover,
developing hardware or software internally may not be very cost-effective as advanced
but standard hardware or software is readily available in the market at reasonable costs.
However, IT deployment without customizing it into ﬁrm’s core competencies would
lead to lack of heterogeneity and immobility as the same IT is available to all competitors.
Therefore, only when a ﬁrm customizes and utilizes software or even hardware based on
an advanced technology to integrate its core strengths with its central assets or
capabilities, such as strong channel relationships and customer reputations will give the
ﬁrm an enduring competitive advantage (Barney 1991; Barney, Wright, and Ketchen
2001; Porter 2001; Powell and Dent-Michallef 1997). Therefore, whether sourcing the
technology externally or internally, ﬁrms can still gain competitive advantage from IT if
the technology enhances ﬁrm capabilities through heterogeneity and immobility that the
ﬁrm created through the enhanced IT appropriability.

Barney (1991) emphasizes the integration of information processing systems with
other resources or capabilities of the ﬁrm in order to gain competitive advantage. This
synergy from the integration of IT with other core ﬁrm and channel capabilities is critical
for achieving the full beneﬁts of the IT (Bharadwaj 2000). It is particularly important, in
the SCCS context, whether IT links supply chain members with respect to collaborative
planning, demand forecasting, and order replenishment for the success of SCCS

(Bowersox, Closs, and Stank 1999; White 1999). In other words, IT appropriability

31

stems from certain internal and external factors, such as the existence and Skills of an IT
department for applications and support, internal functional integration, management
objectives for SCCS, industry and product characteristics, and partner characteristics is
likely to be a source of competitive advantage for supply chain management. Although
the main focus of this study is not on the antecedents of IT appropriability, an
understanding of them provides insights for the model development of this study.
Therefore, the conditions for high IT appropriability will be discussed brieﬂy in the
context of SCCS.

Just like If advancement, high resource appropriability leads to competitive
advantage only when it is uniquely embedded in the ﬁrm’s relevant activitiesl(Barney
1991; Barney, Wright, and Ketchen 2001; Grant 1996A; Porter 2001). Especially in the
context of SCCS, certain internal and external conditions contribute to IT resource
appropriability of the ﬁrm. The ﬁrst internal factor is IT skills. Firms can achieve an
adequate level of IT appropriability by accumulating internal IT skills and knowledge.
Because IT is readily available in the marketplace to any ﬁrm (Powell and Dent-
Michallef 1997), what makes it a unique resource is the internal IT experience and skills
that support ﬁrm activities (Byrd and Turner 2001; Powell and Dent-Michallef 1997).
When ﬁrms outsource IT and its related skills, it is highly likely that neither the
outsourced technology nor the outsourced skills will be a source of sustainable
competitive advantage. Therefore, accumulated internal IT skills coupled with IT
advancement can be a condition for high IT appropriability.

Another internal condition for IT appropriability in the context of SCCS is

functional integration within a ﬁrm (Byrd and Turner 2001; Evans, Naim, and Towill

32

1993; Henderson and Venkatraman 1993; Truman 2000). Even the most advanced
technology and skills will not ensure adequate SCCS performance Unless internal
activities across different functional areas are well integrated and coordinated. A typical
SCCS requires contents in addition to media and actors (Bowersox, Closs, and Cooper
2002), and the contents are created mostly by data from various frmctions, such as order
taking, production, inventory management, distribution, and promotions. Without internal
integration and coordination, IT appropriability for SCCS is not viable.

One external factor that inﬂuences IT appropriability is IT resource alignment
across channel partners (Evans, Naim, and Towill 1993; Henderson and Venkatraman
1993). That is, a ﬁrm can gain an adequate level of IT appropriability when its channel
partners have compatible technology in the context of SCCS. This advocates the
alignment of IT advancement and IT skills across channel members. Without such
alignment of IT resources, the SCCS cannot function well. When EDI was mostly
proprietary, IT alignment was a challenge for many small and medium-sized partners
wishing to do business with large ﬁrms (Evans, Naim, and Towill 1993) because of the
transaction-speciﬁc nature of the investment and skills needed for EDI use. Although
this challenge has diminished due to advances in the related technology and infrastructure,
the alignment of IT advancement and appropriability across channel partners is still
difﬁcult to achieve (Clemons and Row 1993). Thus, an adequate level of IT resource
alignment with other partners is critical for the appropriability of SCCS technology of a
particular channel member.

Finally, especially in the context of SCCS, the competitiveness of the supply

chain itself is a crucial factor in IT appropriability. That is, even with an adequate level

33

of IT advancement, and with the alignment of IT resources across channel partners, an
adequate level of appropriability is not feasible unless the existing supply chain is
competitive (Powell and Dent-Michallef 1997).

Given the favorable conditions outlined above, IT appropriability is reﬂected in
two dimensions: absorptive capacity and agility. Absorptive capacity refers to the
internal knowledge pool that enables the ﬁrm to convert IT resources (i.e., technology
advance) into other ﬁrm capabilities, including channel capabilities. Low absorptive
capacity stems from unfavorable conditions and leads to inefﬁcient transformation of
those resources. High absorptive capacity resulted ﬂour a favorable appropriability
condition is associated with efﬁcient resource utilization in creating internal ﬁrm
capabilities. On the other hand, agility refers to how quickly a ﬁrm transforms IT
resources into its capabilities. The speed of appropriability reﬂected in agility is
imperative, especially for TT advancement as a source of sustained competitive advantage
along with the speed of IT adoption because of IT availability in the marketplace (Powell
and Dent-Michallef 1997). Even though a ﬁrm has an adequate level of absorptive
capacity, the transformation of a resource into a ﬁrm capability can be slower than its
competitors if agility is low. Thus, ﬁrms with low agility are unlikely to outperform their
competitors in the markets. In sum, there are certain favorable conditions for IT
appropriability, which is reﬂected in a ﬁrm’s absorptive capacity and agility.

SC CS integration

Firms are integrating their activities both internally and across channel partners

(Clark and Stoddard 1996; Henderson and Venkatraman 1993; Kambil and Short 1994).

However, the current study focuses on ﬁrm’s integration with its channel partners as the

34

integration within ﬁrm is beyond the scope. Clark and Stoddard (1996) view the channel
partner integration process as two separate steps: technological innovation and process
innovation. Technological innovation refers to technology advance (e. g. from no
technology to EDI for channel activities), whereas process innovation involves a shift
from discrete transactions to continuous and consistent transactions (Clark and Stoddard
1996). Alternatively, this study views the interﬁrm channel integration as a two
dimensional process: SCCS integration and interﬁrm activity integration. This study
focuses on SCCS integration as another type of IT resource that indirectly reﬂects the
technology alignment among channel partners. The literature does not explicitly consider
SCCS integration as a separate dimension from interﬁrm activity integration. Thus,
investigating SCCS integration as a separate process in exploring the impact of IT
advancement and appropriability on ﬁrm capabilities will reveal the distinctive impact of
SCCS integration on supply chain activities as well as the ﬁrm level performance.

SCCS integration in this study refers to the extent to which a ﬁrm’s SCCS is
integrated with that of channel partners, and ready for collaborative channel activities
with other channel members in order to increase the efﬁciency and effectiveness in
interﬁrm communication (Malone, Yates, and Benjamin 1987). High integration allows
two proprietary systems to reduce technical barriers and incompatibility so as to
communicate more effectively (Byrd and Turner 2000). The lowest level of SCCS
integration would allow partners to conduct electronic order-fulﬁlhnent only, a
ﬁmdamental function of SCCS (Johnson 1999; White 1999). Intermediate systems
integration, however, should permit partners to share more proprietary information

including sales and demand forecasts (Bowersox, Closs, and Cooper 2002; Bowersox,

35

Closs, and Stank 1999; Roberts and Mackay 1998; White 1999). The most sophisticated
SCCS integration should afford joint planning for business development in addition to the
above SCCS activities (Bowersox, Closs, and Cooper 2002; Bowersox, Closs, and Stank
1999; Lamming 1986; White 1999).

The literature discusses how the improvement in IT advancement and
appropriability have driven channel partners toward closer SCCS integration (Clemons
and Row 1992; Evans, Naim, and Towill 1993; Malone, Yates, and Benjamin 1987;
Rasheed and Geiger 2001; Roberts and Mackay 1998; Tang, Shee, and Tang 2001). As
technology and appropriability improve, these lead to more active sharing of planning,
strategies, resources, and competencies among partners (Armistead and Mapes 1993;
Roberts and Mackay 1998). This sharing at the same time implies systems integration
among partners (Malone, Yates, and Benjamin 1987). Furthermore, Clemons and Row
(1992, p. 2) assert that “IT can facilitate the development of stable, tightly coupled
relationships among ﬁrms.” Roberts and Mackay (1998, p. 176) also stress “the role of
IT systems such as EDI, as a key enabler for competitive advantage through cementing
relationships with customers, enabling integration forwards or backwards in the industry
value chain or in establishing a technical lead.” Evans et al. (1993) share the view that IT
is imperative for supply chain integration. Moreover, in an empirical study, Rasheed and
Geiger (2001) found that a ﬁrm’s IT resources have a positive impact on the degree of
integration for technical support functions within the value chain. Accordingly,

Hla: IT advancement facilitates SCCS integration.
Hlb: IT appropriability facilitates SCCS integration.

36

Channel Capabilities of Firms

Grant (1996) views organizational capability as an outcome of knowledge
integration within and across ﬁrms. In other words, ﬁrm capability is pre-deterrnined by
its ability to integrate knowledge and resources within the ﬁrm or across channel partners
(Amit and Schoemaker 1993; Collis 1994; Grant 1991). In this study, channel capability
of the ﬁrm refers to the ability to exploit resources and other capabilities to derive
efﬁciency in channel activities and, thus, ultimately sustainable competitive advantage
(Amit and Schoemaker 1993; Bharadwaj 2000; Collis 1994; Grant 1991). Subsequently,
the channel capabilities investigated here include such channel related activities as
interﬁrm information exchange, transaction-related coordination activities, and supply
chain responsiveness.

Collis (1994) discusses three types of organizational capabilities, synthesizing the
literature. The ﬁrst type of organizational capability reﬂects the ability to perform the
basic functional activities of the ﬁrm, such as plant layout, distribution logistics, and
marketing campaigns, more efﬁciently than competitors” (Collis 1994, p. 145). Among
the channel capabilities this study investigates, information exchange and coordination
may be classiﬁed into this category of organizational capabilities. The second type of
organizational capability is related to a ﬁrm’s ability to “learn, adapt, change and renew
over time” in order to improve its efﬁciency in activities (Collis 1994, p. 145). In this
study, supply chain responsiveness would be of this category. The third type of
organizational capabilities Collis (1994, p. 145) discusses consists of “more metaphysical

strategic insights that enable ﬁrms to recognize the intrinsic value of other resources or to

37

develop novel strategies before competitors.” Although Collis (1994) identiﬁes three
types of capabilities, it is worth noting that making distinctions among the three types of
organizational capabilities is difﬁcult in many cases as some. ﬁrm capabilities result from
complex Situations that involve more than one type (Collis 1994).
Information Exchange

Information exchange is conceptualized as the extent to which channel partners
share internal information effectively with their channel partners regarding any changes
in market and customer preferences. This information exchange is the most obvious and
direct beneﬁt that ﬁrms gain from an SCCS (Clemons and Row 1993; Lancioni, Smith,
and Oliva 2000; Lewis 2001; Malone, Yates, and Benjamin 1987; Moberg et al. 2002;
Roberts and Mackay 1998). An accurate and fast information exchange electronically
helps channel partners share more information, both quantitatively and qualitatively
(Clemons and Row 1993; Evans, Naim, and Towill 1993; Lewis 2001; Malone, Yates,
and Benjamin 1987 ; Moberg et al. 2002; Tang, Shee, and Tang 2001). Highlighting the
dramatic impact of IT on information exchange across channel members, Clemons and

Row (1993, p. 9) explicate that,

IT has led to a dramatic increase in the availability of information on product movement in the
distribution channel. Prior to the introduction of UPC and scanner systems, the only sources of
information on product movement were manufacturer shipments or warehouse withdrawals. This
information was only available at a high level of aggregation and with considerable delay.
Retailers had to rely on manufacturers for data on what products were moving. UPC and checkout
scanners at the store made it possible for retailers to track product movement themselves, ﬁrst at
the distribution center level, and then, as scanners became widely used, at the individual store
level.

In other words, the more advanced the IT for SCCS and the higher the level of SCCS
integration, the higher should be the quality of information exchange (Clemons and Row

1993; Moberg et al. 2002).

38

Lewis and Talalayevsky (1997, p. 145) assert that supply chain partners are
integrating systems in order to seek “better information.” With SCCS, channel partners
do not need to rekey all transaction-related correspondence, which reduces errors and
delays. As a result, SCCS helps ﬁrms improve their efﬁciency in obtaining accurate,
necessary, and timely information (Rogers, Daugherty, and Stank 1993). Furthermore,
the scope of information domain expands because channel members have access to
information not only from channel partners but also from the partners of those channel
partners. For example, SCCS allows a manufacturer to exchange information with
distributors, who in turn exchange with their own distributors or retailers using SCCS
(Anderson, Havila, and Sahni 2001; Clemons and Row 1993). As a result, the scope of
information the manufacturer has access to is expanded exponentially with the
deployment of SCCS. Partners within a supply chain act as a source of market
information for other partners, which results in better information exchange (Lewis 2001).

SCCS allows real-time information exchange in most cases (Clemons and Row
1993), making information exchange easy and fast (Moberg et al. 2002). In addition, the
expanded scope of information domain also makes more information exchange between
parmﬂs possible. Stank, Crum, and Arango (1999, p. 24) stress the importance of
“timely, accurate information” using EDI or the Internet to link channel partners. That is,
the more advanced the IT for SCCS and the higher level the SCCS integration, the higher
should be the quality of information exchange (Moberg et a1. 2002; Stank, Crum, and
Arango 1999). Thus,

H2a: IT advancement for SCCS facilitates information exchange.
H2b: IT appropriability for SCCS facilitates information exchange.

39

Coordination

Interﬁrrn coordination in this study refers to activities involved in transactions
between channel partners (Clemons and Row 1993; Kambil and Short 1994; Malone,
Yates, and Benjamin 1987; Shin 1999). These range ﬁom product-related information
collection to order follow-up. As ﬁrms deploy more advanced IT for SCCS, they can
perform the coordination activities more efﬁciently at less costs or provide a higher
quality of coordination activities for the same costs (Clemons and Row 1992; Clemons
and Row 1993; Evans, Naim, and Towill 1993; Roberts and Mackay 1998; Steinﬁeld,
Kraut, and Plummer 1995). Thus, sophisticated SCCS enhances coordination activities
of the ﬁrm (Lewis 2001; Roberts and Mackay 1998). Malone et al. (1987, p. 484) assert
that ﬁrms with advanced technology and high appropriability will beneﬁt from “the
possibilities for closer coordination provided by electronic hierarchy.” Likewise, Shin
(1999) reports from his empirical analysis that IT improves interﬁrm coordination.

Clemons and Row (1993) also discuss two possible sources of improvement in
coordination: change of strategy and change of structure along with IT investment.
Change of strategy refers to new ways of coordination with partners (e.g., automatic
replenishment through SCMS), and change of structure occurs when radical changes in
the mechanism of coordination between partners lead to the improvement of overall
channel efﬁciency (e.g., the adoption of scanners by retailers to enhance the coordination
activities with channel partners).

In addition, Clemons and Row (1993, p. 3, 10) argue that “a proposition that
underlies of the work in the area of strategic information systems is that IT reduces the

cost of coordination, leading ﬁrms to coordinate more.” and “for some segments of retail

40

market this increased coordination (from new coordination structure initiated by IT
improvement) was observed.” Lewis and Talalayevsky (1997, p. 144) also claim that
“improvement in IT have reduced logistics transactions costs and promoted better
communications between organizations.” In the same vein, Lewis (2001, p. 7) stresses
that “improvements in IT should lead to a reduction in coordination costs.” Therefore,

H3a: IT advancement leads to coordination.
H3b: IT appropriability leads to coordination.

In terms of the causal relationship between information exchange and
coordination, no signiﬁcant empirical investigation has been made according to the
literature. Yet, because information exchange alone does not help channel partners create
competitive advantage unless it leads to other capabilities, such as coordination or supply
chain responsiveness, it seems plausible to argue that information exchange enhances
coordination (Lewis 2001; Tarn, Yen, and Beaumont 2002). In other words, the purpose
of an SCCS is to collect, interpret, ﬁlter, store, and share information within and across
partners to improve efﬁciency in coordination activities (Truman 2000). Thus, channel
partners exchange more information in an effort to enhance coordination activities (Tarn,
Yen, and Beaumont 2002; Truman 2000).

H3d: Information exchange facilitates coordination.

SC CS Integration as a Mediator

This study claims that SCCS integration, a type of ﬁrm IT resource, mediates the
inﬂuence of IT advancement and appropriability on a ﬁrm’s channel capabilities,
including interﬁrm information exchange and coordination. Supporting this argument,

Clemons and Row (1992, p. 5) contend that

41

often environmental and technological factors will make it possible to increase the
overall efﬁciency of production or exchange through closer integration Of
decisions and operations. A supplier with access to the customer's production
schedule can rationalize production and distribution, reducing inventories and
increasing utilization of resources. However, the supplier must invest in
information systems to acctunulate the information and in decision processes to
utilize that information for production scheduling and delivery.

In the same vein, Stank, Crum, and Arango (1999, p. 25) claim that
many ﬁrms have discovered that heightened coordination and information ﬂow
can be achieved by strengthening their relationships with product and service
suppliers and customers rather than relying on short-term, single-transaction
arrangements or producing the activity in-house.

In other words, as channel partners are integrated more closely through SCCS integration

and/or activity integration, coordination activities and information exchange are expected

to be more efﬁcient (Kambil and Short 1994). Thus,

H2c: SCCS integration facilitates information exchange.
H3c: SCCS integration facilitates coordination.

Supply Chain Responsiveness

Supply chain responsiveness is deﬁned as the extent to which channel members
react cooperatively to new inquiries that stems from environmental changes or market
developments. Through enhanced information exchange and coordination due to
advanced SCCS technology and SCCS integration, each partner is expected to improve
its responsiveness (Clemons and Row 1991; Clemons and Row 1993; Roberts and
Mackay 1998; Thatcher and Oliver 2001). In a discussion of how technology affects ﬁrm
capability, Clemons and Row (1993, p. 73) argue that

Just-in-time inventory techniques with key suppliers or customers are reducing

channel inventories and improving system responsiveness. Strategic partnerships

are reducing design cycle times, facilitating total quality management, and
helping companies compete in time.

42

Today’s complicated marketplace requires reliable, efﬁcient and collaborated response
(Rogers, Daugherty, and Stank 1993) delivered from the whole supply chain.
Accordingly, the responsiveness of a particular supply chainas a whole should be
addressed in the context of SCCS.

The responsiveness of a supply chain should be differentiated from that of
individual members within the channel, although the responsiveness of a major player in
the channel can inﬂuence that of the channel. Speciﬁcally, supply chain responsiveness
reﬂects the reaction to market changes in a coordinated and cooperated manner among
channel members through SCCS. For example, even though the responsiveness of a
retailer is favorable and, thus, market changes are well transferred to upper level charmel
members (e.g. manufacturer), the overall supply chain responsiveness will remain poor if
the manufacturer in the chain is slow to react.

Channel partners with a higher level of information exchange and more efﬁcient
coordination are likely to have a better understanding of other chain members as well as
the nature of changes especially when their systems and/or activities are well integrated.
In other words, an SCCS supported by advanced IT and adequate appropriability should
facilitate information exchange and coordination that affect supply chain responsiveness
positively (Singh 1996). Channel members with an efﬁcient SCCS tend to have a greater
ability to accommodate market changes or customer requests in a timely manner
(Clemons and Row 1992; Clemons and Row 1993; Roberts and Mackay 1998; Rogers,
Daugherty, and Stank 1993). Thus,

H4a: Information exchange facilitates supply chain responsiveness.
H4b: Coordination facilitates supply chain responsiveness.

43

Market Performance as the Ultimate Outcome

The impact of IT on ﬁrm performance can be measured in many ways. However,
this study focuses on the efﬁciency improvements made by enhanced channel capabilities.
It is argued that these channel capabilities mediate the impact of IT resources on
competitive advantage, and that the enhanced capabilities should lead to efﬁciency
improvements as an outcome. As a ﬁrm’s supply chain activities are carried out in the
markets, market performance is adopted as the ultimate outcome variable of the study, in
order to assess the impact of IT resources on ﬁrm performance through channel
capabilities. These market performance measures are expected to capture efﬁciency
improvements observed in the market as a result of enhanced channel capabilities. Some
supply chain activities are likely to affect ﬁrm market performance more than others. In
particular, various customer service quality metrics-such as ordering procedure,
timeliness, order accuracy, order ﬁll rate, and customer alertness-are likely to be closely
related to ﬁrm market performance (Stank, Crum, and Arango 1999). Thus, customer
service quality, one of the core metrics of ﬁrm’s supply chain management, is brieﬂy
discussed below.

Customer service quality is a well-studied area especially as an outcome of
logistics activities (Mentzer, Flint, and Hult 2001; Mentzer, Gomes, and Krapfel 1989;
Pisharodi and Langley 1990; Stank, Daugherty, and Ellinger 1999; Wetzels et al. 1995).
It is actually one of the most important issues for supply channel managers because it is
directly related to purchasing/logistics decision (Mentzer, Flint, and Hult 2001; Mentzer,
Gomes, and Krapfel 1989; Wetzels et a1. 1995). Five major dimensions of customer

service quality are investigated in the logistics literature: ordering procedure, timeliness,

44

order accuracy, order ﬁll rate, and customer alertness (Mentzer, Flint, and Hult 2001).
Although not explicitly investigated by this study, customer service quality provides good
evidence of enhanced information, coordination, and supply (chain responsiveness, and,
thus, of the effect of IT resources for SCCS on ﬁrm performance (Stank, Crum, and
Arango 1999).

0 Ordering procedure involves the effectiveness and ease of the order process
(Mentzer, Flint, and Hult 2001; Mentzer, Flint, and Kent 1999). An advanced and
well-integrated SCCS should provide all transaction-relevant information, and the
ordering procedure should not be comphcated or require extra work off the
system, so that the positive effect of enhanced channel capabilities will affect ﬁrm
performance as expected.

0 Delivery timeliness addresses the extent to which deliveries arrive on time
(Mentzer, Flint, and Hu1t2001; Mentzer, Flint, and Kent 1999). It implicitly
measures any unexpected redundant time, such as back-order waiting, processing
delay, or delivery delay. Therefore, an SCCS with advanced technology and
adequate appropriability should lead to improved delivery timeliness through
enhanced channel capabilities (Thatcher and Oliver 2001).

0 Order accuracy can improve ﬁrm performance by ensuring that the wrong items
or incorrect quantities are not shipped (Bienstock, Mentzer, and Bird 1997;
Mentzer, Flint, and Hult 2001; Mentzer, Flint, and Kent 1999). It is obvious that
order accuracy can be improved by enhanced channel capabilities. That is, when

a supply chain deploys SCCS properly, improved information exchange and

45

coordination are expected to reduce errors in processing orders enhancing order
accuracy.

An improved order ﬁll-rate from enhanced information exchange and
coordination also can contribute to ﬁrm performance (Emerson and Grim 1996;
Hult, Ketchen, and Nichols 2002; Mentzer, Flint, and Hult 2001). There may be
many reasons for unﬁlled or cancelled orders, such as component shortage,
unexpected orders for large-quantities, or orders for less quantity than required.
Adequate IT resources for SCCS should increase the order ﬁll-rate by
communicating information to channel partners. For example, the order-ﬁll date
for a large quantity carmot be estimated unless the channel member communicates
with other partners about incoming and/or outgoing Shipments. SCCS should
help channel members exchange the right and accurate information. Therefore,
enhanced channel capabilities should be reﬂected in an improved order-ﬁll rate.
A high level of customer alertness should be associated with enhanced
information exchange, coordination, and supply chain responsiveness. This refers
to the extent to which a ﬁrm accommodates the needs, wants, and inquiries of its
customers (Mentzer, Flint, and Hult 2001; Stank, Daugherty, and Ellinger 1999).
It is a similar metric to supply chain responsiveness, which is an immediate
channel outcome variable in this study. However, note that customer alertness is
a ﬁrm-level outcome variable whereas supply chain responsiveness is a supply

chain level variable.

46

These outcomes of supply chain activities should reﬂect enhanced channel
capabilities and be closely associated with market performance. Supporting this view,
Rogers et al.(1993) assert that IT such as EDI enables channel partners to be responsive
to customer requests. Stank, Cram, and Arango (1999) ﬁnd in their empirical study that
coordination stemming from information exchange leads to on-time delivery, efﬁcient
ordering procedures, and customer alertness. Lewis (2001, p. 7) also argues that IT
allows ﬁrms to engage in “large scale tracking of customer preferences” (p. 7) which is
eventually associated with stronger channel capabilities, including information exchange,
coordination activities, and supply chain responsiveness, and ultimately affects ﬁrm
performance. In addition, Mohr and Nevin (1990) convincingly claim that coordination
leads to ﬁrm performance. Thus,

H5a: Information exchange leads to market performance.

HSb: Coordination leads to market performance.
HSc: Supply chain responsiveness leads to market performance.

Partner Criticality as a Moderator

Although a ﬁrm may have numerous channel partners, not all partners are equally
important and critical for the success of its business (Anderson, Havila, and Sahni 2001).
Depending on the criticality of the partner, the level of information exchanged and/or the
degree of strategic integration should vary, because the exchange of internal information
more than necessary with partners could result in a leakage of its competencies (Singh
1996; Tumbull and Gibbs 1987).

Although partner criticality is likely to affect various aspects of channel
relationships, it has received very little attention from researchers. Instead, dependence

(Buchanan 1992) and power (Frazier 1983; Frazier and Summers 1986; Hickson et al.

47

1971; Johnson et al. 1993) among others have been widely studied in the channel
relationship context reﬂecting partner criticality indirectly. Furtherniore, Morgan and
Hunt (1994) investigated the role of “shared values” and “relationship beneﬁts” in
forming a long-term relationship, reporting that the commitment and trust between
partners depend on “shared values” and “relationship beneﬁts.” That is, the importance
of a channel partner may affect the other partner’s commitment in information exchange,
coordination, and strategic integration.

Firms are willing to exchange more information and integrate their systems and
activities with their critical partners in order to strengthen the relationship (Anderson,
Havila, and Salrni 2001). Therefore, ﬁrms need to determine the optimal level of
information exchange and interﬁrm integration based on their assessment of criticality for
each partner. Different levels of integration and information exchange, then, should lead
to different levels of performance. Thus, this study incorporates partner criticality as a
moderator.

H6: The impact of IT advancement and IT appropriability on information

exchange and coordination is greater when the partner is more critical
to the firm.

All the hypotheses are summarized in Table 3.

48

TABLE 3: PROPOSED HYPOTHESES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothesis Expected Sign
Hla: IT advancement facilitates SCCS integration. +
Hlb: IT appropriability facilitates SCCS integration. +
H2a: IT advancement for SCMS facilitates information +
exchange.
H2b: IT appropriability for SCMS facilitates information +
exchange.
H2c: SCCS integration facilitates information exchange. +
H3a: IT advancement leads to coordination. +
H3b: IT appropriability leads to coordination. +
H3c: SCCS integration leads to coordination. +
H3d: Information exchange facilitates coordination. +
H4a: Information exchange facilitates supply chain +
responsiveness.
H4b: Coordination facilitates supply chain responsiveness. +
H5a: Information exchange leads to market performance. +
HSb: Coordination leads to market performance. +
H5c: Supply chain responsiveness leads to market performance. +
H6: The impact of IT advancement and IT appropriability on +

information exchange and coordination is greater when the
partner is more critical to the ﬁrm.

 

 

49

 

CHAPTER 3
RESEARCH METHODS
Unit of Analysis

As discussed in chapter 1, the unit of analysis for this study is supply chain
partnerships. Since a supply chain relationship involves more than one party (e. g. buying
ﬁrm and selling ﬁrm), this study explores the perspectives of both selling and buying
ﬁrms. Ideally, informants need to have some knowledge of IT resources, the degree of
systems and activities integration with channel partners, any enhancement of channel
capabilities the ﬁrm has experienced, and the ﬁrm’s market performance.

Furthermore, because of the dyadic perspective of this study, key informants may
hold different positions. The most appropriate informant in a ﬁrm would be the supply
chain manager, considering the scope of knowledge required to ﬁll out the questionnaire.
However, although increasing, not many ﬁrms have a supply chain manager who
oversees both inbound and outbound channel activities. Consequently, some ﬁrms are
still conducting supply chain management activities as part of logistic activities.
Therefore, the primary respondents for this study are ﬁrm’s supply chain managers. But,

upon the absence of that position, alternative informants will be logistics managers.

Sampling Frame and Sampling Method

This study uses survey methodology for data collection. The sampling frame for
the survey consists of major ﬁrms with either a supply chain manager or a logistics
manager from various U.S. industries. A list of qualiﬁed managers was obtained from

the Council of Logistics Management with contact information, including email

50

addresses. Those managers are from such following functional areas as Logistics
Planning, Logistics Management, Management Information System Planning, or
International Planning and/or Operations. A web survey was deployed as its primary
means of data collection although a mail survey was also administered to support the
web-survey to ensure the quality of data collection considering the infancy stage of web

survey (Sills and Song 2002; Slevin 1997).

Web Survey Advantages

There are numerous advantages of web surveys (Kaye and Johnson 1999; Sills
and Song 2002; Weible and Wallace 1998). Low costs and fast response are major
among them and others are noted below as well.

0 L ow cost: there are no mailing expenses, such as stamps, envelopes, and
printing (Simsek and Veiga 2001).

0 F ast response: tum-around time is relatively short compared to mail surveys
(Simsek and Veiga 2001).

- W orldwide access: access to the web questionnaire is possible anywhere in
the world with Internet access.

0 E nhanced ﬂexibility: unlike a mail survey where corrections on questionnaire
are not possible once it is mailed out, a web survey is ﬂexible in terms of
making corrections or any other adaptations.

- N ew media: supplementary audio and video materials can be used to help
respondents ﬁll out the web questionnaire (Simsek and Veiga 2001).

0 Increased interactivity: respondents can get some help interactively (Simsek

and Veiga 2001).

51

° N 0 data entry: data can be saved in a database format that requires no further
coding. So, coding errors are minimized.
- S ophisticated analysis: manipulations can be made easily to the survey

instrument to conduct more sophisticated analyses than with mail surveys.

Web Survey Disadvantages
There are some disadvantages of a web survey researchers should be aware of and
cautious with. Major disadvantages of web survey have been discussed in the literature
as follows:
0 L ow response rate: web surveys tend to generate a lower response rate than do
a mail survey (Crawford, Couper, and Lamias 2001; Sills and Song 2002;
Weible and Wallace 1998).
° P ossible sampling error: a web survey cannot be conducted with respondents
who do not have Internet access (Kaye and Johnson 1999; Sills and Song
2002) raising a possible issue of sampling error. However, this issue becomes

less relevant as the Internet penetration rate increases consistently.

Implementation of web survey
The following procedure was used for the implementation of the web survey to
minimize all those potential biases.
0 T he web questionnaire was prepared based on the suggestions (e.g., a negative
impact of progress indicator) by Crawford et al. (2001), Kaye and Johnson

(1999), and Simsek and Veiga (2001).

52

0 A pre-test of web survey was conducted to determine server reliability
(Crawford, Couper, and Lamias 2001; Simsek and Veiga 2001).

- An email list was acquired.

0 A pre-test was carried out to assess the reliability of the web questionnaire.

0 E mail solicitations were sent out (Crawford, Couper, and Lamias 2001;
Simsek and Veiga 2001) inviting potential respondents to participate in the
web-survey.

0 R eminder emails were sent out after ten days to avoid any negative effect of
receiving multiple emails in a relatively short period of time although
literature recommends two days (Crawford, Couper, and Lamias 2001;
Simsek and Veiga 2001).

- T he dataset was imported and puriﬁed for analysis.

Measures

Questionnaire Development

In developing measures, the current study adapted existing scales from the

literature wherever possible. Given the exploratory nature of the study, some scale

development was necessary. In adopting scales, the following procedure, suggested by

Churchill (1979) and DeVellis (1991), was used. First, the domain of each construct was

clearly deﬁned, delineating what would be included in and excluded from the deﬁnition.

Second, the literature was searched to locate any relevant scales available for the current

study. Existing scales were adopted into the study wherever possible, or new scales were

developed if adoption from the literature was not feasible or no scale was available.

53

Multiple items were used for each construct to increase reliability. Then, the developed
instrument had been examined and puriﬁed by experienced academic researchers in SCM
before it was pre-tested with several corporate managers to enhance the quality of the
instrument and adequacy of the terms used in the scales. As a result of the pre-tests,
some scales were modiﬁed to recuperate the point each scale conveys. A brief

explanation and items for each construct are discussed below.

Measurement Items
IT Advancement

IT advancement assesses the extent to which a ﬁrm is proactive in adopting or
using the most advanced IT to build new technical solutions to answer partner’s needs
ahead of its competitor. The scales for IT advancement were adapted from Gatignon and
Xuereb (1997) and was implemented as follows:

Please circle the number that best reﬂects your agreement with the following statements
regarding information technology at your BU for supply chain communication systems (SCCS).

Strongly Strongly
Disagree Agree
1.My BU uses the most advanced IT for SCCS. 1 2 3 4 5 6 7
2. Our IT for SCCS is always state-of-art technology. 1 2 3 4 5 6 7
3. My BU is ve proactive in ado ting or developing 1 2 3 4 5 6 7
advanced IT or SCCS. p
4. Relative to our competitors, our SCCS are more advanced. 1 2 3 4 5 6 7
5. My BU is very proactive in building new technical 1 2 3 4 5 6 7
so utions to answer our partner’s needs.
6. My BU is always ﬁrst to use new IT for SCCS in our 1 2 3 4 5 6 7

industry.

7.1g1 CBSU has the will and the capacity to build sophisticated 1 2 3 4 5 6 7

8. My BU has built a strong network of relationships with 1 2 3 4 5 6 7
suppliers of technological solutions.

9.1g/IgCBSU is regarded as an IT leader in our industry for 1 2 3 4 5 6 7

54

IT Appropriability

IT appropriability is deﬁned as the ability of a ﬁrm that adopted IT to receive the
full beneﬁts of its IT (Grant 1996A) and operationalized by assessing a ﬁrm’s efforts to
accumulate technical knowledge for SCCS and to receive beneﬁts from IT for SCCS in a
way that competitors cannot imitate easily (Barney 1991; Barney, Wright, and Ketchen
2001). No scale for IT appropriability was available in the literature. Subsequently,
scales for IT appropriability were developed and implemented as follows:

Please circle the number that best reﬂects your agreement with the following statements regarding
Mbility to receive beneﬁts from SCCS in your BU.
Strongly Strongly
Disagree Agree
1. Relative to competitors, our technical knowledge for SCCS 1 2 3 4 5 6 7
is clearly superior.
2. My BU is able to utilize IT for SCCS fully. 1 2 3 4 5 6 7

3. My BU utilizes IT for SCCS in a way that competitors 1 2 3 4 5 6 7
cannot irnrtate easily.

4. My BU has abilities to capture the beneﬁts that IT for SCCS 1 2 3 4 5 6 7
can create.

5. My BU exploits IT for SCCS better than competitors. 1 2 3 4 5 6 7
6. My BU receives more beneﬁts from IT for SCCS than 1 2 3 ' 4 5 6 7
competitors.

7. My BU has high regard for the technical expertise required 1 2 3 4 5 6 7
to use SCCS.

8. My BU has extensive IT knowledge for SCCS. 1 2 3 4 5 6 7
SCCS integration

SCCS integration is operationalized by the extent to which ﬁrm’s SCCS has built-
in functions for various collaborative interﬁrm activities including collaborative
forecasting and planning. No Scales for SCCS integration were available in the literature.
Subsequently, the scales for interﬁrm integration by Bowersox, Closs, and Stank (1999)
were adapted into the study context. The scales, therefore, are expected to capture the
degree of SCCS integration, which should be distinguished from interﬁrm activity
integration. The items used for SCCS integration are as follows:

55

Please circle the number that best reﬂects your agreement with the following statements regarding
the functiorralitv ofyour SCCS.
Strongly Strongly
Disagree Agree

1. Our SCCS has built-in functions to collaborate forecasting 1 2 3 4 5 6 7
and planning wrth our partner. .

2. My BU can forecast and plan collaboratively with our 1 2 3 4 5 6 7
partner through SCCS.
3. Our SCCS allows us to project and plan future demand 1 2 3 4 S 6 7

collaboratively with our partner.

4. Collaboration in demand forecasting andelanning with our 1 2 3 4 5 6 7
partner is always possible through our S CS.

5. Please check all items that apply.

Onlinaengrders Automatic Collaborative Collaborative
Fulﬁllment Replenishment Forecastrng Planning
My BU and
our partner actually :> ( ) ( ) ( ) ( )
0
Our SCCS is capable of :> ( ) ( ) ( ) ( )
Information Exchan_g§

 

Information exchange assesses the extent to which channel partners exchange
timely, accurate, adequate, complete, and credible information about customers, markets,
and transactions more frequently (Mohr and Sohi 1995). Scales was developed to
measure the amount of information exchange between channel partners as follows:

Please circle the number that best reﬂects your agreement with the following statements regarding
your information exchaagg with your primary partner.
Strongly Strongly
Disagree Agree
1. My BU exchanges more informatron with our partner than 1 2 3 4 5 6 7
our competitors do with their partners.

2. Information ﬂows more freely between my BI] and our 1 2 3 4 5 6 7
partner than between our competitors and their partners.

3. My BU beneﬁts more from. information exchange with our 1 2 3 4 5 6 7
partner than do our competitors ﬁ'om their partners.

4. Our. information exchange with our partner is superior to 1 2 3 4 5 6 7
the mformatron exchanged by our competitors wrth their
partners.

56

In addition, scales are adopted from Mohr and Sohi (1995) to assess the quality of
information exchange between channel partners as follows:

To what extent is your information exchange with your partner:

Untimely 1 2 3 4 5 6 i 7 Timely
Inaccurate l 3 4 5 6 7 Accurate
Inadequate l 2 3 4 5 6 7 Adequate
Incomplete 1 2 3 4 5 6 7 Complete
Not credible 1 2 3 4 5 6 7 Credible

Coordination

Coordination in this study refers to a ﬁrm’s activities involved in transactions
between ﬁrms. This study hypothesizes that IT resources lead to efﬁcient coordination
because less time and costs for the same transaction are minimized (Clemons and Row
1992; Clemons and Row 1993; Evans, Naim, and Towill 1993; Roberts and Mackay
1998; Steinﬁeld, Kraut, and Plummer 1995). The scales for coordination were developed
to assess the efﬁciency of ﬁrm coordination activities with its partner as. follows:

Please circle the number that best reﬂects your agreement with the following statements regarding
your efﬁciency Of transaction coordination activities.

 

Strongly Strongly
Disagree Agree
1. Our partner spends less time searching for information I 2 3 4 5 6 7

about our products than its major competitors do for the
InformatIon of then own partner’s products.

2. Our partner has reduced product searchng costs more than 1 2 3 4 5 6 7
Its competitors.

3. My BU is more efﬁcient in coordination activities with our 1 2 3 4 5 6 7
partner than are our competitors wrth theirs.

4. My BU conducts transaction follow-up activities more 1 2 3 4 5 6 7
elf Icrently With our partner than do our competitors wrth
t errs.

5. My BU spends less time coordinating transactions with our 1 2 3 4 5 6 7
partner than do our competitors wrth theirs.

6. My BU. has reduced coordinating costs more than our 1 2 3 4 5 6 7
competitors.

7. My BU can conduct the coordination activities at less cost 1 2 3 4 5 6 7
than our competitors.

57

Supply Chain Responsiveness

Supply chain responsiveness is conceptualized as the extent to which the whole
supply chain reacts quickly and effectively to new inquiries stemmed form environmental
or market changes or developments. The scales for this construct were adapted from
Bello and Gilliland (1997) and McGinnis and Kohn (1990). Adaptation was needed
because the existing scales measured the ﬁrm-level responsiveness, whereas the focus of
this study is the supply chain level responsiveness. The items for supply chain
responsiveness are as follows:

Please circle the number that best reﬂects your agreement with the following statements regarding
the responsiveness of your supply chain (i.e. your BU and Your partner together).
Strongly Strongly
Disagree Agree
1. The relationship with our partner has increased our supply 1 2 3 4 5 6 7

chain responsiveness to market changes through
collaboratron.

2. Compared to our competitors, orn' supply chain responds 1 2 3 4 5 6 7
more quickly and effectrvely to changing customer or
supplrer needs.

3. Compared to our competitors, our supply chain responds 1 2 3 ~ 4 5 6 7
more quickly and effectively to changing competitor

strategies.
4. Compared to our com etitors, our supply chain develops 1 2 3 4 5 6 7
and markets new pr ucts more qurc y and effectively.

5. In most of our markets, our supply chain is competing 1 2 3 4 5 6 7
effectively.

Performance

F rrm level performance is operationalized by market performance. Scales were
adopted ﬁ'om Sarkar (1999) and Sarkar, Echambadi, and Harrison (2001) to assess ﬁrm
market performance in sales growth, market share, market development, and product
development as follows:

The items below assess the degree to which IT investment in your BU has affected your BU’s
performance. Please circle the number that best reﬂects your agreement with the following
statements.

58

Strongly Strongly
Disagree Agree
1, My BU performs much better than competitors in sales 1 2 3 4 5 6 7
gr_'o h.

2, My BU performs much better than competitors in market 1 2 3 4 5 6 7
s are.

3. My BU performs much better than competitors in market 1 I 2 3 4 5 6 7
development.

 

4, My BU performs much better than competitors in 1 2 3 4 5 6 7
product development.
5. M BU performs much better than competitors in 1 2 3 4 5 6 7

al iances/partners.

Partner Criticality

Partner criticality refers to the importance of a channel partner for the success of
the focal ﬁrm (Anderson, Havila, and Salmi 2001). Scales for the construct were
developed to assess the importance of partner in terms of meeting customer requirement,
long-term beneﬁt, and focal ﬁrm’s core competency and implemented as follows:

Please circle the number that best reﬂects your agreement with the following statements
regarding ypurprirmrv partner.

Strongly . Strongly
Disagree Agree
1. Our partner is important for meeting customer 1 2 3 4 5 6 7
requirements
2. Our partner is critical for our SBU’s long-term beneﬁt 1 2 3 4 5 6

3. Our partner is important for our SBU’s core competency. 1 2 3 4 5 6

59

CHAPTER 4
ANALYSIS AND FINDINGS

Data Collection and Nonresponse Bias

For the study, it was important to seek the opinions of executives who specialized
in supply chain management or logistics. After considering various trade associations,
this study sought cooperation from the Council of Logistics Management, which
provided a list of their member companies. It was important for us to include qualiﬁed
managers only to increase the response rate. So, consultants, freight forwarders, third-
party logistics companies were eliminated from the database, which left a pool of 1,949
managers on the list. A preliminary request was sent out via email to these managers
requesting their participations in our study. There were 223 emails returned as
undeliverable for various reasons, such as recipient out of the ofﬁce, user name not valid,
or recipient no longer with the company. Another ﬁve managers indicated that they were
not interested in participating the study. The remaining 1,726 managers were contacted
with a URL link to the web-survey, and 264 responses were received within the self-
established three-week deadline. Any responses thereafter were not included in the
analysis. Therefore, the effective response rate was 15.3% (264/1,726). But, only 184
responses were analyzed, as the remaining 80 were incomplete.

Subsequently, nonresponse bias was assessed by grouping responses into two
groups: early responses vs. late responses (Armstrong and Overton 1977). Table 4
presents the results of t-test for selected variables. According to the results, there is no

signiﬁcant nonresponse bias present in the dataset (Armstrong and Overton 1977).

60

TABLE 4: NON-RESPONSE BIAS ASSESSMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Early Late
Variable Respondents Respondents t-value
Mean Mean ‘

Annual sales 2529.66 1882.55 .703
mm“ °f 7383.31 6606.11 .285
employees

Ups‘ream mum] 937.50 814.55 .286
members

D°wnsueam 7624.75 1712.00 1.257

channel members
Yeti f“ ma)“ IT 1994.22 1992.26 1.743
Investment
IT advancement 3.7773 3.5543 1.157
IT appropriability 4.0154 3.7598 1.317
SCCS integration 3.5947 3.3382 1.014

 

Table 5 presents the number and distribution of the responses by industry.
Respondents are from various major industries, including computer and communication
(13.0%), consumer products (17.9%). industrial machinery (15.8%), automotive (9.2%),
electronic equipment (9.2%), chemical (4.9), and other industries (21.2%).

TABLE 5: INDUSTRY DISTRIBUTION OF RESPONDENTS

 

 

 

 

 

 

 

 

 

 

 

Number of 0

Industry Responses /°
Automotive 17 9.2
Computer and communication 24 13.0
Consumeﬂiroducts 33 17.9
Chemical 9 4.9
Electronic equipment 17 9.2
Industrial machinery 29 15.8
Medical equipment 12 6.5
Other 39 21.2
Not reported 4 2.2
Total 184 100.0

 

 

 

 

 

61

Measurement Model

Before proceeding to conduct data analyses to test the hypotheses embedded in
the theoretical model, conﬁrmatory factor analysis (CFA) is. carried out as part of two-
step approach (Anderson and Gerbing 1982; Anderson and Gerbing 1988; Bollen 1989)
to investigate the validity of each construct using EQS for Windows 5.7b (Bentler 1989).
Particular attention was given to those scales developed originally for this study including
IT appropriability and IT advancement. Before the overall CFA model is investigated, a
nested CFA was carried out with those three IT resource constructs (i.e., IT advancement,
IT appropriability, and SCCS integration) to assess their construct validity among them.
In the puriﬁcation process of items, some items that were weakly loaded on their
respective constructs were eliminated due to problems with convergent validity.
Furthermore, items that are cross-linked to multiple constructs weakening discriminant
validity were examined and deleted if necessarily for the item level discriminant validity
based on the multivariate Lagrange Multiplier (LM) test. There were at least three
puriﬁed items for each construct remained that will be included in the overall CF A model
later.

The CFA results based on those puriﬁed items revealed an excellent ﬁt between
the CFA model and the dataset with Chi-square of 30.378 on 32 d.f., Comparative Fit
Index (CFI) of 1.000, and Root Mean Square Error of Approximation (RMSEA) of 0.0 as
Table 6 presents. Items loaded on each hypothesized construct signiﬁcantly as expected
and no construCt suffers from a lack of convergent validity or the presence of
discriminant validity at the construct level, as all correlations between constructs were

signiﬁcantly different from 1.00 (Bagozzi, Yi, and Phillips 1991; Bumkrant and Page

62

1982; Schmitt and Stults 1986). Most other ﬁt indexes were close to 1.00, conﬁrming the

excellent ﬁt.

TABLE 6: GOODNESS OF FIT INDEXES OF CFA FOR IT CONSTRUCTS
Chi-square = 30.978

 

Degrees of Freedom = 32
Comparative Fit Index (CFI) = 1.000

Bentler-Bonett Nonned Fit Index = 0.978
Root Mean Sq. Error of App. (RMSEA) = 0.000

90% Conﬁdence Interval of RMSEA (.000, .052)

IT advancement
Constructs Included: IT appropriability
SCCS integration

 

 

 

 

Another nested CFA model was carried out with channel capability constructs,
including information exchange, coordination, and supply chain responsiveness, along
with market performance. The same puriﬁcation process deployed for the ﬁrst nested
CFA model was used to purify items again using EQS for Windows 5.7b (Bentler 1989).
The CFA results based on those puriﬁed items indicated a very good ﬁt of the CF A
model with the dataset with a Chi-square of61.891 on 48 degrees of ﬁeedom, CFI
of .990, and RMSEA of .040, as shown in Table 7. Just like the ﬁrst nested CFA model,
all items are loaded signiﬁcantly on the expected constructs while no construct pair

suffered from lack of discriminant validity.

63

TABLE 7: GOODNESS OF FIT INDEXES OF CFA FOR CHANNEL
CAPABILITIES AND PERFORMANCE

Chi-square = 61.891

 

Degrees of Freedom = 48
Comparative Fit Index (CFI) = 0.990

Bentler-Bonett Normed F it Index = 0.958
Root Mean Sq. Error of App.(RMSEA) = 0.040

90% Conﬁdence Interval of RMSEA (.000, .066)

Information exchange
Coordination

Supply chain responsiveness
Market performance

 

Constructs Included:

 

 

 

Based on the two nested CFA models, the overall CFA with all constructs was
carried out using EQS for Windows 5.7b (Bentler 1989). The results of the overall CFA
model yielded excellent ﬁt indexes including Chi-square of 213.473 based on 188
degrees of freedom, CFI of .991, Normed F it Index of .932, and RMSEA of .028,
indicating that the measurement model has a very good ﬁt with the covariances provided
by the sample. As a part of a unidimensionality assessment of each construct, convergent
validity and discriminant validity at both the item level and the construct level were
assessed ﬁrst. For convergent validity, the standardized loading of each item must be
greater than .5 (Bagozzi and Yi 1988; Bagozzi, Yi, and Phillips 1991). And all
correlations between two constructs should be signiﬁcantly less than zero for
discriminant validity (Bagozzi, Yi, and Phillips 1991). According to the results, items
were loaded appropriately on their respective constructs and no standardized loading was
less than .5, which means that there is an adequate level of convergent validity

established for each construct. Moreover, no construct in the measurement model is

64

suffering from discriminant validity at the construct level, as all correlations between
constructs were signiﬁcantly different from 1.00 (Bagozzi, Yi, and Phillips 1991).

In addition, discriminant validity at the item level was assessed. Assessing the
item level discriminant validity was important for the current study as it incorporated
newly developed scales for IT constructs. Thus, the item level discriminant validity was
assessed using primarily Lagrange Multiplier (LM) test (Bentler 1989). The LM test
results indrcated that one item of IT advancement might be correlated signiﬁcantly with
two items of SCCS integration. Subsequently, the covariances between those items were
assessed by running another CF A model with their covariances freed. Unlike the LM test
results, a further assessment on the covariances revealed no signiﬁcant correlation
between those items (p> .10). Furthermore, the Chi-square difference between the two
CFA models also revealed the same as no signiﬁcant correlation was found between
those items. Therefore, the item level discriminant validity for the overall CFA model
was established. 2

As a ﬁnal step to assess the unidimensionality of each construct (Churchill 1979;
Fornell and Larcker 1981; Gerbing and Anderson 1988), composite reliability for each
construct was calculated using the formula suggested by Fornell and Larcker (1981). As
shown in Table 8, all composite reliabilities are above .7, which indicates that measures
adopted for each construct are reliable (Bagozzi and Yi 1988; F omell and Larcker 1981).
Table 8 also provides items deployed in the overall CFA model and their standardized

loadings.

65

TABLE 8: MEASURES AND COMPOSITE RELIABILITIES

 

 

 

 

 

 

 

 

 

 

Constructs and Measures Smmm m

IT Advancement .8163
My BU uses the most advanced IT for SCCS. .755
My BU is very proactive in building new technical solutions to answer .828
our partner’s needs.
My BU is always ﬁrst to use new IT for SCCS in our industry. .733
IT Appropriability .8879
Relative to competitors, our technical knowledge for SCCS is clearly .866
superior.
My BU utilizes IT for SCCS in a way that competitors cannot imitate .775
easily.
My BU receives more beneﬁts from IT for SCCS than competitors. .910
SCCS Integration .9362
Our SCCS has built-in functions to collaborate forecasting and .765
planning with our partner.
My BU can forecast and plan collaboratively with our partner through .941
SCCS.
Our SCCS allows us to project and plan future demand collaboratively .902
with our partner.
Collaboration in demand forecasting and planning with our partner is .929
always possible through our SCCS.
Information Exchange .8929
To what extent is your information exchange with your primary
partner:

Inadequate ................... Adequate .880

Incomplete ................... Complete .920

Not credible ................... Credible .738

Coordination .8865
My BU is more efﬁcrent in coordination activities with our partner .867
than are our competitors with theirs.
My BU conducts transaction follow-up activities more efﬁciently with .966
our partner than do our competitors with theirs.
My BU Spends less time coordinating transactions with our partner .702
than do our competitors with theirs.
Supply Chain Responsiveness .8683
Compared to our competitors, oru' supply chain responds more quickly .871
and effectively to changing customer or supplier needs.
Compared to our competitors, our supply chain responds more quickly .881
and effectively to changing competitor strategies.
Compared to our competitors, our supply chain develops and markets .729

new products more quickly and effectively.

 

 

 

66

 

TABLE 8 (’Cont’d)

 

 

SI I l' I .
Constructs and Measures Parannter (W

Market Performance ‘ .8374

My BU performs much better than competitors in sales ggowth. .770

My BU performs much better than competitors in market .881

development.

My BU performs much better than competitors in p_roduct

development. .729

 

 

 

CFA Model Goodness of Fit Indexes:
Chi-s uare: 207.618 on 188 d.f.
CFI: . 91
NFI: .932
RMSEA: .028
90% Conﬁdence Interval of RMSEA (.000, .044)

 

 

 

Structural Model

A full latent variable model with items adopted from the overall CFA model was
estimated (Anderson and Gerbing 1988; Bentler 1989; Bollen 1989) using EQS for
Windows 5.7b (Bentler 1989). The structural nature of the research framework strongly
favors the use of structural equation modeling (SEM). The results revealed a very good
ﬁt between the theoretical model and the empirical covariances provided by the sample
with a Chi-square of 226.451 on 194 degrees of freedom, CFI of .989, NFI of .928, and
RMSEA of .031, as shown in Table 9. These goodness of ﬁt indexes are well above
acceptable levels, and so it can be concluded that hypothesis testing based on this model
is reliable.

Also shown in Table 9 are standardized parameter estimates and t-value for each
parameter. According to the results, Hypothesis 1a, which states that IT advancement

facilitates SCCS integration, is supported with a standardized coefﬁcient of .697 (p<.01).

67

Hypothesis lb postulates that IT appropriability facilitates SCCS integration and is not
supported (p>. 10).

The next set of hypotheses relates to information exchange. The facilitating role
of IT advancement proposed in Hypothesis 2a is not supported empirically (p> .10).
Support is found. however, for Hypothesis 2b, which states that IT appropriability for
SCCS facilitates information exchange; the standardized coefﬁcient is .421 (p<.05). The
claim that SCCS integration leads to information exchange as stated in Hypothesis 2c, is
also supported: the standardized coefﬁcient is .284 (p<.01).

Hypothesis 3a, which claims that IT advancement leads to coordination, is not
supported (p>.10). In contrast, the results reveal that IT appropriability leads to
coordination, as stated in Hypothesis 3b. Therefore, Hypothesis 3b is supported with a
standardized coefﬁcient of .433 (p<.05). Also supported is Hypothesis 3c, which
postulates that SCCS integration leads to coordination; the coefﬁcient is .303 (p<.01).
The claim that information exchange facilitates coordination is supported with a
standardized coefﬁcient of .265 (p< .01). So Hypothesis 3d is supported.

Hypothesis 4a, which states that information exchange facilitates supply chain
responsiveness, is supported; the standardized coefﬁcient is .158 (p< .05). Coordination
is also expected to facilitate supply chain responsiveness, according to Hypothesis 4b,
which is strongly supported with a standardized coefﬁcient of .608 (p< .01).

There are three constructs that are expected to lead to ﬁrm market performance.
Hypothesis 5a deals with the effect of information exchange on market performance and
is supported with a standardized coefﬁcient of .202 (p<.05). However, Hypothesis 5b,

which asserts that coordination leads to market performance, is not supported (p> .10).

68

Finally, the current study maintained that supply chain responsiveness leads to market
performance, as stated in Hypothesis 5c. It is strongly supported with a standardized
coefﬁcient of .458 (p< .01).

Table 9 and Figure 4 summarize the results of hypothesis testing of the current

study. In the ﬁgure, the arrows in boldface show supported paths.

69

TABLE 9: PROPOSED HYPOTHESES AND TEST RESULTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Standardized
Hypothesis Parameter t-value Conclusion
Estimate

Hla: IT advancement facilitates SCCS .697 3.085" Supported
integration.

Hlb: IT appropriability facilitates SCCS -.150 -.708 Not
integration. Supported

H2a: IT advancement for SCCS facilitates -.133 -.560 Not
information exchange. Supported

H2b: IT appropriability for SCCS facilitates .421 1980* Supported
information exchange.

H2c: SCCS integration facilitates information .284 2.966" Supported
exchange.

H3a: IT advancement leads to coordination. -.114 -.576 Not

Supported

H3b: IT appropriability leads to coordination. .433 2365* Supported

H3c: SCCS integration leads to coordination. .303 3.600“ Supported

H3d: Information exchange facilitates .265 3.671" Supported
coordination.

H4a: Information exchange facilitates supply .158 2063* Supported
chain responsiveness.

H4b: Coordination facilitates supply chain .608 7 .412" Supported
responsiveness. .

H5a: Information exchange leads to market .202 2.277 "‘ Supported
performance.

H5b: Coordination leads to market performance. -.025 -.226 Not

Supported

H5c: Supply chain responsiveness leads to .458 3.976""'I Supported

market performance.

 

 

Structural Model Goodness of Fit Indexes:
Chi-square: 226.451 on 194 d.f.
CFI: .989
N'FI: .928
RMSEA: .031
90% Conﬁdence Interval of RMSEA (.000, .046)

* p<.05
** p<.01

 

70

 

 

 

 

 

 

 

 

 

 

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71

The Moderating Effects of Partner Criticality

The moderating effects of partner criticality on the impact of IT advancement and
IT appropriability on channel capabilities (i.e., information exchange and coordination)
were assessed by a two-group analysis with EQS for Windows 5.7b (Bentler 1989). First,
the data were split into two groups based on the parceled level of partner criticality. Then,
a two-group analysis was carried out with constraints on paths between IT resource
constructs and charmel capability constructs. To avoid sample size issues of the model, a
nested model of the empirical model was deployed. That is, supply chain responsiveness
and market performance were dropped as the primary objectives of the two-group model
is to investigate any moderating effects partner criticality may have on the relationships

between IT resource constructs and channel capability constructs as depicted in Figure 5.
Figure 5: Two-Group Analysis

Information
alt Exchange
1T

Advancement *

 

SCCS
Integration

’1!

III
IT at:
. ppropriabili V
*
Coordination

* Path constrained

 

 

ll IT Resources I Channel Capability

 

72

The low partner criticality group includes 73 cases whereas the high partner criticality
group has 110 cases. The goodness of ﬁt indexes indicate a very good ﬁt of the two-
group model with the covariances provided by the sample with a Chi-square of 239.078
on 196 d.f., CFI of .980, NFI of .901, NNFI of .976, and RMSEA of .036. AS shown in
Table 10, the results reveal that none of the constrained paths have a signiﬁcant Chi-
square difference across the two groups at 5% level. The univariate Chi-square
difference ranges ﬁ'om .135 for the IT appropriability 9 SCCS integration path to 2.149
for the IT appropriability 9 Information exchange path. Therefore, according to the
results of Chi-square difference tests, Hypothesis 6 is not supported.

However, it is worth noting the standardized coefﬁcient of some paths (i.e., IT
appropriability 9 SCCS integration, IT appropriability 9 Information exchange, IT
appropriability 9 coordination, and SCCS integration 9 information exchange) is in line
with our expectations. That is, the coefﬁcients of those paths are greater. in the high
partner criticality group than in the low criticality group as hypothesized although the
differences between the two groups are not statistically signiﬁcant. Other paths including
IT advancement 9 SCCSintegration, IT advancement 9 information exchange, IT
advancement 9 coordination, and SCCS integration 9 coordination, reveal a greater
coefﬁcient in the low partner criticality group than in the high criticality group. In sum,
although the differences are not signiﬁcant, IT advancement has a greater impact on
channel capabilities in the low partner criticality group than in the high criticality group,
whereas IT appropriability shows a greater impact on channel capabilities in the high

partner criticality than in the low partner criticality.

73

The result of t-test for the IT appropriability 9 coordination path ﬁom the two-
group analysis is contradictory to that of Chi-square difference test. Speciﬁcally, unlike
the insigniﬁcant Chi-square difference reported by the two—group analysis, the path
coefﬁcient of the high partner criticality is .430 (p < .05) while that of the low partner
criticality is -. 155 (p >. 10). Since their signs are opposite and the coefﬁcient for the high
partner criticality group is signiﬁcantly different from zero (p <.05), the t-test results
actually reveal that the two coefﬁcients are signiﬁcantly different from each other. That
is, the result of Chi-square difference test is inconsistent with that of t-test on the IT
appropriability 9 coordination path. Therefore, the inconsistent t-test and Chi-square
difference test results could suggest that the moderating effects of partner criticality may

be inconclusive.

74

 

 

 

 

m FWMIIILIHIMILIFQ \, 1\

 

CRITICALITY

TABLE 10: TWO GROUP ANALYSIS ON THE MODERATING EFFECTS OF PARTNER

 

coordination is greater when the partner 1S more critical to the ﬁrm.
)

H6: The impact of IT advancement and IT appropriability'on information exchange and

 

 

 

 

 

 

 

 

 

 

(Not Supporte
Standardized
Parameter Estimate“
H’ Univariate
Individual Path L0“! Partner pager Chi-Square Conclusion
chtigiiiity Criticality Difference
Group
(73 Cases) (110 Cases)
IT Advancement Not
1.386 .605* .777
SCCS Integration Supported
IT Advancement Not
-.044 -.216 1.654
Information Exchange Supported
IT Advancement Not
.366 .008 .270
Coordination Supported
IT appro riability
I: -920 -.031 .135 S“ Nam,
SCCS Integration ppo
IT appro riability
I .361 .471 2.149 Sn Mind
Information Excharge ppo
IT apprepriability N t
-.155 430* 1.133 ° ,..
Coordination Supported“
SCCS Integration
0 .071 .376* 2.074 S“ Ngited
Information Exchange pp
SCCS Integration
~12 276* 213* .211 Sn ”ﬂed
Coordination ppo

 

 

 

 

 

Structural Model Goodness of Fit Indexes:
Chi-square: 239.078 on 196 d.f.

CF]: .980

NF’ ‘91

‘36

 

est for the difference from zero

difference test and t-test reveal conﬂicting results on this path.

 

 

75

Indirect Effects of IT Resources on Intermediate and Outcome Variables

The EQS output of the theoretical model also provided test results for the indirect
effects of IT resources on intermediate and ultimate outcome variables. Even though
these results were not hypothesized and tested explicitly, they offer important theoretical
and managerial implications. Because this study investigates the extent to which IT
resources inﬂuence ﬁrm performance through its various channel capabilities, it is worth
discussing these results of indirect effects of IT resources.

First, whether or not IT resources (i.e., IT advancement and IT appropriability)
have a signiﬁcant impact on the immediate outcome variable, supply chain
responsiveness, and the ultimate outcome variable of the model, market performance,
was assessed. The paths included to assess the indirect effects of IT advancement on
supply chain responsiveness are as follows:

0 IT advancement 9 SCCS integration 9 Information Exchange 9 Supply Chain
Responsiveness

0 IT advancement 9 SCCS integration 9 Coordination 9 Supply Chain
Responsiveness

0 IT advancement 9 SCCS integration 9 Information Exchange 9 Coordination
9 Supply Chain Responsiveness

According to the results, IT advancement does not have a signiﬁcant effect on
supply chain responsiveness or market performance. That is, the total indirect effect of
IT advancement on supply chain responsiveness through signiﬁcant paths is not

signiﬁcant (p> .10) as shown in Table 10.

76

Furthermore, the indirect effect of IT appropriability on supply chain
responsiveness also was investigated. The relevant paths included to assess the indirect
effects are as follows:

0 IT Appropriability 9 Information Exchange 9 Supply Chain Responsiveness
0 IT Appropriability 9 Coordination 9 Supply Chain Responsiveness

0 IT Appropriability 9 Information Exchange 9 Coordination 9 Supply Chain
Responsiveness

According to the results, IT appropriability has a signiﬁcant impact on supply chain
responsiveness, with a standardized coefﬁcient of .357 (p< .05).

Next, the indirect effect of IT advancement on market performance was examined.
The paths included for this assessment are as follows:

0 IT advancement 9 SCCS integration 9 Information Exchange 9 Supply Chain
Responsiveness 9 Market Performance

0 IT advancement 9 SCCS integration 9 Coordination 9 Supply Chain
Responsiveness 9 Market performance

0 IT advancement 9 SCCS integration 9 Information Exchange 9 Coordination
9 Supply Chain Responsiveness 9 Market Performance

0 IT advancement 9 SCCS integration 9 Information Exchange 9 Market
Performance

The results reveal that IT advancement has no signiﬁcant effect on market performance
(p> . 1 0).

In contrast, IT appropriability shows a signiﬁcant inﬂuence on market
performance, with a standardized coefﬁcient of .198 (p< .05). The paths included in the
assessment of the indirect effect of IT appropriability on market performance are as
follows:

0 IT Appropriability 9 Information Exchange 9 Supply Chain Responsiveness 9
Market Performance

77

0 IT Appropriability 9 Coordination 9 Supply Chain Responsiveness 9 Market
Performance

0 IT Appropriability 9 Information Exchange 9 Coordination 9 Supply Chain
Responsiveness 9 Market Performance

0 IT Appropriability 9 Information Exchange 9 Market Performance

Finally, the indirect effects of IT resources on channel capabilities such as
information exchange and coordination were assessed. The paths used in the evaluation
are:

0 IT advancement 9 SCCS integration 9 Information Exchange
0 IT advancement 9 SCCS integration 9 Coordination
0 IT advancement 9 SCCS integration 9 Information Exchange 9 Coordination

The results reveal that IT advancement contributes to ﬁrm channel capabilities through
SCCS integration, as shown in Table 12. That is, the indirect impacts of IT advancement
on information exchange and coordination are signiﬁcant with standardized coefﬁcients
of .198 (p< .05) and .229 (p< .05), respectively.

Surprisingly, IT appropriability does not indirectly contribute to coordination
through information exchange. Therefore, IT appropriability has direct effects on
channel capabilities only as discussed previously. The path adopted to assess the indirect
effect of IT appropriability is as follows:

0 IT Appropriability 9 Information Exchange 9 Coordination
Table 11 and 12 summarize the paths and results of tests on the indirect effects of

IT resources on channel capabilities and market performance.

78

TABLE 11: INDIRECT EFFECTS or IT RESOURCES ON OUTCOME VARIABLES

 

 

 

 

 

 

1 . . Path
Indirect Effect Signrficant Mediated Paths Magnitude t-value
IT Advancement xx. in.)
4 ,,.,.\_,_a\ﬂ
. 1 111 g 1 ,r .080 .587
Supply Charn . Ll /v v
Responsiveness ,’ 1
IT appropriability ,
‘1’ l ’A‘ an:
Responsiveness
IT Advancement F 1 l 'j _
4’ V \11\\_.:, .047 .514
Market Performance , :1 ill/
IT appropriability
*1! J 1‘ .228 2.348“

Market Performance

 

 

 

 

 

"' p<.05
** p<.01

 

79

 

TABLE 12: INDIRECT EFFECTS OF IT RESOURCES ON CHANNEL CAPABILITIES

 

 

 

 

 

 

 

 

Indirect Effect Significant Mediated Paths Path t-value
Magnrtude
IT Advancement i 1\ (f) A ”A
~11 V; k) 1] .198 2066*
Information Exchange 7 (A
IT Advancement :\ :Ir' '2 A ,2.
*1! a” 1V. (V; .229 1.961*
Coordination . “ 3 K,
V“ 1' ‘1
IT Appropriability : ”LI A \
~11 /: 1V! V1 .055 .558
Coordination . -
\./ I \)

 

* p<.05
** p<..01

 

 

80

 

CHAPTER 5
DISCUSSION AND IMPLICATIONS
The Impact of IT advancement on Channel Capabilities

As discussed in chapter 2, IT resources are expected to facilitate channel
capabilities of ﬁrms including information exchange, coordination, and supply chain
responsiveness. In particular, IT advancement and IT appropriability that meet the
conditions for a resource as claimed by RBV should have a positive impact on the
channel capabilities of ﬁrms (Barney 1991; Barney, Wright, and Ketchen 2001; Collis
1994). For instance, IT resources should be well embedded into a ﬁrm’s core
competency and decision making process in order to enhance channel capabilities
(Barney 1991; Barney, Wright, and Ketchen 2001; Grant 1996A; Porter 2001). However,
according to the study results, IT advancement does not facilitate information exchange
or coordination directly. Proactive adoption or use of the latest IT in an effort to build
new technical solutions to answer partner’s needs ahead of its competitors, as reﬂected in
IT advancement, does not directly help ﬁrms enhance interﬁrm information exchange and
coordination as Hypothesis 2a and 3a were not supported.

Furthermore, the results further suggest that ﬁrm IT advancement is only helpful
when its impact is mediated by SCCS integration, as suggested by support for hypotheses
1a, 2c, and 3c. When IT advancement enhances SCCS functions such as collaborative
forecasting and planning, ﬁrms gain improved interﬁrm information exchange and

coordination capabilities within the channel relationship. This implies that ﬁrms

81

interested in improving channel capabilities with IT1 investment should focus on systems
integration with partners. Therefore, ﬁrm’s investments in IT advancement in an effort to
enhance channel capabilities that, however, are not aimed at integrating interﬁrm systems
for collaborative interﬁrm activities, would not necessarily lead to what it is seeking.

Then, why there is no direct impact of IT advancement on information exchange
and coordination but an indirect impact through SCCS integration? The message ﬁ'om
the results is that IT advancement for supply chain activities should focus on enhancing
the interﬁrm nature of SCCS. That is, a ﬁrm’s efforts to adopt the most advanced IT
available without an IT strategy as to how IT will be utilized for supply chain activities
are likely to result in no favorable impact.

There are two evidences that support this argument. First, IT advancement has an
indirect impact only on channel capabilities through SCCS integration. SCCS integration
here is likely to reﬂect the strategic IT adoption of ﬁrms. In other words, SCCS
integration can be viewed as an outcome of IT investments aimed speciﬁcally at
integrating communication systems across channel partners. Therefore, only the IT
advancement that targets the functional enhancement of interﬁrm systems (i.e. SCCS)
among channel partners is likely to improve interﬁrm information exchange and
coordination activities through SCCS integration. On the other hand, IT advancement
that does not focuses on the enhancement of online interactions with channel partners
would deliver no additional value in terms of interﬁrm information exchange and

coordination activities.

 

1 Although this chapter uses the term, IT, heavily, it is a generalized term from SCCS, which is
the context the research model was tested.

82

For illustration, suppose a ﬁrm that is interested in deploying the latest technology
(e. g. internet-based EDI) for its SCCS. If the ﬁrm is purporting to upgrade technology
only without any functional enhancement with the latest technology, the IT investment is
likely to result in an incremental improvement of channel capabilities. However, if the IT
upgrade sought additional functions such as online collaborative planning or forecasting,
then it is likely to improve overall interﬁrm information exchange as well as coordination
activities.

Second, IT appropriability with a direct impact only on channel capabilities
indicates the need for a clear IT strategy. IT appropriability is likely to be improved only
with a good IT strategy. As it reﬂects how a ﬁrm accumulates IT knowledge and skills
for SCCS, it implies the existence of IT strategy within the ﬁrm. Since IT appropriability
also reﬂects the existence of ﬁrm IT strategy, it should inﬂuence channel capabilities
without the mediation by SCCS integration as suggested by the results.

The results regarding SCCS integration and IT appropriability, therefore, reveal
how crucial the adoption of IT investment strategy for supply chain management is. That
is, only IT advancement with an IT strategy that focuses on functional improvement in
SCCS and that is used to its full potential will enhance channel capabilities as well as
ﬁrm performance. If there is no IT strategy as to what it is deployed for or what interﬁrm
functions are added on the current SCCS, it is unlikely to result in channel capability
enhancement. Therefore, an IT strategy for IT advancement is a critical necessary

condition for the enhancement of channel capabilities and performance from the IT.

83

The Impact of IT Appropriability on Channel Capabilities

Unlike IT advancement, IT appropriability that mirrors a ﬁrm’s ability to make
full use of IT for SCCS adds value to the channel capabilities of ﬁrms as Hypothesis 2b
and 3b were supported. In other words, ﬁrm’s efforts to accumulate technical knowledge
about SCCS and how to receive beneﬁts from relevant IT in a way that competitors
cannot easily imitate, will enhance the channel capabilities of ﬁrms. The impact of IT
appropriability on channel capabilities is not mediated by SCCS integration, as
Hypothesis 1b is not supported. In other words, IT appropriability directly affects
interﬁrm information exchange and coordination activities but not indirectly through
SCCS integration. This ﬁnding is opposite to that for IT advancement that affects
channel capabilities of ﬁrms only indirectly.

Interestingly, IT appropriability as a ﬁrm’s resource does not seem to have a
parallel role with IT advancement, another IT resource, with regard to SCCS integration.
IT advancement requires the mediation of such integration in order to affect channel
capabilities and performance, whereas IT appropriability has a direct impact on interﬁrm
information exchange and coordination activities. Then, does it necessarily suggest that
IT appropriability does not need any IT strategy? Why does SCCS integration not
mediate the impact of IT appropriability?

Actually, the ﬁnding is in line with what RBV claims (Barney 1991; Barney,
Wright, and Ketchen 2001; Collis 1994) because IT appropriability reﬂects ﬁrm’s IT
strategy implicitly embedded in it. Figure 6 illustrates how a ﬁrm’s IT strategy is related

with IT advancement and IT appropriability. A high IT appropriability is likely to result

84

from an IT Strategy whereas IT advancement does not necessarily reﬂect the existence of

an IT strategy as IT advancement may be improved without it as illustrated in Figure 6.

Figure 6:
IT Strategy for IT Advancement and Appropriability

 

No IT Strategy

 

 

 

IT
Appropriability

 

 

 

SCCS Integration as a Mediator

The study results provide a few interesting implications with regards to SCCS
integration in terms of the use of IT. As discussed in chapter 2, the current study adopted
SCCS integration as a mediator of the impact of IT resources on channel capabilities. In
particular, IT advancement alone without SCCS integration would result in an
incremental impact. As the study results do not provide support for its direct impacts on

channel capabilities, the role of SCCS integration is becoming much more important to

85

derive an adequate return on IT advancement. Subsequently, the impact of IT
advancement on supply chain responsiveness, another channel capability and immediate
outcome, is also questionable without the mediation of SCCS integration. That is,
without the mediation of SCCS integration, ﬁrm’s investment in IT advancement is most
likely to result in an incremental impact on market performance. Therefore, the
signiﬁcant role of SCCS integration as a mediator in deriving the impact of IT
advancement on both channel capabilities and ﬁrm performance should be recognized
especially in the context of supply chain management.

Furthermore, SCCS integration explains why some practitioners and researchers
have warned that IT investments deliver weak or no improvement in ﬁrms’ productivity
(Baker and Abrahams 2001; Barchillon 2001; Fisher 2001; Kettinger et al. 1994; Powell
and Dent-Michallef 1997). As a key mediator, SCCS integration needs to be present in
order to derive favorable returns from IT advancement. It should be noted that IT
advancement for SCCS can fall somewhere between two extremes: the Simple transition
to better technology without functional additions or improvements, on the one hand, and
functional additions to the current SCCS, on the other. The former is likely to result in an
incremental impact on channel capabilities or ﬁrm market performance, as shown in the
lower right area of Figure 7. At the other extreme, IT advancement that substantially
contributes to SCCS integration is likely to have a radical impact on the channel activities
as well as market performance of ﬁrms as shown in the upper leﬁ area of Figure 7. Of
course, there can be cases between these two extremes that yield some degree of

signiﬁcant impact.

86

Figure 7:
Impact of IT Advancement and SCCS Integration

x,
b
e
C: Q.
.9. r?
3 -§ 0‘}
8b 8 v“
o k 0‘
H (,0
C '5‘
m 5‘
U
U
V)
Incremental Imp act

IT Advancement

The Impact of IT Resources on Supply Chain Responsiveness and Performance

Supply chain responsiveness is conceptualized as one of the channel capabilities
of ﬁrms while serving as an immediate outcome construct of IT resources as well as the
other two channel capability constructs: interﬁrm information exchange and coordination.
The results of t-tests reveal that both IT advancement and IT appropriability facilitate
supply chain responsiveness and ﬁrm market performance, the ultimate outcome variable,
through SCCS integration, information exchange, and coordination. That is, the impact

of both these IT resources is signiﬁcantly mediated by SCCS integration and other

87

channel capabilities such as interﬁrm information exchange and coordination. For
example, signiﬁcant paths were found from IT advancement to supply chain
responsiveness through SCCS integration and information exchange. There were
multiple routes that link the impact of IT resources on supply chain responsiveness and
market performance. Interestingly, however, the results of statistical tests suggest that
the indirect effects of IT advancement on supply chain responsiveness and market
performance are not signiﬁcant, whereas those of IT appropriability are statistically
signiﬁcant, as discussed in chapter 4.

Speciﬁcally, the indirect impact of IT advancement on supply chain
responsiveness turned out to be relatively trivial, which is consistent with its impacts on
the other channel capabilities. The ﬁnding is also consistent with the literature that
claims weak or no impact of IT on ﬁrm performance (Baker and Abrahams 2001;
Barchillon 2001; Fisher 2001; Kettinger et al. 1994; Powell and Dent-Michallef 1997).
The ultimate inﬂuence of IT advancement on market performance is not signiﬁcant,
either. In contrast, the indirect impact of IT appropriability on outcomes (i.e., supply
chain responsiveness and market performance) is statistically signiﬁcant, which means
that it inﬂuences ﬁrm market performance signiﬁcantly. As an IT resource, IT
appropriability plays a dramatically distinctive role for ﬁrm market performance in

comparison to that of IT advancement.

The Effects of Coordination, Information Exchange, and Partner Criticality
It was hypothesized that coordination facilitates both supply chain responsiveness

and market performance. However, the results indicate that coordination only leads to

88

supply chain responsiveness but not to market performance directly. This is interesting,
because the literature discusses coordination as a possible antecedent of ﬁrm performance
(Mohr and Nevin 1990). Instead, the results reveal that the impact of coordination on
market performance is totally mediated by supply chain responsiveness, as the impact of
coordination on supply chain responsiveness and that of supply chain responsiveness on
market performance are signiﬁcant (p< .01). Obviously, coordination explains supply
chain responsiveness better than market performance.

In contrast, information exchange directly affects both supply chain
responsiveness and market performance simultaneously. That is, enhanced information
exchange with channel partners has not only an indirect effect on ﬁrm performance
mediated by supply chain responsiveness but also a direct inﬂuence on ﬁrm market
performance.

Regarding the role of partner criticality, this study hypothesized that partner
criticality moderates the effect of IT resources on channel capabilities. However, the
results of Chi-square difference test provide no support for the moderating effect. That
is, the degree of criticality of a channel partner does not inﬂuence the effect of IT
resources on channel capabilities. However, further research on the moderating effect of
partner criticality is necessary to validate the ﬁndings as the results of t-test for the IT
appropriability 9 Coordination path are not consistent with that of Chi—square difference

test.

89

Managerial Implications

These ﬁndings provide numerous managerial and theoretical implications. For
managers, the importance of an IT strategy, which is connoted by the direct impact of IT
appropriability and the mediation of the impact of IT advancement by SCCS integration,
cannot be overemphasized. Investment in IT advancement for SCCS should not be
contented with just technology upgrades. Instead, the investment should seek functional
improvements or additions for supply chain activities. The deployment of advanced IT
ahead of competitors for new technical solutions without seeking strategic beneﬁts or
advantages will not yield favorable returns.

The strategic deployment of IT refers to a ﬁrm’s efforts to derive beneﬁts from
the investment by adopting a clear strategy with regards to how it will enhance the
current SCCS so that competitors cannot easily replicate the IT strategy. IT investments
in supply chain management activities must seek beneﬁts from the IT in a unique way.
Merely Upgrading technology chasing the advancement of IT will not improve channel
capabilities or performance of the ﬁrm according to the study results.

Furthermore, managers need to differentiate between new technology, as captured
by IT advancement, and its use, as captured by IT appropriability. IT advancement will
not necessarily lead to improvement in channel capabilities not to mention ﬁrm
performance unless it results in a higher level of SCCS integration, manifested by
functional additions to the current SCCS. Therefore, it is more important for ﬁrms to
analyze partner’s needs to determine mutual beneﬁts that could be derived from further
systems integration rather than to seek new technology aimed at enhancing ﬁrm

performance.

90

In the similar vein, chasing IT is not a good way to improve supply chain
responsiveness and market performance. Although IT advancement may facilitate
information exchange and coordination, its total indirect effects are not strong enough to
inﬂuence either supply chain responsiveness or market performance. However, IT
investment that seeks the enhancement of appropriability by improving utilization and by
accumulating technical knowledge internally, will eventually lead to enhanced supply
chain responsiveness as well as market performance.

The results also provide additional implication that ﬁrms should internalize key
IT resources to gain distinctive competencies (Beaumont and Costa 2002). As the
advanced technology is widely available, ﬁrms should focus on IT appropriability, the
key IT resource that will provide a distinctive beneﬁt. Firms that concentrate on IT
advancement are likely to outsource it, whereas those relying on IT appropriability are
more likely to internalize its IT resources. Even if ﬁrms internalize IT resources, this
does not mean that all IT resources are internalized. It rather means that. a ﬁrm’s core
SCM competence must stem from IT appropriability not IT advancement. There are
advantages and disadvantages of internalizing key IT resources discussed in the literature
(Beaumont and Costa 2002; Benko 1992; Lacity and Willcocks 1998; Loh and
Venkatraman 1992).

Most ﬁrms do not develop IT internally but outsource it because of time and
resource constraints. Internal development of technology is rarely cost effective for most
ﬁrms (Beaumont and Costa 2002; Benko 1992; Lacity and Willcocks 1998; Loh and
Venkatraman 1992). Therefore, while IT advancement of a ﬁrm in most cases relies on

available advanced technology in the market, IT appropriability can be improved only

91

when the ﬁrm is willing to customize the technology so that it is embedded in the ﬁrm’s
core competence or managerial strengths (Beaumont and Costa 2002). The technical
knowledge accumulated internally in the process enables ﬁill use of the IT, receiving
more beneﬁts.

Although it is beyond the scope of the current study, the extent to which ﬁrms
receive beneﬁt from internalizing IT resources is likely to vary across industries. For
example, ﬁrms in consumer product industry (e. g. cereals) may not receive beneﬁt as
much ﬁ'om the deployment of a new IT as those in construction industry. As the
heterogeneous IT penetration rates between the two industries makes the deployment of
new technology a sufﬁcient condition for deriving competitive advantage in the
construction industry, while it is only a necessary condition for consumer products ﬁrms.
Managers need to consider this aspect when determining the level of internalization of its
IT resources between IT advancement and IT appropriability to receive the optimum
beneﬁts 'of advanced technology. I

Managers also need to pay more attention to human factors rather than to
technology factors. The study results suggest that IT advancement for SCCS in a supply
chain, which is mostly determined by technology advancement, does not add much value
to ﬁrm performance, whereas IT appropriability, which hinges on internal IT employees,
contributes a great deal. The level of IT knowledge accumulation, IT utilization, and
beneﬁts ﬁ'om IT can vary signiﬁcantly across ﬁrms, depending on the skills and expertise
of IT employees. This emphasizes the role of human more than that of technology in
deriving beneﬁts ﬁ'om IT. Consequently, IT investment should focus on human factors

rather than technology alone.

92

In the similar vein, the results imply that it is not IT itself but the ﬁrm that makes
IT a resource for competitive advantage. Whether this is achieved depends less on the IT
and its built-in beneﬁts than on how the ﬁrm utilizes it. Therefore, it is more important
for ﬁrm competitive advantage to accumulate knowledge and skills with the deployed IT
than to upgrade technology consistently. These human-centric results seem to explain
why the same IT is employed successfully by some ﬁrms and not by others.

The ﬁndings on the roles of information exchange and coordination also provide
multiple implications. First of all, it can be inferred from the results that ﬁrm market
performance can be improved by supply chain responsiveness, not by coordination,
which only improves supply chain responsiveness. Therefore, managers should be aware
of the importance of supply chain responsiveness for the impact of coordination. Firms
expecting a positive impact on its performance ﬁom IT investment in SCCS need to
improve supply chain responsiveness through coordination activities.

Second, IT resources have an impact on ﬁrm market performance only through
channel capability mediators: information exchange and coordination. This suggests that
IT investment in SCCS should focus on improvements in these areas. Particularly, in the
context of supply chain management. IT resources that are not directed toward these
channel capabilities are less likely to have an inﬂuence on supply chain responsiveness
not to mention ﬁrm performance.

Managers also need to pay attention to the mediating effects on ﬁrm performance
of information exchange, coordination, and supply chain responsiveness. Especially,
these indirect effects of information exchange and coordination on ﬁrm market

performance through supply chain responsiveness are not homogeneous: the standardized

93

indirect effect of information exchange on market performance was .140, while that of
coordination was .279. Yet, the total effects of those two channel capability constructs
are not consistent with the indirect effects because of the signiﬁcant direct effect of
information exchange on market performance. The standardized total effect of
information exchange on ﬁrm market performance was .342, including the indirect effect
whereas that of coordination was .254, due to the insigniﬁcant direct negative inﬂuence
of coordination on market performance. Only when managers understand the
heterogeneous effects of these mediators of IT resources on ﬁrm performance, an IT
investment strategy will be adequately directed to appropriate channel activities.

Although the results are inconsistent between Chi-square difference test and t-test
for a path, the insigniﬁcant moderating effect of partner criticality on the impacts of IT
resources on channel capabilities suggests that the importance of a channel partner should
not dictate how IT resources will be deployed for the relationship. At least, it indicates
that ﬁrms do not differentiate important partners from less important partners in
deploying IT for channel activities with them. In other words, better information
exchange and coordination are desirable throughout the supply chain, regardless of the
importance of channel partners.

However, it is worth noting that this ﬁnding is counter-intuitive, in that the
deployment of IT without regards to the importance of partner is not in the best interest of
a rational ﬁrm- Obviously, the indifferent impact of IT resources on information
exchange and coordination regardless of partner importance reveals the unbiased practice
of ﬁrms with IT deployment for their supply chain activities. At the same time, it means

their information exchange and coordination activities would not be carried out in a

94

manner that will protect ﬁrm’s core competence. More information exchange than
necessary could leak conﬁdential information associated with core competence. By
exchanging only necessary amounts of information and by coordinating transactions in
keeping with their best interest, ﬁrms can maintain not only its core competence in the
market but also a superior place in the relationship with channel partners. Therefore,
ﬁrms need to adopt a strategy with regards to information exchange and coordination

activities that will protect core competence and their superior position in the chain.

Theoretical implications

The study results provide valuable theoretical implications as well. RBV assumes
that ﬁrm resources for competitive advantage are distributed across ﬁrms
heterogeneously while not perfectly mobile (Barney 1991; Barney, Wright, and Ketchen
2001; Collis 1994). This immobility of a resource implies that the resource should not be
easily imitable by competitors so that the owner of the resource can appropriate the
resource adequately (Grant 1996A). The ﬁndings of this study are consistent with the
RBV argument. Of the two IT resources examined by this study, IT advancement is
more imitable by competitors than is IT appropriability. IT appropriability is based on a
ﬁrm’s internally accumulated IT knowledge, level of IT utilization, and IT beneﬁts
received, whereas IT advancement involves ﬁrm efforts to adopt the latest IT ahead of
competitors. It is obvious that IT appropriability is more inimitable and, therefore,
should have a greater impact on ﬁrm performance than IT advancement, as implied by

RBV.

95

The ﬁndings of the current study reveal no direct impact of IT advancement on
channel capabilities of ﬁrms and insigniﬁcant indirect effects on the two outcome
variables: supply chain responsiveness and market performance. In contrast, IT
appropriability directly affects on channel capabilities such as interﬁrm information
exchange and coordination and has signiﬁcant indirect effects on supply chain
responsiveness and market performance. The results clearly distinguish IT
appropriability, a ﬁrm’s IT resource, from IT advancement, an illusive IT resource. As
Barney (1991) claims, information processing systems by themselves can hardly be a
resource for competitive advantage because of their wide availability in the market to any
ﬁrms, which results in the lack of heterogeneity. The study results support his claim by
revealing that there is no competitive advantage ﬁ'om the chase of new technology, which
also explains why there is no or weak relationship between IT investment and ﬁrm
productivity. On the other hand, IT appropriability is an obvious source of competitive
advantage because it facilitates not only channel capabilities but also ﬁrm performance.
Barney (1991) further argues that IT well embedded in the managerial process or other
core capabilities, is a resource for competitive advantage of ﬁrms, and the ﬁndings on IT
appropriability unlike IT advancement support this claim.

Another theoretical implication of this study is that IT resources (i.e., IT
appropriability) may offer possibly sustainable competitive advantage of ﬁrms. A ﬁrm
with a high level of IT appropriability is likely to hold competitive advantage from IT for
a long time, assuming that the IT skills, knowledge, and experience it accumulates are not
easily transferable across ﬁrms (Barney 1991; Barney, Wright, and Ketchen 2001; Collis

1994). Therefore, depending on how ﬁrms allocate their investments in IT resources

96

between IT appropriability and IT advancement, the IT resources may be a resource for
their sustainable competitive advantage.

The results support the RBV framework fairly well, which claims that ﬁrm
internal resources facilitate the ﬁrm’s capabilities, while the enhanced capabilities lead to
better ﬁrm performance (Barney 1991; Barney, Wright, and Ketchen 2001; Collis 1994).
This study proposed hypotheses in accord with that view, and the results generally
support them. Although the current study did not ﬁnd the direct effect of IT advancement
on information exchange and coordination, the indirect effect through SCCS integration
revealed a signiﬁcant links between IT advancement and channel capabilities. Likewise,
the signiﬁcant indirect effect of coordination on ﬁrm performance through supply chain
responsiveness, despite the insigniﬁcant direct effect, supports the theoretical ﬁ'amework
adopted by this study well.

The study also found that the inﬂuence of IT investment is well explained by the
proposed mediation model. Some of the literature that reports weak or no link between
IT investment and the ﬁrm performance or productivity (Andersen and Segars 2001;
Baker and Abrahams 2001; FiSher 2001; Loveman 1991; Panko 1991; Weill 1991) lacks
proper mediators to connect IT investment and ﬁrm performance. The study results
suggest that it is necessary to incorporate realistic mediators into the research in order to
ﬁnd the true inﬂuence of IT investment.

Another theoretical implication of this study, in contrast with the IT literature, is
that IT appropriability is a distinctive construct from IT advancement. Previous research
on IT adoption focuses mainly on how organizations or individuals adopt IT (Davis 1989;

Davis, Bagozzi, and Warshaw 1989; Lucas and Spitler 1999) and the effect on

97

performance (Lucas and Spitler 1999). Subsequently, the literature does not distinguish
between adoption and utilization of technology. This study argues that a simply adoption
of IT needs to be differentiated from the utilization of IT. The study results clearly reveal
that the adoption of technology is a necessary but not a sufﬁcient condition for the
signiﬁcant inﬂuence of IT on ﬁrm performance whereas the utilization of technology has
a signiﬁcant direct impact on both supply chain level and ﬁrm level performance.

Yet, some of the ﬁndings of this study are consistent with the IT adoption
literature, which claims that ease of use of technology is a critical factor in adoption as
well as in the beneﬁts ﬁrms or individuals receive (Davis 1989; Davis, Bagozzi, and
Warshaw 1989; Lucas and Spitler 1999). The current study reveals that IT
appropriability is more crucial than IT advancement, which implies that utilization of IT
is more important than adoption of IT, and the level of IT utilization should be strongly
associated with ease of IT use. Thus, this study indirectly conﬁrms the importance of the
ease of IT use. A

In addition, the current study makes another important contribution to the SCM
and IT management literature by developing and validating scales for multiple constructs
including IT advancement, IT appropriability, SCCS integration, and coordination. All
scales consist of at least three items with high construct reliabilities. Thus, these scales
are expected to provide an important foundation for the future studies on the impact of IT
on business activities.

The results regarding partner criticality suggest that the moderating effect of
partner criticality may not be as clear in the context of supply chain relationships as in the

context of partnerships and alliances. The latter two generally do not necessarily imply a

98

long-term association, whereas a supply chain relationship usually assumes a more on-
going association. In doing business with a partner over the long-term, adequate
information exchange and coordination activities are always desirable. Therefore, in the
context of a supply chain, the moderating effect of partner criticality would be less

important than in any other interﬁrm cooperation contexts.

SCM Specific Implications

The analysis results also suggest the following SCM speciﬁc implications. First,
the results reveal that IT advancement for SCCS plays an important role for SCCS
integration across partners. As IT advancement for SCCS leads to SCCS integration in
terms of collaborative planning, forecasting, and replenishment (CPF R), IT advancement
for SCCS is a crucial part of IT investment to enhance the possible CPFR activities
between channel partners. The ﬁnding is interesting in that IT appropriability, which
concerns a ﬁrm’s efforts devoted to the utilization of deployed SCCS, dOes not affect
SCCS integration directly whereas IT advancement helps ﬁrms enhance SCCS
integration. That is, technology investment is a critical part in carrying out CPFR
activities with SCCS with channel partners. Therefore, as more logistics and supply
chain managers view CPFR as a competitive tool, ﬁrms should view the deployment of
new technology as a way to get their SCCS ready for CPFR activities.

Second, SCCS integration facilitates interﬁrm information exchange and
coordination activities. As IT advancement itself does not affect information exchange
and coordination directly, managers need to be aware of the role of SCCS integration that

intervenes between IT advancement and information exchange and coordination. A

99

ﬁrm’s investment in technology without enhancing SCCS integration is likely to result in
no signiﬁcant returns or beneﬁts. Therefore, technology investment directed toward
supply chain activities will provide signiﬁcant returns when it contributes to more
strategic activities such as CPF R through SCCS. It also accentuates that the return from
technology investment is determined not by the technology itself but by ﬁrm’s effort to
direct the new technology into the improvement of its current supply chain competency.

Third, unlike IT advancement, SCCS integration affects a ﬁrm’s market
performance and supply chain responsiveness signiﬁcantly. A further analysis reveals
that the total indirect effect of SCCS integration through information exchange and
coordination on supply chain responsiveness is very signiﬁcant (p< .01) with its
standardized coefﬁcient of .275. Its indirect impact on a ﬁrm’s market performance is
also signiﬁcant (p<.01) with the standardized coefﬁcient of .174. These ﬁndings
advocate that a frrm’s SCCS integration efforts will be paid off. Actually, it is unlikely
that a ﬁrm would gain any signiﬁcant beneﬁts directly from its investment in advanced
technology according to the results. However, the investment directed to the strategic
needs of SCCS is likely to yield some substantial beneﬁts evidenced in supply chain
responsiveness and market performance.

Therefore, it is management’s responsibility to identify the strategic needs of the
current SCCS before investing in new technology to receive returns. For instance,
management’s new emphasis on collaborative business planning through SCCS sharing
business goals with channel partners should result in the deployment of new functions

and elements in SCCS. Any investment in advanced technology that supplements this

100

functional addition in SCCS is likely to enhance both supply chain and ﬁrm
performances.

Furthermore, even though IT advancement does not improve a ﬁrm’s supply
chain outcome (i.e., supply chain responsiveness) and ﬁrm level outcome (i.e., market
performance) signiﬁcantly, managers should recognize its role as a facilitator for SCCS
integration, one determinant of supply chain responsiveness and market performance.
This is a critical ﬁnding regarding the role of IT advancement as ﬁrms need to invest in
technology not to improve supply chain responsiveness and market performance directly
but to facilitate SCCS integration, which will, then, eventually lead to supply chain
responsiveness and market performance according to the results. In other words, IT
advancement should not be viewed as a strategic tool to improve supply chain and ﬁrm
performance but as a facilitator of SCCS integration in addressing the returns from IT
advancement. As IT advancement improves communication and coordination
environments, managers are highly likely to appreciate its value as a facilitator for SCCS.
Thus, only when managers understand that the return from the technology investment is
materialized through SCCS, they will be able to see the indirect beneﬁt from the
investments in technology.

Fourth, IT advancement for SCCS is less important than IT appropriability for
SCCS in improving supply chain responsiveness and ﬁrm market performance from a
ﬁrm’s investment perspective. However, from the SCCS perspective, IT advancement is
pertinent to SCCS integration across partners, which in turn affects supply chain
responsiveness and market performance. Thus, it could be controversial whether IT

investment in supply chain activities provides adequate returns. A ﬁrm’s ﬁnancial

101

manager may claim that technology investment in supply chain management does not
yield signiﬁcant returns and, thus, not deserve investments as the investment does not
lead to supply chain and ﬁrm performances. However, from the supply chain manager’s
point of view, it is a critical necessary investment for the adequate returns from SCCS
integration. Unless the role of IT Advancement for SCCS integration is fully recognized,
the contribution of technology investment to supply chain and ﬁrm performances may
appear to be negligible. Thus, a ﬁrm’s management should be able to see the returns
ﬁom technology investment from the supply chain management’s perspective that
recognizes IT advancement as an important necessary condition for SCCS integration.
Only when the subtle but important role of IT advancement for the returns from SCCS
integration is acknowledged, a ﬁrm’s expectation on rettu‘ns from technology investment
is likely to be more ﬁne-tuned. This also afﬁrms that managers should focus more on the
use of the technology than the level of technology investment for adequate returns from

investrnents in both IT advancement and IT appropriability.

102

CHAPTER 6
FUTURE RESEARCH AND CONCLUSION
Study Limitations

AS the ﬁrst comprehensive empirical research into the impact of IT on channel
capabilities and ﬁrm performance in the context of supply chain management, this study
found the conditions necessary for favorable returns on IT investment and pointed out the
implications for managers and researchers. Some limitations should be noted, however.
First, although the sample provides excellent measurement reliabilities and concrete
results, it seems to have multivariate nonnormality for the research model (Bollen 1989;
Hoyle 1995). In order to further explore this issue, the model was rerun using robust
standard errors (Hoyle 1995). The results revealed that both measurement and theory
models would have had slightly better goodness of ﬁt indexes if variable distributions
were multivariate normal. Furthermore, all t-tests based on the robust statistics were
compared with the initial t-test results to identify any signiﬁcant changes in t-values.
They suggest that multivariate nonnormality has affected all t-tests negligibly and,
therefore, has not inﬂuenced hypothesis-testing results.

Second, the data collection of this study was limited by resource constraints.
Although the effective response rate exceeds 15%, it could have been improved by
follow-up phone calls or personal contact. A better response rate could have provided a
more solid ground for the ﬁndings and implications of the study (Cook, Heath, and
Thompson 2000). While a sampling frame of well—qualiﬁed potential respondents would
have been helpful, it was not feasible for the current study to reﬁne the list used

thoroughly, due to time and ﬁnancial constraints. It is certain that future researchers will

103

be able to conﬁrm all the ﬁndings of this study even with a better response rate from a
reﬁned list.

Third, some researchers are skeptical about the validity and reliability of web-
surveys. However, there is no solid ground for their concerns. According to the
literature, it is unlikely that the web-surveys lead to method bias (Best et al. 2001; Weible
and Wallace 1998). Furthermore, a survey with corporate managers is not likely to suffer
from sampling or nonresponse bias, because the lists are randomly generated from a
sampling pool with similar qualiﬁcations (Sills and Song 2002). That is, those on the list
are unlikely to be systematically different from those not on the list whether for a mail
survey or email survey. For example, Best et al. (2001) conclude that Internet users and
nonusers seem to use Similar psychological mechanisms in responding to world problems.
In addition, exploratory factor analysis and reliability tests with the data of this study
revealed an adequate quality of responses for the web-survey, and both construct
reliabilities and goodness of ﬁt indexes for CF A were very good. Therefore, it is highly
unlikely that the sample of the current study was inﬂuenced signiﬁcantly by any

sampling and non-sampling biases.

Future Research

There are numerous interesting constructs that could be incorporated in the future
research on IT in the context of supply chains. The seminal trust and commitment theory
of Morgan and Hunt (1994) needs to be tested for any discrepancies between the personal
interaction setting and the online interaction setting. This study conjectures that trust

does not play as signiﬁcant role in the online setting simply because the lesser degree of

104

human contact in the online setting is likely to lead to a greater level of partner
dependency. In other words, repeated online interaction without human contacts would
likely result in reinforcing previous relationship rather than improving the partnership to
trust based relationship (Croom 2000; Gudmundsson and Walczuck 1999B; Kambil and
Short 1994; Lewis 2001; Malone, Yates, and Benjamin 1987; Roberts and Mackay 1998;
Steinﬁeld, Kraut, and Plurnmer 1995).

In the similar vein, partner role dependency would be another construct that needs
to be investigated empirically in the future as well. The literature reports that electronic
relationships and interactions increase the role dependency of channel partners (Croom
2000; Gudmundsson and Walczuck 1999B; Kambil and Short 1994; Lewis 2001; Malone,
Yates, and Benjamin 1987; Roberts and Mackay 1998; Steinﬁeld, Kraut, and Plummer
1995). That is, as partners maintain electronic relationships and interactions, they will
rely more and more on the role speciﬁed within the channel relationship for their success.
This increased role dependency of channel partners is associated with high switching
costs (Gudmundsson and Walczuck 1999B; Steinﬁeld, Kraut, and Plummer 1995; Tang,
Shee, and Tang 2001) and functions as a channel capability of the leading partners. As
another channel capability, partner role dependency may mediate the effect of IT
resources on ﬁrm performance, and therefore deserves research attention.

In the context of supply chain relationships, the alignment of technology across
partners may be an important antecedent of channel capabilities. That is, this study views
IT advancement and IT appropriability as antecedents of channel capabilities, the
technology alignment that concerns the compatibility of technologies deployed by

channel partners may be another antecedent. Although some researchers link the

105

alignment of organizational characteristics and priorities to ﬁrm performance (Sanders
and Premus 2002), the alignment of IT as an inﬂuence on performance remains
unexplored. For example, one manager interviewed during the pretest stage of this study
noted that, in order to avoid any technical incompatibility, ﬁrms use multiple
technologies because each major channel partner uses different technology. Obviously,
these ﬁrms could enhance its channel capabilities by aligning the technology across
channel partners.

Another issue is whether IT resources lead to interﬁrm activity integration. This
study found that IT advancement facilitates SCCS integration. That is, as better IT
resources are deployed, channel partners integrate their SCCS to enhance electronic
collaboration. However, it remains to be investigated whether either IT resources or
enhanced SCCS integration actually leads to real activity integration, manifested in the
form of partner collaboration. Moreover, future research Should inquire into the causal
relationship between SCCS integration and activity integration.

Although the current study ﬁnds no signiﬁcant direct inﬂuence of IT
advancement on channel capabilities (i.e. information exchange and coordination), it is
possible that the relationship between IT advancement and channel capabilities is
quadratic, not linear. That is, IT advancement may have a signiﬁcant effect on channel
capabilities up to a certain point and then diminish in importance or even have a negative
inﬂuence. For instance, if a ﬁrm simply deploys the latest IT, channel capabilities may
deteriorate as technology adoption always involves employee training and education.

Therefore, until users are adequately trained, the information exchange and coordination

106

activities would be carried out inefﬁciently. Future research should examine any
quadratic relationship between IT advancement and channel capabilities.

The inconsistent results between Chi-square difference test and t-test on the
moderating effect of partner criticality warrant further research to clarify the ﬁndings of
the current study. One of the plausible reasons for the insigniﬁcant Chi-square difference
would be the relatively large degrees of freedom compared to the sample size. Therefore,
future studies with a large sample size may provide a more comprehensible explanation

on the mix results the current study found for the moderating effect of partner criticality.

Conclusion

This study explored how IT affects ﬁrm performance through three mediators:
information exchange, coordination, and supply chain responsiveness. Using the RBV
framework suggested by Barney (1991), Barney et al. (2001), and Collis (1994), and
strategic management perspective from DiMaggio and Powell (1983), Porter (2001), and
Porter and Millar (1985), this research tested a number of hypotheses and found support
for most. The results indicate how a ﬁrm utilizes IT as opposed to simply deploying
newest technology is crucial in terms of market performance as well as supply chain
responsiveness.

Among the numerous implications and contributions of this study, the central
ﬁndings are that certain channel capabilities strongly mediate the inﬂuence of IT
resources on ﬁrm performance and that IT appropriability and IT advancement play a
distinctive roles in enhancing supply chain capabilities and ﬁrm market performance.

From the IT investment perspective, ﬁrms may prefer to invest in IT appropriability for

107

an adequate level of returns or beneﬁts in supply chain responsiveness and market
performance. However, the supply chain perspective recognizes the crucial role of IT
advancement for SCCS integration while emphasizing the signiﬁcant impact of SCCS
integration on ﬁrm performance. Therefore, ﬁrms invest inltechnology for supply chain
activities should focus on the use of technology (e. g., IT appropriability and the role of IT
advancement for SCCS integration) rather than the technology itself to understand the
beneﬁts of IT resources. Firms should also have a clear Objective stemmed ﬁ'om their
strategy with technology investment, as different technology investment objectives
require different types of IT resources they have to focus on. If improving SCCS
integration is the objective, a ﬁrm should invest in IT advancement. Yet, for other ﬁrms
that seek to enhance supply chain level and/or ﬁrm level outcomes, the investment
priority should be given to IT appropriability.

This study, thus, highlights the importance of mediators and the human-centric
nature of the inﬂuence of IT resources on channel relationships. Technology by itself
will not provide returns. Only management that navigates will gain the beneﬁts from IT

investments.

108

APPENDICES

109

Appendix 1: First Email Request for the Web-Survey

 

 

Dear CLM Member:

We, at Michigan State University, are continuing our efforts to
identify logistics best practices. As a part of our on-going
research agenda, we are requesting that you participate in the
following study. The primary focus of this investigation
concerns logistics information technology (LIT). The specific
research questions concern:

- TO what extent does LIT help firms gain better supply chain
capabilities including information exchange and transaction
coordination activities?

— To what extent is firm’s LIT investment in supply chain
activities justifiable?

We are contacting CLM members who have expertise in the area of
LIT and your contribution to this study is very important. If
you participate in this study, you may elect to receive a summary
of the final result by providing us with your e—mail in the
optional segment of survey. It should take about 20 minutes to
complete this questionnaire, although your completion time may
vary. Your responses will remain confidential and your privacy
will be protected as each survey will be assigned a random code
which we have not tracked. More information about this research
and the survey can be found at the following link:

http://globa1edge.msu.edu/surveys/sm/

 

If you have any questions or need additional information, please
feel free to contact us at (517) 353—6381 ext. 259 or
msu-clm@ciber.bus.msu.edu (email). Your opinion is highly valued
and we appreciate your willingness to participate in this study!

Best regards,

Dr. David Closs

Dr. S. Tamer Cavusgil

Dr. Roger Calantone

Mr. Daekwan Kim

Department of Marketing and Supply Chain Management
Eli Broad Graduate School Of Management

Michigan State University

 

110

 

Appendix 2: Reminder Email for the Web-Survey

 

Dear CLM Member:

This is the second and final e-mail from us to remind you about
the Opportunity to participate in the logistics research being
conducted by a Michigan State University research team. The
online survey and more information can be found at
http://globaledge.msu.edu/surveys/sm/.

We, at MSU, are continuing our efforts to identify logistics best
practices. As a part of our on-going research agenda, we are
requesting your participation in this study. The primary focus
of this investigation concerns logistics information technology
(LIT). The specific research questions concern:

— To what extent does LIT help firms gain better supply chain
capabilities including information exchange and transaction
coordination activities?

- To what extent is firm's LIT investment in supply chain
activities justifiable?

We are contacting CLM members who have expertise in the area of
LIT and your contribution to this study is very important. If
you participate in this study, you may elect to receive a summary
of the final result by providing us with your e-mail in the
optional segment of survey. It should take about 20 minutes to
complete this questionnaire, although your completion time may
vary. Your responses will remain confidential and your privacy
will be protected as each survey will be assigned a random code
which we have not tracked. For more information about this
research and the survey, please visit the following link:

http:[Lglobaledge.msu.edu/surveys/sm/

If you have any questions or need additional information, please
feel free to contact us at (517) 353-6381 ext. 259 or
msu-clm@ciber.bus.msu.edu (email). Your Opinion is highly valued
and we appreciate your willingness to participate in this study!

Best regards,

Dr. David Closs

Dr. S. Tamer Cavusgil

Dr. Roger Calantone

Mr. Daekwan Kim

Department of Marketing and Supply Chain Management
Eli Broad Graduate School of Management

Michigan State University

 

 

111

 

Appendix 3: Introduction Pages for the Web-Survey

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