Value of information integration to supply chain management role of internal and external constingencies

Journal of Management Information Systems / Winter 2011–12, Vol. 28, No. 3, pp. 161–199.

© 2012 M.E. Sharpe, Inc.

0742–1222 / 2012 $9.50 + 0.00.

DOI 10.2753/MIS0742-1222280305

Value of Information Integration to Supply Chain Management: Roles of Internal and External Contingencies

ChrIStINa W.Y. WONg, KEE-huNg LaI, aND t.C.E. ChENg

Christina W.Y. Wong is an assistant professor in the Business Division of the Institute of textiles and Clothing, hong Kong Polytechnic university. her research focuses on the management and performance of information and supply chain integration. her recent works have appeared in Information & Management, Journal of Strategic Information Systems, Journal of Operations Management, Omega, International Journal of Production Economics, among other journals.

Kee-hung Lai is an associate professor in the Department of Logistics and Maritime Studies, hong Kong Polytechnic university. his research in logistics information management has appeared in such journals as Communications of the ACM, Decision Support Systems, and Information & Management.

t.C.e. Cheng is chair professor of management in the Department of Logistics and Maritime Studies, hong Kong Polytechnic university. his research interests are in Operations Management. he has published in Management Science, MIS Quarterly, Operations Research, and Organization Science and co-authored ten books.

abstraCt: While integrating information flows between internal organizational func-tions and across partner firms is widely acknowledged as a contributor to organizational competitiveness, there is little empirical research on the effects of situational factors on the success of information integration. Based on contingency theory, we address the following question: under what circumstances does information integration contribute to better performance outcomes in supply chain management (SCM)? Our results provide a contingency perspective of information integration, which highlights that the performance outcomes of information integration are contingent on both external environmental conditions and internal operational characteristics. We find that infor-mation integration improves firms’ ability to perform, particularly when they operate under favorable environmental conditions—a highly munificent and a less uncertain environment—and when they offer durable and complex products. Our findings advance contingency research on the performance outcomes of information integra-tion for SCM. Our study provides managers with empirical insights on the effects of information integration on the cost and customer-oriented operational performance of SCM under favorable and unfavorable environmental conditions.

KeY Words and phrases: business environment, information integration, It-enabled supply chain, It value.

162 WONg, LaI, aND ChENg

effeCtive information sharing is Considered essentiaL to the success of supply chain management (SCM) because partner firms in a supply chain (SC) need timely and quality information to coordinate intra- and interorganizational business activities to compete in the marketplace [37, 47, 71]. to tackle the complexity of the business activities involved in SCM, firms develop electronic connectivity for accessing and sharing information across intra-organizational functions and with partners in their SCs [33, 55]. a firm’s electronic connectivity, which we label as the firm’s extent of information integration, reflects its organizational ability to generate and disseminate information in support of its SC activities [73]. Information integration is defined as the information sharing infrastructure of firms to support information exchange and coordination across business functions and partner firms [5, 34].

although information integration is considered essential to streamlining in SCM [52], it is not necessarily related to SC cost reduction [67], and it may even be detrimental to efficiency in interorganizational coordination [15] and customer service perfor-mance [16]. these mixed results suggest that the contribution of information sharing to firms’ ability to create value in their SCs is highly dependent on firms’ business environmental conditions and operating characteristics [41]. hence, empirical research investigating the determinants of the business value of information integration to SCM is needed. the results will help identify the performance implications and contingen-cies of information integration in SCM.

the objective of this study is to address two critical issues related to the business value of information integration to SCM. First, we empirically examine the effects of information integration on firms’ operational and cost performance. Second, we explore the effects of selected determinants of information integration on performance outcomes in order to answer the following research question:

RQ: Under what circumstances does information integration contribute to better performance outcomes in SCM?

We probe into two key situational determinants of information integration, namely, a firm’s business environmental conditions and its operating characteristics, which constrain, condition, or influence the success of SC coordination [44].

Literature review

Conceptual Foundation and research on Information Integration

information integration is CharaCterized bY eLeCtroniC LinKages and integrated information sharing within and beyond organizational boundaries to facilitate cross-functional coordination in the SC [45]. the conceptualization of information inte-gration revolves around the fundamental notion of developing information sharing infrastructure in the SC with electronic linkages to facilitate timely, accurate, and standardized data exchange across internal and external organizational functions [7, 32]. In line with this view, prior studies on SCM (e.g., [78]) suggest two levels of integration in support of business process coordination that underpins SCM, namely,

VaLuE OF INFOrMatION INtEgratION tO SuPPLY ChaIN MaNagEMENt 163

intra-organizational information integration that spans internal functional boundaries and interorganizational information integration that seeks to improve communica-tion between SC partners. Intra-organizational information integration refers to the electronic linkages of a firm’s information technology (It) applications to data acquisition and storage systems to facilitate the sharing of accurate and timely infor-mation in support of cross-functional processes [35]. however, interorganizational information integration involves standardizing and digitizing information exchange spanning cross-organizational business activities [48, 100]. Such integration makes information available for timely dissemination to relevant SC partners for responsive decision making and market actions.

Contingency theory

Contingency theory asserts that a firm’s performance is attributable to the match between its strategic behaviors and its internal and external environmental condi-tions [91]. Such a match may require the adoption of organizational processes and strategies to reflect the particular circumstances confronting the firm [29]. Contingency theory views the firm as an open system, where information is exchanged through the input-process-output procedure [80]. “Input” refers to the contextual issues (e.g., functional coordination and demand fluctuation) that reside within or outside orga-nizational boundaries, creating uncertainties or opportunities, hence influencing how the firm should operate in the SC [89]. “Process” is concerned with organizational operations that manage and cope with the contextual issues by sharing information and coordinating business processes. “Output” refers to the outcomes of the process procedures, which reflect how well firms process, adapt, or mitigate issues arising from the environment (i.e., input). this analogy is in line with organization theory, which stresses the value of both external and internal organizational attributes to business performance [3].

Following the work of Daft and Lengel [19], we argue that information integration is a strategic action that is beneficial to SCM by enhancing firms’ ability to better co-ordinate their operations. however, firms should not neglect the situational conditions that affect their organizational ability derived from information integration to make informed decisions [29]. the situational conditions are engendered by firms’ internal operating characteristics that are inherent in their business operations [72], and firms’ external environmental conditions that are shaped by different external entities (e.g., suppliers, customers, and competitors) and factors (e.g., business opportunities) [26]. this contingency-theoretic view provides an appropriate theoretical lens to examine the performance variances of information integration attributable to the internal and external constraints of firms [91].

Synthesis of the Extant Literature

upon conducting an extensive literature review, we summarize the seminal works in table 1 and notice the following limitations in the literature. First, although information


tabl

e 1.

Sum

mar

y of

rel

ated

Lite

ratu

re

Stud

yt

heor

etic

al

pers

pect

ive

Fact

ors

affe

ctin

g in

form

atio

n in

tegr

atio

n

Eff

ect o

n in

form

atio

n in

tegr

atio

n*Fi

ndin

gs

Bha

radw

aj

et a

l. [9

]C

ompl

emen

tary

th

eory

Inte

grat

ed IS

ca

pabi

lity

Mod

erat

or: +

Inte

grat

ed IS

cap

abili

ty is

pos

itive

ly a

ssoc

iate

d w

ith

man

ufac

turin

g pe

rfor

man

ce.

The

inte

ract

ion

betw

een

inte

grat

ed IS

cap

abili

ty a

nd

man

ufac

turin

g m

arke

ting

coor

dina

tion

is p

ositi

vely

ass

ocia

ted

with

man

ufac

turin

g pe

rfor

man

ce.

The

inte

ract

ion

betw

een

inte

grat

ed IS

cap

abili

ty a

nd

man

ufac

turin

g su

pply

cha

in c

oord

inat

ion

is p

ositi

vely

as

soci

ated

with

man

ufac

turin

g pe

rfor

man

ce.

Don

g et

al.

[23]

Res

ourc

e-ba

sed

view

Tr

ansa

ctio

n co

st

econ

omic

s

Com

petit

ive

inte

nsity

Mod

erat

or: +

Bac

k-en

d in

tegr

atio

n an

d m

anag

eria

l ski

lls e

ngen

der

perf

orm

ance

impr

ovem

ent i

n a

high

ly c

ompe

titiv

e in

dust

ry.

Goo

dhue

et a

l. [3

2]O

rgan

izat

iona

l in

form

atio

n pr

oces

sing

theo

ry

Env

ironm

enta

l tu

rbul

ence

Mod

erat

or: –

Mor

e co

mpr

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e, d

esig

n co

sts,

and

bur

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del

ay

betw

een

busi

ness

uni

ts w

hen

ther

e is

env

ironm

enta

l tu

rbul

ence

.G

rove

r an

d S

aeed

[34]

Org

aniz

atio

nal

info

rmat

ion

proc

essi

ng th

eory

S

ocia

l con

trac

ting

theo

ry

Dem

and

unce

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nty

Det

erm

inan

t: n.

s.H

igh

prod

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ompl

exity

, low

mar

ket f

ragm

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and

an

open

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shar

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envi

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ontr

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inte

r-or

gani

zatio

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yste

m in

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n.D

eman

d un

cert

aint

y ha

s no

impa

ct o

n in

tero

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l sy

stem

inte

grat

ion.

Mar

ket v

olat

ility

has

no

impa

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n in

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tem

in

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n.M

arke

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gmen

tatio

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s a

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tive

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n in

tero

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tem

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grat

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s po

sitiv

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ith

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duct

com

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ityD

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arke

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tyD

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min

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n.s.

Mar

ket

frag

men

tatio

nD

eter

min

ant:

–

Info

rmat

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shar

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envi

ronm

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Det

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inan

t: –


Kim

et a

l. [4

1]O

rgan

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iona

l in

form

atio

n pr

oces

sing

theo

ry

Tech

nolo

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l un

cert

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on m

onito

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f in

form

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min

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men

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of

info

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Mon

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of e

lect

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form

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as a

si

gnifi

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influ

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dem

and

unce

rtai

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Coo

rdin

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d m

onito

ring

aspe

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of e

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form

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o in

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par

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fir

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the

coor

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com

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Pro

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in-e

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Kum

ar e

t al.

[46]

Tran

sact

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cost

ec

onom

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Com

petit

ive

adva

ntag

e C

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th

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Col

labo

ratio

nD

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soci

al c

apita

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llabo

rativ

e re

latio

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re in

stru

men

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for

the

succ

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of in

tero

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orm

atio

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stem

im

plem

enta

tion.

Coo

pera

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Det

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inan

t: +

Trus

tD

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+

(con

tinu

es)


Stud

yt

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pers

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Fact

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form

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Eff

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form

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n*Fi

ndin

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Pat

naya

kuni

et

al.

[70]

Tran

sact

ion

cost

th

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Rel

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nal

exch

ange

theo

ry

Rel

atio

nal

inte

ract

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rout

ines

Det

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Rel

atio

nal i

nter

actio

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ave

an im

pact

on

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flow

inte

grat

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for

supp

ly c

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coo

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onsu

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dem

and

pred

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bilit

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s no

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form

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tegr

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eman

d pr

edic

tabi

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Det

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s.

Muk

hopa

dhya

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l. [6

6]n/

aP

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n vo

lum

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: –T

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tera

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n be

twee

n in

form

atio

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d pr

oduc

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volu

me

is n

egat

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y as

soci

ated

with

obs

olet

e in

vent

ory

and

use

of p

rem

ium

frei

ght.

Rai

et a

l. [7

3]IT

-ena

bled

or

gani

zatio

nal

capa

bilit

ies

pers

pect

ives

IT in

fras

truc

ture

in

tegr

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n fo

r S

CM

Det

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inan

t: +

IT in

fras

truc

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inte

grat

ion

has

a po

sitiv

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pact

on

supp

ly

chai

n pr

oces

s in

tegr

atio

n, w

hich

sub

sequ

ently

affe

cts

firm

pe

rfor

man

ce.

Wan

g et

al.

[92]

Vir

tual

inte

grat

ion

theo

ryE

nviro

nmen

tal

unce

rtai

nty

Det

erm

inan

t: +

Env

ironm

enta

l unc

erta

inty

has

a p

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ve im

pact

on

virt

ual

inte

grat

ion,

sup

plie

r re

spon

sive

ness

, and

man

ufac

turin

g fle

xibi

lity.

Ded

rick

et a

l. [2

0]Tr

ansa

ctio

n co

st

econ

omic

sP

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peM

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:cu

stom

(+

) ve

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co

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(–)

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rem

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Bus

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= p

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nega

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no

sign

ifica

nt e

ffec

t.

tabl

e 1.

Con

tinue

d


integration is important to SCM, the role of information integration under different business conditions has not received due research attention [94, 95, 96]. Prior studies focus on examining what environmental conditions drive the development of infor-mation integration, rather than studying how those conditions affect the performance outcomes of information integration. For example, grover and Saeed [34] investigate the various product characteristics (e.g., product complexity) and environmental factors (e.g., demand uncertainty) that spur the development of interorganizational system integration. Only a few studies have provided anecdotal evidence [32] and discussed the contingency of information integration on SC characteristics [9, 23].

according to astley and Van de Ven [3], firms are influenced and constrained by external forces while conditioned and affected by internal attributes. Such a classical duality perspective of organizational theory advocates the presence of deterministic and voluntaristic forces that determine firm performance. the environmental and external constraints are deterministic, where firms adapt and react to such constraints but lack control over them. however, voluntaristic factors refer to organizational endogenous attributes (e.g., product characteristics and It infrastructure) that are relatively more controllable by firms [12]. Prior studies focus on either the moderat-ing role of internal capabilities (e.g., integrated IS capability [9]) in affecting or the effects of environmental conditions (e.g., competition [23]) on SCM performance outcomes, neglecting that both internal and external factors are important determi-nants of SCM performance outcomes. In addition, the deterministic and voluntaristic nature of these factors that influence the success of information integration is absent. grounded in contingency theory [29, 89], we investigate the performance contingen-cies and constraints of information integration in SCM residing within and outside organizational boundaries.

Second, studies have investigated interorganizational information integration and its impact on reducing uncertainty in SCs [70, 73]. the importance of intra-organizational information integration is also acknowledged in studies of enterprise resource planning adoption to support cross-function operations in firms [40, 90]. although the SCM literature has suggested the importance of integrating internal and external processes [43], prior studies tend to neglect the importance of taking into account both intra- and interorganizational information integration in SCM. this study is novel in expanding the previous narrow investigation of information integration to encompass both the intra- and interorganizational dimensions of information integration for SCM.

third, instead of focusing on unfavorable situational conditions that give rise to uncertainty in business operations [97], we respond to the call for investigating the impact of environmental munificence, often considered a salient force influencing the coordination of business activities across firms [63, 84], which has not been duly researched. We consider both the positive and negative business environmental condi-tions of firms that may affect information integration’s impact on firms’ performance. Moreover, although variants of contingency theory predict that information integration is beneficial to performance by reducing uncertainty in SCM [6, 29], they provide few empirical insights on the performance implications of information integration at different levels. We aim to provide insights on the performance effects of information


integration by examining the performance strength when these contingencies and constraints are present at low versus high levels.

hypotheses

our studY Consists of induCtive fieLd researCh1 followed by a survey. We first con-duct interviews with ten managers in the areas of information systems management, SCM, and operations management. appendix a provides the details of the inductive field research. grounded in contingency theory, we develop the research hypotheses based on the inductive field research findings to identify the contingency factors and the performance effects of information integration in practice. this approach ensures the hypothesized relationships reflect real-life situations.

Based on the field interviews, prior research, and the duality perspective of organiza-tional theory, we classify the contingency factors related to information integration into two categories, namely, internal operating characteristics and external environmental conditions. Specifically, the internal operating characteristics of firms are concerned with firms’ product type and level of product complexity that are inherent in their information integration implementation. the external environmental conditions con-sidered critical to successful SCM implementation relate to the levels of munificence and uncertainty characterizing the business environmental conditions. Figure 1 depicts the research model that guides our study.

Effect of Information Integration on Operational and Cost Performance

Information integration across partner firms enables close communication and allows sharing of information in support of their SC operations and determining appropriate performance improvement actions [19]. For example, integrating a manufacturer’s production schedule with the procurement plans of its buying firms can be helpful for adapting changes to product specifications, while the buying firms can receive timely updates on the delivery status of their orders to plan ahead marketing activities. Infor-mation integration enables partner firms to satisfy the operating needs of one another with a common performance improvement goal. the implementation of information integration lowers the costs of coordinating the SC activities of firms while improv-ing their information-processing abilities by providing technical infrastructure [73]. Cost performance is concerned with reducing costs in activities such as distribution, inventory, order management, and the related administrative processes [49]. On the other hand, customer-oriented operational performance of firms indicates service quality, flexibility, and responsiveness of firms in satisfying customer needs. Based on the argument of Malone and his colleagues [56, 57, 58] that information sharing is essential to integration among multiple organizational functions working together toward common goals, we reason that information integration provides a coordination mechanism that supports task completion and reduces coordination costs.


Hypothesis 1: Information integration of a firm’s SC is positively associated with the firm’s (a) customer-oriented operational performance and (b) cost performance.

Contingent role of External Environmental Conditions

Environmental Munificence

Environmental munificence refers to the extent to which a business environment can sustain business growth [83]. a high level of environmental munificence suggests an abundance of business opportunities and resources for a business to grow [13]. Firms operating in a highly munificent environment will find information integration use-ful because it allows them to acquire and share information with their SC partners about market expansion opportunities, new market prospects, and growing market demand, which they can exploit to capture business opportunities in a timely manner at a low cost. a manager noted this aspect of environmental munificence during the interview:

It is very important for us to share information with our upstream partners, including raw material suppliers and contract manufacturers, especially when we detect and are trying to capture a new market segment. For example, in these few years, we observe there are increasing numbers of business customers using our products to create their own. We therefore expand our market by promoting different applications of our products. however, such a business opportunity requires timely product delivery, particularly when customers are exploring new applications. Failing to act swiftly, we will lose our customers as they may have successfully applied our competitors’ products and will continue to do so.

Information integration enables firms to compete more effectively in the marketplace because they can exploit valuable information resources in the SC to help minimize various forms of waste, such as inventory excesses or shortages, and underutilized

Figure 1. the research Model


business processes [81], and respond to changing market needs swiftly. Information integration leverages opportunities in a highly munificent environment (e.g., new potential market) by effectively utilizing organizational resources and capabilities to maintain flexibility and provide timely response to changing market demand at a low cost. With abundant resources, firms are able to undertake complementary organiza-tional investments (e.g., in new product lines) and to leverage the existing information integration infrastructure for reducing cost and improving service, hence strengthening coordination and capacity utilization in SC operations [11]. But operating in a declin-ing but highly competitive market with limited business opportunities and resources for growth, that is, a less munificent environment, firms focus on maintenance and logistical functions, and standardized routines to enhance efficiency and strive for survival [21]. Organizational efforts in innovating and modifying products, lowering prices, offering incentives and new services to customers, and market repositioning by product differentiation are required to compete for business. While these activities require management efforts beyond information integration to coordinate business activities, achieving the desired performance with information integration in a less munificent environment is more difficult than that in a highly munificent one.

Hypothesis 2: The positive associations between the information integration of a firm’s SC and its (a) customer-oriented operational performance and (b) cost performance strengthen when the firm experiences a high level of environmental munificence.

Environmental uncertainty

Environmental uncertainty refers to firms’ inability to accurately predict the outcomes of their decisions [79]. an uncertain business environment is characterized by changing customer demand, unpredictable competitor action, or fluctuating sales volume [61], which constrains and hinders firms’ ability to achieve the projected results [3]. Informa-tion is a valuable asset that enables firms to cope with uncertainty while information integration is a useful means to overcome environmental uncertainty. Firms often proactively gather information in an attempt to make informed decisions and predict the outcomes of their actions with ease [24]. however, several managers expressed that they could not solely rely on information sharing to manage their SC activities, particularly ad hoc arrangements such as urgent requests or delivery changes on short notice due to demand changes. Events of such nature require other means of com-munication (e.g., fax and phone calls) that provide quick response and flexibility in coping with unforeseen events. Such a shortfall of information integration became apparent in the comment of an It manager:

We share relevant data with our partners to coordinate our production schedule, shipment, warehouse, and other related supply chain activities. however, to compete in this severely competitive business environment, it is inadequate to rely on information sharing to prevent the problem of excessive inventory or insufficient capacity to fulfill urgent orders. Our account executives work closely


with our customers and suppliers to track events that do not fully reflect in the data shared. although this practice increases our costs, we are able to stay ahead of the game and competently handle drastic changes in supply and demand.

On the contrary, firms can better predict the outcomes of their decisions under a less uncertain business environment. Such an environment allows faster response to market needs and reduces operating costs as information integration provides an enabling mechanism to improve the coordination of organizational activities.

Hypothesis 3: The positive associations between the information integration of a firm’s SC and its (a) customer-oriented operational performance and (b) cost performance strengthen when the firm experiences a low level of environmental uncertainty.

Contingent role of Internal Operating Characteristics

the operating characteristics of a firm are determined by its production structure, which is shaped by management’s strategic choices and constrained by the firm’s product type and level of product complexity [77]. ragowsky et al. [72] suggest that the operating characteristics of firms are related to their inherent internal operating conditions involving multiple organizational functions, which are voluntaristic and organized to reflect organizational resource allocation and coordination.

Durable Versus Nondurable Products

In line with Fisher’s [27] view, our interviewees suggested that the nature of their production processes and product demand influence and constrain their SC operations. the uncertainty involved in managing products with different characteristics (e.g., durable versus nondurable goods) is determined by the degree of demand fluctuation caused by such factors as price change and frequency of customer purchase [18]. Durable products2 have relatively longer product life cycles and more pronounced fluctuations in demand that are influenced by various factors (e.g., economic condi-tions and technology advancement) [17]. Firms offering durable goods should better coordinate with their SC partners so that they can react quickly to fast-evolving changes in inventory and delivery time to improve customer-oriented operational performance. Information integration facilitates information sharing across organizational func-tions and improves the competence of firms in handling unforeseen demand changes by coordinating effectively with SC partners. an It manager of a home electronic products trading company noted:

When we encounter drastic increases or decreases in the demand for our products that may end up with shortage or excessive stocks, we need to seek help from our supply chain partners, ranging from suppliers, contract manufacturers, to logistics service providers, with a view to negotiating for special arrangements and trading terms that involves direct communication and interaction. Luckily,


our products have a slow rate of obsolescence and we have little worry about them being out-of-date quickly. Our major concern is about the inventory maintenance and storage costs if we have excessive stocks or the sourcing costs if we have a shortage. We are able to quickly consolidate inventory information related to the work-in-progress at our manufacturers, inventory in our warehouses, unsold products in our distributors, and so forth, where our information system is in-strumental for us to take responsive actions in reducing the costs arising from market demand fluctuations.

But nondurable products have short product life cycles so they are relatively faster in product obsolescence. although the rate of consumption can be relatively stable with lower demand fluctuation, quick replenishment or special warehousing arrange-ments are desirable for nondurable products to reach market without obsolescence and spoilage. Our interview findings indicate that firms offering nondurable products often operate and maintain costly in-house functions in order to ensure quick delivery to market. For example, contrary to the trend toward outsourcing noncore activities to logistics service providers for reducing labor and operating costs (e.g., maintenance costs of logistics facilities, trucks), a leading local food and beverages supplier operates its own logistics functions to ensure product freshness and short lead-time delivery. In trading with voluminous small and medium-size customers, the food and beverage supplier finds the sole reliance on information integration inadequate to coordinate with its SC partners. Particularly, the phone-in order system of the supplier accentuates the inadequacy. this observation highlights the insufficiency of information integration in handling nondurable products.

Hypothesis 4: The positive associations between the information integration of a firm’s SC and its (a) customer-oriented operational performance and (b) cost performance strengthen when the firm offers durable products.

Product Complexity

Product complexity refers to the nature of product development that involves a number of different organizations (e.g., suppliers), degree of technological advancement, diver-sity of inputs, and frequency of adjustments needed from suppliers [42]. the presence of these factors suggests that a complex product has a highly intricate requirement for coordinating business activities to manage multiple business units and partner firms involving a large number of physical components. Developing a complex product brings forth numerous business activities ranging from sourcing to distribution with considerable coordination efforts of multiple functions to eliminate such problems as input shortage and delivery delay in the SC [82]. Information integration provides electronic linkages and coordination mechanisms across various organizational func-tions and parties to support the development of such product type [10], while coordi-nating the SC needs management efforts to deal with ambiguities in product design and specification that may confuse different organizational functions. an operations executive noted this:


It is impossible for us to expect a perfect product to be delivered by merely sharing our product design with our contract manufacturers. We have to work closely with them, especially in the new product design phase, to ensure they understand our specifications and expectations. Indeed, we often send our engi-neers to the manufacturers’ factories to troubleshoot our design and help them with production issues. Our information integration with suppliers enables us to share the latest data on product development such as testing results and design changes, which has significantly shortened our development lead-time.

Interacting beyond the information sharing infrastructure is common, particularly when the product development and design interface across organizational functions is not properly planned [82]. Information integration streamlines business processes for cost reduction and operational efficiency for businesses characterized by low product complexity. however, the value of such integration can be trivial in differentiating SCM performance outcomes among firms offering less complex products. this is because the competition of firms offering less complex products goes beyond the effectiveness and efficiency of product development that can be supported by information integra-tion, and involves their service and marketing strategies [8].

Hypothesis 5: The positive associations between the information integration of a firm’s SC and its (a) customer-oriented operational performance and (b) cost performance strengthen when the firm offers products with a higher level of product complexity.

Method

Sample and Data Collection

We obtained the data for this researCh from senior executives of wholesale trading companies in hong Kong, which come from two groups of wholesale trade,3 namely, SIC (Standard Industrial Classification) codes 50 (i.e., wholesale trade—durable goods) and 51 (i.e., wholesale trade—nondurable goods). We randomly drew a sample of 800 wholesale trading firms from the directory Dun & Bradstreet. We conducted three rounds of survey mailings and received in total 196 responses, representing a response rate of 24.5 percent. however, we disqualified eight responses, where six of them were blank or incomplete returns and the remaining two we received too late for the analysis. the survey generated 188 usable returns, yielding an effective response rate of 23.5 percent, which was comparable to prior studies of a similar nature [20, 51].

Bias Issues

We check possible problems of nonresponse bias in two steps. Following the work of armstrong and Overton [2], we verify that the early and late respondents do not differ significantly in their responses to a random selection of questionnaire items, at p < 0.001. In addition, we compare the differences in the mean values of the ob-


jective measures, namely, firm size and annual sales volume, between the early and late firms. We find no significant differences in firm size (F = 1.077, p = 0.300) and annual sales volume (F = 1.136, p = 0.287), suggesting that nonresponse bias is not an issue in the collected data.

to find out whether common method variance posed a serious threat to our study, we perform three steps. First, we conduct the harman’s one-factor test, which is widely followed by other researchers (e.g., [99]). We examine whether the chi-square of a single-latent factor would account for the hypothesized six-construct model. a significant difference between the chi-square values (∆χ2 = 1,832.39, ∆df [degrees of freedom] = 12, p < 0.05) of the two models indicates that the fit in the one-dimensional model is significantly worse than that in the hypothesized model. Second, following the work of Lindell and Whitney [53], we use type of firm ownership as a marker vari-able, which is theoretically unrelated to all the dependent variables, to test for potential common method variance. We find that type of firm ownership does not significantly relate to any of the variables, further indicating that common method variance is not an issue in our study. third, in our research design, we conduct both qualitative case study and quantitative survey to overcome the shortcomings of common method bias by triangulating the data collected from both research methods.

Measurement Development

We conduct an extensive literature review and adopt items used previously to improve the reliability and validity of the measures.4 a pilot test with a group of 50 managers resulted in slight modifications to the wording of nine measurement items. In addition, we conduct exploratory factor analysis to purify our scales and deleted three items because their corrected-item-to-total correlations are lower than the 0.30 threshold value, sug-gesting that these items do not capture what we intended to be measured. this elimina-tion resulted in a more parsimonious survey instrument as shown in appendix B [36]. We used two types of measure in the survey instrument, namely, single-item measure and reflective multi-item measure. the single-item measure is the objective measure of product type. For the observed variables, which are manifestations of the underlying constructs, we use a reflective measurement model [4]. the reflective multi-item measures used are intra-organizational information integration, interorganizational information integration, operational performance, cost performance, environmental munificence, environmental uncertainty, and product complexity. Following prior studies [65, 85], we invited respondents to evaluate their organizational characteristics with respect to each item posed in the survey relative to those of their major competitors.

Independent Variable

as information integration is concerned with establishing electronic linkages to support standardized information sharing for coordination, we adapt the measurement scale of intra-organizational information integration [16, 73, 75] and interorganizational information integration [62, 73] from the literature.


Dependent Variables

We evaluate the performance implications of information integration for SCM by considering (1) how well the focal firm meets its customers’ operations needs (i.e., customer-oriented operational performance) and (2) its performance in cost reduction (i.e., cost performance) [76]. the customer-oriented operational performance evaluates how well the focal firm fulfills customer orders with short lead times and as scheduled, attains a high level of responsiveness in handling order changes, and replenishes stock for customers with a high level of accuracy [93]. the cost performance reflects how well the focal firm achieves the economic goal of reducing costs, including distribu-tion cost, inventory cost, order management cost, and so forth [49].

Moderating Variables

this study takes into account environmental munificence and uncertainty, which can be beneficial or detrimental to the performance outcomes of information integration. We adapt the measurement scales of environmental munificence and uncertainty de-veloped by Sutcliffe and huber [86]. to measure the operating characteristics of firms, we use the objective measure of product type and evaluate firms’ product complexity by adopting a four-item measurement scale from the literature [42, 68]. We measure a firm’s product type objectively by the firm’s two-digit SIC industry code [74], which is either wholesale trade of durable goods or nondurable goods. Product complexity comprises number of components, degree of interactions between trading partners, and extent of product novelty [68].

Control Variable

We include firm size (i.e., number of employees) as a control variable as it affects organizational ability in developing information integration because larger firms tend to enjoy scale efficiency in information sharing [38] and they have more resources to support the development of intra- and interorganizational information integra-tion [101]. We measure firm size by taking the natural logarithm of the number of employees in each firm.

Measurement Validation

We first perform confirmatory factor analysis (CFa) using amos 7.0 to evaluate the psychometric properties of the factor structures. We follow the guidelines provided by gerbing and anderson [30] and use the maximum likelihood estimation with the covariance.

Information Integration

as discussed earlier, information integration is a second-order construct that includes the two complementary dimensions of intra- and interorganizational information


integration [65], which co-vary and interact with each other. We explored whether we should use a more parsimonious measure for information integration, at a second-order level, to test the hypotheses. Following the work of tanriverdi [88], we conduct three tests to compare the first-order and second-order models of this construct. First, we compare the goodness-of-fit statistics of the first-order model (χ2 = 245.3, df = 50, rMr [root mean square residual] = 0.05, IFI [incremental fit index] = 0.93, CFI [comparative fit index] = 0.93) and the second-order model (χ2 = 247.2, df = 50, rMr = 0.05, IFI = 0.93, CFI = 0.94), which are almost identical. this result suggests that the second-order model is a better predictor of information integration. Second, the first-order factors load significantly onto the second-order factor (i.e., p < 0.05), which lends support for the presence of the second-order model. third, we compute the target coefficient value and obtain T = 0.99, which is equal to the theoretical upper limit of 1.0. this result indicates that the relationship among the second-order factors accounts for 99 percent of the first-order factors [60]. table 2 summarizes the results of the CFa on information integration.

Combined Measurement Model test

We conduct CFa on all the theoretical constructs examined in this study. Measures of overall fit evaluate how well the CFa model reproduces the observed variables’ covariance matrix. the six-factor measurement model exhibits a good fit of the data (χ2 = 939.53, df = 508, rMr = 0.07, IFI = 0.90, CFI = 0.90). the measurement items load significantly (i.e., p < 0.01 and t > 2.0) onto their respective constructs with loadings ranging between 0.50 and 0.93, indicating convergent validity of the constructs [1]. to assess discriminant validity, we follow Fornell and Larcker [28] by evaluating the average variance extracted (aVE) estimates of all the constructs, which are found to be greater than the squared correlation between any pair of them, sug-gesting that the measurement items share common variance with their hypothesized constructs more than with the other constructs, providing evidence of discriminant validity. table 3 summarizes the composite reliability, Cronbach’s alphas, and aVE, and table 4 summarizes the CFa results. Composite reliability represents the shared variance among a set of observed variables that measure an underlying construct’s reliability [28], and the composite reliability of all the constructs meet the criterion of 0.60. the Cronbach’s alpha values obtained range from 0.70 to 0.93, exceeding the threshold value of 0.70 recommended by Nunnally [69], suggesting a reasonable degree of internal consistency between the corresponding measurement items.

results and Discussion

Performance Effects of Information Integration

We use amos 7.0 to test the hYpotheses using the maximum likelihood estimation with the sample covariance matrix as input. the results indicate that the structural model of information integration, and operational and cost performance provide a reasonable fit


tabl

e 2.

res

ults

of

CFa

on

Info

rmat

ion

Inte

grat

ion

Indi

cato

rD

irec

tion

Con

stru

ctSt

anda

rdiz

ed

load

ing

uns

tand

ardi

zed

load

ing

Stan

dard

er

ror

t-va

lue

p

Intr

a1←

Intr

a0.

511.

000.

00In

tra2

←In

tra

0.56

1.05

0.14

7.61

0.00

Intr

a3←

Intr

a0.

521.

180.

235.

140.

00In

tra4

←In

tra

0.53

1.20

0.26

4.48

0.00

Intr

a5←

Intr

a0.

511.

210.

235.

180.

00In

tra6

←In

tra

0.60

1.31

0.24

5.42

0.00

Inte

r1←

Inte

r0.

731.

00In

ter2

←In

ter

0.62

0.86

0.08

11.1

50.

00In

ter3

←In

ter

0.91

1.26

0.09

12.6

40.

00In

ter4

←In

ter

0.91

1.26

0.10

12.5

60.

00In

ter5

←In

ter

0.89

1.25

0.10

12.2

40.

00In

traa

←In

form

atio

n in

tegr

atio

nb

0.98

1.00

Inte

ra←

Info

rmat

ion

inte

grat

ionb

1.00

1.98

0.32

6.11

0.00

Not

es:

Intr

a =

intr

a-or

gani

zatio

nal i

nfor

mat

ion

inte

grat

ion;

Int

er =

inte

r-or

gani

zatio

nal i

nfor

mat

ion

inte

grat

ion.

a Sec

ond-

orde

r in

dica

tors

of

info

rmat

ion

inte

grat

ion.

b S

econ

d-or

der

fact

or.


of the survey data with fit indices χ2 = 401.12, df = 183, NFI [normed fit index] = 0.91, IFI = 0.92, tLI [tucker–Lewis index] = 0.91, and CFI = 0.92. Information integration is positively associated with customer-oriented operational performance (β = 0.45, t = 4.12) and cost performance (β = 0.50, t = 4.31), supporting h1.

Environmental Contingency Determinants: Munificent and uncertain Environment

We examine the contingencies of the relationships between information integration and performance measures using the multigroup analysis in amos 7.0 for a number of reasons.5 In evaluating the impact of the moderating variables, we follow the guidelines of Marsh and hocevar [59] and prior studies (e.g., [22]).6

We first create a two-group model by dividing the total 188 sample firms into a high group (n = 104) and a low group (n = 84) with respect to environmental munificence based on the median split.7 a significant change in the chi-square values of the baseline and constrained models is found (∆χ2 = 94.92, ∆df = 48, p < 0.01), providing support for the contingent role of environmental munificence on information integration and business performance. We then test the equality of paths between the high and low environmental munificence groups with respect to customer-oriented operational performance, and find support for the contingency of environmental munificence (∆χ2 = 5.17, ∆df = 1, p < 0.05). the relationships between information integration and customer-oriented operational performance in the high group (β = 0.72, t = 2.95) and in the low group of munificent environment (β = 0.29, t = 2.01) are both positively significant. the relationships between information integration and cost performance in the high group (β = 0.73, t = 2.81) and the low group of munificent environment (β = 0.35, t = 2.23) are both positively significant, with a significant change in the chi-square values between the two groups (∆χ2 = 5.01, ∆df = 1, p < 0.05). these results suggest that information integration is beneficial to both operational performance and cost performance of firms when operating under a highly munificent environment, lending support for h2a and h2b.

table 3. Scale Properties of Latent Factors

ConstructCronbach’s

alphaComposite reliability

average variance extracted

Information integration 0.91 0.99 0.98EMun 0.90 0.90 0.61EUnc 0.70 0.74 0.50PC 0.70 0.76 0.50COPerf 0.79 0.80 0.51CPerf 0.93 0.93 0.71

Notes: EMun = environmental munificence; Eunc = environmental uncertainty; PC = product complexity; COPerf = customer-oriented operational performance; CPerf = cost performance.


tabl

e 4.

CFa

res

ults

of

Lat

ent F

acto

rs

Indi

cato

rD

irec

tion

Con

stru

ctu

nsta

ndar

dize

d lo

adin

gSt

anda

rdiz

ed

load

ing

Stan

dard

er

ror

t-va

lue

p

Intr

a←

Info

rmat

ion

Inte

grat

ion

1.00

0.79

Inte

r←

Info

rmat

ion

Inte

grat

ion

1.34

0.68

0.27

4.85

0.00

EM

un1

←E

Mun

1.00

0.70

EM

un2

←E

Mun

1.16

0.80

0.11

10.0

90.

00E

Mun

3←

EM

un1.

080.

780.

109.

890.

00E

Mun

4←

EM

un1.

170.

870.

1010

.89

0.00

EM

un5

←E

Mun

1.09

0.83

0.10

10.4

00.

00E

Mun

6←

EM

un0.

990.

680.

118.

660.

00E

Unc

1←

EU

nc1.

000.

56E

Unc

2←

EU

nc1.

000.

670.

204.

780.

00E

Unc

3←

EU

nc1.

690.

850.

144.

110.

00P

C1

←P

C1.

000.

63P

C2

←P

C1.

120.

680.

127.

630.

00P

C3

←P

C1.

000.

650.

155.

120.

00P

C4

←P

C0.

880.

610.

104.

860.

00C

OP

erf1

←C

OP

erf

1.00

0.93

CO

Per

f2←

CO

Per

f0.

650.

590.

088.

680.

00C

OP

erf3

←C

OP

erf

0.57

0.73

0.07

5.91

0.00

CO

Per

f4←

CO

Per

f0.

590.

530.

085.

630.

00C

Per

f1←

CP

erf

1.00

0.75

CP

erf2

←C

Per

f1.

460.

870.

1212

.29

CP

erf3

←C

Per

f1.

530.

910.

1212

.94

0.00

CP

erf4

←C

Per

f1.

380.

890.

1112

.69

0.00

CP

erf5

←C

Per

f1.

080.

760.

0813

.32

0.00

Not

es:

Intr

a =

intr

a-or

gani

zatio

nal i

nfor

mat

ion

inte

grat

ion;

Int

er =

inte

r-or

gani

zatio

nal i

nfor

mat

ion

inte

grat

ion;

EM

un =

env

iron

men

tal m

unifi

cenc

e; E

unc

=

envi

ronm

enta

l unc

erta

inty

; PC

= p

rodu

ct c

ompl

exity

; CO

Perf

= c

usto

mer

-ori

ente

d op

erat

iona

l per

form

ance

; CPe

rf =

cos

t per

form

ance

.


Following the same procedure, we test the influence of environmental uncertainty by classifying the sample firms into high (n = 81) and low (n = 107) groups of envi-ronmental uncertainty based on the median split. Consistent with the literature that environmental uncertainty influences the performance outcomes of SC coordination efforts, the chi-square difference test shows that the associations between information integration and business performance measures are contingent on environmental un-certainty (∆χ2 = 86.46, ∆df = 48, p < 0.05). In line with h3b, information integration is found beneficial to cost performance with a low level of environmental uncertainty (β = 0.41, t = 2.57), but the relationship is insignificant in a highly uncertain environ-ment (β = 0.63, t = 1.53). these results suggest that information integration for SCM can reduce various costs incurred from coordinating SC activities when firms operate under a less uncertain environment. however, the relationship between information integration and customer-oriented operational performance in the high group (β = 0.61, t = 1.48) and in the low group of uncertain environment (β = 0.46, t = 1.27) are both insignificant, suggesting the relationship is insensitive to environmental uncertainty, and h3a is not supported. Information integration can be a useful organizational resource to share the needed information for managing day-to-day operations and to meet customer-oriented operational needs regardless of the level of environmental uncertainty. table 5 summarizes the results of the invariance tests for environmental contingency determinants.

Internal Contingency Determinants: Product type and Product Complexity

h4b that the association between information integration and cost performance is moderated by product type in terms of durability is supported (∆χ2 = 4.89, ∆df = 1, p < 0.05). the relationships are positively significant for both durable (β = 0.53, t = 3.74) and nondurable product types (β = 0.33, t = 2.17). this indicates that infor-mation integration is useful to reducing the costs of coordination in SCs, particularly when firms trade durable products. however, the association between information integration and customer-oriented operational performance is not contingent on product type (∆χ2 = 2.04, ∆df = 1, p > 0.05), lending no support for h4a. this suggests that information integration is valuable to firms to gain operational efficiency and satisfy customer needs regardless of the level of product durability.

the associations between information integration and customer-oriented operational performance in the high (β = 0.58, t = 3.07) and low group of product complexity (β = 0.36, t = 2.64) are both significant, with the chi-square values significantly dif-ferent between the two groups (∆χ2 = 4.02, ∆df = 1, p < 0.05), supporting h5a. Based on the difference in β, the positive association between information integration and customer-oriented operational performance strengthens when product complexity is high. however, the relationship between information integration and cost performance is invariant at different levels of product complexity (∆χ2 = 1.85, ∆df = 1, p > 0.05). h5b is therefore not supported. this indicates that firms are able to reduce costs with information integration for SCM irrespective of product complexity. table 6 summa-


tabl

e 5.

res

ults

of

Inva

rian

ce t

ests

for

Env

iron

men

tal C

ontin

genc

y D

eter

min

ants

Pane

l a: I

nvar

ianc

e te

sts

acro

ss m

unifi

cent

env

iron

men

t lev

els–

hyp

othe

sis

2

hyp

othe

sis

desc

ript

ion

χ2df

χ2 /df

rM

rIF

IC

FI∆χ

2∆d

fp

hig

h m

unifi

cent

en

viro

nmen

t

Low

m

unifi

cent

en

viro

nmen

th

ypot

hesi

s

Bas

elin

e m

odel

608.

2336

61.

660.

080.

910.

90C

onst

rain

ed

mod

ela

703.

1541

41.

700.

090.

890.

8994

.92

48<

0.0

5

Con

stra

ined

pat

hIn

form

atio

n In

tegr

atio

n →

C

OP

erf

613.

4036

71.

670.

080.

910.

915.

171

< 0

.05

0.72

b

(2.9

5)c

[0.3

3]d

0.29

(2.0

1)[0

.17]

H2a

su

ppor

ted

Info

rmat

ion

Inte

grat

ion

→

CP

erf

613.

2436

71.

670.

080.

900.

915.

011

< 0

.05

0.73

(2.8

1)[0

.24]

0.35

(2

.23)

[0.3

9]

H2b

su

ppor

ted

(con

tinu

es)


tabl

e 5.

Con

tinue

d

Pane

l B: I

nvar

ianc

e te

sts

acro

ss u

ncer

tain

env

iron

men

t lev

els—

hyp

othe

sis

3

hyp

othe

sis

desc

ript

ion

χ2df

χ2 /df

rM

rIF

IC

FI∆χ

2∆d

fp

hig

h un

cert

ain

envi

ronm

ent

Low

un

cert

ain

envi

ronm

ent

hyp

othe

sis

Bas

elin

e m

odel

696.

5136

61.

900.

080.

900.

90C

onst

rain

ed

mod

ela

782.

9741

41.

890.

110.

870.

8886

.46

48<

0.0

5

Con

stra

ined

pat

hIn

form

atio

n In

tegr

atio

n →

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rizes the results of the invariance tests incorporating the operational characteristics of firms. table 7 summarizes the results of the hypotheses.

Implications

theoretical Implications

the studY findings provide impLiCations and Contribution to contingency theory. While contingency theory posits the value of information integration as a mechanism to overcome uncertainty in SCM, our findings suggest that firms are able to achieve better customer-oriented operational and cost performance particularly when they operate in a highly munificent environment. When resources are abundant, it becomes relatively easy for firms to pursue goals of improving operational and cost performance by exploiting information integration to generate and disseminate timely and accurate information, and to work with partners for better coordination of SC activities. Yet the value of information integration in a less munificent environment is still beneficial to firms for performance improvement. this result advances contingency theory in the context of information integration for SCM by providing empirical evidence on the different performance contingencies beyond managing uncertainty in SCs.

Consistent with our theorization, the findings suggest that information integration is significantly instrumental in improving firms’ cost performance, particularly when they experience a low level of environmental uncertainty, where firms can derive much value from leveraging information integration to coordinate activities across partner firms in the SC. the study results also suggest that information integration is valuable to operational performance and not affected by environmental uncertainty. We explain this result by the fact that firms achieve autonomy in coordinating tasks and operations across organizational functions through information integration. Such autonomy in task coordination reduces errors in replenishment, shortens lead time, and enables on-time delivery, which are concerned with the efficacy of operations despite changes in sales volume, competition actions, and customer attitude. however, firms tend to provide additional resources and incur costs in dealing with such uncertainty in their environments. an It manager commented:

By integrating our business functions for information sharing and maintaining our own logistics operations, we are able to satisfy local customer needs by fulfilling their orders within 24 hours. however, we find it difficult to reduce our operating costs as we maintain a high level of inventory as well as a large work force to support the logistics function.

another major theoretical implication and contribution of this study relates to the in-tegration of contingency theory with the classical duality perspective of organizational theory [3]. In addition to examining the performance effect of external environmental conditions that are deterministic in nature, this study extends the knowledge frontier of contingency theory by empirically investigating the performance contingencies of information integration for SCM on the voluntaristic conditions of firms in terms of


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product type and complexity. this advances understanding of the effects of inherent operating conditions on information management, beyond prior contingency-theoretic studies with a focus on environmental uncertainty, which is external to firms [71]. this study also provides an empirical explanation for the mixed performance effects of information integration observed in prior studies. Our findings suggest that when firms’ environmental conditions are deterministic, the value of information integration

table 7. Summary of hypothesis testing

hypotheses hypotheses for testing result

H1a Information integration of a firm’s SC is positively associated with the firm’s customer-oriented operational performance.

Supported

H1b Information integration of a firm’s SC is positively associated with the firm’s cost performance.

Supported

H2a The positive association between the information integration of a firm’s SC and its customer-oriented operational performance strengthens when the firm experiences a high level of environmental munificence.

Supported

H2b The positive association between the information integration of a firm’s SC and its cost performance strengthens when the firm experiences a high level of environmental munificence.

Supported

H3a The positive association between the information integration of a firm’s SC and its customer-oriented operational performance strengthens when the firm experiences a low level of environmental uncertainty.

Not supported

H3b The positive association between the information integration of a firm’s SC and its cost performance strengthens when the firm experiences a low level of environmental uncertainty.

Supported

H4a The positive association between the information integration of a firm’s SC and its customer-oriented operational performance strengthens when the firm offers durable products.

Not supported

H4b The positive association between the information integration of a firm’s SC and its cost performance strengthens when the firm offers durable products.

Supported

H5a The positive association between the information integration of a firm’s SC and its customer-oriented operational performance strengthens when the firm offers products with a higher level of product complexity.

Supported

H5b The positive association between the information integration of a firm’s SC and its cost performance strengthens when the firm offers products with a higher level of product complexity.

Not supported


is less salient under a severe environmental condition (i.e., low munificence and high uncertainty) versus a forbearing environmental condition (i.e., high munificence and low uncertainty). In situations where the operating characteristics are voluntaristic and relatively more controllable than those characterizing the external environment, firms offering durable and complex products stand a good chance to reap performance gains from information integration for SCM.

Information integration enables firms to take advantage of long product life cycles and low levels of product obsolescence by facilitating collaboration with partner firms to reduce various operating costs in administration, inventory, distribution, and order management. thus, firms offering durable products can reap a higher level of cost benefit by information integration than their counterparts offering nondurable products. this is in line with organizational theory that the voluntaristic nature of operational characteristics is taken into account in information integration, where firms streamline functions and eliminate task redundancy in the hope of achieving cost reduction. Such a coordination mechanism enabled by information integration allows firms to reduce transaction and coordination costs in managing operational activities, particularly for durable products.

the customer-oriented operational performance of information integration is invari-ant at different levels of product durability. Such invariance suggests that information integration is insufficient to differentiate firms’ operational efficiency. as suggested by an It manager in our interview, information integration has become a competition qualifier to ensure timely delivery and error reduction. Information integration is es-sential not only to coordinating internal tasks but also to acquiring relevant informa-tion from external parties (e.g., component suppliers and contract manufacturers) to achieve operational performance irrespective of product durability.

Similarly, our findings indicate that product complexity has no influence on the cost performance of information integration. the coordination mechanism among functions for making complex products is structured in the development of intra- and interorga-nizational information integration. Such information integration is helpful for reducing coordination costs as well as improving transactional efficiency, which is beneficial to cost reduction and asset turns in an SC. an operations manager also highlighted the use of information integration to support repair and maintenance services involving a large group of field engineers and components. the system supported by information integration facilitates the repair and maintenance service by providing timely informa-tion about spare parts availability and their whereabouts while improving inventory turns. Information integration improves firms’ ability to share the latest information on product development and shorten lead time with delivery flexibility that enhances operational performance, even for firms offering complex products.

Managerial Implications

Our study has several managerial implications. First, the findings show that effec-tive SCM is key to mitigating uncertainty in coordinating the SC with reduced costs. While information integration facilitates the physical movement of goods in SCs, it


also affects how well firms achieve operational and cost performance improvement in a munificent environment. Firms should consider investing in information integration for SCM when there is market potential for growth.

Second, it is often argued that cost reduction is difficult to achieve when firms undergo business expansion to capture market growth [39]. Cost reduction is often the step taken only when firms have reached the state of maturity in the market to strive for further business gains. Information integration enables firms to achieve cost reduction in coordinating SCs in a munificent business environment.

third, our research shows that contingency factors that are external as well as inter-nal to firms are related to the performance outcomes of information integration. the implication is that managers should consider the conditions of their business environ-ments, as well as their internal operating characteristics, in establishing their target operational and cost performance goals when developing information integration. Managers should not expect information integration to deliver the same performance benefits as those that can be derived under pleasant environmental conditions (i.e., high munificence and low uncertainty). Nevertheless, information integration invest-ment is still needed in a less munificent environment for firms to reap performance gains. Similarly, information integration is instrumental in reducing costs when firms operate under a less uncertain environment. however, in a highly uncertain environment, information integration is insufficient for improving cost performance because additional resources and costs (e.g., offering additional services) are needed to deal with such uncertainty. although our findings are different from the expectation that SC uncertainty can be mitigated with information systems, it is in line with the cases of vertically integrated organizations. For example, in Zara, one of the largest international fashion companies, the coordination of its SC activities does not solely rely on information sharing. the company maintains other communication channels (e.g., faxes and phone calls) and reengineers business processes to facilitate coordi-nation of SC activities among functions through which to gain both operational and cost advantages [14]. We suggest that managers pursue information integration for SCM to achieve operational performance improvement regardless of the extent of environmental uncertainty they face.

Fourth, firms should take advantage of information integration when trading durable products to lower the costs for coordinating SC activities. Information integration is also beneficial to operational performance regardless of product durability. In addition, firms trading highly complex products would also benefit from information integra-tion with the ability to respond to customer needs in an efficient manner. Enterprises seeking cost performance in SCM should benefit from information integration for operating cost reduction regardless of product complexity.

Fifth, managers can use our instrument for measuring the contingency factors to diagnose the conditions of their business environments. It is a useful tool for planning and implementing information integration for SCM, which may require significant investment to develop. In addition, the empirically validated measure of information integration provides a useful guide for managers to assess and develop information integration for SCM, as both the technical and coordination aspects of informa-


tion sharing should be taken into account in weighing performance improvement actions.

Limitations and Future research Directions

our WorK Can be extended in a number of direCtions. First, although our study provides evidence in support of our theoretical reasoning, a proportion of the vari-ance remains unexplained, as is the case for most empirical studies of organizations. Future research might incorporate other determinants than the external business environment and operating characteristics that are the moderators investigated in this study. Second, the unit of analysis in this study is not a specific SC for a given prod-uct line. We examine the SCs of focal firms and their primary products. this unit of analysis allows us to focus on organization-wide patterns of information integration, business environmental conditions, and operating characteristics. Nevertheless, due to the varied nature of the operations of different SCs, it is worthwhile to investigate the contingency factors through case studies on the temporal dimension. third, we focus on the relative levels rather than the absolute levels of situational conditions. Further research on the issue of the absolute level of the impact of the study variables is warranted. Fourth, the use of multiple research methods, as well as the international business nature of respondents, is valuable for the analysis of data across studies and the generalizability of findings [50]. although this study identifies the environmental and operating contingencies of information integration, the strengths of these factors on performance outcomes may vary due to industry-specific operational requirements, such as just-in-time arrangement in the automotive industry. Future studies concerning industries with different operational requirements (e.g., logistics and shipping require-ments [54]) can improve the generalizability of our research findings.

Conclusions

this studY advanCes the KnoWLedge frontier of information integration research whereby we adopt contingency theory to examine the performance outcomes of in-formation integrating for SCM in firms that operate under favorable and unfavorable environmental conditions. We provide empirical evidence to account for the mixed results concerning information integration for SCM in the literature. Drawing on the classical duality perspective of organizational theory, we differentiate the performance contingency factors into two sets: (1) external environmental conditions in terms of environmental uncertainty and munificence, and (2) operating characteristics of firms in terms of product complexity and durability. the study findings provide explanations on how and why the effects of information integration vary with these contingency factors.

We identify the external environmental conditions and the operational characteris-tics of firms associated with which the value of information integration to improving cost and customer-oriented operational performance for SCM is more salient. Based


on related theories and our empirical findings, we provide managers with insights on the operational and environmental conditions under which information integration is more likely to bring performance gains. We lay the foundation for future information integration research, which may investigate other performance contingency factors that affect information integration for SCM or explore possible ways in which the value of information integration for SCM can be strengthened under unfavorable conditions.

Acknowledgments: the authors thank Vladimir Zwass and two anonymous reviewers for their valuable and insightful comments on earlier versions of this paper. this research was partially supported by the hong Kong Polytechnic university under grant no. J-BB7N and by the re-search grants Council of the hong Kong Special administrative region, China (grF Polyu 5500/10h).

notes

1. the field interviews help us to understand the importance of information integration to SCM, how it can be measured, and the contingency factors that are conducive to its success. a valuable insight obtained from the interviews is that managers appreciate the value of informa-tion integration to SCM, but many of them find difficulty in realizing its potential.

2. We note that there are exceptional cases of durable products (e.g., computers and cell phones) that may lose market value and become obsolete quickly from the marketing perspec-tive. Similarly, some nondurable products (e.g., canned food) do not perish or become obsolete quickly. In this study, product durability refers to product life cycle and demand fluctuation due to a product’s rates of consumption and functions.

3. We restrict our sample to wholesale trade to minimize extraneous variations in SC opera-tions that might arise because of differences in industry. In addition, the business environmental conditions of wholesale trading companies are likely to be different because they handle different sets of competitors, suppliers, customers, government regulations, and economic conditions when they trade different products. It is therefore reasonable to expect that wholesale trading companies possess different levels of information integration, and they operate under different business environmental conditions and with different operating characteristics, enhancing the generalizability of our results.

4. We sought comments from a panel of six academics and five practitioners in the areas of information systems and SCM to evaluate (1) the appropriateness of each measurement item for each theoretical construct, (2) the comprehensiveness of the measurement items, and (3) the suitability of the wording. In addition, we interviewed five senior executives, drawn from our sampling frame, to seek their opinions on (1) relevance of our research questions to their SC operations, (2) survey design quality, and (3) wording of the measurement scales.

5. We use multigroup analysis for the following reasons. First, multigroup analysis enables us to compare different conditions (e.g., highly complex versus less complex products) that are beneficial and detrimental to the performance outcomes of information integration. Second, multigroup analysis can reveal the structural associations between the independent and depen-dent variables across firms operating under these different situational conditions, allowing us to test the equivalence of both item-factor loadings and structural weights across firms. third, multigroup analysis has been shown as a more appropriate approach to assess the effects of contingency determinants than if they are posited as a direct effect (e.g., [1, 23]). Moreover, multigroup analysis can avoid misinterpretation of the mean differences of hierarchical multiple regression approach [93].

6. We conduct the multigroup analysis in three steps: (1) the structural parameters are al-lowed to vary freely across the two groups (e.g., high versus low environmental munificence groups of firms) to form a baseline model, (2) the structural parameters are constrained to be equal between the two groups to form a constrained model, and (3) equality of the paths between the two groups is tested using the chi-square difference between the constrained and


the baseline model. a statistically significant change in the chi-square value between the two groups indicates a moderating effect. a nonsignificant or small chi-square difference indicates structural invariance, which suggests that the same pattern of structural relationships exists between the two groups and the magnitudes of the coefficients are not statistically different between the two groups.

7. We use median split to classify the sample firms into high and low groups to avoid the impact of outliers. Median split is more robust than mean split, which is subject to possible mean value distortion by outliners. the fact that the divided groups are unequal in size does suggest that the distribution is skewed as many firms have the same median score. to ensure the validity of the analysis, we also test the hypotheses using mean split and find virtually no change in the findings and the conclusions remain the same.

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appendix a: Inductive Field research Methodology

We ConduCt Case studY researCh to expLore the importanCe of information integration to SCM and the contextually embedded factors that influence information integration to achieve desirable performance of businesses. Following the grounded theory [31], we approach these research inquiries with a fairly open mind to understand the con-textual conditions that are pertinent to information integration and to exploring their relationships. We apply a holistic, ex post case study design for this purpose. this research approach is appropriate for us to investigate the phenomenon of information integration and the determinants of the situation (e.g., uncertainty faced by firms) in which the phenomenon is occurring, enabling us to identify the key factors that may affect the performance outcomes of information integration.

Sample Selection

the relevant population of this study is wholesale trading firms in hong Kong, which serve as intermediates for companies sourcing from China and which are considered to exhibit different SC characteristics, such as product type and demand uncertainty. From this population, we use the replication logic for multiple-case studies to guide the selection of the wholesale trading firms such that the sampling firms are purposely selected from one case to the next based on the match of the underlying theory [98]. For example, the situational determinants found in a case study are the basis to iden-tify the next case company. this provides confidence that the emerging situational determinants that influence the performance effects of information integration are common and important in the industry [64].

Data Collection

In order to ensure the quality of our qualitative field research, we take several steps, including the use of a replicable case study protocol, an interview guide, collection of multiple sources of evidence, development of databases to maintain evidence, triangu-lation with multiple sources of evidence for convergence, and key informant factual review of field reports [25, 98]. to guide our qualitative data collection, we follow Yin’s [98] recommendations and develop a case study protocol with five sections: (1) an overview of the objectives and relevant background of the study, including a glossary of the terms used in the research and the details of the preparation that needs to be done before visiting the case companies; (2) a detailed data collection procedure that describes the steps taken for site visits and interviews; (3) a list of interview questions that cover the relevant issues of the study; (4) an outline of the case report to guide the write-up of the case report after data collection; and (5) the follow-up procedures to be taken after the write-up of case reports, which include sending the reports back to the informants of the case companies for factual verification. the data sources include company public reports, press articles, trade publications, archival data, and interviews. the interview questions include, but are not limited to, “how


does your firm coordinate business activities with your trading partners?” “Why is information integration implemented to support your supply chain activities?” “What are the uncertainties that your business experiences in your supply chain?” “how do they affect your business?” and “how does information integration play a role in overcoming these uncertainties?” the interviewees are managers who work in the areas of information systems management, SCM, and operations management of the sample companies. While managing trade in an international arena, these interviewees possess knowledge about their firms’ internal and external information integration, the conditions of their business environments and operations, and the performance effects of information integration.

Data analysis and hypothesis Development

We analyze the case data with the explanation-building analytic technique to build an explanation for the various outcomes of information integration, through which we identify the key situational determinants that exhibit across firms and develop hypoth-eses for testing in a later stage of the study. We identify the key situational determinants by counting the pieces of evidence on a common theme, such as growing opportunities in market, uncertainty in SC coordination, and product characteristics relating to SC coordination. this technique allows us to go through successive iterations and revi-sions of our initial theorization through comparing the findings of the cases until no new result is found [98]. this technique also serves as part of a hypothesis-generation process [31]. We compare the insights from the literature on various organizational theories (e.g., contingency theory) and the case evidence to develop a theoretically and empirically grounded set of situational factors and hypotheses for verification in the next stage of the study.


appendix B: Finalized Survey Questionnaire

Construct Measurement items

Intra-organizational information integration [16, 73, 75]

Intra1: IT applications within our firm are linked to a centralized database.

Intra2: A data warehouse is maintained to facilitate electronic information sharing within our firm.

Intra3: Electronic information shared within our firm is accurate. Intra4: Electronic information shared within our firm is timely.Intra5: Our IT infrastructure is capable of meeting our current

business needs.Intra6: We have formal procedures to manage our IT

infrastructure.Interorganizational

information integration [62, 73]

Inter1: We exchange information with our trading partners electronically.

Inter2: We work with our trading partners electronically on cross-organizational business activities (e.g., coordinating the flow of goods in our supply chain).

Inter3: Electronic information shared between our firm and trading partners is accurate.

Inter4: Electronic information shared between our firm and trading partners is timely.

Inter5: Electronic information shared between our firm and trading partners is standardized.

Environmental munificence [86]

EMun1: Demand for the products of our industry is growing.EMun2: Investment of firms in our industry is growing.EMun3: Business opportunities (e.g., government policies,

increases in market demand) of firms in our industry to expand the markets of their existing products are growing.

EMun4: Total value of assets of firms in our industry is increasing.EMun5: Capital expenditures of firms in our industry are growing.EMun6: Available resources for growth (e.g., new regulation for

tax deduction) in our industry are becoming more accessible.Environmental

uncertainty [86, 87]

EUnc1: Sales volume in our industry fluctuates a lot from year to year.

EUnc2: It is difficult to foresee the actions of our competitors (e.g., new product developments).

EUnc3: Public attitudes toward our products are very unpredictable.

Product complexity [42, 68]

PC1: Our firm interacts with a large number of different organizations in the production of our products.

PC2: Our firm requires input from many different kinds of suppliers.

PC3: Actions of our major suppliers (e.g., new product launch, price adjustments) change frequently.

PC4: Our firm frequently upgrades its technology to keep up with the competition.


Construct Measurement items

Customer-oriented operational performance [49, 93]

We see the following benefits to our firm by using information technology to manage our supply chain activities:

COPerf1: Orders from our customers are fulfilled in a short lead-time.

COPerf2: Deliveries to our customers are fulfilled as scheduled.COPerf3: We are able to change orders according to our

customers’ requests on short notice. COPerf4: We make few errors in replenishment for our customers.

Cost performance [49, 67]

CPerf1: Our administrative costs are reduced. CPerf2: Our distribution costs are reduced. CPerf3: Our inventory costs are reduced. CPerf4: Our net asset turns have improved. CPerf5: Our order management costs are reduced.

Notes: the scale for the construct was anchored by 1 = “very little” to 5 = “to a great extent.”

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Value of information integration to supply chain management role of internal and external constingencies