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Journal of Enterprise Information ManagementEmerald Article: Determinants of informal coordination in networked supply chainsRobert Ogulin, Willem Selen, Jalal Ashayeri

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To cite this document: Robert Ogulin, Willem Selen, Jalal Ashayeri, (2012),"Determinants of informal coordination in networked supply chains", Journal of Enterprise Information Management, Vol. 25 Iss: 4 pp. 328 - 348

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Determinants of informalcoordination in networked

supply chainsRobert Ogulin

Department of International Business and Asian Studies, Griffith University,Brisbane, Australia

Willem SelenFaculty of Business & Economics, United Arab Emirates University, Al Ain,

U.A.E., and

Jalal AshayeriDepartment of Econometrics and Operations Research, Tilburg University,

Tilburg, The Netherlands

Abstract

Purpose – The purpose of this paper is to empirically examine capability connectivity, relationshipalignment and the ability to informally network in the supply chain as determinants for betterutilizing capabilities amongst supply chain partners. In particular, the paper focuses on how the abovedescribed determinants may impact on operational performance in the supply chain when respondingto short-lived demand requirements or highly dynamic markets.Design/methodology/approach – A mixed research methodology is used, including a qualitativeexploratory phase to confirm the relevance of the research question to the practitioner, followed byquantitative structural equation modeling, based on a sample of 231 supply chain professionals.Findings – In total, four determinants of informal networking were derived: capability connectivity,describing the ability of supply chain partners to rapidly and informally integrate capabilities, such as IT, toservice an ad hoc market requirement; relationship alignment or the ability to informally integrate resourcesacross supply chain partners in the context of highly dynamic market situations; the informally networkedsupply chain itself, measuring the ability of supply chain partners to respond to transient opportunities inthe context of highly dynamic markets; and finally operational performance which measures the effectinformal networking has on company performance. Results show that informal coordination of supplychain activities influences operational performance in different ways, and most significantly impactspositively on operational efficiency through supply-oriented informal networking. The study identified thatindustry rules and regulations have a significant impact on the propensity of supply chain partners tocollaborate informally. Finally, it is also shown that relationship alignment between companies is animportant factor to achieve both market- and supply-oriented informal networking capabilities.Practical implications – The management of industry rules, regulation, connectivity, and relationshipalignment are significant antecedents for informal coordination of supply chain capabilities in businessnetworks. The study shows positive effects of informal networking in supply chains on operationalefficiency, and suggests that companies should strive to enable greater flexibility to connect with theirtrading partners without an abundance of idiosyncrasies. Furthermore, relationship alignment, incombination with process and IT connectivity, is significant in creating the foundation for informalnetworking in supply chains, in particular for supply-related activities.Originality/value – The paper adds a new concept, the informally networked supply chain, andshows that capability connectivity and relationship alignment may enable new alternative ways ofcoordinating supply chain capabilities to meet a specific market requirement. As such, it offers anew perspective in relation to flexibility and agility in the supply chain.

Keywords Supply chain management, Channel relationships, Construct development, Coordination,Informal networking, Structural equation modelling

Paper type Research paper

The current issue and full text archive of this journal is available atwww.emeraldinsight.com/1741-0398.htm

Received 13 December 2011Revised 22 December 201129 December 2011Accepted 2 January 2012

Journal of Enterprise InformationManagementVol. 25 No. 4, 2012pp. 328-348r Emerald Group Publishing Limited1741-0398DOI 10.1108/17410391211245829

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1. IntroductionCollaboration between firms is a powerful source of competitive advantage, callingfor effective management of relationships in the supply chain. This includes thedevelopment and maintenance of capabilities to ensure an effective operating system.An operating system is said to be superior to that of a competitor if it respondsbetter to the holistic structure of market opportunities, and as such secures thelong-term viability of the firm. This paper develops a conceptual model for analyzinghow informal connection of capabilities in networked supply chains can increasethe operational effectiveness of a firm in highly dynamic markets. Highly dynamicmarkets are characterized by short lead-time requirements and a large variety ofproduct and service components, thus posing unique requirements for operationsand logistics.

More recently there has been a move away from what may be termed power-basedrelationships in supply chains, or relationships based on focal companies, in whichformal and hierarchical dependence is present, toward more of a network model, inwhich a sense of mutual development and partnership prevails (Harland et al., 2004).This observation is supported by several studies that have set the groundwork forfurther research in the area of networked relations in the supply chain (Hameri andPaatela, 2005; Garavelli, 2003; Harland et al., 2004; Hakansson and Persson, 2004;Hofenk et al., 2011; Koulikoff-Souviron and Harrison, 2007). Networked supply chainshave strong linkages between their members, characterized by low levels of verticalintegration. In addition, the lack of influence or power, exhibited by the interdependenceof business partners, is also seen as a key determinant of an effective networked supplychain structure (Sydow and Windeler, 1998; Kemppainen and Vepsalainen, 2003; Zaheerand Bell, 2005). Networked supply chain structures include non-power-basedrelationships and inter-company coordination, as well as informal business systemsthat are linked through joint supply chain objectives (Croom, 2005; Harland et al., 2004;Lambert et al., 1998).

In order to be able to better respond to dynamic markets companies increasinglyconsider coordinating their supply chain capabilities without formal agreementsacross a range of partners (Hakansson and Persson, 2004; Gulati, 1999). It is postulatedthat coordination mechanisms in short-term relationships are significantly differentfrom those in long-term relationships. Typically, supply chain partners would buildrelationship traits such as commitment, trust, joint objectives, communication, and theexchange of information over time. It is argued in this paper that in highly dynamicsituations, supply chain partners have only limited time to get and work together torespond to a market opportunity, thus more informal coordination practices arenoticeable. While informal coordination practices are often less structured and difficultto identify, collaborative technologies need to support both informal and formalcoordination mechanisms.

This paper builds on the concept of the “informally networked supply chain” (INSC)to discuss collaborative, short-term relationships where partners coordinate theirmutual capabilities to address a transitory, but important, business opportunity inorder to achieve collectively beneficial outcomes. In such a context, supply chainmanagement concerns the timely coordination of capabilities, i.e. technologies,processes, and other resources related to the flow of material, information, and fundswithin a company, but also externally between companies (Hakansson and Persson,2004). The reason for better coordination of supply chain activity, and to obtain accessto capabilities, is the improvement of overall operational performance (OP) at the

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company and supply chain level. As markets and customer demands evolve, supplychain managers are prompted to integrate processes and technology across supplychain partners (Kemppainen and Vepsalainen, 2003; Davenport, 2005; Holweg et al.,2005; Lee, 2004; Sydow and Staber, 2002). It appears that existing supply chainconcepts do not sufficiently address the simultaneous effects that informal connectivity(collaboration standards, technology standards and regulatory and industry rules) andrelationship alignment (RA) (e.g. trust, power, and knowledge sharing) have ondynamic coordination in networked supply chains.

To fill this gap, this study empirically examines capability connectivity (CC), RA,and the ability to informally network in the supply chain as determinants for betterutilizing capabilities among supply chain partners. In particular, the study focusses onhow the above described determinants may impact on OP in the supply chain whenresponding to short-lived demand requirements or highly dynamic markets. The studyadds a new concept, the INSC, to the discourse in the supply chain managementdiscipline. It shows that CC and RA may enable new alternative ways of coordinatingsupply chain capabilities to meet a specific market requirement. As such, it offersa new perspective in relation to flexibility and agility in the supply chain (Towill andChristopher, 2002; Christopher, 2000; Yusuf et al., 2004). In terms of organizationaldevelopment, the study provides empirical evidence for the fact that companies maybuild informal coordination capabilities in order to take advantage of time sensitivemarket opportunities.

2. Theoretical background and development2.1 The concept of INSCsThe underlying conceptual theme of this study is the idea of informal networkingin supply chain management, enabled through CC and RA, and how this mayaffect supply chain performance. Activities and decision processes required toaccess and execute capabilities in the context of highly dynamic businessopportunities make up the INSC (Bowersox et al., 2002; Hakansson and Ford, 2002;Harland et al., 2004). In INSCs, the capabilities of multiple supply chain partners arecoordinated ad hoc to respond to highly dynamic market opportunities. A study byGulati (1999) on relationship complexity in a network, both in terms of time andformalization, measured the time and number of organizations that one companymust go through to reach other companies in the supply chain. The study foundthat companies that were utilizing informal mechanisms were likely to have quickerand richer information about the capabilities residing in the network than othercompanies.

The competency to coordinate dynamic capabilities across the supply chain may behindered by existing norms and formal approaches to managing all the arrangementsbetween supply chain partners. With stringent time pressures, or a limited windowof opportunity to respond to opportunities, a collective beneficial outcome can beachieved by engaging in very ad hoc, or interimistic (Lambe et al., 2000), relationships.It is argued that expertise in coordinating activities across different companies becomesan important supply chain capability in itself. In the context of highly dynamicmarkets, this leads to INSCs, a concept distinctly different from a more “simplistic, linearand unidirectional representation of flows of materials and associated information”(Lamming et al., 2001).

Next, we elaborate on how informal networking in supply chains is enabled througheffective CC and RA.

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2.2 CCCC in supply chains describes the degree to which collaboration technologies,processes, rules, and regulations enable the integration of multiple supply chainpartners’ information flows, which in turn facilitate the related financial and physicalflows in an environment of rapid decision making (Malhotra et al., 2005; Davenport,2005; Morash, 2001).

Better CC, through the evolution in information and communication technologymay provide more opportunities for informal, indeed ad hoc, coordination of supplychain capability. Current research (Cheng et al., 2007) in this area supports this notion,as new extended enterprise models, such as supply chain integration and demandchain management, require a new method of on-demand information access. The newrequirements stem, first, from the fact that information access now often involves alarge number of enterprise databases that belong to a large number of independentorganizations, and second, the fact that these databases are increasingly overlappingwith real-time data sources such as wireless sensor networks and radio-frequencyidentification systems (Cheng et al., 2007). Another study-related CC to enablingstructures for informal coordination of supply chain capabilities (Xu and Beamon,2006), in which CC ensures that capabilities in a supply chain can be treated bynetworked partners as if they belong to one “virtual” resource pool, both in formal andinformal network settings.

A first dimension of CC measures the degree to which relevant technical standardsare recognized and used by supply chain partners (Helfat and Eisenhardt, 2004; Yusufet al., 2004). Technical standards enable the partners in a supply chain to exchangedata, information, and knowledge in an effective and timely manner, includinginformation and communication exchange standards such as EDI, the internet, andrelated technology applications. Open and shared (i.e. standardized) communicationsystems may shift powers of coordination from hierarchical and control-orientedmechanisms by one dominating company to decentralized coordination by networks ofcompanies (Zaheer and Bell, 2005).

A second dimension of CC considers the degree to which relevant process standardsand methods are recognized and used by supply chain partners (Park, 2003; Saeedet al., 2005). Through process standards, partners in a networked supply chain canaccess shared resources at different points within a process in a more timely fashion.Process standards in the supply chain reduce barriers and associated transaction costsfor establishing and executing effective supply chain processes. Therefore, proceduralaspects are an important dimension of timely CC. Research attests that the variabilityin how organizations define processes makes it difficult to communicate acrosscompanies (Davenport, 2005). There is evidence that industry-specific process standardsenable better information exchange, increased visibility, knowledge, and learning andhence enable CC (Huang et al., 2005). While such integration efforts have typically beenmade based on long-term contracts, interimistic arrangements may nowadays beenabled through a proliferation and acceptance of supply chain level standards.Davenport (2005) refers specifically to standards that cross-process and technologyboundaries.

A third dimension of CC takes into account the degree to which relevant industryrules and regulations are harmonized, recognized, and considered in the decisionprocesses of all supply chain partners. Increasingly, the large number of regulatoryregimes at industry, state, national, and international level can lead to supply chainconstraints, and hence delay relevant decision making (Elias, 2003, Department of

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Transport and Regional Services (DoTARS), 2002). This is even more the case if theseregulations conflict with one another. Case studies show that a number of factors areinvolved, including current supply chain relations and possible ways of integratingregulations into the business strategy (Forman and Joergensen, 2004). Governmentregulation can create or hinder the effectiveness of networked supply chains’coordination, especially where timely action is required. Connectivity, a key factorfor competitive advantage, has been highlighted by businesses and policy makersin Australia in a report prepared by the Freight Transport Logistics IndustryAction Agenda Workshop (2001). If harmonization cannot be achieved between thestakeholders, regulation may negatively affect supply chain responsiveness and overallperformance.

Next, we turn to a discussion of RA and how it may impact on informal networkingin supply chains.

2.3 RAResearchers have found that key success factors for deploying dynamic capabilitiesinclude shared values, i.e. the partner(s) are guided by principles acceptable to both,or goal congruence, i.e. the behavior of supply chain partners in regard to achievinga joint objective (Golicic, 2007; Rokkan and Haugland, 2002; Grossman, 2004; Kwonand Suh, 2004; Morgan and Hunt, 1994). Research suggests that alignment of informalrelationships toward joint objectives depends on relationship variables, includingtrust, power, knowledge, and supply chain risk, as well as related attributes such ascommitment, information sharing, communication, and the management of intellectualproperty (Rokkan and Haugland, 2002; Grossman, 2004; Morgan and Hunt, 1994;Kampstra et al., 2006).

Trust is a company’s belief that their counterpart(s) in a relationship willperform actions resulting in positive outcomes (Morgan and Hunt, 1994). This maybe even more important, if the opportunity is transient and requires rapiddecision making and risk taking. A number of studies identify communicationas a critical determinant for trust in business relationships. Some authors statethat trust is a substitute for information, and consider it as an element thatmakes communication timely, credible, and hence more effective (Dwyer et al.,1987).

Power is the ability to influence the decisions or actions of others. In the contextof networked supply chains and short-term opportunities, disproportionate powerdistribution may only be beneficial for a business network if it is applied to act onmutually beneficial opportunities (Hakansson and Ford, 2002). Even though theactivities and the ownership of capabilities may be decentralized in a network,integration, and standardization of processes and information flows may allow supplychain partners to retain control over the coordination of end-to-end processes. However,certain capabilities may be dominated by a lead company, if, for example, one supplychain partner contributes significantly more capabilities to the differentiation ofa transient product or service offering. In such cases, the other partners may needto accept power imbalances due to a lack of alternative business opportunities.The potential benefits might outweigh the risks of losing control in ad hoc supplychain collaboration due to unfavorable situational power distribution. Powerimbalances can be measured through the rewards and penalties supply chainpartners experience (Morgan and Hunt, 1994). Such measurement indicates the abilityof a supply chain partner to distribute benefits (such as increased business or cost

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reductions) or punishment (such as decreased business or dictated cost reductions) tothe other supply chain partner(s). Yet, for most networked supply chains it is the lackof influence or power, exhibited by the interdependence of business partners, thatis seen as a key determinant of an effective networked supply chain structure(Sydow and Windeler, 1998; Kemppainen and Vepsalainen, 2003; Zaheer and Bell,2005). Hence, networked supply chain structures include non-power-basedrelationships and inter-company coordination, as well as informal business systemsthat are linked through joint supply chain objectives (Croom, 2005; Harland et al., 2004;Lambert et al., 1998).

Knowledge is yet another factor for aligning relationships and for achievingcompetitiveness in highly dynamic environments. It relates to the supply chainpartners’ technical, procedural, and managerial expertise in particular knowledgefields (Knoppen et al., 2010). The application of specific knowledge is dependent onefficient and timely communication between the partners in a network. It includes thewillingness to share information and knowledge to reach a position where each partyis able to achieve benefits through network participation that are greater than if theyremained by themselves. Communication includes the ways in which information isexchanged and shared between partners and the openness between partners in theirexchanges of information. As supply chain partners are part of a network, knowledgemay be an important source of coordination, and evaluating access to it may be centralto assessing whether supply chains are functioning. Bowersox et al. (2002) found thatsupply chain partners who use benchmarks to assess relative performance accumulatemore knowledge than others do, and have stronger beliefs about the importance ofknowledge as a strategic resource. Research also shows that the exchange of knowledgein ad hoc and highly dynamic relationships is different from that in long-termrelationships. Data presented by Hult et al. (2004) shows that the availability of newknowledge about products and processes is more important in dynamic marketsituations.

Supply chain risk describes the issues related to possible disruptions affectingentities in the supply chain that may have a direct effect on a company’s ability tocontinue operations, get finished goods to market, or provide services to customers(Manuj and Mentzer, 2008). Supply chain risk may be defined as being “any possibleimpediment on information, material, and product flows from original supplier to thedelivery of the final product for the end user” (adapted from Harland et al., 2003). Trustand commitment in a relationship allow supply chain partners to view potentiallyhigh-risk actions as being sensible because of the belief that their partners will not actopportunistically (Morgan and Hunt, 1994). Opportunistic behaviors are negativelyassociated with trust and commitment and occur when partners intend to maximizethe benefits for their own sake, rather than do their best for the networked supplychain as a whole.

Another important factor in short-term relationships is commitment. Commitmentis the willingness of a partner company to extend effort and resources, such as thedevelopment of new product or service programs, for the continuation of therelationship (Sawhney et al., 1999). Commitment is affected by relationship terminationcosts, which refer to the costs of withdrawing from the relationship. This determinantis grounded in exchange theory and based on research in marketing (Morganand Hunt, 1994), which shows that the effects of switching costs are a positive reasonfor maintaining a relationship commitment. The more committed the partners are tothe opportunity at hand, the greater the chance for each company to achieve their

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individual and mutual goals without the overshadowing risk of engaging in opportunisticbehavior.

2.4 OPCompany-level OP is often measured by efficiency and effectiveness measures.Availability of inventories, appropriate response times, complete order fulfilment, andconsistent product quality are examples of operational effectiveness. Equally importantin the context of the research are operational efficiency measures, such as machine/toolset up times, economies of scope, and number of inventory turns. This is in line withLummus et al. (2003) who argue that the degree to which an organization can adjust itssupply chain speed and volumes efficiently is key to its performance. Company-level OPis a measure that captures aspects of revenue enhancement, service improvement ofeffective supply chain practices (Ramdas and Spekman, 2000), better strategic focus(Gunasekaran et al., 2004), and access to knowledge and expertise (Chapman et al., 2003).Furthermore, process coordination of capabilities across organizational boundaries cancontribute to cost-savings (Hewitt, 1994), standardization of services (Davenport, 2005),and faster total supply chain response times (Sydow and Staber, 2002). The latter traitsare also highlighted as antecedents for effective supply chain collaborations (Vereeckeand Muylle, 2006; Gunasekaran, 2004).

3. Research model and hypothesesFrom our earlier discussions, it is proposed that connectivity is a result of integratingprocesses and technologies across companies. It is further posited that industry rulesand regulatory conditions create an environment, which is conducive (or the reverse),for networked relationships in supply chains. Standards and rules may be importantvariables that enable organizations to informally communicate, share informationand more readily make supply chain decisions. As a result, this may improvecompanies’ abilities to connect supply chain technologies, processes, andorganizational structures; combine cross-organizational capabilities more flexibly,and, depending on the market situation, improve material and financial flows. Thisresults in the first hypothesis:

H1. Better CC leads to more informal coordination of supply chain capabilities.

The better such relational factors are aligned between supply chain partners, the morefrequently these partners may engage in joint rapid and informal decision making.This leads to our second research hypothesis:

H2. Better RA leads to more informal coordination of supply chain capabilities.

It is argued that if organizations can overcome the constraints of formal and time-consuming decision making and engage in INSC arrangements, they can achievemeasurable performance improvements. This leads to the third research hypothesis:

H3. More informal coordination of capabilities in a supply chain network leads togains in OP.

Taking into account the higher order nature of the capability connectivity-, INSC-, andoperational performance-constructs, the above three main research hypotheses translate

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into the following final ten hypotheses:

H1.1. Better supply chain CC through technology and process standards leads tomore market capability access through informal networking.

H1.2. Better supply chain CC through technology and process standards leads tomore supply capability access through informal networking.

H1.3. Worse supply chain CC through more rules and regulations leads to lessmarket capability access through informal networking.

H1.4. Worse supply chain CC through more rules and regulations leads to lesssupply capability access through informal networking.

H2.1. Better RA leads to more market capability access through informalnetworking.

H2.2. Better RA leads to more supply capability access through informalnetworking.

H3.1. OP improvement from more market capability access through informalnetworking leads to better market-oriented effectiveness.

H3.2. OP improvement from more market capability access through informalnetworking leads to better internal efficiencies.

H3.3. OP improvement from more supply capability access through informalnetworking leads to better market-oriented effectiveness.

H3.4. OP improvement from more supply capability access through informalnetworking leads to better internal efficiencies.

4. Research methodA mixed research approach, using multiple approaches for the collection, analysis,and interpretation of data, was used (Huberman and Miles, 2002). First, the literaturein the field was reviewed for relevant contributions and gaps, and for determiningthe research questions. Subsequently, a qualitative exploratory phase was includedin order to confirm the relevance of the research question to the practitioner,involving a panel of 96 supply chain experts selected from a sample of 500 seniorexecutives, across a range of industries and responsibility levels. In order toanalyze the outcome of this qualitative phase, a content analysis was performed thatincluded a structured data write-up, categorization, and coding (Glaser, 2001). Third,based on the results of the exploratory field study and the review of the literature, aresearch model was proposed and a survey instrument developed to measure theresearch constructs and variables. Subsequently, this model was analyzed usingstructural equation modeling, and conclusions were drawn as well as implicationsfor managers and theory development. The detailed research model is summarized inFigure 1.

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4.1 Sample and data collectionThe sampling frame consisted of 5,000 mail addresses purchased from Dun &Bradstreet. The respondents were individuals who occupied senior and executivemanagement roles in organizations that represent the population of the research. Thesurvey was conducted in four geographical areas: Australia and New Zealand, Asia,Europe, and North America. Respondents were asked to classify themselves accordingto country of origin and to provide information about their organization’s industrysector using an industry classification derived from the supply chain literature. Officialindustry classifications such as ANZSIC or other SIC-type codes were not used for thesample because of the international nature of the data and possible inconsistencies orunavailability of different classification systems in various countries (Dussauge et al.,2000). Respondents’ organizations were also classified by turnover and number ofemployees. A total of 2,000 paper-based mail surveys were sent to Australian and NewZealand respondents, consisting of a cover letter and questionnaire and pre-paid returnenvelope. Another 3,000 paper-based invitations were mailed to prospective internationalrespondents in Asia, Europe, and North America. These contained a cover letter andinstructions on how to participate in an online survey. A total of 231 usable responseswere used, or a 4.62 percent response rate. The characteristics of respondents aredisplayed in Tables I-III.

4.2 MeasurementScales to measure each of the constructs in the model were developed either byadopting measures that had been validated by other researchers or by converting thedefinitions of constructs from the previous literature into a questionnaire format. Forresearch items where no matching scales were found, existing scales were adapted tofit the research question, or they were created based on the literature and/or findingsfrom the exploratory interviews with experts. Specifically, the construct “INSC”consisted of two factors and measured the ability of supply chain partners to respondto transient opportunities in the context of highly dynamic markets. The INSC is aconstruct consisting of two well-established factors: time to access supply chaincapabilities and degree of formality in coordinating supply chain capability across

IT and processcapability connectivity

(CC_CONN)

Market-relatedinformally networked

supply chain(INSC_MRKT)

H3.1

H1.1

H1.2

H1.3

H1.4

H2.1

H2.2

Regulation and rulescapability connectivity

(CC_REGUL)

Relationshipalignment

(RA)

Supply-relatedinformally networked

supply chain(INSC_SUPPL)

H3.2

H3.3

H3.4 Internalefficiency

(OE_EFFIC)

Marketeffectiveness(OE_EFFEC)

Figure 1.Research model

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organizational boundaries. A definition for “time to access capabilities” is the timeit takes the entire supply chain to coordinate interrelated capabilities and execute thoseto achieve a desired result (Lummus et al., 2003). The same study provided thescales for measuring supply chain flexibility, agility, and responsiveness. The firstfactor INSC_MRKT measured market-oriented informal networking, and consisted offour items measuring the degree of complexity of customer demands, the importanceof expediting customer orders, the importance of accessing new markets rapidly,and the importance of accessing resources for integration with new suppliers.The second factor INSC_SUPPL measured supply-related informal networking,and consisted of three items, measuring the ability to respond to market opportunitiesin a timely manner by rapidly accessing products and services from suppliers.Measures for the degree of formalization were adapted from (Beamon, 1998)

ANZ Asia Europe North America TotalResponse statistics Mail E-mail

Non-deliverable/returned 54 31 67 9 161Decline to participate 16 3 12 1 32Non-usable responses 2 26 35 3 66Usable responses 83 60 64 24 231Response rate by geography % 4.15 6.00 6.40 2.40 4.62Total e-mail response rate % 4.93

Table I.Response statistics

Position Total

1 Chairman, CEO, CFO, COO, other C-level 462 Senior executive, vice president 653 Senior manager 754 Manager 415 Staff 27 Consultant 2

Grand total 231Table II.

Position of respondents

Sales in USD Total

1 USD 10 million or less 92 More than USD 10 million, up to USD 50 million 223 More than USD 50 million, up to USD 100 million 254 More than USD 100 million, up to USD 500 million 535 More than USD 500 million, up to USD 1 billion 526 More than USD 1 billion 65(Blank) No response 5

Grand total 231

Table III.Annual sales of

respondents’ organization

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who considered formalization of supply chain relationships (i.e. existence offormal agreements and the extent to which they limit managerial choices) bystudying distribution network partners in the technology industry. Gulati (1999)provides measures for time and degree of formalization of processes betweenorganizations.

CC is a higher-order construct, consisting of two factors and describes the abilityof supply chain partners to rapidly and informally integrate capabilities to servicean ad hoc market requirement. The first factor (CC-CONN) measured the access tocollaborative processes and IT capabilities, whereas the second factor (CC-REGUL)measured the effect of rules and regulation on the propensity of supply chain partnersto coordinate their activities informally. Both factors were measured by four itemseach, derived and adapted from (Fawcett et al., 2000; Williams et al., 1998, Daughertyet al., 1999; Kessides and Willig, 1995). Measurement scales were adapted to surveythe impact of technology, processes, and regulations on performance. They explorethe cross-functional processes in an international production-sharing setting.The scales include dimensions measuring the ability of supply chain partners’information systems to provide useful information, domestic content laws; foreignownership laws; global technology developments; global transportation rates; andlogistics costs. Measurement scales from the literature to operationalize RA along thesedimensions resulted empirically into a single factor construct with four measurementitems. These measurement items included each dimension, but power. This is inline with earlier findings that state the lack of influence or power, exhibited by theinterdependence of business partners, as a key determinant of an effective networkedsupply chain structure (Sydow and Windeler, 1998; Kemppainen and Vepsalainen,2003; Zaheer and Bell, 2005).

The single-factor RA was operationalized by four measurement variables thatdescribe the relational factors that are necessary to achieve mutual access andutilization of capabilities in networked supply chains, in particular for coordinatingcapabilities for responding to interimistic demand requirements. The measurementscales included dimensions such as the importance of trust, adapted from Blois (1999),the ability to actively share knowledge among supply chain partners and the abilityto rapidly communicate problems (the two latter ones adapted from Jaworski andKohli (1993).

OP in our study is a higher-order construct, composed of two factors. The firstfactor “efficiency (EFFIC)” consisted of four items that measured the operationalefficiencies achieved by informally networking in the context of highly dynamicmarkets: the ability to reduce own operational cost, the ability to gain knowledge, theability to standardize services, and the ability to reduce lead-times in the supply chain.The second factor “effectiveness (EFFECT)” consisted of three items, measuringresponsiveness, ability to focus on core business, and ability to improve customerproductivity. Lummus et al. (2003) measure the degree to which an organization canadjust its supply chain speed, destinations, and volumes. The authors adapted theirmeasurement scales and added that customers expect such a performance at thesupply chain level without additional cost.

The questionnaire items for regulation and rules connectivity were measured usinga seven-point Likert scale that ranged from 1¼ do not agree, through 4¼ neutral, to7¼ agree fully; whereas all other questionnaire items ranged from 1¼ not important,through 4¼ neutral, to 7¼ very important. The measurement items of the constructsare listed in the Appendix.

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4.3 Reliability and validity of research constructsA rigorous process was used to develop and validate the survey instrument. Prior todata collection, the content validity of the instrument was established by grounding itin existing literature. The instrument was pre-tested with a sample of 108 researchersand other experts (96 panel members and 12 additional respondents) before thecollection of data commenced. In developing scales, care was given to the specificationof the constructs and to the items generated in order to minimize measurement errors,using a framework based on Churchill Jr (1979) to guide scale development. Assuggested by Narasimhan and Jayaram (1998), an exploratory factor analysis for eachconstruct was conducted to ensure unidimensionality of the scales. Convergent validitywas assed by conducting a confirmatory factor analysis (CFA). Structural equationmodeling was used to estimate models in which each item was linked to itscorresponding construct, and the covariances among those constructs were freelyestimated. Generally, a construct with either loadings of indicators of at least 0.5,a significant t-value (t42.0), or both, is considered to be convergent valid (Chau, 1997).In our model, all factor loadings were 40.50 and the t-values were all 42.0. Therefore,convergent validity is achieved. CFA was used to estimate discriminant validity. Largecorrelations between latent constructs (40.80) suggest a lack of discriminant validity.Poor discriminant validity is present if the correlation between two factors is (or is veryclose to) 1 or �1 (Tabachnick and Fidell, 2001). The correlations between the factorswere between 0.189 and 0.491, therefore establishing discriminant validity for thevarious constructs.

Composite reliability was measured via Cronbach’s coefficient a and were allwell above the minimum threshold value of 0.60 as recommended by Nunnally (1978)and Flynn (Flynn et al., 1990). The reliability analysis of the constructs is summarizedin Table IV.

5. Data analysis and results5.1 Data analysisMissing data were found for respondents across the entire sample, with missingvariables missing completely at random (Tabachnick and Fidell, 2001). Theexpectation maximization treatment of missing data (Graham et al., 1996) was usedto replace missing values. Research showed that this method of data imputation ismore consistent and accurate in predicting parameter estimates than methods such as

Construct Number of items Composite reliability

Capability connectivity (CC)CC_CONN (IT and process connectivity) 4 0.658CC_REGUL (regulation and rules connectivity) 4 0.852Relationship alignment (RA) 4 0.736Informally networked supply chain (INSC)INSC_MRKT (market-related INSC) 4 0.758INSC_SUPPL (supply-related INSC) 3 0.725Operational performance (OP)OP_EFFIC (internal efficiency) 4 0.721OP_EFFECT (effectiveness) 3 0.802

Table IV.Construct reliabilities

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list-wise deletion, which was highly variable, and mean substitution, which consistentlyunderestimated values (Graham et al., 1996).

5.2 Results5.2.1 Panel research findings. A significant number of practitioners found the conceptof informal networking in the supply chain and its related factors “connectivity” and“RA” very relevant. In particular, the following themes scored highly during theinterviews: the ability to quickly integrate participating people and processes acrosscompany boundaries; the importance of accessing expertise as well as physicalresources in the supply chain, regardless of company ownership; establishingstandards that link communication systems, information flows, and operationsprocesses. Findings from the exploratory interviews suggest that companies want toreduce the proportion of asset ownership relative to total assets employed. This, theyargued, would be achieved through collaborative practices and outsourcing. Thecontacted companies were shifting their attention toward managing and controllingthe access and flow of information, instead. The exploratory research also indicatedthat senior executives across a range of industries (i.e. chemicals, telecom equipmentmanufacturers, and fast moving consumer goods) informally coordinate supply chaincapabilities to either enhance the efficiencies of operations, or to increase theeffectiveness of serving the market using the “best” combination of supply chaincapabilities available across supply chain partners. While this initial research stronglysupported the concept of the networked supply chain, there were significant differencesbetween the degrees of formality and timeliness by industry.

5.2.2 Model results. Figure 2 presents the standardized regression weights andcorresponding p-values for the structural model.

The model meets all goodness-of-fit measures: normed w2¼ 1.315; SRMR¼0.048; RMSEA¼ 0.037; GFI¼ 0.942; AGFI¼ 0.913; TLI¼ 0.954; and CFI¼ 0.965. Tenhypothesized relationships were tested, of which five were confirmed at the 5 percentsignificance level. At the 8 percent significance level, eight hypotheses would have beenconfirmed. The effect of market-related informal networking on operational efficiency

IT and Processcapability connectivity

( CC_CONN )

Market-relatedinformally networked

supply chain(INSC_MRKT)

0.17

–0.20

0.48

Internalefficiency

(OE_EFFIC)

0.23

Regulation and rulescapability connectivity

(CC_REGUL)

(p= 0.261)

(p= 0.019)

0.19

0.18

(p= 0.041)(p=0.

047)

Relationshipalignment

(RA)

Supply-relatedinformally networked

supply chain(INSC_SUPPL)

0.17

–0.09

–0.42(p

=0.074)

–0.20(p=0.039)

(p= 0.067)

(p=0.000)

Marketeffectiveness(OE_EFFEC)(p= 0.068)

(p= 0.039)

Figure 2.Standardized regressionweights and p-values

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proved significant, but with an opposite effect than hypothesized. We only report onfindings at the 5 percent significance level.

First, it was established that process and IT connectivity have a positive effect onsupply-oriented (upstream) informal coordination of activities in the supply chain. It wasalso confirmed that regulatory regimes have a significant negative effect on supply-oriented informal networking activities, but not on market-oriented informal networking.Therefore, the study supports CC as an antecedent for informal networking, in particularsupply-oriented informal networking.

Second, RA was confirmed to be a significant factor for both market-oriented andsupply-oriented informal coordination in supply chains.

Third, market-oriented informal coordination had a negative effect on operationalefficiencies, whereas supply-oriented informal networking had a positive effect onoperational efficiencies. Since supply chain partners share and exchange capabilities tocreate an advantage in markets in which they operate, this suggests that market-oriented(downstream) and supply-oriented (upstream) informal supply chain coordination havediametrically opposing effects on operational efficiency.

Supply-oriented informal networking showed 60 percent of total variance explained,whereas market-oriented informal networking showed 51 percent, and operationalefficiency 57 percent, respectively. CC did not achieve a high explanatory value, withmoderate loadings on other variables. Further research will need to establish theperception in the target population of senior executives regarding CC, which may showthat the posited relationship is more complex than anticipated in this study, or that CChas become a resource that is ubiquitous in modern supply chain configurations.

In summary, our results show that informal coordination of supply chain activitiesinfluences OP in different ways, and most significantly impacts positively on operationalefficiency through supply-oriented informal networking. The study identified thatindustry rules and regulations have a significant impact on the propensity of supplychain partners to collaborate informally. Our results also show that RA betweencompanies is an important factor to achieve both market- and supply-oriented informalnetworking capabilities.

6. Discussion and conclusion6.1 Implications for theoryThe study adds a new concept, the INSC, to the discourse in the supply chainmanagement discipline. It shows that CC and RA enable new alternative ways ofcoordinating supply chain capabilities to meet a specific market requirement. As such, itoffers a new perspective in relation to flexibility and agility in the supply chain (Towilland Christopher, 2002; Christopher, 2000; Yusuf et al., 2004). The study supportsconclusions made by others about the importance and benefits of information integrationin the supply chain (Gosain et al., 2004; Meyer et al., 2004; Balakrishan and Geunes, 2004).Our results show that informal coordination in supply chains can lead to a reduction ofoperating costs and improved productivity.

The research produces strong evidence for the role of collaboration capabilities(Holweg et al., 2005; Stank et al., 2001; Cheng et al., 2007; Kampstra et al., 2006). Ourfindings show that RA is a co-requisite for informal networking. The contribution tosupply chain theory and practice is the recognition that supply chain processes andtechnology are not sufficient in themselves to achieve the benefits from informaland fast coordination. The analysis confirms that the intangible aspects (such as RA)are of equal importance as tangible aspects (such as technology and processes) for

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enabling companies to respond to opportunities in highly dynamic market situations. Italso confirms the importance of effective connectivity technologies to support a greatervariety of coordination practices within complex and dynamic supply chains. Thefindings add to the research relating to the role process standards (Davenport, 2005),technology standards (Kay, 2003; Park, 2003; Huang et al., 2005), and industry rules(Elias, 2003) play in enabling cross-company integration.

6.2 Implications for practiceIn terms of organizational development, the findings suggest that companies shouldbuild informal coordination capabilities in order to take advantage of time-sensitivemarket opportunities. In this respect, our study shows that the management ofindustry rules, regulation, connectivity, and RA are significant antecedents forinformal coordination of supply chain capabilities in business networks. Consequently,companies should create management capabilities to deal with these phenomena. Theresults are supported by similar findings, where different contextual circumstances ofinterimistic business situations required supply chain partners to find different waysof working together (Lambe et al., 2000). This seems to highlight that informalcoordination in supply chains represents distinctly different capabilities from thosethat may be present in long-term relationships, or transactional relationships (Myhrand Spekman, 2005).

The study contributes to OP management. It presents evidence for positive effectsof informal networking in supply chains on operational efficiency (e.g. increased focuson improved productivity and reduced response times). The results suggest thatcompanies should strive to enable greater flexibility to connect with their tradingpartners without an abundance of idiosyncrasies.

This study contributes to extending business process and IT integration incompanies. It is shown that RA, in combination with process and IT connectivity, issignificant in creating the foundation for informal networking in supply chains, inparticular for supply-related activities.

Results of this study could be implemented in areas like service- and knowledgemanagement businesses that could help other organizations deal with informal supplychain coordination, allowing different entities to focus on their core competencies.These firms could provide basic information about developing network connectivity,using databases such as e-mail repositories or other communication means, techniquessuch as text mining, graph/network theory, and advise parties where in the networkinformal coordination is forming and how to deal with the formation of informalnetworks or clusters. Such neutral third parties may further promote additionalcoordination of capabilities.

6.3 Research limitations and areas of future researchWhile this research contributes to a better understanding of informal networking, ithas its limitations. First, this study focussed on the analysis of informal coordination innetworked supply chains and its effects from the view of a focal company. Futurestudies may expand the scope of this research to include entire supply chains. Second,future research may investigate the effects of INSCs on a broader array of measures ofcompany performance, and additional measures of OP. Third, a follow-up study couldaddress the question of how supply chain partners can manage the existence ofpotentially diametrically opposed goals among supply chain partners. Trust providesan incentive for partners to collaborate in a non-opportunistic way for the limited life of

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the opportunity. However, supply chain partners must be aware of risks associated withconducting business in an informal way, such as opportunism, lack of commitment ofsupply chain partners, and the risk of losing valuable resources. Hence, mechanismsfor mitigating such risks must be understood. Areas for future research could include, forexample, the selection of partners for this type of relationship that presumes the abilityto manage relevant relational information, to define and monitor early warning signs,and to be flexible to enter and exit relationships. Fourth, variables that have not beenexamined include structure of specific supply chains, number of tiers in the chain,types of supply chain applications, and types of integrated business processes.Research into such phenomena could help develop a better understanding ofcapabilities and collaborative behaviors in different contexts. Such study would call foran expansion of the unit of study from a focal firm to an entire supply network. Fifth,the scope of the study could be further expanded through additional constructdevelopment, such as relational interaction routines and information flow integration.For example, relational interaction routines for unplanned, ad hoc, tasks arefundamentally different from interaction routines that are ongoing and repetitive innature. This would provide additional insights for the design of collaborative supplychains. Sixth, future research could also expand the scale of the study by obtaininga large enough sample to include sufficient representation of major geographical regions.Due to budget constraints, this study focussed on selected geographies only. Althoughdata were collected from a commercial list obtained from Dun & Bradstreet, theoriginal sample size and resulting responses were not sufficient to draw generalizableconclusions for different subgroups of the target population, i.e. by country, region, andindustry. Finally, language and culture differences may have a moderating effect on therelationship between informal networking in the supply chain and OP. The literatureindicates that language and cultural differences can affect the operation of foreignfirms (Fawcett et al., 2000). Yet, culture and language difference do not find muchconsideration in the supply chain literature. Further studies could investigate therelevance of these, and other, issues on informal networking in the supply chain.

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Appendix. Measurement items

Capability connectivity (CC)CC_CONN (IT and process connectivity)

How important is shared IT for coordinating between supply chain partners?How important is access to confidential company information for coordinating between supplychain partners?How important is access to non-confidential company information for coordinating between supplychain partners?How important is the Internet for coordinating between supply chain partners?

CC_REGUL (regulation and rules connectivity)Current government regulations hinder collaboration with NEW partners (Degree of A lack ofregulators’ understanding of supply chain priorities hinder collaboration with NEW partners(Agree/Disagree)Current regulation negatively affects investment in supply chain (Agree/Disagree)Current government regulations hinder collaboration with EXISTING partners

Relationship alignment (RA)How important is trust in your supply chain partner for achieving responsive supply chains?How important is the ability to rapidly communicate problems between supply chain partners?How important is the ability to integrate supply chain resources rapidly?How important is the ability to actively share new knowledge between supply chain partners?

Informally networked supply chain (INSC)INSC_MRKT (market-related INSC)

How important is the possibility to access a supply chain partner’s resources for your ability toexpedite a sales order?How important is the possibility to access a supply chain partner’s resources for addressingunusually complex product/service requirements?How important is the possibility to access a supply chain partner’s resources for breaking into a newmarket arises unexpectedly?How important is the possibility to access a supply chain partner’s resources for integrating with anew supplier?

(continued)

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Corresponding authorWillem Selen can be contacted at: [email protected]

INSC_SUPPL (supply-related INSC)How important is quick access to alternative supply source?How important is the informal access to 3rd party manufacturing capability?How important is the informal access to 3rd party logistics capability?

Operational Performance (OP)OP_EFFIC (internal efficiency)

How important is supply chain collaboration for reducing supply chain cost in my company?How important is supply chain collaboration for increasing productivity?How important is supply chain collaboration for reducing response times?How important is supply chain collaboration for standardizing supply chain services?

OP_EFFECT (effectiveness)How important is supply chain collaboration for increasing access to relevant supply chainknowledge?How important is supply chain collaboration for allowing my company to better focus on corebusiness?How important is supply chain collaboration for accelerating supply chain response times whenrequired?

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determinants of

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