Information Technology and Firm Performance: The Role of Supply Chain Integration
Information Technology and Firm Performance: The Role of Supply Chain Integration
DOI 10.1007/s12063-016-0122-z
Received: 17 April 2016 / Revised: 20 November 2016 / Accepted: 7 December 2016 / Published online: 3 February 2017
# Springer Science+Business Media New York 2017
Abstract This study analyzes the correlation among integra- organizational (i.e., among suppliers and customers) processes
tive information technology (IT), supply chain integration (Flynn et al. 2010; Zhao et al. 2011). Most previous studies on
(SCI), and firm performance. The results show that integrative the relationship among information technology (IT), SCI, and
IT is positively associated with firm performance through SCI. firm performance have been constantly increasing. Most of
However, the results of this study show that integrative IT the previous studies argued that the correlation between IT
does not have a positive correlation directly with firm perfor- and firm performance (Albadvi et al. 2007; Carr and Kaynak
mance. It is considered that in the relationship between inte- 2007; Liang et al. 2010), and that between SCI and firm per-
grative IT and firm performance, a new approach such as formance (Boyer and Lewis 2002; Prajogo and Olhager 2012;
business process-oriented view arguing that performance is Cao and Zhang 2011; Khanchanapong et al. 2014) were pos-
yielded through the primary influence of IT is necessary rather itive. Also, there exist multiple studies, which argued that IT
than a traditional view that sets up their direct correlations. played a role of an enabler of SCI (Fawcett et al. 2011; Wu
The findings have the following implications. First, this study et al. 2014).
presents an endeavor to investigate the consequences of inte- Nevertheless, there remain many research areas that previ-
grative supply chain strategy. Second, this study provides im- ous studies could not address satisfactorily. First, while many
plications in decision making so that supply chain managers previous studies dealt with the business utilizing IT in manag-
can use IT in an effective way. ing supply chain, in-depth studies on the relationship between
the use of IT and firm performance from the process-oriented
perspective in the area of supply chain management are rare
Keywords Information technology . Firm performance .
(Tippins and Sohi 2003; Wu et al. 2006; Vijayasarathy 2010;
Supply chain strategy . Supply chain integration
Qrunfleh and Tarafdar 2014; Pavlou and El Sawy 2011; Wang
et al. 2012). Therefore, studies on what process IT as an im-
portant resource of a company takes to improve firm perfor-
1 Introduction mance need to be consistently made (Tippins and Sohi 2003;
Melville et al. 2004; Wang et al. 2012).
Supply chain integration (SCI) is defined as the strategic col- Second, although previous studies managed to show that
laboration of the manufacturer with its supply chain partners integrative information technology (IT) has a positive impact
and the degree of collaborative management in both intra- on SCI, what could be the consequences of integrative supply
organizational (i.e., among departments) and inter- chain strategy has not been clearly described yet. An integra-
tive supply chain strategy is defined as a business process that
creates values by integrating not only firms but also suppliers
* Hyun Jung Kim
and customers (Stevens 1989; Tan et al. 1998; Vickery et al.
hjkim@sy.ac.kr 2003). Integrative IT and SCI are the core constituents of an
integrative supply chain strategy. Integrative IT is defined as
1
Sangji Youngseo College, 660 Woosan-dong, technology that facilitates the collection of vital information
Wonju-si, Gangwon-do 26339, Republic of Korea concerning key business processes and the sharing of such
2 H.J. Kim
information across functional areas and across firm bound- a synergy effect, potentially greater than the sum of its parts,
aries. In other words, integrative IT means IT that enable the from inter-organizational exchange of resources. They have
achievement of integration both internally and externally. been highlighted as the main benefits of corporate partner-
Therefore, this study is aimed at contributing to the achieve- ships. Lastly, effective governance refers to a governance
ments of previous studies on the integrative supply chain strat- structure that minimizes transaction costs and improves effi-
egy (Vickery et al. 2003; Prajogo and Olhager 2012) by ex- ciency between companies. For sustainable advantage, rela-
amining the impact of integrative IT on firm performance. tional view emphasizes building a network with suppliers and
This paper is structured as follows: Section 1 explores the customers. In short, relational view emphasizes supplier inte-
research purpose and need; Section 2 reviews recent literature gration and customer integration.
on theoretical background, integrative supply chain strategy, Meanwhile, Lavie (2006) proposed an extended resource-
supply chain integration, and firm performance, and suggests based view that represents a compromise between resource-
hypotheses; Section 3 explains the research sample and mea- based view and relational view. Whereas resource-based view
sures; Section 4 presents the results of analysis; and Section 5 conventionally argues that an organization must own or have
summarizes the findings and discusses the research complete control over its value-creating resources, extended
implications. resource-based view argues that access to resources, rights to
use the resources, authority to enjoy the benefits associated
with resources, and so forth comprise an organization’s
2 Literature review and hypotheses development sustained competitive advantage (Hunt and Davis 2012).
According to extended resource-based view, organizations
2.1 Theoretical background can create a sustainable competitive advantage not only
through internal integration but also through supplier integra-
This study is largely based upon three strategic theories, which tion and customer integration. In other words, extended
are resource-based view, relational view, and extended resource-based view contends that organizations should ex-
resource-based view. The resource-based view maintains that tend their resources by tapping into those of their suppliers
firms have a sustained competitive advantage because their and customers.
resources have heterogeneous and immobile qualities (Hunt
and Lambe 2000). Firm-specific resources include the total 2.2 Integrative supply chain strategy and firm
assets, capabilities, organizational processes, firm attributes, performance
information, and knowledge that organizations manage in or-
der to improve their effectiveness and efficiency. If all com- An integrative supply chain strategy as a business process
panies had homogeneous resources that could be duplicated, integrates suppliers and customers as well as firms, and there-
then those companies would apply the same strategies and fail by creates values (Stevens 1989; Tan et al. 1998; Vickery et al.
to achieve competitiveness. According to resource-based 2003). Integrative IT and SCI are the core constituents of an
view, firms must develop new products and new technologies integrative supply chain strategy. Integrative IT is divided into
and build internal capability through training and communi- IT capabilities and information sharing, both of which had
cations for sustained competitive advantage. In other words, significant effects on logistics integration (Prajogo and
resource-based view emphasizes internal integration Olhager 2012). Integrative IT plays a crucial role in supply
(Leuschner et al. 2013). chain management. Wu et al. (2006) argued that IT could not
Relational view asserts that resources important to an orga- enhance firm performance on its own, and information would
nization can be expanded beyond organizational perimeters need to be shared with suppliers and customers outside of the
because they are embedded in the relationship between orga- firm after firm-specific IT capabilities have been in place
nizations (Dyer and Singh 1998). According to relational the- based on the resource-based view. Sharing of accurate infor-
orists, an organization’s sustained competitive advantage de- mation saves costs attributable to excessive inventories and
pends on its relationship with other organizations. Therefore, shortages (Lee et al. 2000; Liu et al. 2013). Kulp et al.
organizations must cooperate with suppliers and customers in (2004) found that information sharing may have given com-
their network. Relational theorists propose that competitive panies a competitive advantage, which constituted a first step
advantage stems from relationship-specific assets, comple- in supply chain integration. Li et al. (2009) revealed that IT
mentary resources and capabilities, and effective governance. did not directly affect firm performance, but the supply chain
Relationship-specific assets are embedded in the relationship integration of the logistics system.
between an organization and its corporate partner (Teece et al. In addition, various researchers investigated the impact of
1997), and comprise site specificity, physical asset specificity, the integrative IT on the performance of companies. A consid-
human asset specificity, and dedicated asset specificity. erable number of studies argued that integrative IT has vast
Complementary resources and capabilities refer to generating potential for improving a firm’s financial performance
Information technology and firm performance: the role of supply chain integration 3
(Hendricks and Singhal 2003). Bharadwaj (2000) emphasized and cooperative intra-organizational efforts to satisfy custom-
that the integrative IT was important in estimating the im- er needs and maintain low costs in product design, procure-
proved firm performance. Sanders and Premus (2005) verified ment, production, distribution, and sales. Additionally, cus-
empirically that integrative IT influenced the internal and tomer integration is a strategic action that improves visibility
external cooperation of a company, and had a direct and and makes possible joint planning by sharing company infor-
indirect impact on firm performance, and thereby mation and collaborating with customers (Fisher et al. 1994).
emphasized the importance of the information technology. Many existing studies have explored the relationship be-
Vijayasarathy (2010) elucidated the direct effect of informa- tween SCI and firm performance (Handfield et al. 2009;
tion technology on firm performance by performing a com- Vachon et al. 2009; Wagner and Krause 2009). Most SCM
parative analysis of the direct effect and mediating factors of literature argued that supply chain performance improves in
information technology on supply chain and firm perfor- more integrated chains. Through integration, individual orga-
mance. In addition, some researchers presented the results of nizations within the supply chain system improve their robust-
the empirical analysis suggesting that the relationship between ness and agility, on the one hand, they exchange information
the integrative IT and firm performance was not direct but and knowledge that should minimize the probability of dis-
indirect based upon the logic of process-oriented perspective ruption and, on the other hand, overall impacts should be
(Tippins and Sohi 2003; Kim et al. 2011). Based on these minimized because information will flow quickly thus en-
studies, this study proposes the following hypotheses. abling faster and more meaningful reactions (Gualandris and
Kalchschmidt 2014, 2015).
H1: Integrative information technology has a positive Study results vary depending on how supply chain integra-
correlation with supply chain integration. tion dimensions and components and firm performance
H2: Integrative information technology has a positive components are treated. For example, Shin et al. (2000) took
correlation with firm performance. a single-dimensional approach. They proposed the concept of
supply management orientation, identified as long-term sup-
plier–buyer relationships, supplier-involved product develop-
2.3 Supply chain integration and firm performance ment, quality focus in selecting suppliers, and reduced suppli-
er base. Their results showed that supplier management orien-
Companies are realizing that they can secure competitive ad- tation significantly affects supplier and customer performance.
vantage through a mutual integration of partner companies Among the performance indicators, delivery and quality per-
within the supply chain (Horn et al. 2014). Supply chain inte- formance have a more significant effect than do cost and flex-
gration (SCI) is defined as the strategic collaboration of the ibility outcomes.
manufacturer with its supply chain partners and the degree of Next, Das et al. (2006) divided supplier integration into two
collaborative management in both intra-organizational and dimensions: internal and external. The authors argued that
inter-organizational processes (Flynn et al. 2010; Zhao et al. optimal configuration in each dimension can maximize firm
2011). performance. This study examined both the positive and neg-
Despite a consensus among many contemporary scholars ative effects of supplier integration. Supplier integration
that supply chain integration consists of multiple dimensions, lowers transaction costs in developing, negotiating, and mon-
earlier studies offered a wide range of suggestions for how itoring and achieves economies of scale and economies of
supply chain integration is constructed. Previous research scope to improve firm performance. On the other hand, sup-
has classified supply chain integration using a single dimen- plier integration can also reduce performance because of de-
sion (Rosenzweig et al. 2003; Marquez et al. 2004), two di- creased flexibility and costs generated from coordination and
mensions (i.e., internal integration and external integration) compromise. As a result, the study revealed a non-linear rela-
(Stanley and Wisner 2001; Pagell 2004; Petersen et al. tionship in which performance gradually drops as supplier
2005), or multiple dimensions (e.g., supplier integration, in- integration efforts move farther away from the optimal point.
ternal integration, and customer integration) (Narasimhan and Lastly, some studies have divided supply chain integration
Kim 2002; Droge et al. 2004; Campbell and Sankaran 2005; into three dimensions and explored their relationship with firm
Koufteros et al. 2007; Vickery et al. 2003). SCI is mainly performance. Lee et al. (2007) distinguished supply chain in-
divided into supplier integration, internal integration, and cus- tegration as supplier integration, internal integration, and cus-
tomer integration (Narasimhan and Kim 2002; Flynn et al. tomer integration. They empirically showed that all three in-
2010; Zhao et al. 2011). Supplier integration represents stra- tegrations positively affect supply chain performance. The
tegic collaborations between an organization and its supplier study revealed that internal integration has the largest impact
through information sharing and strategic alliance (Lai et al. on organizational costs containment, and that supplier integra-
2008), enabling costs reduction and profit sharing (Koufteros tion is the best strategy for achieving reliable performance.
et al. 2007). Internal integration represents the collaborative Similarly to Lee et al. (2007), Flynn et al. (2010) divided
4 H.J. Kim
supply chain integration into supplier integration, internal in- Table 1 Profile of respondents
tegration, and customer integration. Further, they divided per- Industry Frequency
formance into operational and business, wherein operational
performance includes process efficiency and logistics service Food/grocery manufacturer 5
performance and business performance includes financial per- Semiconductor/electronic manufacturer 12
formance and market share. Study results showed that internal Chemicals/oil/rubber/plastic products 9
integration had a significantly positive effect on both opera- Apparel/textile/leather products 24
tional and business performances. While customer integration Machinery products 11
strengthened operational performance, it had no significant Automotive products 37
effect on business performance. On the other hand, although Mineral products 4
supplier integration had no significant effect on any of the Furniture/fixtures products 20
performance measures, the interaction between supplier inte- Computer/communication equipment products 25
gration and customer integration had a significant effect on Other sectors 14
operational performance.
Based on the studies above, this study proposes the follow-
ing hypothesis. (strongly agree). Similarly a five-point scale, ranging from 1
(strongly worse) to 5 (strongly better) was deployed to each
H3: Supply chain integration has a positive correlation question item for firm performance.
with firm performance.
3.2.1 Integrative IT
Convergent validity is related to indicators that show the ex- positive correlation between integrative IT and SCI, and this
tent of correspondence or convergence among variables that hypothesis was supported by a standardized path coefficient
measure the same or similar constructs (Anderson and of 0.37 (t = 3.065, p < 0.01). H2 proposed a positive correla-
Gerbing 1988). Discriminant validity is related to indicators tion between integrative IT and firm performance. H2 was not
that show dissimilarity among variables that measure unrelat- supported given a standardized path coefficient of 0.15 (t =
ed constructs. Generally, a construct reliability (CR) value 1.182, p > 0.05). Moreover, H3 stated that there was a positive
greater than 0.7 and average variance extracted (AVE) value correlation between SCI and firm performance. Since the stan-
greater than 0.5 establish convergent validity (Bagozzi et al. dardized path coefficient was 0.43 (t = 3.927, p < 0.01), this
1991). Analysis results show that the CR was higher than 0.7 hypothesis was supported. This result means that SCI im-
and AVE was higher than 0.5, thus indicating convergent va- proves firm performance. Additionally, this study uses a sobel
lidity. Discriminant validity is assessed by examining whether test to attest that the overall indirect effect of integrative IT on
a square root of the AVE is higher than the correlation coeffi- firm performance through SCI is statistically significant
cient between the constructs (Hair et al. 2010). Analysis re- (Baron and Kenny 1986; Gualandris and Kalchschmidt
sults showed that all square roots of the AVE were higher than 2016). The independent variable is integrative IT, the mediat-
the correlation coefficient between the constructs, thus ing variable is SCI, and the dependent variable is firm perfor-
confirming discriminant validity of the constructs (Table 3). mance. Result of the sobel test suggests that the indirect effect
of integrative IT on firm performance via SCI is significantly
4.2 Common method variance different from zero (F = 29.84, p < 0.01). Taken overall, find-
ings suggest that for manufacturers, integrative IT and SCI
Common method bias is possible when the data for both lead to enhanced firm performance.
predictor and criterion variables were obtained from one sin-
gle person in the same measurement context. It may exert 4.4 Comparison between research model and alternative
great influence on measurement validity, thus distorting re- structural model
search results by increasing or decreasing the correlation be-
tween variables (Podsakoff et al. 2003). Harman’s single- To enhance the adequacy and validity, this study investigated
factor test is the representative technique to account for com- not only the model proposed but also alternative structural
mon method bias. The results of Harman’s single-factor test model. Table 4 shows the comparison between the research
conducted in this study showed that the largest factor ex-
plained 29% of the covariance, which indicates that there is
no significant evidence of severe common method bias
Table 4 Comparison of research model and alternative model
(Flynn et al. 2010).
Model 1 Model 2
4.3 Hypotheses testing
Structural paths
IIT → SCI 0.37** 0.37**
In examining the fit indices of the structural model, it was
IIT → FP 0.15
shown that χ2/df = 1.628, CFI = 0.929, TLI = 0.931,
RMSEA = 0.057 indicating a fitting model that satisfies the SCI → FP 0.43** 0.41*
criteria for each index. Model fit indices
Next, the hypotheses were verified by examining the stan- χ2/df 1.719 2.965
dardized path coefficients of the model. H1 proposed a CFI 0.925 0.874
TLI 0.924 0.855
RMSEA 0.061 0.073
Table 3 Correlation of constructs PNFI 0.704 0.657
AIC 152.425 173.509
Mean Standard deviation IIT FP SCI CAIC 263.857 282.635
Variance explained (R2)
IIT 3.25 0.76 0.713
FP 0.149 0.152
FP 3.71 0.82 0.398** 0.632
SCI 3.80 0.59 0.450** 0.427** 0.683 IIT Integrative information technology, SCI Supply chain integration, FP
Firm performance, CFI Comparative fit index, TLI Tucker-Lewis Index,
AVE is on the diagonal RMSEA Root Mean Square Error of Approximation, PNFI
IIT Integrative information technology, FP Firm performance, SCI Parasimonious Normed Fit Index, AIC Akaike’s Information Criterion,
Supply chain integration CAIC Consistent Akaike’s Information Criterion
** p < 0.01 ** p < 0.01, *p < 0.05
Information technology and firm performance: the role of supply chain integration 7
model and alternative structural model according to the chain management using IT, they first need to establish a sys-
criteria proposed by previous studies (Morgan and Hunt tem for information integration within a focal firm, and pos-
1994; Paulraj et al. 2008), and subsequently found that our sess the integrative IT. Subsequently, they have to seek infor-
proposed model was the more adequate. mation integration with partners in the supply chain
(Narasimhan and Kim 2001).
This study has a few limitations, and the direction of future
5 Conclusions studies to overcome these are as follows. First, this study has a
limitation that only a mediating variable SCI was taken into
This study analyzes the correlation among integrative IT, SCI, consideration. It is expected to better understand the impact of
and firm performance. The findings of this research are sum- integrative IT on firm performance by measuring more diverse
marized as follows. The results show that integrative IT is mediating variables in future studies. Second, this study did
positively associated with firm performance through SCI not closely examine the integrative supply chain strategy since
(H1 and H3). This suggests that firm performance is engen- a cross-sectional survey was conducted. In future studies, a
dered by integrative supply chain strategy (integrative IT and longitudinal survey can lead to more in-depth investigation.
SCI). This result is consistent with that of the study by Vickery Finally, the survey based on the perception of respondents was
et al. (2003), which emphasized the importance of integrative performed in this study. Although Murphy and Callaway
supply chain strategy. However, the results of this study show (2004) revealed that subjective measures based on perception
that integrative IT does not have a positive correlation directly of respondents were highly correlated with objective mea-
with firm performance (H2). Such a result is in agreement with sures, higher reliability is expected if firm performance is
the study by Tippins and Sohi (2003), Kim et al. (2011), but measured using the secondary data in future studies.
not with that of Sanders and Premus (2005). If this is
interpreted on the basis of the results of the study by
Vijayasarathy (2010), it can be seen that the use of IT has
different impacts on performance depending on the extent of
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