Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration

Transcription

1 Journal of Economic and Social Research Vol 13(1) 2011, Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration Yavuz Agan * Abstract. SCM requires collaboration of functions such as operations, marketing and information technology for internal and external integration. This study conceptualized supply chain integration as a higher level process integration capability comprised of operational, marketing and information technology capabilities. Operational capabilities include partner selection, collaboration, learning and operations human resources. While partner selection and collaboration are positively impacting integration, learning is not significant and operations human resources can be conceived to be negatively correlated with supply chain integration. IT infrastructure is significantly impacting integration as well as performance directly. Market orientation is also significantly impacting integration. Market orientation has both direct effects on financial performance and indirect effects through supply chain integration. Supply chain integration is significantly impacting operational and customer-based firm performance. JEL Classification Codes: M10, M31 Keywords: Supply Chain Integration, Market Orientation, Information Technologies 1. Introduction Supply chain integration has been a challenging task for many companies. Despite the strong consensus over the strategic importance of supply chain integration (SCI) (Handfield and Nichols, 1999), little is known about the relationship between supply chain integration and its impact on performance (Frohlich and Westbrook, 2001). A need exists for causal models that will * Fatih University, İstanbul/Turkey. yagan@fatih.edu.tr.

2 28 Yavuz Agan explain why and how integration will improve performance (Frohlich and Westbrook, 2001). This research attempts to fill this gap in the literature. Advances in information technology and communication capabilities, such as the Internet, enhance the ability of companies to integrate their supply chain. With these capabilities, firms can build relationships that yield dramatic performance benefits in terms of endcustomer satisfaction and reduced cost due to the elimination of operational duplication and resource waste (Stank, Keller and Daugherty, 2001). Another enabler necessary for successful SCI is operations capabilities. Without successful supplier selection and collaboration firms can t integrate. Operation capabilities are comprised of individual knowledge, skills, and organizational capabilities. Finally, marketing capability plays an important role in supply chain integration. Researchers suggest that the marketing concept has a strong influence on the management of a firm, inter-firm relationships, and the supply chain (Min and Mentzer, 2000). The marketing concept, as a business philosophy, guides firms to look for customer satisfaction at a profit in a coordinated manner and provides a common philosophy for supply chain partners. In spite of efforts to understand the nature of suppliers and distributors, including the impact of trust, commitment, and relational norms on channel interaction, a variety of research needs still exist in distribution channels (Fraizer, 1999). As illustrated above, technological, operational and marketing capabilities play an important role in supply chain integration; therefore, a multidisciplinary approach to supply chain integration is required. The resource-based view (RBV) of the firm has emerged as one of the dominant theoretical perspectives in the strategic management discipline. The theory of RBV proposes that companies outperform their competition by developing resources and capabilities that are valuable, rare, difficult to imitate, and non-substitutable. Honda s miniaturization and Wal-Mart s distribution systems are given examples of capabilities. Researchers from a variety of business disciplines have utilized RBV. For example, many have argued that manufacturing capabilities can be used to gain competitive advantage (Schroeder, Bates and Junttila, 2002). However, investigators have done little to examine the operational

3 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 29 capabilities from a resource-based perspective, and no studies have explored how firms develop and leverage new capabilities (Coates and McDermott, 2002). Adopting a resource-based perspective, researchers also argue that various IT capabilities could be sources of competitive advantage (Bharadwaj, 2000; Mata, Fuerst and Barney, 1995). A limited number of studies have explored the resource-based view of IT, and most of the analyses to date have been of a conceptual nature (Bharadwaj, 2000). Bharadwaj (2000) writes: Although the analysis indicates that superior IT capability leads to improved firm performance, the underlying mechanisms through which this is achieved are by no means clear. Additional research is needed to identify the full chain of variables connecting IT capability to firm performance. The resource-based view (RBV) of the firm asserts that above normal profits are possible through unique corporate resources and capabilities that are heterogeneously distributed across firms. Resources can be tangible assets (e.g., plant, equipment) (Wernerfelt, 1984), intangible assets (e.g., intellectual property, brand recognition) and/or personnel-based resources (e.g., culture, technical know-how, employee training) (Grant, 1991). While tangible assets are relatively easy to be imitated by competitors, intangible assets, such as know-how, are socially complex and hence difficult to imitate and substitute (Reed and DeFillippi, 1990). Although capabilities are not clearly defined, they refer to the skills of individuals or groups as well as the organizational routines and interactions through which all the firm s resources are assembled, integrated and deployed in combination or co-presence (Bharadwaj, 2000). Because capabilities are interaction-based (e.g. supplier relations), they are even more difficult to duplicate due to causal ambiguity. RBV argues that resources and capabilities are combined together to generate higher-level capabilities. Grant (1995) describes a hierarchy of organizational capabilities, where specialized capabilities are integrated into broader functional capabilities, such as marketing, manufacturing, and IT capabilities. Functional capabilities in turn integrate to form cross-functional

4 30 Yavuz Agan capabilities such as new product development capability or customer support capability. Therefore, this research conceptualizes supply chain integration as process integration capability derived from the cross-functional integration of operations, IT, and marketing capabilities in order to achieve competitive advantage. By allowing resource complementarities, RBV provides a useful bridging theory among IT, operations, and marketing capabilities. Then the research questions are: (1) what are the necessary organizational resources and capabilities that are most important for supply chain integration? and (2) what is the relative significance of these resources and capabilities to supply chain integration? Finding the answers may help managers focus on developing the most important and relative capabilities. 2. Literature Review and Hypotheses Development Supply chain integration issues have come to the forefront of academics and practitioners attention. Frohlich and Westbrook (2001) use the term arc of integration to refer to the integration of suppliers and customers along a supply chain: the wider the arc of integration (i.e., the more the firm is integrated), the higher the performance. In this study, supply chain integration is conceptualized as a process integration capability. Business processes can be defined as the specific ordering of work activities across time and space, with a beginning, an end, and clearly identified inputs and outputs (Davenport, 1993: 5). Supply chains inherently possess numerous complex inter-organizational processes. Dershin (2000) argues that the supply chain is the mother of all processes because of its size, scope, and complexity; yet most of the processes in the supply chain are not under control. The inter-organizational process concept fits well with supply chain integration because it spans many trading members and enables integration of suppliers, producers, and customers. Business processes provide a context within which to examine the locus of direct resource utilization (Melville, Kraemer and Gurbaxani, 2004). Bose Corporation is an example of a company that integrated operational processes with those of supply chain members. Bose Corporation empowered ten of its major suppliers to manage Bose s inventory and to

5 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 31 feed production processes on a just-in-time basis (Segars, Harkness and Kettinger, 2001). Hammer (2001) writes: Although the concept of supply chain integration has been around for some time now, companies have had trouble making it reality. In most cases, that s because they ve viewed it as merely a technological challenge rather than as what it really is: a process and management challenge. 2.1 Operations Capabilities Relevant to Supply Chain Integration Operations capabilities that are relevant to SCI include knowledge and skills of employees and organization-wide capabilities, such as supplier selection, collaboration, and learning from partners. In the following sections, hypotheses are developed Selecting Supply Chain Partners Based on Ability to Identify Complementarities According to Das and Teng (2000), a resource-based view emphasizes value maximization of a firm through effective resource integration with the partner s valuable resources for the purpose of gathering otherwise unavailable competitive advantages and values to the firm. Dyer and Singh (1998) define complementary resource endowment as a distinctive resource of alliance partners that collectively generate greater rents than the sum of those obtained from the individual endowments of each partner. But first, firms must find each other and recognize the potential value of combining resources. Utilizing a resource-based view of the firm, Lambe, Spekman and Hunt (2002) define and conceptualize a firm s alliance competence as an organizational ability for finding, developing, and managing alliances. Therefore, finding the right partner and recognizing the complementary resources would be the first step in achieving successful supply chain integration. Hypothesis 1a: Supply chain partner selection based on identifying complementarities is positively related to SCI.

6 32 Yavuz Agan Collaboration with Supply Chain Partners Collaboration is the process of working jointly to plan and make decisions between two or more independent companies. Narus and Anderson (1996) define a collaborative supply chain as the cooperation among independent but related firms to share resources and capabilities to meet their customers most extraordinary needs. Stank, Keller and Daugherty (2001) develop a measure of external collaboration that includes: (1) willingness to work together, (2) understanding other viewpoints, (3) sharing information and resources, and (4) achieving collective goals. Collaboration may create understanding, closeness, commitment, and trust between supply chain members. In addition, collaboration prevents or reduces effects of bullwhip effect. Information sharing enables firms to understand the needs, wants, and preferences of their customers and suppliers so that firms can customize their products and services. Firms that have developed a distinctive capability for managing collaborative relationships are more likely to have more integrated strategies (Day, 1994). Therefore, the following hypothesis is proposed: Hypothesis 1b: Collaboration with partners is positively related to SCI Learning from Supply Chain Partners The ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is called absorptive capacity (Cohen and Levinthal, 1990). Although this definition does not explicitly recognize the partners as a source of new information, one can apply it to inter-organizational learning. Therefore, partner-specific absorptive capacity refers to the ability to recognize and assimilate valuable know-how and then transfer it across organizational boundaries (Dyer and Singh, 1998). Schroeder, Bates and Junttila (2002) develop three constructs (i.e., internal learning, external learning, and proprietary processes and equipment) to measure manufacturing capabilities and to test RBV theory in a manufacturing setting. They find that competitive advantage in manufacturing results from proprietary processes and equipment which, in turn, are driven by internal and external learning.

7 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 33 Pickernell (1997) shows that Japanese transplants have, in many cases, transferred logistics-related knowledge and working practices (especially JIT-concepts) to their 1 st tier suppliers, and they, in return have transferred this knowledge to some of their suppliers. Altogether these suggest that firms have to establish inter-organizational routines and practices that result in the emergence of a relational (absorptive) capability (i.e., inter-organizational learning), which facilitates supply chain integration. Therefore: Hypothesis 1c: Learning from partners is positively related to SCI Knowledge and Skills for SCI Supply chain professionals need a new set of critical skills as SCM requires coordination and integration skills. While aspects of the firm s business, such as state-of-the-art technology and superior processes are considered sources of competitive advantage typically, employee skills may represent an even more valuable resource that contributes to the sustained competitive advantage of the firm (Giunipero and Pearcy, 2000). Utilizing a resourcebased view of the firm, Carr and Smeltzer (2000) analyze purchasing and SCM skills. Their results suggest that firms can enhance their competitive position by ensuring that purchasing professionals acquire and cultivate the requisite skills. According to a Parker and Anderson study (2002), Hewlett Packard s (HP) notebook division has apparently developed a successful strategy for managing the collaborative model by developing general management and technical skills in their personnel to integrate the specialist skills of their supplier networks. The firm created supply chain integrators, who coordinate product development, marketing, production, and logistics from product concept to delivery across firm boundaries. Therefore, personnel skills and knowledge are required resources for successful supply chain integration. Hypothesis 1d: Operations human resources are positively related to SCI. 2.2 IT Infrastructure and Supply Chain Integration The idea that IT is a source of competitive advantage is well-established (Johnston and Vitale, 1988; Mata, Fuerst and Barney, 1995; Barney, 1991).

8 34 Yavuz Agan Information systems that link a company to its suppliers, distributors, or customers are called inter-organizational information systems (IOS) (Johnston and Vitale, 1988). The success of IOS depends on IT infrastructure. Researchers have recognized IT infrastructure as the new competitive weapon and the critical resource of the firm that will yield sustained competitive advantage (Bharadwaj, 2000). Viewed from the resource-based theory perspective, the IT infrastructure that enables firms to implement supply chain management represents a type of causally ambiguous resource (Bharadwaj, 2000; Reed and DeFillippi, 1990). IT infrastructure is generally divided into two major components: (1) technical IT infrastructure and (2) human IT infrastructure. Managerial IT skills are often tacit and dependent on other interpersonal relationships, which may take years to develop (Chatfield and Bjorn-Andersen, 1997; Mata, Fuerst and Barney, 1995), and those relationships tend to be highly local or organization specific. Therefore, the development of these skills is often a socially complex process (Mata, Fuerst and Barney, 1995) such as the ability of IT managers to work with other functional managers, suppliers, and customers to develop appropriate IT applications. Bush (2001) finds support for the effect of IT infrastructure on supply chain integration. The prior research focused mostly on technical infrastructure and ignored human IT resources in relationship to integration and performance. The following hypothesis addresses the relation between IT infrastructure and SCI. Hypothesis 2a: IT infrastructure is positively related to SCI. Bharadwaj (2000) demonstrates that firms with high IT capability have better profit and cost performance compared to the control sample of firms. More recently, Santhanam and Hartono (2003) replicate Bharadwaj s framework for controlling prior financial performance. They find similar results supporting Bharadwaj (2000) study. Therefore, the following hypothesis is developed: Hypothesis 2b: IT infrastructure is positively related to the firm s performance.

9 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration Market Orientation and Supply Chain Integration Kohli and Jaworski (1990) conceptualize market orientation as the implementation of the marketing concept. Narver and Slater (1990) define market orientation as an organizational culture that produces outstanding performance through its commitment to creating superior value for customers. They develop a measure of market orientation consisting of three behavioral components: (1) customer orientation, (2) competitor orientation, and (3) inter-functional coordination. Min and Mentzer (2000) argue that market orientation impacts interfirm relationships through providing an environment which encourages a firm in its efforts to develop, maintain, and enhance close relationships with other firms, obtain organizational learning from other firms, and build commitment, trust, and cooperative norms in relationships with other firms. Siguaw, Simpson and Baker (1998) find that a supplier s market orientation directly affects its distributor s commitment to the relationship, the distributor s market orientation, and that the distributor s market orientation has a direct effect on its trust and perception of cooperative norms. Day (1994) argues that market oriented firms which are good at customer-linking capability have more integrated strategies. Srivastava, Shervani and Fahey (1999) suggest that market-driven supply chains emphasize the coordination and integration of supply chain tasks and activities to facilitate design, development, and delivery of solutions rather than simply the procurement and transmission of materials, supplies, components, and finished products. The following hypothesis is proposed. Hypothesis 3a: Market orientation is positively related to SCI. In their seminal article, Narver and Slater (1990) find a significant relationship between market orientation and return on investment (ROI). Jaworski and Kohli (1993) find a positive relationship between a firm s degree of market orientation and ROI and ROA. Deshpande, Farley and Webster (1993) find that a firm s market orientation and its perceived performance in terms of profitability, firm size, market share, and growth rate relative to competitors are positively related. The positive relationship between market orientation and firm performance is well established across many industries and even countries. Therefore:

10 36 Yavuz Agan Hypothesis 3b: Market orientation is positively related to the firm s performance. 2.4 Supply Chain Integration and Performance Research confirms that integration is linked to increased efficiency and productivity (Stein and Voehl, 1998). Effective integration of suppliers into supply chain will be a key factor for some manufacturers in achieving competitive advantage (Ragatz, Handfield and Scannel, 1997). A number of studies suggest that the higher the level of integration with suppliers and customers in the supply chain, the greater the potential benefits (Frohlich and Westbrook, 2001; Narasimhan and Jayaram, 1998). Frohlich and Westbrook (2001) find strong and consistent evidence between integrated supply chains and a variety of performance improvements. Supply chain integration will likely improve performance by eliminating inefficiencies and inconsistencies, streamlining processes, providing customers what they want when they want it, reducing excess inventories, and proactively managing demand. Therefore the following hypothesis is proposed: Hypothesis 4: SCI is positively related to the firm s performance. 3. Research Methodology 3.1 Instrument Development Multi-item scales were used to measure each of the constructs in the model. A 7-point Likert scale from strongly disagree to strongly agree was used for the questionnaire. While established scales were adopted for collaboration, IT infrastructure, and market orientation, new scales were developed for partner selection capability, human resources for operations, learning from partners, and supply chain processes. Several items have been adopted for the development of new scales from a variety of scales. Human IT infrastructure is operationalized as a second order construct measured by two first order constructs: (1) IT personnel technology management, (2) IT personnel management knowledge. IT personnel technology management refers to the ability to use technology to generate solutions. IT personnel management knowledge refers to the ability to manage projects, people, and cross functional teams. IT technical infrastructure is measured by IT Connectivity and IT Compatibility. IT

11 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 37 Connectivity refers to the ability to attach with other systems. IT Compatibility refers to the ability to work with other systems. Approaches to market orientation focus primarily on the customers and competitors and not on the suppliers. Slater and Narver (1995) warn against the dangers of constructing narrowly market orientation and suggest that the scope of market orientation be broadened to encompass all other sources, such as suppliers, businesses in different industries, consultants, universities, and government agencies. Matsuno and Mentzer (2000) make the effort to widen the scope of market orientation by adding supplier related items to Kohli and Jaworski s (1993) scale. In this study, such efforts will be taken further by adding supplier orientation dimension to Narver and Slater s measure of market orientation. One item from Matsuno and Mentzer s (2000) scale and one item from Stank, Crum, and Arango (1999) are adopted and three new items are added. Lambert, Cooper, and Pagh (1998) identify eight processes representative of those being integrated by the firms they interviewed. They are: (1) Customer relationship management, (2) Customer service, (3) Demand management, (4) Order fulfillment, (5) Manufacturing flow management, (6) Procurement, (7) Product development and commercialization, and (8) Returns. All processes except customer relationship management are operationalized. Ten items are adopted from Bush (2001) regarding demand management, order fulfillment, customer service and returns. Performance is measured by operational, customerbased, and financial metrics. While eight items are adopted from Frohlich and Westbrook (2001), five items are added. 3.2 Data Collection Survey methodology is employed in this study. Recently, web-based surveys have become popular because they are easier and faster. However, the response rate is lower relative to mail surveys. In this study, both mail and surveys were used. A significant challenge for this study is to find the appropriate managers who can answer a variety of questions spanning marketing, IT, and operations. Managers with appropriate titles (i.e., managers or directors of logistics, distribution, or supply chain management) are targeted.

12 38 Yavuz Agan Pilot Study The survey was administered to a group of business school graduate students in the U.S. Established measures such as collaboration and market orientation were excluded from the survey. After running factor and reliability analysis, items with loadings less than 0.6 (11 questions) including IT managerial knowledge and manufacturing flow management constructs were eliminated. Discussion with both academics and practitioners focused on shortening and further clarification of the questionnaire. The final survey contains four demographic and 76 content questions. The final questions are presented in Table Main Survey Data was collected by two survey methods: mail and survey. The mail survey included a personalized letter, the survey, and a prepaid return envelope. The mailing list that includes directors and senior managers of various manufacturing and service companies throughout U.S. was purchased from a database marketing corporation. Dillman s (2000) suggestions to personalize the cover letter, include a self-addressed postagepaid return envelope, assure confidentiality, and create an easy-tounderstand survey instrument were followed. Respondents were offered an executive summary and a chance to win one of five $100 gift cards. The subjects who were the subscribers of Supply Chain Management Journal received an inviting them to fill out the survey that was hosted at the servers of the Fogelman College of Business & Economics computer services. Respondents were offered the same incentives as the mail survey. The mail survey was launched four weeks prior to survey. The response speed to the web-based survey was fast which is consistent with the literature Response Rates Of the 1460 directors and managers of operation, logistics, purchasing and supply chain who received the mail survey, 32 responded. This outcome was lower than expectations for the mail survey. A follow-up survey generated 28 responses making the response rate 4.1 percent. Of the 2500 subjects who received the letter, 63 responded, making the response rate 2.36 percent. Despite the incentives, the low

13 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 39 response rates for both methods may be due to the over-surveyed U.S. population, the length of survey, and especially for the survey fears of viruses, and frustrations of spam. Other reasons may include managers having difficulty answering broad SCM issues and skipping sections or quitting altogether, busy schedules of particularly senior managers, and lack of third or fourth reminders. The sample data covers a wide variety of manufacturing firms such as wood, leather, machinery, pharmaceuticals and service firms. The sample is skewed towards small and mid-size companies Nonresponse Bias To assess non-response bias, two-sample t-test assuming equal variances were conducted for 10 percent of the randomly generated questions between first-round and follow-up respondents for mail survey and between early respondents and late respondents (as a proxy to non-respondents) for survey. Because the p-values are higher than alpha (0.05) the null hypothesis that the two groups (e.g. first-round vs. follow-up) are equal is not rejected. No significant differences (at p <.05) in means indicate no evidence of response bias. Another round of two-sample t-test analysis was conducted for each question to assess if there is any bias between the mail and groups. Questions 2, 12, and 46 were significantly different at p <= Therefore, Questions 2, 12, and, 46 were eliminated from further analysis. The two data sets were pooled for an adequate sample size. 4. Analysis and Results There were 119 usable responses for data analysis after deleting responses with major missing values. After deletion, the missing values were minimal (54 missing values, 0.59 percent), and they were replaced with averages. 4.1 Measurement Model Unidimensionality Scale validation is critical for especially newly developed constructs. To assess unidimensionality, factor analysis is conducted for each construct using principal component analysis with varimax rotation. Items with factor loadings of less than 0.6 or items that do not load any factor or load on a

14 40 Yavuz Agan different factor are eliminated. Multiple factor analysis of the items resulted in elimination of several questions including Q5, Q6, Q25, Q27, Q31, Q35, Q38, Q43, Q50, Q51, Q52, Q54, Q57, Q60, Q65. Elimination of questions 50, 51, 52, 54, 57, and 60 led to elimination of demand management, new product development, and order fulfillment processes constructs. The factor loadings for each construct are given in Table Reliability Analysis Next, reliabilities are calculated. Table 1 reflects reliabilities after items were dropped. The traditional measure of reliability is Cronbach s alpha. Values above 0.7 are considered acceptable (Nunnally and Bernstein, 1994). The values of Cronbach s alpha were above the threshold of 0.7 exhibiting acceptable reliability except inter-functional coordination dimension of market orientation. Since its reliability (0.6838) was very close to 0.7 and was previously established, it was not eliminated Construct Validity According to Churchill (1979) the next step is the evaluation of construct validity. To ensure construct validity, measures should have convergent validity and discriminant validity. Convergent validity examines whether items of a construct are in agreement, and discriminant validity measures the degree to which each construct differs from other constructs. Factor analysis performed in the previous section provides support for acceptable convergent validity. To further inspect convergent validity and discriminant validity, the correlation matrix (Table 2) of constructs was analyzed. Composite scores were calculated for each construct or dimension by averaging the raw scores of questions that comprise the construct. Analyzing the correlation matrix, low correlations among constructs, and high correlations among dimensions of the same construct were observed. This observation supports acceptable convergent and discriminant validity. Occasional moderate correlations (around 0.4) between constructs do not violate discriminant validity. Both factor analysis and correlation matrix supports construct validity. Negative correlations between operations human resources and SC integration processes are early signs

15 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 41 of negative relationships. Moderate correlations are observed between learning and partner selection, and learning and collaboration. 4.2 Model Assessment and Test of Hypotheses The model in Figure 1 is tested using LISREL 8.51 (Joreskog and Sorbom, 1993). A recommended rule of thumb for estimating sample size is five respondents per estimated parameter (Bagozzi and Yi, 1988). Because there are 15 parameters to be estimated, the sample size of 119 well exceeds the minimum recommended sample size Model Fit The overall fit of the model can be assessed through the use of multiple fit criteria. While the χ²/degrees of freedom ratio (407.39/225=1.81) indicates that the model fits the data well (Bollen, 1989, 278), chi-square (χ²) p-values suggest otherwise. Although the p-value is 0.00, another way to use χ² is to compare the model χ² to the null model χ². It is expected that χ² of the null model will be much higher than that of a good hypothesized model. As such, the model s χ² of with 225 degrees of freedom is much less than the null model s χ² of with 276 degrees of freedom, which indicates a good fit to the data. Since the sensitivity of χ² to large sample size is well known, other goodness-of-fit indices are used to ensure the fit of the model. Most of the other fit indices indicate a moderate fit of the model to the data. Root Mean Square Error of Approximation (RMSEA) is a primary fit index (Byrne 1998, 113). A RMSEA value of less than 0.1 indicates good fit. The RMSEA value of the model is which suggests a relatively good fit. The smallest Expected Cross-Validation Index (ECVI) value in comparing the three models proposed, saturated, and independence model indicates the best model of the three (Byrne, 1998, 114). The model in the study has an ECVI value of 4.60 which is lower than both the saturated and independence model ECVI values of 5.08 and respectively; therefore, the model fits the data well. The Goodness-of-Fit Index (GFI) of 0.78 (<.90) for the model indicates a less than well-fitted model. The Comparative Fit Index (CFI) and Incremental Fit Index (IFI) values of both 0.85 suggest a moderate fit to the data (Byrne, 1998, 116). Overall, the indices suggest a moderate fit to the

16 42 Yavuz Agan data and a workable model where parameters can be estimated and interpreted reliably Path Analysis The parameter estimates shown in Figure 1 are the standardized solutions. Squared multiple correlations (R²) (i.e. % variance explained) are given for endogenous variables. A path is considered significant when t-value exceeds at a 0.05 significance level (Byrne, 1998). The significant and positive relationships between supply chain integration and operational (β1, t-value = 3.95) and customer-based (β2, t- value = 3.47) performances provide support for the supply chain integration concept and its relevance to organizational performance. Given that SCI fails to impact financial performance (β3, t-value = 0.55), H4 is partially supported. However, the impact of SCI on financial performance is probably through operational and customer-based performances. The R² for operational, customer-based, and financial performances are 0.86, 0.64, and 0.34 respectively. Along with marketing and IT capability, supply chain integration explains a high percentage of variability in organizational performance. The positive and significant impact of SCI on operational and customer-based performances suggests that firms can improve organizational performance by focusing on integration of supply chain processes. Among operations capabilities, only collaboration is significantly (γ2, t-value = 2.09) impacting SCI at p <=0.5. Therefore H1b is supported. Collaboration is also indirectly affecting operational (t-value = 2.28) and customer-based (t-value = 1.99) performances through supply chain integration. Partner selection (H1a), learning from partners (H1c), and operations human resources (H1d) are nonsignificant. Although this finding is distressing initially, there may be plausible explanations for it. The nonsignificance can be due to poor measurement of the constructs or the direction of the relationship. The relationship between IT and integration (H2a) is marginally significant (γ5, t-value = 1.84). This finding confirms the importance of IT capability in supply chain integration. If supply chain members are integrated, they must be integrated both in terms of physical (i.e. inventory, transportation, warehouses etc.) and informational activities. IT

17 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 43 infrastructure enables informational integration especially considering the fact that most of the processes are information based. IT s significant (γ8, t- value = 2.27) direct impact (H2b) on financial performance also provides valuable support for the IT business value. However the direct effects of IT infrastructure on operational performance (t-value = -0.72) and customerbased performance (t-value = 0.43) are not significant. This implies that improper selection of performance criteria may even make IT look like as inhibitor rather than enabler. The relationship between market orientation and supply chain integration is significant (γ9, t-value = 2.61) at p<= The positive and significant effect of market orientation on customer-based performance (γ11, t-value = 1.84) and on financial performance (γ12, t-value = 2.33) confirms similar findings in the literature. Significant indirect effects of market orientation on operational (t-value = 2.22) and customer-based performances (t-value = 2.17) are observed. Taken together direct and indirect effects of market orientation make it the most relevant organizational capability to SCI and organizational performance. The insignificant and negative relationship between market orientation and operational performance (γ10, t-value = ) signals tension between operational and marketing goals. Together, organizational capabilities explain 73 percent of supply chain integration which provides overall support for the model. The impact of control variables could not be analyzed due to insufficient data which may have a compounding effect on the results. Nine hypotheses are tested. While three hypotheses (H1b, H2a, H3a) are supported, three hypotheses (H2b, H3b, H4) are partially supported, and three hypotheses (H1a, H1c, H1d) are not supported. 5. Managerial Implications and Discussions Integration has been mostly measured with one-sided (i.e. customer centric or supplier centric) arc. One of the major contributions of this study is to conceptualize supply chain integration as one uninterrupted integration rather than one-sided integration. However, the processes may still be customer-centric or supplier-centric. For example, while procurement is supplier-centric, customer service is a customer-centric process. Returns, order fulfillment, and new product development may truly be supply chain processes.

18 44 Yavuz Agan Another theoretical contribution is developing scales for partner selection, learning, and operational personnel knowledge and skills. The scales are short and reliable. Developing scales and testing the relationships between operational capabilities and supply chain integration are efforts of pioneering nature. The impact of IT on firm performance has been controversial. Although there are more studies that found a positive relationship between IT business value and firm performance (Hitt and Brynjolfsson, 1996), other studies have yielded mixed results. The inconsistent statistical findings about the relationship between IT and firm performance may be attributed to our improper conceptualization and operationalization (e.g. measured in dollars or counts of systems) of IT business value. RBV of the firm offers an alternative view. IT infrastructure as a socially complex organizational capability that can only be imperfectly imitated by competitors due to isolation mechanisms (Bharadwaj, 2000) is a better conceptualization. This study makes another contribution by recognizing and measuring IT human resources explicitly as it affects SCI through IT technology management. An examination of IT business value models employed in prior research reveals that a widely-used model is a process-oriented model linking IT to organizational performance through intermediate business processes (Barua, Kriebel and Mukhopadhyay, 1995). IT is also examined from RBV as a valuable resource for the firm. Recently, the idea of unifying the two paradigms of the resource-based view of IT and process-oriented view (i.e. process as a capability) is emerging (Melville, Kraemer and Gurbaxani, 2004). This study is one of the successful efforts that unifies the RBV and process-oriented paradigms and empirically tests them. This study conceptualized supplier orientation as a dimension. Testing the relationship between market orientation and supply chain integration is a pioneering effort. Both direct and indirect effects of market orientation on performance are observed. The importance of this finding can t be emphasized enough. Not only are customers an element of supply chains but they are the driving force behind supply chain integration. Customers seem to be one more time the guiding compass for the company. Although the importance of the supply chain integration is well accepted, there are barriers to its implementation. Two of the barriers are lack of understanding the nature and workings of supply chain integration and lack of resources. While this study sheds some light into the nature and

19 Impact of Operations, Marketing, and Information Technology Capabilities on Supply Chain Integration 45 workings of supply chain integration, it also suggests a prioritization framework among resources. IT investments must be long-term and aligned with corporate strategy. The focus must be on the external capabilities such as connectivity and compatibility as well as on technology management in order to achieve SCI. IT managers must see beyond the daily buzz and concentrate on long term issues such as technology investment and integration within and outside the firm. Supplier dimension suggests that suppliers and customers should be treated alike and, therefore, suppliers satisfaction and performance must be systematically monitored and improved. 6. Conclusion and Recommendations for Future Studies This study demonstrates that supply chain integration is a higher level capability created by several capabilities and competencies, and that supply chain integration can be a source of competitive advantage. Collaboration, IT infrastructure, and particularly market orientation are required for supply chain integration. This study helps managers identify several capabilities, their relative importance, and the processes for achieving supply chain integration. Sample data are biased towards smaller companies, and not enough data exist to test the differences, if any. Averages of constructs for small companies are less than those for big companies without exception which indicates that small companies are less capable, less integrated, and have lower performances. Future studies can address specific strategies and solutions for small organizations in order to survive Integration Age. Future studies can attempt to theorize about better scales for manufacturing flow, new product development, order fulfillment, and demand management processes. Future studies can also test the model for different settings involving product (critical vs. commodity), strategy (lowcost vs. differentiation), industry type and sectors.

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