Using integrated information systems in supply chain management

Enterprise Information Systems, 2015 Vol. 9, No. 2, 210–232, http://dx.doi.org/10.1080/17517575.2013.879209

Using integrated information systems in supply chain management

Downloaded by [Ams/Murcia Humanity], [Pedro Soto-Acosta] at 09:23 30 January 2015

Nicolás Gonzálvez-Gallegoa, Francisco-Jose Molina-Castillob, Pedro Soto-Acostaa*, Joao Varajaoc and Antonio Trigod a

Department of Management & Finance, University of Murcia, Murcia, Spain; bDepartment of Marketing, University of Murcia, Murcia, Spain; cDepartment of Information Systems, University of Minho, Guimaraes, Portugal; dInstituto Politécnico de Coimbra, ISCAC, Coimbra, Portugal (Received 27 April 2012; accepted 30 September 2013) The aim of this paper is to empirically test not only the direct effects of information and communication technology (ICT) capabilities and integrated information systems (IS) on firm performance, but also the moderating role of IS integration along the supply chain in the relationship between ICT external and capabilities and business performance. Data collected from 102 large Iberian firms from Spain and Portugal are used to test the research model. The hierarchical multiple regression analysis is employed to test the direct effects and the moderating relationships proposed. Results show that external and internal ICT capabilities are important drivers of firm performance, while merely having integrated IS do not lead to better firm performance. In addition, a moderating effect of IS integration in the relationship between ICT capabilities and business performance is found, although this integration only contributes to firm performance when it is directed to connect with suppliers or customers rather than when integrating the whole supply chain. Keywords: e-business; supply chain management; supply chain; business information integration; enterprise information systems

1. Introduction For a long time, analysing and quantifying the effect that ICT (information and communication technology) adoption had on business performance was an intensively discussed research topic (Fawcett et al. 2011). Recently, much debate about the business value of ICT in general and e-business in particular has been raised (Li 2006; Soto-Acosta and Meroño-Cerdan 2008; Zhu 2004). It has been argued that the technology itself is available to all firms (including competitors), so it will rarely create superiority, while at the same time some empirical studies have found that ICT spending rarely correlates to superior performance (Carr 2003; Tallon, Kraemer, and Gurbaxani 2000). However, information sharing, as the basic enabler for effective supply chain quality management, has been and will be supported by advances in information technology (IT) (Xu 2011b). Thus, innovations in ICT have enabled the creation of effective and efficient information systems (IS) (Sharma 2009; Soto-Acosta, Colomo-Palacios, and Perez-Gonzalez 2011). IS are considered the set of interrelated components that collect (or retrieve), process, store and distribute information to support decision-making, coordination and control (Laudon and Laudon 2004, 13). ICT is the IS’ technical foundation, the tools and materials of IS in the form of computers, electronic devices and related software programs. Thus, IS *Corresponding author. Email: [email protected] © 2014 Taylor & Francis


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represent an organisational and management solution, based on ICT, to challenges posed by the environment (Laudon and Laudon 2004). It is by means of IS that new ICT is effectively meshed with organisation design, process and strategy (Sharma and Bhagwat 2006). In spite of the potential benefits derived from the implementation of IS, the design and deployment of these systems do not always meet the expectations (Albani and Dietz 2011; Sharma, Bhagwat, and Dangayach 2008). For instance, Tallon, Kraemer, and Gurbaxani (2000) found that ICT investment is not a sufficient condition to improve business performance and Brynjolfsson and Hitt (1996) found that ICT spending is not necessarily related to business performance. In contrast, many other studies demonstrate positive relationships between ICT and firm performance (e.g. Ives and Jarvenpaa 1991; Khaturia, Anandarajan, and Igbaria 1999; Johnson et al. 2007). Different issues may be behind what it seems to be a controversial issue: (1) geographical scope (i.e. 562 companies from the United States and 78 from Canada were surveyed by Johnson et al. (2007), whereas Tallon, Kraemer, and Gurbaxani (2000) based their study on a sample consisting of 183 firms from the United States, 78 from Europe and 43 from Asia); (2) activity sector (i.e. while Ives and Jarvenpaa (1991) used companies from banking, publishing, retailing and petroleum, Tallon, Kraemer, and Gurbaxani (2000) surveyed a wider range of industries such as wholesale/retail trade, finance and insurance); (3) respondent profile (i.e. Khaturia, Anandarajan, and Igbaria (1999) surveyed consultants, whereas Johnson et al. (2007) targeted top management). Thus, ICT implementation, knowledge and perceptions may explain differences in research outcomes. The above debate has been clarified by arguing that relative advantage can be created and sustained in cases where the technology leverages some other critical resources, that is, through distinguishing between ICT resources and ICT capabilities (Soto-Acosta and Meroño-Cerdan 2008). ICT resources, such as hardware or software, are not difficult to imitate, so they do not generate, by themselves, any competitive advantage (Santhanam and Hartono 2003). Thus, investing in these resources is not enough to improve business performance (Clemons and Row 1991; Tallon, Kraemer, and Gurbaxani 2000). In this respect, it is necessary to develop, ICT capabilities, abilities to use ICT in business activities to share information, make transactions, coordinate tasks and activities and collaborate with customers and suppliers (Bhagwat and Sharma 2007; Devaraj, Krajewski, and Wei 2007; Soto-Acosta and Meroño-Cerdan 2008; Soto-Acosta et al. 2010). Indeed, the aim of the research in this field is to avoid that investment and to be simply pulled by the incremental evolution of ICT. The future relies on ICT-based collaborative networks that can be created in order to generate shared knowledge and wealth (García-Peñalvo et al. 2011; Pan 2012). According to that statement, researchers have long been suggesting that ICTs have a positive impact not only on a single firm’s performance but also on those that are integrated along the supply chain (Gunasekaran and Ngai 2004; McLaren, Head, and Yuan 2004). In this sense, research into the use of ICTs for the supply chain management (SCM) has experienced a tremendous growth (e.g. Bhagwat and Sharma 2009; Chen and Paulraj 2004; Guimaraes, Cook, and Natarajan 2002; Kearns and Lederer 2003; Poirier and Quinn 2003; Sanders 2007). However, although previous research in e-business such as of Zhu and Kraemer (2005) and SotoAcosta and Meroño-Cerdan have adopted the ICT capabilities notion, this approach has not been extensively used within the SCM literature and much of the existing literature still relies, to a great extent, on case studies (e.g. McLaren, Head, and Yuan 2004) and conceptual frameworks. These types of studies show how ICT can be used for SCM, but there is a question as whether the lessons learned from them are more widely applicable.


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Another important and discussed issue in the SCM literature is the need of integrating IS with business partners to improve inter-enterprise cooperation, since even though companies may develop ICT capabilities along the supply chain, if inaccurate information flows through the supply chain, operational inefficiencies will arise (Deeter-Shelmez et al. 2001; Lee, Padmanabhan, and Whang 1997). The integration of IS is expected to improve firm performance (Bhagwat and Sharma 2009; Mukhopadhyay, Kekre, and Kalathur 1995; Vickery et al. 2003). Specifically, collaborative benefits between business partners focused on information sharing and communications were found to positively affect relational outcomes, such as smooth supply chain process, sales volume and market position (Li et al. 2012). Although there are several empirical investigations that analysed the moderating effect of IS integration with suppliers and customers on the relationship between ICT and firm performance (e.g. Hsu et al. 2008; Qrunfleh and Tarafdar 2014; Qrunfleh, Tarafdar, and Ragu-Nathan 2012), none of these studies have investigated the moderating role of the simultaneous IS integration with suppliers and customers in the supply chain to assess the impact of internal and external ICT capabilities on business performance. The present study contributes to filling these gaps in previous research through an empirical investigation, which analyses not only the direct effects of ICT capabilities and integrated IS on firm performance, but also the moderating role of IS integration with suppliers and customers (as well as jointly considered) in the relationship between ICT capabilities and business performance. To respond to these challenges, the whole network of relationships between ICT capabilities, integrated IS and firm performance is assessed. The results of this analysis are interesting to researchers, firms’ managers of various levels and consultants dealing with ICTs for SCM. To achieve these objectives, a sample of large companies from the Iberian Peninsula (Spain and Portugal) is employed. Previous research has used a sample from the Iberian Peninsula (e.g. Gonzalvez-Gallego et al. 2010; Trigo et al. 2010, 2011). Moreover, large companies within the Iberian Peninsula such as ZARA, MRW or El Corte Inglés are world leaders with regard to SCM. For instance, MRW, a Spanish international shipping and express delivery company, is implementing latest ICT innovations such as cloud-based applications to remain one of the most competitive firms within its sector of activity. Similarly, El Corte Inglés, a Spanish department store which is also located in Portugal, has the largest market share in Europe thanks to the implementation of ICTs within its internal and external processes (such as e-invoicing linked to enterprise resource planning (ERP) systems and strong e-commerce strategies). The remainder of the paper is organised as follows. Section 2 outlines the background of this study. In Section 3, research hypotheses are developed. Following that, the data and methodology of this study are discussed in Section 4. Then, data analysis and empirical results are presented in Section 5. Finally, the paper ends with a discussion of research findings in Section 6, and conclusions, limitations and proposed future research directions in Section 7.

2. Background 2.1. SCM and firm performance SCM can be defined as the art and science of creating and fostering synergistic relationships among the partners in distribution channels with the aim of delivering goods to the ‘right customer’, in the ‘right quantity’ and at the ‘right time’ (Vakharia 2002). The positive effects that the exploitation of links along the supply chain can generate to the



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firm have been extensively acknowledged and discussed (Chen and Paulraj 2004). It is generally accepted that creating and encouraging linkages between the firm and its suppliers and customers enable superior results by generating competitive advantages related to prices and delivering (Vickery et al. 2003; Frohlich and Westbrook 2001; Tan, Kannan, and Handfield 1998). These authors maintain that the organisations that take part in the supply chain have to be managed, ultimately, as a single unit or as a whole system. As suggested by Birou, Fawcett, and Magnan (1998), the chance of using process integration across functional boundaries is considered key to competitive success. In simple terms, the goal that firms pursue by integrating into supply chains is to create and coordinate several processes, so that the firm cannot be reached by competitors (Bhagwat and Sharma 2009; Anderson and Katz 1998). In this sense, firms have not only to manage their own organisations but also they have to manage the upstream and downstream relationships that appear in the supply chain (Hadfield and Nichols 1999). Previous literature has analysed the relationship between SCM and firm performance (Armistead and Mapes 1993; Frohlich and Westbrook 2001; Vickery et al. 2003; Frohlich and Westbrook 2002). Armistead and Mapes (1993) found that the higher the degree of integration between firms is, the better the improvements they achieve on quality, cost reduction, delivery time and flexibility. Frohlich and Westbrook’s (2001) findings confirm that companies more deeply integrated with customers and suppliers present better performance. Frohlich and Westbrook (2002) confirmed that firms which are highly integrated with suppliers and customers have better performance. Powell (1995) found that close relationships with suppliers and firm profits are positive related, although he did not found support for this relationship when considering close relationships with customers. 2.2. IS, SCM and firm performance A typical organisation usually has operational, management and strategic level systems for each functional area (marketing, manufacturing, finance/accounting, and human resources management). The specific types of IS to each organisational level are as follows: executive support systems at the strategic level; management information systems (MIS) and decision-support systems at the management level; and transaction processing systems at the operational level (Laudon and Laudon 2004). IS at each level in turn are tailored to serve each of the major functional areas. Nonetheless, according to Swanson’s (1994) seminal work of IS innovation, IS undergo three different pathways of organisational adoption and use. Type I IS are described as the use of ICTs within the IS functional area (such as relational databases and technologies oriented to enhance the effectiveness of the IS function in systems delivery). Type II IS concern the use of ICTs to support administrative tasks of the business (such as financial, accounting and payroll systems). Finally, Type III IS refer to the strategic use of ICTs to integrate core business processes where the whole business is potentially affected. Although abundant recent investigation has used Swanson’s IS taxonomy, extant IS adoption literature has predominantly focused on adoption of Type II internal IS such as accounting IS (Baird, Furukawa, and Raghu 2012). Examples of Type III IS analysed under this taxonomy in the literature include ERP systems (e.g. Sasidharan et al. 2012; Soto-Acosta, Ramayah, and Popa 2013) and those analysing e-business and Web technologies (e.g. Baird, Furukawa, and Raghu 2012; Meroño-Cerdan, Soto-Acosta, and Lopez-Nicolas 2008; Zhu and Kraemer 2005; Zhu, Kraemer, and Xu 2003). Indeed, currently more efforts have been focused on integration of inter-entreprise systems, and more firms are now


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moving towards a deeper inter-organisation integration through enterprise systems in order to support SCM (Xu 2011a). IS for SCM can therefore be considered as Type III IS since today these systems employ Web technologies and their use along with the supply chain provide several important benefits that include (Deeter-Schemelz et al. 2001): (1) lower prices from suppliers, (2) improvements on time and flexibility, (3) lower transaction costs, (4) higher customer service levels and (5) lower stock investments along the supply chain. Moreover, ICTs can reduce coordination costs (Clemons, Reddi, and Row 1993) and, at the same time, improve coordination between companies (Vickery et al. 2003). Other benefits of using ICTs for SCM come from collaborative planning among supply chain organisations by sharing information about demand forecasts and production schedules (Chen and Paulraj 2004), thanks to real-time information and data sharing referred to stock levels, product availability and deliveries (Chen and Paulraj 2004; Lancioni, Smith, and Oliva 2000; Radstaak and Ketelaar 1998). More recently, Li, Su, and Chen (2011) found that information sharing in decision-making process, considering integrated IS and the Internet to communicate with supply chain partners, was critical to determine internal business performance, in terms of costs of goods sold, revenue management and assets management. However, research analysing IS for SCM as Type III IS is emerging (e.g. Guimaraes, Cook, and Natarajan 2002; Sanders 2007) but is limited. Guimaraes, Cook, and Natarajan (2002) confirmed a significant positive relationship between using ICTs efficiently and performance along the supply chain. More recently, Sanders (2007) analysed the use of Internet-based ICTs for intra- and inter-organisational collaboration and their effect on business performance. She found a positive and direct effect of the use of ICTs on firm performance but also a higher indirect effect of the use of ICTs on firm performance through intra- and inter-organisational collaboration. However, as Fawcett et al. (2007) suggested, firms are investing in information-sharing technologies, but they struggle to implement those ICTs. The point, as these authors stressed, is that managers consider ICT as the answer rather than an enabler. ICT resources rarely contribute directly to firm performance; instead, they form part of a complex chain of assets that through an appropriate combination may lead to better performance. Thus, some researchers have described this in terms of ICT capabilities and argue that ICT capabilities can create uniqueness and provide organisations a competitive advantage (Bharadwaj 2000; Bhatt and Grover 2005; Santhanam and Hartono 2003). ICT capabilities are rooted in processes and business routines, because it is the capability that enables the activities in a business process to be carried out (Soto-Acosta and Meroño-Cerdan 2008). This framework of analysis is very useful for our study, because it enables us to analyse the effect of ICT capabilities on firm performance and also differentiate between two types of ICT capabilities: external and internal ICT capabilities. The former is defined as the ability to employ ICTs to develop business activities with suppliers and customers, while the latter is related to the ability of using ICTs as key resources in internal business processes. IS integration can be defined as the degree to which a firm integrates its ICT-based systems to share electronic information with suppliers and customers and makes transactions along the value chain (Barua et al. 2004). The literature recognises that integrated IS enhance communication between an organisation and its suppliers and clients, making routine interactions easier, faster and more precise (Mukhopadhyay, Kekre, and Kalathur 1995; Vickery et al. 2003). This is because managing supply chain’s activities implies the processing of a huge amount of information and, when distorted information flows along the supply chain, inefficiencies such as excessive stock investment, poor customer service, delivery inefficiencies and production planning failures appear (Lee, Padmanabhan, and



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Whang 1997). There is empirical research that analyses the moderating effect of IS integration with suppliers and customers on the relationship between ICT and firm performance (e.g. Hsu et al. 2008; Qrunfleh and Tarafdar 2014; Qrunfleh, Tarafdar, and Ragu-Nathan 2012) Hsu et al. (2008) examined the moderating effect of IS integration on supplier relationships and firm performance. Their results suggested that the integration of a firm’s IS with those of suppliers is an antecedent of collaborative relationships with suppliers which, in turn, affects positively firm performance. Qrunfleh and Tarafdar (2014) analysed the moderating effect of two IS strategies (IS for efficiency and IS for flexibility) on the relationship between supply chain strategy (lean and agile) with suppliers and firm performance. Their results show that IS for efficiency (IS for flexibility) and IS strategy enhance the relationship between lean (agile) supply chain strategy with suppliers and firm performance. Qrunfleh, Tarafdar, and Ragu-Nathan (2012) developed and found empirical support for model suggesting that agile supplier practices when aligned with the IS strategy has a positive impact on the relationship with suppliers. In sum, although there are several empirical investigations that analysed the effect of IS integration with suppliers and customers on the relationship between ICT and firm performance, none of these studies have investigated the moderating role of the simultaneous IS integration with suppliers and customers in the supply chain to assess the impact of internal and external ICT capabilities on business performance.

3. Research model As mentioned in the introduction, the present study focuses not only on analysing the direct effects of ICT capabilities and integrated IS on firm performance but also on the moderating role of IS integration in the relationship between ICT capabilities and business performance. To respond to these challenges, the whole network of relationships between ICT capabilities, integrated IS and firm performance is assessed (see Figure 1).

H3

Integrated IS with suppliers

H5 H8

H6 Integrated IS for SCM

H11 Internal ICT capabilites

H10 Firm performance (customers)

H1

Firm performance (suppliers) H2 External ICT capabilities

H7 Integrated IS with customers

Figure 1.

Conceptual model.

H9 H4

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3.1. ICT capabilities and firm performance As mentioned above, ICT resources are neither a necessary nor a sufficient condition for improving firm performance, so it is necessary to deploy ICT capabilities and use them efficiently. By this way, when ICTs are used properly, effects such as business processes rationalisation and decision-making improvements take place, so a positive influence on business performance is expected (Ravichandran and Lertwongsatien 2005). Guimaraes, Cook, and Natarajan (2002) found in their study that an efficient use of ICTs is linked to better business performance. Also, Bharadwaj (2000) confirmed those firms with superior ICT capabilities present lower costs and higher firm performance. However, very little work has been undertaken to study the separate influences of internal ICT capabilities and external ICT capabilities on performance. Similarly, the relationship between e-business resources and capabilities has not been studied. Resources are the raw material in the development of capabilities. Hence, the first and second hypotheses posit a positive relationship between internal and external ICT capabilities and firm performance: Hypothesis 1: there is a positive relationship between internal ICT capabilities and firm performance. Hypothesis 2: there is a positive relationship between external ICT capabilities and firm performance.

3.2. Integrated IS and firm performance Sharing information efficiently among supply chain partners leads to improve activities such as stock management, replenishment and giving response to customer’s requirements (Chen 2002). Information sharing practices and coordination among supply chain partners also allow firms to increase their performance (Zhao, Xie, and Zhang 2002). That is why many researchers have considered the integration of IS as one of the most important topics within the literature on ICT applied to organisations (Vickery et al. 2003). For instance, Armistead and Mapes (1993), using IS integration to measure the degree of e-integration, found that a higher degree of integration leads to superior business results. Johnson et al. (2007) concluded similarly, suggesting that electronic cooperation has an indirect effect on firm performance through suppliers’ integration. These authors pointed out the importance of ICTs (such as electronic data interchange (EDI) demand forecasting, scheduling and replenishment in order to manage an advanced-planning supply chain. The following hypotheses incorporate these expectations: Hypothesis 3: there is a positive relationship between integrated IS with suppliers and firm performance. Hypothesis 4: there is a positive relationship between integrated IS with customers and firm performance.

Moreover, Frohlich and Westbrook (2001) evidenced that the deeper the integration with both customers and suppliers a firm presents, the higher firm performance improvement it achieves. Consequently, it is logical to propose that using IS to manage the whole supply chain will bring better results to the firm that an integration strategy directed only towards suppliers (upstream) or customers (downstream). More recently, Li (2011) found those supply chains based on collaborative advantages, such as information sharing and joint knowledge creation, have a positive impact on firm’s satisfaction, which positively affects re-purchasing intention. Consequently, these arguments lead to our next hypothesis:


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Hypothesis 5: there is a positive relationship between integrated IS to manage the whole supply chain and firm performance.

3.3. Integrated IS, ICT capabilities and firm performance The integration of IS is referred to the deployment of ICTs to enhance e-integration in the supply chain. ITC supports the buying and selling across electronic channels, but the efficiency of this processes and its effects on business performance depend on the degree of electronic integration (Hsu et al. 2008; Mukhopadhyay, Kekre, and Kalathur 1995; Vickery et al. 2003). Thus, e-procurement and e-commerce can be sources of value creation, because of the savings in delivery and stock management costs, if strategic networks and integrated systems are established along supply chain. In this sense, Frohlich (2002) confirmed that the extent of e-integration with suppliers and customers have a positive effect, not only on financial performance, but also on operational performance. Thus, the following hypotheses are formulated: Hypothesis 6: the extent of IS integration with suppliers moderates the relationship between external ICT capabilities and firm performance. Hypothesis 7: the extent of IS integration with customers moderates the relationship between external ICT capabilities and firm performance.

Furthermore, internal ICT capabilities allow sharing information within the firm and among partners along the supply chain. The efficiency of internal processes increases if there is integration between external electronic applications and a firm’s internal databases (Zhu and Kraemer 2005). This sort of integration has a positive impact on generating superior results because it is firm-specific, difficult to imitate and difficult to be transferred from one organisation to another. According to this, the importance of employing ICTs in internal business processes lied in their ability to stimulate internal ICT capabilities by connecting isolated resources, which increase integration degree and complementary between distant systems (Zhu 2004). Consequently, Hypotheses 8 and 9 are proposed: Hypothesis 8: the extent of IS integration with suppliers moderates the relationship between internal ICT capabilities and firm performance. Hypothesis 9: the extent of IS integration with customers moderates the relationship between internal ICT capabilities and firm performance.

3.4. Integrated IS for SCM and firm performance ICTs enhance collaboration between external partners (suppliers and customers) to manage the demand along the supply chain. Nevertheless, running internal and external processes efficiently depend on the degree of e-integration in the supply chain. With regard to strategic links and SCM, ICTs can improve decision-making process because they allow real-time information and data collection, so that accessing and analysing these data will make collaboration between partners along the supply chain easier. Frohlich and Westbrook (2002) pointed out the importance of involved suppliers and customers in strong integrated networks. As a result of e-procurement, on-demand real-time data collection is possible and, above all, goods and services are provided quickly and precisely whenever and wherever they are required (Frohlich 2002). Hsu et al. (2008) assessed the moderating effect of IS integration on supplier relationships and firm performance. Their results confirmed that the integration of a firm’s IS with

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those of suppliers is an antecedent of collaborative relationships with suppliers which, in turn, affect positively the firm performance. Devaraj, Krajewski, and Wei (2007) studied the effect of the degree of customer and supplier integration on performance, considering these integration methods isolated and jointly. The authors found there is a synergic effect between both forms of integration. That means that simultaneous integration with customers and suppliers leads to a largest benefit. Considering this, a greater impact on business performance linked to ICTs could be expected when a higher degree of integration (downstream and upstream) takes place. These expectations are the basis for the last two research hypotheses: Hypothesis 10: the extent of IS integration for SCM moderates the relationship between external ICT capabilities and firm performance. Hypothesis 11: the extent of IS integration for SCM moderates the relationship between internal ICT capabilities and firm performance.

4. Methodology 4.1. Data collection The target population consisted of 1000 largest companies by gross revenue in the Iberian Peninsula (Spain and Portugal) and which had their primary business activity in one of the following business activities: manufacturing, commercial, services and construction (see Table 1). To collect our data and identify respondents, we used publicly available directories in both countries. The key informant technique was used (Calantone, Garcia, and Dröge 2003) and the decision-maker targeted by the survey was the person responsible for IT within the company, typically the Chief Information Officer (CIO) or the IT manager. Before collecting the data, two pre-tests were conducted in which members from both countries participated. One pre-test used six ICT executives, while the other drew on six academics. Based on their responses, a number of items were reworded. Feedback

Table 1.

Profile of respondents (N = 102).

Profile of respondents Country Spain Portugal Employees in the firm From 250 to 500 From 500 to 2000 From 2000 to 5000 More than 5000 Industry activity Manufacturing Commercial Services Construction IT budget (in million €) Less than 1 Between 1 and 5 Between 5 and 10 More than 10

Number

Percentage

43 59

42.16 57.84

46 33 11 12

45.10 32.35 10.78 11.76

37 17 36 12

36.27 16.67 35.29 11.76

49 34 4 7

48.04 33.33 3.92 6.86



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from these pre-tests improved the clarity of the questionnaire and ensured effective, accurate and unambiguous communication with the respondents. Data were collected through a web-based questionnaire, and respondents were offered a free summary of the most relevant findings of the study. In the first round, the number of undelivered and returned questionnaires (by email) was 111 from Portuguese firms and 94 from Spanish companies, quite a significant number perhaps due to the email policies of the companies. In the second round, the invitation letter was sent by post and then the number of undelivered and returned questionnaires was 44 and 23 for Portuguese and Spanish firms, respectively. In all, 102 valid responses were obtained (59 responses from Portuguese companies and 43 from Spanish firms), yielding a final response rate of around 10%. This response rate is comparable to that of others studies conducted in the literature (e.g. Li, McLeod, and Rogers 2001; Lin and Pervan 2003). A possible explanation to this may be that subjects are unwilling to respond to unsolicited surveys (Li, McLeod, and Rogers 2001), had insufficient time (Lin and Pervan 2003) or their companies had a policy of rejecting survey questionnaires (Li, McLeod, and Rogers 2001; Lin and Pervan 2003). The majority of CIOs that answer the survey was male (90.2%) in their forties. They have an average tenure within their organisation of 10 years and an average tenure in their current position of 8 years. Sample characteristics are presented in Table 1. 4.2. Sample representativeness A routine check for industry bias did not detect significant differences in firms’ mean responses across industries for any of the constructs of interest. In addition, chi-square distribution analyses revealed no significant differences between our sample and the population it was drawn from in terms of industry distribution, number of employees or sales volume. Non-response bias was assessed with Armstrong and Overton’s (1977) time-trend extrapolation procedure. In comparing early (first quartile) and late (fourth quartile) respondents, no significant differences emerged in the mean responses on any of the constructs. Together, these results suggest that neither industry bias nor non-response bias is a major concern for this study. 4.3. Common method bias Most researchers agree that common method variance is a potentially serious biasing threat in behavioural research. We employ several procedures to empirically examine the possibility that common method bias obtained and threaten the interpretation of our results: (1) the Harman one-factor test (Podsakoff and Organ 1986), (2) a confirmatory factor analytic approach to Harman’s one-factor test (Sanchez, Korbin, and Viscarra 1995) and (3) the single method factor approach (Podsakoff et al. 2003). The rationale for the first test is that if common method bias poses a serious threat to the analysis and interpretation of the data, a single latent factor would account for all manifest variables or one general factor will account for the majority of the covariance among the measures. In our case, principal components analysis revealed several factors in the un-rotated factor solution. However, as suggested by Podsakoff et al. (2003), this is considered a weak test. More recently, some researchers using this technique have used confirmatory factor analysis (CFA) as a more sophisticated test. A worse fit for the onefactor model would suggest that common method variance does not pose a serious threat. The one factor model yielded a χ2 = 196.47 with 44 degrees of freedom (df) (compared with the χ2 = 65.40 with 38 degrees of freedom for the measurement model). The fit is


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considerably worse for the unidimensional model than for the measurement model, suggesting that common method bias is not a serious threat in the study. However, there are several limitations of the previous procedures. Therefore, additional statistical remedies are recommended for this purpose. One of these approaches is the use of latent variable models (Podsakoff et al. 2003). This method involves adding a first-order factor with all of the measures as indicators to the measurement model. The single method factor approach yielded a χ2 = 120.45 with 48 degrees of freedom (compared with the χ2 = 65.40 with 38 degrees of freedom for the measurement model). The fit is considerably worse for the single method factor approach than for the measurement model, suggesting that common method bias is not a serious threat in the study. Overall, we can conclude that common method bias does not threaten the interpretation of our results. 4.4. Measures Measurement items were added on the basis of a careful and comprehensive literature review. Constructs used for the measurement model, and prior research support for these items, are shown in the Appendix. External ICT capabilities were assessed as the use of ICTs to conduct various business processes that include placing/taking orders and sharing information with suppliers and customers and were adapted from previous literature (Angeles and Nath 2000; Brews and Tucci 2003, 2004; Gold, Malhotra, and Segars 2001; Soto-Acosta and Meroño-Cerdan 2008; Wu, Mahajan, and Balasubamanian 2003). The measure of internal ICT capabilities has been developed based on the works of Brews and Tucci (2003, 2004), Powell and Dent-Micallef (1997) and Soto-Acosta and MeroñoCerdan (2008). This measure represents the use of ICTs in four internal processes: inventory management, supervising work hours, controlling production and human resources management. Integrated IS with suppliers and customers measure the degree of integration of a firm’s IS to that of its suppliers and of its customer, and items were extracted from several well-known studies such as Frohlich and Westbrook (2002); Vickery et al. (2003); Zhou and Benton (2007); Devaraj, Krajewski, and Wei (2007). Finally, firm performance (customers) evaluates the impact of ICTs on the quality of customer service and, also, on the quality of the relationship between a firm and their customers. On the other hand, firm performance (suppliers) assesses the impact of ICTs on controlling the quality of products and services provided by suppliers and, also, on the quality of the relationship between the firm and their suppliers and other business partners. Both performance measures were from the works of Guimaraes, Cook, and Natarajan (2002), Soto-Acosta and Meroño-Cerdan (2008) and Zhu and Kraemer (2005). 4.5. Measurement model The measurement model was developed after successive steps that included theoretical specification and further refinement (Straub 1989). To refine our measures, we conducted a CFA using LISREL 8.8 software (Scientific Software International, Inc., Skokie, IL, USA) to determine the validity and reliability of our measures. As presented in Table 2, the results of the four-factor model provided an acceptable fit (χ2(38) = 65.40; CFI = 0.93; IFI = 0.93; NNFI = 0.90; RMSEA = 0.08. The factor loadings for each individual indicator on their respective construct were all statistically significant (p < 0.001) establishing convergent validity. Since our research contains several multi-item reflective scales, we investigated the psychometric properties of these measures through the scale composite reliability (SCR) index (Bagozzi and Yi 1988) and average variance extracted

Enterprise Information Systems Table 2.

Measurement model (Loadings, SCR and AVE).

#Construct 1


2

3

4

221

Construct, items ICT use in external processes Use of ICT for information sharing with suppliers Use of ICT for information sharing with customers Use of ICT for receiving orders from customers Use of ICT for placing orders to suppliers ICT use in internal processes Use of ICT for managing inventories Use of ICT for controlling work hours Use of ICT for controlling production Use of ICT for supporting human resources management Firm performance (customers) Impact of ICT on the quality of customer service Impact of ICT on your relationships with customers Firm performance (suppliers) Impact of ICT on your relationships with suppliers and business partners Impact of ICT on quality control of products/services from suppliers

Standardised λ SCR AVE n.a. 0.58 0.64 0.55 0.75 n.a. 0.65 0.84 0.68 0.70 n.a. 0.72 0.92 n.a. 0.95

0.80 0.53

0.72 0.50

0.81 0.68

0.80 0.66

0.61

Notes: χ2(38) = 65.40; CFI = 0.93; IFI = 0.93; NNFI = 0.90; RMSEA = 0.08. SCR = Scale compose reliability; n.a. = fixed item in the scale. Information regarding integrated information systems (suppliers, customers, SCM) is not reported as these constructs are single item.

(AVE) (Fornell and Larcker 1981). Both indexes exceeded the recommended benchmarks of 0.60 and 0.50, respectively. Evidence of discriminant validity among the dimensions was provided by two different procedures recommended in the literature as follows: (1) the 95% confidence interval constructed around the correlation estimate between two latent variables never includes the value 1 (Anderson and Gerbing 1988) and (2) the comparison of the square root of the AVE (diagonal in Table 3) with the correlations among constructs (i.e. off-diagonal elements) reveals that the square root of the AVE for each component is greater than the correlation between components, in support of discriminant validity (Fornell and Larcker 1981). Overall, these results provide adequate evidence of both convergent and discriminant validity as well as reliability.

4.6. Invariance testing In order to test the equivalence across countries, Steenkamp and Baumgartner (1998) recommend the analysis of configural invariance before testing the model in different countries. In terms of factorial invariance, the principle of simple structure implies that the items comprising the measurement instrument should exhibit the same configuration of salient and non-salient factor loadings across different countries (Horn and McArdle 1992). Thus, to test whether the measurement model is invariant between the two samples considered (Spain and Portugal), a multi-group analysis was performed, in which the unconstrained and constrained models were estimated simultaneously across groups. This procedure yielded a chi-square difference of 59.30 (df = 43) in the measurement weights, which was statistically non-significant (p = 0.08). The next constrained model in structural

222 Table 3.


1. 2. 3. 4. 5. 6. 7.

N. Gonzálvez-Gallego et al. Mean standard deviation (SD) and correlation between constructs.

ICT use in external processes ICT use in internal processes Firm performance (customers) Firm performance (suppliers) Integrated IS with suppliers Integrated IS with customers Integrated IS for SCM

Mean

SD

1

2

3

3.81 3.75 4.01 3.63 2.54 2.98 2.25

0.91 0.89 0.78 0.89 1.41 1.53 1.24

0.73 0.39* 0.26* 0.45* 0.48* 0.42* 0.31*

0.71 0.11 0.35* 0.09 0.10 0.01

0.82 0.45* 0.29* 0.21* 0.18

4

5

6

7

0.81 0.37* n.a. 0.11 0.46* n.a. 0.24* 0.67* 0.48* n.a.

Notes: Figures in bold are the square root of the AVE. n.a. = not applicable (single item constructs); *Significant at p < 0.05.

covariances produced a chi-square difference of 181.13 (df = 132), which was statistically significant (p = 0.05). However, it is widely accepted that the equality of covariances represents an overly restrictive test of the data. Thus, we concluded that there was factorial invariance of the measuring instrument used in the two scenarios considered.

5. Results The statistical technique used to test these hypotheses was the hierarchical multiple regression analysis (Aiken and West 1991). This analysis was considered appropriate given the variables’ nature and the hypothesis put forth. Moreover, this method also allowed for checking whether there was the interaction effect of IS integration in the relationship between ICT capabilities and business performance. The analysis was performed in two steps. In Step 1 of each regression, we included the independent variables (internal and external ICT capabilities, integrated IS with suppliers, with customers and for SCM) following the procedure recommended by Jaccard, Turrisi, and Wan (1990). Step 2 introduced the interaction terms. We first centred the scales of the independent variables at the mean and subsequently created the interaction terms. This technique yields conditional coefficient estimates that help to clarify the results, which reflect the effects of a variable when other variables remain at their mean levels (Irwin and McClelland 2001). To check for multi-collinearity, the variance inflation factors (VIFs) were examined. The highest VIF was 1.25, thus far below the cut-off value of 10 that indicates problematic multi-collinearity. In addition, tests were conducted to assess the normality of residuals and the homogeneity of variance of residuals. No significant violations of these assumptions were observed. Regression results are summarised in Table 4. Model 1 showed that the relationships between ICT capabilities and firm performance were positive and statistically significant when considering performance related to supplier, while the same relationship was not statistically significant for firm performance associated with customers. Thus, Hypotheses 1 and 2 are partially supported. The relationships between integrated IS with suppliers and customers as well as for SCM and firm performance were not confirmed in any case, so support for Hypotheses 3–5 was not provided. Thus, this finding suggests that merely having integrated IS do not lead to better firm performance. Model 2 showed however that an interaction effect of IS integration in the relationship between ICT capabilities and business performance exists, since the increment in the squared multiple correlation coefficient (R2) was statistically significant for both models (firm performance related to suppliers and customers). Results show that only positive

Enterprise Information Systems Table 4.

223

Model summary. Coefficients and significance Firm performance (suppliers)


Variable

Firm performance (customers)

Model 1

Model 2

Model 1

Model 2

0.188c (1.96) 0.371a (3.29) 0.185 (1.45) −0.178c (1.78) 0.095 (0.81)

0.215b (2.22) 0.469a (3.45) 0.063 (0.47) −0.299a (2.81) 0.245b (1.98)

0.054 (0.48) 0.074 (0.56) 0.232 (1.56) 0.088 (0.76) −0.038 (0.27)

0.130 (1.16) 0.042 (0.26) 0.184 (1.20) −0.054 (0.43) 0.146 (1.01)

Interaction terms EXTICT × ISSUP

–

–

EXTICT × ISCUS

–

INTICT × ISSUP

–

INTICT × ISCUS

–

EXTICT × ISSCM

–

INTICT × ISSCM

–

0.170 (1.10) −0.128 (0.91) 0.311b (2.32) 0.418a (2.71) 0.092 (0.88) −0.552a (3.22)

0.080 (0.44) −0.326b (2.01) 0.435a (2.80) 0.421b (2.36) 0.105 (0.87) −0.620a (3.12)

Independent variables Internal ICT capabilities (INTICT) External ICT capabilities (EXTICT) Integrated IS with suppliers (ISSUP) Integrated IS with customers (ISCUS) Integrated IS for SCM) (ISSCM)

Model results R2 Adjusted R2 ΔR2 ΔF

0.331 0.296 – –

0.425 0.354 0.09b 2.429b

– – – – –

0.103 0.056 – –

0.225 0.130 0.122b 2.634b

Notes: t-Values are presented in brackets. a Significance at p ≤ 0.01; bsignificance at p ≤ 0.05; csignificance at p ≤ 0.10. Model 1 (step 1 includes independent variable only). Model 2 (step 2 includes independent variables and interaction terms).

interaction effects were between internal ICT capabilities and integrated IS (with customers and suppliers). To test further the significance of the interaction effects, the incremental R2 between the full model (with interaction terms) and the partial model (without the interaction terms) was compared. The result is reported in the lower rows of Table 2. A Wald test was performed and the differences were found to be statistically significant. Based on this, the partial model was rejected in favour of the full model (Greene 2000). Through this analysis, Hypotheses 8 and 9 are supported, whereas support for Hypotheses 6, 7, 10 and 11 is not provided.

6. Discussion The results of this study confirm that internal and external ICT capabilities are positively related to firm performance associated with suppliers, while this relationship is not

224 Table 5.

N. Gonzálvez-Gallego et al. Results and existing literature.


Hypotheses

Results

H1: Positive relationship between internal ICT capabilities and firm performance

Supported

H2: Positive relationship between external ICT capabilities and firm performance

Supported

H3: Positive relationship between Not supported integrated IS with suppliers and firm performance

H4: Positive relationship between Not supported integrated IS with customers and firm performance H5: Positive relationship between integrated IS to manage the whole supply chain and firm performance

Supported

H6: Extent of IS integration with suppliers as moderator in the relationship between external ICT capabilities and firm performance H7: Extent of IS integration with customers as moderator in the relationship between external ICT capabilities and firm performance H8: Extent of IS integration with suppliers as moderator in the relationship between internal ICT capabilities and firm performance H9: Extent of IS integration with customers as moderator in the relationship between internal ICT capabilities and firm performance H10: Extent of IS integration for SCM moderates the relationship between external ICT capabilities and firm performance H11: Extent of IS integration for SCM moderates the relationship between internal ICT capabilities and firm performance

Not supported

Not supported

Supported

Supported

Not supported

Not supported

Existing literature The massive adoption of some ICT capabilities by most of the companies is reducing their potential of creating competitive advantages (Subramani 2004) If a firm is not effective when implementing ICT capabilities, certain ICT investment may have a negative impact on firm performance (Bharadwaj 2000) Implementing sharing information processes along the supply chain does not lead to an enhanced performance (Vickery et al. 2003; Powell 1995) Integrated marketing and logistic processes has no significant effect on organisational performance (Stank, Daugherty, and Ellinger 1999) The deeper the simultaneous integration with customers and suppliers is, the higher the performance will be (Frohlich and Westbrook 2001) Those internet-based capabilities that are used to provide information about products and services to customers (front-end capabilities) have a lower impact on firm performance than internal internet-based capabilities used for interconnection purposes along the supply chain (Zhu 2004) ICT capabilities linked to connecting databases and sharing information upstream and downstream along the supply chain improve firm performance, coordination and flexibility (Devaraj, Krajewski, and Wei 2007; Zhu and Kraemer 2005) Empirical investigations have analysed the effect of IS integration with suppliers and customers on the relationship between ICT and firm performance (e.g. Hsu et al. 2008; Qrunfleh and Tarafdar 2014; Qrunfleh, Tarafdar, and Ragu-Nathan 2012), although none of these studies have investigated the moderating role of the simultaneous IS integration with suppliers and customers in the supply chain to assess the impact of ICT capabilities on business performance



225

supported with regard to customers (see Table 5). These findings can be explained through existing research. For instance, Bharadwaj (2000) found that investing in a certain kind of ICTs may have negative links, if any, with business performance, due to the fact that not all firms are so successful and effective in implementing ICT capabilities. Subramani (2004) also pointed out the lack of positive relationship between some ICTs, such as those that are applied to manage stocks and inventory levels, and operational and strategic business performance. This author stated that this sort of ICT capabilities (some of them used for the current study) is immersed in a standardisation process that diminishes the potential of these ICT capabilities of generating competitive advantages and superior firm performance. Results also show that there are no significant relationships between integrated IS and firm performance, apart from the one in which integration of IS for managing the whole supply chain is considered. In this last situation, a significant positive relationship exists between this kind of integration and performance related to suppliers. This finding is consistent with the previous studies. Vickery et al. (2003) and Powell (1995), who specifically used information sharing items in their tested models, found that there were no significant relationships between integration along the supply chain and firm performance. Similarly, Stank, Daugherty, and Ellinger (1999) stated that the degree of integration, in terms of marketing and logistic processes, did not affect significantly organisational performance. However, in its worth note, the positive relationship found in our study between the integration of IS for SCM. This finding may be explained by the fact that the sample used for this study consists of large companies from Spain and Portugal in which, generally, the development of ICT-based integration techniques, such as IS, is advanced. That situation could mean that partial integration (only with customers or only with suppliers) is being overcome, so firms are moving towards a global integration in order to be able to gain competitive advantages. Finally, according to the results of the study, it is possible to affirm that the integration of IS with suppliers and customers boosts the effect of internal ICT capabilities on business performance. This finding support previous research (e.g. Devaraj, Krajewski, and Wei 2007; Hsu et al. 2008; Qrunfleh and Tarafdar 2014; Qrunfleh, Tarafdar, and Ragu-Nathan 2012; Zhu and Kraemer 2005). These studies show that ICT capabilities for connecting databases and sharing information along the supply chain, not only increase firm performance, but also enhance coordination and flexibility. However, we found that integrated IS for managing the supply chain does not reinforce the relationship between ICT external capabilities and firm performance. Zhu (2004) found similar results in his study. Thus, back-end capabilities, which interconnect internal databases and WWW-based applications along the supply chain, have a greater impact on business performance than front-end capabilities, which offer information about products or services to customers through the Internet. In the context of the current study, it is logical to think that ICT capabilities linked to more intrinsically internal processes, such as production control, human resource management or stock management, are less exposed to imitation than other practices such as EDI and placing/receiving orders systems. These last external ICT-based capabilities, by their own configuration, require other agents to be involved apart from the company, so they may be assimilated by other organisations easier than internal ICT capabilities. 7. Conclusions, limitations and future research In recent years, there has been much debate about the value of ICTs in general and e-business in particular. It has been concluded that the technology itself is available to all firms (including competitors), so it will rarely create superiority, by arguing that relative advantage can be


226


created and sustained only in cases where the technology leverages some other critical resources. This debate has been clarified by distinguishing between ICT resources and capabilities. However, this ICT capabilities notion has not been used by the SCM literature. Another important and discussed issue is the need of integrating IS with business partners, since otherwise operational inefficiencies may arise, having negatives effects on firm performance (Sanders, Zacharia, and Fugate 2013). Although there is a research that analyses the relationship between integrating IS and organisational performance, none of these studies have investigated the moderating role of IS integration to assess the impact of ICT capabilities on business performance. Although there are several empirical investigations that analysed the moderating effect of IS integration with suppliers and customers on the relationship between ICT and firm performance (e.g. Hsu et al. 2008; Qrunfleh and Tarafdar 2014; Qrunfleh, Tarafdar, and Ragu-Nathan 2012), none of these studies have investigated the moderating role of the simultaneous IS integration with suppliers and customers in the supply chain to assess the impact of internal and external ICT capabilities on business performance. The present study contributes to filling these gaps in previous research through an empirical investigation, which analyses not only the direct effects of ICT capabilities and integrated IS on firm performance but also the moderating role of IS integration with suppliers and customers (as well as jointly considered) in the relationship between ICT capabilities and business performance. Broadly, this research offers several contributions: (1) it shows that internal and external ICT capabilities enhance firm performance; (2) it confirms that simply integrating IS with suppliers or customers does not directly contributes to firm performance; (3) it demonstrates that integrating IS with suppliers or customers moderates the impact of internal and external ICT capabilities on business performance; and (4) it encounters that integrating IS with the whole SCM does not contribute to firm performance in any case. This study provides important implications for management. It was found that external and internal ICT capabilities are key drivers of firm performance. Consequently, firms should invest in ICTs in order to create external and internal capabilities. In addition, special attention should be devoted to investments in intangible ICT assets such as ICT training. Furthermore, results showed that merely having integrated IS do not lead to better firm performance. However, this finding does not indicate that integrating IS with suppliers and customers is not important because a moderating effect of IS integration in the relationship between ICT capabilities and business performance was found. This can be interpreted as high e-integrated firms with customers and suppliers will exhibit a stronger relationship between ICT capabilities and firm performance than low e-integrated firms. Thus, the integration of IS with suppliers and customers reinforces the effect of ICT capabilities on firm performance. In addition, contrary to our expectations and the literature directions, the integration of IS for the whole SCM does not moderate the relationship between ICT capabilities and firm performance. This may suggest that firms are still far from effective supply chain integration with both suppliers and customers and, thus, firms achieving this type of IS integration could have a competitive advantage over its competitors. Overall, this study’s findings confirm that executives and management need to be aware of the necessity of creating ICT capabilities (external and internal) and integrate there IS with suppliers and customers. They need to recognise that their competitors are already doing it and, if the firm does not respond, it will result in a competitive disadvantage. While this study presents interesting findings, it has some limitations which can be addressed in future research. First, the sample used was from Spain and Portugal. It may be possible that the findings could be extrapolated to other countries, since economic and technological development in Spain and Portugal are similar to other OECD member countries. However, in future research, a sampling frame that combines firms from other


227

countries could be used in order to provide a more international perspective on the subject. Second, the firm performance measures are subjective in the sense that they were based on Likert-scale responses provided by managers. Thus, it could also be interesting to include objective performance data for measuring firm performance. Third, the key informant method was used for data collection. This method, while having its advantages, also suffers from the limitation that the data reflects the opinions of one person. Future studies could consider research designs that allow data collection from multiple respondents within firms.


Acknowledgments We would like to thank the three anonymous reviewers for their highly constructive comments and suggestions which allowed us to extend the work.

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Appendix. Measures


Constructs and indicators External ICT capabilities Use of ICT for information sharing with suppliers Use of ICT for information sharing with customers Use of ICT for receiving orders from customers Use of ICT for placing orders to suppliers Internal ICT capabilities Use of ICT for managing inventories Use of ICT for controlling work hours Use of ICT for controlling production Use of ICT for supporting human resources management Integrated information systems IS integrated with that of supplier for placing orders IS integrated with that of customers for receiving orders IS integrated with that of suppliers and customers for SCM Firm performance (customers) Impact of ICT on the quality of customer service Impact of ICT on your relationships with customers Firm performance (suppliers) Impact of ICT on your relationships with suppliers and business partners Impact of ICT on quality control of products/services from suppliers Note: Five-point Likert-type scales.

Literature support Angeles and Nath (2000); Brews and Tucci (2003, 2004); Gold, Malhotra, and Segars (2001); Soto-Acosta and Meroño-Cerdan (2008); Wu, Mahajan, and Balasubamanian (2003) Brews and Tucci (2003, 2004); Powell and Dent-Micallef (1997); Soto-Acosta and Meroño-Cerdan (2008)

Frohlich and Westbrook (2002); Vickery et al. (2003); Zhou and Benton (2007); Devaraj, Krajewski, and Wei (2007)

Guimaraes, Cook, and Natarajan (2002); Soto-Acosta and Meroño-Cerdan (2008); Zhu and Kraemer (2005) Guimaraes, Cook, and Natarajan (2002); Soto-Acosta and Meroño-Cerdan (2008); Zhu and Kraemer (2005)