Week 03 – Organizational Capabilities
The paper develops a conceptual model to understand the effect of cross-functional coordination and cross-organizational coordination on firm-level manufacturing performance.Before this study,previous papers have talekd about manufacturing performance in the context of interfunctional and interorganizational coordination, but have proceeded as parallel literature streams.This paper provides a more wholistic picture by considering integrated information systems construct and manufacturing-IS coordination in conjunction with manufacturing-marketing and manufacturing-supply chain coordination.The paper goes on to hypothesize that coordination between a firm’s manufacturing and marketing functions,between manufacturing and supply chain partners and manufacturing and IS functions will have a positive relationship with integrated IS capability.The data comes from PIMS email contacts provided by APICS. To measure each coordination activity the authors use scale for each while creating a composite measure for manufacturing performance metrics comprising of operating margins, on-time (backlog) ratios, and inventory turns.The authors use an OLS specification for measuring manufacturing performance.The IVs include coordination activities, IS integration capability and their interaction.To rule out endogeniety the authors employ a number of robustness checks including a heckman model to rule out endogeniety of manufacturing performance.Due to the survey nature of the design there are few concerns like respondent bias which the authors acknowledge as limitations of the design.The final results show that firm’s integrated IS capability, and its complementary effect with other verticals(manufacturing, marketing, and supply chain) are significant predictors of manufacturing performance.
Paper: Sundar Bharadwaj, Anandhi Bharadwaj, Elliot Bendoly, (2007) The Performance Effects of Complementarities Between Information Systems, Marketing, Manufacturing, and Supply Chain Processes. Information Systems Research 18(4):437-453.
The authors develop a conceptual model to understand how cross-functional coordination within a firm and cross-organizational coordination will affect firm-level manufacturing performance. The focus of this paper is on manufacturing organizations that need to coordinate internal resource and information across different functional department, and across the supply chain. In the conceptual model, the authors list three coordination activities-manufacturing and marketing coordination, manufacturing and IS coordination, manufacturing and supply chain coordination, and it also mentions integrated IS capability.
The data are collected through survey. The authors then create scale for each coordination activity and develop a composite measurement for manufacturing performance that made up of multiple manufacturing performance metrics. the objective performance index was composed of operating margins, on-time (backlog) ratios, and inventory turns.
The empirical estimation section is quite intuitive and straightforward, the authors build up a OLS regression with manufacturing performance as DV, and the coordination activities, IS integration capability and interaction terms between coordination activities and IS integration capability as IVs. The IS integration capability is also a function of manufacturing -marketing coordination activities.
Results show that a firm’s integrated IS capability, as well as the complementary effects of IS capability with manufacturing, marketing, and supply chain processes, are significant predictors of manufacturing performance.
Tambe, P., Hitt, L. M., & Brynjolfsson, E. (2012). The Extroverted Firm: How External Information Practices Affect Innovation and Productivity. Management Science, 58(5), 843–859.
Falling internal communication costs and new internal information practices enable a firm’s external focus, which is the ability of a firm to detect and therefore respond to changes in its external operating environment. The benefits from IT are valuable only with appropriate changes in decision rights and organizational practices. This paper argues that the combination of external focus, changes in decision rights, and IT investments form a three-way system of complements resulting in higher productivity levels.
The organizational practice measures are generated by a survey that was administered to 253 senior human resource managers in 2001. IT employment data are obtained from a large sample of U.S.-based IT workers. Capital, labor, research and development expense for the firms are using the Compustat database.
Since providing direct evidence of complementarities is challenging because of endogeneity problem, the existing literature on organizational complements has therefore focused instead on providing evidence of the economic implications of complementarities between organizational practices. In this paper, Tambe et al. first find that external focus is correlated with both organizational decentralization, and IT investment. Second, they find that a cluster of practices including external focus, decentralization and IT investment is associated with improved product innovation capabilities and high productivity. Moreover, when these complements are included in a production model, main effect estimates of IT and other organizational factors essentially disappear, indicating that firms derive the most benefits from implementing the system of technological and organizational resources, not IT alone. Third, this paper introduces a new set of instrumental variables and find that the results are robust.
Rai, A., Arikan, I., Pye, J., & Tiwana, A. (2015). Fit and Misfit of Plural Sourcing Strategies and IT-Enabled Process Integration Capabilities: Consequences of Firm Performance in the US Electric Utility Industry. Mis Quarterly, 39(4), 865-885.
Plural sourcing is a strategy used commonly in industry. It involves a firm’s simultaneous use of multiple modes of governance to source a good or service. This paper investigates an interesting question in terms of the interactions between IT capabilities and plural strategies, and how the interaction influence a firm’s performance.
The research model is built on transaction cost economics, coordination costs, and IT capabilities. It also introduces a new concept – Market Sourcing Intensity, which indicates the extent of a firm source from the market. The higher the market sourcing intensity is, the more necessary for a firm to coordinate with other firms, otherwise, a firm should pay more attention to its vertical organizations. The core idea behind the research model is that of discriminating alignment between the development of IT capabilities and changes in adopted plural sourcing strategies. Specifically, there is a fit between IT-enabled interfirm process integration capability and high MSI, IT-enabled intrafirm process integration capability and low MSI. The fit could improve the firm performance, but misfit could cause penalty.
The paper is situated in the U.S. electric utility industry. It collects data from several sources, including industry files from authority, financial and accounting information from WRDS. What’s more, it classifies IT investment into five types firstly and then aggregates them into three types: inter, intra and infra. Also, it uses return on assets (ROA) as a measure of firm performance. Then pooled OLS equations are established and the results support hypotheses. This study has implications for the understanding of business value from IT-enabled process integration capabilities and the management of plural sourcing, and put importance on the alignment between these two important factors.
Tambe, P., Hitt, L.M., and Brynjolfsson, E. (2012) “The Extroverted Firm: How External Information Practices Affect Innovation and Productivity,” Management Science (58:5) pp. 843-859.
Tambe, Hitt, and Brynjolfsson (2012) combined various data sources including survey-based measures and COMPUSTAT information to identify and demonstrate the value of organizations embracing external focuses. An external focus is the ability of a firm to identify and respond to changes in the external operating environment. Extreme examples of firms successfully embracing external focuses are internet based companies, such as Google and Amazon, who record users’ keystrokes and analyze these data to optimize their products, processes, and marketing strategies. Using survey based measures, Tambe et al. (2012) first identified the correlation between external focus and IT investment and organizational decentralization. Next, the authors found that these three practices are all associated with improved production innovation capabilities. Finally, a three-way complementarities model indicated that the combination of the three practices of external focus, IT investment, and organizational decentralization are associated with significantly higher productivity.
Prior to Tambe et al.’s efforts (2012) research had demonstrated the value of organizational decentralization on IT investments. Tambe et al. (2012) confirmed this finding and highlighted that IT has the strongest impact on productivity in firms assuming that they are embracing the appropriate organizational structure. Furthermore, the authors added to past research findings by introducing the third factor of external focus into the IT productivity framework. Results indicated that product development was one of the principle mechanisms through which external focus impacts productivity. Overall, the key managerial implication of Tambe et al.’s findings is that firms with an external focus are more productive and reap disproportionate benefits from advances in IT and workplace organization. It is worth noting that to derive the maximum amount of benefits from complements organizations must embrace them all. Thus, firms with decentralized structures should look to embrace a more external focus to fully realize the returns of their IT investments.
Rai, A., Arikan, I., Pye, J., & Tiwana, A. (2015). Fit and Misfit of Plural Sourcing Strategies and IT-Enabled Process Integration Capabilities: Consequences of Firm Performance in the US Electric Utility Industry. MIS Quarterly, 39(4), 865-885.
Plural sourcing refers to a company’s simultaneously use and allocation of external procurement and internal production to source its good/service. It remains obscure that how a firm’s use of plural sourcing can change the value of developing interfirm and intrafirm IT capabilities after a survey of the past literature. This study addresses this gap by focusing on the following research question: How does the (mis)fit between a firm’s plural sourcing strategies and the development of IT-enabled interfirm and intrafirm process integration capabilities influence firm performance?
The authors wisely choose power-generation segment of the U.S. electric utility industry (EUI) to explore the moderating effects of plural sourcing, measured by a proposed concept called “Market Sourcing Intensity(MSI)”, on the relationship between firm performance (assessed by ROA) and two IT-enabled process integration capabilities, IT-enabled interfirm process integration capability and IT-enabled intrafirm process integration capability. With data from archival sources for 342 utility firms in the power-generation segment to construct a panel dataset for the period 1994–2004, the authors use pooled OLS to the following results: 1) fit between MSI and the development of IT-enabled interfirm process integration capability improves firm profitability and 2) misfit between MSI and the development of IT-enabled intrafirm process integration capability extracts penalties in firm profitability. The result from one of the robustness check also offer evidence that fit between MSI and the development of IT-enabled interfirm process integration capability improves market valuation (assessed by Tobin’s Q) and asset turnover (assessed by operating revenue/total assets).
This study extends past by revealing how explanations of firm capabilities for IT-enabled process integration and transaction costs economics(TCE) for plural sourcing interact to explain firm performance. The authors nicely collect viewpoints that internal costs of organizing production and transaction costs need to be considered in making governance choices and apparently show the empirical limitations.
|Bharadwaj et al. (2007)||Sid, Jack|
|Tambe et al. (2012)||Xi, Heather|
|Rai et al. (2015)||Joe, Leting|
We will discuss Rai et al. (2012) when we have time. Please be sure to read this, however.