Information Systems Research informs ®

Vol. 20, No. 1, March 2009, pp. 18–32

doi 10.1287/isre.1080.0195
issn 1047-7047
eissn 1526-5536
09
2001
0018
© 2009 INFORMS

Research Note
Information Technology in Supply Chains: The Value
of IT-Enabled Resources Under Competition
Shutao Dong
School of Business, Renmin University of China, Beijing, China, [email protected]

Sean Xin Xu
School of Business and Management, Hong Kong University of Science and Technology,
Hong Kong, China, [email protected]

Kevin Xiaoguo Zhu

Rady School of Management, University of California at San Diego, La Jolla, California 92093,
[email protected]

I n this study, we seek to better understand the value of information technology (IT) in supply chain contexts.
Grounded in the resource-based theory in conjunction with transaction cost economics, we develop a con-
ceptual model that links three IT-related resources (backend integration, managerial skills, and partner support)
to firm performance improvement. The model differs from previous studies by proposing a moderating effect
of competition on the resource-performance relationships. Using data of 743 manufacturing firms, our analysis
indicates significant contribution of IT to supply chains, which is generated through development of the digitally
enabled integration capability and manifested at the process level along the supply chain. The technological
resource alone, however, does not hold the answer to IT value creation. In fact, managerial skills, which enable
adaptations on supply chain processes and corporate strategy to accommodate the use of IT, are shown to play
the strongest role in IT value creation. Furthermore, backend integration and managerial skills are found to
be more valuable in more competitive environments. While commodity-like resources have diminishing value
under competition, integrational and managerial resources become even stronger. Overall, our results shed light
on the key drivers of IT-enabled supply chains, and provide insights into how competition shapes IT value.
Key words: IT business value; competition; supply chain; resource-based view; moderation effect; intangible
resources; backend integration; managerial skills
History: Vallabh Sambamurthy, Senior Editor: Robert Fichman, Associate Editor. This paper was received on
April 11, 2006, and was with the authors 8 months for 3 revisions. Published online in Articles in Advance
February 26, 2009.

1. Introduction chain management (SCM) as “a digitally enabled inter-

Innovations enabled by information technology (IT) firm process capability” (Rai et al. 2006, p. 226).
are creating new ways for firms to manage supply Here the term “digitally enabled” means an inte-
chain relationships (Sambamurthy et al. 2003). Firms gration of inter-firm processes through IT on the
such as Cisco, General Electric, Wal-Mart, and Dell Internet platform, with the integration spanning the
are using IT to coordinate processes along their sup- entire scope of the supply chain that extends both
ply chains, including upstream procurement, internal upstream and downstream operations (Lee 2000). The
production, and downstream sales and customer ser- digitally enabled SCM differs significantly from verti-
vices, as well as overall information sharing along the cal integration in traditional organizations in that sup-
supply chain (Lee 2002). The use of IT has received ply chain partners are integrated via information flows
significant attention in the supply chain context, rather than ownership. It also differs from the tra-
which “involves the flows of material, information, ditional approach to supply chain coordination that
and finance in a network consisting of customers, directly relied on the linkage of physical processes
suppliers, manufacturers, and distributors” (Lee 2000, such as shipment, inventory, and warehousing (Barua
p. 31). Accordingly, recent research has viewed supply et al. 2004). Thus, a key feature of digitized SCM
18
Dong, Xu, and Zhu: Information Technology in Supply Chains
Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS 19

is the shift from connection of physical processes to The purpose of the present study is to synergize the
information-based integration across upstream and literature to achieve a deeper understanding of IT
downstream operations (Zhu 2004). value under competition, particularly in the supply
How does such a shift to digitally enabled integra- chain contexts, through a narrower but more focused
tion affect the efficiency of a supply chain? This is a study on supply chain integration in the manufac-
critical question for firms investing in IT to improve turing industry (relative to our earlier work). This
supply chains (Rai et al. 2006, Zhu et al. 2006). In our study leads to an improved understanding of how
research context, we seek to better understand perfor- certain constructs should be positioned in the nomo-
mance improvement—i.e., the degree to which a firm has logical network of IT value in supply chain contexts,
gained improved business processes and enhanced for example, by including new variables such as man-
competitive position—as indications of value creation agerial skills and partner support. Another exten-
through the digitally enabled SCM. More broadly, this sion is the positioning of competitive intensity as a
is related to IT business value (Hitt and Brynjolfsson moderator in IT value creation. Along this line, the
1996, Zhu et al. 2004). By analyzing the relationship current paper contributes new evidence on how the
of IT-enabled resources to performance improvement technology-performance relationships may be moder-
in supply chain contexts, this work will contribute to ated by competitive intensity, a result not found in
the ongoing debate on “IT-value paradox” (Zhu and previous studies.
Kraemer 2005, Banker et al. 2006).
Furthermore, this research looks into the contingen- 2. Theory
cies that environmental factors may affect IT value 2.1. The RBV on Supply Chain Integration
(as called for by Melville et al. 2004). In particular, As we seek to study IT value in digitally enabled sup-
competition tends to shape technology-performance ply chains, we draw primarily on the RBV on how
relationships (Barney 1986, Porter 1991). Thus far, technology creates value (Zhu and Kraemer 2002,
IT value under competition is still an open issue (as 2005). The RBV attributes improvement in firm per-
reviewed by Wade and Hulland 2004): While intense formance to valuable resources or resource bundles
competition makes it more difficult to retain value (Barney 1991, Peteraf 1993). From the RBV, one lens
from technologies per se (Porter 2001), firms such as through which to look at IT value creation is “an indi-
Dell and Cisco leverage their digitally enabled net- rect role for IT in firm performance. The basic logic
works to achieve real-time information flow along is that IT affects other resources or processes which,
their supply chains, leading to superior firm per- in turn, lead to competitive advantage



Therefore,
formance, even in highly competitive environments researchers may find it particularly beneficial to use
(Lee 2004). As such, how competition shapes the intermediate-level dependent variables at the busi-
technology-performance relationships deserves fur- ness process, department, or project level” (Wade and
ther attention. Hulland 2004, pp. 129–130). In light of this logic, we
The above considerations lead to the following key will pay particular attention to the relationship of IT-
research questions: How will IT-enabled resources enabled supply chain integration to a firm’s process
affect firm performance at the process level along performance.
the supply chain? Will improved process performance Revenue generation and cost reduction are the
lead to increased competitive position? How will two major dimensions of process performance
competition moderate these relationships? improvements through supply chain integration
To better understand these questions, we draw on (Mukhopadhyay and Kekre 2002). Such improve-
insights from the resource-based view (RBV) and par- ments, seen from the RBV, stem from resource synergy
ticularly leverage what has been established by Zhu along the supply chain. Effective SCM aims to syn-
and Kraemer (2005). They developed a framework chronize supply, production, and delivery (Lee et al.
to assess IT-enabled resources at both the front end 2000). For this to happen, firms needs to leverage the
and the back end. We enrich the discussion by incor- connectivity of the Internet to create an inter-firm dig-
porating insights from transaction costs economics. ital platform, enabling real-time information sharing,
 Dong, Xu, and Zhu: Information Technology in Supply Chains
20 Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS

and improving coordination of allocated resources This can be understood through the lens of trans-
across the supply chain (Lee 2004). The digital platform action cost economics (TCE). Explicitly recognizing
helps establish connections among separate resources the costs of coordination among economic entities
owned by supply chain partners, thus translating in markets, TCE stresses that a firm’s central task
them into bundles of coexisting resources responsive is to coordinate transactions efficiently (Williamson
to each other (Zhu and Kraemer 2002). This is con- 1985). IT can lower coordination costs, and in supply
sistent with the notion of creating resource synergy chain contexts, digitally enabled integration capabil-
as advocated by the RBV (Conner 1991). The value, ity can substantially improve transactional efficiencies
in our supply chain contexts, may be manifested in through increased information sharing and commu-
revenue generation and cost reduction. nications capabilities, resulting in improved supply
A case in point is the practice by Cisco. Although chain performance (Zhu and Kraemer 2005).
the contract manufacturers and partners are not Furthermore, TCE sheds light on the role of the dig-
owned by Cisco, the digitally enabled integration itally enabled SCM in competitive environments. An
enables Cisco to take advantage of their manufac- important feature of a competitive environment is the
turing equipments, distribution channels, and service extensive competitive actions in the markets,1 such
networks. This allows it to concentrate on developing as competitive entry, price change, supplier alliances,
new products to cope with changing market demand, and new product introduction (Ferrier 2001). To
while outsourcing physical production. The outcome improve performance or even survive in competitive
is an advantage of agile supply chain, leading to rev- environments, a firm needs to adapt its businesses to
enue growth and market expansion (Kraemer et al.
respond to competitive actions (Sambamurthy et al.
2006).
2003). If a manufacturer’s operation is frequently
More broadly, integration across separate stages
affected by competitors’ actions, it may face greater
of a supply chain allows each supply chain part-
needs to coordinate with supply chain partners. For
ner to focus on the operation at its own stage.
example, a manufacturer that needs to modify the
This may eliminate the burden of acquiring dupli-
design of its product, because of market entry or
cate resources (which are required by operations at
new products launched by competitors, also needs
other stages), thus increasing resource utilization and
to modify the design of upstream components that
decreasing operational costs. Cost reduction can be
constitute the product; it may also need to rear-
further achieved through resource synergy among
range downstream channels for new product distri-
horizontal partners (Lee 2002). For instance, because
bution. These may induce considerable coordination
of the risks of supply disruption, firms often keep
safety stocks for key components. Holding excess tasks (Bensaou 1997). Accordingly, technologies that
inventory, however, reduces asset productivity. Alter- help reduce coordination costs are more valuable in
natively and more effectively, firms can share safety intensely competitive markets.
stocks with other firms that also need the component
(Lee 2002). As illustrated by Cisco’s e-hub through 3. The Conceptual Model and
which Cisco’s suppliers share safety inventories, not Hypothesis Development
only are the risks of supply disruption shared through
inventory pooling, but also the costs of maintaining 3.1. The Conceptual Model
the safety stocks are spread over partners. In order Based on the above theoretical perspectives, we
for this to happen, the supply chain must be digitally develop a conceptual model as shown in Figure 1.
integrated. Consistent with our research purpose, we specify per-
formance improvement as the dependent variables;
2.2. Transaction Cost Economics in
Supply Chain Context 1
This view of competition is rooted in the strategic management
While the RBV suggests value creation through re- literature (Jacobson 1992, Ferrier 2001). Recent IT research has also
source synergy, performance improvement in a sup- considered how IT-enabled capabilities improve a firm’s agility to
ply chain can also be achieved by efficient coordination. respond to competitive actions (Sambamurthy et al. 2003).
Dong, Xu, and Zhu: Information Technology in Supply Chains
Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS 21

Figure 1 The Conceptual Model proposes a sequential relationship, from resources to

process performance then to competitive position.
Digitally enabled SCM
The SCM literature suggests specific variables
Backend as proxy for process performance. For example,
integration
Performance improvement Mukhopadhyay and Kekre (2002) analyzed increased
sales (strategic benefits) and decreased procurement
Managerial SC process Competitive
skills performance position costs (operational benefits). Subramani (2004) used a
similar specification and examined the overall cost
Partner efficiency in the operational benefits category. Rai
support
Control variables et al. (2006) further included improved customer ser-
Competitive - IT infrastructure vices in the strategic benefits category. Collectively,
intensity - Firm size the literature supports a three-dimensional frame-
- Country dummies
work proposed in Zhu and Kraemer (2005), which is
adopted in this work: improvement in upstream oper-
we identify key resources for the digitally enabled ations (reduced procurement costs, lower inventory
supply chain as the independent variables. The model costs, and improved coordination with suppliers),
relates these key resources to performance improve- improvement in internal operations (increased inter-
ment. Then, as we seek to study how competition may nal process efficiencies and staff productivity), and
shape performance improvement, we posit competi- improvement in downstream operations (increased
tive intensity as an environmental moderator. Below, sales, wider segments, and improved customer ser-
we discuss these variables in turn and explain why vices).3 According to the literature, the three dimen-
we have chosen them. sions jointly represent performance improvements at
the process level (Zhu and Kraemer 2005).
3.1.1. The Dependent Variables: Performance
3.1.2. The Independent Variables: Key Resources
Improvement. Following the resource-based theory
Enabling Supply Chains. Using the RBV to study
on IT value creation discussed above, the dependent
IT value, researchers have noted that improving firm
variables include improvements in both process-level performance through IT deployment depends on the
performance and competitive position, with the former combination of IT infrastructure, integration, relevant
being an intermediate dependent variable at the pro- skills, and supportive relationships in IT manage-
cess level along the supply chain. While competitive ment (Armstrong and Sambamurthy 1999). Based on
position has been a classic dependent variable com- a review of prior studies, a typology of IT-related
monly used in the RBV literature (Wade and Hulland resources has been proposed (Wade and Hulland
2004, Bharadwaj 2000), several recent papers started 2004). It includes three types of resources that may
to examine IT’s relation to firm performance improve- contribute to performance improvement: (a) inside-
ment at the business process level (Ray et al. 2004, out resources are deployed from inside the firm with
Banker et al. 2006). The underlying rationale is that a focus on technical platform, skills and development;
the value of resources is achieved through the use in (b) outside-in resources emphasize leveraging exter-
specific processes, which, in turn, may lead to higher- nal resources and managing external relationships;
level measures such as improved competitive posi- and (c) spanning resources integrate the firm’s inside
tion (Porter 1991).2 As such, the model in Figure 1 and outside resources, such as the capability of IT-
strategy integration.
2
While RBV typically focuses on relative performance, it is also
true that unless a business process has been improved relative shown later). Meanwhile, we recognize that these are not the opti-
to a firm’s own prior performance, it cannot be improved rela- mal measures for an RBV-framed study. We thank the associate
tive to competitors. Hence, this can be seen as meeting necessary editor for pointing this out.
3
(though not sufficient) conditions for evidence of relative perfor- These three dimensions are adapted from Zhu and Kraemer (2005)
mance improvement. Note that the process performance measures with identical measures as originally used in that study to gauge
are highly correlated with the Competitive Position variable (to be the impact of IT on procurement, internal operation, and sales.
 Dong, Xu, and Zhu: Information Technology in Supply Chains
22 Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS

As a general framework, this typology must be sit- 1999). Such managerial skills are important, because
uated within appropriate research contexts and with IT applications in SCM may induce changes in sup-
variables tailored to the specificity of the IT inno- ply chain, for instance, multichannel coordination and
vation. The RBV literature stresses that “firms com- mass customization at the downstream, and contin-
pete on the basis of ‘unique’ corporate resources uous replenishment program and vendor managed
that are valuable, rare, difficult to imitate, and non- inventory at the upstream. Firms thus need manage-
substitutable by other resources” (Bharadwaj 2000, rial skills to orchestrate the adaptations in technol-
pp. 170–171). While it is often challenging to find ogy, strategy, and business processes. Therefore, we
resources that precisely fit these requirements, we include managerial skills in the model.
have tried to use them as guidelines and have found In sum, the above three resources are identi-
that three resources—backend integration, managerial fied within the framework proposed by Wade and
skills, and partner support—seem particularly relevant Hulland (2004) and suited for the SCM context. Back-
in our research setting. They are identified for the fol- end integration creates an integrated digital platform
lowing reasons: and requires internal technological skills (inside-out).
(1) The digitally enabled SCM requires integrated Partner support reflects the extent to which exter-
systems at the back end that would enable informa- nal resources (suppliers’ and business partners’) sup-
tion flow among various units of the firm and across port inter-firm coordination (outside-in). Managerial
the supply chain. We thus specify a variable to rep- skills enable a firm to glue these inside and out-
resent a firm’s capability of backend integration which side resources into the overall corporate strategy
“links Web applications with back-office databases (spanning). In addition, note that it is not commod-
and facilitates information sharing along the value ity resources that are being measured here. Obtain-
chain” (Zhu and Kraemer 2005, p. 67). By connect- ing these resources involves developing firm-specific
ing separate systems on common data standards and capabilities (i.e., backend integration and managerial
communication platforms, it provides the “nerve sys- skills) and fostering supportive relationships in the
tem” for the supply chain to function. Unlike the com- supply chain (partner support). These are not easy
modity technologies, backend integration “is often to achieve and will be difficult to replicate by com-
tailored to a firm’s strategic context and is woven into petitors. As such, their existence may be viewed as
the organization’s fabric, which is not transparent to evidence of underlying capabilities that could meet
competitors” (Zhu and Kraemer 2005, p. 71). Thus the criteria of “uniqueness” of resources (Bharadwaj
backend integration is a key resource for the digitally 2000).4
enabled supply chain. 3.1.3. The Moderating Variable: Role of Compe-
(2) SCM requires not only resources inside a firm, tition. The RBV needs to be fitted for the specificity
but also external resources provided by partners of the environment (Melville et al. 2004).5 One of the
along the supply chain (Bensaou 1997). As empha- important environmental factors is competition. Busi-
sized in prior research, the effectiveness of SCM ness value of resources is contingent on competition,
depends on the support of a cluster of suppliers and and resources may play different roles in highly com-
partners (Lee et al. 2000). In contrast to traditional petitive environments as opposed to less competitive
stand-alone IT innovations, digital supply chain inte- environments (Barney 2001). Our model thus incorpo-
gration is characterized by inter-firm linkages. Hence, rates competition, which may exert moderation effects
we incorporate partner support into our model for in two ways.
SCM, which refers to the degree to which supply First, the earlier TCE-based discussion suggests dif-
chain partners have compatible information systems ferent performance improvements through the use
to support inter-firm processes.
(3) Beyond technology resources, value creation in 4
We thank the associate editor for pointing this out.
SCM requires managerial skills of aligning IT with busi- 5
For instance, Miller and Shamsie (1996) showed that a firm’s
ness strategy and managing transformation in pro- knowledge and skills are more valuable resources in changing envi-
cesses and structures (Armstrong and Sambamurthy ronments than in stable environments.
Dong, Xu, and Zhu: Information Technology in Supply Chains
Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS 23

of the same technology resource, that is, the dig- Large size might be a positive factor for value cre-
itally enabled capability of efficient coordination ation given the associated financial resources avail-
would be particularly valuable as competition inten- able to large firms (Rogers 1995); yet it could also
sifies. In addition, in competitive environments, firms be a negative factor, as the digital transformation in
need to cope with competitive actions (Ferrier 2001). SCM may be retarded by the complex organizational
They rely on managerial skills for agile actions in structure and hierarchical decision-making in large
response to the changing conditions of the markets firms (Zhu and Kraemer 2005). Third, as our study
(Sambamurthy et al. 2003). This has been empha- includes firms from multiple countries, we need to
sized as the key to successful SCM in competitive control for country-specific effects because each country
environments (Lee 2004). Thus, managerial skills are has its particular economic environment for IT appli-
particularly valuable for firms operating in highly cations (Kraemer et al. 2006). We use a series of coun-
competitive environments. A similar argument can be try dummies to control for exogenous factors at the
made about partner support. Hence, the links from country level.
the three resources to process performance may be
moderated by competition. 3.2. Hypothesis Development
Second, competition may also affect the degree to
3.2.1. Backend Integration. Backend integration
which process gains convert to improvements in rel-
may improve process performance by establishing
ative competitive position (Barney 1991). Evidence
collaborative connections among separate resources
shows that, possibly because of competitive imita-
owned by supply chain partners. For instance, back-
tion, significant productivity gains may not always
end integration increases information transparency
translate into improved competitive position (Hitt
among partners that would pool inventory and share
and Brynjolfsson 1996). Hence, competitive intensity
resources. With real-time data about inventory and
is proposed to moderate the relationship between pro-
material requirements, cost-effective transshipment of
cess performance and competitive position (Figure 1).
goods can be performed from one firm with excess
Control Variables. Variations in firm performance inventory to the other with excess demand (Lee
can be better explained only when controls are appro- 2002). This benefits the former by reducing inventory-
priately applied. First, we need to control for firms’ holding costs and the latter by fulfilling a growing
heterogeneity of IT infrastructure. Based on Zhu and demand. Backend integration also creates value by
Kraemer (2005), IT infrastructure comprises personal improving coordination efficiency. The supply chain
computers (PC), intranet, extranet, electronic data literature suggests that efficient coordination plays
interchange (EDI), and electronic fund transfer (EFT). a key role in reducing the “bullwhip effect,” which
It provides a technological foundation in SCM, but often causes either excessive or inadequate inventory
the technology components, as included in the above in the supply chain so that overall cost efficiency is
definition, are commodity-like and do not seem to compromised (Lee et al. 1997). By streamlining infor-
meet the RBV criteria (Bharadwaj 2000). Hence, we mation flow and substituting information for inven-
treat it as a control variable, rather than a theoreti- tory, backend integration may increase supply chain
cal variable.6 Second, we need to control for firm size. efficiency and reduce costs (Milgrom and Roberts
1988), with supportive evidence from the retail indus-
6
This modeling choice should not be interpreted as a blan- try (Zhu and Kraemer 2005). Therefore, we propose:
ket statement that IT infrastructure does not meet RBV criteria.
IT infrastructure was viewed as a resource by some other studies, Hypothesis 1A. Backend integration is positively re-
e.g., Bharadwaj (2000), which however emphasized the “synergis- lated to process performance improvement.
tic benefits of integrated systems.” That is, “the architecture that
removes the barriers of system incompatibilities and makes it pos-
sible to build a corporate platform for launching business appli- RBV criteria because we measured only the “commodity-like com-
cations is clearly not a commodity” (Bharadwaj 2000, p. 172). IT ponents,” and in no way captured the synergistic elements that
infrastructure, as measured in our study, does not seem to meet might make these resources firm-specific.
 Dong, Xu, and Zhu: Information Technology in Supply Chains
24 Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS

Meanwhile, backend integration may show a more adoption of EDI and redesign of procurement pro-
positive effect in highly competitive environments. cesses yields performance improvements more than
Competitive actions tend to make the environ- an order of magnitude greater than adopting EDI
ment fast-changing and information-intensive (Sam- alone. Together these studies suggest the critical role
bamurthy et al. 2003). Such an environment raises the of managerial skills in improving the effectiveness of
need to communicate market-related information and a digital supply chain.
coordinate with supply chain partners so as to respond Hypothesis 2A. Managerial skills are positively re-
quickly to the changing markets. Thus, efficient com- lated to process performance improvement.
munication and coordination through backend inte-
gration become more important in more competitive Managerial skills would also play a more signifi-
environments. This may be illustrated by the following cant role in more competitive environments. Facing
cases. In the 1990s when rivals introduced new gener- competitive actions, firms need to modify processes
ations of PC using Intel’s new microprocessors, Com- and strategies. The supply chain literature documents
several cases that illustrate the importance of strategic
paq took more time to modify its PC models because
adaptation in competitive environments (Lee 2004).
of less efficient coordination with suppliers/partners.
For instance, when Hewlett-Packard (HP) started
Consequently, it lost market share throughout the
making ink-jet printers in the 1980s, the printer-
decade. By contrast, backend integration enables Dell
manufacturing technologies were still under develop-
to achieve efficient coordination with suppliers. Dell
ment and the largest market was in North America.
can operate with work-in-progress inventory signifi-
Therefore, HP set up both its R&D and manufacturing
cantly below industry average. As a result, Dell incurs
divisions in Vancouver, Washington. When demand
lower costs to adjust manufacturing lines in response
grew worldwide and HP confronted more competi-
to both new products in the markets and disrup-
tors, it needed to adapt its strategy, targeting the
tion in supply. An integrated supply chain is also
global market and achieving economies of scale to
vital to Dell’s innovative business model—direct sales
maintain low costs. With this strategic change, HP
and build-to-order, which is critical for its perfor-
started developing its global supply chain, moving its
mance in the competitive PC industry (Dedrick and
largest production facility to Singapore. “By the mid-
Kraemer 2005). This discussion leads to the following
1990s, HP realized that printer-manufacturing tech-
hypothesis:
nologies had matured and that it could outsource
Hypothesis 1B. Backend integration will have a production to vendors completely. By doing so, HP
stronger relationship with process performance improve- was able to reduce costs and remain the leader in a
ment in more competitive environments. highly competitive market” (Lee 2004, p. 108). In this
case, information technologies enable HP to efficiently
3.2.2. Managerial Skills. As defined earlier,
manage its supply chain on a global scale. More
managerial skills represent firms’ ability to man-
important, this case shows how managerial skills in
age technology-strategy alignment, organizational supply chain adaptation lead to superior firm per-
changes, and process redesign to accommodate the formance, especially when competition becomes more
use of IT to improve firm performance. Firms achiev- intensive. We put forth a formal hypothesis:
ing technology-strategy alignment can attain more
value from IT (Clark and Hammond 1997). The SCM Hypothesis 2B. Managerial skills will have a stronger
literature also highlights the importance of adapting relationship with process performance improvement in
supply chain structures and processes in deriving more competitive environments.
business value. For instance, evidence shows that, in 3.2.3. Partner Support. For transactions to take
managing buyer-supplier relationships, supply chain place over the digital platform, it is necessary that
restructuring is associated with greater improvements supply chain partners adopt interoperable informa-
in logistics costs and order cycle time (Kopczak tion systems and provide compatible services for
1997). In a study of electric data interchange (EDI), each other. Conversely, information sharing and auto-
Clark and Hammond (1997) find that SCM involving mated transactions will be hampered if compatible
Dong, Xu, and Zhu: Information Technology in Supply Chains
Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS 25

systems are not installed along the supply chain et al. 1995, Zhu and Kraemer 2002): IT investment
(Bensaou 1997). Therefore, partner support is pro- helps improve process-level performance, such as
posed to be a supportive resource, positively associ- inventory turn and asset utilization; these process-
ated with value creation in SCM. This is supported level performance variables in turn help improve
by previous research on interorganizational systems, competitive position. Along this line, we propose the
especially EDI. For instance, the benefits of EDI adop- following hypothesis in supply chain contexts:
tion are found to be positively associated with the
Hypothesis 4A. Process performance improvement is
degree of support for using EDI from business part-
positively related to improved competitive position.
ners (Ramamurthy et al. 1999). This rationale can be
applied to our research setting, leading to the follow- Furthermore, this relationship may be moderated
ing hypothesis: by competition. The RBV contends that some gains
in firms’ relative competitive position may be com-
Hypothesis 3A. Partner support is positively related peted away (Barney 1991). Consider, for example, that
to process performance improvement. a manufacturer may reduce operational costs through
Moreover, partner support would be more valu- efficient SCM, but it may experience price decline
able in more competitive environments. As discussed in the whole industry because competitors may also
above, the greater the partner support, the greater achieve efficiency gains and thus lower their prices,
the degree of digitization along a firm’s entire sup- too. Consequently, the firm might see efficiency gains
ply chain. This in turn may create more value in at the process level, but no improvement in its prof-
competitive environments, which follows our earlier itability relative to competitors (Hitt and Brynjolfsson
argument that efficient coordination is more criti- 1996). As such, competition may reduce the firm’s
cal for firms operating under intense competition. ability to appropriate the full value of IT. This leads
A higher degree of digital integration with partners to our final hypothesis:
along the supply chain increases a firm’s ability to Hypothesis 4B. Process performance improvement
obtain real-time information about demand changes, will have a weaker relationship with improved competitive
supply variations, inventory buildup, and competi- position in more competitive environments.
tive moves (Barua et al. 2004). The increased informa-
tion transparency would help the firm adapt pricing
4. The Empirical Study
and product design more promptly in response to
market changes (Zhu 2004). Such agility increases in 4.1. Data and Measures
importance in competitive markets because intense 4.1.1. Data. To test the conceptual model and
competition tends to make the markets dynamic and associated hypotheses proposed above, we used a
firms must develop the ability to work with partners data set generated from a large-scale survey designed
in the changing environments. Putting this as a for- to investigate Internet-based value chain activities.7
mal hypothesis, we have: The survey development and data collection were
Hypothesis 3B. Partner support will have a stronger detailed in Kraemer et al. (2006) while tests of possi-
relationship with process performance improvement in ble biases were reported in Zhu and Kraemer (2005).
more competitive environments.
7
Sections of the database had been used in previous research, how-
3.2.4. The Relationship Between Process Perfor- ever, each paper used a different subset of the large database: Zhu
mance and Competitive Position. The resources dis- et al. (2004) used data of the financial services industry to study
cussed above may create value at the process level, IT payoffs in banks; Zhu and Kraemer (2005) used data of the
which, in turn may (or may not) translate into retail/wholesale industry to study the use and value of the Internet
for retailers; and the present research uses data of the manufactur-
enhanced competitive position. This proposition has
ing industry to study IT value in digitized supply chains. We have
been conceptually formulated in the RBV literature seen such uses of the same, especially large, databases for different
(Melville et al. 2004). It is also consistent with empir- purposes, much like the Computer Intelligence database was used
ical evidence in the IT productivity literature (Barua in many of the IT productivity papers.
 Dong, Xu, and Zhu: Information Technology in Supply Chains
26 Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS

The manufacturing data set used in this study con- Table 1 Constructs and Measurement Items
tains 743 firms. The sampling was random, strati- Constructs Items Weights
fied by firm size. The data in the final sample were
checked for consistency and nonresponse bias was Backend integration BI1 0.57
BI2 0.61
examined. No significant biases were found in terms BI3 0.53
of number of responses and respondents’ titles. In Managerial skills MS1 0.43
addition, respondent positions (IS or non-IS man- MS2 0.39
agers) did not cause significant biases in the data. MS3 0.37
Partner support PS1 0.43
In this study, we chose to focus on the manu-
PS2 0.49
facturing industry for the following reasons. First, PS3 0.42
focusing on one industry helps control industry- IT infrastructure ITI1 0.50
specific effects. Second, and more important, sup- ITI2 0.52
ply chains in the manufacturing sector comprise Competitive intensity CI1 0.48
CI2 0.51
more stages than other industry sectors. Accordingly,
Performance improvement
SCM in manufacturing may involve more entities Upstream operations UO1 0.38
along the supply chain. Manufacturing firms need to UO2 0.40
manage transactions and coordination with material UO3 0.39
suppliers, contract manufacturers, logistic providers, Internal operations IO1 0.31
IO2 0.38
and downstream partners (Zhu and Kraemer 2002,
Downstream operations DO1 0.36
Subramani 2004). Anecdotal evidence suggests that DO2 0.35
manufacturing firms such as Dell and General Elec- DO3 0.31
tric lead in using the Internet to digitize supply chain Competitive position CP 1.00
activities (Kraemer et al. 2006). The manufacturing Note. All weights are significant at the p < 001 level.
industry is thus an appropriate testing field for our
model. information systems and databases (BI1), the extent
4.1.2. Measures. We used survey items to mea- company databases are electronically integrated with
sure model constructs (also listed in Table 1).8 those owned by upstream suppliers and downstream
For the dependent variables, we measure improve- partners (BI2), and the extent the firm has used the
ments in process performance with the following Internet to support information sharing along the
items: improvement in upstream operations including supply chain (BI3). Specifically, BI3 is an aggregated
reduced procurement costs (UO1), lower inventory index based on the following list: exchanging inven-
costs (UO2), improved coordination with suppliers tory data with suppliers, exchanging operational data
(UO3), improvement in internal operations includ- with customers/business partners, formally integrat-
ing increased internal process efficiencies (IO1) and ing business processes with upstream partners and
staff productivity (IO2), and improvement in down- with downstream partners. The three items for man-
stream operations including increased sales (DO1), agerial skills are: the firm’s ability to adjust technology-
wider segments (DO2), and improved customer ser- strategy alignment to accommodate the use of IT and
vices (DO3). We measure competitive position by the manage business process reengineering (MS1), the
extent to which the firm’s relative position in compe- firm’s ability to manage organizational change and
tition has been improved through IT-enabled supply supply chain restructuring induced by the Internet-
chain integration (CP). based platform (MS2), the firm’s ability to acquire
For the independent variables, we measure backend expertise critical for managing Internet-based sup-
integration using three items: the extent Web appli- ply chain activities (MS3). We measure partner support
cations are electronically integrated with back-office using three items: the extent downstream customers
have compatible systems in place to support Internet-
8
Many of these measures were designed based on previous studies based value chain activities such as online orders
(Zhu and Kraemer 2005). and information sharing (PS1), the extent upstream
Dong, Xu, and Zhu: Information Technology in Supply Chains
Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS 27

suppliers have such compatible systems (PS2), and The three key resources for enabling the digital
the extent Internet-based value chain activities are supply chain—backend integration, managerial skills,
involved in government procurement (PS3). and partner support—have significant p < 0
01 and
Drawing on the theoretical view of competition positive paths to process performance. As indicated
in terms of influence of competitive actions in the by the path magnitude, managerial skills show the
markets, we use two items to tap the moderat- strongest linkage to process performance  = 0
39,
ing variable—competitive intensity, i.e., the degrees to followed by backend integration  = 0
28, and part-
which the firm is affected by competitors in the local ner support  = 0
17. We also found a significant
market (CI1) and in the national market (CI2). For and positive linkage from process performance to
control variables, we measure IT infrastructure using competitive position ( = 0
67, p < 0
01). As suggested
two items: the number of PCs per employee (ITI1), by these results, firms that have stronger backend
and the number of related infrastructure technolo- integration, managerial skills, and partner support
gies in place (ITI2, including EDI, electric funds trans- also attain greater process performance improve-
fer (EFT), intranet, extranet, local area networks, and ments, which, in turn, leads to enhanced competitive
wide area networks). We use the number of employ- position.9
ees (log-transformed) as a proxy for firm size.
4.2.2. Moderating Effects of Competition. To
4.1.3. The Measurement Model. We used Partial
examine the moderation of competitive intensity on
Least Squares (PLS) to assess the measurement model.
the resource-performance relationship, we conducted
As shown in Table 1, all measurement items have
a group analysis. By a hierarchical cluster analysis
significant weights p < 0
01 with acceptable magni-
based on these variables, we split the full sample
tude (Chin 1998). Thus, constructs measured by these
into two groups: firms in high-competition group
items can be used to evaluate the model and associ-
N = 491 versus low-competition group N = 218.10
ated hypotheses.
We then estimated the structural model on the two
4.2. Analysis and Results groups, respectively. The results are reported in Fig-
ure 3. We tested the statistical differences between the
4.2.1. The Relationship of Resources to Perfor-
two groups by comparing each path across the two
mance Improvement. We estimated the structural
subsamples. We used t-test to examine the statistical
model on the full manufacturing sample using PLS.
significance of the differences.
The results are shown in Figure 2. The R2 s of process
As shown in Figure 3, backend integration has a
performance and competitive position are 39% and
significantly stronger effect in the high-competition
45%, respectively, indicating significant data variation
group than the low-competition group (0.35 vs. 0.24;
explained by the independent variables.
t = 8
54); managerial skills also have a significantly
stronger effect in the high-competition group (0.41
Figure 2 Empirical Results on the Full Sample N = 743
vs. 0.32, t = 6
78), while partner support is not statisti-
Digitally enabled SCM cally different across the two groups (0.17 versus 0.18,
Backend
integration 9
0.28 ** Among the control variables, firm size is negatively related to
* Performance improvement
process performance and competitive position p < 0
10, indicat-
Managerial 0.39*** Process 0.67*** Competitive ing that larger firms are less likely to see performance improve-
performance position
skills
***
ments. This might be because of the structural inertia associated
0.17 R2 = 39% R2 = 45% with large firms. That is, “while it has been commonly believed
Partner that large firms have more slack resources for committing required
support investments


, large firms are also burdened by structural inertia,
Control variables
- IT infrastructure possibly due to fragmented legacy systems and entrenched organi-
- Firm size zational structures” (Zhu and Kraemer 2005, p. 77).
- Country dummies 10
These numbers do not add to the full sample size as 34 firms
∗ ∗∗
Note. p < 010; p < 005; ∗∗∗
p < 001. have missing values on competitive intensity.
 Dong, Xu, and Zhu: Information Technology in Supply Chains
28 Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS

Figure 3 Empirical Results on Split Samples: High-Competition Group results again. These tests demonstrate the robustness
vs. Low-Competition Group of the results to sample selection.11
Digitally enabled SCM Finally, the influence of common method variance
was believed to be an important issue for this kind
Backend
integration
0.35 *** of data, and it was assessed with multiple meth-
(0.24 ** Performance improvement
*
) ods. First, we conducted Harman’s one-factor test and
Managerial 0.41*** (0.32***) Process 0.58*** Competitive found no significant common method bias (Podsakoff
skills *** )
performance
(0.69***)
position et al. 2003).12 Second, to the extent feasible, we com-
*** (0.18
0.17 R2 = 40% (36%) R2 = 37% (48%) pared our survey data with information from other
Partner
support
sources. We found that, for the US firms in our
Control variables
- IT infrastructure
sample, the correlations between survey items for
- Firm size competitive intensity (CI1 and CI2 in Table 1) and
- Country dummies
the Herfindahl-Hirschman Index (an “objective” mea-
Notes. Estimates on the low-competition group are shown in parentheses. sure, conversely related to industry competition) to
Numbers in bold are statistically greater than their counterparts.
∗
be −0
45 p < 0
01 and −0
38 p < 0
01, respectively.
p < 010; ∗∗ p < 005; ∗∗∗ p < 001.
The significant correlations indicate these measures to
be consistent. Third, it is noted that common method
t = −0
32). Furthermore, the link from process perfor- bias is less of a concern for research, like ours, with
mance to competitive position is weaker in the high- a moderation effect (Levin and Cross 2004). The logic
competition group (0.58 vs. 0.69, t = −4
83). These is that, if common method variance is substantial, it
results suggest that the IT-enabled resources do gen- should be present regardless of the level of the mod-
erate value at the process level, but the value is partly erator. Then, it is difficult to explain why the inde-
competed away when gauged relative to competition. pendent and dependent variables are more or less
Overall, the results on split samples (Figure 3) support strongly related depending on the level of the mod-
our theoretical expectation that competition moder- erator. Hence, “[a moderation effect] indicates that
ates resource-performance relationships. respondents did not unthinkingly rate all items as

4.2.3. Robustness Checks. We checked for the 11

We also tested whether our sample includes “extreme” cases
robustness of these results to model specifications by
that severely affect the results. We dropped firms below the 5th
estimating partial models. We first estimated a partial percentile and above the 95th percentile in terms of process per-
model by dropping backend integration; we obtained formance. After deleting those “outliers,” the results were still
highly consistent estimates for managerial skills and consistent with the full sample results. To determine whether the
partner support. Dropping managerial skills (or part- significant results were driven by sample size, we randomly split
the full sample into two half subsamples, and once again obtained
ner support) also yields qualitatively similar results
consistent results. In the interest of space, these results are not
compared to the full model. included here, but are available from the authors on request.
Then, we analyzed how firms’ engagement in 12
Additional tests were conducted. (1) We ran Lindell and
business-to-consumer (B2C) selling may affect our Whitney’s (2001) test, using a “marker variable” to partial out com-
results. In our sample, 13.3% of the manufacturing mon method variance from correlations among the model con-
structs. After correcting for common method variance, we found no
firms N = 99 claimed that they conducted B2C sell-
material change in the correlations, indicating that they cannot be
ing on the Internet. We excluded these 99 firms and merely explained by common method variance. (2) We formed a
used the remaining sample to reestimate the model. proxy for common method variance by conducting a factor analysis
The path estimates for backend integration, manage- involving all of the measurement items. The first factor emerging
rial skills, and partner support are 0.30 p < 0
01, 0.37 from the analysis “is assumed to contain the best approximation of
common method variance” (Podsakoff et al. 2003, p. 893). We added
p < 0
01, and 0.17 p < 0
01, respectively, consistent
the proxy (i.e., the first factor) into our model as an independent
with the estimates in Figure 2. We also reestimated variable, and found that the significant resource-performance rela-
the model on the high- and low-competition groups, tionships remained unchanged, and that including the proxy only
with the 99 firms excluded. We obtained consistent explained an additional 1% of the variance in process performance.
Dong, Xu, and Zhu: Information Technology in Supply Chains
Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS 29

either high or low” (Levin and Cross 2004, p. 1482). Thus, successful SCM requires a firm to possess
To sum up, these tests suggested that our results were not only technological capability, but also managerial
not driven by the common method variance. skills and external resources. This complements pre-
vious research that shows the importance of the digi-
tally enabled technological capability (Zhu and Krae-
5. Discussion
mer 2005).
5.1. Major Findings from This Study In particular, our data show that managerial skills
First, IT can create value in supply chain contexts. The play the strongest role among the three key resources
value is generated through developing digitally enabled (Figure 2). As stated in hypothesis development, the
integration capability, and manifested at the process level. importance of managerial skills can be attributed to
As shown in the empirical results in Figure 2, the need to manage the coevolutionary changes in
backend integration is significantly associated with technology, process, and strategy in digitized SCM
process-level performance along the supply chain. (Lee 2004). Broadly speaking, managerial skills fall
This finding highlights that IT can create value. In into a category of intangible resources called “orga-
particular, the value is generated through effective use nizational capital,” whose value has been shown in
of the technology to improve upstream, downstream, increasing firms’ market value (Brynjolfsson et al.
and internal operations. This supports the RBV theory 2002). We find its significant value in driving another
that common technologies can be converted into valu- dimension of IT value—performance gains through
able resources through deployment in specific pro- supply chain integration, suggesting that organiza-
cesses. As an implication for the IT value literature, tional capital is an interesting topic warranting further
our results suggest the usefulness to gauge intermedi- study. Overall, our findings are consistent with the
ate firm performance and probe into the specific ways theoretical conjectures made earlier on the grounds of
that IT is used to improve business processes. the resource-based theory. That is, technology alone
Also, the significance of backend integration sug- may not hold the answer to IT value creation, but
gests that, in supply chain contexts, IT value creation rather it works together with other intra- and inter-
stems more from the integration of various systems— organizational resources to create value in SCM.
both internally among business units and externally Third, competition shapes IT value creation. In the
with suppliers and business partners—than from supply chain context, backend integration and manage-
individual IT components. This speaks to the nature rial skills become more valuable in highly competitive
of the digitally enabled supply chain, that is, inte- environments.
grated supply chains glued by information flows. The As shown in Figure 3, resources have differential
theoretical literature has long emphasized the impor- effects in different environments. According to the
tance of efficient information flows in supply chains RBV, resources that can be easily imitated by com-
(Lee et al. 1997, 2000); our work provides empirical petitors are less likely to render performance advan-
evidence about how information flows enabled by tage (Barney 1991), but the theory is less clear about
backend integration can improve supply chain perfor- what specific resources may lead to superior firm
mance in the manufacturing industry, which, in gen- performance under competition. In the context of
eral, involves more supply chain entities than other SCM, we find that backend integration and manage-
industry sectors. rial skills have stronger effects in more competitive
Second, managerial skills and partner support are sig- environments. The theoretical explanation is that the
nificant value drivers in supply chains, suggesting that IT digitally enabled efficient coordination with supply
value comes more from “fitting the pieces together.” chain partners and the agile adaptations on pro-
Beyond technological resources, we have found cesses and strategies are critical organizational capa-
managerial skills and partner support to be signif- bilities as competition intensifies. While the value of
icantly associated with performance improvement, commodity-like resources diminishes under competi-
suggesting that managerial and relational resources tion, integrational and managerial resources become
are also critical for value creation in supply chains. even stronger. Our empirical evidence also adds to
 Dong, Xu, and Zhu: Information Technology in Supply Chains
30 Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS

the burgeoning literature that examines IT value cre- achieve a strategic fit between management strategy
ation in competitive environments (Zhu and Kraemer and digitally enabled business activities. Firms fac-
2005). ing intensive competition should proactively develop
managerial skills to increase supply chain agility so
5.2. Limitations and Future Research as to respond quickly to market conditions and rival
The key limitations of this study are discussed below moves.
along with avenues for future research. First, the sur-
Third, managers should bear in mind that estab-
vey used a single respondent in each firm, which
lishing information-linked strategic alliances with
might result in biases because of common method
business partners is critical. The Internet has made
variance. While we have carefully assessed such pos-
the business environment more interconnected on
sible biases by multiple methods, it would have been
a global scale. Firms are no longer working alone;
desirable to obtain data from multiple sources. For
they have to learn to leverage the external resources
example, future research may collect accounting data
provided by suppliers, customers, and other supply
to measure supply chain performance (e.g., inventory
chain partners. As illustrated by Dell and Cisco, firms
turn and procurement costs).
that do this well will harvest great benefits from the
Second, our process performance measures reflect
streamlined connectivity of the supply chain.
changes in firms’ “absolute” performance, while RBV-
based research should pay more attention to firms’ rel-
ative performance. This should be extended in future 6. Conclusions
research. Also, the use of a single-item measure for Business value of IT continues to stimulate interest
competitive position is a limitation. It will be use- and debate among both academics and practitioners.
ful to use accounting data, such as return on assets In this paper we assess IT value in the context of dig-
and return on investment, but we are unable to do itally enabled supply chains, which has emerged as
so in this analysis. Another measurement item that one of the major areas for companies to leverage IT to
needs refinement in future research is BI2, which improve firm performance in global operations. This
was designed to evaluate electronic connections with study attempts to present a theoretical viewpoint,
downstream and upstream partners by the same supported by empirical evidence, on understanding
respondent. We have learned that this is not the ideal IT value creation through digitally enabled supply
way to measure them. More refined measures should chain integration. In doing so, this work makes an
tap the upstream or downstream of the supply chain incremental but significant extension to a prior study
separately.
by Zhu and Kraemer (2005). The two papers are
5.3. Managerial Implications related, but are clearly differentiated by the present
This study offers several implications for managers. work’s different focus on digitall enabled SCM, use of
First, our model identifies technological, managerial, a different sample (manufacturing), inclusion of new
and external resources that are critical for the success variables in the RBV-based model (managerial skills
of the digitally enabled SCM. It is essential that man- and partner support), and especially, the findings on
agers take these resources into consideration when the moderation effects of competition.
transforming their physical supply chains into those More broadly, this paper contributes to the litera-
based on digital connections and information flow. ture on the digitally enabled SCM by developing a
In particular, firms need to strengthen their backend resource-based model of what resources are impor-
integration so as to achieve seamless information flow tant to create value in supply chain contexts. The role
among various information systems and databases of tangible IT has been extensively studied and the
both internally and externally across the production, literature has called for research on value drivers of
supply, and distribution networks. This will become SCM that go beyond the technology (Rai et al. 2006).
even more important as competition intensifies. This paper identifies intangible resources, especially
Second, managerial innovations are complementary managerial skills and partner support, as key value
to technological innovations. It is crucial for firms to drivers that work together with backend integration
Dong, Xu, and Zhu: Information Technology in Supply Chains
Information Systems Research 20(1), pp. 18–32, © 2009 INFORMS 31

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