THE IMPACT OF LOGISTICS STRATEGY AND LOGISTICS INFORMATION TECHNOLOGY PROCESSES ON SERVICE
PERFORMANCE
By
Katrina P Savitskie
A DISSERTATION
Submitted to Michigan State University
in partial fulfillment of the requirements for the degree of
DOCTOR OF PHILOSOPHY
Trang 2UMI Number: 3116037
INFORMATION TO USERS
The quality of this reproduction is dependent upon the quality of the copy submitted Broken or indistinct print, colored or poor quality illustrations and photographs, print bleed-through, substandard margins, and improper alignment can adversely affect reproduction
In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted Also, if unauthorized copyright material had to be removed, a note will indicate the deletion
®
UMI
UMI Microform 3116037
Copyright 2004 by ProQuest Information and Learning Company
All rights reserved This microform edition is protected against
unauthorized copying under Title 17, United States Code
ProQuest Information and Learning Company 300 North Zeeb Road
P.O Box 1346
Trang 3ABSTRACT
THE IMPACT OF LOGISTICS STRATEGY and LOGISTICS INFORMATION TECHNOLOGY PROCESSES ON SERVICE
PERFORMANCE
By
Katrina P Savitskie
In the 21 Century, using information technology more efficiently in connection with firm strategies is one way to achieve the objectives of cost containment and improved service In addition to information technology and firm strategy, managers need to assess the impact of firm structure and processes on effectively achieving desired performance outcomes Research is needed to determine how strategy, structure, and information technology-related processes interact, along with their impact on performance Management literature has established the strategy-structure-process- performance (SSPP) paradigm as a means to assess direction of the relationships and their interactions The objective of this research is to expand on the established paradigm by testing the relationships within the context of logistics strategy and logistics information technology processes
Trang 4becomes increasingly important to the firm’s performance, more research is needed to
understand the impact of logistics on management concepts The dissertation research will evaluate the generalizability of the SSPP framework and improve understanding of information technology’s role in logistics
The research is designed to answer the following question:
1 What is the affect of strategy, structure, and logistics information technology processes on performance?
2 What are relevant considerations for the logistics information technology processes conceptualization?
3 How robust is the strategy-structure-process-performance framework in a logistics setting?
Trang 5ACKNOWLEDGEMENTS
I would like to thank my committee members:
e Dr Theodore P Stank for taking on the role of my dissertation
chairperson — he provided much encouragement and sound advice about both the Ph.D program and my dissertation
e Dr Roger Calantone was invaluable as my methodology “guru” and provider of explanations when the results did not work out as hypothesized
e Dr David J Closs for making me aware of the opportunities of a Ph.D and then helping me achieve my goals
e Dr Scott B Keller was very supportive throughout the program and I learned a great deal about rigorous research practices from him
I would also like to thank the ladies in the Department of Marketing and Supply Chain Management office ~ they all were a great help!
There are few words that can express how grateful I am to my friends and fellow classmates — Rosanna Garcia, Sangphet “Som” Hanvanich, and Elif Sonmez for helping me throughout the program and for simply “being there” when the going got rough I couldn’t have made it without you!
Trang 6TABLE OF CONTENTS
LIST OF TABL/ES LH HH nh Họ He Viil I9) 303/600 ằố 1X LIST OF APPENDICES SH HH TH Họ TH TH vết X CHAPTER 1: INTRODUCTION
Dissertation Organization 0.0 ceesceessscssscecssececessceeesseecessnneeeseeeeeseaecessaseeseeeeensneens 1
IntrOUCIOIA HH nọ nọ TH k 1 Strategy-Structure-Process-P€rÍOTTma'iCG - ĩc kg Tu reu 2 I0 5 - 4 Resource-Based 'TheOTY - - cọ TH ng HH 6 šfC.c;0ái00)iicusa e 7 Research QuestiOnS .- - << ng ng ng Tn TK KTS 1 8E tt 8 DissertatIon SCOD€ ch ng nọ 8 0907910011798) 4 v2 0 .- 9
Chapter One SuImTTATV - G6 ng ng TH kp 10 CHAPTER 2: LITERATURE REVIEW
SÍTA[C V HH TT TT 0 K9 II FIrm STUCfUT€ cọ HH ng HH H011 X6 12 CentraÌiZaLIOT cọ 0 0 kh 13 FOrImaliZ.AfIOT - ác nh ng HH nọ KH KH 13 SD€C12Ï1ZAf1OH Gv TH nh Tà 14 Ng>À0141501/0011 2118 ằằea 14 PTOC€SS 0Q HH HT nọ 9 Hà 18 Sfrategy-Structur€- PTOC€SS - LH nọ 4n 19 y6) 0n ằ 21 Strategy-Structure-P€rÍOrIa'CG - - .- - - Tư 22 Conceptual MGOd€Ì ng ni kh 24 Resource-Based TheOTV cọ HH Họ kh 0 HT Tờ 25 Information TechnỌOBV ch HT k1 ky 30 Organizational Information Processing TTheOYTY ung 31
Logistics Information Technology Processes ::ccceccccesesseeeseeesessseneeeneneeenens 35
Ji eSvi 0 ẻ 37
Refined Conceptual Model - - sgk 40
Research Model and Hypothe€Sis - - cc Go HH ng nh khu 41
Firm Strategy OTIenfafiOn ác HH ng kh 42 Logistics Strategy OTientafIOII cá HH ng khe 42
ko 0 43
®20iv1y/119: 00008 43
Trang 7LogIstics Information Technology PTOC€§§€S§ cà ng Hới 45
¡0á 2 ii 1 e.- 47
CHAPTER 3: RESEARCH DESIGN AND METHODOLOGY
[introduction Ầ.Ầ Ả 49 Research OJ€C{IV€S TH TH ng nọ T0 6 6 ket 49 š{c;04i093i4) PP e .-. - 50 Population OŸ Ín(€T€S( - ng HH ng K0 50 Study COTSFTUCES Ăn ko TH HH Hy 53 Strategy TI€T(AEIOTI - G1 nọ nọ ng ng và 53 Logistics Strategy Orientation .ccccecssssecceesesteeeceesensssceeeeeestaeeeesesseeeeees 54
R00) ae .AB¬ 55
Logistics Information Technology Processes : ccccccsssscccessesteeeccsetsseeseeees 55 Service Performance ceecessecceseeessseeeseneeesenseeeessaeeesecnaeersestecssarecsenesensas 56 Data Collectlon FraimeWOFK TH TH HH ng kg 36 SurVey ÏnSfTUImei( << SH ng ng HH g1 re 63 D1127 e 64 Assessment Of ValIIVY -c- Gà 64 Model ASS€SSIRI Ặ Gà 69 Chapter Thre©e SUImnIAFY 0 nọ th nh kh 71 Appendix 3A Complete Survey ÍnstTurmeni( - -o-cccc n ng ng ven 73 Appendix 3B Participation Request Email - - 5 ng ke 81 CHAPTER 4: RESULTS
PLOteSt ẽẽ 82
bi là 1 315 83
D€scCrIDLIVE SAfSEICS QC HH ng ng 85 Measurement ValidatiOI cọ ke 86 Reliability and Internal Consistency 0.0.0.0 ccccceessccccceseessecesesessseeeesenenaeecesesens 88
17 .ố 91
Content Validity 77 ee 92 UnidimensIonaÌÏEY so << 111 nọ 92 Construct and Convergent VaÌÏIdILy «c9 HH ng kg 93 Discriminant ValHdILV ác on HH HH HH HH n0 tr 95
132777 = 97
Results of the Structural Model AnaÌys$1S - .- - c-G chen 98 Hypothesis 'T€SfIng - c1 k0 0 kg th net 100 Hypothesis Ơne - «kh HH HH KH HT kg K0 239 100 Hypoth€SIs 'ÏWO .cL TH nHHnHH HH ng 1 1 HH 1k T101 11 TH tà nh 101 Hypothesis Tre .- c1 ng 11 00 1k 1H TH v10 1108111 88 tr 102 Hypothesis FOUT . acc nh ng HH0 vn 1H 0100111011110 ng kg 103 HypothesIs FIV€ nàng ng 100 kk 101 0 1111 k1 1k ket 104 Hypothe€sis S1X - án nh HH HH ng HH HH HH 111 1111111 1g 105
Hypothesis S€V€H - Án HH HH Ha HH HH 1111 1111 TT e 106
Trang 8Sfructural Equatilon Modeling SOÍtWAT€ nh Hệ, 108
Modification Indices EvaÌuatIOï - - cv ng ng vn rey 108
"905028052 TA 5 109
Model Ạt€rniatIV€S HH ng tà 109 Instrumentatlon EÍÍ€CS - Ác sọ HT 111
COncÏUSIOTNS nh ng nọ 113
Appendix 4A Survey Items (as a subset of the survey instrument} 114 Appendix 4B Principal Component Scores (as a single facfor run) .- 116 Appendix 4C Construct CorreÏat1OTS - - s ng knHHknvrh 116
Appendix 4D Bootstrap Results (4 repetItIOTS) cQ nhe ve 117
CHAPTER 5: IMPLICATIONS AND CONCLUSIONS
InfrOdUCEIOT HH ng TT tì mi 119 Academic ImpliCafÍOTNS - LH TH ng TH nkc 119 Managerial ÍmpÏICat1OIS SH TH 124 Limitations of the StUd|y HH nọ TK 128 Drrections for Future Research - - LH ket 129 094011300) 01Ẽ757 130
Trang 10LIST OF FIGURES
Trang 11Appendix 3A Appendix 3B Appendix 4A Appendix 4B Appendix 4C Appendix 4D LIST OF APPENDICES
Complete Survey Instrument .ccccscsccccccccecceeeeeseteesseenanseeesessessees 73 Participation Request Email ng se, 81
Survey Ïtems (as a subset of the survey instrument) 114
Trang 12CHAPTER 1: INTRODUCTION DISSERTATION ORGANIZATION
This dissertation is composed of five chapters Chapter One is a discussion of information technology’s impact on the relationship between key firm components of strategy, structure, process, and performance in a logistics setting A summary of relevant literature, along with support for the development of the model’s constructs and hypotheses is in Chapter Two Chapter Three introduces the methodology used to assess the hypothesized relationships, including data collection techniques, and statistical analysis procedures Chapter Four presents the results of the research Chapter Five offers academic and practitioner implications, research limitations, and
directions for future research
INTRODUCTION
Trang 13of the firm Findings indicated that investment in technology is expected to increase for the foreseeable future The CEO respondents stated that they expect even more from
their information technology investments, specifically more help in meeting customers’
current demands and their future requirements Using information technology more efficiently in connection with firm strategies is one way to achieve the objectives of cost containment and improved service
In addition to information technology and firm strategy, managers need to assess the impact of firm structure and processes on effectively achieving desired performance outcomes The structure of a firm often affects how nimbly the organization can implement new technology, meet changing customer requirements, or capitalize on system efficiencies Additionally, the processes employed within a firm are often most influenced by a firm’s information technology initiatives Furthermore, firm processes can also be a function of the strategy or structure of the firm Research is needed to determine how strategy, structure, and information technology-related processes interact, along with their impact on performance Management literature has established the strategy-structure-process-performance paradigm as a means to assess direction of the relationships and their interactions The objective of this research is to expand on the established paradigm by testing the relationships within the context of logistics strategy and logistics information technology processes
STRATEGY - STRUCTURE - PROCESS - PERFORMANCE
Trang 14carry out its intended strategy Galbraith and Nathanson (1978) examined the role of firm structure and processes in the selection and successful implementation of a firm’s strategy The research argued that firms pick different processes and have different structures in response to the competition faced in the marketplace They stated that consistency must exist between the firm’s strategy and firm structure To emphasize the importance of information in reducing uncertainty, Galbraith and Nathanson (1978) went into detail on resource allocation processes Specifically, firm processes enable managers to share relevant information to make decisions and better allocate finite
resources Rumelt (1974) expanded on Chandler’s (1962) research framework by
connecting strategy and structure to economic performance
Trang 15to the firm’s stated strategy, organizational structure, and processes
The cumulative result of this research stream is a comprehensive framework that calls for assessing the relationship between the firm’s components of strategy, structure, process, and performance The current research seeks to assess this framework within a logistics context Logistics and related information technology processes will be
addressed in the next section
LOGISTICS
The Council of Logistics Management defines logistics as follows: Logistics is that part of the supply chain process that plans, implements,
and controls the efficient, effective flow and storage of goods, services,
and related information from the point of origin to the point of consumption in order to meet customers’ requirements (as cited in
Bowersox, Closs, and Stank 1999)
Logistics is becoming increasingly important to firms around the globe In the
past, the logistics function was often viewed as a cost center, i.e., a function that had to
be done to carry out business Today, managers are elevating logistics to a strategic role in the company Managers realize that improvements in logistics can provide competitive advantage through cost containment and enhanced customer service (Bowersox, Closs, and Stank 1999) An important step in achieving these goals is to examine the importance of information technology on the success of the logistics
function
Trang 16visibility of logistics activities Access to real-time point-of-sale information is an example of system visibility; with this information managers could quickly revise their plans and delivery schedules Better information enables coordination of supply with demand For the logistics department, this results in more effective product handling, inventory storage efficiency, and shipping economies of scale
Research has demonstrated the link between information technology and logistics performance Many studies, for example, have identified the positive impact of electronic data interchange (EDI) on logistics processes and performance (Clinton
and Closs 1997; Williams, Nibbs, Irby, and Finley 1997; Williams, Magee, and Suzuki 1998; Stank, Crum, and Arango 1999; Drdge and Germain 2000) This result, however,
has not always been true for information technology in general Salerno (1985) found, for example, that the computer revolution had not lived up to its predicted performance and productivity improvements
Other researchers have looked at information technology from a different approach, by targeting not the tool itself (e.g., EDI), but the objective of the application (e.g., improved information exchange) These authors examined information exchange within the firm to determine the relationships between information technology and constructs like integration, customer service, or interdepartmental relationships
(Gardner, Cooper, and Noordewier 1994; Stank and Lackey, Jr 1997; Maltz and Maltz
1998; Ellinger, Daugherty, and Keller 2000) Therefore, both information technology and the reason for employing the technology are of interest to researchers
Trang 17context, logistics information technology processes are those processes using
information technology to solve logistics related problems For example, using information technology to share operational information between departments Logistics information technology processes are key resources that must be effectively
used to ensure continued firm viability As Sheth and Ram (1987) indicated, other
resources could be more effectively utilized when information technology is employed The resource-based theory of the firm provides a foundation for our understanding of this relationship and will be covered next
RESOURCE-BASED THEORY
Wernerfelt (1984) argued that a firm is a bundle of resources (e.g., human,
Trang 18Some researchers have discussed the connection between a firm’s resources and processes and the firm’s performance (Barnett, Greve, and Park 1994; Henderson and Cockburn 1994; Godfrey and Hill 1995) Managers need to determine the best configuration to capitalize on the internal processes of the firm, which requires evaluation and understanding of the firm’s organizational structure
RESEARCH OBJECTIVES
The Strategy-Structure-Process-Performance (SSPP) paradigm provides a framework to improve both academic and practitioner understanding of the affects of logistics strategy and logistics information technology (LIT) processes on the firm (See
Figure 1.1) The research objective, therefore, is to expand the SSPP framework to
identify the factors influencing logistics-related strategic decisions and to evaluate the relationships between those factors and performance As logistics becomes increasingly important to the firm’s performance, more research is needed to understand the impact of logistics on management concepts The research will evaluate the generalizability of the SSPP framework and improve understanding of information technology’s role in logistics Furthermore, the research improves practitioner understanding of how, and under what conditions, logistics impacts service performance
Figure 1.1: Conceptual Model
STRATEGY STRUCTURE PROCESS PERFORMANCE
* Firm — * LIT * Service
* Logistics
Trang 19
RESEARCH QUESTION
The literature supports the importance of the research topic and demonstrates the need for additional insight regarding logistics The overall research goal is to answer the following question: Do firms with certain configurations for strategy structure logistics information technology processes perform better than others?
The research is designed to answer the following question:
1 What is the affect of strategy, structure, and logistics information technology processes on performance?
2 What are relevant considerations for the logistics information technology processes conceptualization?
3 How robust is the strategy-structure-process-performance framework in a logistics setting?
Answers to the above will facilitate the development of guidelines for managers regarding selection and implementation of information technology “solutions” within the firm The aforementioned questions also provide insight for researchers studying information technology The questions contain key variables associated with 1) logistics strategy, 2) firm structure, 3) information technology processes, and 4) service performance metrics that lead to the development of the hypotheses to be tested in this research, which will be covered in Chapter Two
DISSERTATION SCOPE
Trang 20The goal is to obtain a sample that adequately represents the population of
manufacturing, retailing, and wholesaling firms in the United States Additionally, this
approach enables the examination of differences attributed to firm size, as measured by
the number of employees The approach used for the survey design follows the
Churchill (1999) and Dillman (1978, 1999) recommendations to ensure reliable results
Chapter Three contains further details about the survey and sampling approach
The measurement items to be used are based on existing literature A variety of strategy and structure typologies exist, along with processes or information technology processes to be studied Instead of attempting a comprehensive assessment of all possible strategy or structure typologies, this research targets selected strategies, structures, logistics information technology processes, and performance metrics
CONTRIBUTION OF RESEARCH
This research is structured to assess relationships between key components of the firm and targeted performance outcomes The research directly examines the influence of manager’s perception of logistics on relevant variables Furthermore, the logistics research setting provides insights from this vital part of the firm, which is often not addressed in strategy related research
Academic and practitioner contributions include the evaluation of logistics strategy, firm structure, and logistics information technology processes Furthermore, a better understanding of these relationships and the impact of logistics should provide guidance to managers, which will be addressed in the implications and conclusions
Trang 21CHAPTER ONE SUMMARY
Trang 22CHAPTER 2: LITERATURE REVIEW
The following chapter reviews relevant literature regarding the development of the strategy-structure-process-performance (SSPP) framework Additionally, resource- based theory and information processing theory are also addressed and linked to the SSPP framework Details regarding how information technology applications influence the framework’s components will be presented
STRATEGY
Firm strategy is the driver behind most firm decisions It influences everyday decisions along with impacting the firm’s plans for the future Firm strategy is a result of the goals of the firm and the demands of the environment in which the firm competes Strategy can be conceptualized very broadly and can be interpreted in a variety of ways, therefore a working definition is important Chandler (1962) defines strategy as the “determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” (p 13)
Other authors state that strategy encompasses “the vital missions of an organization, the goals which must be attained, and the principal ways in which the resources available are to be used” (Hall and Saias 1980, p 151) Furthermore, strategy development experts recognize the importance of matching a firm’s abilities with the
demands of the marketplace (Hofer and Schendel 1978) Porter (1980) also
concentrated on assessing firm strategies In Competitive Strategies, Porter developed
Trang 23firm that desires a low cost product This is achieved by reducing the number of
product offerings and implementing purchasing decisions that ensure cost savings A differentiating strategy is implemented by firms offering a wider variety of products to the marketplace These firms are less concerned about a low cost product since they are offering flexibility to meet customer changes The focus strategy is a hybrid of the two, and is less frequently employed in business The objective of his work was to aid managers in determining the strategy currently employed in their firm and to evaluate its appropriateness
FIRM STRUCTURE
Organizational structure is a key component of the firm’s ability to respond to the changing marketplace When Chandler (1962) conceptualized this component he defined structure as “the design of the organization through which the enterprise is administered” (p 14) Chaundhry and Schnieper (1999) defined organizational structure as “the formal allocation of work roles and the administrative mechanisms to control and integrate work activities including those which cross formal organizational boundaries” (p.72) Specifically, structure is comprised of the formal lines of authority
and communication, and the information and data that flow along those lines (Bowersox, Closs, and Stank 1999; Sabath, Autry, and Daughtery 2001) To capture a
more complete understanding of structure it is subdivided into three specific
dimensions: centralization, formalization, and specialization Variations of these three
Trang 24(Chow, Heaver, and Henriksson 1995; Daugherty, Germain, and Drưge 1995; and Stank
and Traichal 1998)
Centralization
The centralization or decentralization of decision-making authority is one method of defining structure in organizations A centralized management approach indicates that one or a limited number of top managers retain most of the decision making authority (Aiken and Hage 1968; Walker and Ruekert 1987; Jaworski and Kohli 1993) A decentralized management concept indicates that more levels of the organization have the ability to make decisions Child and Faulkener (1998) suggested
that one benefit to centralization, with its concentrated authority, is that firms can make
decisions faster and act proactively However, decentralized organizations have benefits as well Decentralized management, for example, tend to encourage functional
areas to work together, which improves firm responsiveness and coordination (Weill and Broadbent 1998; Mollenkopf, Gibson, and Ozanne 2000)
Formalization
Formalization is another component of structure, which indicates a high level of
rules and specified procedures Formalization reduces a firm’s need for employees to
seek out new information within the firm to make decisions (Zaltman, Duncan, and Holbek 1973; Mollenkopf, Gibson, and Ozanne 2000) Formalization also improves the
Trang 25environment of rules and regulations may also reduce the firm’s ability to respond to innovative ideas due to the bureaucracy involved in making firm changes
Specialization
Examining the level of skill specialization within the firm is the final aspect used to assess firm structure Specialization addresses how activities and tasks are allocated across employees or positions within a firm (Walker and Ruekert 1987; Stank and Traichal 1998) Innovativeness is often facilitated by specialization As employees begin specializing, they become more knowledgeable about related procedures and how new ideas can be used (Dewar and Dutton 1986) Furthermore, productivity is also improved when employees are able to target one responsibility or task Specialization, however, also may complicate the organizational structure of the firm and require more time to educate the employees on new initiatives
The centralization, formalization, and specialization variables have been
commonly used in management research when evaluating authority or communication aspects of structure The relationship between them provides a comprehensive way to
assess the structural dimensions of the firm
STRATEGY-STRUCTURE
Chandler (1962) was one of the first proponents of the strategy leads to structure
relationship (See Figure 2.1) He briefly defined strategy as those activities that
Trang 26He examined companies in different industries across several decades and
asserted that certain firm strategies seemed best suited to specific firm structures Typically, managers do not seek to change the structure of the organization unless strong environmental or economic forces encourage a change Therefore evaluating which forces caused a firm to change its structure and why the new structure was selected is important Chandler (1962) briefly examined the 50 largest industrial companies in the United States in 1909 and then another 70 of the largest firms in 1948 to ensure an adequate coverage of different industries His objective was to determine current structure types and those that were considered innovative Chandler asserted that evaluating the previous organization structure and the history of growth of the firm enabled an accurate interpretation of why specific changes were made
Chandler followed the brief examination with several in-depth case studies of large United States corporations to determine how they developed their strategy and corresponding firm structure Chandler determined that the number of “decentralized” organizations was increasing therefore he proceeded to examine that organizational form in further detail As mentioned earlier, in decentralized organizations decision- making authority extends beyond top management The four firms he studied (du Pont,
Sears, Standard Oil, and General Motors) were some of the first to use a decentralized structure
Trang 27approach proved successful for du Pont enabling managers to capitalize on their abilities to the benefit of the overall organization rather than a single business unit “Through a strategy of consolidation and integration, [management] obtained administrative control over their widespread holdings of plants, marketing facilities, and laboratories as well as over a pool of trained personnel,” (Chandler 1962, p 112) The strategy of diversification required a change in firm organization toward a decentralized
multidivisional structure; therefore, at du Pont structure followed strategy
Trang 28suppliers Also, certain activities were kept centralized (e.g., buying merchandise) to ensure consistency across the mail-order business and the retail stores All four in- depth examinations supported Chandler’s contention that strategy leads to structure
Other research also indicated a relationship between strategy and structure Miles and Snow (1978) examined four distinct industries: College Textbook Publishing, Electronics, Food Processing, and Hospitals, to develop an understanding of how organizations adjust to their environments and why specific forms were chosen They hoped to develop a method to gauge the relationship between organizations and their environments and use it to develop a conceptual foundation for the assessment of emerging organizational forms They examined management strategy typologies and stated that strategy takes on meaning only when implemented through the organization’s structure and processes (p 7)
Some, however, suggested the reverse is true, that structure influences strategy Hall and Saias (1980), for example, claimed that strategy follows structure They examined the literature and argued that committing to a specific firm structure limited the firm’s opportunities to capitalize on new strategies As a result, firms may need to modify their procedures to accommodate changing environmental requirements
Furthermore, they introduced into their assessment additional environmental variables
Trang 29It is more commonly argued, disregarding the temporal implications, that strategy
influences structure, therefore that approach will be used in this dissertation
Figure 2.1; Chandler’s Relationship
Strategy —* Structure
The next section continues the strategy-structure relationship by adding a new
component — process
PROCESS
Galbraith and Nathanson (1978) defined processes as the “direction and
frequency of work and information flows linking the differentiated roles within and between departments of the complex organization” (p 5) They determined that selected processes influenced how successfully managers implement their strategies For example, processes that facilitate the exchange of information, like regular meetings between cross-functional team members, influence a given strategy’s success Galbraith and Nathanson stated that a variety of information sharing and decision- making processes that cut across divisional and departmental boundaries exist to facilitate, integrate, or coordinate activities They inferred that specific mechanisms
within the firm could be used to achieve interdepartmental coordination For example,
Trang 30concept, other processes within a firm include planning and control, budgeting,
integration, recruiting, promotion, training and development
Resource allocation processes are specific types of processes, including budgeting, planning, and control processes Researchers from a variety of fields have
studied resource allocation processes Cyert and March (1963) intended their
behavioral theory of the firm to provide insight into how decisions were made within the firm They incorporated the limitations associated with human decision-makers along with environmental uncertainty to provide a more comprehensive description of firm processes Aharoni (1966) determined that investment or allocation decisions were actually complicated and lengthy decisions rather than a spur of the moment decision they often appeared to be This insight led other researchers to study the protracted nature of decision-making and to evaluate the steps needed to achieve the final outcome Carter (1971), for example, studied strategy’s affect on decisions and ascertained that often decisions are made and then others have to find support to connect the decision to management’s chosen strategy Therefore processes are influenced by firm strategies and this synergy ultimately affects economic performance (Galbraith and Nathanson 1978)
STRATEGY-STRUCTURE-PROCESS
Trang 31research as evidence for their contention regarding the relationship between strategy, structure, and processes
Galbraith and Nathanson (1978) used the existing literature to examine how the
firm’s strategy implementation impacted firm structure and processes Their objective was to demonstrate that the choice of structural form has an economic impact on the firm, depending on the strategy employed They contend that firms select processes and have specific structures in response to the competition faced in the marketplace Therefore the relationship between the firm’s strategy, firm structure, and processes is important The processes used to allocate resources are key to decision-making abilities of the firm “Information must be available to control and coordinate activities, to measure performance effectively and to monitor and plan” (Galbraith and Nathanson
1978, p 1)
Evaluating firm strategy, structure, and processes is vital because these key internal components are typically the “essence” of the firm (See Figure 2.2) However, the connection between a firm’s strategy and structure and its ability to achieve improved performance metrics must be addressed
Figure 2.2: Galbraith and Nathanson’s Relationships
Strategy [-—» Structure [ » Process
Trang 32PERFORMANCE
Rumelt (1974) examined key financial metrics that are often used as indicators
of the overall health of the firm, for example, annual rate of growth in net sales, annual
rate of growth in earnings per common share, and after-tax return on equity However, other authors have conceptualized performance measures to include productivity, profit,
cost effectiveness, or cost reduction (Lawler 1971, 1977) Additionally, Chow, Heaver,
and Henriksson (1995) commented that researchers, specifically in logistics, often use performance and its antecedents in their research, with varying interpretations of what constitutes “performance.” Performance considerations have ranged from customer or employee satisfaction to cost effectiveness
Chan, Huff, Barclay, and Copeland (1997) also examined the relationship between company strategy and measures of performance Chan et al (1997) demonstrated that across Canadian and U.S firms and within two vastly different industries (manufacturing and financial services), that company strategy does impact firm performance Chan et al (1997), for example, asked respondents whether they “were satisfied with their market share, sales growth, and many other subjective performance measures, although they did not acquire actual figures
Trang 33managers) are asked to evaluate firm performance “versus the competition,” which can be interpreted as a key competitor or the industry overall A second key shortcoming is that perceptual measures of performance make it difficult for the researcher to truly evaluate causality, since it is only the respondent’s perception of the firm’s performance
Actual performance numbers provide the researcher with more opportunities to evaluate the impact of the antecedents of performance Actual numbers in the current year, for example, could be compared to published figures in previous years, thus enabling the researcher to evaluate the impact of trends Ideally, actual numbers are desired, but perceptual performance measures still are useful to the researcher They enable the researcher to assess the respondent’s interpretation of the firm’s performance vis-a-vis the competition Even if the study is across many industries perceptual performance measures provide researchers an option to assess the impact of the research model on performance, which is of interest to managers
STRATEGY-STRUCTURE-PERFORMANCE
Trang 34social responsibility” (Rumelt 1974, p 10) Rumelt used this point of departure from
Chandler to expand the concept of firm diversification to address a changing conceptualization of strategy
Rumelt (1974), for example, extended the strategy-structure relationship to
include economic performance In addition, Rumelt effectively utilized the
classification system Wrigley developed for a firm’s diversification strategies, with some modifications Rumelt made two primary adjustments to the classification
system, the first is that he examined the business in which the firm operates, and not
only the products the firm offers, as others have (e.g Wrigley 1970) The second adjustment used the firm’s unique skills and abilities to assess which strategy the firm should employ Rumelt (1974) examined firms in a variety of industries selected from the Fortune 500 and found that economic performance differences exist across the diversification strategy classifications In making this determination, Rumelt suggested that managers periodically assess firm performance and market position in relation to the firm’s stated strategy and existing organizational structure
The strategy-structure-performance framework has been utilized to assess
specific functions within the firm Chow, Heaver, and Henriksson (1995), for example,
Trang 35framework, logistics strategy used the Bowersox et al (1989) typology because it allowed the assessment of “organizational mechanisms rather than [only] performance objectives” (p 295) They argued that uncertainty about which organizational structure to select required additional research They conceptualized structure as including centralization, formalization, and integration By including integration the authors hoped to be able to expand their research efforts to capture information related to supply chain activities Additionally, to achieve improved performance, making a connection between logistics strategy and firm strategy is necessary Their contribution to the strategy-structure-performance debate was a specific and well-defined framework, which provided a foundation for future research in logistics
CONCEPTUAL MODEL
Combining the above strategy, structure, process, and performance concepts, results in the proposed model in Figure 2.3 This model indicates the relationships between the key internal components of an organization and performance
Figure 2.3: Model
Strategy | —> Structure >> Process [> Performance
While Chandler did not examine all aspects of the aforementioned model, he did
Trang 36connection necessitates further explanation, which is provided by the resource-based
theory of the firm
RESOURCE-BASED THEORY
One driver of firm-based research is the realization that firms are constrained by the resources, money, people, and opportunities to which they have access This is called resource-based theory This theory suggests a causal relationship between differences in a firm’s strategic resources and the attributes of the products or services they offer The theory also indicates that a competitive advantage and improved performance can result from capitalizing on this causality (Conner 1991) In evaluating the role of the resource-based theory, it is important to understand how a firm’s resources and capabilities affect its performance (Barnett, Greve, and Park 1994;
Henderson and Cockburn 1994; Godfrey and Hill 1995) These resources, for example,
may enable a firm to be faster to market with a product update or may enable the firm to reduce costs more effectively
Wernerfelt (1984) considers a firm to be a “bundle of resources,” which includes
specific inputs that allow a firm to enact its strategies (Conner 1991; Daughtery, Autry, and Ellinger 2001) These resources can include specific skills, like the information processing or technological abilities of the firm or its relationships with other supply chain members It is important to align the firm’s resources with the needs of the environment to achieve maximum impact
Trang 37valuable, scarce, and imperfectly imitable, and that provide a significant contribution to
perceived customer value (Barney 1991, 1995; Day 1994) Other researchers consider a capability “strategic” only when applied to a specific user need (Teece, Pisano, and Shuen 1997) This implies that the organization must realize the usefulness and applicability of a firm capability before it can be considered a strategic resource
The resource-based theory provides a framework to explain the long-term pattern of performance differences between firms in relation to the resources they employ These resources can be classified into three categories: 1) physical resources, which include plant and equipment, technology, geographic location, and access to raw
materials; 2) human resources including training, experience, managerial and technical
staff insights; and 3) organizational routines used to plan, control, coordinate, and make productive use of their physical and human resources (Penrose 1959; Nelson and Winter
1982; Barney 1991) Firm resources are those assets, capabilities, organizational processes, firm attributes, information, or knowledge that enable managers to develop
Trang 38Not all firm resources generate sustained competitive advantage Barney (1991)
proposed that resources must meet four conditions to be considered advantage-creating
These four conditions include: value, rareness, inimitability, and non-substitutability
Other researchers have proposed different criteria to determine if a resource will generate sustained competitive advantage Grant (1991) argued that durability, transparency, transferability, and replicability are important determinants Collis and Montgomery (1995) suggested that resources must meet five tests namely inimitability, durability, appropriability, non-substitutability, and competitive superiority Amit and Schoemaker (1993) developed eight criteria, including complementarity, scarcity, low tradability, inimitability, limited substitutability, appropriability, durability, and overlap with strategic industry factors Barney’s (1991) attributes are the most commonly considered and therefore will be addressed in detail in the following paragraphs
Resources are valuable when they enable management to develop and implement strategies that improve firm efficiency and effectiveness One model of firm performance, the SWOT or strength-weaknesses-opportunities-threats model indicates that firms are able to improve performance only when their strategies exploit
opportunities or neutralize threats Furthermore, value is added if these resources
Trang 39attributes of a resource, if it does not facilitate value creation it cannot be considered a
source of advantage
As indicated above, valuable firm resources possessed by large number of competing or potentially competing firms cannot be sources of sustained competitive advantage If every firm possessed this resource then it no longer is a source of differentiation for the firm Peteraf (1993) argued that it is vital for managers to ensure firm valuable resources remain limited in supply to continue to earn superior profits This attribute is closely connected with inimitability
For resources to remain sources of sustained competitive advantage, other firms should not be able to perfectly imitate these resources (Barney 1991; Peteraf 1993)
Dierickx and Cool (1989) identified three reasons for the imperfect imitability of
resources First, a firm’s ability to obtain a resource is dependent upon unique historical events Ifa firm acquired valuable and rare resources because of the unique path it
followed, it will be able to exploit those resources to implement value-creating
Trang 40imitability of the resource Third, the advantage generating resources may be beyond the ability of firms to systematically manage and influence To the extent that socially complex firm resources are not subject to direct control, these resources are imperfectly imitable (Barney 1986)
Reed and DeFillippi (1990) attempted to explain possible causes of ambiguity They examined the resource characteristics, which may prevent their imitation by competitors They ascertained three resource characteristics which can simultaneously be sources of ambiguity and advantage These characteristics include tacitness, complexity, and specificity Tacitness is a characteristic of skill-based activities to (Polanyi 1967) In this context it refers to an inability to identify or codify a pattern of
activities Skilled activities, according to Reed and DeFillippi (1990), are based on
experience and are refined with practice
Complexity, however, results from co-specialized assets (assets which must be used in connection with one another) (Teece 1986), the interconnectedness of assets
(Dierickx and Cool 1989), and from the social relationships within the firm (Barney
1991) Complexity resides in various firm technologies, organization routines, and individual or team-based experiences that make up an organization (Reed and DeFillippi 1990) This indicates that no one single person has an adequate grasp of those skills that result in sustained competitive advantage Information is then immobile even though competitors may recruit certain employees
Specificity indicates that firm activities and transactions with other external constituents are unique and idiosyncratic to individual firms (Williamson 1975, 1985)