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The Impact of IT capability on the business value creation and

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The Impact of IT capability on the business value creation and

    The Impact of IT capability fit on the business value creating and

    destroying in supply chains: An empirical examination into IT

    Application Promotion Project B by Taiwan Authority

    Ye-Yi Chen

    Graduate Institute of Business Administration;National Taipei University

    yichen@rdec.gov.tw

    Chin-Lung Kuo

    Graduate Institute of Business Administration;National Taipei University

    marrble.kuo@msa.hinet.net

    Wen-Chang Fang

    ;Department of Business AdministrationNational Taipei University

    fang@mail.ntpu.edu.tw

AbstractStudies about supply chain management systems (SCMS) headed the

    competitive advantages by comparative cost, earlier information exchange and quick responses are ubiquitous. While prior studies have examined the buyer-supplier relationships from IT , IT systems, trust, interdependence or channel authority, little attention has been paid to the pattern of IT capability aligned leader with suppliers. This study draws from resource base view of IT capability fit and value creation and to propose the matrix (model) of IT capability aligned supply chain leader and it’s suppliers. It proposed that four patterns of IT capability matrix--high collaboration, low conflict, high conflict and poor collaborationdetermine the value of

    e-commerce application. Then, these enable supplier and leader to both enhance the performance of the chain by the use of e-commerce application in interfirm collaboration. The subjects of this study are mainly the 851 supplier involved in the IT application promotion Project B by Taiwan authority. Project B assisted 15 leading domestic (Taiwan) IT manufactures to form e-business supply chains (from stprocurement to production) with 1 tier component suppliers. Through empirically

    examining, the results support the assumptions that the IT capability fit influences positively the value of E-commerce applicationThe value of E-commerce

    application positively affects the performance of supply chain and there is direct relation between IT capability fit and the performance of supply chain. The empirical results also implicate the importance of IT capability interdependence. Managers should design a business model which take the supply chain as whole entity and pay close attention in the fit and interdependent process of IT capability and assess the value of E-commerce application that will lead firms to have better performance in supply chain.

Key Words?IT capability fitE-commerce applicationSupply Chain Management

    System(SCMS)

Introduction

    One of the major preoccupations between scholars and practicers in the past decade has been arguing the gap within theory and practice. Whether the results induct form theories are consistent with the realities is the interested object of empirical researchers in recent years.

    IT application promotion Project B is the first time B2B e-commerce promoted by Taiwan authority. In 2002, the officials reported the accomplishment of Project B have progressed tremendously and, in their words, IT application promotion project B is the best practice for the value creation and use of e-commerce in supply chain.

    Numerous information systems (IS) literatures have stressed E-commerce applications are at the heart of supply chain management. Instead of act as a lone wolf, corporate can create business value together with partners in the supply chain by using B2B e-commerce. The resource-based view (RBV) of the firm regards the firm as a collection of resources and capabilities. The firms can create business value if they are able to well devote their unique, durable, and hard to imitation resources and

    12capabilities into competitive advantages.( Wernerfelt, 1984; Barney, 1991; Amit and

    3Schoemaker, 1993?. Basically, according to resource base view, every firm has different set of internal resources and capabilities to exploit, thus, consequently, firms can deliver their product and service to create value until the environment change.

    4?Amit, R. and Zott, C., 2001?

    Timmers(1999, p.32) regards multiple firms as the recipients of the benefits of the business model in his definition of business model, firms within a supply chain share both risks and rewards as they attempt to attract, satisfy and retain final

    5customers of the chain. Craighead and Shaw?2003? argued the value of supply

    chains may be influenced by several firms’ capabilities (e.g., IT), and each capability

     1 Wernerfelt B. A resource-based view of the firm, Strategic Management Journal ?5?2?, 1984,

    pp.171-180. 2 Barney, J. B. Gaining and Sustaining Competitive Advantage, Addison Wesley Publishing Company,

    Reading, MA, 1997. 3 Amit, R., and Schoemaker, P. J. H. Strategic Asset and Organizational Rent, Strategic Management

    ?14?1?, 1993, pp.33-46. journal4 Amit, R., and Zott, C. Value Creation in E-Business, Strategic Management journal?22?1?, 2001,

    pp.493-520. 5, Craighead , W. C. and Shaw, G. N.E-Commerce Value Creation: A Resource-Based, Supply chain

    Perspective, The Data Base for Advances in information System?34:2?, 2003, pp39-49.

can result in the value creation and destruction of the set of firm’s product and service

    that is cumulated to the final customer. Therefore, when final customer chose between firms’ product and service is, basically, the evaluation of value-driven capabilities of

    the supply chain compared to competitors’. An adaptation of this view in

    investigation of the relationship between E-commerce applications and the value of supply chain, we must understand the members of the supply chain are interdependent. Thus, managers’ vision should beyond next connector and take partner’s capabilities

    into consideration at the same time.

    The past few decades have seen growing importance placed on empirical research in B2B E-commerce applications. Many well-known examples of network leaders such as Chrysler, Dell, Ford and Wal-Mart have made significant efforts to derive the benefits of coordination and collaboration with their suppliers by using a particular form of e-commerce applications, and regard it as a critical component in the management of their chains.

    Yet, most firms that have been proposed for use in e-commerce have not been

     6shown to create value for organizations and consumers (Mahadevan, 2000). Even

    7more, Clemons and Row?1993? found focal firm in the chain squeeze supplier for

    8their own profit in his field research. Subramani?2004? use 131 suppliers of Alpha,

    a leading Canadian retailer that pioneered the use of information technologies in their supply chain, to conduct his study and the evidence show that supplier share different benefit in the chain, and patterns of information technology use are significant determinants of relationship-specific investments in business processes and domain expertise provides a finer-grained explanation of the logic of IT-enabled electronic integration.

    There are 15 focal firms joined IT application promotion Project B include their 1851 supplier. The IT capabilities between 15 focal firms are different; likewise, 1851 suppliers’ have different IT capabilities. Thus, the fit of IT capabilities between focal firms and their supplier may affect the value of E-commerce applications and the performance of the chain. In order to compare the practice with theory, the purpose of this paper is to employ the resource-based view to develop the theoretical links and empirically examine the patterns of IT capabilities belongs to focal firm and their

     6 Mahadevan, B. Business Model for Internet-Based E-commerce: An Anatomy, California

    ?42:4?, 2000, pp.55-69. Management Review7 Clemons, E. K. and Row, M. Limits to Interfirm Coordination Through Information Technology:

    Results of a Field Study in Consumer Goods Distribution, Journal of Management Information System

    ?10:1?, 1993, pp.73-95. 8 Subramani, M. How Do Suppliers Benefit From Information Technology Use In Supply Chain

    Relationships?”MIS Quarterly?28:1?, 2004, pp.45-73.

    suppliers and the relationship with e-commerce applications. We tried to propose an integrated model of electronic commerce in the supply chain based upon a resource-based view of a firm. The new model demonstrates that information technology can be used to enlarge the cooperation between firms, as well as, add value to the final consumer by adding both direct and indirect value at multiple points in a supply chain.

    Literature Review

    一、IT Capabilities

    Base upon resource-based view (RBV), firms collect, coordinate resources to create organizational capabilities. Thus, we may regard “capability” as distinct competence that organizations collect, coordinate and utilize valuable resources and processes to acquire competitive advantage,

    From this viewpoint, a firm’s IT capabilities can be defined as the ability to

    mobilize and deploy IT-based resources in combination or copresent with other

    9resources and capabilities.(Bharadwaj,2000). Mata, Fuerst and Barney(1995) argue

    that managerial IT skills are the skills that include management's ability to conceive of, develop, exploit IT applications and coordinate IT activities to support and enhance other business functions. And managerial IT skills enable firms to manage the market risks associated with investing in IT.

    10Ross, Beath and Goodhue (1996) discovered three types of IT assets, including

    IT human resources asset, technical asset and IT relationship asset, in a two years empirical research of IT management. The three IT assets, while quite distinct, are highly interdependent, and can lead to business value through their impact on a firm’s strategically aligned IT planning, fast delivery, and cost effective operations and support processes.. Ross et al. (1996) regards IT capabilities as the ability to well manage the three IT assets in order to deploy IT for strategic objectives.

    Scholars adopted their measurement of a firm’s IT capabilities base upon the research interest. A strong IT staff with competent IT skills (human IT asset), Ross et al. (1996) point out that a reusable technology base (technical asset) and a strong partnering relationship between a firm's IT and business unit management

     9 Bharadwaj, A. S. A Resource-Based Perspective on Information Technology Capability and Firm Performance: An Empirical Investigation, MIS Quarterly?24:1?, 2000, pp.169-196. 10 Ross, J. W., Beath, C. M., and Goodhue, D.L. Develop Long-term Competitiveness Through IT

    Assets, Solan Management Review?38?1?,1996, pp.31-45.

    (relationship asset) influence a firm's ability to deploy IT for strategic objectives. Similarly, Bharadwaj?2000?classified firm specific IT resources as IT infrastructure, human IT resources, and IT-enabled intangibles. Ross et al?1996?and Bharadwaj

    ?2000?are in common with the measurement of IT capabilities. Many scholars( such

    1112as, Agarwal and Sambamurthy,2002~Barua et al, 2004) agree on this measurement

    and embrace in their researches.

    13Moreover, Broadbent, Weil and Clair (1999) investigated the implications of

    information technology infrastructure for business process redesign by three dimensions: IT infrastructure service, boundary-crossing service and firm’s reach and

    14range. Robbins and Stylianou (1999) proposed thirteen items to measure

    Information System (IS) capabilities in their study of system integration, including the degree to support firm’s strategies, the fit if organizational planning, the improvement

    15of operational efficiency and human resources. Fenny and Willcocks (1998) argued

    systematic thinking, relationship build, infrastructure planning, leadership, purchasing notice, easy-to-contract, and development of supplier these nice items can understand

    16the IT capabilities of a firm. Subramani?2004? used the capability of IT utilization

    and the capability of RD in IT to discover the benefit from IT created for the firms in supply chain.

    Although not all scholars are consistent with the measurement of IT capabilities, still we can conclude the firm’s IT capabilities simultaneously include tangible and intangible parts. Either technical IT capabilities (i.e., Hardware settlement, software applications) or managerial IT capabilities (i.e., reengineering of business processes, sharing of knowledge) have been accumulated by a firm after period of experience. Specially, the managerial IT capabilities are learned form personal relationship. A firm needs intangible IT capabilities to covert tangible IT resource into more convenient delivery and sharing. In order to achieve this goal, a firm needs to create a specific organizational context to form the culture of experience sharing. So, Investigation of a firm’s IT capabilities, particularly in a network, must base upon the view of

     11 Agarwal, R. and Sambamurthy, V. Principles and Models For Organizing the IT Function, MIS

    Quarterly?1:1?, 2002, pp.1-16. 12 Barua, A., Konana, P., Whinston, A. B. and Yin, F. An Empirical Investigation of Net-Enabled

    business Value, MIS Quarterly?28: 4?, 2004, pp.585-620. 13 Broadbent, M., Weil, P., St. Clair, D. The Implications of Information Technology Infrastructure for

    Business Process Redesign, MIS Quarterly?23:2?, 1999, pp.159-182. 14 Robbins, S. S. and Stylianou, A. C. Post-merger System Integration: the Impact on IS Capabilities,

    Information and Management?36?, 1999, pp.205-212. 15 Fenny, D. F. and Willcocks, L. P. Core IS Capabilities for Exploiting Information Technology, Sloan

    ?39:3?, 1998, pp.9-21. Management Review16 Subramani, M. How Do Suppliers Benefit From Information Technology Use In Supply Chain

    Relationships?”MIS Quarterly?28:1?, 2004, pp.45-73.

    effectiveness of resource and capabilities. In this way, the impact of intangible IT capabilities on tangible IT resources can be fully understood.

    二、E-Commerce Application

    17Evans and Wurster?2000? argued Information channels are being blown apart by the

    advent of universal connectivity and standards(INTERNET). These connectivity and standards enable rich communication that implied the economic benefit of information, new opportunities, fluid teaming within organizations, and fluid teaming across organizational boundaries. Furthermore, Croom, ?2005?

    18defined e-business simply as the use of systems and open communication channels for information

    19exchange, commercial transactions and knowledge sharing between organizations. Tan?2001? Web

    technologies allow firms to collaborate with business partners to gain the benefits of reducing costs, improve quality, secure operational capabilities, expedite flexible and efficient distribution, and retaining competitive advantages.

    20Turban et al.?1998?divided E-commerce application into two types:

    Business-to-Customer E-commerce and Business-to-Business E-commerce. Business-to-Customer E-commerce means firms do business with customer through internet, and Business-to-Business E-commerce emphasis firms and their partners do business with internet, supply chain management is a notable example.

    21Craighead and Shaw?2003? indicated the cumulative effect of value to the

    final customer enabled by e-commerce application can be derived two matrices (a static view and a dynamic view). Any individual supply chain participant's IT capabilities determined the final customer value of e-commerce application which may progress and regress through the matrix indicating varying impacts over time. Thus, it is meaningful to inspect the value of e-commerce application through individual supply chain participant's view.

    22Amit and Zott?2001? explored efficiency, complementarities, lock in, and novelty these four dimensions in the study of value creation in e-business. These four possible resources had interactions with each other, then, further were relative to the impact on value creation in e-business.

     17 Evans, P. and Wurster, T. S. Blown to Bits: How the New Economics of Information Transforms Strategy,

    Harvard Business School Press, Boston, Ma., 2000. 18 Croom, S. R. The impact of web-based procurement on the management of operating resources supply”, The journal of Supply Chain Management?36:1?, 2000, pp.4-13. 19 Tan, K. C. A framework of supply chain management literature, European Journal of Purchasing and

    ?7:1?, 2001, pp.39-48. Supply Management20 Turban, E., Mclean, E. and Wethebre, J. Information Technology for Management: Making

    Connections for Strategic Advantage, John Wiley ? Sons Inc., 1998. 21 Craighead , W. C. and Shaw, G. N.“E-Commerce Value Creation: A Resource-Based, Supply chain

    Perspective”, The Data Base for Advances in information System?34:2?, 2003, pp39-49. 22 Amit, R., and Zott, C. “Value Creation in E-Business,” Strategic Management journal?22?1?, 2001,

    pp.493-520.

    In the empirical study of The impact of e-business on supply chain management:

    23An empirical study of key developments, Croom?2005? found the context of

    current supply chain practices conducted electronically, it is not surprising that e-mail, web sites, e-procurement, EDI, and CRM dominated the list.

    24Barua et al?2004? tested with data from over 1,000 firms in the

    manufacturing, retail, and wholesale sectors to examined a firm’s digitization by using

    six indexes: Namely, total business transacted online, existing customers conducting business online, new customers acquired online, customer service provided online, maintenance, repair, and operations items purchased online, and production goods procured online.

    In general, the degree of a firm’s digitalization involves transaction, purchasing, and information communication. The higher level of a firm’s digitalization means a firm can coordinate purchasing process of each other and the material movement interfirms. Then, the cost of stock and delivery were reduced, lead time was shorten, less mistake and direct impact on firm’s financial performance in the chain.

    252627(Mukhopadhyay et al, 1995; Magretta, 1998; Straub et al., 2002)

三、Performance of supply chain

    Handfield & Nichols (1999) indicated the presence of two major flows in a supply chain: product flow and information flow. Participants in a supply chain manage the two flows with the resultant output being a product/service bundle. The determination of the supply chain bundle's value comes from the perception of final customer. Given this fact, a supply chain should attempt to create value that will be perceived by the final customer and will match the final customers' desired value. How well the perceived value matches the desired value, relative to competing supply chain's bundles, will impact the performance (e.g., sales, market share, etc.) of the chain, which, in turn, directly impacts the performance of the supply chain's participating firms.

    Typically, supply chain might be thought of as “ an integrated network to the

     23 The impact of e-business on supply chain management: An empirical study of key developments Simon R Croom. International Journal of Operations & Production Management. Bradford: 2005.Vol.25, Iss. 1; pg. 55, 19 pgs 24 Barua, A., Konana, P., Whinston, A. B. and Yin, F. “An Empirical Investigation of Net-Enabled

    business Value”, MIS Quarterly?28: 4?, 2004, pp.585-620. 25 Mukhopadhyay, T., Kekra, S., and Kalathur, S. “Business Value of Information technology: A Study of Electronic Data Interchange”, MIS Quarterly?19:2?, 1995, pp.137-156. 26 Magretta, J. “The Power of Virtual Integration: An Interview with Dell Computer’s Michael Dell”, Harvard Business Review?76:2?, 1998, pp.72-83. 27 Straub, D. W., Hoffman, D. L., Weber, B. W., and Steinfield, C. “Toward New Metrics for Net-Enhanced Organization”, Information Systems Research?13:3?, 2002, pp.227-238.

    planning and control of materials, services and information flows from suppliers through factories to the end customer.” That is, supply chain management not only

    include insides of a firm it also include interfirm’s distribution, information flow and

    28logistics management. (Injazz and Antony, 2004).

    29Lambert and Cooper?2000? thought the time of lone wolf is over, instead with

    collaborative supply chain. Supply chain requires not only the delivery of physical product and service but also the bi-directional information exchage. The determination of the degree of collaboration within firm and supply chain participator is to observe the degree of sharing important information with each other, such as the status about stock, demand, quality. The bullwhip effect, uncertainty, inventory will be well controlled if these information can be shared in time?Barua et al.,2004?.

    Given supply chain is a very complicated system and the lack of consensus regarding a valid measure of supply chain performance. Adam and Swamidass

     3031(1989) and Neely et al?1995? used cost, quality, flexibility, and speed as the

    indexes of the performance of supply chain. Moreover, Melnyk & Denzler (1996) tried related value with performance. They regards value as performance divide with cost, while performance is a function of quality, speed and flexibility.

    32Maskell?1991? argued New world-class manufacturing performance

    measures should be directly relate to manufacturing supply chain strategy and he proposed four indexes(cost, product quality, product lateness, and flexibility ) to measure the performance of the chain closely connected to the strategic goal. Besides,

    33Beamon?1999a?integrated indexes of supply chain performance measurement and conclude five useful indexes(cost, cost and operation time, cost and customer response, customer responsiveness, and flexibility ) , moreover, in his later research he have the though of resources, output, flexibility is three standards of supply chain

    34performance measurement(Beamon, 1999b). He further specified the Efficiency of

    the utilization of the resources in the system is important, include: inventory levels,

     28 Injazz, J. C. and Antony, P. “Toward a theory of supply chain management: the constructs and measurements”, Journal of Operations Management?22?, 2004, pp.119-150. 29 Lambert, D.M. and Cooper, M. C. “Issues in Supply Chain management”, Industrial Marketing

    Management?29?, 2000, pp.65-83. 30 Adam, E. E. Jr. and Swamidass, P. M. Assessing Operations Management from a Strategic

    Perspective, Journal of Management?15:2?, 1989, pp.181-203.

    31 Neely, A., Gregory, M. and Platts, K. Performance Measurement System Design, International

    Journal of Operations and Production Management?15:4?,1995, pp.80-116.

    32 Maskell, B. H. Performance Measurement for World Class Manufacturing, Productivity Press, Portland,

    Oregon, 1991. 33 Beamon, Benita. M. Measuring Supply Chain Performance, International Journal of Operations and

    ?19:3?, 1999, pp.175-292. Production Management34 Benita M. Beamon, B.M.(1999b). Measuring supply chain performance. International Journal of

    Operations & Production Management. 19(3), 275

    personnel requirements, equipment utilization, energy usage, and cost. And the point of out performance measurement is responsiveness, together with quality and the quantity of final product produced. Flexibility, which is seldom used in supply chain analysis, can measure a system's ability to accommodate volume and schedule fluctuations from suppliers, manufacturers, and customers. There are four types of flexibility, in Beamon’s words, volume flexibility, delivery flexibility, mix flexibility, new product flexibility. In short, resource, output, flexibility are three standard, and meaningful indexes of supply chain performance measurement, they indicated different subjects and interact with each others.

    Base on the RBV, product and service provide for the final customer is the result of value creation in the entire supply chain. A supply chain can create value and sustain their competitive advantage by operation with efficiency, high quality customer service and quick respond to environmental changes. To measure the performance of supply chain, an all-round thinking way should be useful. Beamon

    35?1999? proposed an comprehensive performance indexes of supply chain,

    including financial dimension, and non-financial dimension, is adopted in this research for its generality and our interest in the interaction within indexes.

    Hypotheses and Research Framework

    一、Hypotheses

     ()IT Capabilities and Value of e-commerce applications

    Based on RBV, IT was regarded as the weapons of firm’s growth and competition, generally. Such as IT-related resources are the potential sources of a firm’s

    competitive advantages. In this context, IT capabilities does not refer to a specific IT application but rather to enterprise-wide IT capability (Mata et al., 1995; Ross et al, 1996; Bharadwaj et al.,2000, Bharadwaj et al., 1999).

    Anyhow, there are different voices. Strassman?1997?argued there are no

    significant relationship between IT investment with a firm’s financial performance. Craighead and Shaw?2003?also pointed out IT capabilities may serve as a Value

    Creator (+) or a Value Destroyer (-) for a firm. In fact, there are controversial about IT productivity since 1988, thus the results of many related studies are not consistent.

    In determination of E-commerce applications may create value or destroy value, IT capabilities serve as an important role. According to the view of Craighead and Shaw?2003?, the impact of IT capabilities are complicated and multifaceted. Final

     35 Beamon, Benita. M. Measuring Supply Chain Performance, International Journal of Operations and

    ?19:3?, 1999, pp.175-292. Production Management

    customer will influence by IT capabilities of each supply chain participant. For each participant, IT capabilities may serve as a Value Creator (+) or a Value Destroyer (-) in the direct impact on value. Thus, It should be meaningful to inspect e-commerce application through the view of each supply chain participant.

    For both focal firm and supplier in the chain, respective IT capabilities for each participant is different and may serve as a Value Enabler (+) or a Value Obstructer (-) in the indirect impact on value. As shown in Figure 1, it illustrates the pattern of focal firm’s IT capabilities linked to its supplier and the resulting impact on final customer value of e-commerce applications. The cross axle represent the IT capability of supplier and Y-axis represent the IT capability of focal firm.

    Due to low level of the e-commerce application, quadrant 1, Poor Collaboration, is a situation where a few value is being created from both sides. This is likely a common situation in the infancy of an e-commerce implementation when both side are lack of experience and well knowing to leverage synergy. In quadrant 1, many costs have been incurred, yet the benefits have not been realized.

    Quadrants 2 and 3, Conflict, illustrate the situation where the IT capabilities of both sides are not fit well. During these two situations, both sides can not collaborate efficiently and accurately deliver information in respond of customer’s need. The

    value of e-commerce application is limited improved. Meanwhile, a manufacturing focal firm usually has more bargain power than its supply chain partner(s). That is, IT capabilities of a manufacturing focal firm are less important than those of supplier(s). Focal have the choice to select the supplier(s) with better IT capabilities. Thus, Quadrants 2, Low Conflict, is created more final customer value than quadrants 3 where IT capabilities of supplier(s) are better than focal firm’s. Quadrant 4 is the

    win-win situation where both sides of the e-commerce application are creating high value.

    H1? Poor collaboration between focal firm sand its supplier create the least value of e-commerce applications, then the low conflict mix, meanwhile, high conflict mix create more value than low conflict mix, and fully collaboration create best value for the supply chain.

() E-commerce applications and supply chain performance

    36Frohlich and Westbrook?2001? found consistent evidence that the widest

     36 Frohlich, M. T. and Westbrook, R. Arcs of integration: an international study of supply chain

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