Inter-organizational Communication as a Relational Competency in Buyer-Supplier Relationships

Journal of Operations Management 26 (2008) 4564 www.elsevier.
com/locate/jom
Inter-organizational communication as a relational competency: Antecedents and performance outcomes in collaborative buyersupplier relationships
Antony Paulraj a,*, Augustine A. Lado b,1, Injazz J. Chen c,2
a
Department of Management, Coggin College of Business, University of North Florida, Jacksonville, FL 32224, United States b Clarkson University, School of Business, 8 Clarkson Street, PO Box 5790, Potsdam, NY 13699, United States c Department of Operations Management and Business Statistics, College of Business Administration, Cleveland State University, Cleveland, OH 44115, United States Received 14 October 2005; received in revised form 26 November 2006; accepted 2 April 2007 Available online 12 April 2007
Abstract Inter-organizational communication has been documented as a critical factor in promoting strategic collaboration among rms. In this paper, we seek to extend the stream of research in supply chain management by systematically investigating the antecedents and performance outcomes of inter-organizational communication. Specically, inter-organizational communication is proposed as a relational competency that may yield strategic advantages for supply chain partners. Using structural equation modeling, we empirically test a number of hypothesized relationships based on a sample of over 200 United States rms. Our results provide strong support for the notion of inter-organizational communication as a relational competency that enhances buyers and suppliers performance. Implications for future research and practice are offered. # 2007 Elsevier B.V. All rights reserved.
Keywords: Inter-organizational communication; Relational competency; Buyersupplier relationships and performance; Knowledge sharing; Information exchange
1. Introduction That communication is the essence of organizational life has been well documented by communication and management scholars and practitioners (e.g., Fulk and Boyd, 1991; Reinsch, 2001; Yates and Orlikowski, 1992). Similarly, literature in relationship marketing has recognized how collaborative communication is
* Corresponding author. Tel.: +1 904 620 1166; fax: +1 904 620 2782. E-mail addresses: apaulraj@unf.edu (A. Paulraj), alado@clarkson.edu (A.A. Lado), i.chen@csuohio.edu (I.J. Chen). 1 Tel.: +1 315 268 6608; fax: +1 315 268 3810. 2 Tel.: +1 216 687 4776; fax: +1 216 687 9343. 0272-6963/$ see front matter # 2007 Elsevier B.V. All rights reserved. doi:10.1016/j.jom.2007.04.001
critical to fostering and maintaining value-enhancing inter-organizational relationships (e.g., Anderson et al., 1994; Mohr and Nevin, 1990; Mohr et al., 1996; Schultz and Evans, 2002). Reecting its centrality to business performance, one business executive asserted, communication is as fundamental to business as carbon is to physical life (Reinsch, 2001, p. 20). Operations management researchers have also documented how inter-organizational communication enhances buyersupplier performance (e.g., Carr and Pearson, 1999; Carter and Miller, 1989; Claycomb and Frankwick, 2004; Newman and Rhee, 1990; Prahinksi and Benton, 2004; Cousins and Menguc, 2006). However, such work has remained disjointed, largely anecdotal, and without a strong theoretical underpinning.
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A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564
In empirical studies, researchers have typically considered communication as a facet of a broader construct, such as supply management (e.g., Chen et al., 2004), or examined the extent to which the use of select communication strategies by buyer rms enhances supplier rm operational performance (e.g., Prahinksi and Benton, 2004). What has not been systematically investigated is the extent to which communication between buyer and supplier rms mediates the links among key antecedents and outcome variables within a coherent theoretical framework. Such an investigation is needed in order to advance theory building and empirical testing in supply chain management. With this goal in mind, we develop a conceptual model linking key antecedents and outcomes of interorganizational communication within the context of collaborative buyersupplier relationships. Drawing on the relational view of strategic management (Dyer and Singh, 1998), we conceptualize inter-organizational communication as a relational competency, which mediates the links between several antecedent and outcome variables for buyer and supplier rms. Using structural equation modeling, we provide a holistic test of the hypothesized relationships (Bagozzi et al., 1991), and document the extent to which the empirical evidence concerning the strategic role of interorganizational communication is cumulative. We believe the relational view of strategic management provides the relevant theoretical framework for the present investigation for at least three reasons. First, the relational view takes the inter-organizational level of analysis and addresses the extent to which relational capabilities form the basis of durable strategic advantages (Dyer and Singh, 1998; Kanter, 1994; Lado et al., 1997; Madhok and Tallman, 1998). This theoretical perspective extends the resource-based view (RBV), a rm-level theory of sustained competitive advantage (Barney, 1991; Wernerfelt, 1984). Taken together these perspectives provide a robust theoretical framework for explaining how strategic advantage is gained or lost based largely on endogenous strategic factors. Second, users of the relational view examine how relational competencies, enable rms to gain and sustain collaborative advantage (Kanter, 1994). In contrast, users of the RBV focus on explaining how rm-specic resources and capabilities characterized by value, rareness, imperfect imitability, and non-substitutability form the basis of sustained competitive advantage (e.g., Barney, 1991). Finally, the relational view places a premium on behavioral phenomena, such as inter-organizational communication as the drivers of rm performance.
Thus, by viewing inter-organizational communication as a relational competency and empirically investigating its mediating role in the links between key antecedents and outcomes, we seek to gain a better understanding of the strategic importance of this construct within the context of buyersupplier relationships. In the following section, we briey review literature in the relational view to provide a theoretical backdrop to our proposed model of the antecedents and outcomes of inter-organizational communication. Then, we develop the theoretical rationale of our proposed model, drawing on related research in strategic management, operations management, and marketing, among others. In Section 3, we explain our research methodology, including data collection procedure, construct operationalization and measurement, hypothesis testing and results. Section 4 presents discussion and implications of the study ndings. In Section 5, we highlight some limitations of the study and offer suggestions for future research. 2. Theory and hypotheses 2.1. Relational competencies and supply chain management Given the increasing importance of strategic collaboration among supply chain partners (Contractor and Lorange, 1988; Kanter, 1994), the issue of how relational competencies generate sustainable strategic advantage has attracted a great deal of scholarly attention (Dyer and Singh, 1998; Kale et al., 2000; Lorenzoni and Lipparini, 1999). The development of relational competencies requires that rms adopt a collaborative managerial mindset for building strategic advantage (Ohmae, 1989). Leaders in such rms articulate a strategic intent by creating an imbalance between the rms strategic goals and their current stocks of resources and capabilities (Hamel and Prahalad, 1994). Such a strategic intent then drives rms to acquire, access, or develop additional resources through cooperation. Additionally, rms may form strategic partnerships to access or acquire unique and valuable resources that they lack, or leverage social resources, such as reputation, status, and legitimacy (Eisenhardt and Schoonhoven, 1996). Thus, rms that emphasize cooperation among supply chain partners may achieve greater economic benets compared to those that espouse traditional, zero-sum-based notion of competition. For example, Toyotas cooperation with its suppliers enhances its competitive position as well as
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that of its suppliers in the global automobile industry (Dyer and Nobeoka, 2000). With a market capitalization greater than that of General Motors, Ford, and Chrysler combined, Toyota is also by far the worlds most protable automaker (Liker, 2004). 2.2. Communication as a relational competence As a relational competency, communication among supply chain members may foster inter-organizational learning that is crucially important to competitive success (Powell et al., 1996). Organizations often learn by collaborating with other organizations and especially by sharing tacit, critical information and knowledge (Grant, 1996; Kogut and Zander, 1992). Open, frequent communication is essential to the maintenance of these value-enhancing relationships (Christopher, 1992). Such communication can facilitate knowledge development (Kotabe et al., 2003; Takeishi, 2001) and foster greater understanding of complex competitive issues related to supply chain success (Grant, 1996; Kogut and Zander, 1992). Specically, the frequent exchange of information on strategic and operational matters may foster greater condence, build cooperation and trust, reduce dysfunctional conict and, thus, generate relational rents (Anderson and Narus, 1990; Anderson and Weitz, 1992). Such inter-organizational communication also may lead to increased behavioral transparency and reduced information asymmetry (Heide and Miner, 1992), thereby lowering transaction costs and enhancing transaction value (Dyer, 1997; Zajac and Olsen, 1993). Therefore, as a relational competency, inter-organizational communication may generate relational rents, referring to benets that
accrue through relationship-specic assets (Dyer and Singh, 1998; Madhok and Tallman, 1998). 2.3. Model and hypotheses Fig. 1 provides the conceptual model linking three key antecedents (long-term relationship orientation, network governance, and information technology) and outcomes of inter-organizational communication within the context of collaborative buyersupplier relationships. The model is grounded in the logic of the relational view of strategic management (Dyer and Singh, 1998), which also builds on Macneils (1980) relational exchange theory. Accordingly, having a longterm orientation is a key factor in forming, developing, and maintaining value-enhancing relational exchanges (e.g., Mohr et al., 1996; Ganesan, 1994). Exchange partners with this orientation are likely to rely on norms of fair dealing, such as solidarity, exibility, mutuality and information exchange that have been documented to yield positive-sum benets (Macneil, 1980; Kaufmann and Stern, 1988; Heide and John, 1992). Additionally, researchers have documented the extent to which network governance is critical to managing inter-organizational exchange relationships (e.g., Borys and Jemison, 1989; Powell, 1990). Dyer and Singh (1998) specically identied network governance as a key source of relational rents. Likewise, communication theorists have documented how network governance contributes to communication effectiveness within and between organizations (Fulk and Boyd, 1991). Thus, the use of network governance might foster collaborative communication among supply chain partners (Mohr et al., 1996), and facilitate
Fig. 1. Proposed model of inter-organizational communication (Model 1).
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the exchange of knowledge and ideas for mutual gains (Dyer and Singh, 1998; Kale et al., 2000). Finally, in contemporary supply chains, information technology plays a key role in reducing both internal and external coordination costs (Kim and Mahoney, 2006) and facilitating the development and exchange of strategically relevant information and knowledge among supply chain partners (Dyer and Singh, 1998; Fulk and Boyd, 1991). Additionally, information technology may be the source of sustainable competitive advantage insofar as it is embedded in organizational routines and processes for developing and deploying relational capabilities (Bharadwaj, 2000; Mata et al., 1995; Powell and Dent-Micallef, 1997). Thus, based on the logic of the relational view, information technology might promote greater communication and serve as a critical embedding mechanism, which may generate durable strategic advantages for the supply chain partners. Furthermore, we propose that inter-organizational communication plays a mediating role in the links between the three antecedent variables and buyer and supplier rms performance. That is, the effects of these antecedent factors on supply chain performance are transmitted through inter-organizational communication (e.g., Mohr et al., 1996). We elaborate on the links among the antecedents and outcomes of inter-organizational communication next. 2.3.1. Long-term relationship orientation A long-term relationship orientation may promote collaborative communication and enable supply chain partners to build stronger relational bonds (De Toni and Nassimbeni, 1999; Kotabe et al., 2003; Mohr et al., 1996; Powell et al., 1996). With such an orientation, supply chain partners are able to focus on knowledge development and exchange and increase investment in relational competencies (Madhok and Tallman, 1998). Insofar as these relational competencies are socially created, resulting from ongoing collaborative communication among exchange partners (Mohr et al., 1996), and not easily tradable in strategic factor markets (Dierickx and Cool, 1989), they may confer durable strategic advantages for the supply chain partners (Kale et al., 2000; Dyer and Singh, 1998). Thus, a long-term relationship orientation on the part of buyer and supplier rms provides the strategic context necessary for fostering collaborative communication. Such an orientation also enables the exchange parties to cultivate relational norms that promote cooperation for mutual gains (Morgan and Hunt, 1994; Heide and John, 1992; Macneil, 1980). Put differently, with a long-term
orientation, anticipated gains from mutual cooperation are possible because the future casts a [long] shadow back upon the present, affecting current behavior patterns (Parkhe, 1993, p. 799). When supply chain partners adopt a long-term orientation, they tend to rely on understandings and conventions involving fair play and good faith (Okun, 1980, p. 8), such that any agreements between them are enforceable largely through internal processes rather than through external arbitration or the courts (Dyer and Singh, 1998). Thus, such an orientation enables the communication and exchange of information and knowledge, lowers transaction costs and enhances transaction value through strategic collaboration. In contrast, a short-term oriented, adversarial buyer supplier relationship focused on transaction cost economizing can inhibit the development of relational competencies, frustrate collaborative communication, and heighten opportunism, which ultimately dissipates relational rents (Ghoshal and Moran, 1996). This reasoning leads to the following hypothesis: Hypothesis 1. Long-term relationship orientation is positively related to effective communication between the buyer rms and their suppliers. Based on the above rationale that long-term relationship orientation can lead to effective communication and our discussion in Section 2.3.4 that communication is positively related to buyer and supplier performance, communication appears to mediate long-term relationship orientation and buyer and supplier performance. Since some studies (e.g., Jones et al., 1997; Vickery et al., 2003) have suggested that long-term relationship can result in improved rm performance, this study will also test for possible direct effect in the competing models in Section 3.8. 2.3.2. Network governance Network governance refers to inter-rm coordination that is characterized by informal social systems in contrast to the use of hierarchical authority (Jones et al., 1997). These social systems, or relational norms include solidarity, mutuality, exibility, information exchange, and role integrity (e.g., Heide and John, 1992; Kaufmann and Stern, 1988; Macneil, 1980). Communication, though conceptually distinct from relational norms, plays an important role in activating and translating these relational norms into valueenhancing relational assets (Mohr et al., 1996). Thus, network governance enables the exchange of information among supply chain partners, and facilitates the development and maintenance of value-enhancing
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relational exchanges among supply chain partners (Dyer and Chu, 2003; Poppo and Zenger, 2002; Powell, 1990). Further, network governance facilitates interrm communication, which, in turn, may contribute to collaborative advantage by fostering knowledge development and exchange, and promoting the use of richer communication media, such as face-to-face interactions among supply chain partners (Jones et al., 1997; Powell, 1990; Zaheer and Bell, 2005). In the context of buyersupplier relationships, little empirical work exists, documenting network governance as an antecedent of inter-organizational communication. Thus, we forward the following hypothesis for empirical testing: Hypothesis 2. Network governance is positively related to effective communication between the buyer rms and their suppliers. 2.3.3. Information technology Increasingly, information technology (IT) has become a vital element in contemporary supply chain systems, transforming the way exchange-related activities are performed (Palmer and Grifth, 1998). However, resource-based theorists have argued that supply chain partners that rely on off-the-shelf information technology are unlikely to achieve competitive advantage because such IT does not fulll the criteria of value, rareness, imperfect imitability, and non-substitutability associated with rent-yielding resources and capabilities (Barney, 1991; Mata et al., 1995). Additionally, those who subscribe to the strategic necessity hypothesis believe that IT, at best, may be a source of competitive parity; that is, it is a necessary investment to avoid competitive disadvantage but, by itself, it does not provide a sufcient basis for generating sustained competitive advantage (Clemens and Row, 1991; Mata et al., 1995). Brynjolfsons (1993) notion of IT productivity paradox the fact that increases in IT investments at the rm level do not seem to produce commensurate productivity (i.e., efciency) gains, even though such gains are evident at the macroeconomic level is often invoked to support this view. Epitomizing this position, Carr (2003) asserted: IT does not matter. In contrast, users of the relational view have documented how IT can generate sustainable competitive advantage by facilitating collaborative communication and fostering relational capabilities (e.g., Grover and Malhotra, 1997; Walton and Marucheck, 1997). Accordingly, sustainability of advantage is possible when IT resources facilitate collaborative
communication, leading to the development of complementary capabilities (e.g., Powell and Dent-Micallef, 1997). Firms such as Dell and Wal-Mart have made signicant IT investments in their supply chain management systems and derived substantial benets from these investments (Subramani, 2004). Furthermore, investments in IT may be associated with a attening of organizational structure, which increases the ow of information across organizational functions or units (Kim and Mahoney, 2006). We should emphasize, however, that it is not the mere investment in IT, per se, which is the source of competitive advantage. Rather, the sustainability of strategic advantage depends on how information technology is used to foster collaborative communication between supply chain partners, and facilitate the development and use of complementary capabilities (Dyer and Singh, 1998; Kale et al., 2000). Therefore, we hypothesize that: Hypothesis 3. Information technology is positively related to effective communication between the buyer rms and their suppliers. 2.3.4. Inter-organizational communication and buyersupplier performance Effective and efcient communication between supply chain partners reduces product and performance-related errors, thereby enhancing quality, time, and customer responsiveness (Chen and Paulraj, 2004; Dyer, 1996). When buyers and suppliers share important information relating to materials procurement and product design issues, they are more likely to (1) improve the quality of their products, (2) reduce customer response time, (3) reduce the costs of protecting against opportunistic behavior, and (4) increase cost savings through greater product design and operational efciencies (Carr and Pearson, 1999; Turnbull et al., 1992). Dyer and Singh (1998) conclude that relational rents are possible when alliance partners combine or exchange idiosyncratic assets, knowledge, and resources/capabilities, and employ effective governance mechanisms that lower transaction costs or permit the realization of rents through the synergistic combination of knowledge and capabilities. Furthermore, empirical research shows that strategic alliances in which partners exchange timely, accurate, and relevant information, and share critical and sensitive information are more successful than alliances that do not exhibit those communication behaviors (Carter and Miller, 1989; Chen and Paulraj, 2004; Mohr and Spekman, 1994; Newman and Rhee, 1990). Thus, communication contributes to competitive advantage
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by enhancing operational efciency, quality, exibility, and customer responsiveness. Although studies have documented the benets of information sharing for buyer rms (e.g., Clark and Fujimoto, 1991; Lamming, 1993), few studies have specically focused on supplier rm performance (Carter and Miller, 1989; Kotabe et al., 2003). Thus, we investigate the effects of interorganizational communication on both buyer rms and supplier rms performance. We should note, however, that although communication may increase the created value within the partnership, individual rms performance ultimately depends on how much of the additional value is captured by each partner (e.g., Bowman and Ambrosini, 2000; Ghosh and John, 1999). With this caveat in mind, we submit the following hypotheses: Hypothesis 4. Inter-organizational communication is positively related to buyer rms performance. Hypothesis 5. Inter-organizational communication is positively related to supplier rms performance. As stated previously, communication is proposed as a mediator of the links between the antecedents and outcomes of the buyersupplier relationships. The relational view of strategic management supplies the rationale for this claim. Within this view, Dyer and Singh (1998) identied several relational variables, including inter-rm knowledge-sharing routines and complementary resources and capabilities as critical to fostering collaborative advantages. Insofar as communication enables the sharing of information and knowledge between exchange partners (e.g., Fulk and Boyd, 1991; Mohr et al., 1996), it may function as a critical mediating construct by transmitting the effects of the three antecedent variables (long-term relationship orientation, network governance, and information technology) on buyer and supplier performance. Additionally, open and frequent communication facilitates the development of relational capabilities (Kale et al., 2000), which may yield mutual benets for the exchange partners. To the extent that communication is the essence of organizational life (e.g., Fulk and Boyd, 1991; Weick, 1987), and provides a medium that fosters a wide-range of value-enhancing organizational processes (e.g., Reinsch, 2001), investigating the mediating role of inter-organizational communication in the current study is warranted. Thus, we hypothesize that Hypothesis 6a. Inter-organizational communication mediates the relationships between the antecedent variables (long-term relationship orientation, network
governance, and information technology) and buyer performance. Hypothesis 6b. Inter-organizational communication mediates the relationships between the antecedent variables (long-term relationship orientation, network governance, and information technology) and supplier performance. 3. Methodology 3.1. Unit of analysis To be sure, most of the constructs used in this study, such as communication are individual-level constructs. Organizations do not communicate; people do. However, in order to translate these behavioral constructs at the dyadic, inter-organizational level, which is the unit of analysis for this study, we presume that individual views on [supply chain management] issues will be a function of their organizational roles (Ring and Van de Ven, 1994, p. 95). And, individuals who occupy strategic positions in their organizations would be more knowledgeable about the strategic aspects of interorganizational exchange relationships. Thus, we tapped responses to the questionnaire from key informants, including vice presidents of purchasing, supply chain management, and materials management of US manufacturing rms. The use of key informants as sources of data is standard practice in strategic management research (e.g., Venkatraman and Ramanujam, 1986). In this study, we relied on key informants from the buyer side of the inter-organizational dyad to provide responses to the survey items. The approach of surveying the buying rms executives to study the buyersupplier relationship has been widely adopted in the eld of operations management (e.g., Carr and Pearson, 1999; Shin et al., 2000). 3.2. Data collection A cross-sectional mail survey was utilized for data collection. The target sample frame consisted of members of the Institute for Supply Management (ISM) drawn from U.S. rms covered under the twodigit SIC codes between 34 and 39. A 7-point Likert scale with end points of strongly disagree and strongly agree was used to measure the items. The buyer and supplier performance were measured using 7point Likert scale with end points of decreased signicantly and increased signicantly. In an effort to increase the response rate, a modied version
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of Dillmans total design method was followed (Dillman, 1978). All mailings, including a cover letter, the survey, and a postage-paid return envelope were sent via rst-class mail. Two weeks after the initial mailing, reminder postcards were sent to all potential respondents. For those who did not respond, a second wave of mailing of surveys, cover letters, and postage-paid return envelopes were mailed approximately 28 days after the initial mailing. Of the 1000 surveys mailed, 46 were returned due to address discrepancies. From the resulting sample size of 954, 232 responses were received, resulting in a response rate of 24.3%. A total of 11 were discarded due to incomplete information, resulting in an effective response rate of 23.2% (221/ 954). The nal sample included 35 presidents/vice presidents (16%), 138 directors (62%), 33 purchasing managers (15%), and 15 others (7%). The respondents worked primarily for medium to large rms with nearly 36% working for rms employing more than 1000 employees. Nearly 60% of the rms had a gross income of greater than $100 million. With respect to the annual sales volume, the respondents were evenly distributed among the different groups. The respondents were also distributed evenly among the six SIC codes selected. Non-response bias was tested in two ways. First, the sample and the population means of demographic variables: namely, number of employees, and sales volume were compared to check for any signicant difference. The t-tests yielded no statistically signicant differences (at 99% condence interval) between the sample and population. Additionally, the responses of early and late waves of returned surveys were compared to provide additional support of non-response bias (Armstrong and Overton, 1977; Lambert and Harrington, 1990). Along with the 10 demographic variables, 30 randomly selected variables were included in this analysis. The nal sample was spilt into two, depending on the dates the responses were received. The earlywave group consisted of 123 responses while the late wave group consisted of 98 responses. t-Tests performed on these two groups yielded no statistically signicant differences (at 99% condence interval). These results suggest that non-response may not be a problem. 3.3. Measures The variable, Long-term Relationship Orientation is operationalized by items tapping the extent to which the buying rm (a) expects its relationships with key suppliers to last a long time, (b) works closely with key suppliers to improve product quality, and (c) views the
suppliers as an extension of the company (Krause and Ellram, 1997; Shin et al., 2000). Network Governance covers items that mirror (a) fewer management levels, (b) informal social systems, (c) permeable as well as exible rm boundaries, and (d) non-powerbased relationships (Jones et al., 1997; Stock et al., 2000). The indicators of Information Technology measure the adoption of (a) computer-to-computer electronic links, (b) technology enabled transaction processing, and (c) advanced systems for tracking and managing the business process (Carr and Pearson, 1999). Inter-organizational Communication is operationalized in terms of the extent to which the rm and its key suppliers (a) share critical, sensitive information related to operational and strategic issues, (b) exchange such information frequently, informally and/or in a timely manner, (c) maintain frequent face-to-face meetings, and (d) closely monitor and stay abreast of events or changes that may affect both parties (Krause and Ellram, 1997; Carr and Pearson, 1999; Carr and Smeltzer, 1999). Finally Supplier Performance and Buyer Performance are measured by indicators tapping the dimensions of (a) cost, (b) quality, (c) volume and scheduling exibility, (d) speed and reliability of delivery, and (e) rapid responsiveness (Jayaram et al., 1999; Medori and Steeple, 2000). Since rm size could signicantly affect the scope of resource allocation (Ettlie, 1983), we have included number of employees (Graves and Langowitz, 1993) and annual sales volume (Cool and Schendel, 1987) to control for any effects of rm size on supplier and buyer performance. Because both of these variables were measured using categorical scales, they were included into the structural model as dummy variables. Number of employees was included in the model as a dummy variable with rms having less than or equal to 500 employees coded as 0 and rms having more than 500 employees coded as 1. Annual sales volume was included in the model as a dummy variable with rms having annual sales volume less than $100 million coded as 0 and rms having annual sales volume greater than or equal to $100 million coded as 1. Operation management researchers have used these (admittedly crude) measures to control for size differences between small and large rms, and industry effects in structural equation models (e.g., Cousins and Menguc, 2006; Fynes and Voss, 2001). 3.4. Common method variance Since we collected the information on the variables of interest from a single respondent within a single rm,
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common method bias may present a problem. The potential for common method bias was assessed in two ways (Podsakoff et al., 2003). First, the Harmans (1967) single factor approach was used to test this potential problem. According to this test, if common method bias exists, (1) a single factor will emerge from a factor analysis of all survey items (Podsakoff and Organ, 1986), or (2) one general factor accounting for most of the common variance existing in the data will emerge (Doty and Glick, 1998). An un-rotated factor analysis using the eigen value-greater-than-one criterion revealed eight distinct factors that accounted for 67% of the variance. The rst factor captured only 26% of the variance in the data. Since a single factor did not emerge and the rst factor did not account for most of the variance, we concluded that common method variance might not be an issue. To reinforce this conclusion, we conducted a second test, following the procedure recommended by Widaman (1985). In this approach, two different latent variable models a measurement model including just the traits (multiple factors), and a measurement model including a method factor in addition to the traits were tested (Williams et al., 1989; Podsakoff et al., 2003; Ketokivi and Schroeder, 2004). Although the results from these analyses indicated that the method factor marginally improved model t (normed t index [NFI] by 0.02, non-normed t index [NNFI] by 0.01, comparative t index [CFI] by 0.01), it accounted for only 10% of the total variance, which is signicantly less than the amount of method variance (25%) observed by Williams et al. (1989). Also, the path coefcients and their signicance were not much different between the two models, suggesting that they were robust in spite of the inclusion of a methods factor. Based on the results of these analyses we could reasonably conclude that the results were not inated due to the existence of common method variance in the data. 3.5. Instrument development Prior to data collection, the content validity of the instrument was established by grounding it in existing literature. Pre-testing the measurement instrument before the collection of data further validated it. Researchers as well as purchasing executives afliated with the Institute for Supply Management (ISM) were involved in this process. These experts were asked to review the questionnaire for structure, readability, ambiguity, and completeness (Dillman, 1978). The nal survey instrument incorporated minor changes to remove a few ambiguities that were discovered during
this validation process. As indicated earlier, multi-item scales were developed to measure the theoretical constructs. Before conducting factor analysis, the scales were tested for normality and outliers using the Kaiser MeyerOlkin (KMO) measure of sampling adequacy and the Bartlett test of sphericity. For the theoretical constructs in this study, the KMO score was 0.85 and the Bartlett test of sphericity was 4613.76 with a signicance level of p < 0.0001. These numbers suggest the data could be reliably tested using factor analysis. Given that supplier and buyer performance (as shown in Appendix B) were operationalized using formative indicators (Diamantopoulos and Winklhofer, 2001; Jarvis et al., 2003) for which conventional techniques (such as LISREL) are not appropriate for assessing their reliability and validity, we did not include them in the instrument development process in line with Heides (2003) suggestion. Construct validity and unidimensionality were established using exploratory factor analysis (EFA) and conrmatory factor analysis (CFA). The results of these analyses are provided in Appendix A. As anticipated, most of the indicators loaded onto their underlying constructs during EFA using principal components method. The Eigen values for these factors were above the 1.0 cut-off point (Hair et al., 1998) while the percentage of variation was around 64%. The factor loadings were also above the cut-off point of 0.30 (Hair et al., 1998). CFA measurement model was used to further establish unidimensionality and construct validity. The values for the model t indices (goodness of t [GFI] = 0.90, adjusted goodness of t [AGFI] = 0.86, NNFI = 0.95, CFI = 0.96, root mean square residual [RMSR] = 0.06, root mean square error of approximation [RMSEA] = 0.05, and normed x2 [NC] = 1.62) show that the model ts the data well and hence establish unidimensionality. The standardized coefcients and t-values for the individual paths show that all the indicators are signicantly related to their underlying theoretical constructs and, hence, exhibit convergent validity. Discriminant validity was established using CFA. Measurement models were constructed for all possible pairs of the theoretical constructs. These models were tested on each selected pair by allowing for correlation between the two constructs, and xing the correlation between the constructs at 1.0. A signicant difference in x2 values for the xed and free solutions indicates the distinctiveness of the two constructs (Bagozzi et al., 1991). In addition, the condence interval for each pair of constructs was set to be equal to plus or minus two standard errors of the respective correlation coefcient
A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564 Table 1 Assessment of discriminant validity Factors Long-term relationship orientation (LR) Network governance (NG) Information technology (IT) Inter-organizational communication (CO) LR 208.39 0.530.73 466.21 0.120.40 220.45 0.580.78 366.83 0.050.37 246.36 0.410.65 530.34 0.320.56 NG IT
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CO
First row: x2 differences between the xed and free solution (signicant at the 0.001 level [for 1 d.f.]). Second row: condence interval f se (none of them include 1.00).
(Marcoulides, 1998). If this condence interval does not include the value of 1, the constructs exhibit discriminant validity. As can be seen in Table 1, all the differences between the xed and free solutions (in x2) are signicant. Furthermore, the table shows that none of the condence intervals include the value of 1. As an alternative test, we compared the squared correlation between two latent constructs to their average variance extracted (AVE) estimates (Fornell and Larcker, 1981). According to this test, discriminant validity exists if the items share more common variance with their respective construct than any variance the construct shares with the other constructs. Therefore, the squared correlation between each pair of constructs should be less than the AVE for each individual construct. Comparing the correlation coefcients given in Table 2 with the AVE values given in Appendix A, we can conclude that none of the squared correlations is higher than the AVE for each individual construct. In fact, the highest squared correlation of 0.38 between inter-organizational communication and long-term relationship orientation (with a correlation of 0.62) was much lower than the AVE for the two constructs (0.66). These results collectively provide strong evidence of discriminant validity among the theoretical constructs. Reliability was assessed using internal consistency method via Cronbachs alpha (Cronbach, 1951;
Table 2 Correlation between theoretical constructs Factors Long-term relationship orientation (LR) Network governance (NG) Information technology (IT) Inter-organizational communication (CO) Supplier performance (SP) Buyer performance (BP) Mean 5.690 5.061 4.368 5.100 4.904 4.715 S.D. 0.934 1.078 1.443 1.039 0.754 0.707
Nunnaly, 1978). Typically, reliability coefcients of 0.70 or higher are considered adequate (Cronbach, 1951; Nunnaly, 1978). All constructs had a Cronbachs alpha greater than 0.70 (see Appendix A). This result establishes the reliability of all the theoretical constructs. Alternatively, following Bagozzi and Yi (1988), we computed composite reliability (CR) scores to assess construct reliability. According to these authors, a CR greater than 0.70 would imply that the variance captured by the factor is signicantly more than the variance indicated by the error components. As reported in Appendix A, all factors have CRs greater than 0.70. In addition, the AVE values for all constructs exceed 0.50. Taken together, the results from the instrument development process show that the theoretical constructs exhibit good psychometric properties. 3.6. Hypothesis testing The hypothesized structural equations model (Fig. 1) was tested using LISREL (Joreskog and Sorbom, 1999), with variancecovariance matrices for the latent variables and residuals used as input. Given the satisfactory measurement results, we used summated scores to measure the models latent constructs. The use of summated scores reduces the models complexity, identication problems, and the variable-to-sample ratio (Calantone et al., 1996). In the hypothesized
LR 1.00 0.53 0.23 0.62 0.26 0.22
NG 1.00 0.18 0.45 0.14 0.21
IT
CO
SP
BP
1.00 0.40 0.20 0.21
1.00 0.28 0.28
1.00 0.58
1.00
54 Table 3 Indirect and total effects Exogenous variables
Endogenous variables Inter-organizational communication Indirect Total 0.53** (0.48) 0.14** (0.15) 0.19** (0.26) Supplier performance Indirect 0.10** (0.13) 0.03* (0.04) 0.04** (0.07) 0.05. Total 0.10** (0.13) 0.03* (0.04) 0.04** (0.07) Buyer performance Indirect 0.10** (0.14) 0.03* (0.04) 0.04** (0.08) Total 0.10** (0.14) 0.03* (0.04) 0.04** (0.08)
Long-term relationships orientation (LR) Network governance (NG) Information technology (IT) Note: **t-Values signicant at p
0.00 0.00 0.00
0.01; *t-Values signicant at p
structural model, the measurement coefcients were constrained to one and the corresponding error coefcients were constrained to zero. The model parameters were estimated using the method of maximum likelihood (Joreskog and Sorbom, 1999). The values for the model t indices (GFI = 0.98, AGFI = 0.90, NFI = 0.97, NNFI = 0.93, CFI = 0.98, RMSR = 0.05, RMSEA = 0.08, and NC = 2.45) show that the model ts the data very well. t-Tests show that all ve hypothesized relationships between the antecedents and communication and between communication and buyer performance and supplier performance (Hypotheses 15) were found to be signicant at the 0.01 level. All the indirect and total effects were statistically signicant at or above the 95% condence level (see Table 3). The hypotheses linking the antecedents to communication were all statistically signicant and in the expected directions. Specically, the paths leading to communication from: (1) long-term relationship orientation (b = .48; t = 8.10; p < .01); (2) network governance (b = .15; t = 2.58; p < .01); and (3) information technology (b = .26; t = 5.22; p < .01) were statistically signicant. Further, signicant parameter estimates were found for indirect effects of long-term relationship orientation on (a) supplier performance (b = .13; t = 3.68; p < .01), and buyer performance (b = .14; t = 3.93; p < .01); network governance on (a) supplier performance (b = .04; t = 2.19; p < .05), and buyer performance (b = .04; t = 2.24; p < .05); and information technology on (a) supplier performance (b = .07; t = 3.24; p < .01), and buyer performance (b = .08; t = 3.41; p < .01). Thus, in addition to having direct effects, the antecedents also have indirect effects on the performance measures through communication. The second set of hypotheses (Hypotheses 4 and 5) positively links communication with buyer and supplier performance. The parameter estimate for the paths between communication and buyer performance (b = .29; t = 4.49; p < .01); and communication and
supplier performance (b = .27; t = 4.12; p < .01) were signicant and in the expected direction. Among the four paths linking the control variables and the performance constructs, only the path between number of employees and supplier performance (b = .21; t = 2.13; p < .05) was found to be signicant. 3.7. Mediation analysis To test for the mediating effect of inter-organizational communication in our model (Hypotheses 6a and 6b), we used structural equation modeling (SEM) approach, following the suggestion of James et al. (2006). This approach is preferable to the commonly used Baron and Kenny (1986) method in that it: (a) allows for the testing of full as well as partial mediation (James et al., 2006); (b) reduces the chances of type I error (Schneider et al., 2005), and (c) exhibits greater statistical power (MacKinnon et al., 2002). Furthermore, as a conrmatory approach, SEM permits the simultaneous and holistic testing of the hypothesized relationships while accounting for all other effects of the variables. As hypothesized, the paths from the antecedents to inter-organizational communication were positive and statistically signicant, as were the paths from interorganizational communication to supplier performance and buyer performance. This result empirically documents that inter-organizational communication may function as a mediator in the links between the antecedent variables and buyer and supplier performance. Further, we compared the proposed model (Model 1) with a partial mediation model (Model 3 which is explained in Section 3.8) to closely examine the extent to which inter-organizational communication partially or fully mediates these hypothesized relationships (Donavan et al., 2004; Schneider et al., 2005). The result for the partial mediation model is presented in Table 4. Though the overall t of the partial mediation model (Model 3) was not satisfactory, as indicated by
A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564 Table 4 Results of structural equation modeling of competing models Proposed model (full mediation) Model 1 Structural paths Long-term relationship orientation ! inter-organizational communication Network governance ! inter-organizational communication Information technology ! inter-organizational communication Long-term relationship orientation ! supplier performance Long-term relationship orientation ! buyer performance Network governance ! supplier performance Network governance ! buyer performance Information technology ! supplier performance Information technology ! buyer performance Inter-organizational communication ! supplier performance Inter-organizational communication ! buyer performance Inter-organizational communication ! long-term relationship orientation Inter-organizational communication ! network governance Inter-organizational communication ! information technology Model t statistics x2 d.f. CFI NNFI RMSEA PNFI AIC CAIC Variance explained (R2) Supplier performance Buyer performance Note: **t-Values signicant at p 0.01; *t-Values signicant at p 0.05. 0.48** 0.15** 0.26** 0.14 0.03 0.03 0.08 0.10 0.14 0.15 0.18* Direct model Model 2 Partial mediation model Model 3 0.48** 0.15** 0.26** 0.14 0.03 0.03 0.08 0.10 0.14 0.15 0.18*
55
Rival model Model 4
0.22** 0.12 0.00 0.11 0.13 0.18*
0.27** 0.29**
0.62** 0.45** 0.40** 19.59 8 0.98 0.93 0.08 0.28 75.35 198.50 0.10 0.09 82.81 1 0.86 0.86 0.56 0.03 139.01 292.94 0.12 0.10 10.70 2 0.98 0.79 0.14 0.07 78.45 227.98 0.12 0.11 67.86 11 0.90 0.75 0.16 0.35 120.18 230.13 0.10 0.08
the NNFI and RMSEA values, which are not within the recommended ranges, we compared the two models based on the signicance of the paths between the antecedents and the performance variables. As shown in Table 4, although the paths between inter-organizational communication and performance outcomes reduced in signicance from Model 1 to Model 3, they were still found to be signicant at the p < 0.10 level. The direct link between long-term relationship orientation and supplier performance was found to be marginally signicant (b = .14; t = 1.67; p < .10), indicating that the effect of long-term relationship orientation on supplier performance is partially mediated by inter-organizational communication. In contrast, the effect of long-term relationship orientation on buyer performance was found to be non-signicant (b = .03; t = 0.40; n.s.), indicating that this relationship is fully mediated by inter-organizational communication. The direct link between network governance and (1) supplier performance (b = .03; t = 0.43; n.s.), and (2) buyer performance (b = .08; t = 1.00; n.s.) were
both found to be non-signicant. This result shows that inter-organizational communication fully mediates the relationships between network governance and buyer and supplier performance. Finally, the path linking information technology and supplier performance was found to be non-signicant (b = .10; t = 1.37; n.s.), while the path leading to buyer performance was found to be marginally signicant (b = .14; t = 1.88; p < .10). This result shows that while inter-organizational communication fully mediates the relationship between information technology and supplier performance, it only partially mediates the relationship between information technology and buyer performance. 3.8. Competing models Following recommended practice in structural equations methodology (Bollen and Long, 1992; Kelloway, 1998), we compared our proposed model with alternative or rival models in order to ascertain which model ts the data the best. As discussed
56
previously, in our proposed model, inter-organizational communication is posited to fully mediate the links among the three antecedent variables and buyer supplier performance. Alternatively, a direct effects only model might be posited in which communication along with the three antecedent variables are directly linked to the performance outcomes (Model 2). The logic for this model is based on the view that communication and the other three antecedents constitute a set of supply management capabilities, which are directly associated with buyersupplier performance (e.g., Chen et al., 2004). Furthermore, communication might serve as a partial rather than full mediator of the relationships between the antecedent and outcome variables. As discussed previously, both the RBV and relational view of strategic management suggest that the three antecedents may themselves be the sources of relational rents; that is, they might have direct effects (in addition to any indirect effects) on the outcome variables of interest (e.g., Dyer and Singh, 1998; Kale et al., 2000). Accordingly, in addition to the paths in the proposed model, this partial mediation model also adds direct paths from each antecedent to the performance constructs (Model 3). Finally, it could be argued that inter-organizational communication might function as the antecedent of the three variables above, which are then linked to the outcome variables. Thus, long-term relationship orientation, network governance, and information technology are treated as intervening variables coming between inter-organizational communication and buyer and supplier performance (Model 4). The logic for this model is analogous to that in Chen et al. (2004) who posited strategic purchasing to drive several supply management capabilities (including long-term orientation and communication), leading to performance outcomes. Similar to the approach taken by Morgan and Hunt (1994), the proposed model is compared to three competing models along the following criteria: (1) overall model t as measured by NNFI, CFI, and RMSEA; (2) percentage of models hypothesized parameters that are statistically signicant; (3) the explained variance in the outcome variables, as measured by their squared multiple correlations (SMCs); (4) parsimony, as measured by the parsimonious normed t index (PNFI) and RMSEA. Additionally, the proposed and alternative models were further compared using the Akaikes Information Criterion (AIC) and the Consistent Akaikes Information Criterion (CAIC). Though there are no specic cutoffs for AIC and CAIC, a smaller value for each of these indices
represents a better t (Akaike, 1987; Bozdogan, 1987). Moreover, the use of information criteria such as AIC and CAIC is valuable when comparing structural equation models that differ with respect to restrictiveness (Rust et al., 1995; Tabachnick and Fidell, 2001). As shown in Table 4, the model t statistics generally suggest that the proposed model ts the data relatively well. Specically, the t indices including CFI, NNFI, and RMSEA are well within acceptable ranges. In addition to these model t indices, AIC and CAIC clearly indicate that the proposed model is better than the other three competing models. Moreover, the explanatory power of the outcome variables (supplier performance and buyer performance) in the proposed model was comparable to the other models. All ve hypothesized relationships were signicant at the p < 0.01 level, providing support for the efcacy of the proposed model. The direct model (Model 2) performed signicantly worse than the proposed model. As evident from Table 4, all t indices (CFI, NNFI, and RMSEA) for this model are signicantly lower than the proposed model. Only one out of eight paths are supported at the p < 0.05 level. Moreover, the explanatory power of the outcome variables is not signicantly different from the proposed model. The PNFI of the proposed model (0.28) exceeds that of the Model 2 (0.03). Although there are no guidelines for determining a signicant difference in PNFI values, the PNFI for the proposed model increased signicantly. So, in addition to the model t indices, the proposed model also accomplished a great deal of improvement in parsimony. Additionally, the AIC (139.01) and CAIC (292.94) for the non-nested direct model are much higher than the proposed model, indicating that the proposed model is signicantly better than the direct model. These results collectively provide strong evidence for the superiority of the proposed model over the direct model. Model 3 treats inter-organizational communication as a partial mediator of the relationships between the antecedents and the performance outcomes. Our proposed model is actually a restricted version of Model 3. Though this model fared much better than the direct model (Model 2), it was found to be inferior to the proposed model. As shown in Table 4, all t indices (CFI, NNFI, and RMSEA) are lower than the proposed model. Except for CFI, the other t indices in fact are not within the recommended ranges. Among the 11 paths in this partial mediation model, only four paths are supported at the p < 0.05 level. Moreover, the PNFI of the proposed model (0.28) is much higher than that of Model 3 (0.07). In addition, the AIC (78.45) and CAIC
57
(227.98) for Model 3 are higher than those for the proposed model, indicating that the proposed model is better than the partial mediation model. Though the explained variance in the outcome variables is marginally higher, the results collectively provide strong evidence for the superiority of the proposed model. Furthermore, since the proposed model (Model 1) is nested within the partial mediation (Model 3) model, we also compared the x2 values of the two models (Rust et al., 1995). The x2 difference test requires a comparison of the x2 values and associated degrees of freedom of two models. Finding a signicant difference in the x2 values would be interpreted as support for the less restricted of the two models (Model 3), while a non-signicant difference would suggest that the proposed model ts the data statistically as well as the partial mediation model. The x2 difference obtained in comparing the partial and full mediation model was not statistically signicant (Dx2 = 8.89, d.f. = 6, p > 0.10), conrming that the proposed model ts the data at least as well as the less restricted partial mediation model. These results collectively support the notion that inter-organizational communication is a full mediator of most of the relationships between the antecedents and the performance outcomes. Finally, Model 4, which posits inter-organizational communication to be an antecedent rather than a mediator variable, was compared with the proposed model. The t indices for this rival model are much lower than the proposed model. Except for CFI, the other t indices are not within their satisfactory ranges. Of the nine paths in this rival model, only ve paths are supported at the p < 0.05 level. Although the rival model has achieved an improvement in parsimony when compared to the proposed model, the AIC (120.18) and CAIC (230.13) values are much higher than the proposed model, indicating that the proposed model is better than the rival model. Therefore, comparison of the model t indices and information criteria like AIC and CAIC collectively provide strong support for the proposed model, thereby supporting our claim that inter-organizational communication functions as a mediator rather than an antecedent within the nomological structure of the proposed model. These analyses also clearly document that the proposed model is the best-tting model compared to the three competing models. 4. Discussion and implications We have documented how inter-organizational communication constitutes a relational competency
that generates sustainable strategic advantage for supply chain partners. As a relational competency, communication takes on the quality of a quasi-public good in that it tends to increase in value when used and shared and, thus, fosters positive-sum benets for the supply chain partners. By empirically documenting the antecedents and outcomes of inter-organizational communication within the context of dyadic, buyer supplier relationships, this study has sought to increase the explanatory power and predictive scope of emerging models of supply chain management. Our ndings in support of the hypotheses linking the antecedent variables with communication (Hypotheses 13) provide compelling evidence concerning the strategic importance of long-term relationship orientation, network governance, and information technology, respectively, in fostering collaborative communication within buyersupplier relationships. Operations management researchers have documented how a long-term relationship orientation results in improved coordination of tasks or activities between buyer and supplier rms (De Toni and Nassimbeni, 1999). Such an orientation enables exchange partners to develop greater condence in one another, display cooperative and trusting behaviors, and increase investments in relationship-specic assets in order to accomplish mutual goals. In line with this work, the nding in support of hypothesis Hypothesis 1 suggests that having a long-term relationship orientation can increase collaborative communication between supply chain partners which is necessary for disseminating and sharing strategically important information and knowledge for mutual gains. By facilitating such relational exchanges, supply chain partners who adopt a long-term orientation are able to synergistically combine their resources and capabilities in order to develop a stronger basis for strategic advantage (e.g., Shan et al., 1994; Madhok, 2002). It is important to emphasize, however, that a long-term orientation does not refer to calendar time. It is possible for a buyer rm to engage in transactionbased, spot-market contracting with a supplier for a long period of time, without realizing the benets of collaborative communication (Mohr et al., 1996). Rather, long-term orientation reects the strategic mindset needed for a supply chain partner to cultivate the norms of solidarity, mutuality, exibility and information sharing, which are the hallmarks of relational contracting (e.g., Macneil, 1980; Heide and John, 1992). This study also empirically documents the role of network governance in fostering inter-organizational
58
communication, leading to sustainable competitive advantage for supply chain partners. Strategy researchers have investigated the direct effects of network governance on inter-rm performance (e.g., Poppo and Zenger, 2002; Uzzi, 1997; Zaheer and Venkatraman, 1995). Network governance may also contribute to rm performance through fostering relational behaviors and capabilities, such as inter-organizational communication. Our nding in support of Hypothesis 2 suggests that network governance may foster the collaborative communication necessary for the development and exchange of rent-yielding relational assets among supply chain partners (e.g., Lorenzoni and Lipparini, 1999; Dyer and Singh, 1998). This nding is also in line with research on Japanese Keiretsu (i.e., clusters of interdependent buyersupplier rms), which documents how such networks generate greater benets for member rms (relative to non-members) by, among other things, facilitating communication, fostering trust and reciprocity, and enhancing overall productivity (e.g., Gerlach, 1992; Lincoln et al., 1992; Dyer, 2000). The result of our empirical investigation also supports the claim about the strategic importance of IT in fostering and facilitating rent-yielding relational capabilities (Mata et al., 1995; Powell and DentMicallef, 1997; Zhang and Lado, 2001). The nding of a signicant link between IT and inter-organizational communication (Hypothesis 3) indicates that IT can contribute to collaborative advantage through leveraging relational competencies. Additionally, the signicant effect of IT on inter-organizational communication suggests that, contrary to Carr (2003), IT does matter insofar as it facilitates the use of collaborative communication between supply chain partners. More than just cables and wires, contemporary ITs, which can integrate data, voice and image, are capable of simulating the attributes of the rich media (Daft and Lengel, 1986) necessary for the development, exchange, and use of strategically valuable (tacit) knowledge between supply chain partners. The nding of signicant, positive linkage between inter-organizational communication and performance for both buyer and supplier rms (Hypotheses 6a and 6b) is contrary to a recent study by Prahinksi and Benton (2004). These researchers did not nd support for their proposition that the use of collaborative communication by buyer rms enhanced the perceived performance of supplier rms. It is possible that this lack of empirical support was more an artifact of their survey sample (consisting of rms in the North American automobile industry) than an empirical
disconrmation of the substantive linkage between inter-organizational communication and supplier performance, per se. This industry has been characterized by a long history of adversarial relationships between management and labor unions, as well as the use of spot market contracts between automobile companies (buyers) and supplier rms (Mudambi and Helper, 1998). Thus, supplier rms might view any efforts on the part of buyer rms (i.e., auto manufacturers) to employ collaborative forms of communication merely as manipulative tactics to extract short-term benets from the suppliers, rather than as genuine attempts to cultivate long-term, winwin relationships. In contrast, our empirical nding is more in line with research by Mohr and Nevin (1990), Mohr and Spekman (1994), and Mohr et al. (1996), which documents that the use of collaborative communication strategies may deepen cooperation and trust, and engender greater performance benets for the exchange partners. Finally, this study documents that inter-organizational communication may function as a mediator of the links between the key antecedents long-term relationship orientation, network governance, and information technology and outcome variables within the context of dyadic buyersupplier relationships. The proposed full mediation model was found to be superior to other competing models. Furthermore, the documented mediation effects might support the claim of communication theorists and practitioners that communication is as fundamental to business as carbon is to physical life (Reinsch, 2001, p. 20) insofar as it enables buyer and supplier rms to accrue relational rents. The mediating role of communication, however, seems to vary for buyer and supplier rms, and for the different antecedent variables. For buyer rms, communication appears to function as a partial mediator of the relationship between information technology and performance. This suggests that in addition to having signicant direct effect, investments in information technology might contribute to buying rms performance through fostering effective communication between buyer and supplier rms. The signicant indirect effect of IT on performance suggests that by facilitating communication, IT may engender competitive advantage by easing the ow and exchange of knowledge and other idiosyncratic, relationship-specic assets (Madhok and Tallman, 1998). Communication was also found to partially mediate the relationship between long-term relationship orientation and supplier performance. On the other hand,
59
communication seems to fully mediate the relationships between (a) long-term relationship orientation and buyer performance, (b) network governance and supplier performance, (c) network governance and buyer performance, and (d) information technology and supplier performance. In conclusion, this investigation documents that inter-organizational communication plays a complex mediating role in the links between the antecedent and outcome variables, and its effect varies for buyer and supplier rms. Thus, managers and researchers need to appreciate the nuances involved in building strategic advantage through collaborative communication. 5. Conclusion and directions for future research In this study, we have sought to advance theory and research in supply chain management by developing a parsimonious model of antecedents and outcomes of inter-organizational communication. The empirical ndings in support of the hypothesized relationships corroborate our main theoretical assertion that interorganizational communication can be viewed as a relational competency that yields strategic advantage for the collaborating rms. From a practical viewpoint, this study shows that building collaborative communication skills or competencies can have direct, positive effects on the bottom lines of the supply chain partners. Additionally, interorganizational communication functions as an important mediating construct that has different effects on outcomes for supplier and buyer rms. For supplier rms, this nding suggests that merely adopting a long-term relationship orientation is necessary but not sufcient for achieving strategic advantage. Furthermore, managers of supplier rms would need to hone skills for effective communication in order to fully reap the benets of long-term relationships with buyer rms. For the buyer rms, establishing a network form of governance may not be sufcient for achieving strategic advantage; such a governance form may only engender strategic advantage through providing an inter-organizational context that is conducive to collaborative communication. Thus, a nuanced understanding of the roles of these factors in shaping an inter-organizational exchange context that is conducive to collaborative communication is key to effectively managing buyersupplier relationships for mutual benets. At this juncture, we should acknowledge some limitations of our study that would provide opportunities for further research. Although our model of communication has the advantage of parsimony, it
might also sacrice breath and richness of explanation. Thus, in the future, researchers should include other factors such as geographic dispersion (Jones et al., 1997), and cultural compatibility (Teece et al., 1994) that could inuence communication among supply chain partners. Also, the role of trust and commitment in directly facilitating inter-organizational communication and enhancing transaction value should be explicitly assessed. Furthermore, in testing the hypothesized relationships using covariance-based SEM we assumed, in line with prior research in operations management (e.g., Chen et al., 2004; Prahinksi and Benton, 2004), that all the measures used to tap the selected variables were reective rather than formative. In the future, researchers might consider testing the hypothesized relationships using other SEM approaches, such as partial least squares (PLS) that are better suited for investigating formative constructs (Diamantopoulos and Winklhofer, 2001). Another limitation of this research relates to the sample population. Having drawn from a list of ISM members, the results of this research are generalizable only to the rms included in the ISM database. Although this study sample covered a wide range of rms in the ISM database in terms of industry membership and demographic variables, we suggest that future research include a mixed population of respondents from multiple sources, including service rms, as well as domestic and international companies in order to increase the scope of generalizability of the results. Finally, this study focused on the dyadic relationship as the unit of analysis, and assumed the buying rms perspective. Since the supplier also plays a signicant role in affecting the quality of the dyad, there is a need to examine the exchange relationship from the suppliers perspective as well. Therefore, we urge future researchers to adopt the strategic network (Gulati et al., 2000) as a unit of analysis and investigate the antecedents and outcomes of communication from multiple viewpoints. Despite these limitations, we believe that this study makes a compelling case for viewing interorganizational communication as a critically important relational competency that can be leveraged for mutual gains within collaborative buyersupplier relationships. Acknowledgement We would like to thank the Institute for Supply Management (ISM) for its administrative and nancial support of this research.
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Appendix A
Indicator (Cronbachs alpha, eigen value, composite reliability, average variance extracted) Long-term relationship orientation (a = 0.85; eigen value = 2.65; CR = 0.88; AVE = 0.66) We expect our relationship with key suppliers to last a long time We work with key suppliers to improve their quality in the long run The suppliers see our relationship as a long-term alliance We view our suppliers as an extension of our company We give a fair prot share to key suppliers* The relationship we have with key suppliers is essentially evergreen** Network governance (a = 0.81; eigen value = 2.84; CR = 0.88; AVE = 0.65) We have a permeable organizational boundary that facilitates better communication and/or relationship with our key suppliers Our relation with the suppliers is based on interdependence rather than power Our organizational structure can be characterized as a exible value-adding network Our organizational/supply structure does not involve power-based relationships The decision making process in our organization is decentralized* We have few management levels in our relationship with suppliers** Information technology (a = 0.84; eigen value = 3.45; CR = 0.95; AVE = 0.75) There are direct computer-to-computer links with key suppliers Inter-organizational coordination is achieved using electronic links We use information technology enabled transaction processing We have electronic mailing capabilities with our key suppliers We use electronic transfer of purchase orders, invoices and/or funds We use advanced information systems to track and/or expedite shipments Inter-organizational communication (a = 0.86; eigen value = 3.90; CR = 0.92; AVE = 0.66) We share sensitive information (nancial, production, design, research, and/or competition) Suppliers are provided with any information that might help them Exchange of information takes place frequently, informally and/or in a timely manner We keep each other informed about events or changes that may affect the other party We have frequent face-to-face planning/communication We exchange performance feedback Principal component Measurement model factor loading Std. coefcient t-Valuez
0.85 0.62 0.79 0.69
0.67 0.73 0.81 0.85
9.26 12.01 10.19
0.72 0.81 0.70 0.83
0.74 0.73 0.73 0.67
9.32 9.48 8.50
0.77 0.75 0.80 0.60 0.67 0.77 0.70 0.67 0.80 0.77 0.77 0.62
0.69 0.75 0.80 0.55 0.50 0.70 0.57 0.66 0.85 0.88 0.74 0.61
9.48 10.00 7.27 7.41 9.04 8.67 8.99 9.14 8.26 7.30
Model t indices: normed x2 = 1.62 ( 2.0); goodness of t index = 0.90 (!0.90); adjusted goodness of t index = 0.86 (!0.80); non-normed t index = 0.95 (!0.90); comparative t index = 0.96 (!0.90); root mean square residual = 0.06 ( 0.10); root mean square error of approximation = 0.05 ( 0.10). Note: *Items dropped after EFA; **Items dropped after CFA; zAll t-values are signicant at p < 0.05 level.
Appendix B
Performance measure Supplier performance Quality Cost Volume exibility Scheduling exibility On-time delivery Delivery reliability/consistency Prompt response Buyer performance Product conformance to specications Production costs Volume exibility Delivery speed Delivery reliability/dependability Rapid conrmation of customer orders Rapid handling of customer complaints
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Inter-organizational Communication as a Relational Competency in Buyer-Supplier Relationships

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Journal of Operations Management 26 (2008) 4564 www.elsevier.

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

Fig. 1. Proposed model of inter-organizational communication (Model 1).

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

LR 1.00 0.53 0.23 0.62 0.26 0.22

NG 1.00 0.18 0.45 0.14 0.21

1.00 0.40 0.20 0.21

1.00 0.28 0.28

54 Table 3 Indirect and total effects Exogenous variables

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

0.00 0.00 0.00

0.01; *t-Values signicant at p

Rival model Model 4

0.22** 0.12 0.00 0.11 0.13 0.18*

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

0.85 0.62 0.79 0.69

0.67 0.73 0.81 0.85

9.26 12.01 10.19

0.72 0.81 0.70 0.83

0.74 0.73 0.73 0.67

9.32 9.48 8.50

A. Paulraj et al. / Journal of Operations Management 26 (2008) 4564

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