162 Wong, Lai, and Cheng
Effective information sharing is considered essential to the success of supply chain
management (SCM) because partner firms in a supply chain (SC) need timely and
quality information to coordinate intra- and interorganizational business activities
to compete in the marketplace [37, 47, 71]. To tackle the complexity of the business
activities involved in SCM, firms develop electronic connectivity for accessing and
sharing information across intra-organizational functions and with partners in their
SCs [33, 55]. A firm’s electronic connectivity, which we label as the firm’s extent of
information integration, reflects its organizational ability to generate and disseminate
information in support of its SC activities . Information integration is defined as
the information sharing infrastructure of firms to support information exchange and
coordination across business functions and partner firms [5, 34].
Although information integration is considered essential to streamlining in SCM ,
it is not necessarily related to SC cost reduction , and it may even be detrimental
to efficiency in interorganizational coordination  and customer service perfor-
mance . These mixed results suggest that the contribution of information sharing
to firms’ ability to create value in their SCs is highly dependent on firms’ business
environmental conditions and operating characteristics . Hence, empirical research
investigating the determinants of the business value of information integration to SCM
is needed. The results will help identify the performance implications and contingen-
cies of information integration in SCM.
The objective of this study is to address two critical issues related to the business
value of information integration to SCM. First, we empirically examine the effects
of information integration on firms’ operational and cost performance. Second, we
explore the effects of selected determinants of information integration on performance
outcomes in order to answer the following research question:
RQ: Under what circumstances does information integration contribute to better
performance outcomes in SCM?
We probe into two key situational determinants of information integration, namely,
a firm’s business environmental conditions and its operating characteristics, which
constrain, condition, or influence the success of SC coordination .
Conceptual Foundation and Research on Information Integration
Information integration is characterized by electronic linkages and integrated
information sharing within and beyond organizational boundaries to facilitate cross-
functional coordination in the SC . The conceptualization of information inte-
gration revolves around the fundamental notion of developing information sharing
infrastructure in the SC with electronic linkages to facilitate timely, accurate, and
standardized data exchange across internal and external organizational functions [7,
32]. In line with this view, prior studies on SCM (e.g., ) suggest two levels of
integration in support of business process coordination that underpins SCM, namely,
Value of Information Integration to Supply Chain Management 163
intra-organizational information integration that spans internal functional boundaries
and interorganizational information integration that seeks to improve communica-
tion between SC partners. Intra-organizational information integration refers to
the electronic linkages of a firm’s information technology (IT) applications to data
acquisition and storage systems to facilitate the sharing of accurate and timely infor-
mation in support of cross-functional processes . However, interorganizational
information integration involves standardizing and digitizing information exchange
spanning cross-organizational business activities [48, 100]. Such integration makes
information available for timely dissemination to relevant SC partners for responsive
decision making and market actions.
Contingency theory asserts that a firm’s performance is attributable to the match
between its strategic behaviors and its internal and external environmental condi-
tions . Such a match may require the adoption of organizational processes and
strategies to reflect the particular circumstances confronting the firm . Contingency
theory views the firm as an open system, where information is exchanged through
the input-process-output procedure . “Input” refers to the contextual issues (e.g.,
functional coordination and demand fluctuation) that reside within or outside orga-
nizational boundaries, creating uncertainties or opportunities, hence influencing how
the firm should operate in the SC . “Process” is concerned with organizational
operations that manage and cope with the contextual issues by sharing information
and coordinating business processes. “Output” refers to the outcomes of the process
procedures, which reflect how well firms process, adapt, or mitigate issues arising from
the environment (i.e., input). This analogy is in line with organization theory, which
stresses the value of both external and internal organizational attributes to business
Following the work of Daft and Lengel , we argue that information integration
is a strategic action that is beneficial to SCM by enhancing firms’ ability to better co-
ordinate their operations. However, firms should not neglect the situational conditions
that affect their organizational ability derived from information integration to make
informed decisions . The situational conditions are engendered by firms’internal
operating characteristics that are inherent in their business operations , and firms’
external environmental conditions that are shaped by different external entities (e.g.,
suppliers, customers, and competitors) and factors (e.g., business opportunities) .
This contingency-theoretic view provides an appropriate theoretical lens to examine
the performance variances of information integration attributable to the internal and
external constraints of firms .
Synthesis of the Extant Literature
Upon conducting an extensive literature review, we summarize the seminal works in
Table 1 and notice the following limitations in the literature. First, although information
164 Wong, Lai, and Cheng
Value of Information Integration to Supply Chain Management 165
166 Wong, Lai, and Cheng
Value of Information Integration to Supply Chain Management 167
integration is important to SCM, the role of information integration under different
business conditions has not received due research attention [94, 95, 96]. Prior studies
focus on examining what environmental conditions drive the development of infor-
mation integration, rather than studying how those conditions affect the performance
outcomes of information integration. For example, Grover and Saeed  investigate
the various product characteristics (e.g., product complexity) and environmental factors
(e.g., demand uncertainty) that spur the development of interorganizational system
integration. Only a few studies have provided anecdotal evidence  and discussed
the contingency of information integration on SC characteristics [9, 23].
According to Astley and Van de Ven , firms are influenced and constrained by
external forces while conditioned and affected by internal attributes. Such a classical
duality perspective of organizational theory advocates the presence of deterministic
and voluntaristic forces that determine firm performance. The environmental and
external constraints are deterministic, where firms adapt and react to such constraints
but lack control over them. However, voluntaristic factors refer to organizational
endogenous attributes (e.g., product characteristics and IT infrastructure) that are
relatively more controllable by firms . Prior studies focus on either the moderat-
ing role of internal capabilities (e.g., integrated IS capability ) in affecting or the
effects of environmental conditions (e.g., competition ) on SCM performance
outcomes, neglecting that both internal and external factors are important determi-
nants of SCM performance outcomes. In addition, the deterministic and voluntaristic
nature of these factors that influence the success of information integration is absent.
Grounded in contingency theory [29, 89], we investigate the performance contingen-
cies and constraints of information integration in SCM residing within and outside
Second, studies have investigated interorganizational information integration and its
impact on reducing uncertainty in SCs [70, 73]. The importance of intra-organizational
information integration is also acknowledged in studies of enterprise resource planning
adoption to support cross-function operations in firms [40, 90]. Although the SCM
literature has suggested the importance of integrating internal and external processes
, prior studies tend to neglect the importance of taking into account both intra- and
interorganizational information integration in SCM. This study is novel in expanding
the previous narrow investigation of information integration to encompass both the
intra- and interorganizational dimensions of information integration for SCM.
Third, instead of focusing on unfavorable situational conditions that give rise to
uncertainty in business operations , we respond to the call for investigating the
impact of environmental munificence, often considered a salient force influencing
the coordination of business activities across firms [63, 84], which has not been duly
researched. We consider both the positive and negative business environmental condi-
tions of firms that may affect information integration’s impact on firms’performance.
Moreover, although variants of contingency theory predict that information integration
is beneficial to performance by reducing uncertainty in SCM [6, 29], they provide
few empirical insights on the performance implications of information integration at
different levels. We aim to provide insights on the performance effects of information
168 Wong, Lai, and Cheng
integration by examining the performance strength when these contingencies and
constraints are present at low versus high levels.
Our study consists of inductive field research1
followed by a survey. We first con-
duct interviews with ten managers in the areas of information systems management,
SCM, and operations management. Appendix A provides the details of the inductive
field research. Grounded in contingency theory, we develop the research hypotheses
based on the inductive field research findings to identify the contingency factors and
the performance effects of information integration in practice. This approach ensures
the hypothesized relationships reflect real-life situations.
Based on the field interviews, prior research, and the duality perspective of organiza-
tional theory, we classify the contingency factors related to information integration into
two categories, namely, internal operating characteristics and external environmental
conditions. Specifically, the internal operating characteristics of firms are concerned
with firms’ product type and level of product complexity that are inherent in their
information integration implementation. The external environmental conditions con-
sidered critical to successful SCM implementation relate to the levels of munificence
and uncertainty characterizing the business environmental conditions. Figure 1 depicts
the research model that guides our study.
Effect of Information Integration on Operational and
Information integration across partner firms enables close communication and allows
sharing of information in support of their SC operations and determining appropriate
performance improvement actions . For example, integrating a manufacturer’s
production schedule with the procurement plans of its buying firms can be helpful for
adapting changes to product specifications, while the buying firms can receive timely
updates on the delivery status of their orders to plan ahead marketing activities. Infor-
mation integration enables partner firms to satisfy the operating needs of one another
with a common performance improvement goal. The implementation of information
integration lowers the costs of coordinating the SC activities of firms while improv-
ing their information-processing abilities by providing technical infrastructure .
Cost performance is concerned with reducing costs in activities such as distribution,
inventory, order management, and the related administrative processes . On the
other hand, customer-oriented operational performance of firms indicates service
quality, flexibility, and responsiveness of firms in satisfying customer needs. Based
on the argument of Malone and his colleagues [56, 57, 58] that information sharing
is essential to integration among multiple organizational functions working together
toward common goals, we reason that information integration provides a coordination
mechanism that supports task completion and reduces coordination costs.
Value of Information Integration to Supply Chain Management 169
Hypothesis 1: Information integration of a firm’s SC is positively associated
with the firm’s (a) customer-oriented operational performance and (b) cost
Contingent Role of External Environmental Conditions
Environmental munificence refers to the extent to which a business environment can
sustain business growth . A high level of environmental munificence suggests an
abundance of business opportunities and resources for a business to grow . Firms
operating in a highly munificent environment will find information integration use-
ful because it allows them to acquire and share information with their SC partners
about market expansion opportunities, new market prospects, and growing market
demand, which they can exploit to capture business opportunities in a timely manner
at a low cost. A manager noted this aspect of environmental munificence during the
It is very important for us to share information with our upstream partners,
including raw material suppliers and contract manufacturers, especially when
we detect and are trying to capture a new market segment. For example, in these
few years, we observe there are increasing numbers of business customers using
our products to create their own. We therefore expand our market by promoting
different applications of our products. However, such a business opportunity
requires timely product delivery, particularly when customers are exploring new
applications. Failing to act swiftly, we will lose our customers as they may have
successfully applied our competitors’ products and will continue to do so.
Information integration enables firms to compete more effectively in the marketplace
because they can exploit valuable information resources in the SC to help minimize
various forms of waste, such as inventory excesses or shortages, and underutilized
Figure 1. The Research Model
170 Wong, Lai, and Cheng
business processes , and respond to changing market needs swiftly. Information
integration leverages opportunities in a highly munificent environment (e.g., new
potential market) by effectively utilizing organizational resources and capabilities to
maintain flexibility and provide timely response to changing market demand at a low
cost. With abundant resources, firms are able to undertake complementary organiza-
tional investments (e.g., in new product lines) and to leverage the existing information
integration infrastructure for reducing cost and improving service, hence strengthening
coordination and capacity utilization in SC operations . But operating in a declin-
ing but highly competitive market with limited business opportunities and resources
for growth, that is, a less munificent environment, firms focus on maintenance and
logistical functions, and standardized routines to enhance efficiency and strive for
survival . Organizational efforts in innovating and modifying products, lowering
prices, offering incentives and new services to customers, and market repositioning
by product differentiation are required to compete for business. While these activities
require management efforts beyond information integration to coordinate business
activities, achieving the desired performance with information integration in a less
munificent environment is more difficult than that in a highly munificent one.
Hypothesis 2: The positive associations between the information integration of
a firm’s SC and its (a) customer-oriented operational performance and (b) cost
performance strengthen when the firm experiences a high level of environmental
Environmental uncertainty refers to firms’inability to accurately predict the outcomes
of their decisions .An uncertain business environment is characterized by changing
customer demand, unpredictable competitor action, or fluctuating sales volume ,
which constrains and hinders firms’ability to achieve the projected results . Informa-
tion is a valuable asset that enables firms to cope with uncertainty while information
integration is a useful means to overcome environmental uncertainty. Firms often
proactively gather information in an attempt to make informed decisions and predict
the outcomes of their actions with ease . However, several managers expressed
that they could not solely rely on information sharing to manage their SC activities,
particularly ad hoc arrangements such as urgent requests or delivery changes on short
notice due to demand changes. Events of such nature require other means of com-
munication (e.g., fax and phone calls) that provide quick response and flexibility in
coping with unforeseen events. Such a shortfall of information integration became
apparent in the comment of an IT manager:
We share relevant data with our partners to coordinate our production schedule,
shipment, warehouse, and other related supply chain activities. However, to
compete in this severely competitive business environment, it is inadequate to
rely on information sharing to prevent the problem of excessive inventory or
insufficient capacity to fulfill urgent orders. Our account executives work closely
Value of Information Integration to Supply Chain Management 171
with our customers and suppliers to track events that do not fully reflect in the
data shared.Although this practice increases our costs, we are able to stay ahead
of the game and competently handle drastic changes in supply and demand.
On the contrary, firms can better predict the outcomes of their decisions under a less
uncertain business environment. Such an environment allows faster response to market
needs and reduces operating costs as information integration provides an enabling
mechanism to improve the coordination of organizational activities.
Hypothesis 3: The positive associations between the information integration of
a firm’s SC and its (a) customer-oriented operational performance and (b) cost
performance strengthen when the firm experiences a low level of environmental
Contingent Role of Internal Operating Characteristics
The operating characteristics of a firm are determined by its production structure,
which is shaped by management’s strategic choices and constrained by the firm’s
product type and level of product complexity . Ragowsky et al.  suggest that
the operating characteristics of firms are related to their inherent internal operating
conditions involving multiple organizational functions, which are voluntaristic and
organized to reflect organizational resource allocation and coordination.
Durable Versus Nondurable Products
In line with Fisher’s  view, our interviewees suggested that the nature of their
production processes and product demand influence and constrain their SC operations.
The uncertainty involved in managing products with different characteristics (e.g.,
durable versus nondurable goods) is determined by the degree of demand fluctuation
caused by such factors as price change and frequency of customer purchase .
have relatively longer product life cycles and more pronounced
fluctuations in demand that are influenced by various factors (e.g., economic condi-
tions and technology advancement) . Firms offering durable goods should better
coordinate with their SC partners so that they can react quickly to fast-evolving changes
in inventory and delivery time to improve customer-oriented operational performance.
Information integration facilitates information sharing across organizational func-
tions and improves the competence of firms in handling unforeseen demand changes
by coordinating effectively with SC partners. An IT manager of a home electronic
products trading company noted:
When we encounter drastic increases or decreases in the demand for our products
that may end up with shortage or excessive stocks, we need to seek help from
our supply chain partners, ranging from suppliers, contract manufacturers, to
logistics service providers, with a view to negotiating for special arrangements
and trading terms that involves direct communication and interaction. Luckily,
172 Wong, Lai, and Cheng
our products have a slow rate of obsolescence and we have little worry about them
being out-of-date quickly. Our major concern is about the inventory maintenance
and storage costs if we have excessive stocks or the sourcing costs if we have
a shortage. We are able to quickly consolidate inventory information related to
the work-in-progress at our manufacturers, inventory in our warehouses, unsold
products in our distributors, and so forth, where our information system is in-
strumental for us to take responsive actions in reducing the costs arising from
market demand fluctuations.
But nondurable products have short product life cycles so they are relatively faster
in product obsolescence. Although the rate of consumption can be relatively stable
with lower demand fluctuation, quick replenishment or special warehousing arrange-
ments are desirable for nondurable products to reach market without obsolescence
and spoilage. Our interview findings indicate that firms offering nondurable products
often operate and maintain costly in-house functions in order to ensure quick delivery
to market. For example, contrary to the trend toward outsourcing noncore activities to
logistics service providers for reducing labor and operating costs (e.g., maintenance
costs of logistics facilities, trucks), a leading local food and beverages supplier operates
its own logistics functions to ensure product freshness and short lead-time delivery.
In trading with voluminous small and medium-size customers, the food and beverage
supplier finds the sole reliance on information integration inadequate to coordinate with
its SC partners. Particularly, the phone-in order system of the supplier accentuates the
inadequacy. This observation highlights the insufficiency of information integration
in handling nondurable products.
Hypothesis 4: The positive associations between the information integration of
a firm’s SC and its (a) customer-oriented operational performance and (b) cost
performance strengthen when the firm offers durable products.
Product complexity refers to the nature of product development that involves a number
of different organizations (e.g., suppliers), degree of technological advancement, diver-
sity of inputs, and frequency of adjustments needed from suppliers . The presence
of these factors suggests that a complex product has a highly intricate requirement for
coordinating business activities to manage multiple business units and partner firms
involving a large number of physical components. Developing a complex product
brings forth numerous business activities ranging from sourcing to distribution with
considerable coordination efforts of multiple functions to eliminate such problems
as input shortage and delivery delay in the SC . Information integration provides
electronic linkages and coordination mechanisms across various organizational func-
tions and parties to support the development of such product type , while coordi-
nating the SC needs management efforts to deal with ambiguities in product design
and specification that may confuse different organizational functions. An operations
executive noted this:
Value of Information Integration to Supply Chain Management 173
It is impossible for us to expect a perfect product to be delivered by merely
sharing our product design with our contract manufacturers. We have to work
closely with them, especially in the new product design phase, to ensure they
understand our specifications and expectations. Indeed, we often send our engi-
neers to the manufacturers’ factories to troubleshoot our design and help them
with production issues. Our information integration with suppliers enables us to
share the latest data on product development such as testing results and design
changes, which has significantly shortened our development lead-time.
Interacting beyond the information sharing infrastructure is common, particularly
when the product development and design interface across organizational functions is
not properly planned . Information integration streamlines business processes for
cost reduction and operational efficiency for businesses characterized by low product
complexity. However, the value of such integration can be trivial in differentiating SCM
performance outcomes among firms offering less complex products. This is because
the competition of firms offering less complex products goes beyond the effectiveness
and efficiency of product development that can be supported by information integra-
tion, and involves their service and marketing strategies .
Hypothesis 5: The positive associations between the information integration of
a firm’s SC and its (a) customer-oriented operational performance and (b) cost
performance strengthen when the firm offers products with a higher level of
Sample and Data Collection
We obtained the data for this research from senior executives of wholesale trading
companies in Hong Kong, which come from two groups of wholesale trade,3
SIC (Standard Industrial Classification) codes 50 (i.e., wholesale trade—durable goods)
and 51 (i.e., wholesale trade—nondurable goods). We randomly drew a sample of 800
wholesale trading firms from the directory Dun & Bradstreet. We conducted three
rounds of survey mailings and received in total 196 responses, representing a response
rate of 24.5 percent. However, we disqualified eight responses, where six of them were
blank or incomplete returns and the remaining two we received too late for the analysis.
The survey generated 188 usable returns, yielding an effective response rate of 23.5
percent, which was comparable to prior studies of a similar nature [20, 51].
We check possible problems of nonresponse bias in two steps. Following the work
of Armstrong and Overton , we verify that the early and late respondents do not
differ significantly in their responses to a random selection of questionnaire items,
at p < 0.001. In addition, we compare the differences in the mean values of the ob-
174 Wong, Lai, and Cheng
jective measures, namely, firm size and annual sales volume, between the early and
late firms. We find no significant differences in firm size (F = 1.077, p = 0.300) and
annual sales volume (F = 1.136, p = 0.287), suggesting that nonresponse bias is not
an issue in the collected data.
To find out whether common method variance posed a serious threat to our study,
we perform three steps. First, we conduct the Harman’s one-factor test, which is
widely followed by other researchers (e.g., ). We examine whether the chi-square
of a single-latent factor would account for the hypothesized six-construct model. A
significant difference between the chi-square values (∆χ2
= 1,832.39, ∆df [degrees of
freedom] = 12, p < 0.05) of the two models indicates that the fit in the one-dimensional
model is significantly worse than that in the hypothesized model. Second, following
the work of Lindell and Whitney , we use type of firm ownership as a marker vari-
able, which is theoretically unrelated to all the dependent variables, to test for potential
common method variance. We find that type of firm ownership does not significantly
relate to any of the variables, further indicating that common method variance is not
an issue in our study. Third, in our research design, we conduct both qualitative case
study and quantitative survey to overcome the shortcomings of common method bias
by triangulating the data collected from both research methods.
We conduct an extensive literature review and adopt items used previously to improve
the reliability and validity of the measures.4
A pilot test with a group of 50 managers
resulted in slight modifications to the wording of nine measurement items. In addition, we
conduct exploratory factor analysis to purify our scales and deleted three items because
their corrected-item-to-total correlations are lower than the 0.30 threshold value, sug-
gesting that these items do not capture what we intended to be measured. This elimina-
tion resulted in a more parsimonious survey instrument as shown in Appendix B .
We used two types of measure in the survey instrument, namely, single-item measure
and reflective multi-item measure. The single-item measure is the objective measure of
product type. For the observed variables, which are manifestations of the underlying
used are intra-organizational information integration, interorganizational information
integration, operational performance, cost performance, environmental munificence,
environmental uncertainty, and product complexity. Following prior studies [65, 85], we
invited respondents to evaluate their organizational characteristics with respect to each
item posed in the survey relative to those of their major competitors.
As information integration is concerned with establishing electronic linkages to support
standardized information sharing for coordination, we adapt the measurement scale
of intra-organizational information integration [16, 73, 75] and interorganizational
information integration [62, 73] from the literature.
Value of Information Integration to Supply Chain Management 175
We evaluate the performance implications of information integration for SCM by
considering (1) how well the focal firm meets its customers’ operations needs (i.e.,
customer-oriented operational performance) and (2) its performance in cost reduction
(i.e., cost performance) . The customer-oriented operational performance evaluates
how well the focal firm fulfills customer orders with short lead times and as scheduled,
attains a high level of responsiveness in handling order changes, and replenishes stock
for customers with a high level of accuracy . The cost performance reflects how
well the focal firm achieves the economic goal of reducing costs, including distribu-
tion cost, inventory cost, order management cost, and so forth .
This study takes into account environmental munificence and uncertainty, which can
be beneficial or detrimental to the performance outcomes of information integration.
We adapt the measurement scales of environmental munificence and uncertainty de-
veloped by Sutcliffe and Huber . To measure the operating characteristics of firms,
we use the objective measure of product type and evaluate firms’product complexity
by adopting a four-item measurement scale from the literature [42, 68]. We measure a
firm’s product type objectively by the firm’s two-digit SIC industry code , which
is either wholesale trade of durable goods or nondurable goods. Product complexity
comprises number of components, degree of interactions between trading partners,
and extent of product novelty .
We include firm size (i.e., number of employees) as a control variable as it affects
organizational ability in developing information integration because larger firms tend
to enjoy scale efficiency in information sharing  and they have more resources
to support the development of intra- and interorganizational information integra-
tion . We measure firm size by taking the natural logarithm of the number of
employees in each firm.
We first perform confirmatory factor analysis (CFA) using Amos 7.0 to evaluate the
psychometric properties of the factor structures. We follow the guidelines provided
by Gerbing and Anderson  and use the maximum likelihood estimation with the
As discussed earlier, information integration is a second-order construct that includes
the two complementary dimensions of intra- and interorganizational information
176 Wong, Lai, and Cheng
integration , which co-vary and interact with each other. We explored whether
we should use a more parsimonious measure for information integration, at a second-
order level, to test the hypotheses. Following the work of Tanriverdi , we conduct
three tests to compare the first-order and second-order models of this construct.
First, we compare the goodness-of-fit statistics of the first-order model (χ2
df = 50, RMR [root mean square residual] = 0.05, IFI [incremental fit index] = 0.93,
CFI [comparative fit index] = 0.93) and the second-order model (χ2
= 247.2, df = 50,
RMR = 0.05, IFI = 0.93, CFI = 0.94), which are almost identical. This result suggests
that the second-order model is a better predictor of information integration. Second,
the first-order factors load significantly onto the second-order factor (i.e., p < 0.05),
which lends support for the presence of the second-order model. Third, we compute
the target coefficient value and obtain T = 0.99, which is equal to the theoretical upper
limit of 1.0. This result indicates that the relationship among the second-order factors
accounts for 99 percent of the first-order factors . Table 2 summarizes the results
of the CFA on information integration.
Combined Measurement Model Test
We conduct CFA on all the theoretical constructs examined in this study. Measures
of overall fit evaluate how well the CFA model reproduces the observed variables’
covariance matrix. The six-factor measurement model exhibits a good fit of the data
= 939.53, df = 508, RMR = 0.07, IFI = 0.90, CFI = 0.90). The measurement
items load significantly (i.e., p < 0.01 and t > 2.0) onto their respective constructs
with loadings ranging between 0.50 and 0.93, indicating convergent validity of the
constructs . To assess discriminant validity, we follow Fornell and Larcker  by
evaluating the average variance extracted (AVE) estimates of all the constructs, which
are found to be greater than the squared correlation between any pair of them, sug-
gesting that the measurement items share common variance with their hypothesized
constructs more than with the other constructs, providing evidence of discriminant
validity. Table 3 summarizes the composite reliability, Cronbach’s alphas, and AVE,
and Table 4 summarizes the CFA results. Composite reliability represents the shared
variance among a set of observed variables that measure an underlying construct’s
reliability , and the composite reliability of all the constructs meet the criterion
of 0.60. The Cronbach’s alpha values obtained range from 0.70 to 0.93, exceeding
the threshold value of 0.70 recommended by Nunnally , suggesting a reasonable
degree of internal consistency between the corresponding measurement items.
Results and Discussion
Performance Effects of Information Integration
We use Amos 7.0 to test the hypotheses using the maximum likelihood estimation with
the sample covariance matrix as input. The results indicate that the structural model of
information integration, and operational and cost performance provide a reasonable fit
Value of Information Integration to Supply Chain Management 177
178 Wong, Lai, and Cheng
of the survey data with fit indices χ2
= 401.12, df = 183, NFI [normed fit index] = 0.91,
IFI = 0.92, TLI [Tucker–Lewis index] = 0.91, and CFI = 0.92. Information integration
is positively associated with customer-oriented operational performance (β = 0.45,
t = 4.12) and cost performance (β = 0.50, t = 4.31), supporting H1.
Environmental Contingency Determinants:
Munificent and Uncertain Environment
We examine the contingencies of the relationships between information integration
and performance measures using the multigroup analysis inAmos 7.0 for a number of
In evaluating the impact of the moderating variables, we follow the guidelines
of Marsh and Hocevar  and prior studies (e.g., ).6
We first create a two-group model by dividing the total 188 sample firms into a high
group (n = 104) and a low group (n = 84) with respect to environmental munificence
based on the median split.7
Asignificant change in the chi-square values of the baseline
and constrained models is found (∆χ2
= 94.92, ∆df = 48, p < 0.01), providing support
for the contingent role of environmental munificence on information integration and
business performance. We then test the equality of paths between the high and low
environmental munificence groups with respect to customer-oriented operational
performance, and find support for the contingency of environmental munificence
= 5.17, ∆df = 1, p < 0.05). The relationships between information integration and
customer-oriented operational performance in the high group (β = 0.72, t = 2.95) and
in the low group of munificent environment (β = 0.29, t = 2.01) are both positively
significant. The relationships between information integration and cost performance
in the high group (β = 0.73, t = 2.81) and the low group of munificent environment
(β = 0.35, t = 2.23) are both positively significant, with a significant change in the chi-
square values between the two groups (∆χ2
= 5.01, ∆df = 1, p < 0.05). These results
suggest that information integration is beneficial to both operational performance and
cost performance of firms when operating under a highly munificent environment,
lending support for H2a and H2b.
Table 3. Scale Properties of Latent Factors
Information integration 0.91 0.99 0.98
EMun 0.90 0.90 0.61
EUnc 0.70 0.74 0.50
PC 0.70 0.76 0.50
COPerf 0.79 0.80 0.51
CPerf 0.93 0.93 0.71
Notes: EMun = environmental munificence; EUnc = environmental uncertainty; PC = product
complexity; COPerf = customer-oriented operational performance; CPerf = cost performance.
Value of Information Integration to Supply Chain Management 179
180 Wong, Lai, and Cheng
Following the same procedure, we test the influence of environmental uncertainty
by classifying the sample firms into high (n = 81) and low (n = 107) groups of envi-
ronmental uncertainty based on the median split. Consistent with the literature that
environmental uncertainty influences the performance outcomes of SC coordination
efforts, the chi-square difference test shows that the associations between information
integration and business performance measures are contingent on environmental un-
= 86.46, ∆df = 48, p < 0.05). In line with H3b, information integration
is found beneficial to cost performance with a low level of environmental uncertainty
(β = 0.41, t = 2.57), but the relationship is insignificant in a highly uncertain environ-
ment (β = 0.63, t = 1.53). These results suggest that information integration for SCM
can reduce various costs incurred from coordinating SC activities when firms operate
under a less uncertain environment. However, the relationship between information
integration and customer-oriented operational performance in the high group (β = 0.61,
t = 1.48) and in the low group of uncertain environment (β = 0.46, t = 1.27) are both
insignificant, suggesting the relationship is insensitive to environmental uncertainty,
and H3a is not supported. Information integration can be a useful organizational
resource to share the needed information for managing day-to-day operations and to
meet customer-oriented operational needs regardless of the level of environmental
uncertainty. Table 5 summarizes the results of the invariance tests for environmental
Internal Contingency Determinants:
Product Type and Product Complexity
H4b that the association between information integration and cost performance is
moderated by product type in terms of durability is supported (∆χ2
= 4.89, ∆df = 1,
p < 0.05). The relationships are positively significant for both durable (β = 0.53,
t = 3.74) and nondurable product types (β = 0.33, t = 2.17). This indicates that infor-
mation integration is useful to reducing the costs of coordination in SCs, particularly
when firms trade durable products. However, the association between information
integration and customer-oriented operational performance is not contingent on product
= 2.04, ∆df = 1, p > 0.05), lending no support for H4a. This suggests that
information integration is valuable to firms to gain operational efficiency and satisfy
customer needs regardless of the level of product durability.
The associations between information integration and customer-oriented operational
performance in the high (β = 0.58, t = 3.07) and low group of product complexity
(β = 0.36, t = 2.64) are both significant, with the chi-square values significantly dif-
ferent between the two groups (∆χ2
= 4.02, ∆df = 1, p < 0.05), supporting H5a. Based
on the difference in β, the positive association between information integration and
customer-oriented operational performance strengthens when product complexity is
high. However, the relationship between information integration and cost performance
is invariant at different levels of product complexity (∆χ2
= 1.85, ∆df = 1, p > 0.05).
H5b is therefore not supported. This indicates that firms are able to reduce costs with
information integration for SCM irrespective of product complexity. Table 6 summa-
Value of Information Integration to Supply Chain Management 181
182 Wong, Lai, and Cheng
Value of Information Integration to Supply Chain Management 183
rizes the results of the invariance tests incorporating the operational characteristics
of firms. Table 7 summarizes the results of the hypotheses.
The study findings provide implications and contribution to contingency theory.
While contingency theory posits the value of information integration as a mechanism
to overcome uncertainty in SCM, our findings suggest that firms are able to achieve
better customer-oriented operational and cost performance particularly when they
operate in a highly munificent environment. When resources are abundant, it becomes
relatively easy for firms to pursue goals of improving operational and cost performance
by exploiting information integration to generate and disseminate timely and accurate
information, and to work with partners for better coordination of SC activities.Yet the
value of information integration in a less munificent environment is still beneficial to
firms for performance improvement. This result advances contingency theory in the
context of information integration for SCM by providing empirical evidence on the
different performance contingencies beyond managing uncertainty in SCs.
Consistent with our theorization, the findings suggest that information integration
is significantly instrumental in improving firms’ cost performance, particularly when
they experience a low level of environmental uncertainty, where firms can derive
much value from leveraging information integration to coordinate activities across
partner firms in the SC. The study results also suggest that information integration is
valuable to operational performance and not affected by environmental uncertainty.
We explain this result by the fact that firms achieve autonomy in coordinating tasks
and operations across organizational functions through information integration. Such
autonomy in task coordination reduces errors in replenishment, shortens lead time, and
enables on-time delivery, which are concerned with the efficacy of operations despite
changes in sales volume, competition actions, and customer attitude. However, firms
tend to provide additional resources and incur costs in dealing with such uncertainty
in their environments. An IT manager commented:
By integrating our business functions for information sharing and maintaining
our own logistics operations, we are able to satisfy local customer needs by
fulfilling their orders within 24 hours. However, we find it difficult to reduce
our operating costs as we maintain a high level of inventory as well as a large
work force to support the logistics function.
Another major theoretical implication and contribution of this study relates to the in-
tegration of contingency theory with the classical duality perspective of organizational
theory . In addition to examining the performance effect of external environmental
conditions that are deterministic in nature, this study extends the knowledge frontier
of contingency theory by empirically investigating the performance contingencies of
information integration for SCM on the voluntaristic conditions of firms in terms of
Value of Information Integration to Supply Chain Management 185
186 Wong, Lai, and Cheng
product type and complexity. This advances understanding of the effects of inherent
operating conditions on information management, beyond prior contingency-theoretic
studies with a focus on environmental uncertainty, which is external to firms .
This study also provides an empirical explanation for the mixed performance effects
of information integration observed in prior studies. Our findings suggest that when
firms’environmental conditions are deterministic, the value of information integration
Table 7. Summary of Hypothesis Testing
Hypotheses Hypotheses for testing Result
H1a Information integration of a firm’s SC is positively
associated with the firm’s customer-oriented
H1b Information integration of a firm’s SC is positively
associated with the firm’s cost performance.
H2a The positive association between the information
integration of a firm’s SC and its customer-oriented
operational performance strengthens when the
firm experiences a high level of environmental
H2b The positive association between the information
integration of a firm’s SC and its cost performance
strengthens when the firm experiences a high level
of environmental munificence.
H3a The positive association between the information
integration of a firm’s SC and its customer-oriented
operational performance strengthens when the
firm experiences a low level of environmental
H3b The positive association between the information
integration of a firm’s SC and its cost performance
strengthens when the firm experiences a low level of
H4a The positive association between the information
integration of a firm’s SC and its customer-oriented
operational performance strengthens when the firm
offers durable products.
H4b The positive association between the information
integration of a firm’s SC and its cost performance
strengthens when the firm offers durable products.
H5a The positive association between the information
integration of a firm’s SC and its customer-oriented
operational performance strengthens when the
firm offers products with a higher level of product
H5b The positive association between the information
integration of a firm’s SC and its cost performance
strengthens when the firm offers products with a
higher level of product complexity.
Value of Information Integration to Supply Chain Management 187
is less salient under a severe environmental condition (i.e., low munificence and high
uncertainty) versus a forbearing environmental condition (i.e., high munificence and
low uncertainty). In situations where the operating characteristics are voluntaristic
and relatively more controllable than those characterizing the external environment,
firms offering durable and complex products stand a good chance to reap performance
gains from information integration for SCM.
Information integration enables firms to take advantage of long product life cycles
and low levels of product obsolescence by facilitating collaboration with partner firms
to reduce various operating costs in administration, inventory, distribution, and order
management. Thus, firms offering durable products can reap a higher level of cost
benefit by information integration than their counterparts offering nondurable products.
This is in line with organizational theory that the voluntaristic nature of operational
characteristics is taken into account in information integration, where firms streamline
functions and eliminate task redundancy in the hope of achieving cost reduction. Such
a coordination mechanism enabled by information integration allows firms to reduce
transaction and coordination costs in managing operational activities, particularly for
The customer-oriented operational performance of information integration is invari-
ant at different levels of product durability. Such invariance suggests that information
integration is insufficient to differentiate firms’ operational efficiency. As suggested
by an IT manager in our interview, information integration has become a competition
qualifier to ensure timely delivery and error reduction. Information integration is es-
sential not only to coordinating internal tasks but also to acquiring relevant informa-
tion from external parties (e.g., component suppliers and contract manufacturers) to
achieve operational performance irrespective of product durability.
Similarly, our findings indicate that product complexity has no influence on the cost
performance of information integration.The coordination mechanism among functions
for making complex products is structured in the development of intra- and interorga-
nizational information integration. Such information integration is helpful for reducing
coordination costs as well as improving transactional efficiency, which is beneficial to
cost reduction and asset turns in an SC. An operations manager also highlighted the
use of information integration to support repair and maintenance services involving a
large group of field engineers and components. The system supported by information
integration facilitates the repair and maintenance service by providing timely informa-
tion about spare parts availability and their whereabouts while improving inventory
turns. Information integration improves firms’ ability to share the latest information
on product development and shorten lead time with delivery flexibility that enhances
operational performance, even for firms offering complex products.
Our study has several managerial implications. First, the findings show that effec-
tive SCM is key to mitigating uncertainty in coordinating the SC with reduced costs.
While information integration facilitates the physical movement of goods in SCs, it
188 Wong, Lai, and Cheng
also affects how well firms achieve operational and cost performance improvement in
a munificent environment. Firms should consider investing in information integration
for SCM when there is market potential for growth.
Second, it is often argued that cost reduction is difficult to achieve when firms
undergo business expansion to capture market growth . Cost reduction is often
the step taken only when firms have reached the state of maturity in the market to
strive for further business gains. Information integration enables firms to achieve cost
reduction in coordinating SCs in a munificent business environment.
Third, our research shows that contingency factors that are external as well as inter-
nal to firms are related to the performance outcomes of information integration. The
implication is that managers should consider the conditions of their business environ-
ments, as well as their internal operating characteristics, in establishing their target
operational and cost performance goals when developing information integration.
Managers should not expect information integration to deliver the same performance
benefits as those that can be derived under pleasant environmental conditions (i.e.,
high munificence and low uncertainty). Nevertheless, information integration invest-
ment is still needed in a less munificent environment for firms to reap performance
gains. Similarly, information integration is instrumental in reducing costs when
firms operate under a less uncertain environment. However, in a highly uncertain
environment, information integration is insufficient for improving cost performance
because additional resources and costs (e.g., offering additional services) are needed
to deal with such uncertainty.Although our findings are different from the expectation
that SC uncertainty can be mitigated with information systems, it is in line with the
cases of vertically integrated organizations. For example, in Zara, one of the largest
international fashion companies, the coordination of its SC activities does not solely
rely on information sharing. The company maintains other communication channels
(e.g., faxes and phone calls) and reengineers business processes to facilitate coordi-
nation of SC activities among functions through which to gain both operational and
cost advantages . We suggest that managers pursue information integration for
SCM to achieve operational performance improvement regardless of the extent of
environmental uncertainty they face.
Fourth, firms should take advantage of information integration when trading durable
products to lower the costs for coordinating SC activities. Information integration is
also beneficial to operational performance regardless of product durability. In addition,
firms trading highly complex products would also benefit from information integra-
tion with the ability to respond to customer needs in an efficient manner. Enterprises
seeking cost performance in SCM should benefit from information integration for
operating cost reduction regardless of product complexity.
Fifth, managers can use our instrument for measuring the contingency factors to
diagnose the conditions of their business environments. It is a useful tool for planning
and implementing information integration for SCM, which may require significant
investment to develop. In addition, the empirically validated measure of information
integration provides a useful guide for managers to assess and develop information
integration for SCM, as both the technical and coordination aspects of informa-
Value of Information Integration to Supply Chain Management 189
tion sharing should be taken into account in weighing performance improvement
Limitations and Future Research Directions
Our work can be extended in a number of directions. First, although our study
provides evidence in support of our theoretical reasoning, a proportion of the vari-
ance remains unexplained, as is the case for most empirical studies of organizations.
Future research might incorporate other determinants than the external business
environment and operating characteristics that are the moderators investigated in this
study. Second, the unit of analysis in this study is not a specific SC for a given prod-
uct line. We examine the SCs of focal firms and their primary products. This unit of
analysis allows us to focus on organization-wide patterns of information integration,
business environmental conditions, and operating characteristics. Nevertheless, due
to the varied nature of the operations of different SCs, it is worthwhile to investigate
the contingency factors through case studies on the temporal dimension. Third, we
focus on the relative levels rather than the absolute levels of situational conditions.
Further research on the issue of the absolute level of the impact of the study variables
is warranted. Fourth, the use of multiple research methods, as well as the international
business nature of respondents, is valuable for the analysis of data across studies and
the generalizability of findings . Although this study identifies the environmental
and operating contingencies of information integration, the strengths of these factors
on performance outcomes may vary due to industry-specific operational requirements,
such as just-in-time arrangement in the automotive industry. Future studies concerning
industries with different operational requirements (e.g., logistics and shipping require-
ments ) can improve the generalizability of our research findings.
This study advances the knowledge frontier of information integration research
whereby we adopt contingency theory to examine the performance outcomes of in-
formation integrating for SCM in firms that operate under favorable and unfavorable
environmental conditions. We provide empirical evidence to account for the mixed
results concerning information integration for SCM in the literature. Drawing on the
classical duality perspective of organizational theory, we differentiate the performance
contingency factors into two sets: (1) external environmental conditions in terms of
environmental uncertainty and munificence, and (2) operating characteristics of firms
in terms of product complexity and durability. The study findings provide explanations
on how and why the effects of information integration vary with these contingency
We identify the external environmental conditions and the operational characteris-
tics of firms associated with which the value of information integration to improving
cost and customer-oriented operational performance for SCM is more salient. Based
190 Wong, Lai, and Cheng
on related theories and our empirical findings, we provide managers with insights on
the operational and environmental conditions under which information integration is
more likely to bring performance gains. We lay the foundation for future information
integration research, which may investigate other performance contingency factors that
affect information integration for SCM or explore possible ways in which the value of
information integration for SCM can be strengthened under unfavorable conditions.
Acknowledgments: The authors thank Vladimir Zwass and two anonymous reviewers for their
valuable and insightful comments on earlier versions of this paper. This research was partially
supported by the Hong Kong Polytechnic University under grant no. J‑BB7N and by the Re-
search Grants Council of the Hong Kong Special Administrative Region, China (GRF PolyU
1. The field interviews help us to understand the importance of information integration to
SCM, how it can be measured, and the contingency factors that are conducive to its success. A
valuable insight obtained from the interviews is that managers appreciate the value of informa-
tion integration to SCM, but many of them find difficulty in realizing its potential.
2. We note that there are exceptional cases of durable products (e.g., computers and cell
phones) that may lose market value and become obsolete quickly from the marketing perspec-
tive. Similarly, some nondurable products (e.g., canned food) do not perish or become obsolete
quickly. In this study, product durability refers to product life cycle and demand fluctuation due
to a product’s rates of consumption and functions.
3. We restrict our sample to wholesale trade to minimize extraneous variations in SC opera-
tions that might arise because of differences in industry. In addition, the business environmental
conditions of wholesale trading companies are likely to be different because they handle different
sets of competitors, suppliers, customers, government regulations, and economic conditions
when they trade different products. It is therefore reasonable to expect that wholesale trading
companies possess different levels of information integration, and they operate under different
business environmental conditions and with different operating characteristics, enhancing the
generalizability of our results.
4. We sought comments from a panel of six academics and five practitioners in the areas of
information systems and SCM to evaluate (1) the appropriateness of each measurement item
for each theoretical construct, (2) the comprehensiveness of the measurement items, and (3) the
suitability of the wording. In addition, we interviewed five senior executives, drawn from our
sampling frame, to seek their opinions on (1) relevance of our research questions to their SC
operations, (2) survey design quality, and (3) wording of the measurement scales.
5. We use multigroup analysis for the following reasons. First, multigroup analysis enables
us to compare different conditions (e.g., highly complex versus less complex products) that are
beneficial and detrimental to the performance outcomes of information integration. Second,
multigroup analysis can reveal the structural associations between the independent and depen-
dent variables across firms operating under these different situational conditions, allowing us
to test the equivalence of both item-factor loadings and structural weights across firms. Third,
multigroup analysis has been shown as a more appropriate approach to assess the effects of
contingency determinants than if they are posited as a direct effect (e.g., [1, 23]). Moreover,
multigroup analysis can avoid misinterpretation of the mean differences of hierarchical multiple
regression approach .
6. We conduct the multigroup analysis in three steps: (1) the structural parameters are al-
lowed to vary freely across the two groups (e.g., high versus low environmental munificence
groups of firms) to form a baseline model, (2) the structural parameters are constrained to
be equal between the two groups to form a constrained model, and (3) equality of the paths
between the two groups is tested using the chi-square difference between the constrained and
Value of Information Integration to Supply Chain Management 191
the baseline model. A statistically significant change in the chi-square value between the two
groups indicates a moderating effect. A nonsignificant or small chi-square difference indicates
structural invariance, which suggests that the same pattern of structural relationships exists
between the two groups and the magnitudes of the coefficients are not statistically different
between the two groups.
7. We use median split to classify the sample firms into high and low groups to avoid the
impact of outliers. Median split is more robust than mean split, which is subject to possible
mean value distortion by outliners. The fact that the divided groups are unequal in size does
suggest that the distribution is skewed as many firms have the same median score. To ensure
the validity of the analysis, we also test the hypotheses using mean split and find virtually no
change in the findings and the conclusions remain the same.
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Appendix A: Inductive Field Research Methodology
We conduct case study research to explore the importance of information integration
to SCM and the contextually embedded factors that influence information integration
to achieve desirable performance of businesses. Following the grounded theory ,
we approach these research inquiries with a fairly open mind to understand the con-
textual conditions that are pertinent to information integration and to exploring their
relationships. We apply a holistic, ex post case study design for this purpose. This
research approach is appropriate for us to investigate the phenomenon of information
integration and the determinants of the situation (e.g., uncertainty faced by firms) in
which the phenomenon is occurring, enabling us to identify the key factors that may
affect the performance outcomes of information integration.
The relevant population of this study is wholesale trading firms in Hong Kong, which
serve as intermediates for companies sourcing from China and which are considered
to exhibit different SC characteristics, such as product type and demand uncertainty.
From this population, we use the replication logic for multiple-case studies to guide
the selection of the wholesale trading firms such that the sampling firms are purposely
selected from one case to the next based on the match of the underlying theory .
For example, the situational determinants found in a case study are the basis to iden-
tify the next case company. This provides confidence that the emerging situational
determinants that influence the performance effects of information integration are
common and important in the industry .
In order to ensure the quality of our qualitative field research, we take several steps,
including the use of a replicable case study protocol, an interview guide, collection of
multiple sources of evidence, development of databases to maintain evidence, triangu-
lation with multiple sources of evidence for convergence, and key informant factual
review of field reports [25, 98]. To guide our qualitative data collection, we follow
Yin’s  recommendations and develop a case study protocol with five sections:
(1) an overview of the objectives and relevant background of the study, including a
glossary of the terms used in the research and the details of the preparation that needs
to be done before visiting the case companies; (2) a detailed data collection procedure
that describes the steps taken for site visits and interviews; (3) a list of interview
questions that cover the relevant issues of the study; (4) an outline of the case report
to guide the write-up of the case report after data collection; and (5) the follow-up
procedures to be taken after the write-up of case reports, which include sending the
reports back to the informants of the case companies for factual verification. The data
sources include company public reports, press articles, trade publications, archival
data, and interviews. The interview questions include, but are not limited to, “How
Value of Information Integration to Supply Chain Management 197
does your firm coordinate business activities with your trading partners?” “Why is
information integration implemented to support your supply chain activities?” “What
are the uncertainties that your business experiences in your supply chain?” “How
do they affect your business?” and “How does information integration play a role in
overcoming these uncertainties?” The interviewees are managers who work in the
areas of information systems management, SCM, and operations management of the
sample companies. While managing trade in an international arena, these interviewees
possess knowledge about their firms’ internal and external information integration,
the conditions of their business environments and operations, and the performance
effects of information integration.
Data Analysis and Hypothesis Development
We analyze the case data with the explanation-building analytic technique to build an
explanation for the various outcomes of information integration, through which we
identify the key situational determinants that exhibit across firms and develop hypoth-
eses for testing in a later stage of the study. We identify the key situational determinants
by counting the pieces of evidence on a common theme, such as growing opportunities
in market, uncertainty in SC coordination, and product characteristics relating to SC
coordination. This technique allows us to go through successive iterations and revi-
sions of our initial theorization through comparing the findings of the cases until no
new result is found . This technique also serves as part of a hypothesis-generation
process . We compare the insights from the literature on various organizational
theories (e.g., contingency theory) and the case evidence to develop a theoretically
and empirically grounded set of situational factors and hypotheses for verification in
the next stage of the study.