Firm Performance Impacts of Digitally Enabled Supply Chain Integration Capabilities1

Best practice exemplars suggest that digital platforms play a critical role in managing supply chain activities and partnerships that generate performance gains for firms. However, there is limited academic investigation on how and why information technology can create performance gains for firms in a supply chain management (SCM) context. Grant’s (1996) theoretical notion of higher-order capabilities and a hierarchy of capabilities has been used in recent information systems research by Barua et al. (2004), Sambamurthy et al. (2003), and Mithas et al. (2004) to reframe the conversation from the direct performance impacts of IT resources and investments to how and why IT shapes higher-order process capabilities that create performance gains for firms. We draw on the emerging IT-enabled organizational capabilities perspective to suggest that firms that develop IT infrastructure integration for SCM and leverage it to create a higher-order supply chain integration capability generate significant and sustainable performance gains. A research model is developed to investigate the hierarchy of IT-related capabilities and their impact on firm performance. Data were collected from 110 supply chain and logistics managers in manufacturing and retail organizations. Our results suggest that integrated IT infrastructures enable firms to develop the higher-order capability of supply chain process integration. This capability enables firms to unbundle information flows from physical flows, and to share information with their supply chain partners to create information-based approaches for superior demand planning, for the staging and movement of physical products, and for streamlining voluminous and complex financial work processes. Furthermore, IT-enabled supply chain integration capability results in significant and sustained firm performance gains, especially in operational excellence and revenue growth. Managerial initiatives should be directed at developing an integrated IT infrastructure and leveraging it to create process capabilities for the integration of resource flows between a firm and its supply chain partners.