Journal of Enterprise Information Management

Emerald Article: Determinants of informal coordination in networked supply

chains
Robert Ogulin, Willem Selen, Jalal Ashayeri

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To cite this document: Robert Ogulin, Willem Selen, Jalal Ashayeri, (2012),"Determinants of informal coordination in networked
supply chains", Journal of Enterprise Information Management, Vol. 25 Iss: 4 pp. 328 - 348
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JEIM
25,4

Determinants of informal
coordination in networked
supply chains

328
Received 13 December 2011
Revised 22 December 2011
29 December 2011
Accepted 2 January 2012

Robert Ogulin
Department of International Business and Asian Studies, Griffith University,
Brisbane, Australia

Willem Selen
Faculty of Business & Economics, United Arab Emirates University, Al Ain,
U.A.E., and

Jalal Ashayeri
Department of Econometrics and Operations Research, Tilburg University,
Tilburg, The Netherlands
Abstract

Journal of Enterprise Information

Management
Vol. 25 No. 4, 2012
pp. 328-348
r Emerald Group Publishing Limited
1741-0398
DOI 10.1108/17410391211245829

Purpose The purpose of this paper is to empirically examine capability connectivity, relationship
alignment and the ability to informally network in the supply chain as determinants for better
utilizing capabilities amongst supply chain partners. In particular, the paper focuses on how the above
described determinants may impact on operational performance in the supply chain when responding
to short-lived demand requirements or highly dynamic markets.
Design/methodology/approach A mixed research methodology is used, including a qualitative
exploratory phase to confirm the relevance of the research question to the practitioner, followed by
quantitative structural equation modeling, based on a sample of 231 supply chain professionals.
Findings In total, four determinants of informal networking were derived: capability connectivity,
describing the ability of supply chain partners to rapidly and informally integrate capabilities, such as IT, to
service an ad hoc market requirement; relationship alignment or the ability to informally integrate resources
across supply chain partners in the context of highly dynamic market situations; the informally networked
supply chain itself, measuring the ability of supply chain partners to respond to transient opportunities in
the context of highly dynamic markets; and finally operational performance which measures the effect
informal networking has on company performance. Results show that informal coordination of supply
chain activities influences operational performance in different ways, and most significantly impacts
positively on operational efficiency through supply-oriented informal networking. The study identified that
industry rules and regulations have a significant impact on the propensity of supply chain partners to
collaborate informally. Finally, it is also shown that relationship alignment between companies is an
important factor to achieve both market- and supply-oriented informal networking capabilities.
Practical implications The management of industry rules, regulation, connectivity, and relationship
alignment are significant antecedents for informal coordination of supply chain capabilities in business
networks. The study shows positive effects of informal networking in supply chains on operational
efficiency, and suggests that companies should strive to enable greater flexibility to connect with their
trading partners without an abundance of idiosyncrasies. Furthermore, relationship alignment, in
combination with process and IT connectivity, is significant in creating the foundation for informal
networking in supply chains, in particular for supply-related activities.
Originality/value The paper adds a new concept, the informally networked supply chain, and
shows that capability connectivity and relationship alignment may enable new alternative ways of
coordinating supply chain capabilities to meet a specific market requirement. As such, it offers a
new perspective in relation to flexibility and agility in the supply chain.
Keywords Supply chain management, Channel relationships, Construct development, Coordination,
Informal networking, Structural equation modelling
Paper type Research paper

1. Introduction
Collaboration between firms is a powerful source of competitive advantage, calling
for effective management of relationships in the supply chain. This includes the
development and maintenance of capabilities to ensure an effective operating system.
An operating system is said to be superior to that of a competitor if it responds
better to the holistic structure of market opportunities, and as such secures the
long-term viability of the firm. This paper develops a conceptual model for analyzing
how informal connection of capabilities in networked supply chains can increase
the operational effectiveness of a firm in highly dynamic markets. Highly dynamic
markets are characterized by short lead-time requirements and a large variety of
product and service components, thus posing unique requirements for operations
and logistics.
More recently there has been a move away from what may be termed power-based
relationships in supply chains, or relationships based on focal companies, in which
formal and hierarchical dependence is present, toward more of a network model, in
which a sense of mutual development and partnership prevails (Harland et al., 2004).
This observation is supported by several studies that have set the groundwork for
further research in the area of networked relations in the supply chain (Hameri and
Paatela, 2005; Garavelli, 2003; Harland et al., 2004; Hakansson and Persson, 2004;
Hofenk et al., 2011; Koulikoff-Souviron and Harrison, 2007). Networked supply chains
have strong linkages between their members, characterized by low levels of vertical
integration. In addition, the lack of influence or power, exhibited by the interdependence
of business partners, is also seen as a key determinant of an effective networked supply
chain structure (Sydow and Windeler, 1998; Kemppainen and Vepsalainen, 2003; Zaheer
and Bell, 2005). Networked supply chain structures include non-power-based
relationships and inter-company coordination, as well as informal business systems
that are linked through joint supply chain objectives (Croom, 2005; Harland et al., 2004;
Lambert et al., 1998).
In order to be able to better respond to dynamic markets companies increasingly
consider coordinating their supply chain capabilities without formal agreements
across a range of partners (Hakansson and Persson, 2004; Gulati, 1999). It is postulated
that coordination mechanisms in short-term relationships are significantly different
from those in long-term relationships. Typically, supply chain partners would build
relationship traits such as commitment, trust, joint objectives, communication, and the
exchange of information over time. It is argued in this paper that in highly dynamic
situations, supply chain partners have only limited time to get and work together to
respond to a market opportunity, thus more informal coordination practices are
noticeable. While informal coordination practices are often less structured and difficult
to identify, collaborative technologies need to support both informal and formal
coordination mechanisms.
This paper builds on the concept of the informally networked supply chain (INSC)
to discuss collaborative, short-term relationships where partners coordinate their
mutual capabilities to address a transitory, but important, business opportunity in
order to achieve collectively beneficial outcomes. In such a context, supply chain
management concerns the timely coordination of capabilities, i.e. technologies,
processes, and other resources related to the flow of material, information, and funds
within a company, but also externally between companies (Hakansson and Persson,
2004). The reason for better coordination of supply chain activity, and to obtain access
to capabilities, is the improvement of overall operational performance (OP) at the

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company and supply chain level. As markets and customer demands evolve, supply
chain managers are prompted to integrate processes and technology across supply
chain partners (Kemppainen and Vepsalainen, 2003; Davenport, 2005; Holweg et al.,
2005; Lee, 2004; Sydow and Staber, 2002). It appears that existing supply chain
concepts do not sufficiently address the simultaneous effects that informal connectivity
(collaboration standards, technology standards and regulatory and industry rules) and
relationship alignment (RA) (e.g. trust, power, and knowledge sharing) have on
dynamic coordination in networked supply chains.
To fill this gap, this study empirically examines capability connectivity (CC), RA,
and the ability to informally network in the supply chain as determinants for better
utilizing capabilities among supply chain partners. In particular, the study focusses on
how the above described determinants may impact on OP in the supply chain when
responding to short-lived demand requirements or highly dynamic markets. The study
adds a new concept, the INSC, to the discourse in the supply chain management
discipline. It shows that CC and RA may enable new alternative ways of coordinating
supply chain capabilities to meet a specific market requirement. As such, it offers
a new perspective in relation to flexibility and agility in the supply chain (Towill and
Christopher, 2002; Christopher, 2000; Yusuf et al., 2004). In terms of organizational
development, the study provides empirical evidence for the fact that companies may
build informal coordination capabilities in order to take advantage of time sensitive
market opportunities.
2. Theoretical background and development
2.1 The concept of INSCs
The underlying conceptual theme of this study is the idea of informal networking
in supply chain management, enabled through CC and RA, and how this may
affect supply chain performance. Activities and decision processes required to
access and execute capabilities in the context of highly dynamic business
opportunities make up the INSC (Bowersox et al., 2002; Hakansson and Ford, 2002;
Harland et al., 2004). In INSCs, the capabilities of multiple supply chain partners are
coordinated ad hoc to respond to highly dynamic market opportunities. A study by
Gulati (1999) on relationship complexity in a network, both in terms of time and
formalization, measured the time and number of organizations that one company
must go through to reach other companies in the supply chain. The study found
that companies that were utilizing informal mechanisms were likely to have quicker
and richer information about the capabilities residing in the network than other
companies.
The competency to coordinate dynamic capabilities across the supply chain may be
hindered by existing norms and formal approaches to managing all the arrangements
between supply chain partners. With stringent time pressures, or a limited window
of opportunity to respond to opportunities, a collective beneficial outcome can be
achieved by engaging in very ad hoc, or interimistic (Lambe et al., 2000), relationships.
It is argued that expertise in coordinating activities across different companies becomes
an important supply chain capability in itself. In the context of highly dynamic
markets, this leads to INSCs, a concept distinctly different from a more simplistic, linear
and unidirectional representation of flows of materials and associated information
(Lamming et al., 2001).
Next, we elaborate on how informal networking in supply chains is enabled through
effective CC and RA.

2.2 CC
CC in supply chains describes the degree to which collaboration technologies,
processes, rules, and regulations enable the integration of multiple supply chain
partners information flows, which in turn facilitate the related financial and physical
flows in an environment of rapid decision making (Malhotra et al., 2005; Davenport,
2005; Morash, 2001).
Better CC, through the evolution in information and communication technology
may provide more opportunities for informal, indeed ad hoc, coordination of supply
chain capability. Current research (Cheng et al., 2007) in this area supports this notion,
as new extended enterprise models, such as supply chain integration and demand
chain management, require a new method of on-demand information access. The new
requirements stem, first, from the fact that information access now often involves a
large number of enterprise databases that belong to a large number of independent
organizations, and second, the fact that these databases are increasingly overlapping
with real-time data sources such as wireless sensor networks and radio-frequency
identification systems (Cheng et al., 2007). Another study-related CC to enabling
structures for informal coordination of supply chain capabilities (Xu and Beamon,
2006), in which CC ensures that capabilities in a supply chain can be treated by
networked partners as if they belong to one virtual resource pool, both in formal and
informal network settings.
A first dimension of CC measures the degree to which relevant technical standards
are recognized and used by supply chain partners (Helfat and Eisenhardt, 2004; Yusuf
et al., 2004). Technical standards enable the partners in a supply chain to exchange
data, information, and knowledge in an effective and timely manner, including
information and communication exchange standards such as EDI, the internet, and
related technology applications. Open and shared (i.e. standardized) communication
systems may shift powers of coordination from hierarchical and control-oriented
mechanisms by one dominating company to decentralized coordination by networks of
companies (Zaheer and Bell, 2005).
A second dimension of CC considers the degree to which relevant process standards
and methods are recognized and used by supply chain partners (Park, 2003; Saeed
et al., 2005). Through process standards, partners in a networked supply chain can
access shared resources at different points within a process in a more timely fashion.
Process standards in the supply chain reduce barriers and associated transaction costs
for establishing and executing effective supply chain processes. Therefore, procedural
aspects are an important dimension of timely CC. Research attests that the variability
in how organizations define processes makes it difficult to communicate across
companies (Davenport, 2005). There is evidence that industry-specific process standards
enable better information exchange, increased visibility, knowledge, and learning and
hence enable CC (Huang et al., 2005). While such integration efforts have typically been
made based on long-term contracts, interimistic arrangements may nowadays be
enabled through a proliferation and acceptance of supply chain level standards.
Davenport (2005) refers specifically to standards that cross-process and technology
boundaries.
A third dimension of CC takes into account the degree to which relevant industry
rules and regulations are harmonized, recognized, and considered in the decision
processes of all supply chain partners. Increasingly, the large number of regulatory
regimes at industry, state, national, and international level can lead to supply chain
constraints, and hence delay relevant decision making (Elias, 2003, Department of

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Transport and Regional Services (DoTARS), 2002). This is even more the case if these
regulations conflict with one another. Case studies show that a number of factors are
involved, including current supply chain relations and possible ways of integrating
regulations into the business strategy (Forman and Joergensen, 2004). Government
regulation can create or hinder the effectiveness of networked supply chains
coordination, especially where timely action is required. Connectivity, a key factor
for competitive advantage, has been highlighted by businesses and policy makers
in Australia in a report prepared by the Freight Transport Logistics Industry
Action Agenda Workshop (2001). If harmonization cannot be achieved between the
stakeholders, regulation may negatively affect supply chain responsiveness and overall
performance.
Next, we turn to a discussion of RA and how it may impact on informal networking
in supply chains.
2.3 RA
Researchers have found that key success factors for deploying dynamic capabilities
include shared values, i.e. the partner(s) are guided by principles acceptable to both,
or goal congruence, i.e. the behavior of supply chain partners in regard to achieving
a joint objective (Golicic, 2007; Rokkan and Haugland, 2002; Grossman, 2004; Kwon
and Suh, 2004; Morgan and Hunt, 1994). Research suggests that alignment of informal
relationships toward joint objectives depends on relationship variables, including
trust, power, knowledge, and supply chain risk, as well as related attributes such as
commitment, information sharing, communication, and the management of intellectual
property (Rokkan and Haugland, 2002; Grossman, 2004; Morgan and Hunt, 1994;
Kampstra et al., 2006).
Trust is a companys belief that their counterpart(s) in a relationship will
perform actions resulting in positive outcomes (Morgan and Hunt, 1994). This may
be even more important, if the opportunity is transient and requires rapid
decision making and risk taking. A number of studies identify communication
as a critical determinant for trust in business relationships. Some authors state
that trust is a substitute for information, and consider it as an element that
makes communication timely, credible, and hence more effective (Dwyer et al.,
1987).
Power is the ability to influence the decisions or actions of others. In the context
of networked supply chains and short-term opportunities, disproportionate power
distribution may only be beneficial for a business network if it is applied to act on
mutually beneficial opportunities (Hakansson and Ford, 2002). Even though the
activities and the ownership of capabilities may be decentralized in a network,
integration, and standardization of processes and information flows may allow supply
chain partners to retain control over the coordination of end-to-end processes. However,
certain capabilities may be dominated by a lead company, if, for example, one supply
chain partner contributes significantly more capabilities to the differentiation of
a transient product or service offering. In such cases, the other partners may need
to accept power imbalances due to a lack of alternative business opportunities.
The potential benefits might outweigh the risks of losing control in ad hoc supply
chain collaboration due to unfavorable situational power distribution. Power
imbalances can be measured through the rewards and penalties supply chain
partners experience (Morgan and Hunt, 1994). Such measurement indicates the ability
of a supply chain partner to distribute benefits (such as increased business or cost

reductions) or punishment (such as decreased business or dictated cost reductions) to

the other supply chain partner(s). Yet, for most networked supply chains it is the lack
of influence or power, exhibited by the interdependence of business partners, that
is seen as a key determinant of an effective networked supply chain structure
(Sydow and Windeler, 1998; Kemppainen and Vepsalainen, 2003; Zaheer and Bell,
2005). Hence, networked supply chain structures include non-power-based
relationships and inter-company coordination, as well as informal business systems
that are linked through joint supply chain objectives (Croom, 2005; Harland et al., 2004;
Lambert et al., 1998).
Knowledge is yet another factor for aligning relationships and for achieving
competitiveness in highly dynamic environments. It relates to the supply chain
partners technical, procedural, and managerial expertise in particular knowledge
fields (Knoppen et al., 2010). The application of specific knowledge is dependent on
efficient and timely communication between the partners in a network. It includes the
willingness to share information and knowledge to reach a position where each party
is able to achieve benefits through network participation that are greater than if they
remained by themselves. Communication includes the ways in which information is
exchanged and shared between partners and the openness between partners in their
exchanges of information. As supply chain partners are part of a network, knowledge
may be an important source of coordination, and evaluating access to it may be central
to assessing whether supply chains are functioning. Bowersox et al. (2002) found that
supply chain partners who use benchmarks to assess relative performance accumulate
more knowledge than others do, and have stronger beliefs about the importance of
knowledge as a strategic resource. Research also shows that the exchange of knowledge
in ad hoc and highly dynamic relationships is different from that in long-term
relationships. Data presented by Hult et al. (2004) shows that the availability of new
knowledge about products and processes is more important in dynamic market
situations.
Supply chain risk describes the issues related to possible disruptions affecting
entities in the supply chain that may have a direct effect on a companys ability to
continue operations, get finished goods to market, or provide services to customers
(Manuj and Mentzer, 2008). Supply chain risk may be defined as being any possible
impediment on information, material, and product flows from original supplier to the
delivery of the final product for the end user (adapted from Harland et al., 2003). Trust
and commitment in a relationship allow supply chain partners to view potentially
high-risk actions as being sensible because of the belief that their partners will not act
opportunistically (Morgan and Hunt, 1994). Opportunistic behaviors are negatively
associated with trust and commitment and occur when partners intend to maximize
the benefits for their own sake, rather than do their best for the networked supply
chain as a whole.
Another important factor in short-term relationships is commitment. Commitment
is the willingness of a partner company to extend effort and resources, such as the
development of new product or service programs, for the continuation of the
relationship (Sawhney et al., 1999). Commitment is affected by relationship termination
costs, which refer to the costs of withdrawing from the relationship. This determinant
is grounded in exchange theory and based on research in marketing (Morgan
and Hunt, 1994), which shows that the effects of switching costs are a positive reason
for maintaining a relationship commitment. The more committed the partners are to
the opportunity at hand, the greater the chance for each company to achieve their

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individual and mutual goals without the overshadowing risk of engaging in opportunistic
behavior.
2.4 OP
Company-level OP is often measured by efficiency and effectiveness measures.
Availability of inventories, appropriate response times, complete order fulfilment, and
consistent product quality are examples of operational effectiveness. Equally important
in the context of the research are operational efficiency measures, such as machine/tool
set up times, economies of scope, and number of inventory turns. This is in line with
Lummus et al. (2003) who argue that the degree to which an organization can adjust its
supply chain speed and volumes efficiently is key to its performance. Company-level OP
is a measure that captures aspects of revenue enhancement, service improvement of
effective supply chain practices (Ramdas and Spekman, 2000), better strategic focus
(Gunasekaran et al., 2004), and access to knowledge and expertise (Chapman et al., 2003).
Furthermore, process coordination of capabilities across organizational boundaries can
contribute to cost-savings (Hewitt, 1994), standardization of services (Davenport, 2005),
and faster total supply chain response times (Sydow and Staber, 2002). The latter traits
are also highlighted as antecedents for effective supply chain collaborations (Vereecke
and Muylle, 2006; Gunasekaran, 2004).
3. Research model and hypotheses
From our earlier discussions, it is proposed that connectivity is a result of integrating
processes and technologies across companies. It is further posited that industry rules
and regulatory conditions create an environment, which is conducive (or the reverse),
for networked relationships in supply chains. Standards and rules may be important
variables that enable organizations to informally communicate, share information
and more readily make supply chain decisions. As a result, this may improve
companies abilities to connect supply chain technologies, processes, and
organizational structures; combine cross-organizational capabilities more flexibly,
and, depending on the market situation, improve material and financial flows. This
results in the first hypothesis:
H1. Better CC leads to more informal coordination of supply chain capabilities.
The better such relational factors are aligned between supply chain partners, the more
frequently these partners may engage in joint rapid and informal decision making.
This leads to our second research hypothesis:
H2. Better RA leads to more informal coordination of supply chain capabilities.
It is argued that if organizations can overcome the constraints of formal and timeconsuming decision making and engage in INSC arrangements, they can achieve
measurable performance improvements. This leads to the third research hypothesis:
H3. More informal coordination of capabilities in a supply chain network leads to
gains in OP.
Taking into account the higher order nature of the capability connectivity-, INSC-, and
operational performance-constructs, the above three main research hypotheses translate

H1.1. Better supply chain CC through technology and process standards leads to
more market capability access through informal networking.

Determinants of
informal
coordination

H1.2. Better supply chain CC through technology and process standards leads to
more supply capability access through informal networking.

335

into the following final ten hypotheses:

H1.3. Worse supply chain CC through more rules and regulations leads to less
market capability access through informal networking.
H1.4. Worse supply chain CC through more rules and regulations leads to less
supply capability access through informal networking.
H2.1. Better RA leads to more market capability access through informal
networking.
H2.2. Better RA leads to more supply capability access through informal
networking.
H3.1. OP improvement from more market capability access through informal
networking leads to better market-oriented effectiveness.
H3.2. OP improvement from more market capability access through informal
networking leads to better internal efficiencies.
H3.3. OP improvement from more supply capability access through informal
networking leads to better market-oriented effectiveness.
H3.4. OP improvement from more supply capability access through informal
networking leads to better internal efficiencies.
4. Research method
A mixed research approach, using multiple approaches for the collection, analysis,
and interpretation of data, was used (Huberman and Miles, 2002). First, the literature
in the field was reviewed for relevant contributions and gaps, and for determining
the research questions. Subsequently, a qualitative exploratory phase was included
in order to confirm the relevance of the research question to the practitioner,
involving a panel of 96 supply chain experts selected from a sample of 500 senior
executives, across a range of industries and responsibility levels. In order to
analyze the outcome of this qualitative phase, a content analysis was performed that
included a structured data write-up, categorization, and coding (Glaser, 2001). Third,
based on the results of the exploratory field study and the review of the literature, a
research model was proposed and a survey instrument developed to measure the
research constructs and variables. Subsequently, this model was analyzed using
structural equation modeling, and conclusions were drawn as well as implications
for managers and theory development. The detailed research model is summarized in
Figure 1.

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IT and process
capability connectivity
(CC_CONN)

H1.1

H1.2

336

Market-related
informally networked
supply chain
(INSC_MRKT)

H1.3

H3.1

Market
effectiveness
(OE_EFFEC)

H3.2

Regulation and rules

capability connectivity
(CC_REGUL)

H3.3
H1.4
Supply-related
informally networked
supply chain
(INSC_SUPPL)

H2.1

Figure 1.
Research model

Relationship
alignment
(RA)

H3.4

Internal
efficiency
(OE_EFFIC)

H2.2

4.1 Sample and data collection

The sampling frame consisted of 5,000 mail addresses purchased from Dun &
Bradstreet. The respondents were individuals who occupied senior and executive
management roles in organizations that represent the population of the research. The
survey was conducted in four geographical areas: Australia and New Zealand, Asia,
Europe, and North America. Respondents were asked to classify themselves according
to country of origin and to provide information about their organizations industry
sector using an industry classification derived from the supply chain literature. Official
industry classifications such as ANZSIC or other SIC-type codes were not used for the
sample because of the international nature of the data and possible inconsistencies or
unavailability of different classification systems in various countries (Dussauge et al.,
2000). Respondents organizations were also classified by turnover and number of
employees. A total of 2,000 paper-based mail surveys were sent to Australian and New
Zealand respondents, consisting of a cover letter and questionnaire and pre-paid return
envelope. Another 3,000 paper-based invitations were mailed to prospective international
respondents in Asia, Europe, and North America. These contained a cover letter and
instructions on how to participate in an online survey. A total of 231 usable responses
were used, or a 4.62 percent response rate. The characteristics of respondents are
displayed in Tables I-III.
4.2 Measurement
Scales to measure each of the constructs in the model were developed either by
adopting measures that had been validated by other researchers or by converting the
definitions of constructs from the previous literature into a questionnaire format. For
research items where no matching scales were found, existing scales were adapted to
fit the research question, or they were created based on the literature and/or findings
from the exploratory interviews with experts. Specifically, the construct INSC
consisted of two factors and measured the ability of supply chain partners to respond
to transient opportunities in the context of highly dynamic markets. The INSC is a
construct consisting of two well-established factors: time to access supply chain
capabilities and degree of formality in coordinating supply chain capability across

organizational boundaries. A definition for time to access capabilities is the time

it takes the entire supply chain to coordinate interrelated capabilities and execute those
to achieve a desired result (Lummus et al., 2003). The same study provided the
scales for measuring supply chain flexibility, agility, and responsiveness. The first
factor INSC_MRKT measured market-oriented informal networking, and consisted of
four items measuring the degree of complexity of customer demands, the importance
of expediting customer orders, the importance of accessing new markets rapidly,
and the importance of accessing resources for integration with new suppliers.
The second factor INSC_SUPPL measured supply-related informal networking,
and consisted of three items, measuring the ability to respond to market opportunities
in a timely manner by rapidly accessing products and services from suppliers.
Measures for the degree of formalization were adapted from (Beamon, 1998)

Response statistics
Non-deliverable/returned
Decline to participate
Non-usable responses
Usable responses
Response rate by geography %
Total e-mail response rate %

ANZ
Mail

Asia

54
16
2
83
4.15

31
3
26
60
6.00

Europe
North America
E-mail
67
12
35
64
6.40

9
1
3
24
2.40

1
2
3
4
5
7

Chairman, CEO, CFO, COO, other C-level

Senior executive, vice president
Senior manager
Manager
Staff
Consultant
Grand total

Sales in USD
1
2
3
4
5
6
(Blank)

USD 10 million or less

More than USD 10 million, up to USD 50 million
More than USD 50 million, up to USD 100 million
More than USD 100 million, up to USD 500 million
More than USD 500 million, up to USD 1 billion
More than USD 1 billion
No response
Grand total

337

Total

161
32
66
231
4.62

4.93

Position

Determinants of
informal
coordination

Table I.
Response statistics

Total
46
65
75
41
2
2
231

Table II.
Position of respondents

Total
9
22
25
53
52
65
5
231

Table III.
Annual sales of
respondents organization

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who considered formalization of supply chain relationships (i.e. existence of

formal agreements and the extent to which they limit managerial choices) by
studying distribution network partners in the technology industry. Gulati (1999)
provides measures for time and degree of formalization of processes between
organizations.
CC is a higher-order construct, consisting of two factors and describes the ability
of supply chain partners to rapidly and informally integrate capabilities to service
an ad hoc market requirement. The first factor (CC-CONN) measured the access to
collaborative processes and IT capabilities, whereas the second factor (CC-REGUL)
measured the effect of rules and regulation on the propensity of supply chain partners
to coordinate their activities informally. Both factors were measured by four items
each, derived and adapted from (Fawcett et al., 2000; Williams et al., 1998, Daugherty
et al., 1999; Kessides and Willig, 1995). Measurement scales were adapted to survey
the impact of technology, processes, and regulations on performance. They explore
the cross-functional processes in an international production-sharing setting.
The scales include dimensions measuring the ability of supply chain partners
information systems to provide useful information, domestic content laws; foreign
ownership laws; global technology developments; global transportation rates; and
logistics costs. Measurement scales from the literature to operationalize RA along these
dimensions resulted empirically into a single factor construct with four measurement
items. These measurement items included each dimension, but power. This is in
line with earlier findings that state the lack of influence or power, exhibited by the
interdependence of business partners, as a key determinant of an effective networked
supply chain structure (Sydow and Windeler, 1998; Kemppainen and Vepsalainen,
2003; Zaheer and Bell, 2005).
The single-factor RA was operationalized by four measurement variables that
describe the relational factors that are necessary to achieve mutual access and
utilization of capabilities in networked supply chains, in particular for coordinating
capabilities for responding to interimistic demand requirements. The measurement
scales included dimensions such as the importance of trust, adapted from Blois (1999),
the ability to actively share knowledge among supply chain partners and the ability
to rapidly communicate problems (the two latter ones adapted from Jaworski and
Kohli (1993).
OP in our study is a higher-order construct, composed of two factors. The first
factor efficiency (EFFIC) consisted of four items that measured the operational
efficiencies achieved by informally networking in the context of highly dynamic
markets: the ability to reduce own operational cost, the ability to gain knowledge, the
ability to standardize services, and the ability to reduce lead-times in the supply chain.
The second factor effectiveness (EFFECT) consisted of three items, measuring
responsiveness, ability to focus on core business, and ability to improve customer
productivity. Lummus et al. (2003) measure the degree to which an organization can
adjust its supply chain speed, destinations, and volumes. The authors adapted their
measurement scales and added that customers expect such a performance at the
supply chain level without additional cost.
The questionnaire items for regulation and rules connectivity were measured using
a seven-point Likert scale that ranged from 1 do not agree, through 4 neutral, to
7 agree fully; whereas all other questionnaire items ranged from 1 not important,
through 4 neutral, to 7 very important. The measurement items of the constructs
are listed in the Appendix.

4.3 Reliability and validity of research constructs

A rigorous process was used to develop and validate the survey instrument. Prior to
data collection, the content validity of the instrument was established by grounding it
in existing literature. The instrument was pre-tested with a sample of 108 researchers
and other experts (96 panel members and 12 additional respondents) before the
collection of data commenced. In developing scales, care was given to the specification
of the constructs and to the items generated in order to minimize measurement errors,
using a framework based on Churchill Jr (1979) to guide scale development. As
suggested by Narasimhan and Jayaram (1998), an exploratory factor analysis for each
construct was conducted to ensure unidimensionality of the scales. Convergent validity
was assed by conducting a confirmatory factor analysis (CFA). Structural equation
modeling was used to estimate models in which each item was linked to its
corresponding construct, and the covariances among those constructs were freely
estimated. Generally, a construct with either loadings of indicators of at least 0.5,
a significant t-value (t42.0), or both, is considered to be convergent valid (Chau, 1997).
In our model, all factor loadings were 40.50 and the t-values were all 42.0. Therefore,
convergent validity is achieved. CFA was used to estimate discriminant validity. Large
correlations between latent constructs (40.80) suggest a lack of discriminant validity.
Poor discriminant validity is present if the correlation between two factors is (or is very
close to) 1 or 1 (Tabachnick and Fidell, 2001). The correlations between the factors
were between 0.189 and 0.491, therefore establishing discriminant validity for the
various constructs.
Composite reliability was measured via Cronbachs coefficient a and were all
well above the minimum threshold value of 0.60 as recommended by Nunnally (1978)
and Flynn (Flynn et al., 1990). The reliability analysis of the constructs is summarized
in Table IV.

Determinants of
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coordination
339

5. Data analysis and results

5.1 Data analysis
Missing data were found for respondents across the entire sample, with missing
variables missing completely at random (Tabachnick and Fidell, 2001). The
expectation maximization treatment of missing data (Graham et al., 1996) was used
to replace missing values. Research showed that this method of data imputation is
more consistent and accurate in predicting parameter estimates than methods such as

Construct
Capability connectivity (CC)
CC_CONN (IT and process connectivity)
CC_REGUL (regulation and rules connectivity)
Relationship alignment (RA)
Informally networked supply chain (INSC)
INSC_MRKT (market-related INSC)
INSC_SUPPL (supply-related INSC)
Operational performance (OP)
OP_EFFIC (internal efficiency)
OP_EFFECT (effectiveness)

Number of items

Composite reliability

4
4
4

0.658
0.852
0.736

4
3

0.758
0.725

4
3

0.721
0.802

Table IV.
Construct reliabilities

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list-wise deletion, which was highly variable, and mean substitution, which consistently
underestimated values (Graham et al., 1996).
5.2 Results
5.2.1 Panel research findings. A significant number of practitioners found the concept
of informal networking in the supply chain and its related factors connectivity and
RA very relevant. In particular, the following themes scored highly during the
interviews: the ability to quickly integrate participating people and processes across
company boundaries; the importance of accessing expertise as well as physical
resources in the supply chain, regardless of company ownership; establishing
standards that link communication systems, information flows, and operations
processes. Findings from the exploratory interviews suggest that companies want to
reduce the proportion of asset ownership relative to total assets employed. This, they
argued, would be achieved through collaborative practices and outsourcing. The
contacted companies were shifting their attention toward managing and controlling
the access and flow of information, instead. The exploratory research also indicated
that senior executives across a range of industries (i.e. chemicals, telecom equipment
manufacturers, and fast moving consumer goods) informally coordinate supply chain
capabilities to either enhance the efficiencies of operations, or to increase the
effectiveness of serving the market using the best combination of supply chain
capabilities available across supply chain partners. While this initial research strongly
supported the concept of the networked supply chain, there were significant differences
between the degrees of formality and timeliness by industry.
5.2.2 Model results. Figure 2 presents the standardized regression weights and
corresponding p-values for the structural model.
The model meets all goodness-of-fit measures: normed w2 1.315; SRMR
0.048; RMSEA 0.037; GFI 0.942; AGFI 0.913; TLI 0.954; and CFI 0.965. Ten
hypothesized relationships were tested, of which five were confirmed at the 5 percent
significance level. At the 8 percent significance level, eight hypotheses would have been
confirmed. The effect of market-related informal networking on operational efficiency

IT and Process
capability connectivity
( CC_CONN )

0.20
(p = 0.0
67)

48 )
0. 000
0.
=

(p

Market-related
informally networked
supply chain
(INSC_MRKT)

Regulation and rules

capability connectivity
(CC_REGUL)

0.4
2
(p = 0
.019
)

04

7)

Supply-related
informally networked
supply chain
(INSC_SUPPL)

0.

(p
=

Figure 2.
Standardized regression
weights and p-values

Relationship
alignment
(RA)

Market
effectiveness
(OE_EFFEC)

(p 0.2
=0 0
.0
39
)

09
0. .261)
0
(p =

18
0.

0.17
(p = 0.068)

0.19 1)
.04

0
(p =

7
)
0.1 074
.
0
=
(p

0.23
(p = 0.039)

Internal
efficiency
(OE_EFFIC)

proved significant, but with an opposite effect than hypothesized. We only report on
findings at the 5 percent significance level.
First, it was established that process and IT connectivity have a positive effect on
supply-oriented (upstream) informal coordination of activities in the supply chain. It was
also confirmed that regulatory regimes have a significant negative effect on supplyoriented informal networking activities, but not on market-oriented informal networking.
Therefore, the study supports CC as an antecedent for informal networking, in particular
supply-oriented informal networking.
Second, RA was confirmed to be a significant factor for both market-oriented and
supply-oriented informal coordination in supply chains.
Third, market-oriented informal coordination had a negative effect on operational
efficiencies, whereas supply-oriented informal networking had a positive effect on
operational efficiencies. Since supply chain partners share and exchange capabilities to
create an advantage in markets in which they operate, this suggests that market-oriented
(downstream) and supply-oriented (upstream) informal supply chain coordination have
diametrically opposing effects on operational efficiency.
Supply-oriented informal networking showed 60 percent of total variance explained,
whereas market-oriented informal networking showed 51 percent, and operational
efficiency 57 percent, respectively. CC did not achieve a high explanatory value, with
moderate loadings on other variables. Further research will need to establish the
perception in the target population of senior executives regarding CC, which may show
that the posited relationship is more complex than anticipated in this study, or that CC
has become a resource that is ubiquitous in modern supply chain configurations.
In summary, our results show that informal coordination of supply chain activities
influences OP in different ways, and most significantly impacts positively on operational
efficiency through supply-oriented informal networking. The study identified that
industry rules and regulations have a significant impact on the propensity of supply
chain partners to collaborate informally. Our results also show that RA between
companies is an important factor to achieve both market- and supply-oriented informal
networking capabilities.
6. Discussion and conclusion
6.1 Implications for theory
The study adds a new concept, the INSC, to the discourse in the supply chain
management discipline. It shows that CC and RA enable new alternative ways of
coordinating supply chain capabilities to meet a specific market requirement. As such, it
offers a new perspective in relation to flexibility and agility in the supply chain (Towill
and Christopher, 2002; Christopher, 2000; Yusuf et al., 2004). The study supports
conclusions made by others about the importance and benefits of information integration
in the supply chain (Gosain et al., 2004; Meyer et al., 2004; Balakrishan and Geunes, 2004).
Our results show that informal coordination in supply chains can lead to a reduction of
operating costs and improved productivity.
The research produces strong evidence for the role of collaboration capabilities
(Holweg et al., 2005; Stank et al., 2001; Cheng et al., 2007; Kampstra et al., 2006). Our
findings show that RA is a co-requisite for informal networking. The contribution to
supply chain theory and practice is the recognition that supply chain processes and
technology are not sufficient in themselves to achieve the benefits from informal
and fast coordination. The analysis confirms that the intangible aspects (such as RA)
are of equal importance as tangible aspects (such as technology and processes) for

Determinants of
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coordination
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342

enabling companies to respond to opportunities in highly dynamic market situations. It

also confirms the importance of effective connectivity technologies to support a greater
variety of coordination practices within complex and dynamic supply chains. The
findings add to the research relating to the role process standards (Davenport, 2005),
technology standards (Kay, 2003; Park, 2003; Huang et al., 2005), and industry rules
(Elias, 2003) play in enabling cross-company integration.
6.2 Implications for practice
In terms of organizational development, the findings suggest that companies should
build informal coordination capabilities in order to take advantage of time-sensitive
market opportunities. In this respect, our study shows that the management of
industry rules, regulation, connectivity, and RA are significant antecedents for
informal coordination of supply chain capabilities in business networks. Consequently,
companies should create management capabilities to deal with these phenomena. The
results are supported by similar findings, where different contextual circumstances of
interimistic business situations required supply chain partners to find different ways
of working together (Lambe et al., 2000). This seems to highlight that informal
coordination in supply chains represents distinctly different capabilities from those
that may be present in long-term relationships, or transactional relationships (Myhr
and Spekman, 2005).
The study contributes to OP management. It presents evidence for positive effects
of informal networking in supply chains on operational efficiency (e.g. increased focus
on improved productivity and reduced response times). The results suggest that
companies should strive to enable greater flexibility to connect with their trading
partners without an abundance of idiosyncrasies.
This study contributes to extending business process and IT integration in
companies. It is shown that RA, in combination with process and IT connectivity, is
significant in creating the foundation for informal networking in supply chains, in
particular for supply-related activities.
Results of this study could be implemented in areas like service- and knowledge
management businesses that could help other organizations deal with informal supply
chain coordination, allowing different entities to focus on their core competencies.
These firms could provide basic information about developing network connectivity,
using databases such as e-mail repositories or other communication means, techniques
such as text mining, graph/network theory, and advise parties where in the network
informal coordination is forming and how to deal with the formation of informal
networks or clusters. Such neutral third parties may further promote additional
coordination of capabilities.
6.3 Research limitations and areas of future research
While this research contributes to a better understanding of informal networking, it
has its limitations. First, this study focussed on the analysis of informal coordination in
networked supply chains and its effects from the view of a focal company. Future
studies may expand the scope of this research to include entire supply chains. Second,
future research may investigate the effects of INSCs on a broader array of measures of
company performance, and additional measures of OP. Third, a follow-up study could
address the question of how supply chain partners can manage the existence of
potentially diametrically opposed goals among supply chain partners. Trust provides
an incentive for partners to collaborate in a non-opportunistic way for the limited life of

the opportunity. However, supply chain partners must be aware of risks associated with
conducting business in an informal way, such as opportunism, lack of commitment of
supply chain partners, and the risk of losing valuable resources. Hence, mechanisms
for mitigating such risks must be understood. Areas for future research could include, for
example, the selection of partners for this type of relationship that presumes the ability
to manage relevant relational information, to define and monitor early warning signs,
and to be flexible to enter and exit relationships. Fourth, variables that have not been
examined include structure of specific supply chains, number of tiers in the chain,
types of supply chain applications, and types of integrated business processes.
Research into such phenomena could help develop a better understanding of
capabilities and collaborative behaviors in different contexts. Such study would call for
an expansion of the unit of study from a focal firm to an entire supply network. Fifth,
the scope of the study could be further expanded through additional construct
development, such as relational interaction routines and information flow integration.
For example, relational interaction routines for unplanned, ad hoc, tasks are
fundamentally different from interaction routines that are ongoing and repetitive in
nature. This would provide additional insights for the design of collaborative supply
chains. Sixth, future research could also expand the scale of the study by obtaining
a large enough sample to include sufficient representation of major geographical regions.
Due to budget constraints, this study focussed on selected geographies only. Although
data were collected from a commercial list obtained from Dun & Bradstreet, the
original sample size and resulting responses were not sufficient to draw generalizable
conclusions for different subgroups of the target population, i.e. by country, region, and
industry. Finally, language and culture differences may have a moderating effect on the
relationship between informal networking in the supply chain and OP. The literature
indicates that language and cultural differences can affect the operation of foreign
firms (Fawcett et al., 2000). Yet, culture and language difference do not find much
consideration in the supply chain literature. Further studies could investigate the
relevance of these, and other, issues on informal networking in the supply chain.
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Appendix. Measurement items
Capability connectivity (CC)
CC_CONN (IT and process connectivity)
How important is shared IT for coordinating between supply chain partners?
How important is access to confidential company information for coordinating between supply
chain partners?
How important is access to non-confidential company information for coordinating between supply
chain partners?
How important is the Internet for coordinating between supply chain partners?
CC_REGUL (regulation and rules connectivity)
Current government regulations hinder collaboration with NEW partners (Degree of A lack of
regulators understanding of supply chain priorities hinder collaboration with NEW partners
(Agree/Disagree)
Current regulation negatively affects investment in supply chain (Agree/Disagree)
Current government regulations hinder collaboration with EXISTING partners
Relationship alignment (RA)
How important is trust in your supply chain partner for achieving responsive supply chains?
How important is the ability to rapidly communicate problems between supply chain partners?
How important is the ability to integrate supply chain resources rapidly?
How important is the ability to actively share new knowledge between supply chain partners?
Informally networked supply chain (INSC)
INSC_MRKT (market-related INSC)
How important is the possibility to access a supply chain partners resources for your ability to
expedite a sales order?
How important is the possibility to access a supply chain partners resources for addressing
unusually complex product/service requirements?
How important is the possibility to access a supply chain partners resources for breaking into a new
market arises unexpectedly?
How important is the possibility to access a supply chain partners resources for integrating with a
new supplier?

(continued)

Determinants of
informal
coordination
347

JEIM
25,4

348

INSC_SUPPL (supply-related INSC)

How important is quick access to alternative supply source?
How important is the informal access to 3rd party manufacturing capability?
How important is the informal access to 3rd party logistics capability?
Operational Performance (OP)
OP_EFFIC (internal efficiency)
How important is supply chain collaboration for reducing supply chain cost in my company?
How important is supply chain collaboration for increasing productivity?
How important is supply chain collaboration for reducing response times?
How important is supply chain collaboration for standardizing supply chain services?
OP_EFFECT (effectiveness)
How important is supply chain collaboration for increasing access to relevant supply chain
knowledge?
How important is supply chain collaboration for allowing my company to better focus on core
business?
How important is supply chain collaboration for accelerating supply chain response times when
required?

Corresponding author
Willem Selen can be contacted at: Williem.selen@uaeu.ac.ae

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