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SUMMARY

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

This study investigated the effect of interorganizational Internet communication on purchasing performance. On the basis of a review of the relevant literature, three key dimensions of Internet communication behaviors were identified: frequency, diversity and formality. A model was developed to depict the antecedents of interorganizational Internet communication and the impact of such communication on purchasing performance. Responses from 284 Chinese manufacturing firms were used to test the study's hypotheses. Results revealed that the frequency, diversity and formality of Internet communication played an important role in determining the level of purchasing performance. Additionally, formality was critical to managing information flows over the Internet and preventing potential Internet information security risks. Further, results indicated that two factors, perceived Internet security risks and norms of Internet information sharing, significantly influenced Internet communication behaviors.


INTRODUCTION

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

It has been well documented that interorganizational communication is critical to effective management of an organization's purchasing practices and successful buyer–supplier strategic alliances (e.g., Mohr and Nevin 1990; Mohr and Spekman 1994; Monczka, Peterson and Handfield 1998; Claycomb and Frankwick 2004; Knemeyer and Murphy 2004; Kwon and Suh 2004). Traditionally, such communication is conducted through media such as mail, telephone, fax and face-to-face meetings. However, with the explosive growth of the Internet in the past decade, a variety of Internet technologies, ranging from simple communication applications, like e-mail, to more advanced tools, like extranets, have been adopted by numerous companies for meeting their intra- and interfirm communication needs.

The popularity of the Internet is primarily due to the following three factors: (1) the Internet allows companies to exchange information and data with trading partners in a much quicker and/or more convenient way than the traditional media (Clampitt 1991; Kettinger and Grover 1997; Warentin, Sayeed and Hightower 1997; Bird 2000); (2) the cost of Internet communication is significantly lower than that of other electronic-enabled communication modes such as electronic data interchange (EDI) and fax; and (3) the Internet communication enables one company to customize the information that it provides to its specific trading partners. Thus, the trading partners can obtain as much relevant information as they desire from the company's computer systems through the Internet.

Despite its increasing popularity in the business world as a communication and transaction tool, the issue of how to achieve most effective interorganizational Internet communication still remains a challenging task facing today's supply managers. This challenge has yet to be thoroughly addressed by academicians. Many prior studies on interorganizational communication have focused on information flows within a broad communication environment, where diverse communication modes (offline and online communication) are concurrently utilized to communicate across organizational boundaries. Therefore, their findings regarding the antecedents and consequences, as well as key dimensions, of interorganizational communication may not embrace the unique facets of Internet communication and consequently would have some constraints in their generalization of the online communication setting (e.g., Mohr and Nevin 1990; Mohr and Sohi 1995; Fredendall, Hopkins and Bhonsle 2005).

Moreover, most research focusing purely on Internet communication has limited its attention to a single Internet communication tool, such as e-mail, or to certain specific Internet-based interorganizational transaction systems, such as online procurement systems (e.g., Kettinger and Grover 1997; Croom 2000; Kaufmann and Carter 2004). Thus, these studies were insufficient in terms of providing a more comprehensive assessment of diverse Internet communication activities and their influence on business performance. The lack of systematic, empirical studies on overall interorganizational Internet communication makes it difficult for managers to determine how their resources and efforts should be best allocated for purposes of achieving high-quality interorganizational communication and enhancing cooperation with their business partners.

Therefore, the current study intends to expand the body of knowledge relating to interorganizational Internet communication by answering these four specific questions: (1) what are the key facets of interorganizational Internet communication activities?; (2) how do trading partners' concerns about Internet security risks affect their norms of Internet information sharing?; (3) how do the norms of Internet information sharing influence interorganizational Internet communication activities? and (4) how does the nature of interorganizational Internet communication activities impact the performance of the purchasing department (referred to as purchasing performance hereafter)?

In the succeeding sections of this paper, the authors discuss the key dimensions of interorganizational Internet communication, the study's research model, research methodology and findings. These are followed by discussion and managerial implications, as well as by conclusion and limitations.

KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

In their comprehensive review of the literature on communication theory and organizational communication (e.g., Fisher 1978; Watson 1982; Schall 1983; Axley 1984; Fulk and Mani 1986), Krone, Jablin and Putnam (1987) have identified four major theoretical perspectives on communication behavior, namely, mechanistic, psychological, interpretive-symbolic and systems-interaction perspectives. They demonstrate that each of the models address the process of communication from a distinctive view; the mechanistic perspective views communication as a transmission process in which a message travels across a channel from one point to the other; the psychological perspective focuses on “conceptual filters” of communicators, which consist of their attitudes, cognitions and perceptions; the interpretive-symbolic perspective concentrates on role-taking and shared meaning of communication; and the systems-interaction perspective focuses on the patterned sequential behaviors of communication (i.e., the grouping of sequences of communicative activities).

In developing key measures to assess Internet communication between trading partners, the authors have adopted the mechanistic perspective of organizational communication primarily due to the following two reasons. First, of the four theoretical perspectives, the mechanistic view is the one with a strong focus on channel communication (Krone et al. 1987). Specifically, this perspective attempts to explain communication by examining events and functions occurring within the channel (Fisher 1978; Krone et al. 1987), which fits well into the main focus of the present study in that the Internet plays the role of a communication channel. Second, the validity and generality of the mechanistic view is evidenced in a number of studies on interorganizational communication (e.g., Mohr and Nevin 1990; Mohr and Sohi 1995; Mohr, Fisher and Nevin 1996; Li 1998; Johlke, Duhan, Howell and Wilkes 2000). Notably, Internet-based interorganizational communication could be regarded as a specific form of interorganizational communication.

As noted by Fisher (1978), the mechanistic perspective treats message as a concrete substance with spatial and physical properties, and assumes that communication can be broken into smaller components. Thus, the mechanistic perspective posits that human communication can be studied by identifying and measuring these components, and by investigating the causal relationships among them (Krone et al. 1987). On the basis of this theoretical perspective, Mohr and Nevin (1990) have built a model for channel communication and its four major components such as content, mode, directionality and frequency. This categorization has been widely adopted by subsequent research studies (e.g., Mohr and Sohi 1995; Mohr et al. 1996; Li 1998; Johlke et al. 2000; Prahinski and Benton 2004). However, in their development of the conceptual model, Mohr and Nevin (1990) considered only non-Internet, traditional communication media.

In addition, on the basis of the mechanistic perspective, proponents of media richness theory focus on communication channels and suggest that effective managers make rational choices by matching a particular communication medium to a specific task and to the degree of richness required by that task (Lengel and Daft 1988; Vickery, Droge, Stank, Goldsby and Markland 2004). Daft and Lengel (1984) propose a classification of communication media based on their capability to support exchange of “rich” information, which refers to “information that can overcome diverse frames of reference and change understanding in a timely manner” (Vickery et al. 2004). These media are, in order of decreasing richness, (1) face-to-face, (2) telephone, (3) personal documents, such as letters and memos, (4) impersonal written documents and (5) numeric documents.

Recently, Vickery et al. (2004) incorporate electronic media (e.g., e-mail or electronic data interchange) into the previously mentioned Daft and Lengel (1984) ranked framework and categorize them as rich media (along with face-to-face and telephone) based on their empirical test results. Vickery et al. (2004) further note that rich media permit transmittal of highly complex and/or tacit knowledge and support extensive versus routine problem solving. Thus, it can be inferred that the Internet can be utilized for transmitting a variety of messages with various levels of information richness, ranging from very rich to very lean information. Accordingly, the extent to which different types of information (or diversity of information) are exchanged over the Internet becomes a critical measure of the Internet usage (e.g., Massetti and Zmud 1996; Jun, Cai and Peterson 2000).

Therefore, building on Mohr and Nevin's (1990) model for channel communication and Vickery et al.'s (2004) work on electronic media within the framework of media richness theory, the authors develop a measurement scheme for assessing interorganizational Internet communication. The measure consists of three key dimensions: frequency, diversity and formality. Specifically, the diversity and formality dimensions correspond to the respective content and modality uncovered by Mohr and Nevin (1990) in the context of primarily non-Internet communication media (e.g., face-to-face, telephone, mails and fax). The remaining Internet communication dimension, frequency, can overlap the domains of Mohr and Nevin's (1990) two constructs, frequency and directionality, because the present study considers bi-directional information flows by counting the frequency of information transmission from the buyer to the supplier and then from the supplier to the buyer separately. The following subsections discuss further each of the identified three dimensions of the Internet communication.

Frequency

Frequency refers to the number of contacts or information exchanges between two different parties (Mohr and Nevin 1990). This dimension has been widely adopted by supply chain management (SCM) studies as a key indicator of the intensity of interorganizational relationships (e.g., Mohr and Nevin 1990; Krause 1999; Sivadasan and Efstathiou 2002). On the other hand, many management information systems (MIS) studies have utilized the concept of volume for measuring the extent of electronic information exchanges between trading partners (e.g., Neo 1994; Massetti and Zmud 1996; Jun et al. 2000). The volume dimension can be assessed by multiplying the number of different types of documents exchanged through electronic linkage by the frequency of exchanges for each type of document. As shown in this formula, frequency is one of the two variables in determining the volume of information transmitted between trading partners through electronic means such as EDI and the Internet.

Diversity

Diversity refers to the number of distinct types of documents/information exchanged between two different parties. Although much of the SCM literature has not clearly accepted the concept of diversity as one of the key elements of communication, some studies in this field have recognized the importance in the variety of information transmitted between organizations (e.g., Mohr and Spekman 1994; Monczka et al. 1998). On the other hand, the MIS literature has specifically emphasized the importance of diversity to interorganizational electronic information transactions. For example, Massetti and Zmud (1996) suggest that the greater the variety of documents exchanged through EDI, the more automated and standardized are the organization's document generation, transmission, and reception processes, and the more benefits the organization will derive. Hart and Saunders (1998) also contend that increases in the diversity of documents and information transmitted through EDI could contribute to a tighter coupling between trading partners.

Formality

In the context of communication, the term formalization refers to the degree to which the behaviors and requirements of communication are explicitly codified into rules, policies, regulations, customs and so on (Jablin 1987). Many SCM studies have considered “formality” as one of the key components of interorganizational communication (e.g., Anderson, Lodish and Weitz 1987; Mohr and Nevin 1990; Mohr and Sohi 1995; Tan, Lyman and Wisner 2002; Pagell 2004; Prahinski and Benton 2004). In addition, some MIS studies have addressed the formality issue in the electronic communication environment. Kumar and Van Dissel (1996) argue that it is critical for organizations to establish technical and procedural mechanisms in a formal way and to develop standards to handle various risks and conflicts in an interorganizational systems (IOS) network. Da Silveira (2003) suggests that lack of regulation constitutes a major challenge to the use of online order handling.

RESEARCH MODEL

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

Agency theory is concerned with the study of problems that arise when the principal (e.g., the buyer) delegates work to the agent (e.g., the supplier) (Eisenhardt 1989; Lassar and Kerr 1996). This theory provides a conceptual basis for addressing the issue of how to effectively manage supply risks, which involve the potential occurrence of events associated with inbound supply that can have detrimental effects on the buying firm (Zsidisin 2003). Zsidisin and Ellram (2003) note that when supply uncertainty becomes a significant factor, the application of agency theory suggests that appropriate risk reduction strategies should be either behavior-based management efforts, such as supplier development, or buffer-oriented methods, such as using safety stock and multiple supplier sources. In particular, the behavior-based management approach focuses on aligning suppliers' objectives with those of the buyer, monitoring the actions of suppliers, establishing closer relationships with suppliers primarily through enhanced interorganizational communication and improved information sharing (Anderson and Oliver 1987; Eisenhardt 1989; Zsidisin and Ellram 2003), thereby achieving improved purchasing performance.

Building on the behavior-based risk management strategy grounded in agency theory, and the previously discussed Mohr and Nevin (1990) and Vickery et al. (2004) work, the authors propose a hypothesized model, comprising three dimensions of interorganizational Internet communication (formality, frequency and diversity), and its two antecedents (norms of Internet information sharing and perceived security risks) and one consequence (purchasing performance) (see Figure 1). Specifically, the study's model suggests that perceived Internet security risks influence the three dimensions of Internet communication through the mediation of norms of Internet information sharing. This model also proposes that each of the three key dimensions of Internet communication affects purchasing performance.

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Figure 1. THE INTERNET COMMUNICATION MODEL

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The construct of purchasing performance, as an outcome variable, refers to the ability of the purchasing department to acquire the materials, services and equipment used in the operation of the organization, and to manage supplier bases (Dumond 1991; Dobler and Burt 1996). Purchasing performance can be measured by three groups of attributes: reliability (on-time delivery, purchasing order cycle time and accuracy on areas such as specifications, quantity and price) (Chao, Scheuing and Ruch 1993; Raedels and Buddress 1993; Finn, Baker and Marshall 1996; Wisner and Stanley 1999; Stanley and Wisner 2001); value of the purchased products (quality of purchased items and meeting target costs) (Chao et al. 1993; Raedels and Buddress 1993; Finn et al. 1996; Wisner and Stanley 1999; Stanley and Wisner 2001) and management of supplier relationships (supplier development, and developing teams and partnerships with the supplier) (Chao et al. 1993; Raedels and Buddress 1993; Finn et al. 1996).

Internet Security Risks and Norms of Internet Information Sharing

Norms are the expectations about the behaviors that are at least partially shared by a group of decision makers (Heide and John 1992). A number of previous studies have pointed out that norms encouraging open flows of information could significantly influence communication activities (e.g., Reilly and Diangelo 1990; Heide and John 1992; Mohr and Sohi 1995). Hence, norms of Internet information sharing can be defined as a bilateral expectation that parties in a relationship will proactively provide information useful to the partner over the Internet (Heide and John 1992; Mohr and Sohi 1995). When such norms exist between trading partners, they possess the common belief that information sharing through the Internet is important and expected (Mohr and Sohi 1995).

Apparently, norms of Internet information sharing could be greatly influenced by the trading partners' perceptions of Internet security risks. Kolluru and Meredith (2001) have identified various types of security risks, particularly in the context of interorganizational Internet communication. They are: destruction or unauthorized use of information and resources; corruption or modification of information and resources; theft, removal or loss of information and resources; unauthorized disclosure of information; deception via presentation of false data; and disruption and usurpation of system components.

A considerable amount of the literature on business-to-business (B2B) e-commerce suggests that the security concern is a major determinant of a company's willingness to communicate with each other and conduct businesses over the Internet (e.g., Min and Galle 1999, 2003; Croom 2000; Enos 2001; da Silveira 2003). Therefore, if the trading partners are deeply concerned with the potential security risks of interorganizational Internet communication, they are unlikely to have a strong interest in sharing critical information over the Internet. Thus, they would demonstrate relatively limited expectations for communication behaviors over the Internet between each other, resulting in a lack of norms of Internet information sharing. Therefore, it is hypothesized that:

  • H1:
    Perceived Internet security risks are negatively related to the norms of Internet information sharing.

Norms of Internet Information Sharing and Formality

The relationship between norms of information sharing and the formality of communication activities remains unclear in previous SCM studies. The studies suggest that, on the one hand, where information sharing norms exist, the trading partners do not need a formal communication agreement to ensure that they can receive sufficient feedback from each other, and frequent informal communication might be required to convey “rich” and sensitive information that is needed (Williamson 1979; Mohr and Sohi 1995). On the other hand, trading partners with the norms of information sharing would transmit huge amounts of information between each other, and thus they may need a formalized structure to coordinate all the communication activities between them (Bensaou 1999).

Similarly, in the context of interorganizational Internet communication, on the one hand, in order to manage discussion among participants effectively, Internet communication often requires certain rules and regulations. On the other hand, the Internet, as a communication medium, is more convenient, faster and cheaper than other media such as mail and face-to-face interactions. Therefore, if there exist norms of Internet information sharing, trading partners are likely to use the Internet to exchange real-time information with each other at any time, and do not need to establish a formal rule like designating a specific time and date to transmit a particular type of information between them. Thus, it is also conceivable that norms of Internet information sharing would negatively affect the formality of Internet communication. Accordingly, the authors offer a nondirectional hypothesis for this relationship. It is hypothesized that:

  • H2:
    Norms of Internet information sharing are related to the formality of Internet communication activities.

Norms of Internet Information Sharing and Frequency

In the context of the broadly defined interorganizational communication, Mohr and Sohi (1995) have proved that norms of information sharing are positively related to communication frequency. Similarly, in the setting of Internet communication, the presence of norms of Internet information sharing in a trading partner relationship would indicate that: (1) both parties are willing to share a variety of information with each other; and (2) both parties believe that the Internet is an appropriate channel for communicating the information. Accordingly, trading partners with norms of Internet information sharing are likely to exchange information frequently through the Internet. Therefore, it is hypothesized that:

  • H3:
    Norms of Internet information sharing are positively related to the frequency of Internet communication activities.

Norms of Internet Information Sharing and Diversity

By definition, the existence of norms of Internet information sharing indicates that both trading partners are willing to share a variety of information with each other via the Internet. Conversely, without such norms, it is unlikely that one party will use the Internet to provide diverse information to the other. One empirical study has lent partial support to this argument. Hart and Saunders (1998), while investigating EDI-based communication, find that the multifaceted construct of supplier trust, which includes the dimension of “willingness of the trading partners to share information,” is positively related to the diversity of information exchanged through EDI. As mentioned earlier, the Internet could be regarded as a less costly alternative to EDI for interorganizational communication. Thus, Hart and Saunders' (1998) findings may also apply to the Internet communication. Therefore, it is hypothesized that:

  • H4:
    Norms of Internet information sharing are positively related to the diversity of Internet communication activities.

Formality and Purchasing Performance

The relationship between communication formality and purchasing performance remains unclear in previous literature. Mohr and Sohi (1995) failed to find a significant relationship between formality and communication quality in the context of the computer distribution channel. Later, Prahinski and Benton (2004) find a significant, positive relationship between formality and buyer–supplier relationships. Conversely, Pagell (2004) suggests that informal and real-time communication is critical to supply chain integration. Similarly, in the context of Internet communication, Osmonbekov, Bello and Gilliland (2002) propose that formality should be reduced as effective communication supplants the need to tightly manage the flow of information and paperwork. This statement implies that formality would be negatively related to Internet communication outcomes. Thus, the authors offer a nondirectional hypothesis regarding the relationship between the two constructs. Therefore, it is hypothesized that:

  • H5:
    Formality of Internet communication activities is related to purchasing performance.

Frequency and Purchasing Performance

Prior SCM studies argue that a higher frequency of information exchange is beneficial to business outcomes and purchasing performance. For example, Mohr and Sohi (1995) contend that communication frequency is positively related to communication quality in distribution channels. Gonzalez-Benito and Spring (2000) also suggest that frequent communication is essential to JIT purchasing. Further, Romano and Vinelli (2001) and Perry and Sohal (2001) point out that frequent communication is critical to coordinated supply chain network.

In the context of electronic communication, Hill and Scudder (2002) note that frequent use of EDI is critical to supply chain success. Cannon and Homburg (2001) also indicate that the high frequency of written/electronic communication lowered both acquisition and operations costs for buying firms. In the same vein, McCormack and Kasper (2002) demonstrate that frequency of Internet communication between trading partners is positively related to supply chain performance. Thus, it is conceivable that high frequency of Internet communication could result in enhanced purchasing performance. Therefore, it is hypothesized that:

  • H6:
    Frequency of Internet communication activities is positively related to purchasing performance.

Diversity and Purchasing Performance

As for the relationship between diversity and purchasing performance, many SCM studies suggest that extensive information sharing between trading partners is critical to purchasing performance and SCM. Burt, Norquist and Anklesaria (1990) note that information on suppliers' financial health, debt levels, growth potential and overall cost structure is required for the buyer to effectively plan future purchases. Monczka et al. (1998) find that the extent of information sharing between trading partners is critical to their relationship. Further, Rosezweig, Roth and Dean (2003) show that integrated supply chain members with increased information visibility could significantly improve their business performance. Therefore, the trading partners need to exchange a variety of information to ensure a high level of purchasing performance. The same logic can be applied to Internet communication. Therefore, it is hypothesized that:

  • H7:
    Diversity of Internet communication activities is positively related to purchasing performance.

RESEARCH METHODOLOGY

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

Target Sample

The target sample of the current study consisted of manufacturing firms in China. The authors decided to select this target sample for two reasons. First, although the manufacturing and industrial base of the United States is acknowledged to be the world's largest, China has emerged as a major global manufacturer in recent years and has been called a veritable “factory of the world.” Second, many Chinese companies have utilized the Internet for their business communication and commercial transactions (Chen 2004). These factors make China an ideal location for the current study, which focuses on the utilization of Internet communication by manufacturing firms.

Development of the Survey Instrument

A survey questionnaire was specifically developed for this research. Following the guidelines proposed by Churchill (1979), the authors first conducted an extensive review of literature pertaining to SCM and MIS. On the basis of the literature review, the authors developed a survey questionnaire for this study. In responding to the survey questionnaire items, informants were first requested to select one of their suppliers with which their firms communicate through the Internet and then answer the survey questions based on the chosen supplier.

Translation of the Questionnaire

A member of the research team, who is native Chinese, initially converted the English version of the questionnaire into Chinese. Then, another member of the research team, who is fluent in both Chinese and English, translated the Chinese version back into English to check for consistency with the original. Moreover, two professors at a major university in Hong Kong, who are Chinese–English linguists, examined both the Chinese and the English versions and concluded that the translation was accurate.

Pretest and Pilot Test

The initial questionnaire was reviewed by three academicians specializing in the areas of SCM and MIS. On the basis of their feedback, the authors removed items that were not relevant to the domains of their designated constructs, and modified the wording of some items. The authors also developed new items based on the suggestions made by these reviewers.

In addition, the authors executed a pilot study by administering the questionnaire to 50 purchasing professionals from manufacturing companies in Shanghai, China. The respondents were requested to not only answer all the questionnaire items but also provide their feedback on the design and wording of the questionnaire. Two questionnaire items for assessing formality were found inappropriate through the pilot study: “your company and this supplier have made a specific contract on how Internet communication activities should be conducted”; “your company has made internal rules and regulations on how the Internet communication activities should be conducted.” The pilot study participants tended to respond to these two question items by “yes” or “no” rather than choosing one of the listed ratings indicating how true each of the two statements is.

To avoid this confusion, the authors modified the two items in the following manner: “your company and this supplier have made a detailed contract on how Internet communication activities should be conducted”; “your company has made detailed internal rules and regulations on how the Internet communication activities should be conducted.” These revised items were more appropriate than the original items as respondents were asked to indicate how much detail was involved in the supplier contract or how specifically internal Internet communication rules are instituted in their organizations.

Content Validity Issue

Content validity means that all aspects of the attribute being measured are considered by the instrument (Bailey and Pearson 1983). In this study, the feedback from the respondents involved in the pretest and the pilot study indicated that the questionnaire items covered key features of their respective designated constructs, thus proving the content validity.

Survey

The finalized questionnaire was administered to a large group of informants of manufacturing companies in Shanghai, Beijing and Guangzhou, which are the three most important commercial cities in China. These informants were managers or purchasing professionals directly involved in the procurement process. A Chinese market research firm was hired for data collection. The company maintained a large database of 10,000 companies located in the three cities. Potential participating companies, which use the Internet as a communication channel with their major suppliers, were identified from the investigation firm's database.

A total of 1,450 manufacturing firms were selected as target samples. The research firm attempted to contact the potential informants of the sampled companies by telephone to solicit their cooperation for this research. Of the 1,450 firms selected as target samples, the potential informants of 323 firms could not be reached. Among the remaining 1,127 firms, 360 firms agreed to participate in the research. The research firm's field investigators visited these companies and administered the questionnaire. A total of 284 usable questionnaires were collected, resulting in an effective response rate of 25 percent (284/1,127).

Of the respondent companies, 67 percent had fewer than 300 employees; 24 percent, from 300 to 1,000 and 9 percent, more than 1,000. Concerning the annual sales revenue, 33 percent reported less than 50 million RMB (exchange rate: 1 RMB is equivalent to approximately 0.12 US dollars.); 40 percent, between 50 million and 300 million RMB; and 27 percent, more than 300 million RMB. Regarding the frequency of interactions with the key supplier, 92 percent reported that they had purchased from their major suppliers at least 5–10 times per year.

For those companies that refused to participate or could not be reached, the research firm drew from the database their key demographic information, such as industry type and number of years using the Internet. The authors compared the respondent companies with those that refused to participate, as well as those that could not be reached, in terms of their demographic characteristics, by a series of t-tests. There were no statistically significant differences between these groups. Therefore, the representativeness of the sample was deemed adequate.

Regarding the profiles of the survey respondents, 72 percent were male and 28 percent female. As for the age group, 59 percent were between 25 and 34 years old; 37 percent, more than 34 years old; and 4 percent, less than 25 years old. As for tenure at their current company, 90 percent had 3–10 years. As for their job title, 59 percent were purchasing staff; 33 percent, purchasing managers; 8 percent, top managers.

STRUCTURAL EQUATION MODEL TEST

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

Following the two-step approach recommended by Anderson and Gerbing (1988), adequacy of each multiitem scale in capturing its construct is assessed using the measurement model of all constructs before testing the hypotheses via the structural model.

Measurement Model Test

The measurement model was tested on the full dataset using a confirmatory factor analysis with the elliptical reweighted least square (ERLS) procedure of the EQS 5.7b program (Bentler 1995). ERLS makes adjustments for skewness and kurtosis found in the data; thus it is recommended over the maximum likelihood (ML) estimation when the data may not meet the assumption of normality (Browne 1984; Sharma, Durvasula and Dillon 1989).

The results of the measurement model test indicated that six items were not appropriate for the model. Specifically, items NIIS1, SE3, SE4 and FOR2 exhibited unacceptable low factor loadings (<0.6). Items SE4, FOR1 and NIIS2 strongly cross-loaded on constructs other than their assigned ones. The cross-loadings were manifested by the results of the Lagrange multiplier (LM) test (Bentler 1995), which indicated that if these items were allowed to cross-load on other constructs, the overall model fit would be significantly improved (the χ2 values drop by more than 15). Consequently, a total of six items were deleted from the measurement model.

All the remaining items had significant, standardized loadings on their assigned constructs (see Table I). The goodness-of-fit indices suggested an excellent model fit: CFI=0.98, NFI=0.96, NNFI=0.97, GFI=0.95, RMSEA=0.055, and a ratio of χ2 to the degrees of freedom=1.88. The correlation matrix for the constructs used in the model is presented in Table II.

Table I.  STANDARDIZED FACTOR LOADINGS, VARIANCES OF MEASUREMENT ERRORS, AVERAGE VARIANCE EXTRACTED (AVE) AND COMPOSITE RELIABILITY FOR THE MEASUREMENT MODEL
ConstructIndicatorLoadingVariances of Measurement ErrorsAVEComposite Reliability
Norms of Internet information sharingNIIS30.7290.4150.550.71
NIIS40.7010.406  
Perceived Internet security risksSE10.8350.3470.650.79
SE20.8270.394  
FormalityFOR30.7130.5720.530.70
FOR40.8120.447  
FrequencyFR10.9420.0770.940.97
FR20.9800.030  
DiversityD10.9770.1780.560.72
D20.7951.065  
Purchasing performancePERF10.8030.2930.670.86
PERF20.7690.449  
PERF30.8730.263  
Table II.  CONSTRUCT CORRELATIONS AND DISCRIMINANT VALIDITY
 Norms of Internet Information SharingPerceived Internet Security RisksFormalityFrequencyDiversityPurchasing Performance
  1. Note: 1. The diagonal elements in bold are the square roots of the average variance extracted. The off-diagonal elements are the correlations between constructs. For discriminant validity, the diagonal elements should be larger than any other corresponding row or column entry.

  2. 2. All the correlation coefficients were significant at p<0.01 level.

  3. 3. n=284.

Norms of Internet information sharing0.74     
Perceived Internet security risks−0.560.81    
Formality0.22−0.100.73   
Frequency0.30−0.050.450.97  
Diversity0.35−0.21−0.020.280.75 
Purchasing performance0.50−0.470.220.440.570.82

Before accepting this measurement model as an appropriate basis for hypotheses testing, the authors took a further step to assess reliability, and convergent and discriminant validity of the scales. First, the authors conducted a composite reliability test (Fornell and Larcker 1981). As shown in Table I, the composite reliability estimates of all the factors reached or exceeded the recommended minimum level of 0.7 (Fornell and Larcker 1981), indicating a satisfactory level of reliability for each construct. Second, to evaluate the convergent validity, the authors computed average variance extracted (AVE) for each of the constructs. AVE assesses the amount of variance that is captured by the construct in relation to the amount of variance because of measurement error (Fornell and Larcker 1981). As presented in Table I, all the AVEs exceeded the recommended minimum level of 0.5, indicating the convergent validity of the constructs (Fornell and Larcker 1981).

Finally, the authors tested discriminant validity by comparing the amount of shared variance of any two constructs with the AVEs of the constructs (Fornell and Larcker 1981). The result of the discriminant validity analysis is summarized in Table II. In Table II, the diagonal elements in bold are the square roots of AVEs, and the off-diagonal elements are the bivariate correlations between two constructs. All the diagonal elements are larger than any other corresponding row or column entry (correlation coefficients), indicating no obvious violation of discriminant validity. Combining the results of the analyses described previously, the authors concluded that all the factors in the measurement model possess adequate reliability, and satisfactory convergent and discriminant validity.

Structural Model Test

The authors used the EQS 5.7b program (Bentler 1995) to test the proposed structural model. The initial test yielded a mediocre model fit: CFI=0.95, NFI=0.92, NNFI=0.93, GFI=0.91, RMSEA=0.085, and a ratio of χ2 to the degrees of freedom=3.04. The results of the LM tests (Bentler 1995) recommended that one additional path, from formality to frequency, could be added to further improve the model fit. It indicated that if the path were added, the overall model fit would be significantly improved (the χ2 value drops by more than 15 for each path added). This path appeared to be theoretically reasonable and of great research interest. Specifically, if there exist formal rules and regulations (a high level of formality) to control Internet information flow and prevent security risks between two trading partners, comfort levels in exchanging information more frequently may be enhanced. Accordingly, the initial structural model was revised by adding a path from formality to frequency.

The revised model was tested again. The test results showed an excellent model fit, with CFI=0.96, NFI=0.94, NNFI=0.94, GFI=0.92, RMSEA=0.075, and a ratio of χ2 to the degrees of freedom=2.61. Therefore, the authors accepted the revised model as the final. The parameter estimates of the final model are reported in Figure 2. The results of hypotheses tests are summarized in Table III.

image

Figure 2. THE REVISED INTERNET COMMUNICATION MODEL

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Table III.  SUMMARY OF THE HYPOTHESES TEST RESULTS
HypothesisPath Coefficientst-ValueResults
H1. Perceived Internet security risks[RIGHTWARDS ARROW]norms of Internet information sharing−0.54−5.813Supported
H2. Norms of Internet information sharing[RIGHTWARDS ARROW]formality (nondirectional)0.262.242Supported (positive association)
H3. Norms of Internet information sharing[RIGHTWARDS ARROW]frequency0.202.757Supported
H4. Norms of Internet information sharing[RIGHTWARDS ARROW]diversity0.384.842Supported
H5. Formality[RIGHTWARDS ARROW]purchasing performance0.151.956Rejected
H6. Frequency[RIGHTWARDS ARROW]purchasing performance0.233.386Supported
H7. Diversity[RIGHTWARDS ARROW]purchasing performance0.517.220Supported

DISCUSSION AND MANAGERIAL IMPLICATIONS

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

As discussed earlier, on the basis of Mohr and Nevin's (1990) model for channel communication and Vickery et al.'s (2004) work on electronic media within the framework of media richness theory, the authors identified three salient dimensions of interorganizational Internet communication: formality, frequency and diversity. Subsequently, this study developed a reliable and valid measurement instrument for assessing Internet communication between trading partners based on the three dimensions identified.

It should be noted that, in measuring the diversity and frequency in a dyadic buyer–supplier relationship, this study considered dual-direction communication between two trading partners. For example, the number of information types (diversity) exchanged between two organizations can be assessed by estimating the values of the following two variables: (1) buyer diversity, which refers to the types of information that the buyer provides to the supplier and (2) supplier diversity, which refers to types of information that the supplier provides to the buyer. Considering the fact that ensuring balanced and two-way communication between two trading partners is critical to their satisfaction, coordination and commitment to each other (Mohr and Sohi 1995), the measurement instrument developed in this study is very useful for buying and supplying organizations to keep monitoring their communication levels in light of the frequency, diversity and total volume of information exchange.

As for the relationships among the study's key constructs, the findings of this study supported all the aforementioned hypotheses except H5. As shown in Table III, this study revealed that company perceptions of Internet security risks are negatively associated with norms of Internet information sharing (H1). This result is consistent with the findings of previous studies in that a concern for security is a major obstacle to companies' adoption of Internet-based B2B practices (e.g., Commercenet 2000; Croom 2000; Enos 2001) and instituting effective security measurements is one of the key determinants of B2B e-commerce success (Phan 2002). Moreover, it extends findings of these studies by confirming that a concern for security influences not only companies' willingness to adopt Internet-based B2B tools but also their utilization rate of such tools.

Next, this study supported that norms of Internet information sharing are positively associated with three key dimensions of Internet communication, such as formality (H2), frequency (H3) and diversity (H4). These results demonstrate that, when the norms of Internet information sharing exist, the trading partners tend to more frequently exchange various types of documents and information by instituting formal rules to effectively manage and control their Internet communication flows. These findings are consistent with those of past research studies on IOS and traditional, non-Internet communication (Mohr and Sohi 1995; Kumar and van Dissel 1996; Ratnasingham 1997; Von Solms 1999). Moreover, this study yielded an additional, causal path from “formality” to “frequency,” which was not hypothesized in the study's model. From this emergent path, it can be inferred that instituting formal contractual agreements and security rules for Internet communication between trading partners would facilitate their use of the Internet as an important interorganizational communication mode.

Finally, this study yielded that frequency (H6) and diversity (H7) have significant and positive impacts on purchasing performance. Consistent with Cannon and Homburg (2001), Mohr et al. (1996) and Monczka et al. (1998), these results indicate that frequent and diverse information exchanges are beneficial to enhancing coordination between trading partners and buyers' purchasing performance. In contrast, this research failed to support that formality is directly related to purchasing performance (H5). This study, however, found that formality has an indirect and positive impact on purchasing performance through the mediation role of the frequency dimension (i.e., via the previously mentioned emergent path). That is, with having tight security rules and specific Internet behavior agreements in place (a high level of formality), the buyer and the supplier are more likely to feel safe with frequent transmission of sensitive information through the Internet, which results in the improved purchasing performance of the buying party.

The findings of this study present some important managerial implications. First, although the Internet has the great potential to offer various informational benefits compared with the traditional communication media, such as fast and convenient information exchanges, customizability of information specific to trading partners and capability of transferring “rich information,” many purchasing professionals appear to have a lack of expectation that their trading partners will proactively provide useful information over the Internet primarily due to deep concerns about the security risks. In order to alleviate the perceived security risks, it is recommended to make formal contracts, agreements and procedures involving Internet communication and related security risks (i.e., a high level of formality) on the basis of a sound business judgment and the value of data being protected (Dhillon 1999). Ambiguous or intimidating legal issues involving the Internet communication may discourage firms to exchange particularly sensitive and confidential information.

Second, purchasing professionals are well advised to establish norms of Internet information sharing with their key suppliers on the basis of enhanced mutual trust and commitment, and through forming formal strategic alliances. When such norms exist between trading partners, coupled with higher formality of Internet communication flows in place, both parties are more likely to participate in the exchange of diverse information (i.e., a high level of diversity) over the Internet on an active basis (i.e., a high level of frequency), thereby obtaining operational and strategic benefits such as reduced information transaction costs and inventory holding costs, enhanced order fulfillment cycle time, improved cash flows and shortened product development cycle time.

Finally, to further facilitate diverse information and document exchange over the Internet, it is recommended that trading partners make substantial investments in their IT infrastructure, including advanced Internet communication tools such as Internet-based IOS and extranets, and integrate the advanced tools with their respective internal computer systems and applications. If this is accomplished, these advanced interorganizational communication tools can automatically handle a large volume of various types of information (operational, financial, forecasting, engineering data, etc.) transmitted through the Internet as well as substantially mitigate managers' concern about the potential security risks.

CONCLUSION AND LIMITATIONS

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES

The present study makes several significant contributions to the interorganizational communication and SCM literature. This study identified three key dimensions of Internet communication, namely frequency, diversity and formality, and then developed a reliable and validated measurement instrument for Internet communication activities. To the authors' knowledge, the present study is one of the few studies that attempts to identify key dimensions of interorganizational communication particularly in the context of Internet technology.

This study also revealed that the frequency and the diversity of Internet communication play an important role in determining purchasing performance, whereas formality is crucial to facilitating information flows over the Internet as well as to alleviating concerns about potential Internet security risks. Further, this study found that two factors, such as perceived Internet security risks and norms of Internet information sharing, significantly influence Internet communication behaviors, in terms of formality, frequency and diversity, and in turn purchasing performance. Although it has been generally accepted that perceived Internet security risks affect Internet communication behavior, few prior studies have empirically examined the mechanisms of how such an adverse effect would occur. Finally, the results of this research indicate that two tasks, such as instituting tight security rules to prevent Internet security risks and establishing an advanced IT infrastructure to support active Internet communication, would be among the most important concerns for top managers, including purchasing professionals, in their endeavor to achieve a highly effective electronic supply chain.

In sum, the present study demonstrates that the Internet as a communication medium has the capacity to process “rich” information and has a significantly positive effect on purchasing performance. For example, as noted by Vickery et al. (2004), by using the Internet as a rich media enabling complex information to be conveyed quickly, both buying and supplying firms in a strategic alliance can prevent conflicts arising from different expectations, organizational cultures and operating assumptions, and enhance the effectiveness of coordinating and synchronizing various business activities between the two parties. Moreover, the results of this study support the behavior-based risk management strategy grounded in agency theory in that the presence of Internet information sharing norms, and frequent and diverse information exchanges over the Internet with the supplier result in improved purchasing performance.

Finally, it is necessary to recognize the limitations of this study. First, the authors utilized a sample of manufacturing companies located in three major commercial cities of China: Shanghai, Guangzhou and Beijing. These three major cities were selected mainly based on their importance in the Chinese economy. Therefore, future research may be conducted to validate the study's results by analyzing data from a more diversified sample. In addition, future research is needed to verify the generality of the findings to other countries. Second, the present study used three dimensions, formality, frequency and diversity, to assess interorganizational Internet communication activities as a whole. However, there are various types of Internet media that can be utilized for interorganizational communication, such as e-mail, Web site, instant messengers and Internet-based videoconference. Thus, future research needs to verify the applicability of the three dimensions across varying Internet media. Finally, this study limited its scope to the interorganizational Internet communication of manufacturing firms. Future research may need to explore the research issues addressed in this study in the context of service organizations.

Appendix (questionnaire) is available upon request from Shaohan Cai.

REFERENCES

  1. Top of page
  2. SUMMARY
  3. INTRODUCTION
  4. KEY DIMENSIONS OF INTERORGANIZATIONAL INTERNET COMMUNICATION
  5. RESEARCH MODEL
  6. RESEARCH METHODOLOGY
  7. STRUCTURAL EQUATION MODEL TEST
  8. DISCUSSION AND MANAGERIAL IMPLICATIONS
  9. CONCLUSION AND LIMITATIONS
  10. REFERENCES
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