Assimilation and Diffusion of Web Technologies in Supply-Chain

International Journal of Electronic Commerce / Fall 2004, Vol. 9, No. 1, pp. 127–161.Copyright © 2004 M.E. Sharpe, Inc. All rights reserved.

1086-4415/2004 $9.50 + 0.00.

Assimilation and Diffusion of Web Technologies inSupply-Chain Management: An Examination ofKey Drivers and Performance Impacts

C. Ranganathan, Jasbir S. Dhaliwal, and Thompson S.H. Teo

ABSTRACT::::: A key reason for the popularity of integrated supply-chain management (SCM)is that Web technologies have made supply-chain coordination a viable managerial andstrategic option. Building on research in the areas of management information science,supply chains, and organizational innovation, this study explores the use of Webtechnologies for organizational SCM. Based on an extensive survey of North Americanorganizations, it investigates the assimilation of Web technology systems into internal supply-chain functions and their external diffusion into interorganizational supply-chain networks,and also explores the relevant environmental determinants. The findings suggest thatinternal assimilation and external diffusion of Web technologies both significantly affectthe benefits realized by SCM. Supplier interdependence and information technology (IT)intensity are important environmental factors affecting external diffusion. Organizationalfactors, such as centralization and formalization of the IT unit structure and high levels ofmanagerial IT knowledge, are significant drivers of Web technology assimilation in theSCM function.

KEY WORDS AND PHRASES: e-business, information technology value, supply-chainmanagement, technology assimilation, technology diffusion, Web technologies.

After only a few years of commercial usage, the Internet has revolutionizedthe way organizations conduct their businesses. The emergence of the Internetand Web technologies has provided an opportunity for many firms to movetoward an extended enterprise business model—one that enhances value alongthe total supply chain [52, 59, 61, 87]. Dell, General Electric, Cisco, Ford, andother companies have claimed significant benefits through the use of Webapplications in their supply-chain management (SCM) function [2, 9, 59].

SCM encompasses a range of activities, such as purchasing, materials han-dling, production planning and control, warehousing, logistics, inventorymanagement, distribution, delivery, and vendor management. The primaryobjectives of the SCM function include cost reduction, service improvement,improved communication and interaction among supply-chain partners, andincreased flexibility in terms of delivery and response times. Internet and Webtechnologies have presented firms with significant opportunities in the formsof efficient and timely order fulfillment, reduced cycle times, electronic pay-ments, e-procurement, and more for improving their supply-chain perfor-mance. Thus, it is not surprising that more firms are deploying Web-based

This research has been partially supported by grants from the Center forResearch in Information Management, UIC, Chicago, and Pontikes Center forManagement of Information, SIU, Carbondale. We thank the guest editors of thespecial issue, reviewers, and participants of DIGIT workshop (2002), whosesuggestions greatly helped improve the manuscript.

128 RANGANATHAN, DHALIWAL, AND TEO

business-to-business (B2B) SCM systems, especially in the areas of e-procure-ment and e-sourcing [37]. Firms are taking initiatives of many kinds, such asbuilding their own Web-based supply-chain systems, developing privatemarketplaces (e.g., WalMart’s RetailLink and GE’s Global Exchange), joiningindustry-oriented B2B exchanges (e.g., Transora.com), or joining the B2B hubsof other third parties (e.g., VerticalNet). B2B e-commerce initiatives resultedin a market that was worth $433 billion in 2000 and, according to the GartnerGroup, will grow to $6 trillion by the end of 2004 [67]. Jupiter Communica-tions forecasts that $6.3 trillion worth of interfirm trade will take place overthe Web by 2005.

Although the benefits of Web technologies in the SCM function are wellacknowledged, the implementation of Web technologies and systems is chal-lenging. Successful deployment of Web applications requires smooth integra-tion of a number of organizational, functional, and technological factors [17].In the SCM context, the success of a Web-based system is largely contingentupon the extent to which the system is assimilated internally and diffusedamong networks of business partners in a supply chain. Given these chal-lenges in deploying Web-based SCM systems, several questions remain unan-swered: Is the use of Web-based SCM systems an improvement over traditionalelectronic data interchange (EDI) systems for interorganizational coordina-tion? What benefits are realized by deploying e-business systems in supplychains? How can organizations effectively diffuse and assimilate Web tech-nologies in their SCM function? What managerial mechanisms are requiredfor successful deployment of Web systems in the SCM function?

The overarching theme of the present research is to gain an understandingof the effective deployment of Web technologies in the organizational SCMfunction. The objective is to develop an empirical understanding of the fac-tors affecting the assimilation and diffusion of Web technologies in the SCMfunction, and to assess the benefits of deploying Web technologies in supplychains. Assimilation refers to the extent to which the use of technology perme-ates organizational work processes and activities [3, 17, 20, 30]. Diffusion re-fers to the degree to which the use of technology crosses organizationalboundaries into the activities of external business partners [30]. It focuses onthe extent to which suppliers and other business partners accept and adopt afirm’s technologies and systems to conduct interfirm transactions. The ben-efits of deploying Web technologies and systems are contingent upon the ex-tent to which a firm internally assimilates these technologies in its internalsupplier-oriented activities as well as the degree to which Web technologiesare externally diffused into supply-chain interactions and transactions. Thefollowing specific research questions are addressed:

• Do Web technologies and systems create any significant value in theSCM function?

• How do the assimilation and diffusion of Web technologies affect thebenefits realized from deploying these technologies in the SCMfunction?

• What are the key factors that affect the external diffusion of Webtechnologies and systems in the SCM function?

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• What are the key factors that affect the internal assimilation of Webtechnologies and systems in the SCM function?

In contrast to the considerable amount of research effort in the area of tra-ditional information technology (IT) systems, including interorganizationalsystems (IOS) and EDI, there has been little empirical research on Web tech-nologies and systems, especially in interorganizational settings. Web-basedsystems are fundamentally different from traditional EDI systems, which werebased primarily on the idea of locking in customers and suppliers, and therebyled to higher switching costs. Web technologies and systems, relatively inex-pensive and highly flexible, have greatly reduced the switching costs of sup-pliers and customers [78]. This makes it important to examine whether ourknowledge of interorganizational and EDI systems extends to the context ofWeb systems. Given the increased usage of Web-based SCM systems, it is alsonecessary to ascertain the true impact of these systems, and to identify thefactors that facilitate their assimilation and diffusion.

Although the literature on operations management is replete with studiesof the strategic and managerial aspects of SCM, it offers little on the applica-tion of Web technologies in SCM. The information systems (IS) literature onthe usage and impact of Web technologies in the supply-chain function is alsolimited. This paper addresses these gaps by examining the factors affectingthe assimilation and diffusion of Web technologies in supply chains and theultimate benefits of Web-based SCM systems.

Theoretical Background and Research Model

Two streams of research form the theoretical background for this study: thenotion of extended enterprise, used to understand the role of Web technolo-gies in the supply-chain management function [24], and innovation diffusiontheory [90], widely applied in several areas, including IT adoption and diffu-sion. These are supplemented by material drawn from the literature on IOS,EDI, and e-business technologies and applications, and from the literature onoperations and SCM.

Innovation diffusion theory provides concepts and tools that aid in study-ing technology evaluation, adoption, and implementation [90]. A number ofscholars have used innovation diffusion theory to examine the likelihood andextent of technology adoption, assimilation, and diffusion in organizations[29, 30, 81]. The theory has also been used to identify the many factors thatfacilitate or inhibit technology adoption and implementation [39, 40, 79, 80].The present paper draws upon the rich literature on innovation diffusion andIT adoption and diffusion to understand how Web technologies are internallyassimilated into an organization and externally diffused into its supplier net-works. According to innovation researchers, several characteristics of an or-ganization and its environment affect the rate of technology assimilation anddiffusion. The focus here is on identifying some of the key factors in the spe-cific context of Web technologies and their assimilation and diffusion in thesupply-chain function.


Web Technologies and Extended Enterprise

The concept of the extended enterprise is relatively new, and there is consid-erable research in progress. Extended enterprise calls for cooperation and tightintegration of firms and their supply-chain partners, as opposed to discrete,independent, and isolated activities across the supply chain [24]. The extendedenterprise concept builds on the SCM approach by seeing all the membersand partners of a value network as working toward a common goal or oppor-tunity. A key aspect is the integration of the value chains of the various sup-ply-chain partners into the organization’s internal value chain to yield newvalue configurations [94]. Web technologies as well as traditional ITs havehad a fundamental impact on interfirm buyer–supplier relationships. Someof the best-known success stories in airlines, hospital supplies, finance, andother industries in the mid-1980s and 1990s were rooted in IT-enabledinterorganizational arrangements [48]. Thus, one can hardly doubt the poten-tial role of ITs in influencing, enhancing, and extending interfirm buyer–sup-plier electronic relationships.

Given the enhanced capabilities offered by Web technologies and the rela-tive cost advantages of Web systems, many firms are deploying Web-basedsupply-chain applications. For example, through the Cisco supplier connec-tion (CSC), suppliers have access to Cisco’s enterprise resource planning (ERP)order-fulfillment systems and inventory databases, and so can respond to cus-tomer requests in real time. Cisco is able to track and transfer inventory be-tween different manufacturers to respond to component shortages [56].El-Sawy makes the case that just as business process reengineering (BPR) wasused as the managerial trigger for radically changing internal business pro-cesses using new technology in the early 1990s, it is now imperative for orga-nizations to radically redesign their interorganizational supply chains usingWeb technology [27]. To this end, he presents a methodology that incorpo-rates supply-chain redesign principles and an interorganizational workflow-modeling tool. Firms that wish to become extended enterprises through thedeployment of Web-based supply-chain solutions must assimilate the tech-nology internally and diffuse it among their supplier networks.

At present, the evidence about the performance impact of Web-based sup-ply-chain systems is only anecdotal. Performance impact can usually be mea-sured in terms of cost and time savings [36]. For example, using the Web forSCM has enabled Cisco to reduce its operating costs by $75 million, and 45percent of the products it sells are untouched by Cisco—they are shipped di-rectly from suppliers to customers [56]. Similarly, Dell has used virtual inte-gration of its supply chain to reduce its inventory to 11 days, compared to 80days for its competitors. As a result, Dell can offer its customers the latesttechnology at competitive prices, because the cost of carrying obsolete inven-tory is reduced through rapid inventory turnover [64]. Despite the benefitsreported in anecdotal case studies, there is considerable ambiguity about thevalue generated through such e-business applications, and about the relation-ship between assimilation, diffusion of Web technologies, and the benefitsrealized.


Development of Research Model

The assimilation and diffusion of information technology in organizations hasbeen of great interest to researchers on information systems for more than adecade. Earlier studies did not differentiate internal assimilation and externaldiffusion. Instead they used the term “diffusion” to represent the multiplestages through which IT pervades organizational routines and processes. Moststudies emphasized a three-stage model of IT diffusion—initiation, adoption,and diffusion—based on the classic innovation diffusion model proposed byRogers [90] and subsequently adapted to organizational theory, organizationaldesign, and individual, functional, and firm-level studies on innovation. Thethree-stage model has been refined in IS research to more broadly conceptual-ize the diffusion process, with substages of adaptation, acceptance, routinization,and infusion [20]. Several studies view IT diffusion as an internal permeationprocess extending from initial awareness to full institutionalization within thefirm [20, 30, 70], but a broader notion of the diffusion process has been adoptedin some research on the interorganizational use of IT. In several instances, re-searchers on interorganizational systems and EDI have differentiated internaland external diffusion, concentrating on the permeation of the diffusion pro-cess in the extended value chain of a firm [46, 81, 83]. The present paper isfocused on the SCM function, which encompasses a range of internal organiza-tional activities as well as interorganizational processes that stretch beyond firmboundaries. In line with earlier research on IOS/EDI researchers, it treats bothinternal assimilation and external diffusion.

The discussion in this paper operationally defines internal assimilation asthe extent to which Web technologies and applications are used in key inter-nal organizational activities in the SCM function. External diffusion refers tothe extent to which the firm has integrated its supply-chain partners by usingWeb technologies and systems to perform transactions with them. Assimila-tion and diffusion, taken together, represent the infusion stage in the processof innovation diffusion [81, 83]. Once it has adopted and adapted a technol-ogy, a firm begins to use technology in a comprehensive and integrated man-ner to support organizational work and transfers of technology both insideand outside the organization. Internal assimilation and external diffusion to-gether constitute the “infusion” stage in the overall diffusion process. Manyresearchers have examined assimilation or diffusion separately [3, 17, 30, 82],but very few studies have examined the constructs together [81, 83]. The studiesthat examine both assimilation and diffusion treat them similarly, proposingidentical antecedents for the two constructs. However, the results show thatthe factors that affect internal assimilation are not the same as the ones thataffect external diffusion among business partners [81, 83]. For instance, therelative advantage of EDI, as perceived by the firm, was its influence on inter-nal assimilation (but not diffusion), and the technical compatibility of EDIwas found to influence external diffusion only [81, 83]. Note that these studiesdo not focus on the interrelationships between assimilation and diffusion. Thepresent research, in contrast, examines both these constructs and explores thenature of the association between them.


Electronic B2B linkages among firms and suppliers have traditionally beenestablished using EDI via a value-added network. Because EDI systems areproprietary and costly, smaller firms tend not to use them. The advent of user-friendly Web browsers in the early 1990s gave rise to Internet-enabled EDIand B2B systems that are affordable, even for smaller firms. The benefits ofEDI include quick response time, lower personnel costs, shorter purchase lead-time, greater accuracy, and improved customer service [81]. In addition, Web-enabled SCM offers several other advantages, such as ease of implementation,platform independence, new marketing and sales channels, demand-manage-ment capabilities, supplier-support capabilities, easy-to-use interfaces, andtrack-and-trace functionality.

A key objective of SCM is the creation, maintenance, and real-time optimiza-tion of an integrated and seamless supply chain for products and services acrossfunctional and interorganizational boundaries through the integrated manage-ment and synchronization of physical, information, and financial flows [2]. Acentral theme underlying SCM involves integration and collaboration in op-erational planning and execution, in relation to internal logistics functions (e.g.,inventory management, production planning, cycle time reduction, warehous-ing) and external supply-chain functions (e.g., distribution network coordina-tion, transportation planning, integrated purchasing portals, interorganizationalor market-based coordination in reverse logistics, post-sales customer service,technical support) [87]. The use of ERP systems for integrating internal manu-facturing and logistics functions marked the first stage of IT-based SCM in or-ganizations. The introduction of the Internet revitalized and accelerated thistrend, because it facilitated a second stage of Web-based SCM in organizations.This stage focused on the external deployment of Web technology for SCMapplications, such as inventory synchronization, creating B2B marketplaces,building aggregation portals, and building relationships. The idea behind suchinitiatives was to promote the participation of suppliers in interfirm transac-tions and to enhance the digital integration of firms and their suppliers. The useof Web technologies and systems in SCM provides an opportunity to realizeefficiencies and cost-related benefits that improve internal information sharingand processing. It also affords opportunities to improve business processesthrough synchronized information exchange between firms and their supply-chain partners [49].

The assimilation and diffusion of Web technologies in a supply-chain func-tion are critically dependent on the external and internal organizational envi-ronments. A set of factors likely to affect the assimilation and diffusion of Webtechnologies in SCM was compiled by means of a literature review. The intenthere is to identify and examine a set of critical factors rather than to compre-hensively list every potential predictor of Web technology assimilation anddiffusion in SCM. The review of the literature on IT diffusion, IOS, EDI, opera-tions management, and SCM (see Table 1), identified the following key factors:

1. supplier interdependence2. competitive intensity3. IT activity intensity4. managerial IT knowledge


5. centralization6. formalization of IT unit structure

The first three factors pertain to the external environment of the firm, andthe other three belong to the internal organizational environment. Researchindicates that internal factors are salient in respect to internal assimilation,and external factors are dominant in diffusion [81, 83, 96]. Three factors fromthe organizational environment (managerial IT knowledge, centralization, andformalization) are expected to be associated with internal assimilation of Webtechnologies and systems. The three factors pertaining to the external envi-ronment (supplier interdependence, competitive intensity, and IT activity in-tensity) are expected to be associated with the external diffusion of Webtechnologies and systems in SCM. Fichman’s comprehensive review of IT dif-fusion research notes the significant roles of external environmental factorsand internal organizational factors in IT diffusion and assimilation [29]. Thepresent paper argues that internal assimilation and external diffusion bothenhance the benefits of deploying Web systems in SCM. The overall concep-tual model, with the research constructs and proposed relationships, is pre-sented in Figure 1.

Supplier Interdependence

According to the resource-dependency perspective, organizations are depen-dent on their environment for resources, and these dependencies constrainorganizational activities [76]. Firms gain access to needed resources by estab-lishing relationships with other organizations, such as suppliers and otherpartners. The resource-dependence theory emphasizes the power relationshipsand interdependencies between firms and other entities in the environmentthat influence their managerial activities. Research on SCM has identified sup-plier interdependence as an important factor in the formation of supply-chainpartnerships [21, 69, 73]. Because IT systems, such as EDI, interorganizational,and B2B systems, promote electronic partnerships across the entire supplychain, supplier interdependence is likely to affect a firm or its supplier’s deci-sion to use interorganizational Web systems.

A supplier’s decision to use a firm’s Web-based system will depend on theinterdependence of the firm and the supplier. Firms tend to use persuasive or

Key drivers References

Supplier interdependence [16, 21, 44, 69, 75, 80]Competitive intensity [39, 79, 80, 89]IT activity intensity in industry [8, 11, 47, 83]Managerial IT knowledge [4, 11, 17]Centralization [10, 38, 39, 40, 75]Formalization [39, 41, 58, 92]

Table 1. Key Drivers and References.


coercive power to influence suppliers to adopt EDI systems [44]. Persuasivetools include educating partners about benefits and helping them to adopt,deploy, and implement systems. Coercive techniques include forcing part-ners to adopt a technology or system, and threatening to drop them if theyrefuse to do so. EDI and some of the earlier systems often required a propri-etary standard for formatting and exchanging information. This limited theflexibility of suppliers to establish electronic linkages with other partners. Withthe advent of open standards and flexible Web technologies that are platformand technology independent, however, it is now easy to establish multiplepartnerships or even switch partnerships [57, 78]. Firms and supplies that arehighly interdependent must work jointly to establish electronic linkages via theWeb. The interdependence of firm and suppliers influences the deployment ofIOS and EDI [16, 44, 80]. The more interdependent a firm and its suppliers are,the more the firm should strive to diffuse its Web systems in its supply chain. Afirm with higher levels of supplier interdependence will go to greater lengthsto make its suppliers accept its Web systems and trade with it electronicallyso as to improve the efficiencies of its supplier-related operations.

Figure 1. Research Model

Organizational Environment

Benefits realizedfrom deployment ofWeb technologies

in SCM


H1: The greater the interdependence between a firm and its suppliers, thegreater will be the external diffusion of Web technologies in SCM.

Competitive Intensity

Competitive pressure is an important variable influencing the deploymentand diffusion of IS [39, 46, 89]. Firms initiating IOS and EDI derive consider-able benefits compared to those that follow [86, 88]. As a result, there is con-siderable pressure on firms to initiate such systems and diffuse them amongtheir partners before their rivals do so. This pressure sometimes leads to theuse of coercive tactics to diffuse the systems among suppliers.

Firms that are first-movers in deploying IOS tend to derive more advan-tage. Thus, there is significant pressure for them to diffuse systems quickly,both internally and externally, in order to realize this gain. Peer pressure fromindustry and other competitors may also force firms to deploy Web-basedapplications faster. The fact that the value of B2B supplier networks and mar-ketplaces is a function of the critical mass of participating partners increasesthe pressure on firms in competitive settings to introduce SCM applicationsbefore their competitors [91]. Firms in intensely competitive environmentsare likely to expend considerable effort in diffusing Web systems to suppliersso as to strengthen the integration with suppliers that could give them a com-petitive advantage.

H2: The greater the competitive intensity facing a firm, the greater will bethe external diffusion of Web technologies in its SCM.

IT Activity Intensity in Industry

IT activity intensity refers to the extent to which a firm’s partners, suppliers,customers, and competitors adopt and deploy IT in their business processesand activities [84]. IT activity intensity represents the level of IT use by a net-work of industry players. The amount of IT use by customers and suppliersinfluences an organization’s IT activities and IT usage [11]. Bouchard statesthat an organization’s decision on EDI “is primarily based on what [its] busi-ness partners are doing, and not on the characteristics of EDI” [8, p. 366].Higher levels of IT activity intensity in an industry imply IT-savvy suppliersand business partners. Under conditions of IT activity intensity, suppliers willmore readily accept Web systems for conducting interfirm business transac-tions. Higher levels of IT activity intensity in an industry imply better IT in-frastructure and applications in the supplier firms that could facilitate easierdiffusion of new e-business systems. Iskander, Kurokawa, and LeBlanc foundthat IT-savvy suppliers had better technical capabilities to easily adopt, inte-grate, and use EDI systems [47]. Therefore, the more industry players deployand use information technologies, the greater will be the firm’s ability to dif-fuse Web technologies and systems in its SCM activities.


H3: The greater the IT activity intensity in the industry, the greater willbe the external diffusion of Web technologies in SCM.

Managerial IT Knowledge

Managerial IT knowledge refers to the union of IT-related and business-re-lated knowledge possessed and exchanged by IT executives, top managers,and functional managers [11]. It is a conjunction of (a) top management’s tacitknowledge of the strategic potential of IT, (b) functional management’s knowl-edge of IT, and (c) the business-related knowledge of IT executives and per-sonnel. The need for top managers and functional managers to understandand value IT in order for IT to succeed is well understood and documented.An effective alignment of IT and business objectives can only be achieved ifthe CIO and the senior IT executives have a good knowledge of the businessdomains in which the firm operates [4].

Boynton, Zmud, and Jacobs suggest that only an amalgamation of IT andbusiness knowledge can lead to effective technology diffusion [11]. Armstrongand Sambamurthy found evidence that senior management’s IT knowledgehas a positive impact on the extent of IT assimilation [3]. They emphasize theimportance of creating mechanisms and structures to enhance the develop-ment of managerial IT knowledge in organizations. Applying a resource-basedview of firms, Mata, Fuerst, and Barney identified managerial IT knowledgeas a critical capability in the successful deployment of systems for gainingstrategic benefits [66]. Chatterjee, Grewal, and Sambamurthy found seniormanagement leadership to be an important factor in the organizational as-similation of Web technologies [17]. In another study, Purvis, Sambamurthy,and Zmud found managerial IT knowledge to be an effective enabler of ITassimilation [82]. For a firm to assimilate and deploy Web technologies into itssupply-chain activities, it is important that the senior leadership, the func-tional managers responsible for SCM activities, and the IT managers have agood understanding of Web technologies and of the strategic impact of Webtechnologies on the SCM function.

H4: Higher levels of managerial IT knowledge will be positively associatedwith greater assimilation of Web technologies in SCM.

IT Unit Structure

The structural perspective on organizations maintains that structural mecha-nisms are at the core of organizational design [42, 51, 71]. In the IS context , thestructure of the IT unit is an important factor in the process of technologyassimilation. Several researchers have investigated the design of effective ITunit structures [1, 12, 107]. Centralization and formalization are often cited askey elements in IT unit structure [20, 85].

Centralization of IT unit structure refers to the extent to which the key de-cision responsibilities for IT activities reside with the IT unit, as opposed to


the functional business units of the organization [13]. Research on IT adop-tion and diffusion indicates that centralized structures inhibit the organiza-tional adoption and diffusion of technologies. Grover and Goslar, in a studyof the assimilation of telecommunication technologies, found that there was anegative relation between centralization and the adoption and implementa-tion of technologies [40]. In another study, Grover found that centralizationsignificantly inhibited the adoption of customer-based IOS [39]. In light ofthis, decentralized structures and cross-functional coordination mechanismsare often suggested as ways to ease the IT assimilation process [1, 98]. In thecontext of e-commerce, Earl and Khan suggested the use of multidisciplinary,cross-functional teams to manage e-business efforts [25]. Chatterjee, Grewal,and Sambamurthy found a positive association between coordination acrossIT and other business units, and Web technology assimilation [17].

The literature on operations management also points to the significance ofdecentralized structures. According to Bowersox and Daugherty, firms withdecentralized, flatter structures are likely to adopt innovative technologies toimprove organizational communication and coordination both internally andwith supply-chain partners [10]. Germain, Drodge, and Daugherty found thatdecentralization significantly influenced decisions on integrative technologies[38]. Williams, Magee, and Suzuki found a negative, although insignificant,relation between centralization and few dimensions of EDI participation [100].

IT and SCM activities under centralized IT unit structures tend to involveless participation by logistics and SCM managers as well as by external sup-pliers. Operations, purchasing, and SCM executives are likely to possess greaterknowledge about supply-chain processes, and their cooperation and interac-tion are important if the Web system is to be assimilated within the key orga-nizational routines. Therefore,

H5: Centralization of an IT unit structure will be negatively associatedwith the assimilation of Web technologies in SCM.

Formalization refers to the extent of reliance on formal rules, procedures,and task committees for carrying out activities in an organization [39]. For-malization of IT unit structure focuses on the use of formal systems, operatingprocedures, and structural devices, such as teams, committees, and task forces,in IT-related processes and activities. Despite its negative associations withinitiation/adoption [39, 41, 106], formalization is a positive facilitator for or-ganizational technology assimilation [19, 58, 106]. Germain, Drodge, andDaugherty found that formalization was a positive predictor of assimilationof logistics technologies [38]. Researchers on organizational innovation havedocumented the positive impact of formal structures on innovative behaviorin organizations [92].

The use of formal mechanisms is especially important in the context ofimplementing a Web-based SCM system, because it spans across organiza-tional boundaries and involves active participation by suppliers. A well-documented procedure for developing and deploying an IT system willfacilitate the diffusion of the system among supplier networks. Some firmsrely on formal contractual agreements for implementing and diffusing EDIand Web-based SCM systems. Common industry practice also involves the


use of formal joint teams and task forces to oversee Web project implemen-tations [25].

H6: Formalization of IT unit structure will be positively associated withthe assimilation of Web technologies in SCM.

Assimilation and Diffusion of Web Technologies

Assimilation and diffusion are distinct, yet closely interrelated, constructs inIS research [29]. These constructs assume greater importance in the case ofinterorganizational technologies that involve two or more organizations. Theimportance of these constructs is recognized in IOS and EDI research, but theassociation between assimilation and diffusion has not yet been thoroughlyexplored.

In a case study of Web-based procurement in a heavy equipment manufac-turing firm, Chandrasekar and Shaw suggested that the benefits from the de-ployment of a Web-based procurement system would be low unless thee-procurement system was diffused to a larger set of suppliers [14]. Similarly,Premkumar and Ramamurthy suggested that linking EDI with one supplier/customer might be insufficient to justify the investments in EDI [79]. There-fore, firms should expand their linkages to other trading partners to justifythe cost and increase the savings. The efficiencies and benefits derived frominitially using EDI with a single customer/supplier could motivate a firm toexpand its scope to include other trading partners, thereby facilitating exter-nal diffusion [81].

Researchers have observed that interorganizational systems (e.g., EDI, Webtechnologies) may become strategic necessities as their use increases [7, 68,105]. Some firms may be motivated to adopt such systems as an essential partof doing business, and this will facilitate external diffusion. Other firms maytry to retain competitive advantage by expanding their IOS network to in-clude other trading partners, thereby lowering costs and increasing benefitsthrough leveraging the system across multiple partners.

According to Champy, business reengineering tends to be applied withinan organization to reduce cost and increase speed and productivity, whereasthe concept of X-engineering argues that organizations must extend their pro-cesses outside the firm and form electronic linkages across organizationalboundaries [15]. Such linkages would be greatly facilitated by the use of Webtechnologies among business partners. Bovet and Martha suggested, alongthe same lines, that value net—a dynamic, high-performance network of cus-tomer/supplier partnerships and information flow—exemplifies the businessdesign of successful firms like Dell and Cisco, which use Web technologies tostreamline their supply chains [9]. It follows that internal assimilation of Webtechnologies within a firm is likely to be positively associated with externaldiffusion outside the firm in order to create a value network that leveragesWeb technologies more effectively for the common benefit of partners linkedto the network.


H7: Internal assimilation of Web technologies will be positively associatedwith the external diffusion of Web technologies in SCM.

Performance Impact of the Assimilation and Diffusion of Web Technologies

The performance impact of IT has generated considerable interest. Research-ers have investigated the returns on IT investments at the national, industry,and firm levels, and the relationship between IT usage and business perfor-mance [6, 22, 55, 63]. Although the findings on the performance impact of ITare mixed, recent research suggests that systems usage is an important vari-able that can explain the value generated from IT [23]. The importance ofsystems usage has been pointed out by several researchers [44, 65]. Consistentwith these ideas, the present research examines the link between Web systemsusage in SCM and the benefits of using Web systems in SCM.

One of the questions asked in the present research relates to the valueand benefits of the use of Web technologies and applications in SCM. Thespecific interest lies in examining whether the use of Web technology appli-cations (theoretically defined in terms of assimilation and diffusion) is re-lated to the performance impacts in SCM. The performance impacts of Webtechnologies are captured through the benefits realized by utilizing thesetechnologies in SCM. This is in line with the goals- and benefits-based ap-proach to performance measurement that is discussed in the SCM literature[74]. The internal assimilation and external diffusion of Web technologiesinto SCM serve as indicators of IT/systems usage, that is, the level of use ofWeb technologies in the SCM activities of the firm. In some instances, firmsthat have installed, commissioned, and used Web applications have reportedlittle or insignificant gain from the use of Web technologies [78]. This makesit critical to examine the association between Web technology usage and thebenefits realized.

Research on IOS and EDI has identified significant organizational impactsdue to assimilation and diffusion of interorganizational systems. Iacovou,Benbasat, and Dexter found that performance impacts were enhanced by in-creased usage of EDI [46]. Lee, Clark, and Tam found significant performanceimprovements as a result of EDI-enabled supply-chain reengineering in gro-cery retail chain firms [60]. Chatfield and Yetton analyzed three case studiesof EDI implementation; they found that the extent of EDI usage by EDI initia-tor firms and their partners is a key determinant of the strategic payoffs fromEDI [16]. Yao, Palmer, and Dresner reported significant improvements in sup-ply-chain performance with the use of electronic systems, such as EDI and theInternet [104]. Ramamurthy and Premkumar found that greater assimilationand diffusion of EDI facilitated improved organizational performance [83].They concluded, “In order to be able to truly exploit the large scale opera-tional and strategic benefits potential that is latent in EDI, the adopter firmwill need to systematically plan and pursue more extensive internal and ex-ternal diffusion of EDI.”

Research in operations management also indicates that Web systems have


a strong impact on the SCM function [59]. Frohlich and Westbrook proposed afour-level model for Web-based integration between a firm and its suppliersand examined the linkages between Web-based integration and the benefitsin terms of firm performance [35]. The four levels of Web-based integrationvaried on two key dimensions: degree of Internet-based supply integrationand degree of Internet-based demand integration. The four levels representeddifferent points on a continuum. At one end of the continuum are firms thathave little or no Web-based integration with suppliers. At the other end iscomplete Web-based integration, where the whole supply chain, from end-customers to suppliers, is digitized. In between these polarities are firms thatpartially digitize their supply chain—they Web-integrate either with theirsuppliers or with business-customers. Based on survey data obtained fromsenior operations executives, the study found that higher levels of performancewere associated with higher levels of Web-based integration. In a related study,Frohlich found a positive connection between e-integration in supply chainand performance [34]. In other words, firms that used Web technologies tointegrate more with their suppliers reaped greater performance benefits thanfirms that had relatively lower levels of Web technology usage in their supplychains. Hence, one may anticipate a positive relationship between Web-tech-nology assimilation/diffusion in SCM and the benefits accruing from it.

H8: The greater the internal assimilation of Web technologies in SCM, thegreater will be the benefits realized from it.

H9: The greater the external diffusion of Web technologies in SCM, thegreater will be the benefits realized from it.

Research Methodology and Data Analysis

Measures

Most of the constructs in this study are measures from the literature that wereadapted to the context of the study. Multiple-item measures were used to as-sess the research constructs. All the items were measured using a 7-point Likert-like scale. The content validity of the measures was assessed by pretests withknowledgeable experts and IT managers.

The items for measuring assimilation tapped the extent to which Web tech-nologies and applications were used in internal supply-chain activities. As-similation was assessed by asking respondents about the extent to which theyused Web technologies and applications in five internal SCM activities: (a)supplier selection (getting quotes, bids, etc.), (b) purchase-order processing,(c) procurement from suppliers (distribution, warehousing, logistics, etc.), (d)invoicing and payment processing, and (e) demand management and pro-curement analysis. The initial set of activities was derived from the literatureon SCM and was refined and validated by the pilot tests [26, 93, 95, 101].

External diffusion was measured using three items that asked respondentsto indicate how many suppliers they had interacted with using Web technolo-gies, total supplier transactions done using Web applications, and overall sup-


plier interactions handled through Web applications. These items were adaptedfrom Premkumar, Ramamurthy, Nilakata [81] and Ramamurthy andPremkumar [83].

Supplier interdependence was measured using four items adapted fromPremkumar and Ramamurthy [79]. These items measure a firm’s dependenceon its suppliers and the reciprocal dependence of suppliers on the firm. Themeasurement was based on responding firms’ perceptions of their interde-pendence with their suppliers.

Three items capturing the competitive intensity construct were derived fromGermain, Drodge, and Daugherty [38]. These assessed the perceptions of theresponding firm on the extent to which it monitors and keeps track of com-petitors in the industry. IT activity intensity was measured using four itemsobtained from Purvis, Sambamurthy, and Zmud [82]. These focused on theextent of IT usage and levels of IT-related activities among suppliers, custom-ers, competitors, and other business partners.

Eight items used to measure managerial IT knowledge were adapted fromArmstrong and Overton [4] and Boynton, Zmud, and Jacobs [11]. Four itemsassessed the strategic IT and e-business knowledge of top management, theirunderstanding of the potential impacts of Web technologies, and the extent oftheir support of e-business initiatives in the firm. Two items focused on theknowledge of functional executives, and two tapped the business-relatedknowledge of IT executives.

The measures for centralization and formalization of IT unit structure wereadapted from Grover and Goslar [40] and Ranganathan and Sethi [85]. Fiveitems were used to measure the centralization of IT unit structure. These tappedthe extent to which the locus of responsibility for five key IT activities (de-rived from [13]) was concentrated in the IT unit as opposed to functional units.Formalization was assessed using four items that tapped the extent to whichthe IT unit had clear job descriptions for IT personnel, rules and proceduresfor handling various IT activities, committees and task forces for performingIT tasks, and formal procedures and guidelines for evaluating new technolo-gies and systems.

The performance impact of Web technologies in SCM was captured fromthe perceptions of the respondents about the benefits realized since the imple-mentation of Web technologies in SCM. Based on Iacovu, Benbasat, and Dex-ter, Otto and Kotzab, and Ramamurthy and Premkumar, six items were usedto assess the benefits from Web technologies in supplier-oriented activities[46, 74, 83]. These items measured the extent to which Web applications re-sulted in improvements pertaining to customer service, cost reduction, inven-tory management, cycle-time reduction, supplier-relationship management,and generation of competitive advantage.

Table 2 outlines the measures used in this study. The survey instrumentwas initially tested with six academic experts, and iterative refinements weremade. It was then pretested with eight senior IT managers who had consider-able experience in e-commerce system deployment. During interviews withthese senior IT managers, their feedback was obtained on the questionnaireafter they had completed the survey. Refinements were made at each stagebased on the feedback from the pilot-test respondents.


Constructs and items Loading

Supplier interdependenceImportance of having continued business relationship with suppliers 0.74Significant proportion of total profits related to profits from sale/service to suppliers 0.81Dependence of suppliers on firm for achieving their business goals 0.77Bargaining power of suppliers/partners 0.80

Competitive intensityTracking new initiatives of competitors 0.93Monitoring competitor moves 0.92Competitor information considered important for firm’s decisions 0.90

IT activity intensity IT activities and practices of competitors 0.88Use of IT by key suppliers 0.81Use of IT by key customers 0.75Use of IT by key business partners and other agents 0.87

Managerial IT knowledgeTop management’s interest in use of Web applications in firm 0.89Top management’s consideration of Web applications as important to firm 0.91Top management’s commitment to support Web applications in firm 0.94Top management’s knowledge of potential of Web for future success of firm 0.90Functional management’s knowledge of potential of Web for future success of firm 0.87Functional management’s knowledge of potential of Web in improving business processes 0.87IT management’s knowledge of business operations of the firm 0.84IT management’s knowledge of business strategies of firm 0.81

Centralization of IT unit structure Locus of decision-making responsibilities for

Application development and outsourcing 0.72Procurement of hardware and software 0.80IT operations and maintenance 0.88Staffing IT positions 0.72Capital budgeting decisions related to IT 0.72

Formalization of IT unit structure Documented job descriptions for IT personnel 0.84Use of operating rules and procedures for IT activities 0.81Use of task forces and committees for IT activities 0.65Use of formal procedures and guidelines for evaluating new technologies and ideas 0.72

Assimilation Extent to which Web applications are used in—

Supplier selection (getting quotes, bids, etc.) 0.87Purchase-order processing 0.91Procurement from suppliers (distribution, warehouse, logistics, etc.) 0.92Invoicing and payment processing 0.91Demand management (procurement analysis) 0.84

Diffusion Proportion of total suppliers who interact with firm through Web 0.94Proportion of total supplier transactions done through Web 0.97Proportion of overall interactions with suppliers through Web 0.95

Web-technology Impact Perceived benefits realized from Web technology

Improved customer service 0.89Better inventory control 0.93Reduced operations costs 0.92Reduced cycle time 0.93Better relationship with suppliers 0.92Generate competitive advantage 0.88

Table 2. Measurement Model Loadings.


Method and Sample

A field survey method was adopted for the study. An initial sampling framewas assembled from the ACR directory of top computer executives in NorthAmerica and from senior IT executives of organizations listed on the TorontoStock Exchange’s Listed Company Directory. From these sources, 1,200 orga-nizations with more than 500 employees and at least 20 IT personnel wererandomly selected. The target respondent in each firm was the highest-rank-ing IT executive, often the CIO. The initial survey in the summer of 2001 wasfollowed by two reminders. The questionnaire and reminders produced 249responses, a response rate of 20.75 percent, which is comparable to similarstudies [39, 40, 83]. Because the research was focused on the assimilation, dif-fusion, and performance impacts of Web technology deployment in SCM, onlyfirms that had already implemented Web technologies in the supply chainwere included in the final analysis. Of the 249 respondent firms, 176 had de-ployed Web technologies in supplier-related activities. In line with the researchgoals, only these responses were considered in the final analysis.

Table 3 presents the demographic profiles of the respondent firms. Thesample had a heterogeneous representation in terms of industry categories.The firms in the sample were fairly distributed across different industry groupsin manufacturing and service-related sectors. About two-thirds had annualrevenues in excess of $50 million. Because the research sought to assess thebenefits of Web technology deployment in SCM, data were obtained about theperiod in which the firm deployed it. As shown in Table 3, all the firms in thefinal sample had already implemented Web technologies in SCM. Almost halfthe firms in the sample had deployed Web technology less than two years be-fore the survey was administered, and the others had deployed it much earlier.

The CIO or the senior IT executive was reached in most cases. More thanhalf of the respondents held the most senior IS positions in their firms. Abouta fifth were from IS management or the equivalent. Interestingly, 12 percent ofthe respondents had titles allied to Web-related functions in the organizations.Overall, the respondent profile gives good confidence in the data obtained bythe survey.

Response bias is always a concern in survey research, especially when theresponse rate is low. As indicated earlier, the response rate was comparable tosimilar studies. However, several steps were taken to assess response bias.Following Armstrong and Overton, the early respondents and late respon-dents were compared on a number of parameters [4]. The logic of this com-parison is that late respondents tend to closely resemble nonrespondents [50].Nonrespondent bias was checked by comparing early and late respondentfirms on all the key research constructs in the model. The t-tests revealed nosignificant differences in the means of the research constructs between thetwo groups. Second, on the assumption that a significant correlation betweenitem scores and survey response time would indicate response bias, all thecorrelations between the mean scores of the research constructs and responsetime were examined, and none were significant. Third, industry bias was alsoexamined. Because there were more than 13 industry groups in the sample,with fewer than five firms in some of the industries (see Table 3), they were


Industry Frequency %

Manufacturing/engineering 32 18.2Chemical 3 1.7Finance/banking/insurance 26 14.8Computer/IT 14 8.0Medical/health care 5 2.8Oil/gas/energy 6 3.4Business services 9 5.1Real estate/property 7 4.0Publishing/information/news 6 2.4Transportation/logistics 12 6.8Retailing/wholesale/trading 24 13.6Hotel/travel/tourism 6 3.4Other 17 9.7N/A 10 5.7Total 176 100.0

Annual revenue level Frequency %

<1 million 1 0.601.1–5 million 4 2.35.1–10 million 13 7.410.1–50 million 39 22.350–100 million 56 31.8>100 million 62 35.2N/A 1 0.6Total 176 100.0

Time elapsed since Web technology deployment Frequency %

<1 year 9 5.111 year 39 22.162 years 41 23.303 years 24 13.644 years 29 16.48≥5 years 19 10.80N/A 15 8.52Total 176 100.0

Title of respondent Frequency %

CIO/CTO/vice president for IS/senior vice president for IS 63 35.80Senior director/director for IS 28 15.91General manager/manager, vice president, or assistant director for IS 35 19.89Vice president/director for e-business 6 3.41General manager/e-business manager 14 7.95Project manager/project leader for e-business 5 2.84IS project manager, executive manager/other 6 3.41N/A 19 10.80Total 176 100.00

Table 3. Demographics of Responding Firms.

regrouped into seven industry categories in order to perform chi-square tests.The respondent and late-respondent groups were compared to see whether


they differed across the industry representations, and no significant differ-ences were found. Similarly, the distributions of the revenue levels of thesetwo groups were compared, and no significant differences were detected.Fourth, to test for sample bias, the respondent firms that had returned usablequestionnaires indicating that they had deployed Web-based systems in thesupply chain (n = 176) were compared with those that had indicated other-wise (n = 73). The chi-square test on the revenue levels suggests a possiblebias (χ2 = 39.75; p < 0.1), implying that the respondent firms that had deployedWeb-based supply-chain systems were large firms with fairly high levels ofrevenue. Therefore, the results need to be interpreted with caution inasmuchas they may be applicable only to larger firms.

Analytical Techniques

The research model was tested with structural equation modeling (SEM) us-ing the partial least squares (PLS) approach [62, 102, 103]. PLS is a second-generation modeling technique that simultaneously assesses the quality ofmeasurement of research constructs (i.e., measurement model) and the inter-relationships between the constructs (i.e., structural model). Unlike other SEMtechniques, such as LISREL, that use maximum likelihood estimation to gaugethe fit between a theoretical model and the covariance matrix of the observeddata, PLS assesses the relationships between the research constructs, and be-tween the constructs and their measurement items, so that the error varianceis reduced. Whereas LISREL tests a model and produces fit measures explain-ing how well the observed data fits the theoretical model, PLS seeks to ex-plain the relationships within a model [32]. PLS assesses the predictiverelationships in the model and tests how well one part of the model predictsvalues in other parts. Therefore, PLS is better for analyses of exploratory modelswith no or little rigorous theoretical grounding but where explaining the con-struct interrelationship is desired [31]. Moreover, PLS works under conditionsof nonnormality and can handle smaller samples. All of these qualities haveearned PLS wide acceptance by IS scholars [3, 18, 85].

The present research assessed a set of interrelationships among key factors,assimilation/diffusion of Web technologies, and the benefits realized fromWeb systems. The primary focus was on the strength of the relationships inthe model. The sample comprises 176 cases, which is considered adequate forPLS analysis. Therefore, PLS was the appropriate analytical technique for thestudy.

Measurement Model

The data analysis began by assessing the mensurational properties of the re-search constructs. Testing a measurement model involves examining the in-ternal consistency, convergent validity, and discriminant validity of theconstructs. Internal consistency was examined using composite reliability.The traditional reliability measure of Cronbach’s α assumes equal weight for


the items measuring the construct and is influenced by the number of items inthe construct. In PLS, however, composite reliability relies on actual loadingsto compute the factor scores and is therefore a better indicator of internal con-sistency. As shown in Table 4, the composite reliability values for the con-structs in the model were all above the suggested threshold of 0.7 and thussupported the reliability of the measures.

Convergent validity refers to the extent to which two or more items mea-suring the same variable agree. Two tests were used to assess convergent va-lidity. The first was item reliability, which examines the factor loading of eachitem on the variable. Falk and Miller recommend a loading level of 0.55 toassess item reliability [28]. As can be seen in Table 2, all the items had a load-ing above the suggested threshold, thus providing support for item reliability.The second test for checking convergent validity is average variance extracted(AVE). The AVE for a construct reflects the ratio of the construct’s variance tothe total amount of variance among the items. Table 4 shows that the AVEvalues for all the constructs were above the limit of 0.50 advised by Fornelland Larcker [33]. Hence, the variables in the measurement model demon-strated adequate internal consistency and convergent validity.

Discriminant validity refers to the extent to which a given construct differsfrom other constructs. Two tests were used to evaluate discriminant validityat both the item and construct levels. According to Barclay, Higgins, andThompson, no item should load more highly on another construct than it doeson the one it is intended to measure [5]. Table 2 presents the loadings for thehypothesized relationships between the construct and its measures. The tableindicates adequate discriminant validity at the indicator level. At the con-struct level, discriminant validity is adequate when the variance between aconstruct and any other construct in the model is less than the variance of theconstruct with its measures [31]. The variance shared by any two constructs isobtained by squaring the correlation between them. The variance between aconstruct and its measures corresponds to the AVE. Discriminant validity wasevaluated by comparing the square root of the AVE for a given construct withthe correlations between the construct and all other constructs. Table 5 pre-sents the construct intercorrelations, and Table 4 presents the values of AVE.

Composite Average varianceConstruct reliability extracted

Supplier interdependence 0.70 0.77Competitive intensity 0.85 0.92IT activity intensity 0.73 0.83Managerial IT knowledge 0.80 0.88Centralization of IT unit structure 0.71 0.77Formalization of IT unit structure 0.75 0.76Assimilation 0.82 0.89 Diffusion 0.92 0.95Benefits realized from Web Technologies in SCM 0.85 0.91

Table 4. Reliability and Average Variance Extracted of Constructs.

INT

ER

NA

TIO

NA

L JOU

RN

AL O

F ELE

CT

RO

NIC

CO

MM

ER

CE

147

RealizedM SD benefits Assimilation Diffusion Centralization

Realized benefits 2.99 1.34 1.00Assimilation 3.11 1.74 0.74 1.00Diffusion 2.94 1.61 0.73 0.73 1.00Centralization 5.24 0.97 –0.21 –0.31 –0.24 1.00Formalization 4.37 1.25 0.22 0.39 0.23 –0.11Supplier interdependence 4.10 1.09 0.26 0.23 0.30 –0.02Competitive intensity 4.85 1.32 0.05 0.18 0.20 –0.15IT activity intensity 4.18 1.28 0.45 0.44 0.46 –0.30Managerial IT knowledge 4.88 1.36 0.19 0.26 0.17 –0.12

Supplier Competitive IT activity Managerial ITFormalization interdependence intensity intensity knowledge

Realized benefits AssimilationDiffusionCentralizationFormalization 1.00Supplier interdependence 0.03 1.00Competitive intensity 0.29 0.10 1.00IT activity intensity 0.26 0.09 0.16 1.00Managerial IT knowledge 0.24 0.11 0.08 0.30 1.00

Table 5. Descriptives and Intercorrelations.


In every case, the shared variance between two variables was less than theAVEs, satisfying the requirements of discriminant validity.

Structural Model

Partial least squares is a nonparametric estimation procedure, and it does notoffer significance tests based on statistical distributions. The size and signifi-cance of the paths in the model were examined by using bootstrapping toestimate parameters, standard errors, and t-values [72]. A total of 250 randomsamples of observations was generated from the original data set by samplingthrough replacement, where each sample size was similar to the number ofcases in the original data set. The resulting PLS structural model, along withthe path coefficients and their significance values, are shown in Figure 2 andTable 6.

All the hypothesized paths, with the exception of the one linking competi-tive intensity and the diffusion construct, were found to be significant (p <0.01). The model accounted for 24.3 percent of the variance in internal assimi-

Figure 2. PLS Structural Model

*p < 0.01

Benefits realizedfrom deployment ofWeb technologies

in SCM


lation, 58.1 percent of the variance in external diffusion, and 62.1 percent ofthe variance in the realized benefits from deploying Web technologies in SCM.These figures imply that the study’s constructs and the predicted paths ac-counted for a significant portion of the variance in the dependent variables.

The analysis was rerun after the PLS model was revised by removing thepath between internal assimilation and external diffusion. This reduced themultiple correlation square value for external diffusion from 0.581 in the origi-nal model to 0.291 in the revised model. Without the linkage between assimi-lation and diffusion, the model accounted for 29.1 percent of the variance inexternal diffusion. However, with assimilation added as a predictor variable,the variance explained in diffusion increased to 58.1 percent. This offered ad-ditional support for H7, which proposed a positive association between inter-nal assimilation and external diffusion.

All of the hypotheses except H2 were supported by the study. Interdepen-dence of suppliers and IT activity intensity were found to influence externaldiffusion positively, whereas managerial IT knowledge and formalization ofthe IT unit structure were positively associated with assimilation of Web tech-nologies in SCM. As expected, centralized IT unit structure was negativelyassociated with assimilation. The impact of Web technologies in SCM wasfound to have strong positive associations with both the internal assimilationconstruct and the external diffusion construct. This implies that Web tech-nologies are likely to have stronger positive impacts on SCM if the technologyis both internally assimilated and externally diffused in the SCM function.

Discussion and Conclusions

More and more firms are adopting Web technologies and systems in theirsupply-chain operations, but there has been little empirical research on theassimilation and diffusion of these systems, their key drivers, and the perfor-mance impacts. Drawing upon theoretical perspectives from organizationaltheory, IS research, and SCM research, the study described in this paper in-vestigated the key environmental and organizational factors that affect the

PathHypothesis Path coefficients

1 Supplier interdependence → Diffusion 0.134*2 Competitive intensity → Diffusion 0.0453 IT activity intensity → Diffusion 0.175*4 Managerial IT knowledge → Assimilation 0.151*5 Centralization of IT unit structure → Assimilation -0.253*6 Formalization of IT unit structure → Assimilation 0.324*7 Assimilation → Diffusion 0.601*8 Assimilation → Realized benefits from Web technologies in SCM 0.440*9 Diffusion → Realized benefits from Web technologies in SCM 0.407*

Table 6. Results of PLS Structural Model.

*p < 0.01.


assimilation and diffusion of Web technologies in SCM and the resultant per-formance impacts.

Among environmental factors, IT activity intensity and supplier interde-pendence were found to have a positive relationship on the diffusion of Websystems in SCM. The greater the mutual dependence between a firm and itssuppliers, the greater the likelihood that the firm will diffuse Web technolo-gies among its supplier networks. This significant result for supplier interde-pendence has another interesting dimension related to the argument that Webtechnologies, unlike EDI systems, lower the switching costs of B2B relation-ships with suppliers. If the enhancement of Web technology diffusion whenthere is greater mutual dependence can be expected to lower switching costsin the long term, this will aid in the transformation of static supply chains intodynamic supply chains, as characterized by Kumar and Christiaanse [57]. Theyargue that dynamism in the choice of partners in the supply chain is a criticalrequirement for supply-chain transformation.

The findings regarding the impact of IT activity intensity on the diffusionprocess are interesting. When key supply-chain players begin to use Web tech-nologies, other firms respond to the peer pressure to adopt the technologies,especially if their SCM operations are tied closely to those of outside parties.Thus, it is not an internal need for Web connectivity, but the need to establishexternal SCM connectivity and supplier interdependence, that apparentlydrives the diffusion of Web technologies. No support was found for the viewthat competitive intensity per se influences Web technology diffusion. In allprobability, the IT activities of competitors and the extent of IT use in the in-dustry have a stronger impact than the competitive pressure faced by firms.These results are similar to those of Iskander, Kurokawa, and LeBlanc, whoreported an insignificant relationship between competitive intensity and theextent of EDI adoption and integration [47].

Of the organizational variables, higher levels of managerial IT knowledgewere found to have a positive effect on the assimilation process. This comple-ments the results obtained by Armstrong and Sambamurthy and by Chatterjee,Grewal, and Sambamurthy, who found that collective IT knowledge in theorganization is a key predictor of technology assimilation [3, 17]. Organiza-tions with an enlightened understanding of the strategic potential of Web tech-nology for improving SCM assimilate Web technology more easily andpervasively than firms whose senior business and IT executives lack suchknowledge and understanding.

The study also found that IT unit structures had a significant effect on theassimilation of Web technologies in SCM. Web-based supply-chain projectsneed active participation from operations, logistics, warehousing, and otherfunctional managers apart from IT executives. Only a collective effort canenhance the effective usage of Web technologies in SCM. The use of formalmechanisms, such as guidelines and rules, and the assignment of formal re-sponsibilities to task forces or interdisciplinary teams for executing Web-basedSCM projects, augment Web-technology assimilation.

It is also important to consider the positive relationship between the inter-nal assimilation and external diffusion of Web-based SCM applications. Untilnow, research has largely ignored this critical linkage, possibly because of an


assumption that the two constructs are separate and distinct. The present find-ings, however, suggest that they are closely linked. Firms that have e-enabledtheir internal supply-chain operations, such as manufacturing logistics, in-ventory planning, and warehouse management, are more likely to succeed indiffusing these technologies into the interorganizational supply chain. Thisempirical finding lends support to the idea that before moving forward onambitious plans for the use of Web technologies for B2B transactions and co-ordination with supply-chain partners, organizations should first ensure thattheir internal processes and “back-end” logistics systems are adequatelyInternet enabled. Much like the lesson learned by many virtual e-retailersduring days of the dot-com boom, it is imperative for organizations to pay asmuch attention to the assimilation of Web technologies for internal logisticscoordination as to the interorganizational diffusion of Web-based systems withtheir supply-chain partners.

From a research perspective, the critical link between the internal assimila-tion and external diffusion of new technology applications is very important.Past MIS research on the diffusion of EDI and IOS may have assumed that theinternal assimilation of new technologies builds capabilities that improve afirm’s ability to diffuse IOS in the extended enterprise. However, the reverseinfluence of the external diffusion of IS technologies/capabilities on longitu-dinal, internal assimilation within organizations could possibly be a motiva-tion for the study of several recently observed phenomena, such asinformational cascades, information system waves, and mimetic imitation innew technology acquisition [53, 54, 97, 99].

Researchers and practitioners are focusing more attention on the perfor-mance impact of Web technology and systems. The study found significantpositive associations between both assimilation and diffusion of Web tech-nologies and the benefits from Web technologies in SCM. This shows thatgreater usage of Web systems in SCM is likely to improve performance in theareas of customer service, cost reduction, inventory management, cycle-timereduction, supplier-relationship management, and overall competitive advan-tage. These results are consistent with those of Frohlich and of Frohlich andWestbrook, who found that stronger e-integration between a firm and its sup-pliers influenced performance [34, 35]. A firm seeking to derive greater ben-efit from Web systems needs to concentrate as much on internally assimilatingthese systems into its operations as on externally diffusing them across itssupplier networks. Thus, the present study directly complements the studiesthat emphasize system usage as a significant influence on the value generatedfrom IT [23, 65].

Contributions to Research and Practice

The study summarized in this paper has made some significant contributions:

1. It adds to the emerging body of research on Web technology assimi-lation and diffusion in organizations by throwing light on theperformance impacts of Web technology diffusion and on the keyfactors affecting Web technology assimilation and diffusion.


2. It provides insights into real-world Web-SCM efforts, an area wherethere have been relatively few empirical studies based on field databecause of the dominance of analytical modeling and practitionercase study as the main approaches to the study of SCM. The organi-zational factors that need focus when a firm is embarking on e-business initiatives are identified. The importance of improving andsustaining higher levels of managerial IT knowledge and designingorganic IT unit structures is highlighted. Formalization generallyinhibits innovation in organizations, but formalizing IT activitiesand processes could greatly facilitate the organizational assimilationof Web technologies.

3. It takes a holistic approach, in contrast to earlier studies, whichfocused either on assimilation or on diffusion but not on both. Aholistic approach that examines the two concepts and their interrela-tionships facilitates better understanding of Web technology assimi-lation and diffusion in SCM. The results indicate that externaldiffusion is contingent upon internal assimilation of Web systems,and both constructs collectively contribute to the benefits realizedfrom Web applications.

4. It provides strong evidence that the returns from Web applicationsin SCM will be positive. Firms can maximize the benefits of Webtechnology by assimilating these technologies with their internalprocesses and by externally diffusing them in their supply chains.

5. It is grounded on existing theories of innovation diffusion and theextended enterprise. By building on earlier research, the studyshows how these theories can be used to explain the assimilationand diffusion of Web-based SCM.

Given the critical role of Web technologies in the implementation of SCM,it is important to understand the implications of the study’s findings forpractice.

1. An understanding of the key factors affecting SCM assimilation anddiffusion will put practitioners in a better position to design appro-priate strategies to deal with SCM deployment and, consequently, toenhance its benefits.

2. The IT unit plays a critical role in the implementation of SCM. Giventhat structural attributes, such as centralization and formalization ofthe IT unit and managerial IT knowledge, significantly affectassimilation, it is imperative for top management to think carefullyabout the role of IT managers in SCM initiatives. Before beginning amajor SCM program, managers may want to think about imple-menting managerial mechanisms that will improve managerial ITknowledge and ensure decentralization and formalization of ITmanagement and decision making.

3. The same lessons apply to IT managers faced with supportingorganizational SCM programs and can guide them in adoptingappropriate guidelines and managerial postures that will ensuresuccessful Web-related SCM initiatives.


4. Organizations may want to adopt a two-pronged “internal assimila-tion/external diffusion” strategy in dealing with the IT challengesposed by the use of Web technologies for SCM, because both of thesefactors will yield significant performance impacts. Even if they arecognizant of the interrelationship between assimilation and diffu-sion, managers may want to note that internal logistics assimilationof Web technologies for SCM yields benefits.

5. The dynamics of implementing Web-based systems in SCM will bemore challenging for managers operating in environments charac-terized by high levels of supplier interdependence and IT activityintensity. Careful consideration must be given to planning andimplementing Web-based SCM systems in such environments.

6. The study provides a basis for managerial thinking about the typesof performance benefits that can be expected from investments inWeb technology applications for SCM.

7. The study’s empirical evidence on performance benefits shouldassure top management that investments in Web-based technologiesfor SCM are worthwhile.

Limitations and Future Research

The study has some important limitations. To begin, its results are based onthe perceptions of senior IT executives rather than SCM managers, becauseall of the respondents were senior IT executives. However, given that the re-search constructs examined levels of IT knowledge, IT unit structure, and ITusage, senior IT executives were appropriate respondents. Future researchcan examine the perceptions of top managers and SCM managers with regardto Web-based SCM assimilation and diffusion.

Another important limitation pertains to the common method bias. Whendata on research variables are collected from the same source at one time, therelationships between variables may be contaminated by biases in the sourcethat can lead to inflation in observed relationships. Several procedural andstatistical steps were taken to address the problem of method bias because itis so important a concern. The variables were not placed in any particularorder in the survey administered to the respondents. Some dependent vari-ables were placed ahead of independent variables to diminish the cognitivecomplexity of the judgments made by the respondents when answering thequestions. Harman’s single-factor test (see Podsakoff and Organ [77]; Harman[43]) was used by performing factor analysis to examine common-methodbias. This test holds as a fundamental principle that if there is a substantialamount of common-method variance in the data, either a single factor willemerge from the data when all the dependent and independent variables areentered together, or a general factor that accounts for most of the variance willresult. The factor analysis indicated the existence of nine factors that wereconsistent with the research model.

Another limitation is the use of a single respondent from each target firm,without collecting and cross-validating responses from other informants in


the same firm. The use of single respondents is questionable, because relyingon only one informant to make complex social judgments about organiza-tional characteristics increases random measurement error. However, the costof using multiple informants and the possibility of lower response rates weredeterrents against the use of multiple respondents. The survey was targetedto senior IT executives in an attempt to minimize the common method vari-ance. Senior IT executives are more objective and knowledgeable about theoperations and strategies of their firms, and thus were in a position to answerquestions pertaining to organizational and environmental characteristics. Fu-ture research can mitigate the problem of common method bias by collectingdata from more than one respondent per firm and comparing the perceptionsof different stakeholders in SCM assimilation and diffusion.

Because the concepts used in the study relied on subjective measures, thebenefits realized from the deployment of Web technologies were evaluatedfrom subjective indicators rather than objective, tangible measures. Thus, theresponses about the benefits of e-business technologies reflect the perceptionsof the responding executives rather than actual or quantified benefits. Futureresearchers could incorporate objective measures, especially for the impact ofWeb technology usage for SCM.

The study examined only a few of the environmental and organizationalvariables that impact Web assimilation and diffusion. Several other factors,such as the supply-chain structure, complexity of processes, IT infrastructure,and the nature of the Web systems, could also influence Web assimilation anddiffusion. This is another area for future research.

Finally, the study used the adopters of Web systems as the unit of analysis.It captured the measures and the relationships as viewed by the adopter/initiator firms. A good extension of the study would be to have suppliers orbuyer–supplier dyads as the unit of analysis.

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C. RANGANATHAN ([email protected]) is an assistant professor in the Department ofInformation and Decision Sciences at the University of Illinois at Chicago. He has adoctorate from the Indian Institute of Management, Ahmedabad, and a master’s de-gree from the Birla Institute of Technology and Science, Pilani, India, and has the bestdoctoral dissertation award, the best teaching case award at the International Confer-ence on Information Systems, and best paper awards from the Society for InformationManagement. His research interests include e-business, information systems strate-gies, and strategic issues pertaining to managing information systems. His work hasbeen published in Communications of the ACM, Decision Sciences, Information and Man-agement, and Information Systems Management.

JASBIR S. DHALIWAL ([email protected]) is a professor chair of information sys-tems management at the College of Business, Northern Kentucky University. He com-pleted his Ph.D. in management information systems at the University of BritishColumbia in Vancouver, and he has served on the academic faculties of the Norwe-gian School of Management, the National University of Singapore, and the TechnicalUniversity of British Columbia. His publications have appeared in journals such asInformation and Management, Information Systems Research, Journal of Organizational Com-puting and E-commerce, among others. His current research interests include technol-


ogy convergence in supply-chain management, intrapreneurship within the informa-tion technology units of large corporations, and the design of intelligent explanationsystems.

THOMPSON S.H. TEO ([email protected]) is Information Systems Area Coordi-nator and associate professor in the Department of Decision Sciences at the NUS Busi-ness School. His research interests include the strategic uses of information technology,e-commerce, adoption and diffusion of information technology, and strategic infor-mation technology management and planning. He has published more than 70 pa-pers in international refereed journals, such as Communications of the ACM, Database,Decision Sciences, Decision Support Systems, Information and Management, InternationalJournal of Electronic Commerce, and Journal of Management Information Systems. He is alsoon the editorial board of Communications of AIS, European Journal of Information Sys-tems, Journal of Information Technology Cases and Applications, Internet Research, Omega,and the International Journal of Electronic Business.

Assimilation and Diffusion of Web Technologies in Supply-Chain

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