How Can Buyer-IT Service Provider Relationship Affect the Operational Performance of the Buyer Firm Through the Mediating Role of IT Logistics Applications? Literature Review
In a B2B trading environment, the seller or IT service provider has to have a relationship with its buyers, which should extend beyond the transaction to include presales interactions and post sales interactions. The extent to which the relationship between the two is successful determines how much the buyer company succeeds in its operations, especially in consideration of the aspects of operations that benefit from the input from the supplier including knowledge and skill (Selviaridis & Spring 2007). For instance, by having a close relationship between the two, then the IT service provider can supply the buyer with IT solutions that are tailored to the logistical needs of the buyer. In addition, according to Klein and Rai (2009), such a relationship promotes the practice of supplier modification of current IT solutions to address any changes in buyer needs at minimal or no cost. This literature review examines the theories that govern such relationships, discusses various aspects of buyer-supplier relationships, and determines the role of IT logistics applications in an attempt to determine the current state of knowledge on the mediating role of IT logistics applications.
For optimal interaction between buyer and supplier firm that results in more benefits for both forms, the relationship must be informed by some theories including the absorptive capacity theory, relational view theory, extended resource-based view theory and the transaction cost theory. The absorptive capacity theory was proposed by Cohen and Levinthal (1990) and defines absorptive capacity as “the ability of a firm to recognize the value of new, external information, assimilate it, and apply it to commercial ends is critical to its innovative capabilities” (128). The authors state that the absorptive capacity is a function of the knowledge a firm already has, as it has to have the ability and capacity to incorporate new knowledge since existing knowledge enables a company to acquire new information. Companies with the best absorptive capacity are the ones that already have their own research and development departments that bring together the individual and groups absorptive capacities to result in a unified organizational absorptive capacity. For purposes of this study, the buyer company should already have knowledge on the use of IT logistics tools in order to be able to collaborate with IT suppliers for new knowledge, which is defined by Cohen and Levinthal (1990) as the ability to seize technological opportunities.
The relational view theory was proposed by Dyer and Singh (1998) to explain the superior performance associated with individual firms that are part of a dyad or a network in which goods, services and ideas are exchanged. Dyer and Singh (1998) referred to this superior performance as relational rents that were promoted when firms interacted with each other as part of their normal operations. As relational rents result in increased competitive advantage for firms in the dyad or network, Dyer and Singh (1998) proposed that firms should endeavor to identify and optimize the sources of these relational rents including knowledge-sharing routines, relation-specific assets, effective governance, and complementary resources and capabilities. While extending the relational view theory, Lavie (2006) identified shared and non-shared resources, proposed new rents and showed how partner-specific, relation-specific factors and firm-specific factors that determine the benefits acquired by each member of the dyad or network. In its extended form, the relational view proposed by Lavie (2006) shows, in determining how companies achieve and sustain a competitive edge, relationships are more important than resources.
The extended resource based view was proposed by Mathews (2003) as a more advanced version of the preexisting resource based view, whereby it included an extension of interactions among companies in a market, and how these interactions result in better competitiveness of the companies involved. Instead of organizational learning, Mathews (2003) examined economic learning, whereby economic competencies and capabilities are developed by firms in a shared network based on available economic resources for value generation and economic routines for resource utilization. The plausibility of economic learning is underpinned by mobility of resources, resource exchange through production dynamics that adhere to economic evolutionary pathways (Arya & Lin 2007). The extended resource based framework accounts for the dynamics of circulation and exchange of technologies, intangible assets and knowhow, and capital goods and tangible assets in the economy as a whole. Rather than focus on the behavior of consumers and producers in markets of goods and services, the framework focuses on entrepreneur behavior. In addition, it makes it possible to evaluate resource dynamics in production including resource diffusion, resource propagation, resource replication, resource imitation and resource recombination. These processes result in evolutionary pressures that encourage the variation, selection and retention of resources to result in enhancement or diminishing of economic performance.
Ronald Coase proposed the transaction cost theory in his 1937 The Nature of the Firm paper in which he attempted to explain reasons for the existence of companies and why they source out business activities from the external environment or expand their operations (Williamson 2010). The theory explains that companies attempt to minimize the costs incurred in exchanging resources with the market environment, and that they attempt to minimize the costs of bureaucracy in exchanges that occur within the company. In this regard, the theory proposes that companies have to weigh the costs of exchanging resources with the market environment against the bureaucratic costs associated with in-house production. In case a company can produce at cheaper costs from within instead of outsourcing, then it will achieve continuous growth, but has to incur transaction costs to acquire technologies or products that it cannot make from by itself. The transaction cost theory then explains the make or buy decision of a company based on factors like environmental uncertainty, risks, core company assets, opportunism and bounded rationality.
In order to have sustainable and mutually beneficial relationships the buyer companies and IT providers should endeavor to build stable relationships in which the terms of engagement are agreeable and beneficial to all of them. One of the primary approaches to having a stable business relationship is using a contract, whereby according to Murthy, Shrikhande and Subramanian (2003), contractual relationships help companies to deal with the uncertainty associated with the highly globalized and competitive modern-day business environment. Contracts, especially those drawn up at the start of a business relationship shape the relationship in a way that is conducive for both parties, whereby they define the standards that both parties must adhere to in terms of issues of concern like environmental conservation, and corporate social responsibility (Borak et al. 2006; Lorenc & Więcek 2014).
In addition contracts, particularly futures contracts as defined by Jorion (2007) are aimed at achieving long-term sustainability for both the buyer and the seller companies by minimizing the effects of the external market environment as much as possible. For instance, a futures contract could be applied to ensure that the IT service provider keeps the software packages sold to the buyer company as up-to-date as possible to keep up with security threats and future logistical needs and expectations. In addition, the contract may require the supplier to share emerging logistics management technologies to help the buyer not to miss the advantages the emerging systems have to offer. The other function of a futures contract is ensuring that both the buyer and the supplier have a source and market, respectively, regardless of any fluctuations in the market ( Jorion 2007). For the seller, the contract would have the objective of ensuring that a certain volume of sales is achieved in the long-term regardless of market conditions, which protects the seller from competitors that may offer alternative products at lower prices. For the buyer, futures contracts offer protection from increasing prices and fluctuations in supply, which ensures that the buyer can produce and sell in the long-term regardless of reduction in supply or higher supply prices.
Despite the benefits of contracts in relationships between buyer companies and their IT supplier companies, not all aspects of the relationship can be based on a contract, especially in cases where the relationship needs to be mutually beneficial and synergistic for both companies. In this case, Nunn (2007) suggests that for relationships in which products are complex, items are of high value and buyers are strong, relationships are more important than contracts. Despite having a contract, some shortcomings may jeopardize the relationship between the buyer and the seller and result in any benefits they may have had. For instance, there may be poor communication between the seller and the buyer, which can also be linked to the seller not meeting the contract terms due to different interpretations by parties to the contract. In addition, there may be frequent schedule and specification changes by the buyer, or either of both parties abusing intellectual property rights. Furthermore, the seller may impose unexpected price increases on the buyer and the seller in spite of contractual agreement, or the seller may change the quality of product offered to buyer. The buyer may also fail to honor invoices in time, or personnel changes and misaligned goals between both parties may result in failure of the relationship between the seller and the buyer. In order to overcome these shortcomings in the relationship between the seller and the buyer, in addition to contracts, long-term relationships must be based on trust.
According to Nicholson, Compeau and Sethi (2001), the best way to build long-term relationships between is to encourage interpersonal relationships between employees of both companies so that growth in their relationships can extend to the relationship between the two companies. In addition, Morgan and Hunt (1994) assert that shared organizational cultures and similar work ethics between the two companies helps to build organizations, departments and individuals. By having a relationship built on trust rather than just contractual agreements, Kalwani and Narayandas (1995) point out that organizations can be fair about how they interact for mutual benefit between them. Some of the benefits of such a relationship include encouragement of technology transfer and information transfer, which, ultimately results in increased productivity (Johnston et al. 2004). According to Johnston et al.(2004), with trust and the promise of a long-term relationship, information sharing becomes easier, and both companies can benefit on information from each party to the agreement. As mentioned above and supported by Kalwani and Narayandas (1995), relationships between buyer and supplier firms are most successful in cases where they result in mutual benefits.
According to Stoyanov et al. (2013), IT logistics applications enable companies to keep accurate records, which Gunasekaran and Kobu (2007) point out is necessary for keeping track of present performance for purposes of future improvements. Mettler Toledo (2015) identify some of the functions of logistical tracking tools to include sorting and tracking, shipping and manifesting, revenue recovery, receiving and profiling goods, packing and loading planning, vehicle in-motion weighing, rail weighing, and truck weighing. These application make it possible for suppliers and buyers to collaborate successfully (Zunder & Islam 2011) , especially in cases where a common application is used by both companies either over the locally or over the internet, or over HaaS, IaaS and SaaS cloud computing platform. Guineva (2014) credits these application in enabling companies to become more cost efficient and minimize waste by keeping track of resources like fuel and funds, and assets like company delivery trucks. Examples of some of the most popular IT logistics applications, according to (Capterra 2015), include 3PLink, Parcelhub Shipping Software, Pantonium and SCP among others that either serve general or specific logistical purposes.
On application of the ideal IT applications in logistics, Capterra (2015) identifies some of the benefits to include reduction of elimination of the costs of maintaining company information technology operations. In addition, these applications are supposed to result in faster growth by resulting in increased profitability and shorter waiting times for deliveries. Taking the tasks of continuous keeping track of logistics by automating using logistics software removes the burden of handling logistical complications from the company and enables the company to focus on its core competencies for optimal productivity and profitability. As these applications can keep track of present logistics, they can be used to anticipate future changes in requirements, needs and expectations of trading partners so that they can be met successfully. Logistics applications enable companies to keep track of their transactions, which in turn improves their ability to comply with regulations and reduce the risks associated with business. Furthermore, they can result in increased control, visibility and connectivity of the supply chain, which results in new customer level creation due to ability to respond to change and satisfy customer requirements (Capterra 2015). Due to these and more benefits of IT logistics applications, CCID Consulting (2010) points out that the current limited application is bound to change as the industry evolves, which will ultimately lead to better relationships between buyers and sellers, and improved operational performance for buyers.
As indicated earlier and supported by Danese and Bortolotti (2014), there is a close causative relationship between supply chain integration (SCI) and operational performance, but this depends on the extent to which the supplier and buyer achieve supply chain integration. Danese and Bortolotti (2014) differentiate between full SCI adopters, partial SCI adopters and SCI non-adopters depending on the extent to which both companies have integrated their respective supply chains into a common system. From the study Danese and Bortolotti (2014) found that, among manufacturing plants, full SCI adopters were found to have better performance in terms of delivery, quality, efficiency and flexibility than their non-adopting counterparts. Despite the advantages of full SCI, companies fail due to different types and levels of information technologies used in their supply chain processes. Therefore, achieving optimal SCI requires the information systems used by the buyers to be at par or compatible with the information systems used by the supplier to manage their business operations. According to Ye and Wang (2013) parity in information systems for purposes of compatibility requires alignment in information technologies used by the two parties. The study shows that information technology alignment affects operational performance either directly or indirectly through the effect it has of enhancing information sharing between the supplier and the buyer.
- The relationship between the IT service provider and buyer should be based on a theoretical framework or a combination of frameworks that is unique to their relationship
- For such a relationship to have a positive effect on operational performance, it must extend to information technology alignment in terms of compatibility or use of a common information systems
- Compatibility in information systems encourages sharing of information for seamless operation between the supplier and buyer and improved SCI
- SCI improves the relationship between the supplier and the buyer for purposes of ensuring improved efficiency and effectiveness in their supply chain aspects of their operations
Table of Contents
Research Hypotheses. 12
Research Method. 14
Sampling Strategy. 15
This methodology intends to offer insight into how data will be collected for the research. In fact, it avails awareness focused on solving the practical problem of the position that the mediating role of buyer IT capability can play in affecting the operational performance of buyer firms. As such, the methodology includes the exploration of the research hypotheses and question, using both primary and secondary information with the goal of adding to the current literature on buyer-IT service provider relationships. To realize the indicated goal, this section has been subdivided into five focal areas that will be addressed independently and comprehensively. These areas include; an introduction, research hypotheses, research process, sampling strategy, and finally, a brief summary will be presented. Therefore, this research methodology provides an overview of the approaches applied in collecting data that was used to inform the research.
Research hypotheses are the guides applied when planning for and carrying out the research. The research hypothesis presented is that there is a positive relationship between Buyer- IT service provider and operational performance of the buyer firm through the mediating role of buyer IT capability. This hypothesis is difficult to test, thereby necessitating the development of a testable hypothesis. This is on the understanding that there are two categories of hypotheses that are applied in any research activity. The two are testable research hypothesis denoted as H1 and the null hypothesis denoted as H0 (Babbie, 2009). The present research study will test two hypotheses presented as H1 and H0.
The main research hypothesis has been submitted as: “There is a positive relationship between Buyer- IT service provider and operational performance of the buyer firm through the mediating role of buyer IT capability.” As such, the sub-hypotheses presented for the research are:
- There is a positive relationship between contract formality/specification of Buyer- IT service provider contractual relationship and operational performance of the buyer firm through the mediating role of buyer IT capability. The H0a is that there is no relationship between contract formality/specification of Buyer- IT service provider contractual relationship and operational performance of the buyer firm through the mediating role of buyer IT capability.
- There is a positive relationship between relation strength/relational ties of Buyer- IT service provider relationship and operational performance of the buyer firm through the mediating role of buyer IT capability. The H0b is that there is no relationship between relation strength/relational ties of Buyer- IT service provider relationship and operational performance of the buyer firm through the mediating role of buyer IT capability.
At the close of the research study, the two sub-hypotheses will be tested to determine how they relate the data trends as collected from the secondary and primary data. The tests will be on the basis of the statistical significance as determined by the statistical software analysis. The tests will include multiple regression to determine the relationship between the H1 and H0 for each of the two hypotheses. Thus, the two hypotheses will be tested using the collected data.
The research will apply a confirmatory approach using a quantitative method in data collection. This will entail using a closed-ended questionnaire as the most suitable technique for collecting primary data for this research. The designated process allows the research to collect data from a population sample comprising of a good number respondents while preserving a high level of precision. The questionnaire results present a more inclusive opinion of the variables being scrutinized. This is on the understanding that they incorporate fixed statements that can then be answered by selecting options from stationary response categories. In addition, the questionnaire has been deliberated to obtain data, bearing in mind concrete and particular factors, by gathering data from each population segment (Balnaves & Caputi, 2001).
Data will be collected by availing respondents with self-administered closed-ended questionnaires. The questionnaire was designed after:
- Selecting a target population of interest to the research. The population of interest are IT service providers and buyers.
- Ascertaining the indicators and variables that address research subjects on which the primary data was to be collected. The variables included respondents’ demographics – such as gender, age, employment status and level of education – and opinions regarding buyer-IT capability.
- Developing research study rehearsal queries for the questionnaire. The sample questions were included in the pilot study where they were tested for validity and reliability.
- Closing the open-ended questions in the questionnaire. Any questions that did not have standard answers were restructured to allow for standards answers.
- Designing contingency, filter and skip questions to be applied inside the questionnaire. These questions are conceived as checks to ensure that the respondents are honest.
- Reducing questionnaire answer prejudice and maximizing response rates. Any questions that are considered redundant are eliminated, and the questionnaire length reduced to motivate the respondents into completing it truthfully.
- Designing research study probe queries and instructions in the introduction section of the questionnaire to guarantee that the respondents understand what the questionnaire required of them. A consent form is included as part of the introduction.
- Performing a pilot test for the questionnaire before adjusting the final design according to the projected results.
- Preparing the research study codebook for data entry. The codebook would present the summary of primary data.
The study sample population was randomly nominated using probability selection strategies acknowledged by Chow, Wang and Shao (2003). The choice of the pre-structured questionnaire, as the primary data collection instrument, was centered on the necessity of asking specific questions, respondent’s literacy levels, gender, age, budgetary considerations, and speed. In addition, it was grounded on the need for definitive and accurate data, research schedule deliberation, precision, detail, control, and flexibility. A pre-structured closed-ended questionnaire saves on research costs and time and has greater control and flexibility (Brace, 2008; Gillham, 2008).
The probability and purposive sampling system was applied in selecting the respondents because there are specific features that the respondents must have for the information collected to be considered valid. The probability system is defined as the process whereby a population sample is nominated for random selection. Purposive sampling is a sub-type of non-probability sampling and is characterized by the prospective respondents possessing certain traits that are particular to them. The unique characteristics make the sample the focus of the research and best source of data (Denscombe, 2007; Maxfield & Babbie, 2014). The sample for the present research study is composed of IT service providers and buyers. This is on the understanding that sampling is the practice of choosing a set of persons who are illustrative of the population. In fact, a sample is the population set that will give a worthy depiction of the needed data, besides saving on costs and time. According to Denscombe (2007), non-probability sampling encompasses the researcher using his or her discrete judgment to select the population representatives to be contained within the research based on their knowledge of IT services. It is also vital to note that in the present research study purposive sampling has been applied. In this case, the researcher intentionally selects who is to be included in the study based on their capacity to deliver the needed data regarding IT services. The reasoning for using this approach is to permit the researcher to get information and knowledge regarding the respondents’ opinion on IT service providers and buyers relationships.
One must accept that the data collection methods applied in the present research have been well elucidated. Firstly, the research hypotheses have been presented. Secondly, an overview of the research process has been well presented to include the strategy employed in data collection, the sample population, and design. Finally, an analysis of the sampling procedure implemented in the research. Therefore, the research methodology presents an overview of the approaches applied in collecting primary data.
A pilot study is a feasibility study of a proposed research study. It tests the research instruments, which in the case of this research is a questionnaire. It forewarns research botch and failure to follow research protocols. The criteria for the success of the pilot study are based on the primary feasibility objectives. These provide the basis for interpreting the results and determining whether it is feasible to proceed with the main study. In general, the outcome of a pilot study can be one of the following: discontinuing the research since the main study is not feasible; modifying the protocols to make them feasible; proceed with the main study without altering it (Lancaster, Dodd, & Williamson, 2004). In this case, the pilot study will be conducted to determine the feasibility of doing the main research as well as the appropriate sample size for collecting statistical significant results.
The pilot study will apply a sample size of 15. This is because that number is experimentally feasible when we consider the effort, time, and money that would be associated with subjecting this sample size to the questionnaires and analyzing the data. The confidence interval approach will be applied to the results of the pilot study to estimate the completion rate, percentage margin of error and a reliable sample size for the main research. This is to ensure that no reliability questions are raised about the main research study (Yin, 2002).
FILLING IN THE QUESTIONNAIRE
I,……………………………., a student at …………………………, am undertaking a survey in partial fulfillment of my academic program. The survey is towards research on “How Can Buyer-IT Service Provider Relationship Affect the Operational Performance of the Buyer Firm through the Mediating Role of IT Logistics Applications?”
I call upon your assistance in completing this questionnaire. Remain as SINCERE as possible. Your ANONYMITY in the research survey is GUARANTEED while the information you provide will be kept CONFIDENTIAL, and not be used for any other purpose whatsoever except the stated one. However, use of information you provide for any other purpose will be conducted after acquiring your express PERMISSION.
Thank you in advance for your cooperation.
APPENDIX B: QUESTIONNAIRE
(The information you provide will be kept CONFIDENTIAL)
- i) Do not write your name or any other information that identifies you anywhere in this questionnaire.
- ii) Tick where appropriate in the brackets.
iii) Please answer ALL the questions.
- iv) Use scoring and rating guide where applicable.
(Tick where applicable)
Section One (General demographic information)
- Have you read the cover letter and give your consent to complete the questionnaire?
- Yes ( )
- No ( )
- What is your gender?
- Male ( )
- Female ( )
- Which category below includes you age group?
- Under 25 ( )
- 25 to 34 ( )
- 35 to 44 ( )
- 45 or older ( )
- What is your highest level of education?
- Diploma ( )
- Associate’s/2-year degree ( )
- Bachelor’s degree ( )
- Master’s degree ( )
- Ph.D. ( )
- How long have you worked with this company?
- Less than 1 year ( )
- 1 to 2 years ( )
- 2 to 4 years ( )
- 5 to 6 years ( )
- More than 6 years ( )
- How would you rate your company?
- Very large – more than 150 personnel ( )
- Large – 76 to 150 personnel ( )
- Moderate – 50 to 75 personnel ( )
- Small – Less than 50 personnel ( )
Section B: Buyer-IT Service Provider Relationship
Rate and score the following statements on a scale of between 1 and 5 by ticking the space under the appropriate number. The logic behind the numbers is as follows:
1 = Strongly disagree with the statement
2 = Disagree with the statement
3 = Neutral about the statement
4 = Agree with the statement
5 = Strongly agree with the statement
|Contract formality/specification of Buyer- IT service provider contractual relationship.||We have detailed contractual agreements.|
|We have formal agreements that detail the obligations of both the buyer and IT service provider.|
|We have well-detailed and specific agreements.|
|Confidentiality agreements are signed before the business relationship begins.|
|It would be difficult to replace this buyer or service provider due to profits and sales generated.|
|Investments made in the relationship would make it costly to end the relationship.|
|It would be disruptive to business operations if the business relationship were ended.|
|We expect the relationship to continue for long.|
|We expect the relationship to strengthen over time.|
|There is a willingness to invest in the relationship.|
|The personnel as honorable, dependable and stand for their word.|
|None of us would deliberately take action that has a negative effect on the relationship.|
|None of us would use confidential information to take advantage of the other party.|
|We are flexible and can easily adapt to changing circumstances.|
|We receive a fair proportion of benefits that are generated in the business relationship.|
|Relation strength/relational ties of Buyer- IT service provider relationship.||Our company communicates on a regular basis with buyer/service provider (via email, fax, and phone).|
|Members of our company frequently meet face to face with their operational counterparts.|
|Meetings have an input into any decisions that are taken concerning the business relationship.|
|We work together to identify where changes can occur in an ongoing effort to increase performance efficiency.|
|Demand is forecast jointly to help minimize waste and stock-outs.|
|Demand is planned jointly and grown according to the joint plan.|
|Exclusive product brands and varieties are on offer.|
|We can count on the relationship for support and solution in the case of a problem arising.|
|We share information and consult on policies.|
|Operational performance of the buyer firm.||The amount of business between the two companies is growing.|
|There is a general sense of satisfaction with the level of profits achieved.|
|Money and time investments into the relationship have been worthwhile.|
|The cost of servicing the relationship is low given the amount of business it generates.|
|The amount of returns generated from the relationship have enabled reinvestment and business expansion.|
|There is a general feeling that there is a lot of future growth potential within the relationship.|
|Buyer IT capability.||IT service provider offers enough encouragement for infrastructure development at buyers end.|
|IT service provider offers financial assistance required by buyer as and when they need.|
|IT service provider offers technical knowledge to impact the buyer as a general practice.|
|Buyers are involved in the design process of the end IT product (early supplier involvement)|
|Buyers can suggest design changes to the product, particularly those concerned with reducing cycle time and cost.|
Thank you for participating in the survey.
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