Wednesday, July 21, 2010

Integration in the global sourcing organization--an information processing perspective.


Global sourcing refers to the integration of purchasing units across a firm's worldwide locations, looking for common items, processes, design, technologies, knowledge and suppliers (Faes, Matthyssens and Vandenbempt 2000; Rozemeijer 2000; Monczka and Trent 2003). Rather than merely searching for cost savings by centralization and harmonization of activities (e.g., Arnold 1997; Faes et al. 2000; Rozemeijer 2000; Rozemeijer, Van Weele and Weggeman 2003), integration (or coordination) means the extent to which the purchasing activities of the worldwide units are mutually supportive, and unity of effort is achieved, to accomplish the firm's overall goal (March and Simon 1958; Lawrence and Lorsch 1967).
Management research covers a wide variety of managerial tools to integration, called integration mechanisms. These include centralization, formalization and information systems, as well as the creation of lateral relations (e.g., by cross-locational purchasing teams). Although the terms global sourcing and international sourcing are sometimes used interchangeably, this paper makes a clear distinction between them, as the latter implies that the local purchasing units act independently (Trent and Monczka 2003). The key distinctive characteristic of global sourcing, and a central focus of this paper, is the integration of managerial decision making among geographically dispersed purchasing units.
While most multinational corporations (MNCs) perceive global sourcing as a strategic necessity (Trent and Monczka 2003), the implementation of global sourcing has posed severe challenges (Kaufmann and Hedderich 2004; Kotabe and Murray 2004). The design of global organizations has turned out to be particularly challenging, yet critical for the success of global sourcing strategy (Trent and Monczka 2003; Trent 2004; Quintens, Pauwels and Matthyssens 2006a). On the academic side, the majority of prior research has taken a strategic perspective on global sourcing, assessing, for example the pros and cons of a global sourcing strategy (e.g., Alguire, Frear and Metcalf 1994; Bozarth, Handfied and Das 1998; Cho and Kang 2000). Significantly less attention has been paid to organizational issues like the integration of purchasing units (Trent and Monczka 2003; Quintens et al. 2006a). In particular, Gelderman and Semeijn (2006) have pointed out that despite an increased focus on global sourcing, little is known about the actual integration of purchasing across worldwide business units. In this paper, we address this gap by focusing on the following question: How do MNCs effectively integrate global sourcing activities across their geographically dispersed purchasing units?
Prior research differentiates among three major global sourcing organizations types (Fearon 1988; Narasimhan and Carter 1989; Arnold 1999): (1) centralized structures; (2) decentralized structures and (3) hybrid structures. Centralized structures are preferable when several geographical units buy similar categories (products), while a decentralized structure becomes attractive when each unit produces unique or markedly different products. Hence, organizational design of global sourcing organizations is dependent on the category-related (1) synergies across geographical units.
Most companies have adopted a hybrid structure (Johnson and Leenders 2004), intending to manage the centralization-decentralization tradeoff most effectively (Kaufmann and Hedderich 2004; Kotabe and Murray 2004; Hartmann, Trautmann and Jahns 2008), but still struggle to fully exploit the benefits of global sourcing. The key challenge in hybrid structures is to distinguish between different types of categories, identifying the ones with synergy potential and determining their appropriate form of integration across geographical units (Arnold 1989; Matthyssens and Faes 1997; Faes et al. 2000). However, currently there exists little empirical evidence or theoretical explanation for how integration is attained across different types of categories. Therefore, the focus of this paper is on integration of global sourcing activities at the category level rather than at the organizational level.
From a methodological viewpoint, this paper follows a theory elaboration research design. We present the information processing framework (IPF) on integration (Galbraith 1973; Tushman and Nadler 1978), a major framework for understanding organizational integration, and extend it to the global sourcing context. Thereby, in addition to addressing the gap in the existing literature on integration in global sourcing organizations, we simultaneously address the plea for cross-disciplinary research on global sourcing (e.g., Quintens, Pauwels and Matthyssens 2006b; Wynstra 2006). In order to elaborate the IPF, we analyze data collected by a multiple case study design (12 cases in three MNCs).
LITERATURE REVIEW AND THEORETICAL BASIS
IPF
This paper focuses on integration of geographically dispersed purchasing units. As integration is inherently an organization design phenomenon, we build on the theoretical arguments of organization scholars, especially those of the information processing view (Galbraith 1970, 1973, 1977; Tushman and Nadler 1978; Nadler and Tushman 1997). The focal idea of the IPF is that organizations differ in their requirements for information processing and subsequently use different mechanisms for integration. The general IPF is presented in Figure 1 below.
[FIGURE 1 OMITTED]
In effective organizations, there is a fit between the information processing requirements and the information processing capacity. When the requirements for information processing are high, numerous complex lateral mechanisms are needed, but when the information processing requirements are low, the organization can do well with vertical mechanisms like centralization. Furthermore, due to the costs of integration mechanisms, increasing the information processing capacity excessively would not be rational. Instead, the goal is to achieve the mentioned fit of information processing capacity to the extent required.
Integration mechanisms (right side of Figure 1) can be divided into vertical and lateral ones (Galbraith 1973, 1977, 2000). Vertical mechanisms include centralization, formalization, standardization and vertical information systems. Lateral mechanisms include, for example, job rotation, cross-unit teams and integrators. The integration mechanisms are suggested to vary both in their capacity to facilitate information processing in an organization and in their costs of use (both managerial time and financial costs). Vertical mechanisms like centralization require less investments but their capacity to facilitate information processing is lower than that of lateral mechanisms.
Tushman and Nadler (1978) further suggest that organizations face different requirements for information processing (left side of Figure 1), arising from uncertainty imposed by the characteristics of its environment. These contingencies are classified as task characteristics, task environment characteristics and interunit task interdependence. The first and last are internal to the organization, whereas the second one is a characteristic of its external environment. The uncertainty they impose is problematic because it interferes with the attainment of organizational goals (Thompson 1967). When uncertainty is high, the organization does not have all the relevant information to achieve its predetermined goals and it needs to process information to complete its task.
The information processing arguments have been widely applied by scholars in different fields (e.g., Egelhoff 1991; Jarvenpaa and Ives 1993; Nobel and Birkinshaw 1998; Kaipia 2007), but not extensively in the global sourcing context. We suggest that the IPF has significant implications for increasing the understanding of integration in the global sourcing context for the following reasons. First, although prior research (e.g., Rozemeijer 2000; Trent and Monczka 2003; Trent 2004) has identified a number of different mechanisms for integration in the global sourcing organization, the benefits have been emphasized and costs have been ignored. Second, although it has been suggested that the design of global sourcing organizations is affected by factors such as the level of corporate internationalization, purchasing maturity and international purchasing strategy (Arnold 1999; Rozemeijer et al. 2003; Trent and Monczka 2003), the extant studies are highly descriptive and rather exploratory in nature. Therefore, prior research provides little theoretical explanation for either when integration is particularly important or how and why various contingencies affect integration in the global sourcing organization.
In this paper, the IPF serves as a theoretical basis for analyzing the use of various integration mechanisms under different circumstances in purchasing organizations. In this process, we theoretically elaborate on the IPF for the global sourcing context. In the following sections, we discuss prior research on (1) integration mechanisms (right side of the IPF in Figure 1) and (2) uncertainty in the sourcing context (left side of the IPF) in the sourcing context.
Studies on Global Sourcing Organizations
The majority of research on global sourcing organizations has focused on the issue of centralization versus decentralization (e.g., Corey 1978; Guinipero and Monczka 1990; Arnold 1999; Quintens, Matthyssens and Faes 2005). These studies tend to perceive integrated organizations as centralized hierarchies. Some authors have extended the discussion and included additional ways of integration. For example, it was shown that global sourcing firms use a variety of mechanisms, such as harmonized IT infrastructures, strategy review meetings and cross-unit teams to manage integration (Trent and Monczka 2003). Also, the use of different organizational design mechanisms, networks of people, and information and communication infrastructure was assessed (Rozemeijer 2000) and the importance of socialization mechanisms for integrating activities across purchasing locations was highlighted (Faes et al. 2000). Finally, reporting the results of an exploratory study on how various organization design features such as cross-unit teams and colocation vary across different organizational size, it was suggested that larger firms rely more on both vertical and lateral mechanisms, simultaneously (Trent 2004).
Moreover, prior research on global sourcing organizations has taken an organization level of analysis, suggesting that the global sourcing organization is the same across purchased categories. However, it has long been recognized that category characteristics significantly affect organization design (Davis, Epen and Mattson 1974; Smith 1999; Daft 2004; Englyst, Jorgensen, Johansen and Mikkelsen 2008) and that effective purchasing organizations are designed differently across categories within one firm. Although this approach has not yet been taken very often, a noteworthy exception to this is a study on integration analyzing 15 large MNCs, suggesting that integration of purchasing units indeed varies across categories (Matthyssens and Faes 1997).
Studies on Uncertainty in the Sourcing Context
Uncertainty in the sourcing context has been addressed mainly in the literature on organizational buying behavior (OBB) (e.g., Robinson, Farris and Wind 1967; Webster and Wind 1972; McQuiston 1989; Laios and Moschuris 2001; Lewin and Donthy 2005). Summarizing the main ideas of OBB, five contingencies can be identified as having an impact on uncertainty in the sourcing context (shown in Table I): (1) purchase novelty; (2) category complexity; (3) purchase importance; (4) demand volatility and (5) supply market characteristics.
The five characteristics presented in Table 1 can be clustered into two groups that closely echo the contingencies presented in the IPF of Tushman and Nadler (1978). The first four contingencies relate directly to task characteristics and are internal to the organization. The fifth characteristic, supply environment, relates to the task environment of the IPF and is external to the organization. The final contingency of interunit task interdependence of the IPF has not been addressed in the sourcing context. This, however, is not surprising because purchasing literature has mostly focused on uncertainty from the perspective of a single purchasing unit.
SOURCE:http://www.accessmylibrary.com/article-1G1-198181997/integration-global-sourcing-organization.html
Global sourcing refers to the integration of purchasing units across a firm's worldwide locations, looking for common items, processes, design, technologies, knowledge and suppliers (Faes, Matthyssens and Vandenbempt 2000; Rozemeijer 2000; Monczka and Trent 2003). Rather than merely searching for cost savings by centralization and harmonization of activities (e.g., Arnold 1997; Faes et al. 2000; Rozemeijer 2000; Rozemeijer, Van Weele and Weggeman 2003), integration (or coordination) means the extent to which the purchasing activities of the worldwide units are mutually supportive, and unity of effort is achieved, to accomplish the firm's overall goal (March and Simon 1958; Lawrence and Lorsch 1967).
Management research covers a wide variety of managerial tools to integration, called integration mechanisms. These include centralization, formalization and information systems, as well as the creation of lateral relations (e.g., by cross-locational purchasing teams). Although the terms global sourcing and international sourcing are sometimes used interchangeably, this paper makes a clear distinction between them, as the latter implies that the local purchasing units act independently (Trent and Monczka 2003). The key distinctive characteristic of global sourcing, and a central focus of this paper, is the integration of managerial decision making among geographically dispersed purchasing units.
While most multinational corporations (MNCs) perceive global sourcing as a strategic necessity (Trent and Monczka 2003), the implementation of global sourcing has posed severe challenges (Kaufmann and Hedderich 2004; Kotabe and Murray 2004). The design of global organizations has turned out to be particularly challenging, yet critical for the success of global sourcing strategy (Trent and Monczka 2003; Trent 2004; Quintens, Pauwels and Matthyssens 2006a). On the academic side, the majority of prior research has taken a strategic perspective on global sourcing, assessing, for example the pros and cons of a global sourcing strategy (e.g., Alguire, Frear and Metcalf 1994; Bozarth, Handfied and Das 1998; Cho and Kang 2000). Significantly less attention has been paid to organizational issues like the integration of purchasing units (Trent and Monczka 2003; Quintens et al. 2006a). In particular, Gelderman and Semeijn (2006) have pointed out that despite an increased focus on global sourcing, little is known about the actual integration of purchasing across worldwide business units. In this paper, we address this gap by focusing on the following question: How do MNCs effectively integrate global sourcing activities across their geographically dispersed purchasing units?
Prior research differentiates among three major global sourcing organizations types (Fearon 1988; Narasimhan and Carter 1989; Arnold 1999): (1) centralized structures; (2) decentralized structures and (3) hybrid structures. Centralized structures are preferable when several geographical units buy similar categories (products), while a decentralized structure becomes attractive when each unit produces unique or markedly different products. Hence, organizational design of global sourcing organizations is dependent on the category-related (1) synergies across geographical units.
Most companies have adopted a hybrid structure (Johnson and Leenders 2004), intending to manage the centralization-decentralization tradeoff most effectively (Kaufmann and Hedderich 2004; Kotabe and Murray 2004; Hartmann, Trautmann and Jahns 2008), but still struggle to fully exploit the benefits of global sourcing. The key challenge in hybrid structures is to distinguish between different types of categories, identifying the ones with synergy potential and determining their appropriate form of integration across geographical units (Arnold 1989; Matthyssens and Faes 1997; Faes et al. 2000). However, currently there exists little empirical evidence or theoretical explanation for how integration is attained across different types of categories. Therefore, the focus of this paper is on integration of global sourcing activities at the category level rather than at the organizational level.
From a methodological viewpoint, this paper follows a theory elaboration research design. We present the information processing framework (IPF) on integration (Galbraith 1973; Tushman and Nadler 1978), a major framework for understanding organizational integration, and extend it to the global sourcing context. Thereby, in addition to addressing the gap in the existing literature on integration in global sourcing organizations, we simultaneously address the plea for cross-disciplinary research on global sourcing (e.g., Quintens, Pauwels and Matthyssens 2006b; Wynstra 2006). In order to elaborate the IPF, we analyze data collected by a multiple case study design (12 cases in three MNCs).
LITERATURE REVIEW AND THEORETICAL BASIS
IPF
This paper focuses on integration of geographically dispersed purchasing units. As integration is inherently an organization design phenomenon, we build on the theoretical arguments of organization scholars, especially those of the information processing view (Galbraith 1970, 1973, 1977; Tushman and Nadler 1978; Nadler and Tushman 1997). The focal idea of the IPF is that organizations differ in their requirements for information processing and subsequently use different mechanisms for integration. The general IPF is presented in Figure 1 below.
[FIGURE 1 OMITTED]
In effective organizations, there is a fit between the information processing requirements and the information processing capacity. When the requirements for information processing are high, numerous complex lateral mechanisms are needed, but when the information processing requirements are low, the organization can do well with vertical mechanisms like centralization. Furthermore, due to the costs of integration mechanisms, increasing the information processing capacity excessively would not be rational. Instead, the goal is to achieve the mentioned fit of information processing capacity to the extent required.
Integration mechanisms (right side of Figure 1) can be divided into vertical and lateral ones (Galbraith 1973, 1977, 2000). Vertical mechanisms include centralization, formalization, standardization and vertical information systems. Lateral mechanisms include, for example, job rotation, cross-unit teams and integrators. The integration mechanisms are suggested to vary both in their capacity to facilitate information processing in an organization and in their costs of use (both managerial time and financial costs). Vertical mechanisms like centralization require less investments but their capacity to facilitate information processing is lower than that of lateral mechanisms.
Tushman and Nadler (1978) further suggest that organizations face different requirements for information processing (left side of Figure 1), arising from uncertainty imposed by the characteristics of its environment. These contingencies are classified as task characteristics, task environment characteristics and interunit task interdependence. The first and last are internal to the organization, whereas the second one is a characteristic of its external environment. The uncertainty they impose is problematic because it interferes with the attainment of organizational goals (Thompson 1967). When uncertainty is high, the organization does not have all the relevant information to achieve its predetermined goals and it needs to process information to complete its task.
The information processing arguments have been widely applied by scholars in different fields (e.g., Egelhoff 1991; Jarvenpaa and Ives 1993; Nobel and Birkinshaw 1998; Kaipia 2007), but not extensively in the global sourcing context. We suggest that the IPF has significant implications for increasing the understanding of integration in the global sourcing context for the following reasons. First, although prior research (e.g., Rozemeijer 2000; Trent and Monczka 2003; Trent 2004) has identified a number of different mechanisms for integration in the global sourcing organization, the benefits have been emphasized and costs have been ignored. Second, although it has been suggested that the design of global sourcing organizations is affected by factors such as the level of corporate internationalization, purchasing maturity and international purchasing strategy (Arnold 1999; Rozemeijer et al. 2003; Trent and Monczka 2003), the extant studies are highly descriptive and rather exploratory in nature. Therefore, prior research provides little theoretical explanation for either when integration is particularly important or how and why various contingencies affect integration in the global sourcing organization.
In this paper, the IPF serves as a theoretical basis for analyzing the use of various integration mechanisms under different circumstances in purchasing organizations. In this process, we theoretically elaborate on the IPF for the global sourcing context. In the following sections, we discuss prior research on (1) integration mechanisms (right side of the IPF in Figure 1) and (2) uncertainty in the sourcing context (left side of the IPF) in the sourcing context.
Studies on Global Sourcing Organizations
The majority of research on global sourcing organizations has focused on the issue of centralization versus decentralization (e.g., Corey 1978; Guinipero and Monczka 1990; Arnold 1999; Quintens, Matthyssens and Faes 2005). These studies tend to perceive integrated organizations as centralized hierarchies. Some authors have extended the discussion and included additional ways of integration. For example, it was shown that global sourcing firms use a variety of mechanisms, such as harmonized IT infrastructures, strategy review meetings and cross-unit teams to manage integration (Trent and Monczka 2003). Also, the use of different organizational design mechanisms, networks of people, and information and communication infrastructure was assessed (Rozemeijer 2000) and the importance of socialization mechanisms for integrating activities across purchasing locations was highlighted (Faes et al. 2000). Finally, reporting the results of an exploratory study on how various organization design features such as cross-unit teams and colocation vary across different organizational size, it was suggested that larger firms rely more on both vertical and lateral mechanisms, simultaneously (Trent 2004).
Moreover, prior research on global sourcing organizations has taken an organization level of analysis, suggesting that the global sourcing organization is the same across purchased categories. However, it has long been recognized that category characteristics significantly affect organization design (Davis, Epen and Mattson 1974; Smith 1999; Daft 2004; Englyst, Jorgensen, Johansen and Mikkelsen 2008) and that effective purchasing organizations are designed differently across categories within one firm. Although this approach has not yet been taken very often, a noteworthy exception to this is a study on integration analyzing 15 large MNCs, suggesting that integration of purchasing units indeed varies across categories (Matthyssens and Faes 1997).
Studies on Uncertainty in the Sourcing Context
Uncertainty in the sourcing context has been addressed mainly in the literature on organizational buying behavior (OBB) (e.g., Robinson, Farris and Wind 1967; Webster and Wind 1972; McQuiston 1989; Laios and Moschuris 2001; Lewin and Donthy 2005). Summarizing the main ideas of OBB, five contingencies can be identified as having an impact on uncertainty in the sourcing context (shown in Table I): (1) purchase novelty; (2) category complexity; (3) purchase importance; (4) demand volatility and (5) supply market characteristics.
The five characteristics presented in Table 1 can be clustered into two groups that closely echo the contingencies presented in the IPF of Tushman and Nadler (1978). The first four contingencies relate directly to task characteristics and are internal to the organization. The fifth characteristic, supply environment, relates to the task environment of the IPF and is external to the organization. The final contingency of interunit task interdependence of the IPF has not been addressed in the sourcing context. This, however, is not surprising because purchasing literature has mostly focused on uncertainty from the perspective of a single purchasing unit.
SOURCE:http://www.accessmylibrary.com/article-1G1-198181997/integration-global-sourcing-organization.html

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