Organizational Communication and Individual Behavior: Implications for Supply Chain Risk Management

• Author: Vijay R. Kannan,Steven Carnovale,Scott DuHadway
• Published date: 01 October 2018
• Date: 01 October 2018
• DOI: http://doi.org/10.1111/jscm.12182

ORGANIZATIONAL COMMUNICATION AND INDIVIDUAL

BEHAVIOR: IMPLICATIONS FOR SUPPLY CHAIN RISK

MANAGEMENT

SCOTT DUHADWAY

Portland State University

STEVEN CARNOVALE

Rochester Institute of Technology

VIJAY R. KANNAN

Utah State University

Risk is a significant issue for supply chain managers. Not only must they

contend with multiple dimensions of risk in decision-making, they must

reconcile decision-making with broader organizational interests. This

study examines the influence of organizational communication regarding

supply chain risk on individual decision-making strategies and the percep-

tions of risk. A multi-stage experimental design is applied, in which deci-

sion-makers make decisions across three dimensions of risk and adjust

their risk-taking behavior after being presented with organizational com-

munication regarding supply chain risk levels. The relationship between

organizational communication and the perceptions of supply chain risk is

then explored after decision-makers are allowed to adjust their supply

chain strategies. The results suggest that decision-makers adapt sourcing

strategies in response to organizational communication regarding supply

chain risk. Specifically, they make riskier decisions when the organization

communicates improvements in supply chain risk levels. However, when

given specific instructions to reduce risk, they do not adjust their supply

chain strategies.

Keywords: behavioral supply chain management; organizational communication;

risk perceptions; risk compensation; safety stock; reliable sourcing; disruptions;

behavioral experiment; seemingly unrelated regression

INTRODUCTION

Risk management is a critical concern to supply

chain professionals, and in recent years it has taken

on an even greater significance. For example, the glo-

bal automotive industry has faced a 30 percent

increase in the number of disruptions from 1,300 in

2016 to nearly 1,700 in 2017 (JLT Specialty, 2018).

Such disruptive events can have a sizeable impact on

production. This was the case when Ford Motor Com-

pany suspended its F-150 production following a fire

at a supplier facility, the result of this suspension

delayed production and led to 7,000 workers being

temporarily laid-off (Shaban, 2018). One of the

largest challenges to managing the risk of such a dis-

ruption is that future risk levels are uncertain leading

individuals (e.g., supply chain professionals) to

engage in different risk-taking behavior(s) based on

their individual perceived risk. For instance, Apple

Inc. increased their inventories from $4.4 to $7.6 bil-

lion in anticipation of potential tariffs with China,

despite reassurances from political officials that such

(potential) tariffs would not impact Apple directly

(Kharpal, 2018). As another example, it was recently

reported that Caterpillar Inc., and their suppliers, are

not investing in additional facilities for production

despite high demand, principally due to concerns

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Journal of Supply Chain Management

2018, 54(4), 3–19

©2018 Wiley Periodicals, Inc.

regarding a potential downturn (Aeppel & Singh,

2018). Taken together, the already complicated land-

scape of managing a supply chain’s risk is further

challenged when one considers the impact that an

individual’s perception of risk has on their decision(s)

for managing such risk.

A sizeable body of literature exists that explores sup-

ply chain risk management strategies from a myriad

of perspectives (Chopra & Sodhi, 2004; Kleindorfer &

Saad, 2005; Sodhi, Son & Tang, 2012; Tang, 2006).

Much of the emphasis is (understandably) on risk

management at an organizational level, with little

work addressing individual risk-taking behavior,

despite individual risk-taking behavior having been

identified as an important driver of supply chain risk

(Cantor, Blackhurst & Cortes, 2014; Cantor & Mac-

donald, 2009). The present study extends prior behav-

ioral research by examining the connection between

organizational communication and individual risk-

taking behavior(s) in a supply chain context. The

interaction between organizational level initiatives

and individual behaviors is important when consider-

ing how to motivate organizational change (Gattiker

& Carter, 2010; Gattiker, Carter, Huang & Tate, 2014).

Much of the influence organizations have on individ-

uals can arise from the manner in which individuals

interpret organizational cues to make inferences that

shape behavior. The behavioral perspective is thus

valuable in exploring the relationship between organi-

zational initiatives and individual behaviors in

managing supply chain risk.

Research that uses a behavioral operations perspective

to explore the relationship between disruptions and

decision-making has been identified as an important

area for future study (Macdonald & Corsi, 2013). The

perspective enables the testing of real-world decision-

making in experimental settings that can isolate devia-

tions from rational decision-making behavior and that

allows new dimensions of individual decision-making

to be explored (Gino & Pisano, 2008; Sodhi & Tang,

2014). Understanding human behavior, judgment, and

decision-making is an important step in advancing sup-

ply chain management theory (Tokar, 2010). This is

particularly germane, as individuals change their risk-

seeking behavior based on their perceptions of risk

(Zsidisin & Wagner, 2010). Hence, understanding how

different organizational communications impact indi-

vidual perceptions of risk, and therefore individual

behavior, contributes to the limited behavioral supply

chain management literature on risk perceptions and

uncertainty (Kull, Oke & Dooley, 2014).

This research adds to the literature on supply chain

risk in three ways. First, it bridges gaps in the extant

research on supply chain risk management at an orga-

nizational level (e.g., Braunscheidel & Suresh, 2009;

Zsidisin, Ellram, Carter & Cavinato, 2004) and at an

individual level (e.g., Cantor & Macdonald, 2009;

Cantor et al., 2014). Second, by exploring how orga-

nizational communication impacts individual behav-

ior, it identifies how firms influence individual risk-

taking behavior through communication and policy

changes. This builds on prior work that has called for

additional research from a behavioral operations per-

spective on disruptions and decision-making (Mac-

donald & Corsi, 2013) and the determinants of risk

perceptions in sourcing decisions (Kull et al., 2014).

Third, it presents and tests the theories of risk com-

pensation and risk homeostasis, finding that risk com-

pensatory behavior occurs in a supply chain, yet risk

homeostasis does not. As such, it presents the theoret-

ical perspective of risk compensation to explain the

connection between organizational and individual

risk-taking behaviors. Understanding how organiza-

tional communication regarding risk can influence

individual behavior can inform the development and

implementation of effective strategies for communicat-

ing and managing supply chain risk.

LITERATURE REVIEW

Supply Chain Risk Management and Risk

Perception

Supply chain risk, defined as “the likelihood of an

adverse and unexpected event that can occur and

either directly or indirectly result in a supply chain dis-

ruption” (Garvey, Carnovale & Yeniyurt, 2015; p.

619), is an important dimension of supply chain man-

agement (Bode, Wagner, Petersen & Ellram, 2011;

Hult, Craighead & Ketchen, 2010). Extant literature

explores the causes of, and mitigation strategies for,

supply chain risk management from several perspec-

tives (Chopra & Sodhi, 2004; Kleindorfer & Saad,

2005; Sodhi et al., 2012; Tang, 2006). Much of the lit-

erature emphasizes managing risk at an organizational

level. Despite this emphasis, “defined risk tolerance

levels are rarely communicated effectively throughout

the firm” (Kwak & LaPlace, 2005, p. 693). Moreover, it

is supply chain employees who are responsible for

understanding and processing risk levels/factors and

for making and taking action on recommendations

(Cantor et al., 2014; Zsidisin & Wagner, 2010). They

can be “caught off guard” but are the ones who must

respond to supply chain disruptions (Wagner & Bode,

2008, p. 307). Supply chain managers also face short-

term financial incentives to underestimate risks, which

can lead to greater costs over the long run (Chopra &

Sodhi, 2014). Recognizing the antecedents to risk per-

ceptions among supply chain managers can increase

the efficacy of risk management strategies.

Given the importance of both the organizational and

individual perspectives on supply chain risk decision-

making, it is important to reconcile the two by

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