Supply Chain Power Configurations and Their Relationship with Performance

• Author: Baofeng Huo,Xiande Zhao,Barbara B. Flynn
• Published date: 01 April 2017
• DOI: http://doi.org/10.1111/jscm.12139
• Date: 01 April 2017

SUPPLY CHAIN POWER CONFIGURATIONS AND THEIR

RELATIONSHIP WITH PERFORMANCE

BAOFENG HUO

Zhezhiang University

BARBARA B. FLYNN X

Indiana University

XIANDE ZHAO

China Europe International Business School

To lay the foundation for the study of supply chain power, we study

power configurations at the level of interlocking power dyads (IPDs),

viewing the simultaneous effect of upstream and downstream power. We

build on four key constructs: dependence asymmetry (resource depen-

dence theory), joint dependence (embeddedness perspective), power type

differential (based on French & Raven, 1959), and power source asymme-

try. We examine the research question of what the relationship is between

IPDs and the focal firm’s operational performance, developing hypotheses

based on the dependence asymmetry, joint dependence, power type differ-

ential, and power source asymmetry of theoretical IPDs. A survey of over

600 respondents in China was used to collect data on focal firm percep-

tions of upstream and downstream power, with cluster analysis yielding

eight IPDs. Inferential analysis revealed the importance of joint depen-

dence, dependence asymmetry, power type differential, and power source

asymmetry to the operational performance of the focal firm.

Keywords: supplier management; international/global purchasing; power asymme-

try; resource dependence theory; performance

INTRODUCTION

Nearly all men can stand adversity, but if you want

to test a man’s character, give him power—Abra-

ham Lincoln

The measure of a man is what he does with power

—Plato

What is the role of power in a supply chain?

Although power between individuals has been the

topic of study for centuries, power relationships also

exist between firms in a supply chain: “Power is at the

heart of all business-to-business relationships” (Cox,

2001, p. 10). The question, then, is which firms bene-

fit from supply chain power.

The traditional interorganizational perspective builds

upon resource dependence theory (RDT) (Pfeffer &

Salancik, 1978). Because it views a firm as dependent

on its external environment for resources to ensure its

survival, RDT views power as control over valued

resources. A supply chain member is vulnerable to the

extent that it depends on other firms for resources that

are important to its outcomes. Because of this depen-

dence asymmetry, RDT assumes that the more power-

ful firm activates its power to serve its own interests, to

the detriment of the other firm. In contrast, the embed-

dedness perspective (Granovetter, 1985) focuses on the

total amount of power in a relationship, regardless of

the symmetry with which it is distributed. Even in the

presence of dependence asymmetry, joint dependence

has been associated with positive outcomes for both

firms because they recognize the importance of cooper-

ating to mutually benefit (Ireland & Webb, 2007).

This seeming paradox can be resolved by consider-

ing several additional factors relevant to supply chain

88 Volume 53, Number 2

Journal of Supply Chain Management

2017, 53(2), 88–111

©2017 Wiley Periodicals, Inc.

power. First, a firm is subject to power from other

firms in both its upstream and downstream supply

chain. If it faces power with detrimental implications

from one direction, there may be compensating bene-

ficial effects of power from the other direction. Thus,

it is important to consider source power asymmetry.

Second, power is not a unidimensional construct;

there is the possibility that different types of power

may counterbalance each other. We propose that dif-

ferent types of supply chain power exist simultane-

ously in configurations, based on the seminal work of

French and Raven (1959), which suggests that passive

power types have a beneficial effect, while activated

power types are more manipulative and can have a

detrimental effect.

Therefore, our research question is as follows: What

is the relationship between upstream and downstream

power configurations and operational performance?

We synthesize the RDT and embeddedness perspec-

tives by constructing interlocking power dyads (IPDs)

to tease out key characteristics of supply chain power,

including the effect of activated versus passive power

types and positive versus negative power types on the

operational performance of the focal firm.

We begin by examining the dependence asymmetry

perspective described by RDT. We then develop the

embeddedness perspective, focusing on joint depen-

dence. To these, we add power type differential, based

on French and Raven (1959), and power source asym-

metry. Building upon dependence asymmetry, joint

dependence, power type differential, and power

source asymmetry, we develop hypotheses about the

relationship between theoretical IPDs and operational

performance of the focal firm. Cluster analysis is used

to identify IPDs that exist in a set of survey data from

617 Chinese manufacturers, and their relationship to

the focal firm’s operational performance is tested

using ANOVA.

This research contributes to the literature on supply

chain power by establishing IPDs that simultaneously

consider dependence asymmetry, joint dependence,

power type differential, and power source asymmetry.

It serves as a first step toward identifying a firm’s sup-

ply chain power position and provides a building

block for beginning to understand the role of power

in a complex supply network.

POWER IN SUPPLY CHAINS

The Power Construct

Power, which is the ability to influence the behavior

of another (Drea, Bruner & Hinsch, 1993; He,

Ghobadian & Gallear, 2013), is the foundation of

relationships between people or firms (Dapiran &

Hogarth-Scott, 2003), including firms in a supply

chain. It can be intentionally activated or have an

effect simply because of the knowledge that it exists

(Ireland & Webb, 2007). For example, Firm A may be

proud to be a supplier to Firm B, which is large and

very well known. A’s decisions are influenced by B,

even though B does not intentionally activate its

power. Thus, power is a perceptual construct (Fiol,

O’Connor & Aguinis, 2001) that exists in the eyes of

the firm that is influenced.

Prior supply chain power research is primarily at the

level of dyads. A dyad is a pair of nodes and the link

that connects them (Choi & Wu, 2009), serving as a

building block that provides a simplified relationship

for study (Benton & Maloni, 2005). Understanding

power in supply chain dyads is a first step toward

understanding it in complex supply networks, com-

prised of linked dyads that may be governed by differ-

ent power relationships (Watson, 2001). For example,

Bastl, Johnson and Choi (2013) describe coalitions

that form when a weaker supply chain member aligns

with another to form a triad. We extend dyadic analy-

sis to interlocking power dyads (IPDs), examining a

focal firm’s perception of how it is simultaneously

influenced by upstream and downstream dyads.

Two Approaches to Understanding Supply Chain

Power

The bulk of the power literature is based on the per-

spective of resource dependence theory (RDT) (Pfeffer

& Salancik, 1978), which describes power as depen-

dence asymmetry, intentionally activated, with nega-

tive implications. This literature focuses on how a

firm can benefit from being in a position of power

(Gulati & Sytch, 2007) and how a less powerful firm

can restructure its dependence (Casciaro & Piskorski,

2005).

In contrast, the embeddedness perspective (Gra-

novetter, 1985) describes power from the perspective

of joint dependence, which is the total amount of

power in a relationship, regardless of its distribution.

According to this perspective, firms willingly cooperate

because of a relationship’s mutual benefits, and there

is a mix of activated and passive power, with positive

implications for both firms. This literature focuses on

how firms can increase their level of joint depen-

dence, while simultaneously managing the uncertainty

associated with their dependence asymmetry (Yan &

Nair, 2016). These approaches provide two different

perspectives of the way supply chain power is related

to operational performance (Figure 1), described

below.

RDT Perspective. Resource dependence theory (Pfef-

fer & Salancik, 1978) casts power as dependence

asymmetry (Casciaro & Piskorski, 2005; Hofer, 2015).

Firm A’s dependence on B is proportional to A’s need

for resources that B can provide and inversely propor-

tional to the availability of alternative sources for

89April 2017

Supply Chain Power Configurations