The Relationships between External Integration and Plant Improvement and Innovation Capabilities: The Moderation Effect of Product Clockspeed

• Author: Anto Verghese,David X. Peng,Roger G. Schroeder,Rachna Shah
• Date: 01 July 2013
• Published date: 01 July 2013
• DOI: http://doi.org/10.1111/j.1745-493x.2012.03286.x

THE RELATIONSHIPS BETWEEN EXTERNAL

INTEGRATION AND PLANT IMPROVEMENT AND

INNOVATION CAPABILITIES: THE MODERATION EFFECT

OF PRODUCT CLOCKSPEED

DAVID X. PENG

Bauer College of Business at University of Houston

ANTO VERGHESE

Mays Business School at Texas A&M University

RACHNA SHAH AND ROGER G. SCHROEDER

University of Minnesota

Product clockspeed as represented by the rate of product changes has

important implications for supply chain design. The literature suggests

that external integration with customers and suppliers is associated with

increased improvement and innovation capabilities of the focal firm.

However, the way product clockspeed affects these relationships has

seldom been subjected to empirical investigation. This study investigates

whether product clockspeed moderates the relationship between external

integration and improvement and innovation capabilities of manufactur-

ing plants. Analysis of survey data collected from 238 manufacturing

plants indicates a positive moderation effect of product clockspeed on the

relationship between customer integration and plant improvement and

innovation capabilities. However, product clockspeed does not have a

significant moderation effect on the relationship between supplier integra-

tion and either of the two plant capabilities. This study provides theoreti-

cal and managerial insights into aligning external integration with plant

capabilities under the contingency of product clockspeed.

Keywords: clockspeed; customer integration; supplier integration; capabilities;

manufacturing; survey methods; regression analysis

INTRODUCTION

Today’s marketplace is characterized by shrinking

product life cycles and accelerated pace of change

(Filippini, Salmaso & Tessarolo, 2004; Langerak & Jan

Hultink, 2006). For instance, the product life cycle in

the computer industry decreased by an average of

9.4 percent annually from 1988 to 1995 (Mendelson

& Pillai, 1998). Fine (1998, 2000) uses the term

“industry clockspeed” to represent the rate of change

in products, processes and organizations within an

industry. As an important dimension of industry

clockspeed (Carrillo, 2005), product clockspeed has

important implications for supply chain design. Exam-

ples of fast clockspeed products include LG’s cell

phones and Intel’s computer chips. Products with

slower clockspeed tend to be extremely complex

(e.g., aircraft) or rely on specialized resources such as

patents (e.g., patent-protected drugs). Products with

differing clockspeeds require considerably different

supply chain designs, ranging from an agile supply

chain for fast clockspeed products to an efficient sup-

ply chain for slow-clockspeed products.

During the past two decades, manufacturing indus-

tries have witnessed a shift of focus from aligning

operations processes within the firm to linking inter-

nal processes with customers and suppliers (Frohlich

& Westbrook, 2001; Stevens, 1989). Consequently,

customer integration and supplier integration have

become important aspects of an operations strategy.

In the rest of this paper, we refer to customer integra-

July 2013 3

tion and supplier integration collectively as external

integration. External integration enables the participating

firms to share fixed costs, gain economies of scale and

combine competencies (Kanter & Meyers, 1991). By

bringing customers and suppliers into new product

development (NPD) projects and manufacturing

improvement initiatives, the focal manufacturing firm

can potentially reduce the product development cycle

time, increase opportunities for product success and

improve quality and reduce costs (Petersen, Handfield

& Ragatz, 2005).

Literature differentiates between operational integra-

tion and strategic integration (Swink, Narasimhan &

Wang, 2007). Operational integration mainly con-

cerns day-to-day activities such as scheduling, order

processing, material handling and shipment sched-

ules. In contrast, strategic integration refers to “longer-

term collaborative activities dealing with relationship

building, joint technology development, resources and

cost sharing, and strategic alignment” (Swink et al.,

2007 p. 150). This study focuses on strategic integra-

tion with customers and suppliers to remain consis-

tent with the strategic-level improvement and

innovation capabilities that are also examined.

A challenge facing managers today is to align exter-

nal integration with the product and process charac-

teristics and strategic capabilities of the focal firm

(Fisher, 1997; Ju¨ttner, Christopher & Godsell, 2010;

Parmigiani, Klassen & Russo, 2011). Some consultants

and academics promote external integration as a set

of universally applicable practices, contending that

such practices should be developed into the highest

extent possible. In contrast, we argue that integration,

just like other popular management practices such as

TQM and JIT, is context dependent. Further, the costs

of fully developing certain aspects of external integra-

tion may outweigh the benefit of doing so. Recent

studies have begun to take a contingency approach to

examining external integration (Swink, Narasimhan &

Kim, 2005). However, the moderation effect of prod-

uct clockspeed on the relationship between external

integration and the focal manufacturer’s capabilities

has seldom been subjected to empirical examination.

This study examines how the relationship between

external integration and plant improvement and inno-

vation capabilities may vary as product clockspeed

changes. The key proposition is that external integra-

tion is important to plant improvement and innova-

tion capabilities, but the significance of these

relationships may vary as product clockspeed changes.

Prior empirical studies have examined product clock-

speed and its impact at the business unit level (Men-

delson & Pillai, 1998, 1999) or the firm level

(Guimaraes, Cook & Natarajan, 2002). However, a

manufacturing firm or even a business unit can have

multiple plants that produce different products. Thus,

a plant-level analysis such as ours complements and

enriches the existing related literature.

While both the focal firm and its external customers

and suppliers can benefit from integration, we focus

on the potential benefits of integration to the focal

firm because our work seeks to inform the focal firm

about aligning external integration with plant capabil-

ities. Our research focus is consistent with a stream of

operations management literature that examines the

impact of customer integration and supplier integra-

tion on internal manufacturing practices and capabili-

ties (Salvador, Forza, Rungtusanatham & Choi, 2001).

We test our hypotheses using a sample of manufactur-

ing plants from electronics, machinery and automo-

bile part industries. The analysis indicates that the

direct relationship between customer integration and

plant innovation capability is insignificant. However,

the interaction between customer integration and

product clockspeed has a positive effect on plant

innovation capability. In addition, we fail to find that

product clockspeed significantly moderates the rela-

tionship between supplier integration and either

improvement or innovation capability. The results

support a contingent perspective on aligning external

integration with plant capabilities with product clock-

speed as an important contextual factor.

THEORETICAL FOUNDATION AND

HYPOTHESIS DEVELOPMENT

In this section, we first define the main theoretical

constructs and then develop the theoretical framework

using organizational information-processing theory

(OIPT).

Construct Definition

Product Clockspeed. We define product clockspeed

as the rate of new product introduction, which is

manifested in the length of product life cycles and

proportion of sales from newly introduced products.

Our definition of product clockspeed draws on the

definition of clockspeed as “the rate of introduction

of generations of new products into the marketplace”

(Carrillo, 2005, p. 126). Our definition is also consis-

tent with the operational definition of clockspeed by

Mendelson and Pillai (1998, 1999) which captures

product life and product-line freshness.

Product clockspeed can be viewed as an important

aspect of a firm’s operating environment. Literature

suggests that a firm’s operating environment should

impact both the firm’s integration strategy and the

extent to which the firm’s external integration affects

its capabilities and performance (Rosenzweig, Roth &

Dean, 2003; Stonebraker & Liao, 2006). However, the

potential moderation effects of clockspeed have not

been adequately studied. Related literature has mostly

Volume 49, Number 3

Journal of Supply Chain Management

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