Social Capital Effects on Relational Performance Improvement: An Information Processing Perspective

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Social Capital Effects on Relational Performance
Improvement An Information Processing Perspective

• Dr Benn Lawson
• Queens University Belfast
• 17th May 2006
• b.lawson_at_qub.ac.uk

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Agenda

• Program of research (10 minutes)
• Research presentation (30 minutes)
• Questions (20 minutes)

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My Background

• Lecturer in Operations Management, Queens
  University Belfast (2004 )
• Lecturer in Operations Management, The University
  of Melbourne, Australia, 2003
• Lecturer in Management Accounting, The University
  of Melbourne, 1999-2002
• PhD in Innovation Management, The University of
  Melbourne, 2004

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Key Research Interests
Supplier Relationship Management
New Product Development
Supplier Involvement in NPD
Technology Alliance Management
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Social Capital Effects on Relational Performance
Improvement An Information Processing Perspective
BENN LAWSON Queens University Belfast BEVERLY
TYLER North Carolina State University PAUL
COUSINS Manchester Business School
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Introduction

• Firms seeking to develop closer links with key
  suppliers
• Managing the supplier relationship is difficult
  (Handfield and Nichols, 1999)
• Leveraging social capital as key driver of value
  creation

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Motivation

• Social capital accumulation, and its effect on
  performance, is not well understand
• Information processing theory not widely applied
  in supply chain literature (contra Hult, Ketchen,
  Slater, 2004)
• Two primary aims
• Effect of buyer and supplier commitment on level
  of relational embeddedness
• Effects of relational and structural embeddedness
  on buyer-supplier relationship performance

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Hypothesised Model
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H1 Creating Relational Embeddedness

• Firms test each others integrity and signal
  their trustworthiness through the way they behave
• Signalling their commitment to the relationship
  is one avenue to build relational capital
• Buyer firm supplier development, deeper
  integration
• Suppliers asset specificity (human, physical,
  information)
• Thus,
• Hypothesis 1 The higher the buyers
  (suppliers) level of commitment to the
  relationship, the more relational capital will
  accumulate

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H2 Relational Embeddedness

• Higher levels of relational capital increase
  willingness to make work jointly
• Improved relationship quality can lead to
  increased buyer firm performance (Handfield et al
  2002 Dyer et al 2000)
• Thus,
• Hypothesis 2 The more relational capital that
  exists, the greater the relational performance
  improvement

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H3 Structural Embeddedness

• Information exchange between buyer and supplier
  can reduce uncertainty and equivocality
• Social capital theory
• Information processing theory
• Structured systems which share codified and
  easily interpreted information may help address
  uncertainty
• For example, information systems
• Thus,
• Hypothesis 3a The more formal, impersonal
  communication, the greater the relational
  performance improvement

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H3 Structural Embeddedness

• Knowledge transfer relies on development of
  social networks, shared values common norms
• Structured, but more personal, information is
  necessary to help address equivocality
• At senior levels between managers
• At lower levels at sales/engineering interfaces
• Thus,
• Hypothesis 3b 3c The more formal and informal
  managerial (technical) communication, the greater
  the relational performance improvement

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Research Method

• Web-based survey of 750 medium-to-large UK
  manufacturing firms, with 111 completed responses
  received (14.8)
• Unit of analysis was the dyadic relationship
  between a buyer and key strategic suppliers
• No evidence of either non-response bias, or
  common-methods bias

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Research Method

• Analysis conducted using two-step structural
  equation modeling on AMOS 6.0
• Confirmatory Factor Analysis (CFA) and Structural
  Model (SM) indicate satisfactory fit to the data
• CFA ?2(188)311.80, p.000 CFI.92 TLI.90
  and RMSEA.075
• SM ?2(193)313.324, p.000 CFI.94 TLI.91
  and RMSEA.073

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Results a
p lt .05, p lt .01, p lt .001 a Error terms
and indicator loadings are omitted for clarity
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Discussion

• H1 Creating relational embeddedness
• H1a - Buyer commitment associated with higher
  relational capital
• Avenues to signal commitment include involvement
  in strategy making, design and procurement
• H1b - Supplier commitment associated with higher
  relational capital
• Avenues to signal commitment include flexibility
  to buyer requests, help in emergencies, and
  reliability built through repeated exchange

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Discussion

• H2 Relational embeddedness
• Relational capital is important in improving
  performance of supplier relationship
• Leads to specific operational improvements for
  buyer firm
• H3a Formal, impersonal linkages
• Formal, impersonal linkages do not improve
  performance
• May provide timely information to reduce
  uncertainty
• May impact on other aspects of performance

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Discussion

• H3b Managerial Communication
• Managerial communication improves relationship
  performance
• Richer communication in a personal social network
  is effective in creating structural embeddedness
  and performance improvement
• H3c Technical Communication
• Technical communication improves relationship
  performance
• Increases in level, quality and timing of
  technical communication improves performance
• Helps reduce uncertainty and equivocality of
  transferring complex, tacit knowledge

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Conclusion

• Our study investigated how structural and
  relational capital is developed, and leads to
  improved performance
• Integrated social capital and information
  processing theories with mainstream supply chain
  research
• Results provide insight into how social capital
  and supply chain improvements are influenced by
  communication
• Future directions
• Is there a trade-off between formal and informal
  communication?
• Are there diminishing returns from emphasising
  one type of communication flow?

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Questions .
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Survey Items

• Buyer Commitment (a .80)
• The level of strategic partnership with suppliers
• The participation level of suppliers in the
  design stage
• The participation level of suppliers in the
  process of procurement and production
• Supplier Commitment (a .83)
• Our key supply partners are flexible in response
  to requests we make
• Our key supply partners make an effort to help us
  during emergencies
• When an agreement is made we can always rely on
  our key supply partners to fulfill all the
  requirements
• Relational Capital (a .90)
• There is close, personal interaction with the
  supply partner at multiple levels
• The relationship is characterized by mutual
  respect with the supply partner at multiple
  levels
• The relationship is characterized by mutual trust
  with the supply partner at multiple levels
• Formal Impersonal Communication (a .78)
• Information exchange with suppliers through
  information technology
• The establishment of a quick ordering system
• Stable procurement through network

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Survey Items (cont)

• Managerial Communication (a .74)
• There is high corporate level communication on
  important issues with key suppliers
• We have very frequent face-to-face planning/
  communication with key suppliers
• We enter into special agreements with suppliers
  who have improved performance
• Technical Communication (a .85)
• Our engineers and sales staff have a close
  relationship with our partners staff
• Frequent contact between our partner and our
  engineers is important
• Through informal discussion, our partner often
  communicates important engineering information to
  us
• Communication with our partner often begins to
  occur early in the development process
• Supplier Relationship Outcomes (a .92)
• In the last 2-3 years, we have continued to be
  able to improve product design performance
  through this partnership
• In the last 2-3 years, we have continued to be
  able to improve process design through this
  partnership
• In the last 2-3 years, we have continued to
  reduce lead time through this partnership

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Limitations

• Informed by a single purchasing executive
• Informants were asked to respond only for
  strategic relationships with key suppliers
• Buyer-seller relationships are dynamic
• A number of potential intervening variables not
  accounted for, e.g. relationship duration, supply
  risk, power and trust