Dimension: Theoretical foundation

The aim of theory has been described in such a way as to order the understanding of the world (Dubin, 1976). Theory is of special importance in the sciences as it provides systematic structure to the field of research, paramount to explain and

59 predict phenomena (Hunt, 1971). As such, the type of theoretical grounding chosen by a researcher has a strong influence on his interpretation of the results, an aspect briefly touched upon in section 2.2 (p. 12). Theory can manifest itself in a variety of forms, ranging from “minor working hypotheses, through comprehensive but vague

and unordered speculations, to axiomatic systems of thought”, and could be

synthesized as being a “logically interconnected sets of propositions from which

empirical uniformities can be derived” (Merton, 1967, p. 39).

It has been reported that newly emerging disciplines tend to borrow theories from other, more mature disciplines (Halldórsson and Arlbjørn, 2005). This approach of borrowing theories bears three advantages, namely (1) learning from others’ experiences, (2) accelerated knowledge creation, and (3) strengthening of the links between disciplines through joint theory usage (Stock, 1997). These approaches are applicable to SCM, which is known to have borrowed and integrated theories from a variety of disciplines, such as economics and behavioral sciences (Mentzer and Kahn, 1995). In their review of different theories in SCM and logistics, Defee et al. (2010) identified 180 different theories being used in SCM and logistics research. However, they found that only about every second article reviewed made use of theory, therefore identifying a need for more theory-based research as a means to advance the body of knowledge in SCM.

The dimension “Theoretical foundation” as presented in this work adds to this by providing a structured overview of theory usage in SCM literature. Although other researchers have proposed more detailed classification frameworks (Defee et al., 2010), this is done along the lines of the theoretical classification framework outlined by Burgess et al. (2006), based on Amundson (1998), which allows for an excellent structuring of the theories along “functional” dimensions. Accordingly, the classification scheme comprises economic theory, strategic management theory, and psychological/sociological theory, supplemented by operations management theory (Schmenner and Swink, 1998).

Economics theory: As stated by Bartels (1962) the discipline of business has its

roots in economics theory. Building on this, the classification framework by Burgess

et al. (2006) differentiates between two types of economics theory usage in SCM:

transaction cost economics (TCE) theory, and other theories, which include agency theory. As the “economics theory” category will follow the structure of the framework by Burgess et al. (2006) the types of economics theory will be outlined briefly.

In its original form, TCE provides a theoretical framework designed to justify the existence and location of company boundaries (Ghoshal and Moran, 1996; Williamson, 1981). In this context “TCE tries to explain how trading partners choose,

from the set of feasible institutional alternatives, the arrangement that offers protection for their relationship-specific investments at the lowest total cost”

(Shelanski and Klein, 1995, p. 337). Agency theory is rooted in information economics, and focusses on the “agency problem”, a phenomenon featuring a principal party, delegating work to an agent party, which performs the work on the principal’s behalf (Eisenhardt, 1989). In essence, the concept describes the parties’ possibly different perception of goals and risks while interacting under a contractual agreement, bearing potential for conflict (Jensen and Meckling, 1976).

The theories above are well suited to be used in an SCM context as they provide the framework to guide decision-making and explain the relationships in cooperative structures, especially considering aspects of risk sharing (Zsidisin and Ellram, 2003).

Strategic management theory: Strategic management theory is concerned with

providing an answer to the questions of why some companies are more successful than others, theorizing that decisions at firm level, like the strategic orientation of the company, are key drivers of success (Chandler, 1962). The analytical perspective taken by strategic management, focussing on the nucleus of businesses, the single company, provides a perspective which can also be utilized in SCM theory building (Ketchen and Giunipero, 2004).Burgess et al. (2006) identified two types of strategic management theory to be applicable in SCM, namely the resource based view of the firm (RBV), and competitive advantage theory.

The RBV, which has been described as being the prime perspective in strategic management theory (Ketchen and Giunipero, 2004), is characterized by its focus on the firm’s resources, centering on strategic assets, which are rare, valuable, and hard to imitate (Barney, 1991). Some researchers (Eisenhardt and Schoonhoven, 1996) describe the RBV and TCE as competing theories, as both claim to provide an explanation for the performance of the firm. Amundson (1998) outlines that the strategic resources need to be leveraged in order to create a distinct, in some cases unique, competitive advantage. This neatly links the RBV to competitive advantage theory as proposed by Porter (1980). In this regard, knowledge as a special strategic resource has been identified, being a key enabler to drive competitive advantage (Grant, 1996) as it satisfies the characteristic criteria describing strategic assets.

61 From a supply chain perspective the importance of knowledge as a strategic asset, also referred to as the knowledge based view (KBV) (Felin and Hesterly, 2007), is evident in the coordinating function of knowledge for the chain. The theory suggests that the intensity and organizational degree of knowledge exchange between supply chain partners directly impacts on the overall performance of the supply chain. Taking into account the various theories described above, and considering their impact if seen in a SCM context, the category “strategic management theory“ will focus on the theories of the RBV and related theories which are enablers of the firm’s competitive advantage.

Operations management theory: Operations management, being a vital part of

every company, is largely concerned with aspects such as capacity planning, forecasting, maintenance, and process design, to name a few (Chase and Zhang, 1998; Olhager et al., 2001). In essence, operations management applies “analytical

tools and frameworks to improve business processes that cross internal functional boundaries” (Mentzer et al., 2008, p. 36). Despite the importance of operations

management for the success of the firm, researchers struggled to define a unifying theory of the subject, a possible reason being the multitude of aspects which need to be included (Swink and Way, 1995). Schmenner and Swink (1998) claimed to propose a notable conceptual theory of operations management which is well respected in academia. Their “Theory of Swift, Even Flow” aims to explain “cross-

factory productivity differences”, while their “Theory of Performance Frontiers” “addresses even broader measures of across-factory performance” (Schmenner and

Swink, 1998, p. 112).

In detail the Theory of Swift, Even Flow portrays the connection between easing the flow of material through a process and the productivity of that same process. Increased speed of flow, combined with a reduction of process variability, fostered through a reduction of bottlenecks, are key levers to achieve operational excellence within the production system. Expanding this thinking, taking into account a multi- plant setup, the Theory of Performance Frontiers provides guidance on whether the firm’s focus should be on improving individual processes performance, or to foster a cumulative improvement approach, aiming to improve efficiencies in infrastructure and operations, for example though quality improvements. The underlying rationale would be that performance cannot be superior in all dimensions at the same time, which requires trade-offs in balancing performance.

Flow management is a fundamental aspect in the theories outlined by Schmenner and Swink (1998). SCM links to operations management, as it build on the concept of flow management, a key aspect of operations management (Waller and Waller, 1999). Thus, as the theories may also be applicable in an SCM context, as showcased by Seuring (2009), they are included in the category “operations management theory”.

Psychological/sociological theory: The framework by Burgess et al. (2006) splits

the psychological/sociological theory section in regard to SCM into the subsets of organizational learning theory, and inter-organizational network theory.

The process of learning within organizations is characterized by “encoding inferences

from history into routines that guide behavior” (Levitt and March, 1988, p. 319).

Borrowing loosely from Amundson (1998), organizational learning (OL) theory and SCM show various similarities, which justify an application of organizational learning in a SCM context. As such OL takes a dynamic perspective towards the company, driven by the constantly changing company environment, which requires constant adaptation. In addition, OL employs the concept of learning routines, which is similar to processes in SCM, and OL compares aspects of individual learning to viewing learning as a company overarching value. The importance of learning in SCM, aiming for supply chain excellence, is highlighted by Spekman et al. (2002), indicating a positive correlation between learning and supply chain performance. Implementing organizational learning by establishing a “process of learning” can be regarded as a key lever to build a market-focused supply chain, ultimately influencing customer satisfaction. This also means that the more integrated the supply chain is, the more sophisticated the structure and mechanisms enabling organization learning need to be on a corporate level in order to allow for streamlined exchange of knowledge. Collaboration thus plays a crucial role in this setup, being a prerequisite for learning in a supply chain. This links organizational learning theory to inter-organizational network theory. Inter-organizational network theory provides a basis to explain organizational practices, theorizing that networks between companies are based on external social ties (Kraatz, 1998). However, these ties do not necessarily constitute an ownership structure (Ghoshal and Bartlett, 1990). The sociological aspect of the value of personal ties between supply chain partners has always been at the heart of SCM, underlining its collaborative nature, best known under the labelling of relationships (Harland, 1996; Cooper et al., 1997).

63 The category “psychological/sociological theory” builds upon organizational learning theory and inter-organizational network theory as they provide a sound foundation to explain SCM from a psychological and sociological point of view, bridging to key aspects of SCM exemplified through integration and collaboration.

Chapter 4 presented in detail the development process of the classification framework, based on acknowledged, highly cited SCM frameworks, covering six dimensions and 26 categories. Furthermore, the chapter outlined the individual theoretical foundations of each of the dimensions and categories, adding to the increase of transparency in the overall research process. This serves as the foundation guiding the content analysis approach which will be executed in the next chapter, chapter 5.