A contingency model for creating value from RFID supply chain network ...

European Journal of Information Systems (2009) 18, 615?636 & 2009 Operational Research Society Ltd. All rights reserved 0960-085X/09

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A contingency model for creating value from RFID supply chain network projects in logistics and manufacturing environments

Samuel Fosso Wamba1,* and Akemi Takeoka Chatfield 2

1Centre for Business Services Science, School of Information Systems & Technology, Faculty of Informatics, University of Wollongong, Australia; 2E-government and E-governance Research Group, School of Information Systems & Technology, Faculty of Informatics, University of Wollongong, Australia

Correspondence: Samuel Fosso Wamba, Centre for Business Services Science, School of Information Systems & Technology, Faculty of Informatics, University of Wollongong, Wollongong NSW 2522, Australia. Tel: ? 61 2 4221 3136; Fax: ? 61 2 4221 4045; E-mail: samuel@uow.edu.au

*The authors organized and co-chaired the Mini-Track on RFID simulation modeling at the 2009 AMCIS in San Francisco. They also co-edited in 2009 & 2010 two special issues on RFID in Business Process Management Journal and Pacific Asian Journal of Information Systems.

Received: 8 November 2008 Revised: 7 October 2009 Accepted: 8 October 2009

Abstract In the growing literature on RFID and other network technologies, the importance of organizational transformation at the supply chain level has been recognized. However, the literature lacks conceptual model development and salient mechanisms for achieving the level of organizational transformation required for stakeholders to realize the full business benefits from RFID projects. Furthermore, the RFID adoption, use, and impact studies to date largely focus on a single firm setting and on the retail sector. Therefore, this study intends to fill this knowledge gap in the literature, and develops a contingency model for creating value from RFID supply chain projects in logistics and manufacturing environments. For our model development, we draw upon extant diverse literatures, particularly the framework for IT-enabled business transformation, and leadership and organizational learning. The framework postulates a positive relationship between the level of organizational transformation effected by the use of information technology (IT) and the level of business benefits realized from IT. The contingency model draws on the framework, and explicates five contingency factors influencing value creation from RFID supply chain projects: environmental upheaval; leadership; second-order organizational learning; resources commitment; and organizational transformation. Using the contingency model as a conceptual guide, we also perform an analysis of longitudinal real-world case data from a Canadian third-party logistics service firm's seven-layer supply chain RFID projects. The case study analysis provides evidence for the imperative of the contingency factors identified in the model for creating value from the RFID projects. Furthermore, it also reveals the differential costs for the focal firm and the up-stream manufacturing as a key barrier to realizing the full RFID benefits at the supply chain level. European Journal of Information Systems (2009) 18, 615?636. doi:10.1057 ejis.2009.44; published online 10 November 2009

Keywords: value creation from RFID projects; supply chain management; contingency model; benefits realization; logistics; manufacturing

Introduction The hypothesis for this study is that the potential operational and strategic benefits of radio frequency identification (RFID) technology would greatly increase when it is adopted and used beyond the traditional firm boundaries, and when it becomes seamlessly integrated both technologically and organizationally ? across the firm's supply chain. This is because when it is adopted and used effectively by a critical mass of stakeholders in the supply chain network, it impacts positive network externalities

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(or network effects) on supply chain logistics optimization, inter-firm information-sharing, and inter-firm knowledge and technology transfer.

Evidence supporting this hypothesis exists in prior research on the IT-enabled business and network transformation for business value (Venkatraman, 1994; Teo & Pian, 2003), on the electronic data interchange-enabled buyer?supplier operational and strategic benefits realization at the network level (Chatfield & Bj?rn-Andersen, 1997; Chatfield & Yetton, 2000; Lai et al., 2008), as well as on the collaborative advantage through extended enterprise supplier networks at Toyota and Chrysler (Dyer, 2000). However, these diverse literatures also show the imperative of organizational transformation beyond the traditional firm boundaries, and the challenge for such a large-scale radical change.

Against this background, the RFID literature shows that while some technological feasibility and maturity has been demonstrated through proof-of-concept projects, the adoption, use, and impact of RFID studies have been limited to a single focal firm adoption setting (Stroh & Ringbeck, 2004; Garcia et al., 2007), and largely in a retailing sector (Hardgrave et al., 2005; Fosso Wamba et al., 2006; Loebbecke & Huyskens, 2008; Moon & Ngai, 2008). In their review of academic literature on RFID, Ngai et al. (2008a) found that the highest frequency of peer-reviewed papers on RFID technology was concerned with the retail sector. Furthermore, little has been written about RFID knowledge and technology transfer within the supply chain network to generate network-wide operational and strategic benefits in real-time manufacturing and logistics environments. However, evidence shows that mere automation or electronic integration through RFID without business transformation is not sufficient to deliver improved logistics services (Lai et al., 2008). Therefore, this research is an initial effort towards bridging the existing knowledge gap in the literature. More specifically, this research draws on prior studies on RFID research agendas (Curtin et al., 2007, pp. 97, 102) to examine the following three questions:

1. What is the economic value of RFID integration with (1) other applications (2) inventory, and (3) logistics?

2. What role does the senior management, individual champions, or agents of change play in the promotion of RFID?

3. How will the business value of RFID technology implementations be mediated by other organizational capabilities that drive value conversion?

In order to address these questions, this research draws on extant literature to develop a contingency model for creating value from RFID supply chain projects. More specifically, we draw both from the extant conceptual framework: `IT-enabled business transformation: from automation to business scope redefinition' (Venkatraman, 1994) and leadership and organizational learning literature (Newman, 2000; Schein, 2004; Kotter, 2007; Kotter & Schlesinger, 2008). Using this initial contingency model

as our guide, we then perform a longitudinal real-world case analysis of a third-party logistics (TPL) service provider and its supply chains. With in-depth insights gained from the case study research, we have refined the contingency model with respect to differential RFID investment costs among different stakeholders.

The remainder of this paper is structured as follows: the next section identifies contingency factors for RFID benefits realization from a literature review of the diffusion of innovation theory; RFID technology adoption in supply chain management (SCM); the Venkatraman (1994) framework; and leadership and organizational learning. The subsequent section presents the (initial) contingency model for creating value from RFID supply chain projects. The section after that describes our research methodology. The following section discusses a longitudinal case study of a Canadian TPL focal firm and its supply chains. The penultimate section presents the discussion and the final section is our conclusion.

Contingency factors for RFID benefits realization: a literature review

Diffusion of innovation theory Research on information technology (IT) innovation is known to be multidisciplinary in nature, as it integrates different approaches and theories to examine why firms innovate, explore technological and organizational facilitators and barriers to innovation, and identify the methods used to promote innovation (Fichman, 2000). Most IT innovation studies, as Fichman notes, can be classified into two research streams: adopter studies and diffusion modeling studies. Both research streams have identified a number of factors affecting the diffusion and assimilation of IT innovations, namely, innovation characteristics, organizational characteristics, and environmental characteristics (Tornatzky & Klein, 1982; Rogers, 1995; Fichman, 2000; Zhu et al., 2006). Rogers (1995) postulates that five innovation characteristics may explain the decision to adopt an innovation: `relative advantage' as the degree to which an innovation can bring benefits to an organization; `compatibility' as the degree to which an innovation is consistent with existing business processes, practices, and value systems; `complexity' as the degree to which an innovation is difficult to use; `observability' as the degree to which the results of an innovation are visible to others; and `trialability' as the degree to which an innovation may be experimented with. If we view RFID technology as a technological innovation, its characteristics such as no need of line of sight, multiple tags items reading, more data storage capability, and improved asset visibility are thought to influence adoption decision.

With regard to organizational characteristics, early studies on innovation diffusion established a strong relationship between the firm's IT adoption and organizational characteristics, such as organizational readiness, which is defined as the level of technical and financial

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resources available in the firm (Lee & Shim, 2007); organizational size, which is measured by organizational slack resources, organizational structure and decisionmaking flexibility (Zhu et al., 2006); organizational culture with a focus on centralization vs decentralization, and management support (Iacovou et al., 1995; Fichman, 2000; Zhu et al., 2006). Finally, a range of environmental characteristics has been identified that can influence the firm's decision to adopt an innovation, including the intensity of competitive pressure (Fichman, 2000; Teo et al., 2003; Zhu et al., 2006), the standard and regulation (Kraemer et al., 2006), and the nature of business relationship (e.g. stakeholders pressure, position in the business network, and trust) (Iacovou et al., 1995; Zhu et al., 2006).

The innovation diffusion literature reflects the different information technologies studied and at the different unit of analysis used in prior research, for example, at the individual-level adoption, the business unit level, and the firm level. However, prior research in general has not focused upon network technology innovation diffusion at the supply chain level.

RFID innovation adoption in SCM The concept of supply chain management is defined as `the integration of key business processes from end user through original suppliers that provides products, services and information that add value for customers and other stakeholders' (Lambert & Cooper, 2000, p. 66). This definition suggests that a seamless integration of the key business processes across the supply chain is required to achieve operational optimization at the supply chain level. However, the concept of SCM also has strategic value implications. For example, SCM is often viewed as `the 21st century global operations strategy for achieving organizational competitiveness' (Gunasekaran & Ngai, 2004, p. 269). Increasingly, its strategic importance is generally accepted in the academic community (Ragatz et al., 1997; Frohlich & Westbrook, 2001).

RFID technology In the past, a vast range of information technologies have been used by supply chain stakeholders to achieve supply chain optimization and manage buyer?supplier relationships. More recently however, RFID technology, a wireless automatic identification and data capture (AIDC) technology, has been emerging as the new wave of inter-organizational systems (IOS) that is expected to transform the interdependent supply chain business processes and the SCM practices (Srivastava, 2004; Bose & Pal, 2005; Lefebvre et al., 2006; Curtin et al., 2007; Bose & Lam, 2008; Fosso Wamba et al., 2008; Lee & Park, 2008; Sabbaghi & Vaidyanathan, 2008).

The concept behind RFID technology is not that complex, consisting of an RFID tag that contains an antenna and a chip with rewritable information about the tagged item or product. When this RFID tag enters a RFID reader's reading area, a bidirectional communication is established between the tag and the reader

through radio frequencies. The reader retrieves and sends the unique product identification to an RFID middleware, where business logics are configured for further processing. The RFID reader can be either `fixed' or `mobile' with having a read or read/write capability (Ngai et al., 2007). It can be configured to control the timing communication with the RFID tag (the reader talks first) or to react to messages from the tags (the tag talks first) (Asif & Mandviwalla, 2005).

RFID benefits When compared to bar-coding ? a traditional AIDC technology ? RFID technology offers a greater range of advantages: a unique item/product-level identification, no need of line of sight, multiple tags items reading, more data storage capability, and data read/write capabilities (Asif & Mandviwalla, 2005). However, RFID is considered as a disruptive innovation (Lefebvre et al., 2006; Vail & Agarwal, 2007), since it is thought to radically change interdependent supply chain processes and practices (Fosso Wamba et al., 2006; Bardaki et al., 2007; Chuang & Shaw, 2007; Curtin et al., 2007; Whitaker et al., 2007).

For example, when successfully integrated into supply chain business processes, RFID technology improves inventory record inaccuracies (Heese, 2007), enhances organizational coordination and control (Cannon et al., 2008), enables real-time data collection and sharing among the supply chain stakeholders (Bose & Pal, 2005; Fosso Wamba & Boeck, 2008), offers new technological capabilities for product information storage and tracking (Legner & Schemm, 2008), enables supply chain business process innovation (Fosso Wamba et al., 2006, Loebbecke & Palmer, 2006; Fosso Wamba et al., 2008), and improves supply chain efficiency and effectiveness (Bose & Pal, 2005; Michael & McCathie, 2005; Loebbecke, 2007; Loebbecke & Huyskens, 2008; Moon & Ngai, 2008). All these benefits, if realized, would enable the supply chain to provide new products and services (Loebbecke & Palmer, 2006; Leimeister et al., 2009), which would give rise to competitive advantage at the firm level (Leimeister et al., 2009).

RFID challenges Despite the potential benefits from RFID technology, especially in the supply chain context, the current adoption rate is still fairly low, between 7 and 15% (Schmitt & Michahelles, 2009), mainly due to the unresolved key issues associated with its network externality. The organizational issues in creating value from RFID supply chain network projects include the integration of RFID systems with existing intra- and interorganizational information systems and business processes; training for all the personnel involved (Jones et al., 2004; Hingley et al., 2007; Goswami et al., 2008); the scope of RFID-enabled supply chain projects (Bensel et al., 2008; White et al., 2008) and that of change management (Hingley et al., 2007); technical `know-how', available resources, and level of automation (Bensel et al., 2008); the absence of project champions (Lee & Shim, 2007); top

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management support (Brown & Russel, 2007; Seymour et al., 2007; Ngai & Gunasekaran, 2009); high implementation costs (Hingley et al., 2007; Ngai & Gunasekaran, 2009); and the significant gap between RFID implementation costs and the realized benefits for each of the supply chain stakeholders (Bensel et al., 2008).

Importantly, Sharma et al. (2007) concluded that top management commitment at the firm and interorganizational levels is required for the coordination and business process re-engineering of an RFID-enabled supply chain. They underscored that: a `long term strategic vision and direction from top management is critical to RFID adoption and integration in and between firms' (p. 7). Also, Ka?rkka?inen & Holmstro?m (2002) highlighted the importance of integrating RFID technology with IOS to achieve end-to-end supply chain visibility. In the same line of thought, Fosso Wamba et al. (2008) and Bendavid et al. (2009) underscore the importance of seamless integration of RFID technology with intra- and inter-organizational processes and systems to reduce inefficiencies in the supply chain, and facilitate more collaborative practices.

Furthermore, Bendoly et al. (2007), Bovenschulte et al. (2007), and Lai et al. (2006) all concluded that the full benefits realization of RFID-enabled supply chain projects depends on knowledge-transfer and knowledge-sharing across early adopters of RFID technology and late adopters, and those who are still exploring and evaluating the potential benefits of technology for them. These studies strongly suggest that (1) it is necessary to set frameworks, guidelines, tools, and mechanisms to help define ? in a better way ? the scope of the RFID supply chain project and the level of organization transformation, and (2) it is necessary to identify the realistic benefits and costs at the supply chain level as well as at the firm level.

Existing RFID implementation frameworks Recent interest in RFID technology has generated an increasing number of implementation frameworks for assessing the level of implementation in SCM (Fontanella, 2004; Chuang & Shaw, 2007; Sabbaghi & Vaidyanathan, 2007). However, none of these frameworks fully address the two requirements we have discussed earlier in the previous section. For example, Fontanella (2004) distinguishes four phases of RFID implementation: (1) the application of RFID technology to a discrete process to reduce the shortcomings of the extant technology (e.g. bar code) or manual process; (2) the use of RFID technology as an enabler of intra-organization optimization across two or more entities (e.g. business units) within a firm. Here, the focus is largely technological, not organizational. The complexity, risks and benefits associated with RFID implementation are higher than in the previous case. However, to fully realize the potential of the technology, `additional steps must be taken to ensure that the operating environments conform to the technology's requirements. This includes the distance between the

readers and the product, the elimination of potential interferences from other automation equipment, and the protection of the tag from weather conditions or damage' (pp. 13?14); (3) the application of RFID technology at the inter-firm level as a means to synchronize and coordinate processes with a limited number of supply chain stakeholders to offer differentiated services; and (4) the synchronization, which refers to the ubiquitous use of RFID technology across an entire industry to achieve and sustain a global vision of supply chain efficiency and effectiveness, through the use of common standards among a critical mass of RFID adopters.

Similarly, Chuang & Shaw (2007) suggest a three-stage RFID integration model to assess the scope of RFID implementation. In the first stage, `functional RFID integration', organizations mainly used the technology for a single process or a single internal activity (e.g. distribution center processes, JIT manufacturing processes, or asset tracking activity). The second stage, `business unit RFID integration', involves the extension of RFID integration to different business units within an organization (e.g. headquarters, manufacturing, warehouses, or distribution centers). Here, the `implementation requires a scalable RFID architecture designed to meet a portfolio of expectations. Team skills and more complex business cases are used to achieve synergy in the supply chain' (p. 85). Finally, the third stage, `intercompany RFID integration', evaluates the collaboration between a focal firm and its supply chain partners to implement RFID technology at the supply chain network level. It is argued that this level of integration is complex, and has a high degree of technical and business risks, and requires the development of a mutually beneficial strategy for all supply chain stakeholders.

In the same vein, Sabbaghi & Vaidyanathan (2007) use the five levels of SCM evolution that deal with internal integration to test the current position of RFID implementation within firms through a field survey (Poirier, 2002; Sabbaghi & Vaidyanathan, 2007). By focusing on three functional applications, namely (1) the sales and customer service; (2) logistics, transportation, and warehousing; and (3) inventory and materials management, they found that for each of these functional applications, various industrial managers in the U.S. are currently using the RFID technology at the five different levels of SCM evolution. Moreover, the managers in the study believed that at the full network connectivity stage (level 5), the RFID technology `can be used in all three functions equally' (p. 445). Finally, all firms under study were exploring the potential of RFID technology in their SCM efforts.

A review of the RFID implementation frameworks strongly implies a positive relationship between the level of electronic integration through RFID implementation and RFID benefits. Therefore, our first proposition is:

Proposition 1: The higher the level of electronic integration through RFID implementation is, the higher the RFID benefits.

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However, a review of the RFID implementation frameworks shows that they do not address the two requirements discussed earlier and that conceptual model development would be useful to facilitate the stakeholders of RFID projects ? both the focal firm and its supplier chain firms ? to create value from their RFID project investments. We therefore, review the existing framework for IT-enabled business transformation (Venkatraman, 1994) in the next section.

Venkatraman framework Much has been written in the IOS literature on business value creation for networked organizations through ITenabled business process redesign (Venkatraman, 1994; Chatfield & Bj?rn-Andersen, 1997; Chatfield & Yetton, 2000; Grover & Saeed, 2007). For example, Venkatraman (1994) proposed a conceptual framework for IT-enabled business transformation, which is relevant for us to understand the role of organizational transformation in realizing the potential RFID benefits, and hence creating business value from RFID supply chain projects. His framework was based on the premise that the level of the potential IT benefits that can be realized by a given organization is directly related to the degree of organizational transformation affected by the use of IT. Venkatraman identified five different levels of business transformation (Figure 1): localized exploitation, internal integration, business process redesign, business network redesign, and business scope redefinition.

As shown in Figure 1, Venkatraman considered the first two lower levels of business transformation as `evolutionary', because the primary focus at these lower levels is to create operational efficiency gains within a focal firm through electronic integration. He states clearly that no radical organizational change is involved: `Even if the redesign efforts extend outside the focal organizational boundary, no attempt is made to shift the scope of the business from within the firm to outside and vice versa (except for streamlining administrative efficiency) (p. 85)'. In this sense, the first two lower levels of business transformation are similar in nature to incremental change (Dunphy & Stace, 1988; Orlikowski, 1993),

High

Business Scope Redefinition

Degree of Business Transformation

Business Network Redesign

Business Process Redesign

Revolutionary Levels

Internal Integration

Localized Exploitation Low

Low

Evolutionary Levels

High

Figure 1 Venkatraman (1994) conceptual framework.

first-order organizational learning (Lant & Mezias, 1992; Newman, 2000; Schein, 2004), single-loop learning (Argyris, 1991), and continuous improvement (Hall, 1987; Adler et al., 1999) in just-in-time manufacturing and within the Toyota Production System.

In contrast, the next three higher levels represent the `revolutionary' levels of business transformation that are designed to enhance organizational capabilities at the focal firm level as well as at the network level. On the one hand, the third level, `Business Process Redesign', still confines organizational transformation within the focal firm boundary. On the other hand, at the next two higher levels ? `Business Network Redesign' and `Business Scope Redefinition', organizational transformation efforts extend beyond the traditional firm boundaries into transforming network stakeholder organizations for the higher-level benefits realization from the use of IT.

However, at these two higher network levels, the transformation of interdependent inter-firm business processes and inter-firm transaction relationships is significantly more complex and more costly, with respect to the level of managerial and organizational resources required to make radical changes or effect a fundamental shift in the established business processes and procedures between the firms. An important managerial challenge is to balance the tradeoffs between benefits and costs at the individual firm level, as it was stated that `each organization should first identify the transformational level where the benefits are in line with the potential costs (efforts) of the needed organizational changes (p. 73)'.

By distinguishing the `revolutionary' levels of interfirm transformation from the `evolutionary' levels of firm transformation, Venkatraman argues that the potential costs required for achieving a greater degree of organizational transformation are different and certainly higher. Although it does not specify any mechanisms for reducing such costs and achieving organizational transformation at the network levels, the framework addresses the costs involved in transforming the networked organizations and achieving the potential benefits at the network levels. Importantly, Tushman & Anderson (1986) demonstrated that technological discontinuities or breakthroughs had historically produced either positive (enhancing) or negative (destructive) impacts on the existing organizational competence, which therefore decreased or increased environmental turbulence and uncertainty. Therefore, it is important to identify key contingency factors that would have positive or negative impacts of RFID technology on creating value from RFID supply chain projects. In fact, with regard to the impacts of RFID technology on many suppliers, particularly the SMEs, they are not entirely positive (Spekman & Sweeney II, 2006; Bardaki et al., 2007). Therefore, our second set of propositions is:

Proposition 2: RFID-enabled organizational transformation has a direct impact on benefits realization from RFID projects.

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