Journal of Operations Management 25 (2007) 459463 www.elsevier.

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Organization theory and supply chain management: An evolving research perspective

Raymond E. Miles a,*, Charles C. Snow b,1
b

Haas School of Business, University of California, Berkeley, CA 94720-1900, United States Smeal College of Business, The Pennsylvania State University, 452 Business Building, University Park, PA 16802-3603, United States Available online 3 July 2006

Abstract The supply chain is the central organizing unit in todays global industries. We describe how supply chains have evolved over the last three decades, arguing that their organizational history can be divided into three periods. In the rst period, the primary focus was on how to make operations throughout the supply chain more efcient. In the second period, the focus shifted from efciency to effectiveness as leading rms began to incorporate the ideas and expertise of their suppliers and partners into the management of the supply chain. In the current period, some rms are beginning to explore how supply chains can be extended across industries in addition to operating efciently and effectively within industries. # 2006 Elsevier B.V. All rights reserved.
Keywords: Organization theory; Supply chain management; Network organization

1. Organization theory and supply chain management: an evolving research perspective Supply chains, the network of rms that contributes both inbound and outbound products and services along an industry value chain, have drawn increasing attention from organization theorists since the 1980s. Moreover, scholarly research has shifted over time to emphasize one after another of several organization theory perspectives. Indeed, our own interest in the organization and management of supply chains illustrates those shifting theoretical perspectives. Our research interests have evolved from an initial focus on strategic choice, to one of resource development and utilization, and most
* Corresponding author. Tel.: +1 510 642 3860; fax: +1 510 643 1412. E-mail addresses: miles@haas.berkeley.edu (R.E. Miles), csnow@psu.edu (C.C. Snow). 1 Tel.: +1 814 865 2463; fax: +1 814 863 7261. 0272-6963/$ see front matter # 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.jom.2006.05.002

recently to the design of multi-rm network organizations whose capabilities are focused on knowledge sharing and application. A brief review of how and why our theoretical perspectives have evolved illustrates how each one has been and can be applied. Overall, this review will show that supply chain research, which originally focused narrowly on the efcient movement of goods among rms within an industry, now incorporates a substantial amount of organization theory. 2. Strategic choice perspective The use of market mechanisms inside rms, such as the substitution of markets for hierarchies in the resource allocation process, began to grow in the 1970s, and economists and other scholars increasingly focused their attention on how organizations were incorporating external resources into their internal operations (Halal et al., 1993; Williamson, 1975). As management

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theorists, we wrote about the use of internal market mechanisms to allocate scarce human resources in describing a new type of organization structure that we called the market matrix (Miles and Snow, 1978), and our own recognition of the growing use of external resources began with a study of college textbook publishing rms. In the typical textbook publishing rm of the time, product development was a joint activity conducted by the rm and independent authors while design, printing, and other functions were performed either internally or by outside suppliers. Thus, what a rm decided to do and not to do clearly was a strategic choice. So, too, was the rms decision about how to organize to pursue its chosen set of activities. Our curiosity about how rms made such strategic choices led us to watch for similar signs in other types of supplier networks, and our examples quickly grew from an ever-widening sample of consumer product rms, components suppliers in durable goods industries, and various types of providers in the service sector. More importantly, we began to see how the supply chain mechanism allowed rms to blend strategies in ways we had previously thought was not possible. That is, supply chain networks allowed rms to make new strategic choices and then create new structural designs to implement them. In our terminology, downstream rms in the value chain could support their prospector market strategies with upstream defender-like structures and processes, or they could choose from a variety of other strategy-structure combinations (Miles and Snow, 1984, 1986). The emergence of the multi-rm network organization opened a whole new arena for strategic choice, and many rms became much stronger competitors by linking with specialist providers in an integrated supply chain. 3. Resource-based view Our understanding of the various types of network structures that arose became more sophisticated over time. Gradually, we realized that supply chain structures aimed only at cost reductions provided little sustainable competitive advantage because management techniques such as benchmarking, business process reengineering, total quality, and best-practices helped leading competitors learn how to achieve maximum efciency across their network of suppliers and partners. The automobile industry provided many of the early examples, from BMWs incorporation of its suppliers ideas into its own designs to Toyotas development of lean production. Ford Motors supply chain transformation illustrates the shifting emphasis from strategic choices focused on cost

and efciency to a resource-based perspective emphasizing enhanced design capability. Ford, which had been the most vertically integrated American automotive rm, went from making its own glass, to purchasing a share in a glass producer (to capture technology while still dictating specications), to realizing that the glass producer had design skills that complemented those at Ford. Many similar examples have been chronicled in other industries, and today the so-called extended enterprise is perhaps best represented by Dell Inc. (Magretta, 1998). Dells managers consider the entire supply chain to be an organization, and they manage it for purposes of both efciency and effectiveness. Of course, the outsourcing practices of Ford, Dell, and other rms could have been analyzed from the perspective of agency theory (Jensen and Meckling, 1976), given that most managers at the time had to overcome the deeply entrenched belief that rms had to own their resources in order to assure an efcient ow of high-quality goods and services. In our judgment, however, such a focus would have hindered both scholars and managers from recognizing the gains in capability that occurred when rms created trusting, cross-rm relationships that they then used to share knowledge and expertise. We addressed this broad philosophical issue in several articles about the causes of success and failure in supply chain networks, and we summarized our conclusions about the strengths and limitations of multi-rm network organizations in Miles and Snow (1994). 4. Knowledge management perspective Our most recent research on supply chains and other types of multi-rm networks has come from a knowledge management perspective. While resource-based supply chains provided added capabilities for product and process improvements, some networks seemed to be moving towards improving the process of innovation via knowledge sharing. If, we reasoned, relationships along supply chains and across rms could move from mere cooperation to full-edged collaboration, a virtually endless array of innovative ideas might emergeincluding ideas that might nd application outside of the rms existing industries. We had seen and written about examples of such collaboration resulting from the voluntary interaction of units in rms such as the Acer Group and Technical & Computing Graphics (Miles et al., 1997), and we began to realize that it was their ability to capture not only the planned but also the unplanned outputs of knowledge sharing that was most promising. Cooperative efforts sharing

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based on clear objectives and agreed-on contributions and returns were clearly valuable in improving overall network performance, but collaborative efforts based on trust, knowledge, and norms of information sharing and equitable treatment might result in highly entrepreneurial, cross-industry network organizations. Using the knowledge management perspective, we searched for patterns in the design and behavior of community models of innovation such as the worldwide Linux community; industrial symbiosis in Kalundborg, Denmark; partnering in the U.S. civil construction industry; and the complex networks of entrepreneurial rms in the Finnish information technology industry. What all of these approaches had in common, as was largely anticipated in the collaboration literature of the 1960s and 1970s (e.g., Appley and Winder, 1977), was a heavy investment in trust-building and the creation of organizational cultures and processes that assured equitable treatment across collaborating partners. From this theoretical perspective, it was easy to see how rms that invested in collaborative capability increased their capacity for innovation. For example, the early years of successful innovation at HewlettPackard, as well as the innovation bonanzas at Xerox and 3M, were testimony to the power of collaborative communities within business rms. It was also easy to see why the constraints of existing industry boundaries limited the innovation potential of even those capable rmsgenerating and pursuing creative ideas outside of ones established businesses was simply too difcult. Frequently, the strict criteria used in the idea-winnowing process worked their way back through the organization and eroded the motivational dynamics supporting collaborative communities. 5. Networked collaboration Many observers of todays global business arena agree that new business and organizational models are needed if rms and economies are to fully utilize their knowledge base to continuously generate new products, services, and markets (e.g., Friedman, 2005). New entrepreneurially oriented business models, supported by new collaborative network structures, will emerge as it becomes clear that current strategies, structures, and processes are inadequate. Many if not most of those new approaches, we believe, will build on the experiments and experiences of the most progressive supply chain organizations. Recently, we described a complete collaborative entrepreneurship model represented by a ctional rm called OpWin Global Network (Miles et al., 2005). OpWin is a dynamic network of more than

60 member rms and their temporary afliates. The network is dynamic in that none of its members has a xed role, and the resources each rm has assembled are often shared in business ventures with other rms, usually but not always within the network. Each member rm joined OpWin as a protable independent entity, and it is each rms responsibility to maintain its ability to develop its own resources and to generate signicant income for itself and for its network partners. Overall, OpWin member rms exercise their collaborative abilities to jointly develop applications for ideas and knowledge in markets outside their existing industries. Although a sizable number of institutional, philosophical, and conceptual barriers presently stand in the way of the emergence of a real OpWin-type organization, we believe nevertheless that it is only a matter of time before some group of pioneering rms operating in complementary markets forms a collaborative network and uses it for business purposes (Miles et al., 2006). When that type of network arrives, it will be a rich source of opportunities for supply chain research. In particular, we foresee two promising research areas, one directed towards the designers and managers of network organizations and the other directed towards scholars and policy makers. 6. Future supply chain research Collaborative networks will appear in various knowledge-intensive industries, and they will require ongoing investments in intangible assets, such as the ability to collaborate and to build inter-organizational trust, in order to grow and succeed. Practitioners often struggle with those investment decisions, however, because intangible assets cannot be easily dened, measured, or reported (Eisenhardt and Martin, 2000; McGrath et al., 1995; Sveiby, 1997). Without the ability to quantify the value of intangible assets, the designers of new collaborative supply chains will have difculty justifying their investments, and managers will not be able to accurately calculate the returns on those investments they do make. Because of recent advances in the measurement of intangible assets (Hand and Lev, 2003; Lev, 2001), however, research on emerging collaborative networks can now help to build useful return on investment models of the multi-rm knowledge management process (Dutta et al., 2005; Lev, 2004; Smith et al., 2005). The other promising research area concerns the role that new supply chain networks will play in the global economy. Collaborative and other knowledge-based networks are different from traditional goods-based networks, and they have more potential to contribute to

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Table 1 Key research ndings on supply chains from different theoretical perspectives Theoretical perspective Strategic choice Research ndings By linking to specialist rms with complementary strategies and capabilities, each major competitor in an industry can create its own supply chain. Overall, industry performance improves as each supply chain becomes more efcient By incorporating the ideas and expertise of their supply chain partners, lead rms can direct the network towards innovation as well as cost reduction. Overall, the industry can be innovative as well as efcient In the future, groups of rms in complementary markets will form collaborative networks in which knowledge is created and shared for business purposes. These multi-rm network organizations will be able to pursue strategies of continuous innovation and will grow across as well as within industries

Resource-based view Knowledge management

the long-term economic development of a country or region. For example, shared knowledge can be a rapidly expandable resource and may show increasing rather than diminishing economic returns. Thus, interactions between U.S. information technology rms and their network partners in India and China have produced valuable knowledge spillovers across the economies of these countries (Engardio, 2005). Also, because knowledge networks can grow laterally across industries, they can create product and market innovations that traditional networks have not been able to achieve on a consistent basis. Such innovation-driven networks, we believe, will ultimately prove to be more valuable to a countrys economic development than cost-driven networks because they have the capability to move knowledge across as well as within industries and thereby generate new business. 7. Conclusions Based on our research over the past three decades, the overall conclusions that we have reached about supply chains are summarized in Table 1. As shown, from a strategic choice perspective, rms can design supply chains that protably combine organizational capabilities and perspectives that would be difcult if not impossible to manage inside a single hierarchy. With additional insight and investment driven by a resource-based view, rms can not only use their supply chain partners skills to enhance their efciency, they can also use their know-how to improve products or services and to innovate in other ways. Lastly, recognizing the full power of knowledge sharing, rms can make the investments in trust and collaborative skills necessary to form communities across and within complementary markets that are capable of creating economic wealth from both planned and unplanned innovation on a nearly continuous basis. Clearly, each of these research perspectives builds on and expands the conceptual reach of its predecessor, allowing the design

of strategies, structures, and processes of ever-increasing scope and capability. In retrospect, the evolution of our research perspective on supply chains seems obvious. The challenge, however, is to view research prospectively rather than retrospectively. Thus, the more rapidly and effectively scholars can anticipate the next stage of development in supply chains, the greater will be the benet both to the global economy and to our understanding of organizations and how they are managed. References
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