Integration Breach : Investigating the Effect of Internal and External Information Sharing and Coordination on Firm Profit

The net benefit effects of information integration on organizational performance have rarely been challenged in the literature. While some empirical studies have provided support for the positive effects of information integration, very few have suggested that firms may be "worse off' as a result of it. In line with the latter view, this study considers that information integration could have either positive or negative impacts depending on the congruence or lack thereof of the objectives between the entities involved in information integration. To investigate this view, this study examines the effect of different types of information integrations on firm performance under supply and demand uncertainty. We consider a supply chain composed of two stages where a supplier provides a retailer with a single product under a periodic review multi-period framework. Internal Information Integration is reflected in joint dynamic pricing and ordering strategies by the retailer's logistics and marketing units, with the objective of maximizing the expected profit under a customer service level target. External Information Integration is reflected in the supplier sharing his supply variation with the retailer, and in the retailer sharing his customer level target with the supplier. The study's findings show that Full integration (i.e., centralized decision making) results in optimal firm profitability, inventory policy and customer service level when both the supplier and the retailer have shared objectives. In contrast, when the supplier and the retailer focus on maximizing their own performance, an "Arm's length relationship"-i.e., No integration-becomes a better alternative than Full integration, thus indicating that high integration levels are not always beneficial to the firm.