In the fast-paced world of modern business, technology plays a crucial role in shaping how companies operate. One area where this impact is particularly significant is in the organization of production chains—specifically the way goods are made and distributed.
A new study from the Cornell SC Johnson College of Business advances understanding of the U.S. production chain evolution amidst technological progress in information technology (IT), shedding light on the complex connections between business IT investments and organizational design.
Advances in IT have sparked significant changes in how companies design their production processes. In the paper “Production Chain Organization in the Digital Age: Information Technology Use and Vertical Integration in U.S. Manufacturing,” which published April 30 in Management Science, Chris Forman, the Peter and Stephanie Nolan Professor in the Dyson School of Applied Economics and Management, and his co-author delved into what these changes mean for businesses and consumers.
In running a manufacturing plant, a key decision is how much of the production process is handled in-house and how much is outsourced to other companies. This decision, known as vertical integration, can have big implications for a business. Advances in information and communication technology, such as those brought about by the internet, shifted the network of production flows for many firms.
Forman and Kristina McElheran, assistant professor of strategic management at University of Toronto, analyzed U.S. Census Bureau data of over 5,600 manufacturing plants to see how the production chains of businesses were affected by the internet revolution. Their use of census data allowed them to look inside the relationships among production units within and between companies and how transaction flows changed after companies invested in internet-enabled technology that facilitated coordination between them.
The production units of many of the companies in their study concurrently sold
