STRATEGY AND BUSINESS ECONOMICS


Production Chain Organization in the Digital Age: Information Technology Use and Vertical Integration in U.S. Manufacturing


CHRIS FORMAN


PETER AND STEPHANIE NOLAN PROFESSOR Charles H. Dyson School of Applied Economics and Management


Cornell SC Johnson College of Business Cornell University


Management Science, 71, 2, February 2025 LINK TO PAPER LINK TO CHRIS FORMAN VIDEO


Co-authors • Chris Forman


Peter and Stephanie Nolan Professor, Charles H. Dyson School


of Applied Economics and Management, Cornell SC Johnson College of Business, Cornell University


• Kristina McElheran, University of Toronto Scarborough, Ontario Canada


Summary Tis is the first study to leverage a plural governance framework and large-


scale microdata to understand how U.S. production chain organization shifted in response to this rapid and far-reaching technological change. Advances in information technology (IT) may affect the organizational design of pro- duction. Exploiting the rapid diffusion of the internet in the United States, the authors assess the sensitivity of production chain organization to this innovation in IT access and use. Extending theories of the firm that recognize the importance of downstream transfers (selling as opposed to sourcing) and plural governance in organizational design, they predict IT-driven shifts in downstream vertical integration.


In a detailed panel of Census Bureau data for over 5,600 manufacturing plants, the authors observe the extent of a production unit’s downstream transactions within the firm alongside concurrent sales to external customers—a mix they refer to as plural selling. Te main finding is that the use of the internet for external coordination precipitated a significant decline in downstream vertical integration across the manufacturing sector. Instrumental variables estima- tion points to a causal relationship but also heterogeneous treatment effects. Key drivers of plural organization, such as complementarities and constraints across differently governed transactions, help explain such heterogeneity, as does concurrent use of internal production management IT.


CONTENTS TO MAIN


| RESEARCH WITH IMPACT: CORNELL SC JOHNSON COLLEGE OF BUSINESS • 2025 EDITION


56


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68  |  Page 69  |  Page 70  |  Page 71  |  Page 72  |  Page 73  |  Page 74  |  Page 75  |  Page 76  |  Page 77  |  Page 78  |  Page 79  |  Page 80  |  Page 81  |  Page 82  |  Page 83  |  Page 84  |  Page 85  |  Page 86  |  Page 87  |  Page 88  |  Page 89  |  Page 90  |  Page 91  |  Page 92  |  Page 93  |  Page 94  |  Page 95  |  Page 96  |  Page 97  |  Page 98  |  Page 99  |  Page 100