ABSTRACT Inter-organizational Relationship Portfolio Management: A Digital Enablement Perspective of Process Alignment and Process Innovativeness BY Xinlin Tang July 25, 2007 Committee Chair: Dr. Arun Rai Major Academic Unit: Center for Process Innovation Inter-organizational relationship (IR) has been considered a strategic asset that can help firms achieve both exploitation and exploration benefits. The capability to manage inter-organizational relationships, or a firm’s “relational capability” (Dyer and Singh 1998), is considered strategically crucial in order to compete in the contemporary business world. However, there are significant challenges that must be addressed to establish this capability. First, striking a balance between exploitation and exploration benefits (March 1991) through IR management is especially challenging due to the uniqueness embedded in each relationship (Lee 2004). Second, in order to serve a specific strategic purpose, firms usually need to maintain a relationship portfolio, or to be involved in multiple, simultaneous relationships that vary from arm’s length, transaction-based arrangements to close, collaborative partnerships (Cannon and Perreault 1999; Dyer et al. 1998). This has made IR relationship management even more difficult since relationship portfolios cannot be effectively managed by a “one-size-fits-all” strategy. Instead, different strategies and process capabilities need to be developed, based on the strategic segmentation of the relationships and the unique requirements of each relationship (Dyer et al. 1998). Though it has been suggested that process alignment capability is necessary to obtain exploitation benefits, and process innovativeness capability is needed for exploration benefits, these two processes have been considered to be contradictory (e.g., Adler and Goldoftas 1999; Teece et al. 1997). Firms are challenged to pursue these two types of process capabilities simultaneously, or to become ambidextrous organizations (Benner and Tushman 2003). Yet, in this context, how should firms operating in different environments manage the “process alignment - process innovativeness” paradox across their IR portfolios with dominant upstream and downstream partners to realize gains in competitive performance? In addition, how should they structure their business-to-business information technology assets to establish a digital platform that supports both process innovativeness and process alignment capabilities across their IR portfolio? We argue that B2B digital platform ambidexterity must be developed to support an organization that exhibits both process alignment and process innovativeness, i.e., an ambidextrous organization. B2B digital platform ambidexterity represents the digital platform’s capability to simultaneously integrate and reconfigure IT resources and assets to support the requirements of an IR portfolio. By combining the existing process alignment perspective of IT business value and real options theory, we propose that B2B digital platform ambidexterity can create value through two mechanisms: (i) by enabling process alignment across the IR portfolio to generate position exploitation benefits and (ii) by enabling process innovativeness for both offering flexibility and partnering flexibility to produce option exploration benefits. The proposed research model was tested based on data collected through a multi-industry survey. Data were collected for both supplier relationship portfolios and channel partner relationship portfolios at the level of the main product line. Measurement instruments were developed through standard procedures (Churchill 1979; Gerbing and Anderson 1988; Straub 1989). The questionnaires went through two-stage Q sorting, were reviewed by panels of academic professionals and practitioners for content validity, and were then pre-tested by procurement professionals and sales professionals prior to survey administration. After data collection, traditional procedures were applied for scale validation. Safeguards against common method bias were developed through the recommended procedural remedies (Podasakoff et al. 2003) during the research design process. Its effects were further investigated using the Harmon's one-factor test for common method variance after the data collection phase (Podasakoff and Organ 1986). Then, the hypotheses were tested and analyzed using Partial Least Squares and the implications for theory and practice were discussed. The manuscript concludes with directions to future research.