The effects of internal versus external integration practices on time‐based performance and overall firm performance

Abstract

Abstract This paper examines the effects of integration practices on time‐based performance and on overall firm performance (financial and market share). Integration practices are grouped into two categories: (1) external strategic design integration, which reaches across firm boundaries to involve suppliers and customers and (2) internal design‐process integration, which comprises more tactically oriented, integration practices that match design requirements and process capabilities. First, regression results show that both internal and external integration are related to time‐based performance, which in turn is related to firm performance. Thus, two indirect routes to firm performance are identified. Second, hierarchical regression reveals that integration directly affects firm performance even after time‐based performance is accounted for. Finally, we found that the interaction of internal and external integration is significantly related to both market share and financial performance (after controlling for all other effects). This latter result suggests that the joint use of external and internal integration practices has a synergistic effect on firm performance.