Measuring the Financial Benefits of Cross‐Functional Integration Influences Management's Behavior

While many have suggested that cross-functional, cross-firm integration is beneficial, functional managers will have competing priorities and thus different perceptions of its benefits. Performance measurements tend to reward functional behaviors and are often in conflict across functions. Since senior management is held responsible for financial results, the benefits of cross-functional integration should be measured in financial terms. The supply chain management literature provides little insight about the behavioral changes that can result when managers are provided with financial measures of the value created with customers and suppliers. Using a case study approach, the authors measured value in perceptual and financial terms using pairs of buyer–supplier relationships. In each pair of relationships, one involved cross-functional teams and the other did not. Managers perceived that the relationships with cross-functional involvement were more profitable. However, it was not until managers received financial measures showing the impact of joint initiatives on the profitability of each pair of relationships that their behaviors changed with regard to the implementation of cross-functional relationships with key customers and suppliers. We developed a conceptual model comprised of five theoretical propositions that characterize the role of financial measurements as an enabler of cross-functional integration and value co-creation.