Information and Knowledge Leakage in Supply Chain
Abstract:
The current world of post industrial value generation sees companies increasingly analyzing their
internal operations against their external organizations to identify supply/demand fluctuations
along the supply chain. Within these integrated relationships between internal and external
parties in the supply chain, knowledge and information have become very important production
resources. The existence and success of an increasing number of organizations strongly depend
on their capabilities to utilize knowledge and information for profit generation. By managing
more efficient information sharing, the volume of company confidential information passing
through the supply chain increases, and this brings about more incidences of knowledge leakage
and information leakage. A survey by PricewaterhouseCoopers in 2014 shows information
security spending over the next 12 months would increase 60.27 percent in Asia and 48.98
percent in all regions. This emphasizes the importance of information privacy and therefore the
necessity to study the information and knowledge leakage in integrated supply chain. The
objectives of this study are to investigate the factors triggering information and knowledge
leakage and create a mitigation framework to soften the impact of leakages on performance. The
above objectives will be met by formulating and examining several hypotheses of a
conceptualized information leakage (IL) and knowledge leakage (KL) framework. A case study
derived from a structured interview is adopted as a methodology in this research. As a result, this
paper contributes a novel theoretical model that characterizes information and knowledge
leakage in an integrated supply chain. Therefore, it also adds new knowledge of managing
information and knowledge leakage to supply chain management.
Keywords supply chain management, information, knowledge leakage.
Paper type Case Study
1. Introduction
Businesses in the past decade have been experiencing rapid globalization due to extensive
global sourcing, outsourcing and business diversification, and such revolutionary development
have intensified supply and demand uncertainties which directly raise business operating costs.
Shorter product life cycles and escalated customers’ expectation adds complexity to the business
environment (Arushanyan et al., 2014). In many cases, the ability of businesses to survive such
upheavals depends on an efficient material and information flowing from upstream to
downstream of the supply chain in the rapid exchange of crucial information. Without an
efficient supply chain management, organisations could be marginalised by dominant market
players. Therefore, many companies have placed great emphasis to enhance the integration and
collaborative efforts with different supply chain counterparts to increase visibility across their
businesses.
In overcoming emerging problems from the changing business structures, several supply
chain strategies have evolved. These range from improved information and knowledge sharing
network (Bian et al., 2014; Sicari et al., 2014; Barkataki and Zeineddine, 2013; Gao et al., 2013;
Tse et al., 2011) through strategic supply chain integration practices (Frohlich and Westbrook
2001; Zhao et al., 2008; Flynn et al., 2010) to the extended enterprise (Owen et al., 2008;
Spekman and Davis, 2004). In adopting these collaborative strategies to support businesses,
companies might however become exposed to greater supply chain risks. With more efficient
information and knowledge sharing among firms, the volume of company confidential
information passing through supply chains increases which would bring about greater incidences
of knowledge leakage. In addition, Anand & Goyal (2009) discovered that the necessity to
exchange proprietary information with others compromises the organizations’ ability to contain
information.
Information leakage is defined as data that is leaked intentionally or unintentionally to an
unauthorized party (CWE, 2008). Leakages of confidential information from organizations are
frequent fodder for the media. Negative media coverage can hurt the reputation and financial
performance of businesses. Putting the unavoidable published news aside, the reality is, many
organizations have unwittingly leaked confidential information. Similarly, these information and
knowledge leakages are causing firms to lose competitive advantage in their respective fields.
For businesses that thrive through inter-firms information and knowledge flows, their lack of
awareness and skills in handling information and knowledge leakages, or even the inability to
identify the causes of the problem is downright distressing.
Information leakage in real world occurs in a variety of situations. Some companies are
highly dependent on a specific group of knowledgeable workers to achieve company objectives.
Organizations doing research and development (R&D) and those in software development are
particularly dependent on these talented people for breakthrough inventions. The movement of
this niche group of experts from one company to another potentially causes knowledge leakage.
These employee migrations could severely disrupt business daily operations if no substitutions
are available (Mohamed et al., 2006). The use of temporary and contract workers also increases
the possibility of unintentional knowledge transfer to third parties and makes them attractive in
the market. Businesses could gain superior competitive advantages with the critical knowledge
leaked from their service providers. Literature is filled with the importance of information and
knowledge sharing in integrated supply chains in their effort to cope with globalization. Most
researchers have reported on the positive impact of information (Lee, 2004; Ryu et al., 2007;
Flynn et al., 2010) and knowledge sharing (Easter-Smith et al., 2008; Yang, 2011). Frohlich and
Westbrook (2001), for instance, conducted an excellent study on the effect of different arcs
(degree) of integration on firms’ performance and Flynn et al. (2010) acknowledge that strategic
integration measures and inter-firms interactions could boost the firms’ operational and business
performances.
However, when integration measures are not implemented appropriately, information and
knowledge leakage could occur in the supply chain (Li, 2002; Zhao et al., 2002; Dye & Sridhar,
2003; Anand & Goyal, 2009) with recipient firms benefitting from such crucial information and
knowledge from business rivals. The objective of this paper is to conceptualise an information
and knowledge leakage theoretical model and formulate hypotheses relating supply chain
integration to information leakage (IL) and knowledge leakage (KL). These hypotheses will be
evaluated using evidence gathered from the multiple interviews described in the later part of this
paper. This paper will also investigate the factors triggering IL and KL and suggest mitigation
measures to soften the impact of leakages on performance. The findings from this paper are
particularly beneficial to the area of information management (IM) and knowledge management
(KM) in the supply chain management (SCM) field.
This paper will proceed in the following manner. The next section reviews the literature
of the variables in this study followed by the development of hypotheses. The third section
presents the methodology; the fourth section presents the data analysis. The discussion section is
presented in the fifth section and the final section presents the conclusions.
2. Literature Review
In this section, we discuss the literature for information and knowledge leakage (IKL), followed
by the development of hypotheses for testing in this research.
IKL can occur intentionally or unintentionally according to past research (Frishammar et al.,
2015; Ahmad et al., 2014; Nouh et al., 2014; Creese et al., 2015; Hernandez et al., 2014). In
unintentional leakages, proprietary information and knowledge are accidentally or forcibly
transferred to any unauthorized parties either through verbal or written communications. Under
such circumstances, the companies might not notice the leakages and hence, are ignorant of the
impact that IKL exerts on their daily operations. On the other hand, IKL could happen
intentionally for specific purposes. The impact caused by intentional leakages could surface and
be detected, and then counteracted. The different types of factors that cause IKL are discussed in
the following subsections.
2.1 Intentional Leakage
Organizational Incentives
Organizations tend to leak crucial and confidential information to external parties to gain certain
organizational incentives. Such incentives include monetary benefits, technology acquisition,
reputational gains, exploitation of better competitive advantage and securing higher trade
volume.
Zhao et al. (2002) revealed that distorted vertical information sharing has a positive effect on the
manufacturers’ profit but retailers would suffer negative outcomes from it. The manufacturer in
this case might have disclosed information to gain further benefits. Research has also suggested
that information leakage arises from an unbalanced information sharing. In Li et al. (2002), their
model shows such incidents might deter retailers from sharing crucial information with the
manufacturers unless both parties provide assurances the shared information will be strictly
confined to contracted purposes.
The reference (Dye and Sridhar; 2003) found that when a firm seeks external sources (e.g.
consultants and bankers) in making a strategic decision, chances are the information related to
the decision could be leaked to competitors. Such situations would diminish the significance of
the project as competitors could utilize such information to reconfigure their strategies to
compete with covert advantages in the market. In the context of customers who are aware of the
firm’s future plans, they might decrease their current orders in anticipation of better features in
new product launches.
Anand and Goyal (2009) introduced the terms ‘information dissemination game’ (IDG) and
‘information acquisition game’ (IAG) where suppliers would leak market information obtained
from existing to new customers. They developed a model whereby a common supplier and two
downstream competitors are included to test the effect of organizational incentive on information
leakage. In IAG, when the experienced firm places an order with the supplier, there is a
possibility where the information acquired by the supplier might be leaked to the new entrant.
This information allows the new entrant to justify its order quantity placed with the supplier for
the latter to gain greater benefits. On the other hand, only the experienced firm has access to the
actual demand information in the IDG. This situation has allowed the researchers to study the
consequences of information leakage and derived incentives when the experienced firm transfer
information to the supplier who leaks the acquired information to the new entrant (Anand and
Goyal, 2009).
Furthermore, two studies (Lee, 2002; Zhao et al., 2002) have developed models on information
leakage in vertical information exchange in a supply chain. They emphasized that vertical
information sharing – that is a few downstream firms in the supply chain sharing information
with a common upstream member - with the existence of horizontal competition could trigger
information leakage to benefit the upstream organizations. After obtaining the demand
information, the common upstream supplier would “pass” it to its downstream members to gain
higher sales volume (Lee, 2002).
