Supply Chain Disruptions and Business Continuity: An Empirical Assessment

Abstract

Are business continuity programs (BCPs) useful in improving company performance? Risk management research suggests that BCPs are important in response and recovery from disruptions. However, critics suggest that BCPs rely too much on known risks and are overly complicated. This creates a decision dilemma regarding whether to invest in BCPs or not. Using two empirical studies, this manuscript offers theoretical and empirical evidence as to whether BCPs help limit the damage caused by supply chain disruptions and improve company financial performance. Using structural contingency and organizational information processing theories, the study develops hypotheses on how BCPs channel resources to recover from supply chain disruptions, contingent on a company's flexible or procedural response orientation. In Study‐1, the hypotheses are tested based on a combination of subjective (Likert‐based responses) and objective (historical financial performance) data gathered and matched from a cross‐section of Italian companies. Results suggest that BCPs are beneficial to companies with a procedural or flexible orientation in limiting the damage caused by supply chain disruptions. Companies with strong BCPs show better financial performance in comparison to their competition. In Study‐2, a vignette‐based factorial experiment is used to offer insight on how managers perceive the effect of flexible or procedural response orientation on limiting the operational damage of disruptions. Finally, post‐hoc analyses using fuzzy set qualitative comparative analysis (fsQCA) offers further evidence of a strong link between BCPs and financial performance (return on assets).