MIS Colloquium

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MIS Colloquium

• IT and Strategic Industry Transformations
• Dr. Joseph McGill
• December 1, 2004

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• Questions
• How does IT generate change within firms and
  industries?
• How do/can firms use IT for strategic advantage?

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Information

• Represents Objects
• Separated in space and time
• But so do catalogs, purchase requisitions, and
  salespeople!
• Why is information technology different?
• Marginal returns are often positive
• e.g., improved reach and richness

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Information

• Symbol vs. physical object
• Codify, separate, integrate, manipulate
• Information may also be the product (insurance,
  music, etc.)

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Information knowledge?
More valuable to the firm
KNOWLEDGE
Tacit Social
INFORMATION
DATA
More human interpretation, awareness, etc.
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Technology

• Not science - technology concerned with solving
  problems, not searching for principles.
• Path-dependent, has momentum
• Institutionally embedded (where's the last mile,
  and why can't I buy a new liver on the web any
  more?)
• Economics does not explain , e.g.,
• why would suppliers join the web to encourage
  price comparisons?
• Linus/OSSs?

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Peter Brimelow, The Silent Boom, Forbes, July
7, 1997
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(No Transcript)
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IT Genl Purpose Technology

• Applied progressively in a wide variety of
  arenas, and based on connectivity
• Historical examples of GPTs
• Steamships, railroads, cable telegraph drove
  networks scale and scope economies (Chandler,
  1990).
• Corliss steam engine - production independent of
  water power location independent
• Electrical motor - controllability, flexible
  location in production layout, etc..

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• Connection density increases the reach and flow
  of physical (and informational) goods!

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1 Minute Strategy Review

• Firms want capabilities that are rare, valuable,
  difficult to imitate, and for which there are no
  substitutes. (Microsoft? eBay?)
• Firms seek/manage environmental fit e.g.,
  competitive, legal, institutional.

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Its about fit
Adapted from J. Pennings, Wharton
THE INDUSTRY ENVIRONMENT Competitors Customers S
uppliers
THE FIRM Resources and Capabilities Struc
ture and Systems
STRATEGY
STRATEGY
The Firm-Strategy interface
The Strategy-Environment Interface
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Strategic Change

• IT "re-values" the capabilities needed by firms
  to achieve competitive advantage
• IT transforms structural relationships among
  customers, suppliers, and competitors

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Modularity

• Technologies and organizations are (usually)
  modular systems
• Modular (components) with fully-specified
  interfaces
• Don't need to know the total architecture
• individual components can change while the total
  system remains functional

Henderson Clark, 1990, Sanchez Mahoney, 1996
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Modularity and innovation
Redesign
Radical
Modular
Components
Incremental
Architectural
Refine
Stable
Changed
Component links
Adapted from Henderson Clark, 1990
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Organization structures

• More integrated org structures for
• exploitation
• efficiency
• faster (systemwide) learning
• But slower response to external change

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Organization structures

• More modular (loosely coupled) structures permit
• more exploration
• more experimentation
• slower diffusion of learning (e.g., Saturn at GM)
• faster response to change (component can respond
  without affecting system)

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Firms use Modular Strategy when

• Multiple customer sets, multiple product sets
• Availability of standards
• High rate of technological change
• High level of competitive intensity
• (study of 330 industries 1992-97, Schilling
  Steensma, 2001)

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Being an incumbent can be an asset or a liability

• Modular competencies can become core rigidities -
  information is filtered
• Amazon, Dell required web entry
• When to leverage, when to disintermediate? Webvan
  vs. Tesco

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News Story by Todd R. Weiss JULY 16, 2001
(COMPUTERWORLD) - After trying unsuccessfully for
the past two years to make a business out of
selling groceries online, Webvan Group Inc. last
week closed its doors for good. The Foster City,
Calif.-based company announced that it's ending
all operations, laying off about 2,000 workers
and preparing to file for Chapter 11

• Webvan Tesco
• Both information enabled
• Differing views of the environment

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Adoption Leader strategy when

• the innovation's value is appropriable and
  protectable against imitation.
• owning/ controlling the standard is critical to
  competitive advantage.
• there are early mover advantages from learning,
  efficiency and stability

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Adoption Follower strategy when

• A firm can leverage existing infrastructure
• A firm can access complementary resources
• rate of adoption is uncertain
• Followers have more flexibility, but lose
  early-mover advantages

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Information changes markets

• Exchange f (transaction costs - search,
  selection costs)
• Entry costs are lowered (in virtual markets)
  ..many new entrants
• As info ?costs ?
• buyer power increases
• rivalry increases

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(No Transcript)
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Trust

• E-commerce (and technology in general) adoption
  requires Institutional mechanisms for trust
• examples - eBay feedback insurance, Verisign,
  legal (hunting the spammers and phishers)

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Sources of Value -1

• Efficiency
• buyer-seller (and seller-buyer!) information
  flows reduce search costs (e.g., Autobytel)
• Complementarities - bundling information (goods)
• vertically (e.g., aftermarket service)
• horizontally (e.g., cookbooks and food)
• Adapted from Amit Zott, 2001

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Sources of Value - 2

• Novelty -
• new combinations of information
• customer-ization improves reach and richness
  simultaneously
• Configurators, click streams, profiles, reverse
  markets Priceline, sticky web sites
• Examples- Amazon.com - increasing marginal
  returns

Adapted from Amit Zott, 2001
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Sources of Value - 3

• Lock-in
• Sunk investment in reputation
• Communities
• Network size (e.g., eBay)
• First mover advantage

Adapted from Amit Zott, 2001
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Supply Chains Restructured

• Virtual Integration Dell, Nortel, Cisco
• We are not experts in technology we buy, we are
  experts in virtual integration
• Dick Hunter, Dell VP, quoted in The Economist,
  Nov. 11, 2000
• Assets are liabilities!
• Outsource to the consumer Dell, GE, GM,
  everyone...

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Supply chains

• minimize system wide costs while satisfying
  service level requirements.

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Modular supply?

• Global contract manufacturing
• Solectron, Celestica, SCI, Flextronics
• Product design, inputs, final assembly managed by
  lead firms (e.g., Dell)
• Bilateral arrangements between partners, ERP
  rather than industry standard /public interface
• Future implication vertical re-aggregation of
  CMs through acquisitions?
• Market-based B2B has not fared well
• Auctions problematic why would suppliers join?
• Example Covisint.com (auto mfg)
• e2open.com (ICT)
• Private exchange consortia

Bahlia Rivardb (2004) Validating measures of
information technology outsourcing risk factors
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IT RD

• Example biotech
• Combine apps from chemistry, functional genomics,
  and bioinformatics to target and test new
  molecules
• Knowledge transfer via bridging devices for
  data, genomics, 3D molecular structures

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Communities of practice

• Small biotech research teams operating on shared
  information
• knowledge (know-how vs. know-what)
• Information intensity driving specialist firms
  that provide new tools

(GIFs Courtesy of proteinexplorer.org)
Salazar, Hackney, Howells (2003)
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The Questions were .

• How does IT generate change within firms and
  industries?
• How do firms use IT for strategic advantage?

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IT- enabled StrategicTransformation

• IT Organizational Modularity Architectural
  Potential
• Industries are transformed when IT
  organizations co-evolve new architectures
• Transformation is gated by transactional,
  institutional, and technological uncertainties.
• IT enabled strategy focuses on assessing and
  aligning environments and firm capabilities.
• Involves learning, timing, acquiring, divesting,
  influencing, restructuring, outsourcing,
  contracting, collaborating, and adapting.

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Final note

• Firms (not all) need IT competency
• IT adoption as epidemic, bandwagon? No
  sustainable competitive advantage
• Adoption should be co-specialized with
  organizational learning to be a capability
  (i.e., aid info acquisition, dissemination,
  shared interpretation, memory) (Tippins Soh,
  2003)

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Thank you for your attention

• QA