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MIS Colloquium

MIS Colloquium. IT and Strategic Industry Transformations Dr. Joseph McGill December 1, 2004. Questions How does IT generate change within firms and industries? How do/can firms use IT for strategic advantage?. Information. Represents Objects Separated in space and time

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MIS Colloquium

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

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

  3. 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

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

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

  6. 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?

  7. Peter Brimelow, “The Silent Boom,” Forbes, July 7, 1997

  8. IT = Gen’l 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..

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

  10. 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.

  11. Its about fit Adapted from J. Pennings, Wharton THE INDUSTRY ENVIRONMENT Competitors Customers Suppliers THE FIRM Resources and Capabilities Structure and Systems STRATEGY STRATEGY The Firm-Strategy interface The Strategy-Environment Interface

  12. Strategic Change • IT"re-values" the capabilities needed by firms to achieve competitive advantage • ITtransforms structural relationships among customers, suppliers, and competitors

  13. 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

  14. Modularity and innovation Redesign Modular Radical Components Incremental Architectural Refine Stable Changed Component links Adapted from Henderson & Clark, 1990

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

  16. 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)

  17. 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)

  18. Being an incumbent can be an assetor 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

  19. News Story by Todd R. WeissJULY 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

  20. 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

  21. 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

  22. 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

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

  24. 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

  25. 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

  26. Sources of Value - 3 • Lock-in • Sunk investment in reputation • Communities • Network size (e.g., eBay) • First mover advantage Adapted from Amit & Zott, 2001

  27. 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...

  28. Supply chains • … minimize system wide costs while satisfying service level requirements.”

  29. 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-basedB2B 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

  30. IT & R&D 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

  31. 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)

  32. The Questions were …. • How does IT generate change within firms and industries? • How do firms use IT for strategic advantage?

  33. 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.

  34. Final note • Firms (not all) need ITcompetency • 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)

  35. Thank you for your attention • Q&A

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