The impact of IT on organizations and markets & IT Fashions

Question 1

Does IT encourage centralization or decentralization?

Answer 1

o Depending on the specific IT, it can do it either
o Centralization -> when IT improves the quality and speed of the upper management decision making process
-> minimizes the sum of agency and decision information cost
o Decentralization -> when IT improves monitoring & performance measurement (reduces agency costs)
o Can also lead to a hybrid structure where some decisions are centralized while others are decentralized -> depends on firm structure & industry

Question 2

How does IT affect firm size? Horizontal firm size? Vertical firm size?

Answer 2

o IT has a direct impact on firm size by changing the underlying cost structure of a firm
o Horizontal size/growth -> when cost-effective IT reduces external transaction cost
-> reduces market transaction cost
o Vertical size/growth -> especially in information-heavy industries
-> IT lowers the price of synergistic activities along the value chain
o Megafirms – experience both vertical & horizontal growth by reducing internal coordination costs through cost-effective IT (e.g. GM & IBM)
-Economies of scale & reducing market transaction costs

Question 3

What is Agency Cost?

Answer 3

• Agency costs – one part of internal coordination costs:
  the costs incurred as the result of discrepancies between the objectives of principal & agent ->arise due to separation of ownership and management
  a) Monitoring cost (principal)
  b) Bonding cost (agent)
  c) Residual loss
  -Decision information costs second part of internal coordination costs:
  a) information processing cost
  -documentation
  -communication
  b) opportunity cost due to poor information

Question 4

What is the Transaction cost theory

Answer 4

view the firm as a way of bypassing the market system, since within the firm production is coordinated by the central authority ->saves/economizes on such market transaction costs
-Transaction costs/external coordination costs – coordination costs when dealing with an outside market
a) Operational
-Search costs
-Transportation cost
-Inventory holding cost
-Communications cost
b) Contractual
-Cost of writing & enforcing contracts
-vertical integration can be used to save on market transaction costs

Question 5

Discuss how innovations spread across a population of potential adopters

Answer 5

o Old view -> Similar to the spread of an infectious disease (S-shaped curve)
o New view -> multiple waves

Question 6

Introduce the IT innovation wave complex and its stages

Answer 6

1) Breaking the surface – disruptive innovation
2) Sending out ripples – convince the market/tech assessment firm (Gartner)
3) Causing the squawk – attract the attention of the community
4) building the swell – getting businesses to commit to the technology (money & time) ->mass adoption has bandwagon effects -> positive feedback loops
5) riding the crest – exploit network advantages ->cannot be sustained indefinitely

Question 7

Discuss the role that technology assessment firms play in the diffusion of technologies

Answer 7

o Wave-machine
o mainly in the 2nd stage ->organizing vision
o try to predict the course of the innovation
o specialists try to capitalize with their expertise/consultancy

Question 8

How should managers cope with the IT wave phenomenon?

Answer 8

o Utilise tools like the Gartner Hype cycle
o Be mindful of the hype & deliberate ->type of risk & use

Question 9

What are the Stages of the Gartner Hype Cycle?

Answer 9

Innovation Trigger
Peak of Inflated Expectations
Trough of Disilusionment
Slope of Enlightenment
Plateau of Productivity