The strategic role of IT Flashcards
Diminishing Perspectives of CEOs on strategic importance of IT (2)
- The rationale for the strategic importance of IT was built largely on the Resource-Based View of the Firm (RBV) —> Competing firms possess heterogeneous sets of resources, which are valuable and rare are a potential source of competitive advantage. Differences in the sets of resources and capabilities each firm possesses may be long-lasting.
- Competitive advantage may be shot lived: massive investment (in IT, electric generators, or railroads) increases capacity, decreases prices, and leads to the commoditisation of the resource. —> advantage is only present is a first stage of adoption, afterwords to becomes standard.
CEO Perspectives of it business value
- By the late 1990s, positive effects from IT investment were identified and it was acknowledged that IT investments did indeed benefit organisation
- Strategic leadership theory posits that the specific knowledge, experience, values, and preferences of top managers affect their assessment of competitive situations, their decision- making, and thereby have an impact on organisational outcomes —> top leaders play a role in setting a firm’s course of action
CEO Perspectives of it business value: study results
- Evidence that although CEOs’ perceptions of IT are increasing, the association of IT perception with firm performance is decreasing, an evidence of IT commoditisation.
—> Possible explanations is: Increasing prominence of IT as a theme in these CEOs’ letters is the existence of the technology boom of the late 1990s in multiple industries. - Despite CEOs’ increasing emphasis on IT, IT’s association with firm performance is decreasing.
—> possible explanation: as competition in the industry is increasing and many CEOs are paying attention to IT, the strategic value of IT has been declining + Even though two firms adopt the same technology, its effects can be different because of variation in IT management capabilities and IT governance - New systems and redevelopments that require intensive investment have a higher association with firm performance than continuous use systems and enhancements of existing systems.
CEO Perspectives of it business value: study implications
- As markets become more competitive, IT management capabilities and strategic use become more important
- CEOs’ perceptions of IT are a necessary but not sufficient condition for improved firm performance —> CEOs need elaborate, contextually appropriate strategies for IT and management.
- Important to educate their CEOs about the strategic importance and financial benefits of IT as IT is becoming a less prominent component of corporate strategy compared to the past
Reasons why none of the Bharadwaj and Santhanam and Hartono hypothesis were supported:
- The role and value of IT has changed over the period of time, making IT a weaker predictor for business performance —> after the 1990s the decreasing cost of computing, made IT more readily available and homogenous. Thus, having superior IT capability may no longer directly translate into superior business performance.
- The method of selecting firms with superior IT capability used in the studies (IW 500) is flawed —> since the first publication of the IW 500 list in 1989, the selection criteria for inclusion in the IW 500 have constantly changed
Why the study of Bharadwaj and Santhanam and Hartono on IT capability and firm performance?
- 1990s —> in the 90s proprietary information systems prevailed1
- 2000s are characterised by more standardised and homogeneous information systems
because of the rapid adoption of ERP and web technologies + easy access to outsourcing, particularly offshore outsourcing, allows firms to significantly reduce IS development time and cost, making advanced IT capabilities more affordable to less IT savvy firms
—> IT becomes more homogeneous and ubiquitous, which made it easier for companies to imitate and even exceed their competitors’ IT capabilities. IT no longer offers any competitive advantage and has become an operational commodity or even a competitive necessity
Winner take all theory
contemporary trend toward concentrated wealth to very few winners and explains the phenomenon partly by the modern structure of markets and technology —> human beings are inherently social, and broad, fast communication causes customer tastes and buying habits to converge. Thus, many businesses will become winners and will have advantages in taking market shares from competitors. If so, most industries will witness increasing industry concentrations or, in the economic sense, a less competitive structure.
Results on the study: examine the relationship between internet use and changes in industry competition between 1997 (year introduction of Internet) and 2010
- The associations of Internet use with the changes in HHI and industry profitability are
positive—that is, the more an industry uses the Internet, the more concentrated and
profitable the industry becomes, or the less competitive the industry is. - The associations of Internet use with the new entry ratio and ratio of firm number change are negative—that is, the more an industry uses the Internet, the less new entry and number of firms the industry has, or the less competitive the industry is.
==> high level of Internet use is associated with reduced industry competition (this effect s more important for wholesale and manufacturing sectors than for the retail and services sectors)
Why? Internet is a channel of high fixed costs and low marginal costs —> Larger companies often have more resources and are in a better position than smaller companies to use the Internet in business, and the network externality effects amplify the competitive advantages of larger firms on the Internet.
= The results contradict the popular view on the Internet’s effect on competition and call for additional discussion and the re-evaluation of firms’ competitive strategy in the Internet age.
