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Assessing the value of information technology (IT) has never been easy. Delayed benefits, unintended uses, business changes, and hidden support costs inhibit meaningful evaluation of individual IT investments. This was true when most investments were focused on the support of a single business process or functional area. It is even more true as business executives ponder implementations of shared technologies like data warehouses and networks, replacement of large legacy systems, and reskilling of the IT staff. Although firms introduce some systems to reduce costs and can evaluate them in terms of their success in doing so, they want many IT initiatives to support a firm’s strategic objectives. The value of these initiatives rests in their contribution to a firm’s competitiveness, which is often nonquantifiable and uncertain.
How can firms apply IT to enhance competitiveness? We believe the answer lies in the development of an especially effective IT capability: the ability to control IT-related costs, deliver systems when needed, and effect business objectives through IT implementations. This capability derives from careful management of three key IT assets: (1) a highly competent IT human resource, (2) a reusable technology base, and (3) a strong partnering relationship between IT and business management. The results of a two-year study of IT management practices suggest that the quality of these assets dictates the quality of IT planning, delivery, and support processes.1 And the quality of those processes influences a firm’s ability to deploy IT to meet strategic objectives. In this paper, we describe the three IT assets and their characteristics and explain how the assets are converted into business value. We then offer strategies for building IT assets in a firm.
IT and Competitive Advantage
In the early 1980s, high-profile information systems like American Airlines’ SABRE system and American Hospital Supply’s ASAP system suggested that IT applications offered the potential for competitive advantage.2 Over time, however, it became clear that competing firms could eventually copy most IT applications and that the competitive advantage from any particular application would be short-lived.3 Nevertheless, firms like Wal-Mart and Federal Express have demonstrated that the capability to apply IT to business opportunities (as opposed to any specific IT application) can indeed enhance competitiveness.4 The resource-based view of a firm argues that firms compete on the basis of their unique resources.
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1. This study of IT management practices had three phases. Phase 1: In late 1992, we obtained nominations of respected firms from twenty-eight consultants, academics, and practitioners, and referred to the 1992 peer ratings of top IS organizations from Information Week, Datamation, and Computerworld. Combined, these sources yielded 259 nominations of 149 different firms. We contacted the 60 firms that received 2 or more nominations. Top IT executives at 50 of the 60 firms agreed to a half-hour telephone interview to describe their new management practices and the objectives of those practices. Phase 2: Between January and April 1993, we visited 12 of the original 50 firms. Six of those firms were aggressively building client-server applications and infrastructures, and 6 were implementing new team-based structures. This allowed us to observe implementations of both technical and organizational changes. We interviewed IT and business managers at each of these firms and then selected 7 of the most interesting firms for additional research. Phase 3: The 7 sites were divided among the researchers and visited 3 times over an 18-month period. We analyzed findings both within and across cases and validated our findings by sharing them with liaisons at case sites and with project sponsors.
2. For a history of the development of the SABRE system, see:
D.G. Copeland and J.L. McKenney, “Airline Reservation Systems: Lessons from History,” MIS Quarterly, volume 12, September 1988, pp. 353–370.
Background on American Hospital Supply’s ASAP system is included in: J.E. Short and N. Venkatraman, “Beyond Business Processs Redesign: Redefining Baxter’s Business Network,” Sloan Management Review, volume 34, Fall 1992, pp. 7–21.
For other examples of how IT applications were identified as a source of competitiveness, see:
B. Ives and G.P. Learmonth, “The Information System as a Competitive Weapon,” Communications of the ACM, volume 27, December 1984, pp. 1193–1201;
F.W. McFarlan, “Information Technology Changes the Way You Compete,” Harvard Business Review, volume 62, May–June 1984, pp. 98–103; and
J.I. Cash and B.R. Konsynski, “IS Redraws Competitive Boundaries,” Harvard Business Review, volume 63, March–April 1985, pp. 134–142.
3. M.R. Vitale, “The Growing Risks of Information Systems Success,” MIS Quarterly, volume 10, December 1986, pp. 327–334.
4. For a discussion of how a management capability provides competitive advantage, see:
I. Dierickx and K. Cool, “Asset Stock Accumulation and Sustainability of Competitive Advantage,” Management Science, volume 35, number 12, 1989, pp. 1504–1514.
5. For a discussion of the resource-based view of the firm, see:
D.J. Collis and C.A. Montgomery, “Competing on Resources: Strategy in the 1990s,” Harvard Business Review, volume 73, July–August 1995, pp. 118–129;
K.R. Conner, “A Historical Comparison of Resource-Based Theory and Five Schools of Thought within Industrial Organization Economics: Do We Have a New Theory of the Firm?,” Journal of Management, volume 17, number 1, 1991, pp. 121–154; and
J.B. Barney, “Firm Resources and Sustained Competitive Advantage,” Journal of Management, volume 17, number 1, 1991, pp. 99–120.
6. Literature on current management strategies often refers to information or IT requirements. For a discussion of the role of IT in BPR initiatives, see:
T.H. Davenport, Process Innovation: Reengineering Work through Information Technology (Boston: Harvard Business School Press, 1993).
For a discussion of IT and customer intimacy, see:
M. Treacy and F. Wiersema, The Discipline of Market Leaders (Reading, Massachusetts: Addison-Wesley, 1995).
Organizational learning is concerned with information and knowledge sharing. For one example, see:
P.M. Senge, The Fifth Discipline (New York: Doubleday, 1990).
For an introduction to the role of IT in organizational transformation, see:
L.M. Applegate, “Managing in an Information Age: Transforming the Organization for the 1990s,” in R. Baskerville et al., eds., Transforming Organizations with Information Technology (North Holland, New York: Proceedings of the IFIP 8.2 Working Conferences on Information Technology and New Emergent Forms of Organizations, Ann Arbor, Michigan, 11–13 August 1994), pp. 15–94.
7. J.W. Ross, “Schneider National, Inc.: Building Networks to Add Customer Value” (Cambridge, Massachusetts: MIT Sloan School of Management Center for Information Systems, working paper 285, 1995).
8. Effective empowerment requires the power to make decisions within the defined decision arena, information as to what customers need and how those needs are related to corporate objectives, and knowledge, particularly interpersonal skills to learn how to probe and analyze customer needs. For a fuller description of empowerment concepts, see:
D.E. Bowen and E.E. Lawler III, “Empowering Service Employees,” Sloan Management Review, volume 36, Summer 1995, pp. 73–84.
9. A variety of sources describe the role and value of IT standards. See, for example:
J.C. Henderson and N. Venkatraman, “Strategic Alignment: Leveraging Information Technology for Transforming Organizations,” IBM Systems Journal, volume 32, number 1, 1993, pp. 4–16;
R. Rada, “Standards: The Language for Success,” Communications of the ACM, volume 36, December 1993, pp. 17–18;
P. Weill, “The Role and Value of Information Technology Infrastructure: Some Empirical Observations,” in R.D. Banker et al., eds., Strategic Information Technology Management: Perspectives on Organizational Growth and Competitive Advantage (Harristown, Pennsylvania: Idea Group Publishing, 1993), pp. 547–572.
10. J.F. Rockart, “The Line Takes the Leadership — IS Management in a Wired Society,” Sloan Management Review, volume 29, Summer 1988, pp. 57–64.
11. J.C. Henderson, “Plugging into Strategic Partnerships: The Critical IS Connection,” Sloan Management Review, volume 31, Spring 1990, pp. 7–18.
12. M.J. Earl and D.F. Feeny, “Is Your CIO Adding Value?,” Sloan Management Review, volume 35, Spring 1994, pp. 11–20.
13. For a full description of the development of the workers’ compensation claims workstation, see:
J.W. Ross, “Travelers Insurance: Process Support through Distributed Technologies” (Cambridge, Massachusetts: MIT Sloan School of Management Center for Information Systems Research, working paper 282, 1995).
14. C.K. Prahalad and G. Hamel, “The Core Competence of the Corporation,” Harvard Business Review, volume 68, May–June 1990, pp. 79–91.
15. P.F. Drucker, “The Coming of the New Organization,” Harvard Business Review, volume 66, January–February 1988, pp. 45–53; and E.K. Clemons and M. Row, “McKesson Drug Company: A Case Study of Economost — A Strategic Information System,” Journal of Management Information Systems, volume 5, Summer 1988, pp. 36–50.