Weekly Briefs
Week 6 – Benaroch and Chernobai 2017 – Joe
Benaroch, Michael and Chernobai, Anna. 2017. “Operational IT Failures, IT Value Destruction, and Board-Level IT Governance Changes,” MIS Quarterly, (41: 3) pp.729-762.
The literature on operational IT failures is sparse and focused on their value relevance to the firm. This work is among those that touch upon an important gap in the literature: the connection between operational IT failures and board-level IT governance. The goal of this work is to address two questions: 1) whether the negative impact of operational IT failures on firms’ market value a predictor of post-failure changes in the level of board IT competency, and 2) what are the specific determinants of board IT competency associated with these changes.
With a concept-intensive but well-organized literature review and hypothesis development, the authors narrow down the research scope to empirically examine effects of the market value drop around recent operational IT failures on the change in the board IT competency level, specifically, a) increase in the ratio of independent directors with IT experience; (b) increase in the ratio of executive directors with IT experience; (c) turnover of a CIO serving on the board; and, (d) establishment of board IT committees. Utilizing data of 110 operational IT failures from U.S. public financial firms from Financial Institutions Risk Scenario Trends (FIRST), the results demonstrate that subsequent to experiencing operational IT failures, firms make improvements to the IT competency level of their boards, and the improvements are proportional to the degree of negative market reaction. However, those improvements are only on the executive side of the board, namely: an increase in the IT experience of internal (executive) directors and an increased turnover rate of CIOs serving on the board. Furthermore, the likelihood of CIO turnover is lower in IT-intensive firms where such turnover could be more disruptive.
This work not only contributes to IT government literature by exploring the critical connection between operational IT failures and board-level ITG, but also offer the industry with grounded managerial operation guidance.
Week 6 Reading Summary (HK)
Banker, R.D., Hu, N., Pavlou, P.A., & Luftman, J. (2011). CIO Reporting Structure, Strategic Positioning and Firm Performance. MIS Quarterly, 35(2), 487-504.
Since the emergence of the CIO position, academics and practitioners have struggled to identify the ideal CIO reporting structure. Banker, Hu, Pavlou, and Luftman (2011) provide insight by considering the alignment of a firm’s CIO reporting structure and its strategic position. Industry information has shown that the majority of CIOs report to the CEO or CFO and thus Banker et al. (2011) used a dichotomous operationalization of CIO reporting structure. Following Porter’s (1980, 1996) theory, Banker et al. (2011) considered two generic strategies: differentiation and cost leadership. Differentiation is pursued when firms focus on providing products/services that are superior in terms of designs, innovation, development, engineering, customer intimacy, and/or brand image. Conversely, a cost leadership strategy is perused by achieving economies of scale, cost efficiencies, and operational excellence. It is important to note that these generic strategies are not mutually exclusive; firms attempt to effectively balance both while pursing one main strategy. To operationalize, Banker et al. (2011) used an external assessment, specifically profit margin for differentiation and asset turnover for cost leadership, contrary to typical self-assessment methods. Finally, various control variables including IT intensity, IT orientation, industry technology level, industry concentration, and CIO tenure were employed.
Banker et al. (2011) used 200 firms from 1990-1993, as well as 58 firms from 2006 as a robustness check, to investigate their hypotheses considering the alignment of CIO reporting structure and strategic positioning. Results indicated that strategic positioning influences reporting structure; differentiators favour CIO-CEO, while cost leaders favour CIO-CFO. Alignment of CIO reporting structure and strategic positioning positively affects firm performance (operationalized as abnormal stock returns and future cash flows from operations). Finally, the results highlight the fact that there is not a universal CIO reporting structure, but rather, the ideal structure is dependent on the strategic positioning of the firm.
Week 5 – Ramasubbu and Kemerer 2016 – Joe
Narayan Ramasubbu, Chris F. Kemerer (2016) Technical Debt and the Reliability of Enterprise Software Systems: A Competing Risks Analysis. Management Science 62(5):1487-1510.
People know that software reliability is crucial for business, especially enterprise software systems, such as ERP, Server OS. In daily practices, however, developing and patching a software to keep reliable is costly due to the interdependencies and potential for conflict between the underlying, vendor-supplied platform and the customizations done by individual clients. Some engineers then take shortcuts to avoid huge working load. Then the reliability of systems shrinks since the shortcuts to rapidly deliver the functionality demanded by business trade off the potential longer-term benefits of appropriate software design investments. These designs are called technical debt.
Few study focused on the empirical explore technical debt since the Interdependencies, by nature, make it difficult to measure and assess the impact of technical debt on system reliability. The author proposed a classification of systems failures-client errors and vender errors-to overcome the measurement difficulty. Analyzing a longitudinal data set spanning the 10-year life cycle of a COTS-based enterprise software system deployed at 48 different client firms with a survey analysis, the authors find that 1) technical debt decreases the reliability of enterprise systems and 2) modular maintenance was approximately 53% more effective than architectural maintenance in reducing the probability of a system failure due to client errors and 3) it had the side effect of increasing the chance of a system failure due to vendor errors by approximately 83% more than did architectural maintenance activities.
The authors showed that how firms could evaluate their business risk exposure due to technical debt accumulation in their enterprise systems, and assessed the estimated net effects, both positive and negative, of a range of software maintenance practices.
Week 5 summary Ramsubu et al 2015 — Siddharth Bhattacharya
The paper investigates software process diversity and what are its antecedents.It further links software process diversity and organizational process compliance to software project performance.To this end,the paper next defines key process area(KPA) in any project and the various dimensions (separation,variety,disparity) of KPAs implemented in any project.To get relevant measures of the constructs the authors use an innovative discovery based research approach where they dig deep into literature first and then see its relevance to actual practice to construct various measures (examples include code size,degree of customer involvement etc).The data comes from a leading multinational software company which was renowned in process innovation.Focus groups,meetings and individual interviews were carried out to find out variations such as plan versus process based process design.Next the paper goes on to develop 5 hypotheses connecting software process diversity,organizational compliance and fit between process diversity and process compliance to project performance.The DV for the analysis project performance consists of two variables:software productivity and quality.The model is divided into 2 parts:the first one measures the impact of antecedents on process diversity and findings lead credence to the hypotheses that requirements volatility,design novelty and customer involvement all had a positive and significant effect on process diversity.From the second analysis the authors conclude that indeed better fit between process diversity and process compliance efforts yielded higher productivity and quality respectively.On the other hand control variables show that requirement volatility,software code and large team size have a negative effect on performance.Similarly,too much customer customer involvement also leads to a negative effect.The paper does a bunch of robustness checks to confirm the results.Thus the paper draws on prior work on organizational and demographic diversity and extends the literature by looking at software diversity from lens of variety and disparity dimensions.It extends the argument on planning versus agility and informs the literature to look beyond these.Implementable guidelines for practitioners are also highlighted.
Paper Summary-Week 5 Jack Tong
Paper: Langer, N., Slaughter, S.A. and Mukhopadhyay, T., 2014. Project managers’ practical intelligence and project performance in software offshore outsourcing: A field study. Information Systems Research, 25(2), pp.364-384.
Practice intelligence is the ability to resolve project related work problems that are unexpected and can not be resolved by established processes and frameworks. This study examines the role of project manager’s practical intelligence in the performance of software offshore outsourcing projects. The authors posit that project managers could apply practical intelligence to effectively address and resolve unexpected incidents, and therefore the level of practical intelligence positively affects project performance. The authors further theorize that project complexity and familiarity contribute to its information constraints and the likelihood of critical incidents in a project, thereby moderating the relationship between practical intelligence and project performance.
The authors explore the research question by analyzing a detailed longitudinal data that record project and personnel level activities on 530 projects completed by 209 project managers. The authors employ the critical incidents methodology to assess the practical intelligence of the project managers who led these projects. The authors consider several factors that influence task complexity and requires different level of practical intelligence such as Technological Complexity (Software size and schedule compression), Organization Complexity (team size and team dispersion), and Task familiarity. The findings indicate that project managers’ practical intelligence has a significant and positive impact on project performance (cost performance and client satisfaction). Further, projects with higher complexity or lower familiarity benefit even more from project managers’ practical intelligence.
Week 5 Reading Summary (HK)
Kang, K., Hahn, J., & De, P. (2017). Learning Effects of Domain, Technology, and Customer Knowledge in Information Systems Development: An Empirical Study. Information Systems Research, 28(4), 797-811.
Though there have been a myriad of developments and improvements to programming languages, development methods and tools, and formal training in information systems and technologies, information systems developments (ISDs) are still plagued by performance concerns including failing to adhere to schedules and timetables as well as budgets. Recent research has proposed and explored how capitalizing on learning (or experience) curves could improve ISDs through the theory of transfer of learning. Effectively, ISD projects are difficult due to their disparate tasks, teams, and complexity that vary across projects. To the extent that these projects capitalize on existing knowledge or experience amongst team members, they will be better able to meet performance deadlines and expectations. Using archival data outlining 497 ISD projects that included 2,393 unique employees at a prominent global IT services company from 2005 to 2007, Kang, Hahn, and De (2017) were able to explore how ISD project teams are able to learn and transfer knowledge from prior to new projects and under which conditions learning effects are stronger or weaker.
The theory behind Kang et al.’s (2017) study highlights how employees are able to accrue learning effects through repeated experience of identical elements across tasks (i.e., the environmental perspective). Results indicated that ISD project teams’ experience from prior projects benefits performance (operationalized as development effort and scheduled delay) on subsequent projects when there is an overlap in knowledge or experience. Moreover, ISD project teams can have domain (worked in the domain before), technology (worked with same technology), and customer experience (having dealt with the customers before). These three experience areas are substitutive and become either stronger or weaker depending on the projects’ team and task complexities. For example, the technology experiences a project team may have are less beneficial (i.e., becomes weaker) when the project has high technological complexity.
Week 5 Reading Summary – Kang et al. (2017) -Xi Wu
Kang, K., Hahn, J., & De, P. (2017). Learning Effects of Domain, Technology, and Customer Knowledge in Information Systems Development : An Empirical Study. Information Systems Research, 28(4), 797–811
Investigation of ISD performance by identifying the factors associated with its increase (or decrease) has recently been the focus of much attention in the information systems literature. Some literature proposes that ISD performance can be improved by taking advantage of learning curve (or experience curve) effects. This study examines how ISD project teams learn and under what conditions the learning effects are stronger or weaker. The authors conceptualize ISD as the application of various elements of domain, technology, and customer knowledge, and propose that the units of the same experience should be these knowledge elements.
The research questions are: (1) Do ISD project teams benefit from prior experiences in domain, technology, and customers in increasing project performance? (2) whether and how experiences in the three types of knowledge relate to one another. (3) How does ISD project complexity moderate the learning effects of these three types of experience?
From a dataset collected from a prominent global IT services company, this study finds that ISD project teams’ experience in prior projects translates into performance gains for the current ISD project when the prior and current projects share the same domain, technology, or customer knowledge elements. In addition, learning effects of domain, technology, and customer knowledge are substitutive for one another and that these learning effects become stronger or weaker depending on the extent of ISD projects’ team and task complexities.
The study makes significant contributions to the ISD literature on learning effects and the roles of domain, technology, customer knowledge, and project complexity, as well as to the general organizational learning literature. It also provides important managerial insights into practical concerns such as project staffing and knowledge acquisition for ISD organizations.
Week 5- Reading Summary- Leting Zhang
Project managers’ ability always affects the performance of software project directly, especially in the case of offshored software projects which spans locational and organizational boundaries, engendering greater information gaps and higher uncertainties, practical intelligence (PI) of PMs can be significantly helpful in solving difficulties and challenges.
The paper considers projects from an information processing perspective. Specifically, offshored software projects are prone to gaps between information processing needs and capabilities that pose severe management challenges, often lead to unexpected impediments to project success. In order to mitigate the negative effects of incomplete information, projects can use approaches like standard project management techniques, select appropriate PMs and team members.
Then the authors adopt the taxonomy of PI for IT professionals to that for PMs. They use four metrics to evaluate it, tasks, career, self, and others. Then, they consider that PM’PI may benefit projects differently based on the projects’ features. One of them is project complexity which consists of technological complexity and organizational complexity. A more complex project impose more severe information processing challenges, therefore requiring a higher PI for PM. Specifically, higher project complexity would increase the information needs of a project; In contrast, higher familiarity with the task and between stakeholders would increase the information capabilities in a project. Project complexity consists of technological complexity and organizational complexity.
The authors conduct a field study at a leading software outsourcing vendor in India. Then, they use the critical incidents approach to assess PM’S PI and collect data on more than 500 software outsourcing projects, those data including the complexity, familiarity, outcomes of each project and a series of control variables. OLS regression models are established to test hypotheses, results support most of the hypotheses.
This paper has several contributions. It demonstrates the project performance effects of PI and in the certain context of offshore outsourcing, it also conceptualizes and quantifying PM’s PI, and examine its efficacy in different contexts.It also has practical implications in choosing and training PM.
Competing in Crowded Markets: Multimarket Contact and the Nature of Competition in the Enterprise Systems Software Industry-Siddharth Bhattacharya
The ESS market has grown in size and consists of several horizontal markets around specific software components. Although individual ESS firms do not develop all the software components, each firm typically offers several of these components. ESS firms should benefit from competing in as many product markets and serving as many vertical industry segments as possible. Theories of multimarket contact suggest that ESS firms can engage in tacit collusion and mutual forbearance to reap performance benefits. Second, many of the markets where ESS firms operate are crowded with rivals. Crowded markets subject firms to high market domain overlaps with their industry rivals and adversely impact their performance. Thus the paper asks the following research questions: Should ESS firms compete in as many markets as possible? Second, are they better off by avoiding crowded markets?, Do they benefit by repeatedly facing rival firms in multiple markets. The data comes from an unbiased industry group(Reed Elsevier Inc.) that employed a consulting organization to collect revenue and other information for nearly a complete set of ESS firms through surveys every other year. Additional elements such as firm size and alliances are acquired from other independent sources including the Mergent Online company database, Security and Exchange Commission filings, Gale Group database, and One Source Business Browser. The empirical analysis consists of a time fixed effects, random-coefficients regression. Results show that once a firm sells a component it benefits by creating templates for different vertical industry segment. Higher multimarket contact leads to better firm performance. Externality benefits might indeed be diluted by heightened rivalry. Finally, results reveal that firms operating in crowded markets and experiencing high market overlap can enhance their performance through multimarket contact. Robustness checks are put in place to rule out endogeneity concerns and validating the use of the random effects model.
Week4 Paper Summary-Jack Tong
Paper: Ceccagnoli, Marco, Chris Forman, Peng Huang, and D. J. Wu. “Cocreation of Value in a Platform Ecosystem! The Case of Enterprise Software.” MIS quarterly (2012): 263-290.
This paper examines whether participating in an ecosystem platform improves the business performance of small independent software vendors(ISVs). By analyzing the partnering activities and performance indicators of a sample of 1,210 small ISVs with SAP over 12-year period (the data source: CorpTech database), the authors find that collaborating with an ecosystem platform is generally associated with an increase in sales and a greater likelihood of IPO. The effect is stronger for ISVs that have stronger downstream capabilities and greater intellectual property rights.
To evaluate the performance of ISVs, the authors measure two metrics: sales and the likelihood of IPO. They present robust empirical evidence showing that the decision to partner is, on average, associated with both an increase in sales and a greater likelihood of an IPO. To enhance identification of causal effects they adopt a variety of approaches, including the use of fixed effects panel data models with instrumental variables. The instruments are based on an ISV’s personal connections to SAP in the years prior to partnering, obtained from Linkedln, and the propensity of similar ISVs to partner with SAP
Week 4 Reading Summary – Chi et al.(2010) – Xi Wu
Chi et al. (2010). Information technology, network structure, and competitive action. Information Systems Research, 21(3), 543-570.
Researchers in competitive dynamics have demonstrated that firms that carry out intense, complex, and heterogeneous competitive actions exhibit better performance. However, there is a need to understand factors that enable firms to undertake competitive actions. This study focuses on the sparse-versus-dense network structure of inter-organizational networks and aim to theoretically and empirically investigate how these contrasting types of network structure interact with IT to influence firm competitive behavior. They argue that firms could benefit from both types of network structure, but the extent to which they exploit their network positions is contingent upon their use of IT.
This paper extends the AMC framework to the action repertoire level of analysis by examining how a firm’s network structure interacts with its use of IT system to jointly influence the firm’s competitive behavior through increasing the firm’s awareness of opportunities for developing new competitive actions and its capability and motivation to act on the opportunities.
They tested the hypotheses on a sample of firms from the global automobile industry, about 12 major automakers over 16 years from 1988 to 2003. They find that network structure rich in structural holes has a positive direct effect on firms’ ability to introduce a greater number and a wider range of competitive actions. However, the effect of dense network structure is contingent on firms’ IT-enabled capability. Firms benefit from dense network structure only when they develop a strong IT-enabled capability. Our results suggest that IT-enabled capability plays both a substitutive role, when firms do not have advantageous access to brokerage opportunities, and a complementary role, when firms are embedded in dense network structure, in the relationship between network structure and competitive actions.
Week 4- Reading Summary – Leting Zhang
Tanriverdi, H., & Uysal, V. B. (2011). Cross-business information technology integration and acquirer value creation in corporate mergers and acquisitions. Information Systems Research, 22(4), 703-720.
Mergers and acquisitions (M&A) are common and important economic activities across many sectors of the economy. However, the role information technology plays in the process is ambiguous. This paper tends to investigate why and how cross-business information technology integration(CBITI) capability of an acquirer increase value for shareholders in M&A.
The main theory lies in the cross-business organizational integration, which could create additional value over and above the sum of the two firms’ individual value. In the scenario, cross-business IT integration could coordinate the create-creation process. The paper specifies there are five CBITI, 1. integration of IT infrastructures; 2. integration of IT applications and data; 3. integration of IT human resource management practices; 4. integration of IT vendor management; 5. integration of IT strategy-making practices. Then it also explains four major causal mechanisms behind the value-creation: 1. generating IT cost savings; 2. minimizing potential disruptions to business operations; 3. enabling the realization of business synergies; 4. enabling regulatory compliance and reduce costs of compliance. The paper also points out that different complementary resources of different industries could offer significant synergy potential. Based on these theories, it proposes that the CBITI level of an acquirer positively affects the performance of the acquirer in a new acquisition, and it positively affects the abnormal stock returns of the acquirer, the industry relatedness of target moderate the relationship between CBITI level of an acquirer and performance of it in a new acquisition, both in the short run and long run.
It collects data from different sources including a survey and different databases. Then they use the event study methodology to measure forward-looking expectations of the capital markets about the impact CBITI has. The hypotheses are supported by the results. This study contributes to the M&A literature in IS, finance etc and has important implications for CIO.
Week 4 Reading Summary (HK)
Tafti, A., Mithas, S., Krishnan, M. S. (2013). The effect of information technology-enabled flexibility on formation and market value of alliances. Management Science, 59(1), 207-225.
By using a sample of 169 firms that spanned 50 industries, Tafti, Mithas, and Krishnan (2013) were able to investigate the effect of information technology (IT) architecture flexibility on strategic alliance formation and firm value. Three distinct dimensions of IT architecture flexibility, open communication standards, cross-functional transparency, and modularity, were considered. Open communication considers the adoption of an open standard across firms, such as Extensible Markup Language (XML), which allows more connectivity and information transferring between firms. Cross-functional transparency is defined as the skills and abilities that are widely deployable, visible, and accessible across different functions in a firm. Finally, when a firm is modular, it is able to decompose processes into atomic, fine-grained units of functionality which can then be combined easily with other modules to efficiently construct a new process. The study considered the effect of these three dimensions of IT architecture on three types of alliances, arm’s-length, collaborative, and joint-venture alliances respectively. Arm’s-length alliances most closely resemble market transactions and are better suited for the transfer of highly codified explicit knowledge across firm boundaries. Next, collaborative alliances involve the sharing of firm specific or tacit knowledge, a recombination of products/services/processes, or heavy coupling of interoganizational business processes. Finally, joint-ventures create an entirely new business entity through the allocation of partnered resources.
Various Poisson and binomial panel models were run on a dataset that was created by combining various sources including InformationWeek, Compustat, and the Bureau of Economic Analysis. Results found that open communication and modularity are associated with the formation of arm’s-length and joint-venture alliances respectively. Overall, IT architecture flexibility enhances the value of all types of alliances, especially collaborative alliances. Effectively, these results suggest that in collaborative-intensive alliances, reconfiguration of resources and modification of processes can be facilitated by appropriate investments in IT.
Week 4 – Tafti et al. 2013 – Joe
Ali Tafti, Sunil Mithas, M. S. Krishnan, (2013) The Effect of Information Technology–Enabled Flexibility on Formation and Market Value of Alliances. Management Science 59(1):207-225.
Whereas prior IS studies have focused on the effects of IT in reducing transaction and coordination costs in inter-organization relationships, there has been little understanding regarding the role of flexible IT architecture as an enabler of interfirm collaboration. This study is among the first to examine whether IT architecture flexibility facilitates strategic alliance formation and enables firms to derive value from alliances. The authors 1) examine the effect of three dimensions of IT architecture flexibility (open communication standard, cross-functional transparency, and modularity) on formation of three types of alliances (arm’s-length, collaborative, and joint-venture alliances, respectively) and 2) study how capability in IT flexibility moderate the value derived from alliances.
Utilizing a data set from 169 firms that are publicly listed in the US and that span multiple industries via panel data models (with random effects and fixed effects), they found that adoption of open communication standards is associated with the formation of arm’s-length alliances, and modularity of IT architecture is associated with the formation of joint ventures. Results also showed that the value of alliances is enhanced by overall IT architecture flexibility, implying that all three dimensions of flexibility are important in the value derived from arm’s-length, collaborative and joint-venture alliances.
This study suggests a need for greater consideration of the role of flexibility in IT-driven business process to understand the underpinnings of IT business value in inter-organizational context. I am quite enjoying reading a well-organized paper like this one. The authors showed us a template to write a clear and straightforward paper with a balance between creating knowledge and empirical investigation.
Bharadwaj et al — Siddharth Bhattacharya
The paper develops a conceptual model to understand the effect of cross-functional coordination and cross-organizational coordination on firm-level manufacturing performance.Before this study,previous papers have talekd about manufacturing performance in the context of interfunctional and interorganizational coordination, but have proceeded as parallel literature streams.This paper provides a more wholistic picture by considering integrated information systems construct and manufacturing-IS coordination in conjunction with manufacturing-marketing and manufacturing-supply chain coordination.The paper goes on to hypothesize that coordination between a firm’s manufacturing and marketing functions,between manufacturing and supply chain partners and manufacturing and IS functions will have a positive relationship with integrated IS capability.The data comes from PIMS email contacts provided by APICS. To measure each coordination activity the authors use scale for each while creating a composite measure for manufacturing performance metrics comprising of operating margins, on-time (backlog) ratios, and inventory turns.The authors use an OLS specification for measuring manufacturing performance.The IVs include coordination activities, IS integration capability and their interaction.To rule out endogeniety the authors employ a number of robustness checks including a heckman model to rule out endogeniety of manufacturing performance.Due to the survey nature of the design there are few concerns like respondent bias which the authors acknowledge as limitations of the design.The final results show that firm’s integrated IS capability, and its complementary effect with other verticals(manufacturing, marketing, and supply chain) are significant predictors of manufacturing performance.
Reading Summary Week3-Jack Tong
Paper: Sundar Bharadwaj, Anandhi Bharadwaj, Elliot Bendoly, (2007) The Performance Effects of Complementarities Between Information Systems, Marketing, Manufacturing, and Supply Chain Processes. Information Systems Research 18(4):437-453.
The authors develop a conceptual model to understand how cross-functional coordination within a firm and cross-organizational coordination will affect firm-level manufacturing performance. The focus of this paper is on manufacturing organizations that need to coordinate internal resource and information across different functional department, and across the supply chain. In the conceptual model, the authors list three coordination activities-manufacturing and marketing coordination, manufacturing and IS coordination, manufacturing and supply chain coordination, and it also mentions integrated IS capability.
The data are collected through survey. The authors then create scale for each coordination activity and develop a composite measurement for manufacturing performance that made up of multiple manufacturing performance metrics. the objective performance index was composed of operating margins, on-time (backlog) ratios, and inventory turns.
The empirical estimation section is quite intuitive and straightforward, the authors build up a OLS regression with manufacturing performance as DV, and the coordination activities, IS integration capability and interaction terms between coordination activities and IS integration capability as IVs. The IS integration capability is also a function of manufacturing -marketing coordination activities.
Results show that a firm’s integrated IS capability, as well as the complementary effects of IS capability with manufacturing, marketing, and supply chain processes, are significant predictors of manufacturing performance.
Week 2 Reading Summary – Tambe et al.(2012) – Xi Wu
Tambe, P., Hitt, L. M., & Brynjolfsson, E. (2012). The Extroverted Firm: How External Information Practices Affect Innovation and Productivity. Management Science, 58(5), 843–859.
Falling internal communication costs and new internal information practices enable a firm’s external focus, which is the ability of a firm to detect and therefore respond to changes in its external operating environment. The benefits from IT are valuable only with appropriate changes in decision rights and organizational practices. This paper argues that the combination of external focus, changes in decision rights, and IT investments form a three-way system of complements resulting in higher productivity levels.
The organizational practice measures are generated by a survey that was administered to 253 senior human resource managers in 2001. IT employment data are obtained from a large sample of U.S.-based IT workers. Capital, labor, research and development expense for the firms are using the Compustat database.
Since providing direct evidence of complementarities is challenging because of endogeneity problem, the existing literature on organizational complements has therefore focused instead on providing evidence of the economic implications of complementarities between organizational practices. In this paper, Tambe et al. first find that external focus is correlated with both organizational decentralization, and IT investment. Second, they find that a cluster of practices including external focus, decentralization and IT investment is associated with improved product innovation capabilities and high productivity. Moreover, when these complements are included in a production model, main effect estimates of IT and other organizational factors essentially disappear, indicating that firms derive the most benefits from implementing the system of technological and organizational resources, not IT alone. Third, this paper introduces a new set of instrumental variables and find that the results are robust.
Week 3 – Reading Summary – Leting Zhang
Rai, A., Arikan, I., Pye, J., & Tiwana, A. (2015). Fit and Misfit of Plural Sourcing Strategies and IT-Enabled Process Integration Capabilities: Consequences of Firm Performance in the US Electric Utility Industry. Mis Quarterly, 39(4), 865-885.
Plural sourcing is a strategy used commonly in industry. It involves a firm’s simultaneous use of multiple modes of governance to source a good or service. This paper investigates an interesting question in terms of the interactions between IT capabilities and plural strategies, and how the interaction influence a firm’s performance.
The research model is built on transaction cost economics, coordination costs, and IT capabilities. It also introduces a new concept – Market Sourcing Intensity, which indicates the extent of a firm source from the market. The higher the market sourcing intensity is, the more necessary for a firm to coordinate with other firms, otherwise, a firm should pay more attention to its vertical organizations. The core idea behind the research model is that of discriminating alignment between the development of IT capabilities and changes in adopted plural sourcing strategies. Specifically, there is a fit between IT-enabled interfirm process integration capability and high MSI, IT-enabled intrafirm process integration capability and low MSI. The fit could improve the firm performance, but misfit could cause penalty.
The paper is situated in the U.S. electric utility industry. It collects data from several sources, including industry files from authority, financial and accounting information from WRDS. What’s more, it classifies IT investment into five types firstly and then aggregates them into three types: inter, intra and infra. Also, it uses return on assets (ROA) as a measure of firm performance. Then pooled OLS equations are established and the results support hypotheses. This study has implications for the understanding of business value from IT-enabled process integration capabilities and the management of plural sourcing, and put importance on the alignment between these two important factors.
Week 3 Reading Summary (HK)
Tambe, P., Hitt, L.M., and Brynjolfsson, E. (2012) “The Extroverted Firm: How External Information Practices Affect Innovation and Productivity,” Management Science (58:5) pp. 843-859.
Tambe, Hitt, and Brynjolfsson (2012) combined various data sources including survey-based measures and COMPUSTAT information to identify and demonstrate the value of organizations embracing external focuses. An external focus is the ability of a firm to identify and respond to changes in the external operating environment. Extreme examples of firms successfully embracing external focuses are internet based companies, such as Google and Amazon, who record users’ keystrokes and analyze these data to optimize their products, processes, and marketing strategies. Using survey based measures, Tambe et al. (2012) first identified the correlation between external focus and IT investment and organizational decentralization. Next, the authors found that these three practices are all associated with improved production innovation capabilities. Finally, a three-way complementarities model indicated that the combination of the three practices of external focus, IT investment, and organizational decentralization are associated with significantly higher productivity.
Prior to Tambe et al.’s efforts (2012) research had demonstrated the value of organizational decentralization on IT investments. Tambe et al. (2012) confirmed this finding and highlighted that IT has the strongest impact on productivity in firms assuming that they are embracing the appropriate organizational structure. Furthermore, the authors added to past research findings by introducing the third factor of external focus into the IT productivity framework. Results indicated that product development was one of the principle mechanisms through which external focus impacts productivity. Overall, the key managerial implication of Tambe et al.’s findings is that firms with an external focus are more productive and reap disproportionate benefits from advances in IT and workplace organization. It is worth noting that to derive the maximum amount of benefits from complements organizations must embrace them all. Thus, firms with decentralized structures should look to embrace a more external focus to fully realize the returns of their IT investments.
Week 3 – Rai et al. 2015 – Joe
Rai, A., Arikan, I., Pye, J., & Tiwana, A. (2015). Fit and Misfit of Plural Sourcing Strategies and IT-Enabled Process Integration Capabilities: Consequences of Firm Performance in the US Electric Utility Industry. MIS Quarterly, 39(4), 865-885.
Plural sourcing refers to a company’s simultaneously use and allocation of external procurement and internal production to source its good/service. It remains obscure that how a firm’s use of plural sourcing can change the value of developing interfirm and intrafirm IT capabilities after a survey of the past literature. This study addresses this gap by focusing on the following research question: How does the (mis)fit between a firm’s plural sourcing strategies and the development of IT-enabled interfirm and intrafirm process integration capabilities influence firm performance?
The authors wisely choose power-generation segment of the U.S. electric utility industry (EUI) to explore the moderating effects of plural sourcing, measured by a proposed concept called “Market Sourcing Intensity(MSI)”, on the relationship between firm performance (assessed by ROA) and two IT-enabled process integration capabilities, IT-enabled interfirm process integration capability and IT-enabled intrafirm process integration capability. With data from archival sources for 342 utility firms in the power-generation segment to construct a panel dataset for the period 1994–2004, the authors use pooled OLS to the following results: 1) fit between MSI and the development of IT-enabled interfirm process integration capability improves firm profitability and 2) misfit between MSI and the development of IT-enabled intrafirm process integration capability extracts penalties in firm profitability. The result from one of the robustness check also offer evidence that fit between MSI and the development of IT-enabled interfirm process integration capability improves market valuation (assessed by Tobin’s Q) and asset turnover (assessed by operating revenue/total assets).
This study extends past by revealing how explanations of firm capabilities for IT-enabled process integration and transaction costs economics(TCE) for plural sourcing interact to explain firm performance. The authors nicely collect viewpoints that internal costs of organizing production and transaction costs need to be considered in making governance choices and apparently show the empirical limitations.