Management IS
Sustainability: Hax's Delta Model Framework (Examination of Schwab)
2009///
The Delta Model was proposed by Arnoldo Hax (MIT Sloan) (Hax.03). As a unified strategic framework developed after the mainstream adoption of Internet, it provides specific strategic options beyond the “Best Product Strategy" (i.e. differentiation or low cost) such as the “Total Customer Solution" and “System Lock." Within the wide range of potential strategies the Delta model points out the potential strategic value of IS/IT as enabling technologies to promote boding (with customers, complementors, partners, etc) and leading to a range of potential strategies such as “redefining the customer experience" (e.g. Saturn, Barnes & Noble, Startbucks iTunes), “customer integration" (Dell, Mathworks), “dominant exchange" (Google, YouTube, Wikipedia, iTunes), “system lock" (Intel, Microsoft). According to the Delta Model strategies based on best product are the most difficult to sustain; strategies based on customer integration, customer boding are a better strategic position, and dominant exchanges and system lock are the most sustainable since they affect the whole system and complementors. Schwab's current position of leadership does not seem to achieve dominant exchange status or system lock. Dominant exchange is achieved when a critical mass of collaborating users has been reached and each new user makes the service more useful (e.g. youTube, Wikipedia). System Lock represent the strongest form of bonding and integration among complete industries around a product (e.g. all the software companies developing Windows specific solutions). It focuses in the entire system economics instead of product-centered economics. The firm success is due primarily to the complementors that create solutions based on the firm's architecture. According to this post-internet strategic framework, Schwab has not achieved a strategic positioning that gives them a significant competitive advantage over its competitors. Consequently, Schwab historical success is not necessarily sustainable, it must rely on continuous innovation, customer bonding, as well as other intangible assets to continue to outperform competitors in the current hypercompetitive changing environment.
Note: This is the last posting in the series of 7 blog entries designed to examine the relationship between Charles Schwab’s Business and IS/IT strategy.
Note: This is the last posting in the series of 7 blog entries designed to examine the relationship between Charles Schwab’s Business and IS/IT strategy.
Sustainability: Advantage Through Superior IS/IT Systems (Examination of Schwab)
2009///
Schwab initially achieved its leadership position as a discount brokerage firm due to their superior technological capability, IS/IT know-how, and the scalability of their original IS/IT infrastructure. As explained earlier, social factors such as the alignment between the firms competitive strategy and IS/IT strategy, capability for rapid prototyping an product development, and agility also played a significant role in their earlier success. In fact, Schwab's investment in IT hardware and software back in 1995 was moderate.
As we have already pointed out in a previous post ... In the specific context of achieving sustainable competitive advantage using IS/IT, Carr has made the argument that while information technology has become the backbone of commerce, the importance of IT and information systems (IS) as a strategic resource capable of gaining sustainable competitive advantage has diminished (Carr.03). He acknowledges that IT is critical to today's competitive environment. However, he makes the point that because IT/IS has become so essential to competition it is inconsequential to strategy. This conclusion is based on the assumption that what makes a resource a source of sustainable competitive advantage is not its ubiquity but its scarcity, that is, a company gains an edge over its competitors by doing something that they can't do or have. Since IS have become commonplace (i.e. data storage, data processing, data transport, CRM, etc), standardized, and available to all competitors as common adopted technologies, its potential as a source of differentiation has diminished. In summary, IS are becoming a commodity and an expense of doing business. According to Carr, given that the value of IS as a strategy resource has been vanishing, he recommends firms nowdays to 1) spend less (research shows that companies with the biggest IT investment do not post the best financial results), 2) follow, don't lead (Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary), and 3) focus on vulnerabilities and not opportunities. While these recommendations of cautious IT investments are intended for the current environment, it is remarkable that Schwab's initial E-business strategy back in 1995 was implemented with a minor IT capital investment by using the existing infrastructure.
Brown and Hagel III (2003) agree that some business nowadays may have overestimated the strategic value of IT, significantly overspent on technology, and recognize the importance of managing IS more rigorously to reduce capital investment requirements and operating costs (Brown.03). However, they emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III are of the position that while differentiation is not in IT itself, it is in the new practices and services that IT/IS enable to create that make it critical. Consequently, while Schwab was able to achieve competitive advantages through superior IS/IT capability, it is unlikely that IT alone will be the source that enables the firm to sustain its leadership position.
As we have already pointed out in a previous post ... In the specific context of achieving sustainable competitive advantage using IS/IT, Carr has made the argument that while information technology has become the backbone of commerce, the importance of IT and information systems (IS) as a strategic resource capable of gaining sustainable competitive advantage has diminished (Carr.03). He acknowledges that IT is critical to today's competitive environment. However, he makes the point that because IT/IS has become so essential to competition it is inconsequential to strategy. This conclusion is based on the assumption that what makes a resource a source of sustainable competitive advantage is not its ubiquity but its scarcity, that is, a company gains an edge over its competitors by doing something that they can't do or have. Since IS have become commonplace (i.e. data storage, data processing, data transport, CRM, etc), standardized, and available to all competitors as common adopted technologies, its potential as a source of differentiation has diminished. In summary, IS are becoming a commodity and an expense of doing business. According to Carr, given that the value of IS as a strategy resource has been vanishing, he recommends firms nowdays to 1) spend less (research shows that companies with the biggest IT investment do not post the best financial results), 2) follow, don't lead (Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary), and 3) focus on vulnerabilities and not opportunities. While these recommendations of cautious IT investments are intended for the current environment, it is remarkable that Schwab's initial E-business strategy back in 1995 was implemented with a minor IT capital investment by using the existing infrastructure.
Brown and Hagel III (2003) agree that some business nowadays may have overestimated the strategic value of IT, significantly overspent on technology, and recognize the importance of managing IS more rigorously to reduce capital investment requirements and operating costs (Brown.03). However, they emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III are of the position that while differentiation is not in IT itself, it is in the new practices and services that IT/IS enable to create that make it critical. Consequently, while Schwab was able to achieve competitive advantages through superior IS/IT capability, it is unlikely that IT alone will be the source that enables the firm to sustain its leadership position.
Sustainability: Hyper-competition and Continuous Change (Examination of Schwab)
2009///
The question of whether sustainable competitive advantage is possible in fast-changing hyper-competitive environments such as the financial services sector is actively being debated by the research community. Attaining and sustaining competitive advantage in today's continuously changing hyper-competitive global environment is challenging. Continuous and disrupting change is especially significant in the financial services sector since regulatory pressure and policy can change very quickly depending on the national and global economic situation as well as political factors.
Some authors have argued that in the current fast-changing environment the firm's objective should be directed to an active strategy of disrupting the status quo to create an unsustainable series of competitive advantages (D'Aveni.99). According to this school of thought, sustainable competitive advantages are no longer possible and we are in the next level of competition (D'Aveni.99). The reality of continuous change leads to a new competitive paradigm that goes beyond the traditional basis for competition such as service, quality, price, products, reputation, customer base, and market access. These classical factors are certainly a pre-requisite for achieving success, but sustaining a leadership position depends on great measure of intangible factors operating at the social fabric level of the firm. These include the firm's culture, processes, corporate systems, human resources, management style, adaptability and agility, as well as leadership capability and vision. Schwab's ability to quickly prototype, test, and successfully intro to market new services (e.g. e.Schwab in 1996, Schwab Brokerage Site in 1998, Schwab Alerts in 1999, Learning Center in 2000, PocketBroker in 2000, CyberTrader in 2003, Personal Choice in 2004, Rebalacing Wizard in 2004) as well as the numerous awards received since 1998 are an indication of Schwab's capability and potential for sustainable success through continuous innovation in finding new ways to add value for customers in order to retain their loyalty.
Some authors have argued that in the current fast-changing environment the firm's objective should be directed to an active strategy of disrupting the status quo to create an unsustainable series of competitive advantages (D'Aveni.99). According to this school of thought, sustainable competitive advantages are no longer possible and we are in the next level of competition (D'Aveni.99). The reality of continuous change leads to a new competitive paradigm that goes beyond the traditional basis for competition such as service, quality, price, products, reputation, customer base, and market access. These classical factors are certainly a pre-requisite for achieving success, but sustaining a leadership position depends on great measure of intangible factors operating at the social fabric level of the firm. These include the firm's culture, processes, corporate systems, human resources, management style, adaptability and agility, as well as leadership capability and vision. Schwab's ability to quickly prototype, test, and successfully intro to market new services (e.g. e.Schwab in 1996, Schwab Brokerage Site in 1998, Schwab Alerts in 1999, Learning Center in 2000, PocketBroker in 2000, CyberTrader in 2003, Personal Choice in 2004, Rebalacing Wizard in 2004) as well as the numerous awards received since 1998 are an indication of Schwab's capability and potential for sustainable success through continuous innovation in finding new ways to add value for customers in order to retain their loyalty.
RBV Framework Analysis of Schwab's Business and IS/IT Strategy
2009///
The resource-based view (RBV) is useful to complement Porter's competitive forces model focused on the industry structure analysis. The RBV framework proposed by Barney and others provides a theoretical model to analyze the idiosyncratic attributes of the firm and their impact on its competitive position (Barney.91).
From the RBV framework it is important to note that by the time Schwab was ready to implement the E-business strategy in 1995, it already possessed significant technological resources, systems, know-how, and capability. Ever since its inception in 1971, Schwab had been a technological front-runner. Dave Potturck (Former Schwab President) preferred to think of Schwab as a technology firm which operated in the financial services industry. Robert Duste (Senior VP, 97) remarked that technology was not a sideline but a core part of the brand and a core part of the business (``almost every business decision involves a discussion of how we're going to use technology to do things for our customers that no-one else can do"). In fact, Schwab introduced services to enable stock trading through PCs in 1985 before it started using the telephone for trading in 1989. By 1985 Schwab posessed core competencies that were difficult to replicate, transfer, and appropriate by traditional full-service financial service firms such as Merryll Lynch. Consequently, they 1) leveraged their unique technological resources to improve value, 2) differentiated their product (discount brokerage targeted to individual investors) based on core competencies (IS/IT capability), and 3) changed the rules of competition by creating new customized products based on their IS/IT leadership (Barney.91).
Beyond the actual physical IT infrastructure that Schwab already possessed by 1995 (hardware and networks), it also had three other critical resources, namely 1) the ability to mobilize and rapidly deploy new IS/IT to achieve business objectives (e.g. a 30 member team developed, prototyped, tested, and launched e.Schwab in less than 12 months), 2) human IT infrastructure (skills and management capability), and 3) intangible IT resources such as IS culture assets, customer-focused orientations, and excellent management practices capable of aligning IS and business strategy. Research has shown that precisely these intangible IT-based resources (e.g. corporate culture, customer orientation, environmental orientation, know-how, change management) deeply embedded in the firms social fabric are a major contributor to competitive advantage and superior performance (Bharadwaj.00).
From the RBV framework it is important to note that by the time Schwab was ready to implement the E-business strategy in 1995, it already possessed significant technological resources, systems, know-how, and capability. Ever since its inception in 1971, Schwab had been a technological front-runner. Dave Potturck (Former Schwab President) preferred to think of Schwab as a technology firm which operated in the financial services industry. Robert Duste (Senior VP, 97) remarked that technology was not a sideline but a core part of the brand and a core part of the business (``almost every business decision involves a discussion of how we're going to use technology to do things for our customers that no-one else can do"). In fact, Schwab introduced services to enable stock trading through PCs in 1985 before it started using the telephone for trading in 1989. By 1985 Schwab posessed core competencies that were difficult to replicate, transfer, and appropriate by traditional full-service financial service firms such as Merryll Lynch. Consequently, they 1) leveraged their unique technological resources to improve value, 2) differentiated their product (discount brokerage targeted to individual investors) based on core competencies (IS/IT capability), and 3) changed the rules of competition by creating new customized products based on their IS/IT leadership (Barney.91).
Beyond the actual physical IT infrastructure that Schwab already possessed by 1995 (hardware and networks), it also had three other critical resources, namely 1) the ability to mobilize and rapidly deploy new IS/IT to achieve business objectives (e.g. a 30 member team developed, prototyped, tested, and launched e.Schwab in less than 12 months), 2) human IT infrastructure (skills and management capability), and 3) intangible IT resources such as IS culture assets, customer-focused orientations, and excellent management practices capable of aligning IS and business strategy. Research has shown that precisely these intangible IT-based resources (e.g. corporate culture, customer orientation, environmental orientation, know-how, change management) deeply embedded in the firms social fabric are a major contributor to competitive advantage and superior performance (Bharadwaj.00).
Porterian Analysis of Schwab's Business and IS Strategy
2009///
In this post we analyze how Schwab's strategic use of information technology enabled the firm to address the competitive forces at work. The well-known Porter's competitive forces model (Porter.79) is a useful theoretical framework to start examining the nature of the interactions between Schwab and each of the five forces within the industry environment in which it operates. Briefly, according to Porter's competitive forces model, in order for a firm to succeed in any given industry, it must effectively address five competitive forces: 1) intensity of rivalry among the existing competitors in the industry, 2) threat of potential new entrants, 3) threat of substitutes, 4) bargaining power of suppliers, and 5) bargaining power of customers (Porter.79).
Schwab's E-business strategy was part of a larger multi-channel strategy rooted on the firm's customer-focused corporate philosophy whose objective was to provide the maximum number of channels for customers to interact and transact with the company (i.e. ``to provide customers with the most useful and ethical brokerage services in the US"). The objective was to give customers a wide choice. Given this intrinsic strategic alignment between business and IS strategy (Henderson.93), IS/IT capability enabled Schwab to create competitive advantages by offering new services, improving efficiency, improving decision making, and using information systems to achieve operational effectiveness.
A key element of Schwab's IS strategy was to avoid over investing in complete new IT systems (Carr.03). As Carr points out greater IT expenditures do not necessarily lead to superior financial results. Instead, in 1995 Schwab's research group developed a software to enable the existing servers at Schwab to receive trading orders through a web-browser at a PC, send it to Schwab's operational back-end systems, fulfill the order, and pass on the confirmation to the PC. The system (e.Schwab) was developed by a 30-member team in less than a year. By 1996, e.Schwab was ready with a new internet-based product and the firm had become the first major financial services company to permit web-based trading of listed OTC stocks, mutual funds, bonds, and options. Using Porter's competitive forces framework, this new and transforming product can be considered a substitute product that enabled access to a significant market and help change the nature of the competition to put Schwab in a dominant competitive position. The Internet facilitated the completion of trade transactions at a much lower cost since it reduced the need for personnel at contact centers, and given that it did not require Schwab to make a substantial capital investment on IT infrastructure or manpower (Carr.03), the savings could be passed on to customers by charging less commission per trade.
In terms of the classical Porterian competitive strategies, Schwab was able to effectively use IS/IT in order to 1) offer a differentiated product resulting in overall best product leadership, 2) reduce operational costs resulting in overall operational leadership, and 3) lower product costs resulting in overall low cost leadership. By 1997, one year after the introduction of the transforming IS product, the value of online assets handled by e.Schwab had reached \$81B. In these earlier years of the internet revolution, Schwab critical alignment between business and IS/IT strategy enabled the firm to gain competitive advantage through information~\Porter.85 by 1) lowering costs at all levels in the value chain, 2) enhancing differentiation}by using IS/IT to customize products, 3) changing the competitive scope by using IS/IT to increase the firm's ability to coordinate its activities regionally, nationally, and globally (e.g. reducing workload at local branches); creating interrelationships among previously separated industries (e.g. services such as ``Analyst Center" provided customers access to external research from leading firms such as S\&P and DJ); segment their offerings in ways previously feasible only for focused (niche) companies (e.g. ability to provide customized service offerings depending on need of its customers); and 4) spawning new business by creating derived demand for new products and services (e.g. new Schwab services and programs such as Schwab Alerts, Learning Center, PocketBroker, Personal Choice, Rebalancing Wizard).
In the late 90s, a key element of Schwab's strategy was to use the IS/IT systems to extract data regarding the customer preferences, monitoring the customer accounts, and studying the websites customers visited in oder to segment and target its customers and use this proprietary marketing information to design innovative customized products and manage customer relationships more effectively. Thus, Schwab was effectively using IS/IT at all levels in the value chain as a powerful tool for enhancing operational effectiveness in order to complement the traditional ways of competing (Porter.01).
In summary, as a customer-focused technology firm operating in the financial services sector, Schwab was able to make effective use of their information technology and information systems capability to affect competition in three general ways: 1) changing the industry structure and the rules of competition, 2) creating competitive advantage by enabling the company to create new customized products which were both differentiated and low-cost, and 3) transforming the value chain to enhance operational effectiveness (Porter.79, Porter.85, Porter.01). Furthermore, Schwab was able to implement this aligned business/IS strategy without incurring in major IT infrastructure investments or new IS/IT systems implementation (Carr.03). Instead, Schwab's strategic impact of IT investments came from the cumulative effect of sustained initiatives to innovate business practices in the near term and aimed for differentiation not in the IT itself but in the new customized services and operational practices it enabled to create to meet the customer needs and demands (Brown.03).
Schwab's E-business strategy was part of a larger multi-channel strategy rooted on the firm's customer-focused corporate philosophy whose objective was to provide the maximum number of channels for customers to interact and transact with the company (i.e. ``to provide customers with the most useful and ethical brokerage services in the US"). The objective was to give customers a wide choice. Given this intrinsic strategic alignment between business and IS strategy (Henderson.93), IS/IT capability enabled Schwab to create competitive advantages by offering new services, improving efficiency, improving decision making, and using information systems to achieve operational effectiveness.
A key element of Schwab's IS strategy was to avoid over investing in complete new IT systems (Carr.03). As Carr points out greater IT expenditures do not necessarily lead to superior financial results. Instead, in 1995 Schwab's research group developed a software to enable the existing servers at Schwab to receive trading orders through a web-browser at a PC, send it to Schwab's operational back-end systems, fulfill the order, and pass on the confirmation to the PC. The system (e.Schwab) was developed by a 30-member team in less than a year. By 1996, e.Schwab was ready with a new internet-based product and the firm had become the first major financial services company to permit web-based trading of listed OTC stocks, mutual funds, bonds, and options. Using Porter's competitive forces framework, this new and transforming product can be considered a substitute product that enabled access to a significant market and help change the nature of the competition to put Schwab in a dominant competitive position. The Internet facilitated the completion of trade transactions at a much lower cost since it reduced the need for personnel at contact centers, and given that it did not require Schwab to make a substantial capital investment on IT infrastructure or manpower (Carr.03), the savings could be passed on to customers by charging less commission per trade.
In terms of the classical Porterian competitive strategies, Schwab was able to effectively use IS/IT in order to 1) offer a differentiated product resulting in overall best product leadership, 2) reduce operational costs resulting in overall operational leadership, and 3) lower product costs resulting in overall low cost leadership. By 1997, one year after the introduction of the transforming IS product, the value of online assets handled by e.Schwab had reached \$81B. In these earlier years of the internet revolution, Schwab critical alignment between business and IS/IT strategy enabled the firm to gain competitive advantage through information~\Porter.85 by 1) lowering costs at all levels in the value chain, 2) enhancing differentiation}by using IS/IT to customize products, 3) changing the competitive scope by using IS/IT to increase the firm's ability to coordinate its activities regionally, nationally, and globally (e.g. reducing workload at local branches); creating interrelationships among previously separated industries (e.g. services such as ``Analyst Center" provided customers access to external research from leading firms such as S\&P and DJ); segment their offerings in ways previously feasible only for focused (niche) companies (e.g. ability to provide customized service offerings depending on need of its customers); and 4) spawning new business by creating derived demand for new products and services (e.g. new Schwab services and programs such as Schwab Alerts, Learning Center, PocketBroker, Personal Choice, Rebalancing Wizard).
In the late 90s, a key element of Schwab's strategy was to use the IS/IT systems to extract data regarding the customer preferences, monitoring the customer accounts, and studying the websites customers visited in oder to segment and target its customers and use this proprietary marketing information to design innovative customized products and manage customer relationships more effectively. Thus, Schwab was effectively using IS/IT at all levels in the value chain as a powerful tool for enhancing operational effectiveness in order to complement the traditional ways of competing (Porter.01).
In summary, as a customer-focused technology firm operating in the financial services sector, Schwab was able to make effective use of their information technology and information systems capability to affect competition in three general ways: 1) changing the industry structure and the rules of competition, 2) creating competitive advantage by enabling the company to create new customized products which were both differentiated and low-cost, and 3) transforming the value chain to enhance operational effectiveness (Porter.79, Porter.85, Porter.01). Furthermore, Schwab was able to implement this aligned business/IS strategy without incurring in major IT infrastructure investments or new IS/IT systems implementation (Carr.03). Instead, Schwab's strategic impact of IT investments came from the cumulative effect of sustained initiatives to innovate business practices in the near term and aimed for differentiation not in the IT itself but in the new customized services and operational practices it enabled to create to meet the customer needs and demands (Brown.03).
Examination of Charles Schwab's Business and IS/IT Strategy Alingment
2009///
The alignment and execution of Charles Schwab's (Schwab) business and information systems/information technology (IS/IT) strategies have made the firm a leading discount brokerage firm targeted at individual investors. Schwab is now the industry leader discount investment brokerage firm in terms of market capitalization (17.59B) and return on equity (ttm, 31.57%). In the following blog posts we analyze Schwab's IS/IT strategy using Porter's competitive forces (Porter.79,Porter.85, Porter.01) and the resource-based view (RBV) of strategy frameworks (Barney.91,Bharadwaj.00). Finally, we address the question of whether Schwab's success is sustainable (Carr.03,Brown.03) and introduce Hax's Delta Model (Hax.03) to facilitate this analysis.
Examination of Charles Schwab's Business and IS/IT Strategy
2009///
The next series of blog post examine the relationship between Charles Schwab’s business and information systems/information technology (IS/IT) strategy. We analyze Schwab’s IS/IT strategy using Porter’s competitive forces and the resource-based view of strategy frameworks. Finally, we address the question of whether Schwab’s success is sustainable using current frameworks including Hax’s Delta Model.
Are Information Systems a Source of Substainable Competitive Advantage?
2007///
In his seminal 2003 Harvard Business Review article "It Doesn't Matter" Nicholas Carr made the argument that while information technology has become the backbone of commerce, the importance of IT and information systems (IS) as a strategic resource capable of gaining sustainable competitive advantage has diminished. Carr's acknowledges that IT is critical to today's competitive environment. However, he makes the point that because IT/IS has become so essential to competition it is inconsequential to strategy. This conclusion is based on the assumption that what makes a resource a source of sustainable competitive advantage is not is ubiquity but its scarcity, that is, a company gains an edge over its competitors by doing something that they can't do or have. Since IS have become commonplace (i.e. data storage, data processing, data transport, CRM, etc), standardized, and available to all competitors as common adopted technologies, its potential as a source of differentiation has diminished. In summary, IS are becoming a commodity and an expense of doing business. In the 1990s , the US Department of Commerce's Bureau of Economic Analysis estimated that 30% of the capital expenditures of US companies went to IT. By the end of the decade it had reached 50% to amount over a $2 trillium a year in IT-related expenses worldwide.
After making the case of how the value of IS as a strategy resource has been vanishing, Carr provides three recommendations regarding IS management: 1) spend less -studies how that companies with the biggest IT investment do not post the best financial results, 2) follow, don't lead -Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary, and 3) focus on vulnerabilities and not opportunities.
Brown and Hagel III (2003) responded to Carr's paper in a letter to the editor entitled "Does IT Matter" HBR (2003). The authors acknowledged the importance and value of Carr's article and agreed that business may have overestimated the strategic value of IT, significantly overspent on technology, and recognized the importance of managing IS more rigorously to reduce capital investment requirements and operating costs. They emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III provide a detailed response to Carr's paper and conclude that while differentiation is not in IT itself, it is in the new practises that IT/IS enable.
The value of IT can be studied in terms of the three main schools of strategy: Harvard School (Porter, Five Forces, 80s), London School (Hamel/Prahalad, Resource View, 90s), and MIT Sloan School (Hax,Delta Model, 21st). For instance, in terms of Porter's five forces industry structure model, the strategic use of IS can help build barriers of entry or put in place barriers of entry for competitors, it can help increasing the switching costs for customers and decrease their bargaining power, enable companies to create substitute products, and limit the bargaining power of suppliers. The RBV emphasises how firm-level IS dynamic capabilities may translate into sustainable competitive advantage by generating "generic lead time" (time taken by a competitor to duplicate an IS system, application or IS-based product), "competitive asymmetry" (the ability of the competitor to replicate the first mover's system", and "pre-emption potential" (the ability of the first mover to pre-empt the retaliation by the follower (Feeny, Ives, 90).
In my opinion the best conceptual framework to analyze the value of IS is the Delta Model proposed by Arnoldo Hax (MIT Sloan). As a unified strategic framework developed after the mainstream adoption of Internet, it provides specific strategic options beyond the Best Product Strategy such as Total Customer Solutions and System Lock. Within the wide range of potential strategies the Delta model points out the potential strategic value of IT/IS as enabling technologies to promote boding (with customers, complementors, suppliers, etc) and lead to a range of potential strategies such as "redefining the customer experience" (e.g. Saturn, Barnes & Nobel, Startbucks iTunes), "customer integration" (Dell, Mathworks), "dominant exchange" (Google, YouTube, iTunes), etc.
References:
[1] Carr, N (2003), "IT Doesn't Matter" Harvard Business Review.
[2] Brown, JS & Hagel III, J (2003), "Does IT Matter" Harvard Business Review
[3] Laudon (2004), "Managing Information Systems - Managing the Digital Firm"
[3] Hax, A (2001), "The Delta Project"
[4] Porter, M (1980, 1985), "Competitive Strategy" & "Competitive Advantage"
[5] Barney, J (1991), "Firm Resources and Sustained Competitive Advantage"
[6] Feeny, F, Ives, B (1990), "In Search of Sustainability: Reaping Long-Term Advantage from Investments in Information Technology"
After making the case of how the value of IS as a strategy resource has been vanishing, Carr provides three recommendations regarding IS management: 1) spend less -studies how that companies with the biggest IT investment do not post the best financial results, 2) follow, don't lead -Moore's law guarantees that the longer you wait to make an IT purchase, the more you will get for your money, and you will be investing in IT capabilities that become more homogenized as opposed to proprietary, and 3) focus on vulnerabilities and not opportunities.
Brown and Hagel III (2003) responded to Carr's paper in a letter to the editor entitled "Does IT Matter" HBR (2003). The authors acknowledged the importance and value of Carr's article and agreed that business may have overestimated the strategic value of IT, significantly overspent on technology, and recognized the importance of managing IS more rigorously to reduce capital investment requirements and operating costs. They emphasize that while in many cases IT (especially standardized IT) is diminishing as a source of strategic differentiation, IT matters a lot (i.e. it does matter to the point of being critical). Brown and Hagel III provide a detailed response to Carr's paper and conclude that while differentiation is not in IT itself, it is in the new practises that IT/IS enable.
The value of IT can be studied in terms of the three main schools of strategy: Harvard School (Porter, Five Forces, 80s), London School (Hamel/Prahalad, Resource View, 90s), and MIT Sloan School (Hax,Delta Model, 21st). For instance, in terms of Porter's five forces industry structure model, the strategic use of IS can help build barriers of entry or put in place barriers of entry for competitors, it can help increasing the switching costs for customers and decrease their bargaining power, enable companies to create substitute products, and limit the bargaining power of suppliers. The RBV emphasises how firm-level IS dynamic capabilities may translate into sustainable competitive advantage by generating "generic lead time" (time taken by a competitor to duplicate an IS system, application or IS-based product), "competitive asymmetry" (the ability of the competitor to replicate the first mover's system", and "pre-emption potential" (the ability of the first mover to pre-empt the retaliation by the follower (Feeny, Ives, 90).
In my opinion the best conceptual framework to analyze the value of IS is the Delta Model proposed by Arnoldo Hax (MIT Sloan). As a unified strategic framework developed after the mainstream adoption of Internet, it provides specific strategic options beyond the Best Product Strategy such as Total Customer Solutions and System Lock. Within the wide range of potential strategies the Delta model points out the potential strategic value of IT/IS as enabling technologies to promote boding (with customers, complementors, suppliers, etc) and lead to a range of potential strategies such as "redefining the customer experience" (e.g. Saturn, Barnes & Nobel, Startbucks iTunes), "customer integration" (Dell, Mathworks), "dominant exchange" (Google, YouTube, iTunes), etc.
References:
[1] Carr, N (2003), "IT Doesn't Matter" Harvard Business Review.
[2] Brown, JS & Hagel III, J (2003), "Does IT Matter" Harvard Business Review
[3] Laudon (2004), "Managing Information Systems - Managing the Digital Firm"
[3] Hax, A (2001), "The Delta Project"
[4] Porter, M (1980, 1985), "Competitive Strategy" & "Competitive Advantage"
[5] Barney, J (1991), "Firm Resources and Sustained Competitive Advantage"
[6] Feeny, F, Ives, B (1990), "In Search of Sustainability: Reaping Long-Term Advantage from Investments in Information Technology"
Why a strategy based on technology alone cannot help organizations solve their business problems and achieve their business objectives?
2007///
There plenty of examples of companies that have gained sustainable competitive advantage through effective use of information systems (e.g. Amazon, eBay, Dell, Walt-Mart, Apple, YouTube, etc). Many other firms, however, fail to realize the benefits of their capital investments on information technology (IT). This is explained, in part, by the fact that strategies based on technology alone tend to be ill-conceived and limiting. This is the case because a mere technical strategy can have serious negative implications for organizations because it does not take into account numerous "societal considerations" that are critical in order for IT to function as an effective information system (IS). These societal considerations and human factors include an understanding of the organizational culture, context, values, structure, and processes. Top-down implementations based on technology considerations alone can be extremely disruptive to well-established and efficient business processes and often result in resistance from the intended user-base in the organization. Kling (2000) warns firms of the dangers associated with the technological approach and the thinking that IT/IS are mere "tools." According to Kling, viewing IT/IS as tools leads to 1) underestimate the cost associated with effective IS/IT implementation and adoption, and 2) overestimate the generalizability of applications from one setting or group of individuals to another.
IS investments and implementations have a much better change of translating into competitive advantage when they take into account the underlying organizational context and its impact on how IS are used. Societal aspects associated with the firm will determine how the IS will be used. IS will, in turn, affect the organizational context. For instance, the IS adopted in multidomestic enterprises will probably differ from those adopted by global enterprises due to differences in organizational structures, context, and processes; and adopting a given IS may -in turn- change these enterprises to behave more or less as transnational firms.
In summary, IS should be viewed as enabling technologies that are in constant interaction with people and processes within the organization. This is due, in part, to the evolving role of IS from data processing tools (50s), to managerial control tools (60s), to decision support tools (70/80s), to institutional core activities (90s), to becoming a major source of competitive advantage (21st). The view of IS as social systems is known as the "sociotechnical approach" (Laudon 2004) and there is an extensive body of research that examines the design, uses, and consequences of information and communication technologies (ICT) in ways that take into account their interaction with institutional and cultural contexts. This area of research is now known as "social informatics" (Kling 2000).
References:
Kling. "Learning Abut Information Technologies and Social Change: The Contribution of Social Informatics." (2000)
Laudon. "Managing Information Systems - Managing the Digital Firm" (2004)
IS investments and implementations have a much better change of translating into competitive advantage when they take into account the underlying organizational context and its impact on how IS are used. Societal aspects associated with the firm will determine how the IS will be used. IS will, in turn, affect the organizational context. For instance, the IS adopted in multidomestic enterprises will probably differ from those adopted by global enterprises due to differences in organizational structures, context, and processes; and adopting a given IS may -in turn- change these enterprises to behave more or less as transnational firms.
In summary, IS should be viewed as enabling technologies that are in constant interaction with people and processes within the organization. This is due, in part, to the evolving role of IS from data processing tools (50s), to managerial control tools (60s), to decision support tools (70/80s), to institutional core activities (90s), to becoming a major source of competitive advantage (21st). The view of IS as social systems is known as the "sociotechnical approach" (Laudon 2004) and there is an extensive body of research that examines the design, uses, and consequences of information and communication technologies (ICT) in ways that take into account their interaction with institutional and cultural contexts. This area of research is now known as "social informatics" (Kling 2000).
References:
Kling. "Learning Abut Information Technologies and Social Change: The Contribution of Social Informatics." (2000)
Laudon. "Managing Information Systems - Managing the Digital Firm" (2004)
Information Systems and Their Effect on Academia
2007///
Information Systems have affected academia significantly. With regards to teaching, IS have became a critical component and online/web courses are now mainstream even at traditional face-to-face/campus universities. IS have also had a tremendous effect on research. Most peer-reviewed journals currently employ manuscript management systems where journal submissions and the peer-review process takes place. This has shortened the review and publication time. Additionally, performing literature reviews and prior-art searches has become easier than ever before due to improvements in IS.
What is an Information System?
2007///
An information system is a set of interrelated components that collect or retrieve, store, analyze, and distribute information to support organisational decision making an control. Information systems include technical components (hardware, software, etc) -i.e. the Information Technology- and the associated human interaction with technology.