IT In The 1990's: Managing Organizational Interdependence
John F. Rockart and James E. Short
Sloan Management Review Winter 1989, pg.7-17.
Summary
Rockart & Short have emphasized on the importance of information technology as
impacting the modern organization and its various interdependencies with other
organizations. They argue that IT's most important role is allowing firms to
manage organizational interdependence. The main emphasis of the article has been
on the role of networks and they have termed such organizations ‘networked
organizations’. The networks here means the various client server conditions
prevalent in a modern organization connected with computer wares. According to
the authors these networks in the coming years will increasingly seem
'transparent'. They would help as an intelligent search and retrieval
mechanisms, which would gather, manipulate, process, and automatically present
data from natural language queries.
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Rockart & Short states that the various environmental changes such as
globalization, increased market risk, greater emphasis on customer services and
team-based competencies, and unexpected competition have increased the extent of
interdependence and its significance in organizational activities. This external
environmental factors led interdependence has become a significant feature in
modern organizations. Most importantly the interdependence among key market
players such as the competitors, customers, and suppliers has increasingly
focused as being the source of strategic linkages for leveraging organizational
excellence. Here comes the role of information technology planning and design,
which is very much needed to cater to the need for supporting integration among
differentiated knowledge subunits in traditional organizations.
Rockart & Short say that "...IT's most important role is allowing firms to
manage organizational interdependence...to achieve concurrence of effort along
multiple dimensions of the organization." Furthermore, the authors focus on the
fact that the traditional buffers between the firm and its environment including
time, inventory, people and geography have been reduced and this trend is
expected to go on in the future. Such an elimination or reduction of buffers
leads to greater interdependence between the firm and its environments. And this
is where the role of Information technology (IT) comes a critical force in this
transformation of competition, firm structures and firm boundaries. Thus a
critical management challenge for the 1990s is the effective design of business
networks and the management of interdependence within such networks. The
business network is now increasingly been seen as an integral part of strategic
analysis and action the modern businesses need to be increasingly involved in.
The particular aspect of Information Technology that the authors have focused is
the networking. It is a technology, which provides a means to communicate and
share ideas. There has been a complete turnaround in the way employees interact
with each other. They are more able to connect to integrated organizational
networks and receive information at the tip of their fingers. Global sourcing
and controlling over the global subsidiaries is now made much more easily
through broad networks such as WAN.
Interpersonal communications within the organizations have also been greatly
enhanced by the new personal computer operating systems featuring peer-to-peer
networking. The new designs have reduced reliance on dedicated servers. To
summarize, the need for managing interdependence has been attributed by the
authors to the competitive pressures that included globalization, time-based
competition, increased market risk, and a greater emphasis on customer service
and cost reduction.
Critique
The organizational interdependence have become even more so powerful with the
commercialized advent of world wide network services such as the Internet,
Intranet, and Extranet. This has led to a new aspect of organizational
interdependence and is typically the focus of discussion be Henderson's
regarding the strategic partnership defined by him as,
"...A working relationship that reflects a long-term commitment, a sense of
mutual cooperation, shared risk and benefits, and other qualities consistent
with concepts and theories of participatory decision making."
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The development of the networked organization leaves behind a dent in the
seemingly improved interpersonal communications among the human-wares of the
interdependent organizations. The information technology has been considered as
an independent variable in the role of network technology in the
inter-organizational settings. This is based on the notion of role of
information technology affecting the types of inter-organizational coordination
but does not consider the vice versa case. However, Rockart & Short have ignored
the emergence of new types of organizing mechanisms such as hybrid coordination
mechanism, value-adding partnership, network organization and quasi-form etc.
Then there is also the question of the capacity to control networks and
bandwidths. This is a very important consideration as far as the health and
security of modern organizations are concerned. Immediate knowledge of
infrastructure-based information costs has been made possible through the
control of the bandwidth and helps the modern organizational manager to barter
for competitive bids from the various suppliers creating an automatic response
based quick system. However, the main critique is on the very notion of
integrative character of information technology in the modern organizations. The
current information systems lack a strong basis for the integration of
differentiated knowledge, competencies and expertise. Integration due to
interdependencies has been considered a process without any restrictions. Such
integration has been thought to be able to be achieved by a mere focus on
multiple information networks. This integration definitely involves an
underlying assumption that human understanding is possible through rational
devices. These information technologies fail to acknowledge the knowledge
workers as forming a unique set of interactive segment of modern organizations
based on their perceptions and interactive meanings and interpretations of words
and concepts.
Comments
The evolution to network-based organizational information delivery has been a
very important leap towards better and focused approach to the conduction of
businesses in the modern globalized world. Infrastructure-based networking
technologies offer the opportunity to upgrade organizational information base of
operations. Networked organizations are also able to have infrastructure
development costs offset by reduced operating expenses.
Information technology-enabled communication has brought immense capabilities in
the modern organizations in terms of their abilities to flexibility and up to
date knowledge of their various business aspects. IT encourages longer lasting
impacts on the life of organizations. They are able to surpass individuals and
directly relate to the inhuman side of an organization by adding to its stock of
information directly. This feature of retention of basic information brings
stability to an organization’s works.
The increasing global interdependencies through outsourcing and other modern
ways of modern conduction of global businesses have accelerated the pace of
change and demand more flexible and adaptive organizations to be competitive.
Malone and Smith (1984) have discussed organizational flexibility in terms of
"vulnerability" and "adaptability." He argues that the effective usage of
information technology reduces vulnerability by decreasing the cost of expected
failures and enhance adaptability by reducing the cost of adjustment.
The emerging global economy has brought with it the very importance of knowledge
management. The global firms, which require that diverse, specialized knowledge
workers need to develop and sustain unique knowledge competences, based on
networks and information technologies. The modern era of global business is
highly dependent on the information technologies, which are increasingly playing
an integrative role in knowledge intensive firms.
STRATEGIC SUPPLIER SELECTION:
UNDERSTANDING LONG-TERM BUYER RELATION
Robert Spekman in Business Horizon Vol. 31 1988 pg. 75-81
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Summary
The bottom line of the article is that organizations have different styles of
managing their suppliers based upon a need for a long-term relationship. It is
these chosen behavioral norms and relations that determine the efficiency and
effectiveness of materials, service, information, and knowledge exchanges in the
supply chain. The offshore producers and other competitive outsourcing
opportunities have changes the way buyers and interact with each other. Spekman
stated that “Competition from offshore producers, technological innovations, and
shortened product life cycles have changed buyer-seller relationships.”
The formation of partnerships between firms is becoming an increasingly common
way for firms to find and maintain competitive advantage. Small businesses,
unable or unwilling to enter the input supply industry, may reap benefits of
backward integration by selecting supplier relationships that approximate
backward integration. Such strategies may be enacted by forming close ties to
suppliers. Although close collaborative inter-organizational relationships may
contribute to higher profitability and greater competitive advantage, risks
remain and doubts persist.
Buyer-seller relations involve analogous benefits and costs. Benefits include
reduced uncertainty, managed dependence, exchange efficiency and social
satisfaction. There is also the possibility of significant gains in joint, and
generally individual, payoffs as a result of effective communication,
collaboration to attain goals, and reduced transaction costs. Spekman has
illustrated a number of reported relationship problems and failures, and
cautioned that the establishment of close relationships is not a universally
desirable strategy. Buyer seller relationship is successful when there are both
favorable environmental and market conditions for their establishment and
successful interaction. Absence of suitable environmental conditions leads to
the costs of maintaining the relationship exceeding the limited benefits thus
making it unviable to work upon.
Organizations make considerable attempts to establish stronger relationships
with suppliers and customers and often go extra length to promote and strengthen
their relationships. Modern businesses understand that any improved and
long-term relation with buyers reduces costs of finding a new buyer, increased
efficiency, improve quality and technology, and enhanced competitive position.
The article argues that the traditional business relationships through contracts
are not enough for a sustainable relation. Rather they demand for a closer, more
considerate in terms of response and flexibility and collaborative approach for
a successful buyer relation.
Critique
Buyer focused approach to a relation is considered to entail a long-term
relation. Buyers in modern businesses have favored simple transaction exchange
relationships with their suppliers without necessarily submitting themselves to
the complex relationship criteria. The transaction exchange relationship
involves multiple sourcing strategies that split the purchase of each item among
two or more separate sources. The article also argues that the only part played
by the supplier in such a circumstance is to meet these requirements at a
competitive price. However, the modern relationships with suppliers view such
relationships as firstly, valid for specific transactions and secondly, are
short term.
Suppliers no longer needed to be domestic focusing unendingly on price, quality
to match the specification, and delivery. Rather the focus has now changed
towards actions, which lead to more enduring buyer relationships. There is a
sense of lack of long-term commitment on both sides and hence a high degree of
uncertainty and volatility in the relationship. Modern businesses need to
realize that there are huge potential advantages in developing stable and
strategic relationships with selected buyers and suppliers through mutual and
long-term commitment of resources, common interest and loyalty.
In a long-term buyer-seller relationship, either party can control the process
and often the length of such a control leads to a tension and eventual breakup
of the relationship. Thus in such cases it’s the dependence itself that hinders
good relationships for fear of over dependence. Buyers and sellers need to learn
that by working together there are common goals that will be beneficial to both.
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Comments
One of the major benefits of buyer relationship is the synergy created between
two organizations working together on common transactions. Such mutual
understanding results in a constant improvement in product or service quality
through careful monitoring and co-operative analysis based on mutual
considerations. Buyer relation is essentially about extending and deepening the
business. Modern organizations do not let their buyers wander to competitors.
They emphasize on strong relationship and believe in retaining profitable buyers
and their loyalty through extra benefits.
Any good buyer seller relation however, has to be a mutual exercise benefiting
both parties. Organizations have basically two reasons for creating a long-term
relationship with their buyers. Firstly, to sustain their credibility not only
through good product quality but ongoing relationships with customers through
other generated means and the provision of extra services and benefits.
Secondly, the emergence of powerful, user-friendly databases has enabled large
companies to know more about their customers.
However, the extent of the relationships depends on the characteristics of the
product, customers and suppliers. Buyers and sellers follow a successful
relationship believing that a long-term durable relationship will entail higher
rewards. The decision whether to invest or divest in a relationship is dependent
on the quality of the relationship that has been generated. It is the very idea
of mutual gain that leads to longer term relationships between the buyers and
the sellers. It is very much important for each party to realize the potential
of sticking to one’s long term relationship rather than investing in finding new
buyers, which is quite costly at times.
Asset Stock Accumulation And Sustainability Of Competitive Advantage
Ingemar Dierickx and Karel Cool 1989 in Management Science Vol.35, 12,
1504-1511.
Summary
The main arguments of the authors Dierickx and Cool are:
1) Important strategic assets cannot be acquired through factor markets - they
have to be created.
2) Asset stocks are accumulated through time
3) A resource position can be defended if substitution and imitation are
difficult The language of asset stock accumulation and sustainable
competitiveness provides a language for discussing the management of key
resources. Dierickx and Cool argue effectively for management to consider the
strategic elements of their business as asset stocks, or resources. As one knows
that a stock increases over time, similarly the resources highlighted as
strategic also keep on increasing inflows and decay over time through outflows.
Management needs to gather policies around these strategically competitive
resources in determining the net flow through these key resources and the
subsequent increase or decrease in the asset stock of sustainable resources.
Management should play a role effectively and create with successful
implementation the appropriate policies around these key resources.
Dierickx and Cool emphasized that competitive advantage is most likely to result
from the development of unique asset stocks that are built up through an ongoing
process of critical resource accumulation. This process is a time consuming
unending process and any stoppage would result in other firms catching up with
the firm eventually and rip if off its competitive edge. They suggest that five
factors contribute to the development of valuable asset stocks. Each of the
following factors increases the difficulty of imitation, thereby enhancing its
potential for contributing to sustained competitive advantage.
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Time
It is the constant buildup of asset stock through continuous investments over
many years that leads to competitive advantages over other firms that attempt to
replicate this asset.
Asset Mass Efficiencies
Asset mass efficiencies means assets result in more assets being degenerated and
thus assets themselves give rise to development and increase in more assets.
Possessing a relatively high level of an asset makes subsequent additions to
that asset easier.
Interconnectedness Of Asset Stocks
Assets are interconnected through stocks. Organizations that have an ability to
augment a particular asset stock may be tied to or depend on the levels of other
asset stocks and thus lead to a non-replicable stock.
Erosion Of Assets
Because all asset stocks deteriorate without sustained investment, resources and
capabilities must be replenished if they are to continue to serve as the source
of competitive advantage.
Causal Ambiguity
Sustained competitive advantage increases if the resources or capabilities are
vague and under complex veils of processes or in causal ambiguity. The inability
to determine how or why a firm is enjoying a competitive advantage will
obviously greatly complicate the efforts of competitors attempting to imitate
the firm's success.
The article attempts to evaluate an understanding of the process and finds out
how strategic assets are accumulated to gain insights into why and when resource
positions are sustainable. Dierickx and Cool highlights that the important
strategic assets are non-tradable and are often non-imitable. They further point
out that explaining performance differences requires both stock and flow
variables.
Critique
Any successful strategy should aim to the development of sustainable competitive
advantages and this is the main reason why some modern as well as traditional
organizations have consistently enjoyed higher performance than their
competitors. Mintzberg's (1978) has defined strategy as “a pattern in a stream
of decisions” and if one sees the modern business’s development of sustainable
niche in the market, then the interesting issue is to understand the activities
or decisions that over time contribute to the development of competitive
advantage and high performance.
Resource accumulation decisions can have deep impacts on an organization’s
performance levels and future existence. The importance of organization-specific
capabilities and competitive edges in the same environmental settings pursuing
the same strategies led to widely varying levels of performance. Lawless, Bergh,
and Wilsted (1989) argued that these performance differences resulted from
differences in organizational capabilities.
Wernerfelt has identified a wide variety of tangible and intangible resources as
potential sources of competitive advantage and also highlights the fact that
resources will only contribute to the development of competitive advantage if
they are associated with “resource position barriers” that prevent imitation and
duplication by rivals. He argues that without some basic system of prevention of
acquisition or duplication of competitive resources, the competitors would
ultimately also acquire these same resources and competitive advantage will
disappear.
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Comments
The resource based competitiveness of the firms’ results from unique
configurations of resources that are accumulated over time to develop
organizational processes giving rise to performance differences that persist
over time. The main arguments and points that need to be kept in mind while
adventuring into the realm of competitiveness creation through resources are:
• Competitive resources and assets are accumulated and created by combining and
using tradable and non-tradable resources which are classified by the authors as
i) Tradable
(1) Financial resources
(2) Physical resources
(3) General Human resources
(4) Technological resources (explicit)
ii) Non-Tradable
(1) Specific Human Resources
(2) Technological resources (tacit)
(3) Reputation, Brands
(4) Trust, Customer relation
(5) Organizational routines
• Any asset that is acquired with the intentions of securing competitive edge
should give fewer chances of its tradability, immutability and substitutability.
Companies need to actively make sure that the above conditions are met in order
to reap the rewards of consistent competitiveness.
• The costs of building resource positions are relative to the value of the
intended strategy for which they are needed. The higher the value in its usage
the higher would be the capacity to bear the cost of that particular asset.
• Different companies have different cost flows related to their asset
accumulations and therefore, they need to understand their own unique way
themselves. The very customized nature of the buildup of competencies leads to
the non-replication of these competencies as they are directly related to the
particular organization itself.
References
Spekman, R. E., “Strategic Supplier Selection: Understanding Long-Term Buyer
Relationships,” Business Horizons, July/August, 1988, p.75-81.
Bakos, J. Yannis, and Eric Brynjolfsson. Information technology, incentives, and
the optimal number of suppliers Journal of Management Information Systems, Vol.
10, No. 2 (Fall 1993), 37-53
Rockart, John F., and James E. Short. IT in the 1990's: Managing organizational
interdependence. Sloan Management Review, Winter 1989, 7-17
Dierickx, I., & Cool, K. 1989. Asset stock accumulation and sustainability of
competitive advantage, 35: 1504-1511
Lawless, M.W., Bergh, D.D., & Wilsted, W.D. 1989. Performance variations among
strategic group members: An examination of individual firm capability, 15:
649-661
Mintzberg, H. 1978. Patterns in strategy formation, 24: 934-948
Wernerfelt, B. 1984 A resource-based view of the firm, 5: 171-180
Malone, T.W. & Smith, S.A., "Tradeoffs in Designing Organizations: Implications
for New Forms of Human Organizations and Computer Systems," Working Paper 112,
Center for Information Systems Research, Massachusetts Institute of Technology,
March 1984.
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