Aligning Information Technology, Organization, and Strategy PDF
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Ferdinand Mahr Aligning Information Technology, Organization, and Strategy GABLER RESEARCH Markt- und Unternehmensentwicklung / Markets and Organisations Editedby Professor Or. Ores.h.c.Arnold Picot Professor Or. Professorh.c. Or. h.c. RalfReichwald Professor Or. EgonFranck ProfessorinOr. Kathrin Möslein Change of institutions, technoloqy and cornpetition drives the interplay of rnarkets and organisations. The scientific series 'Markets and Organisations' addresses a rnagnitude of related questions, presents theoretic and ernpirical findings and discusses related concepts and rnodels. Ferdinand Mahr Aligning Information Technology, Organization, and Strategy Effects on Firm Performance With forewords by Prof. Dr. Dres. h.c.Arnold Picot and Prof. Dr.Tobias Kretschmer • GABLER RESEARCH Bibliographieinformationpublished bytheDeutsche Nationalbibliothek TheDeutsche Nationalbibliothekuststhis cccucencnintheDeutscheNationatbibüoqrahe: detailed bibliographieoataareevenebieintneInternetathttp://dnb.d-nb.de. Ooctoral tnesrs.Ludwig-Maximilians-UniversitätMünchen,2010 019 1stEdition 2010 Allrights reserved ©GablerVerlagISpringer FachmedienWiesbaden GmbH2010 Editorial Office: uteWrasmannISabineSchöller GablerVerlagisabrand01SpringerFachmedien. SpringerFachmedien lspart01SpringerSeience-BusinessMedia. www.gabler.de No part 01this pubjcanon may be reproduced, stored ina remevarsystem ortransmitted.inanyformorbyany means. eiectrcrsc.mecnanlcat. photo copying,recording,or otherwise.withoutme prior written perrrussionot the copyrightholder. Registeredand/or industrial names,tracenames,trade descriptionseto. crteointhis publica uco arepart01the lawlortrade-mark proteenon and may not be used Ireeinanyform or by anymeanseveniftnrsisnot ececmceavmarked. Coverdesign: KünkelLopkaMedienentwicklung,Heidelberg Printed onaeid-free paper Printed inGermany ISBN978-3-8349-2541-1 Foreword Prof. Dr.Dres. h.c, Arnold Picot Information technology has the potential to significantly enhance firm performance. However; firms differheavily in their capabilityto leveragethe full value of IT.These disparities maybe aconsequence ofelementsthatstrengthenIT's perfonnanceimpact andthatarenotpresentinallfinns. The author of this book investigates combinations of IT, organizational structures, human resource management practices, and corporate strategies that are qualified to unlock IT's full potential für performance increases. The issue of complementarities betweenIT,crganization,andstrategyisbothupto dateandoffundamentalimportance asthisconceptsupportsgeneralmanagersindesigningtheorganizationandtechnology required to implement the strategy they have set. Mter presenting a thoroughly developedtheoreticalmodel,the authorprovides large-scale empirical analyses oftwo specific phenomena related to complementarities between IT, crganization, and strategy. Basedonanextensivereviewofprevious studies on factors thatarecomplementaryto IT, the author develops an overarching theoretical framework to guide empirical research on the role of complementarities in the relationship between IT and firm performance. The author highlights that IT has to be aligned with complements both inside the organization such as organizational structure and human resource management and with complements that determine the characteristics of the organizationsuchasafirm'sstrategy,environment,andculture. For his empirical research, the author sets up two unique datasets. He matches three fully unrelated datasets on IT, firm performance, and organizationjstrategy, because avoiding statistical bias from collecting all information from a single source is all importantto drawreliableconclusionsoncomplementarities.The dataon organization andstrategywerecollectedbytwoextensivetelephonesurveyswhichwerespecifically designedandconductedforthisstudy. The author adds a thorough empirical analysis to the centralization versus decentralization debate that takes place in the research on IT's crganizational effects. Since information is a source of power and IT enhances information transfer and processing, researchers have recurrently asked if IT tends to be related to a shift of decision authority upward or downward the organizational hierarchy. The author's findings suggest a synthesis of both perspectives. Firms that focus on efficiency and VI ForewordProf.Pr. Dres.h.c.AmoldPicot rationalizationunlockIT's positiveperfonnanceeffectsbycombiningitwithcentralized decision rights that ensure the minimization of slack resources and redundancies. In contrast,finnswithafoeus oninnovationanddifferentiationbenefitfromcombiningIT with decentralization which enables autonomous employees to experiment with new ideas. The author also contributes to another long-standing debate: The question whether hybridstrategieswhichmixthecontradictingefficiencyandinnovationorientationsare beneficial or detrimental to a firm's performance. The author argues that hybrid strategies may be as beneficial as pure strategies if suitable means to solve organizational tensions are in place. He shows that both a combination of certain organizational structures and human resource management practices as well as a specific composition of ITtypes are suitable means to mitigate the conflicts that arise from mixingefficiencyandinnovationorientation. Overall, this book is a remarkable contribution to the research on complementarities between IT, crganization, and strategy on the frontier of the management and economicsliterature. Prof.Dr.Dres. h.c.ArnoldPicot Foreword Prof. Dr.Tobias Kretschmer The importanceofinfonnationtechnology(IT) for householdsaswellas businesseshas grown significantly in the last decades. IT has changed the way firms conduct their business, it has opened up entirely new markets, distribution channels and business models. But even in "traditional" manufacturing firms, IT has had a tangible impact. Interestingly however, not all finns have benefitted equally from usingIT,and earlier studieshavefoundthatfirmsthatmakeITworkwellwiththeirorganizationto support theircorporatestrategybenefitthemost.This isthestartingpointofFerdinandMahr's book, whichsetsoutto shedfurtherlightontheinterdependenciesbetweenIT,strategy andorganizationalstructure,andsucceedsbrilliantly. Ferdinand Mahr makes both a significant theoretical and an important empirical contribution with his book, Thecretically, he makes use of the theory of infonnation processingto considerthe impactofITon firm success. Informationprocessingtheory views an organization as an entity that consists of elements or individuals that send, receive and process information both vertically and horizontally - that is.infonnation canbe usedto give andreceiveordersorfor cocrdinationbetweenhierarchicallyequal elements.IThas thepotentialto supportbothverticalandhorizontalinfonnationflows, whichgives an appealingtheoreticalpropositionaboutthebenefitsofIT. However; while it is undisputed that IT helps transmit and process information, uncoveringtherealeffects ofITandpotentialcomplementaritiesbetweenITandother firm characteristics poses considerableempiricalchallenges. Not onlyis it necessaryto gatherinformationatthelevel ofthetechnologyratherthantheamountinvested- pure investmentstatisticswouldnotpossesstherequiredlevel ofdetailto studyinteractions betweenITandspecificorganizationalfactors - butevenmoreimportantlyacompetent and relevant study also calls for information on "intangibles" like organizational structure and strategy. Ferdinand Mahrtackles and solves these problems by using a highly sophisticated method of data gathering through semi-structured telephone interviews.This methodhastheadvantageofgeneratingmoredetailedinfonnationthan paper questionnaires, but at the same time is sufficiently structured to allow robust statisticalanalysiswithlargesamples. However;aswithmostappliedresearch,themethodisnothelpfulifit doesnotaddress questions practitioners actuallyask, orifthe results do not ringtrueto theirpotential users. FerdinandMahr'sworkdoes both - thevastnumberofITconsultantsthatalign ITsystemsto strategyandorganizationalstructuredemonstratesthatthis isaproblem VIII Foreword Prof Dr.TobiasKretschmer finns thinkaboutandfor whichtheydanothavesimple,obvious answers.Atthesame time,FerdinandMahr'sresultsalsoshowthattheroleofITas partofan organizationis by no means trivial, andthat one-size-fits-all solutions can be ineffective at best, and value-destroyingatworst: First,moreITisnotalways beneficial.Even generalpurposetechnologies like personal computers cannot compensate a general misalignment between strategy and organizationalstructure.Inotherwords,ifthenon-technologicalelementsofafirm are notaligned,throwingmoneyattechnologycannothelpovercomethisdisadvantage.Für managers,this impliesthatto makeproductiveuseofIT,firms haveto makesuretheir other structural elements are aligned. In a sense, IT can work as an amplijier for the performanceofalreadywell-alignedfirms. Second,thechallengeoffindinga balance betweenthe exploitationofexistingmarkets or strengthsandthepursuitofnewopportunitiesismademucheasierwiththesupport ofIT.In fact, firms thatattemptthis delicate balancingactwithout ITthathelps them collect, processandinterpretthevastamountofdifferentInformationtypicallyperform worsethaniftheyhadfocused on eitherneworexistingmarkets only,whilefirms that make use ofthe opportunities presented by ITperform on parwith focused firms. For managers insuchfinnsthisimpliesthatnovel, challengingstrategiesinvolvingcomplex tradeoffsareonlymadepossiblethroughsuccessfuluseofIT.Thus, ITactsasan enabler ofsuchstrategies. Ferdinand Mahr dissects and analyzes these two roles of IT in a very thorough and originalway. The blendofsolid, exhaustivetheoryandstate-of-the-artempiricsapplied to unique data makes for a series ofinsightful studies on the complex effects ofIT on performance. Iam convincedthatthequestions,methodsandinsights containedinthis bookwill inspirepractitionersandresearchersintheirwerk, Prof.Dr.TobiasKretschmer Preface This dissertation is the result of nearly three years of hard werk, fun, and curiosity, Severalpersonsandinstitutionshavecontributedto thecompletionofthisthesis. First and foremost, I would like to thank my supervisor Tobias Kretschmer für his exceptional, continuous. and motivating support. Also, I am grateful für the opportunitiesto implementa large-scaletelephonesurveyandconductmy research in London für several months. Ilearneda substantial amountabout conductingscientific research, writing and publishing scientific papers, and academia as a whole. Further; Tobias was always happyto provide advice on goodfood, venues, andlifein general. I amverymuchindebtedto him. Further; Iam gratefulto DietmarHarhoff my secondadvisor, for his excellentsupport, which began during my graduate studies and continued during my post-graduate 'MasterofBusinessResearch'anddoctoralstudies. Deutsche Telekom Stiftung and, in particular, its chairman Klaus Kinkel generously supported the telephone survey conducted for this dissertation. Förderverein Kurt Fordan, German Academic Exchange Service, and LMU Management Alumni have supportedme financiallyat various stages inthe process. This help has beengratefully received. The Centrefor EconomicPerformance at theLondonSchoolofEconomics andPolitical Scienceofferedme to stayfor fourandahalfmonthsandto interactwiththeirfaculty. I would like to thank John Van Reenen, Mirko Draca, and Raffaela Sadun for their hospitality,theircomments onmy research, andtheirsupportwiththe constructionof thedatasetsforthisdissertation. Numerous comments for my research were received at the various conferences and seminars Ihaveattended,includingtheEuropeanAcademyofManagementConference 2008 in Ljubljana, the 2008 Academy of ManagementAnnual Meetingin Anaheim, the Fifth bi-annualConferenceonThe Economics oftheSoftwareandInternetIndustries in Toulouse, the DRUm Society Summer Conference 2009 in Copenhagen, the 7th ZEW Conference on the Economics of Information and Communication Technologies in Mannheim,the2009AcademyofManagementAnnualMeetinginChicago, andseminars attheUniversityofSouthernDenmarkinOdenseandLMUMunich.
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