Appropriating IT-Enabled
Value Over Time
Establishing when and how an
IT-dependent strategic initiative
can be protected
© Gabriele Piccoli
Course Roadmap
• Part I: Foundations
• Part II: Competing in the Internet Age
• Part III: The Strategic use of Information Systems
– Chapter 6: Strategic Information Systems Planning
– Chapter 7: Value Creation and Strategic Information
Systems
– Chapter 8: Value Creation with Information Systems
– Chapter 9: Appropriating IT-Enabled Value over Time
• Part IV: Getting IT Done
© Gabriele Piccoli
Learning Objectives
1.
Analyze the potential of IT-dependent strategic initiatives to ensure value
appropriation over time.
2.
Identify and recognize the four barriers to erosion that protect ITdependent competitive advantage. Learn to estimate their size.
3.
Identify the response lag drivers associated with each of the four barriers
to erosion, and provide examples of each.
4.
Recognize how each of the four barriers can be strengthened over time
in order to protract the useful life of an IT-dependent strategic initiative.
5.
Employ the concepts and frameworks described in this chapter in the
context of future IT-dependent strategic initiatives
6.
Articulate possible courses of action based on your analysis to be able to
offer recommendations
© Gabriele Piccoli
Not all Initiatives are Equal
• Can we reduce uncertainty about whether
IT-dependent strategic initiatives lead to
sustainable advantage?
• Examples:
High Speed
Internet Access
in Hotels
vs.
Business Intelligence in Casinos
© Gabriele Piccoli
Sustainability Framework
Careful!
– Reproducing IT is NOT equivalent to reporoducing an
IT-dependnet strategic initiative
Basic Concepts:
–
–
–
–
Sustainable competitive advantage
Response lag
Response lag drivers
Barriers to erosion
© Gabriele Piccoli
Sustainable Competitive Advantage
• Ability of a firm to protect its competitive
advantage in the face of competition
– Don’t focus on theoretical replicability
– Sustainability as a continuum
• How much time to erode the advantage?
• How much money to erode the advantage?
• The stronger the advantage, the higher the
resiliency to imitation
© Gabriele Piccoli
Response Lag
• Response lag:
– The time it takes competitors to respond aggressively
enough to erode a firm’s competitive advantage
– A measure of the delay in competitive response
Response Lag Drivers
Characteristics of the technology, firm, its competitors, or
the value system in which the firm is embedded that
combine to make replication hard and costly.
• Response lag drivers:
– Work in combination
– Combine into Barriers to Erosion
© Gabriele Piccoli
Four Barriers to Erosion
© Gabriele Piccoli
IT-Resources Barrier
© Gabriele Piccoli
IT-Resources Barrier
• Rely on access to IT assets and
capabilities necessary to produce and use
the technology at the core
• More reliance on preexisting IT resources
leads to more difficult in replication
© Gabriele Piccoli
IT-Resources Barrier
IT assets:
– Available IT
resources
– What the firm has
IT Capabilities:
– Skills and abilities of
firm’s workforce
– What the firm can do
© Gabriele Piccoli
IT-Resources Barrier
IT Assets
IT infrastructure - IT
components managed
by specialists to provide
standard services to the
organization
Information Repositories
– data stores
containing extensive
information
© Gabriele Piccoli
IT Capabilities
IT tech skills - ability to
design and develop
effective computer
applications
IT mgmt skills - ability to
provide leadership to
create more response
lag
Relationship Asset - mutual
respect and trusting
rapport between the IS
function and business
managers
Complementary-Resources Barrier
© Gabriele Piccoli
Complementary Resources
• As an initiative becomes more reliant on these,
the complementary-resource barrier to imitation
strengthens, and replication of the strategy
becomes slower, costlier, and more difficult.
© Gabriele Piccoli
Complementary Resources
Structural Resources
Structural Resources: used to enact ITdependent strategic initiative
– Tangible: competitive scope, physical assets,
scale of operations and market share,
organizational structure, governance, and
slack resources
– Intangible: corporate culture, top management
commitment, and the ability to manage risk
© Gabriele Piccoli
Complementary Resources
Capabilities
Capabilities: how the firm carries out its
productive activities
- Activity System: interlocking and mutually
reinforcing economic activities that show internal
consistency and are appropriately configured
- Business Processes: series of steps that a firm
performs in order to complete an economic
activity
© Gabriele Piccoli
Complementary Resources
External Resources
• Assets that do not reside internally with
the firm but accumulate with other firms
and with consumers
– Brand
– Distribution channels
© Gabriele Piccoli
IT-Project Barrier
© Gabriele Piccoli
IT-Project Barrier
• Rely on an essential enabling IT core
• Cannot be implemented until the necessary
technology has been successfully introduced
© Gabriele Piccoli
IT-Project Barrier
IT Characteristics
- Complexity:
- A function of the bundle of skills and knowledge
necessary to effectively design, develop, implement,
and use it
- Uniqueness:
- Degree of tailoring of the core IT
- Off the shelf vs. custom developed
- Visibility:
- Extent to which competitors can easily and directly
observe the enabling technology
© Gabriele Piccoli
IT-Project Barrier
Implementation Process
The strength of barriers changes depending
on the implementation characteristics of
the IT core
- Implementation process complexity:
- A function of the project size and scope, number of functional
units involved, complexity of user requirements, etc…
- Degree of process change:
- A function of the far reachingness of the IT core
- Harder and riskier change becomes when
- More departments involved
- More organizational boundaries crossed
© Gabriele Piccoli
Preemption Barrier
© Gabriele Piccoli
Preemption Barrier
• Even if a competitor is able to replicate an ITdependent strategic initiative, the response may
be unsuccessful if:
– The leader created preferential relationship with
customers or other members of the value system
– The leader introduced substantial switching costs
• When this occurs respondents must
– Eeither compensate customer for the cost of
switching or
– Provide enough additional value to justify customers’
absorbing the switching costs
© Gabriele Piccoli
Preemption Barrier
Switching Costs
– The total costs borne
by the parties of an
exchange when one
of them leaves the
exchange
Value System Structure
– Provides opportunities for
preemptive strategies
and for the exploitation of
the response-lag drivers
© Gabriele Piccoli
Preemption Barrier
Switching Costs
• Co-specialized tangible investments:
– The total capital outlay necessary to obtain
the needed physical assets
• Co-specialized Intangible investments:
– The need of the firm’s customers or channel
partners to invest time and money to partake
in the initiative
© Gabriele Piccoli
Preemption Barrier
Value System’s Structure
• Relationship Exclusivity:
– Participants in the value system elect to do
business with only one firm that provides a
particular set of products/services
– They work with either the leader or the
follower but never with both
• Concentrated Value-System Link:
– The market numbers relatively few
organizations or consumers to work with
© Gabriele Piccoli
The Dynamics of Sustainability
• Two main dynamics
– Capability development
– Asset-stock accumulation
Manager’s Role
Plan to remain ahead of the competition.
Look for opportunities to reinvigorate and reinforce the
existing barriers to erosion
© Gabriele Piccoli
Capability Development
• The process by which:
– An organization improves its performance
over time by
– Developing its ability to use available
resources for max effectiveness
• Capability development is the process of
“Learning by using”
© Gabriele Piccoli
Asset-Stock Accumulation
• The Process by which:
– Firms accrue resources over time
– These assets are typically developed over time and
cannot be accelerated
Example: Gamblers’ data
© Gabriele Piccoli
Applying the Framework
• We can use the sustainability framework
to determine when to pursue an ITdependent strategic initiative
• We ask two types of questions:
– Prerequisite questions
– Sustainability questions
• Applicable to both
– The leader trying to maintain an advantage
– A laggard looking to respond to the innovator
© Gabriele Piccoli
Prerequisite Questions
Is the initiative aligned with our strategy?
- This question helps figure out how the initiative
advances the firm’s positioning and strategy
Are we focused on reducing cost, increasing
willingness to pay, or both?
- This question helps focusing the analysis on the planned
value proposition
What’s the IS design needed for this Initiative?
- This question ensures that we do not narrowly focus on
IT investments, but rather on IS design
© Gabriele Piccoli
Sustainability Questions
Which competitors can replicate the initiative?
- The leader should focus on maximizing the impact of
prerequisite assets and capabilities
- The laggard can estimate the role existing assets and
capabilities play in the initiative
How long before competitors can offer the
same value proposition?
- What is the response lag of the IS core of the initiative?
- This question helps in estimating the role of IT in the
initiative and the role of the IT project barrier
© Gabriele Piccoli
Sustainability Questions
Will replication do competitors any good?
- This question helps in estimating the role of the
prehemption barrier
- Based on this analysis the leader may choose to move
aggressively to build switching costs
- The laggard may choose fast replication or to be more
circumspect
What evolutionary paths does the innovation
create?
- This question points to the need to evaluate the potential
for capability development and asset stock accumulation
© Gabriele Piccoli
Outcomes and Recommendations
1.
Develop the IT-dependent strategic initiative
independently. Best suited when:
–
–
–
2.
Strong barriers to erosion exist
Sustainable advantage can be attained
Potential to gain acceptable ROI before imitation
Develop the IT-dependent strategic initiative as part of
a consortium. Best suited when:
–
The innovator is unlikely to yield sustainable competitive
advantage,
But it will improve overall profitability of the industry
–
3.
Shelve the IT-dependent strategic initiative when:
–
–
© Gabriele Piccoli
The initiative will not likely create strong barriers to erosion
Retaliation by competitors will degrade average industry profits
What we Learned
1.
Analyze the potential of IT-dependent strategic initiatives to ensure value
appropriation over time.
2.
Identify and recognize the four barriers to erosion that protect ITdependent competitive advantage. Learn to estimate their size.
3.
Identify the response lag drivers associated with each of the four barriers
to erosion, and provide examples of each.
4.
Recognize how each of the four barriers can be strengthened over time
in order to protract the useful life of an IT-dependent strategic initiative.
5.
Employ the concepts and frameworks described in this chapter in the
context of future IT-dependent strategic initiatives
6.
Articulate possible courses of action based on your analysis to be able to
offer recommendations
© Gabriele Piccoli