Aligning Information Technology, Organization, and Strategy

200 Pages·2010·48.67 MB·English

by  Ferdinand Mahr

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
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Ooctoral tnesrs.Ludwig-Maximilians-UniversitätMünchen,2010
019
1stEdition 2010
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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.