IT-Enabled Business Transformation: From Automation to Business Scope Redefinition

During the past decade, articles and books on the virtues and potential of information technology (IT) and information systems (IS) to provide new sources of advantage for business operations have besieged managers.1 Indeed, the operative phrase today is “IT changes the way we do business.” These publications either have developed intuitively appealing prescriptive frameworks that provide alternative approaches to leveraging IT competencies or have described cases of successful exploitation of IT as a way to encourage managers in other companies and industries to consider IT as a strategic weapon.

We entered the 1990s highly skeptical of IT’s benefits. The productivity gains from IT investments have been disappointing. Loveman observed that “Despite years of impressive technological improvements and investment, there is not yet any evidence that information technology is improving productivity or other measures of business performance.”2 Max Hopper of American Airlines —whose SABRE Computer Reservation System (CRS) is often invoked to illustrate IT’s competitive potential —remarked that the era of competitive benefits from proprietary systems is over, since computers have become as ubiquitous as the telephone, and that any travel agency could replace its CRS within thirty days.3 Looking at the macroeconomy, Strassman observed essentially no correlation between levels of investments in information technology and such business performance indices as sales growth, profit per employee, or shareholder value.4 In a related development, many companies have handed over their IT and IS operations management to external vendors or systems integrators, such as EDS, IBM, Subsidiary-Issc, CSC, and Andersen Consulting, and the stock market seems to respond favorably to such moves.5

Against this backdrop, such questions as these confront senior managers:

  • Is the logical requirement of aligning business and IT and IS strategies, so compelling just a few years back, now obsolete?
  • Has IT (and IS) become a common utility that is best managed for efficiency alone?
  • Is the role of IT in our business today fundamentally different from its role in the past decade?
  • Does IT still play a role in shaping new business strategies, or does it simply play a supporting role in executing our current business strategy?
  • What is the source of IT competence, inside our organization or outside through partnerships and alliances?

These are valid questions because we are on the threshold of fundamentally reassessing the logic for organizing business activities and reevaluating IT’s potential role.

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References

1. See, especially,

M.S. Scott Morton, ed., The Corporation of the 1990s (New York: Oxford University Press, 1991);

P.W. Keen, Shaping the Future: Business Design Through Information Technology (Boston: Harvard Business School Press, 1991);

F.W. McFarlan, “Information Technology Changes the Way You Compete,” Harvard Business Review, May–June 1984, pp. 98–103;

R.I. Benjamin, J. Rockart, M.S. Scott Morton, and J. Wyman, “Information Technology: A Strategic Opportunity,” Sloan Management Review, Spring 1984, pp. 3–10; and

J. Rockart and J. Short, “IT in the 1990s: Managing Organizational Interdependence,” Sloan Management Review, Winter 1989, pp. 7–16.

2. “Does Investment in IT Pay Off?” Computerworld, 25 November 1991, p. 7.

3. See M. Hopper, “Rattling SABRE — New Ways to Compete on Information,” Harvard Business Review, May–June 1990, pp. 118–125.

4. P. Strassman, Business Value of Computers (New Canaan, Connecticut: Information Economic Press, 1990).

5. See R.L. Huber, “How Continental Bank Outsourced Its ‘Crown Jewels’,” Harvard Business Review, January–February 1993, pp. 121–129; see also

N. Venkatraman and L. Loh, “Diffusion of IT Outsourcing: Influence Sources and the Kodak Effect,” Information Systems Research, December 1992, pp. 334–358; and

N. Venkatraman and L. Loh, “Stock Market Reaction to IT Out-sourcing: An Event Study” (Cambridge, Massachusetts: MIT Center for Information Systems Research, Working Paper, November 1992).

6. See N. Venkatraman, “IT-Induced Business Reconfiguration: The New Strategic Management Challenge,” in Scott Morton (1991).

7. “Keeping up with Jones,” Computerworld, 6 August 1990, p. 70.

8. See N. Venkatraman and J. Short, “Beyond Business Process Redesign: Redefining Baxter’s Business Network,” Sloan Management Review, Fall 1992, pp. 7–21.

9. “The High-Tech War,” The Economist, 26 December 1992–8 January 1993, pp. 47–48.

10. “Steely Determination: Ingersoll Forges a Flexible Strategy,” Computerworld, 19 February 1990, p. 81.

11. Details on Otis Elevator are based on primary research interviews with Otis managers, primary documents, and sources such as:

“Otis MIS: Going up,” InformationWeek, 18 May 1987, pp. 32–37;

“Otis Elevator Introduces Thinking Control System,” Business Wire, 30 May 1990, section 1, p. 1; and

“Otis Elevator Dispatches Peace of Mind,” Inbound/Outbound, August 1988, pp. 20–28.

12. R.G. LeFauve and A. Hax, “Managerial and Technological Innovations at Saturn Corporation (Cambridge, Massachusetts: MIT Sloan School of Management, Working Paper, 1992).

13. See M. Hammer, “Reengineering Work: Don’t Automate, Obliterate,” Harvard Business Review, July–August 1990, pp. 104–122; and

M. Hammer and J. Champy, Reengineering the Corporation (New York: Free Press, 1993).

14. For an overview of the emerging principles of organizing, see

J.B. Quinn, Intelligent Enterprises (New York: Free Press, 1992); and

T. Peters, Liberation Management (New York: Knopf, 1992).

15. Scott Morton (1991).

16. T. Davenport and J. Short, “The New Industrial Engineering: Information Technology and Business Process Redesign,” Sloan Management Review, Summer 1990, pp. 11–27; and

T. Davenport, Process Innovation: Reengineering Work through Information Technology (Boston: Harvard Business School Press, 1993).

17. See Venkatraman and Short (1992).

18. See J.I. Cash and B.R. Konsynski, “IS Redraws Competitive Boundaries,” Harvard Business Review, March–April 1985, pp. 134–142.

19. See N. Venkatraman and A. Zaheer, “Electronic Integration and Strategic Advantage: A Quasi-Experimental Study in the Insurance Industry,” Information Systems Research, December 1990, pp. 377–393.

20. In a different data collection effort, A. Zaheer and I demonstrate that the degree of interdependent business processes enabled by the interfacing system is an important determinant of the level of business channeled by an agent to the focal carrier. See

A. Zaheer and N. Venkatraman, “Determinants of Electronic Integration in the Insurance Industry: An Empirical Test,” Management Science (forthcoming).

21. “JIT II Is Here,” Purchasing, 12 September 1991, pp. 7–10.

22. Remarks at MIT Center for Transportation Studies seminar, February 1992.

23. “Computer Helps Physician Skills,” Computerworld, 9 December 1991, p. 31.

24. See, for instance, Quinn (1992);

“The Virtual Corporation,” Business Week, 8 February 1993, pp. 98–103;

W. Davidow and M.S. Malone, The Virtual Corporation (New York: HarperBusiness, 1992); and

Peters (1992).

25. See Quinn (1992), p. 81.

26. “Otis Elevator Dispatches Peace of Mind,” Inbound/Outbound, August 1988, p. 28.

27. See N. Venkatraman and A. Kambil, “The Check’s Not in the Mail: Strategies for Electronic Integration in Tax Return Filing,” Sloan Management Review, Winter 1991, pp. 33–43.

28. See Venkatraman and Short (1992).

29. Field interviews with Federal Express and IBM executives.

30. For background discussion on the role of IT in restructuring relationships, see

V. Gurbaxani and S. Whang, “The Impact of Information Systems on Organizations and Markets,” Communications of the ACM, January 1991, pp. 59–73; and

T. Malone, R.I. Benjamin, and J. Yates, “Electronic Markets and Electronic Hierarchies: Effects of Information Technology on Market Structure and Corporate Strategies,” Communications of the ACM, June 1987, pp. 484–497.

31. Quinn (1992), pp. 47 and 49.

32. See, for instance, Hammer and Champy (1993); and Davenport (1993).

33. Hammer and Champy (1993), p. 32.

Acknowledgments

I thank Michael Scott Morton, who directed the Management in the 1990s Research Program, and Jack Rockart, director of the Center for Information Systems Research at MIT, who gave me the opportunity to do the research that forms the basis of this article. I also thank Hugh Macdonald of ICL; Ed Guthrie of the U.S. Army; Lee Morris, formerly of CIGNA; Jan Hopland of Digital Equipment Corporation; Tom Main of Aetna Insurance; Randy Grossman of Gemini Consulting; John Henderson of Boston University; James Short of London Business School; and Tom Valerio of CIGNA.