The Importance of IT-Enabled Flexibility in Alliances

While IT can serve as an enabler of strategic alliances, it can also create obstacles in forming partnerships, particularly when IT systems are inflexible.

Though strategic alliances have always been important, they are arguably more critical now than ever before. In this highly digital age, organizations rely increasingly on Internet-based or computerized products and services that require the simultaneous cooperation of multiple organizations. Customer-facing applications often draw real-time information from several companies at the same time. Research and development (R&D) collaborations often require integration of data across organizational boundaries. And inventory-management systems frequently link multiple companies in a supply chain.

Through strategic alliances, companies often codevelop products, jointly develop new information systems and share technical or managerial expertise. While managers give significant attention to cultural, marketing or product synergies in strategic alliances, information technology (IT) usually receives much less attention. This is myopic, since, according to our research, IT can play a significant role in determining whether a partnership will be fruitful.

More specifically, our research has shown that flexible IT systems can serve as enablers to successful partnerships. On the flip side, when IT systems are inflexible, they can create serious obstacles to beneficial partnerships. For example, several years ago, Amtrak intended to make online reservations and tickets available to third-party travel sites. But setting up connections to its old mainframe systems proved to be too difficult for its partners. Eventually, Amtrak modernized its systems with a service-oriented architecture (SOA), which can be accessed through open communication protocols over the Internet.

More recently, Santander Bank of Spain cancelled its deal to buy 316 retail-banking branches from the Royal Bank of Scotland (RBS), in part because of incompatibilities between their IT systems. The lesson: Major deals can fall apart when IT systems are inflexible.

One key to making IT infrastructures more flexible — as Amtrak found out — is SOA adoption. And Amtrak is not the only example. Lufthansa, for its part, leveraged SOA to create a common platform with Star Alliance partners, something that would have been impossible with Lufthansa’s old legacy systems. Mohawk Fine Papers Inc. (MFP) used SOA to quickly form hundreds of digital business-to-business (B2B) partnerships; the SOA adoption allows pricing information from multiple suppliers to appear instantly whenever MFP clients wish to place an order.

Dimensions of IT-Enabled Flexibility

Broadly speaking, SOA is what matters.

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