Magazine Summer 2006 Research Feature

The Transforming Power of Complementary Assets

Reaping the elusive productivity rewards of information technology requires that an organization must change the way it does business. Schneider National took that dictum to heart and became a trucking and logistics powerhouse.

Alan Hughes and Michael S. Scott Morton Reading Time: 28 min 

Topics

Permissions and PDF

Successful companies recognize that information technology can fundamentally alter the very nature of work. Such a transformation, however, often requires that an organization rethink its corporate strategy and remake its basic structure and processes — a task that one Fortune 500 CEO compared to “changing the tires on a moving car.” Looked at in this way, the so-called productivity paradox articulated in 1987 by Robert Solow — “you can see the computer age everywhere but in the productivity statistics”1 — becomes less mysterious. In fact, though, computers do affect productivity — and they do so to the extent that organizations adapt their internal structures, processes and culture to extract the greatest value from the technology. The data show a clear divide between companies that effectively change their organizations and those that do not. Laggard firms can live off their momentum and existing customer base for a while, but eventually a competitor will offer customers a significantly better product or service.

In this sense, IT is like steam power in the 1800s and electricity in the 1900s — a general- purpose technology with long-term impacts on the nature of production and consumption throughout the economy.2 But IT has become affordable, and thus ubiquitous, much more quickly than those earlier advances. Since the late 1950s, the price of computing power has fallen more than 2,000-fold. Although IT has enabled the growth of new companies and even entire industries, these technologies have also transformed the opportunities and challenges facing established manufacturing and service firms.3

We will show that the degree to which a particular company gains from changes in IT depends on the ability of firms to exploit investments in complementary assets —not just physical capital but also human and organizational processes. To support this proposition, we focus on how one company in the transportation sector transformed itself as it put IT to work.

We take as our point of departure the seminal work of Alfred Chandler4 and Harold Leavitt,5 who established the interrelatedness of a few major elements common to all organizations — namely, their strategies, their organizational structures, their employees and their technology.

Topics

About the Authors

Alan Hughes is director of the Centre for Business Research at the University of Cambridge. He is Margaret Thatcher Professor of Enterprise Studies at the Judge Business School and a fellow of Sidney Sussex College, both at the University of Cambridge. Contact him at a.hughes@cbr.cam.ac.uk.Michael S. Scott Morton is Jay W. Forrester Professor of Management (Emeritus) at the MIT Sloan School of Management, where he taught corporate strategy and was area head of the behavioral and policy sciences faculty.Contact him at mssm@mit.edu.

References (18)

1. R.M. Solow, ‘’We’d Better Watch Out,’’ New York Review of Books, July 12 1987, 36.

2. E. Helpman, ed., “General Purpose Technologies and Economic Growth” (Cambridge, Massachusetts: MIT Press, 1998).

Show All References

Tags:

Reprint #:

47411

More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.

undefined