In this article we will investigate whether or not the statement ‘IT doesn’t matter’ applies to 3 semi government agencies in the Netherlands. The research is based on the concepts of resource based theory. In this article, the hypothesis is tested that the resources of IT lack the characteristics that give sustainable competitive advantage for semi government agencies. Interviews are conducted at the agencies among decision makers to get their opinion on the characteristics of the IT resources in relation to competitive advantage.
Summary IT doesn’t matter by Nicholas Carr
In his article in the Harvard Business Review of 2003 Carr argues that IT has lost its strategic value. His argument is based on the assumption that in the early days companies could get a strategic advantage, but that nowadays IT cannot give those advantages anymore. IT has become a commodity. And by nature a commodity doesn’t provide competitive advantage. It has become an infrastructural technology that is easily acquired and copied. The increasing affordability of IT functionality has destroyed one of the most important potential barriers to competitors. As a consequence, the way to approach IT investment and management will need to change dramatically.
The resource based theory is based on research within the field of strategic management. It stipulates that the competitive advantage of a firm lies primarily in the application of a set of tangible and intangible resources at the disposal of an organization. In order to have a sustained competitive advantage, these resources should be heterogonous in nature and not perfectly mobile. Barney (1991) added that these valuable resources should not be perfectly imitable or substitutable without great effort. If these conditions hold, competitive advantage may be achieved. In their meta analysis of strategic resources and performance, Crook et al (2008) have proven that there is strong evidence that supports the resource based theory.
Wade & Hulland (2004) investigated the use of the resource based theory in information systems research. They distinguish between resources as assets and as capabilities. Assets are defined as anything tangible or intangible the firm can use in its processes for creating, producing and /or offering its products to a market. In contrast, capabilities transform inputs into outputs of greater worth. Capabilities can include skills, such as technical or managerial ability, or processes, such as systems development or integration. In this research the resources as defined by Wade & Hulland are used as well as the characteristics which apply to Information Systems.
This investigation is a qualitative research among semi government agencies. As we investigate the opinions of decision makers on IT and the relation between IT and sustainable competitive advantage, this investigation is by nature a research on the subjective world of mental states. The opinions of the decision makers on IT and the relationship with sustainable competitive advantage are important. It makes a big difference in the way they make their decisions whether they regard IT as a strategic resource or as a commodity.
As we apply the theory of the resource based view, this is a world 2-3 research. The research stands in the interpretivist tradition. A case study approach among three semi government agencies is used. Such a case study sheds light on the rationales of decision makers on IT. Before discussing the research question a proper definition of ‘IT’ and ‘sustainable competitive advantage’ is required.
Definition of ‘IT ‘ and ‘sustainable competitive advantage’
As mentioned Wade & Hulland make a distinction between assets and capabilities. Both are resources as meant in the resource based theory. In accordance with the article by Wade & Hulland (2004) the following IT resources define IT :
a. Outside-in resources:
1. Manage external relationships: the ability to manage relations between the IS function and stakeholders outside the firm;
2. Market responsiveness: the collection of information from external sources and dissemination of a firm’s market intelligence and the organization’s response to that learning;
b. Spanning resources:
3. IS- business partnerships (manage internal relationships): processes of alignment between the IS function and other departments;
4. IS planning and change management: capability to plan, manage and use appropriate technology architectures and standards;
c. Inside-out resources:
5. IS infrastructure
6. IS technical skills
7. IS development
8. Cost effective IS operations
We will use these resource aspects in order to define what IT is about. So we confine the scope of IT, as used by Carr in his article, to the resources as mentioned above. In a sense we use a scope for IT that is broader than Carr’s as it also involves the management of information systems and the management of external relationships.
The theory states that the characteristics of the resources as such are necessary conditions for competitive advantage. Furthermore in this theory there is a difference between the resources that help the firm gain a competitive advantage and that help the firm to sustain that advantage.
These characteristics to gain competitive advantage are:
1. Valuable ‘ a resource must enable an organization to conceive or implement strategies that improves its efficiency and effectiveness (Barney, 1991);
2. Rare ‘ To be of value , a resource must be rare by definition. If a valuable resource is controlled by only one firm it could be a source of competitive advantage;
3. Appropriability: the advantage may not benefit a firm, if the firm is unable to appropriate the returns accruing form the advantage.
Characteristics to sustain the advantage are:
4. Inimitable ‘This advantage could be sustainable if competitors are not able to duplicate this.
5. Non-substitutable ‘ Even if a resource is rare, potentially value creating and imperfectly imitable, an equally important aspect is lack of substitutability.
6. Mobility- In addition the resources must have a low tradability and imperfect mobility to give a sustained competitive advantage.
The definition of ‘Sustained competitive advantage’ in a semi government is a difficult one: being part of the government means that there is no market ( for public goods) or there is a monopoly by law. Semi government is characterized by provisioning of services , for which these organizations get a fee in return. This means that the term competitive advantage has to be redefined: in this investigation we reformulate ‘competitive advantage’ as achieving the public goals as defined by law and Government-regulations in the best way possible and the degree in which they succeed in generating revenue in a profitable way (i.e. with the lowest costs) by the provision of services. In fact ‘sustained competitive advantage’ in this case study is interpreted as sustainable goal achievement in the best possible way.
In short the research question is ‘IT doesn’t matter’: The eight resources of IT don’t lead to sustainable competitive advantage. In the research the attributes of the IT resources are investigated (valuable, rare, appropriability, inimitability, non-substitutable, inmobility) as well as their relation with sustained goal achievement. When, in the opinion of the decision makers, there is no relation between the resources and sustainable goal achievement, the following statement is falsified:
As mentioned, we confine this research to the semi government in the Netherlands. They have the same complex environment and many different stakeholders. Furthermore, they depend for a significant part of their revenue on the fees they get for the provision of information services. Three semi government agencies in the Netherlands apply for this: The Netherlands’ Cadastre, Land Registry and Mapping Agency, RDW (a public service provider in the mobility chain), and the Chamber of Commerce. These organizations have an arrangement with the Dutch government for levying fees in return for the services provided. They are therefore similar in kind in assessing the goal achievement of their organization (the reformulation of the term ‘sustainable competitive advantage’).
Material & procedure
In order to have a good understanding of the organizations involved, official and internal documentation, including the decision making on IT by the Board of Directors or Steering Committees, are reviewed. On basis of this review a selection of the relevant decision makers in the agencies is made. This is verified in contact with the agencies themselves. The interview will be conducted with at least two decision makers of the agency, e.g. the CEO and the CIO. Selection of the decision makers depends in last resort on the decision making structure in the agency.
The questions of an open interview are prepared, based on the literature of the resource based theory. The open interview is tested with an expert-collegea of the University of Tilburg.
An interview protocol is formulated. Within one month the interviews are conducted. They consist of three interviews with the decision makers of the agencies involved. Well in advance of the interview, they receive the information on the subject of the interview and the duration. The agency gets an abstract of the results of the interview of their agency in return and is promised the report of the results of the investigation.
The interview consists of an introduction to break the ice and get a relation with the interviewees The interview is conducted with two researchers. The researchers stress the importance of the knowledge and perspectives of the interviewees. If permission is given, the interview will be taped. During the interview, the researchers give a brief explanation of the IT resources, which are in scope and their characteristics. Additionally information is given on the term ‘goal achievement’. In open questions, the opinion of the decision makers is recorded.
Afterwards the results of the interview are analyzed. The analysis results in a report of the agency, in which the opinions of the decision makers are listed. The listings include all the 8 resources and their characteristics and their relation to the goal achievement of the organization (the reformulation of the term ‘sustainable competitive advantage’).
The investigation results in three reports (one per agency); they report the IT resources and the characteristics in relation to the goal achievement of the organization. From these lists, conclusions can be drawn whether the IT resources with the desired characteristics lead to goal achievement. A possible outcome might be that some IT resources have a positive relation with sustainable goal achievement while others have not.
Validity and conclusion
This study has a low external validity as the scope is confined to 3 semi government agencies in the Netherlands, which provide for a considerable part of their revenue by fees for their information services. The study is more based on internal validity: whether the relations between the IT resources, their characteristics and goal achievement hold in the opinion of the decision makers.
To assure the validity and reliability of the instrument of the open interview, the instrument is tested beforehand. The interview is carried out by two interviewers in order to avoid subjectivity in the interpretation of the answers as much as possible.
During the interview, examples are supplied for the eight IT-resources as well as a definition of the attributes. The valuation of the attributes of the IT-resources is by nature subjective. After all the decision makers indicate how they value these attributes.
Barney, J.B., (1991), Firm Resources and Sustained Competitive Advantage. Journal of Management; 17, (1), pp.99’120.
Barney, J.B., (2001), Is the Resource-Based Theory a Useful Perspective for Strategic Management Research? Yes. Academy of Management Review; 26, (1), pp. 41’56.
Carr, N.G., IT doesn’t matter (2003), Harvard Business Review (2003)
Crook, T. R., Ketchen Jr., D. J., Combs, J. G., & Todd, S. Y. (2008). Strategic resources and performance: A meta-analysis. Strategic Management Journal; 29, pp. 1141’1154.
Wade, M and Hulland, J. (2004), The Resource-Based View and Information Systems Research: Review, Extension, and Suggestions for Future Research. MIS Quarterly, Vol. 28, No. 1 (Mar., 2004), pp. 107-142.
Appendix Table of results per agency
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