Organizations generate and dissipate information. The main argument of this paper is that managing the information generation-information dissipation-organization cycle is central to the performance of a modern organization. The two key goals in managing the cycle are to ensure that the cycle is positively reinforcing, and that generation and dissipation are balanced. A positively reinforcing cycle will result in a continuously learning, effective organization; a negatively reinforcing cycle, on the other hand, will result in a decadent, ineffective organization. A cycle in which generation and dissipation are balanced is functional; lack of balance manifests itself as dysfunctionalities such as information overload, information in jail, and misinformation. An organization is a cause as well as a consequence of information generation and dissipation. Consequently, the effectiveness of an organization depends upon the semiotics of the stimuli and agents used for information generation and dissipation. A manager who understands the stimuli, agents, and semiotics—tacitly or explicitly—will be more effective than one who does not. The role of a researcher is to explicate the tacit knowledge if it exists, and to develop new knowledge if it does not, and thereby to make the information generation-information dissipation-organization cycle more effective and efficient.

The article focuses on relationship between measures of information technology (IT) investment and facets of corporate business performance. The results of the authors's study suggest that IT investments have begun to show results in proving they can make a positive contribution to firm output and labor productivity. However, there is a need to improve the modeling and measurement of the performance effects of aggregate IT investments. The Authors' study suggests that measures of IT investment have differential effects on the various measures of corporate business performance. A research strategy for modeling IT effects on firm output performance and labor productivity needs to be different from a research strategy for modeling IT effects on management effectiveness and strategic business performance. Another significant issue is how IT's effects should be measured. Organizations measure value of IT investments to a very limited extent in terms of minimal benchmarks of time and cost schedules.

A large-scale random sample is used to empirically examine the relationships between implementation of Advanced Manufacturing Technology (AMT) and three organization-level measures that have historically been attributed to AMT, but not fully tested along the AMT spectrum: market-oriented flexibility of the production process, organizational integration of production processes, and administrative intensity of the organization. Results indicate that as an organization moves along the technology scale from stand-alone AMT (e.g., CNC machines) through functionally oriented AMT (FMS and CAM) toward CIM, not only do its production processes become more integrated with each other, but those processes become more integrated with other functional systems of the organization, and the quality and timeliness of production information increase. Furthermore, this relationship becomes stronger as companies increase their level of implementation for the latter two technologies. Conversely, market-oriented flexibility decreases and administrative intensity is not observed to change as companies move along the technology spectrum. Future research should examine how organizational redesign and implementation strategies that accompany AMT implementation can concomitantly enhance organizational integration of the production process and market-oriented flexibility.

Firms are increasingly dependent on external resources and are establishing portfolios of interorganizational relationships (IRs) to leverage external resources for competitive advantage. However, the systems of information technology (IT) and process capabilities that firms should develop to manage IR portfolios dynamically are not well-understood. In order to theorize how key structural IT capabilities (IT integration and IT reconfiguration) and competitive process capabilities (process alignment, partnering flexibility, and offering flexibility) operate as systems of complements, we draw on the competitive dynamics perspective and resource dependency theory and on the literature for IT business value, interorganizational systems, and interorganizational relationship management. We also theorize how a firm's IR portfolio moderates the effects of structural IT capabilities on competitive process capabilities and why a firm's environmental turbulence moderates the effects of complementary process capabilities on competitive performance. We test our model using survey data from 318 firms in 4 industries. Our results provide broad support for the following: (1) structural IT capabilities and process capabilities operating as a system of complements, (2) the effects of structural IT capabilities on competitive process capabilities being contingent on IR portfolio concentration, and (3) the effects of complementary process capabilities on competitive performance being contingent on environmental turbulence. We discuss the theoretical and practical implications of how firms should develop complementary systems of structural IT capabilities and competitive process capabilities to manage IR portfolios dynamically and leverage external resources.

We review and reframe three main quests of research on information systems (IS) strategy: (1) the strategic alignment quest, (2) the integration quest, and (3) the sustained competitive advantage quest. The assumptions and logic of these quests have become less relevant in increasingly complex adaptive business systems (CABS), where the competitive performance landscapes of products and services are highly dynamic and co-evolve. We revise the strategic alignment quest to propose a co-evolution quest that addresses not only competitive strategy questions of a firm but also corporate strategy questions. The co-evolution quest seeks to increase a firm's agility and dynamism in repositioning itself, identifying profitable product-market positions as the evolving competitive landscape erodes the profitability of the firm's existing positions. To support the co-evolution quest, we revise the integration quest and propose a reconfiguration quest that encompasses not only business processes but also products and services, as well as the contracts, resources, and transactions associated with them. As the firm makes repositioning moves to co-evolve with the competitive landscape, the reconfiguration quest seeks to increase the firm's agility in disintegrating its existing nexus of contracts, resources, and transactions that support the old positions and in reconfiguring new ones that support the new positions. Finally, we revise the sustained competitive advantage quest to propose a renewal quest that recognizes the temporary nature of competitive advantage in CABS. The renewal quest seeks to destabilize the firm's old sources of competitive advantage when competitive dynamics erode their utility, rapidly create new sources of competitive advantage, and concatenate a series of temporary advantages over time. The three reframed quests provide the foundation for a research agenda on IS strategy in CABS.

We adopt a structural embeddedness perspective to explore how network structure shapes the type of value-creation opportunities that digital intermediaries can exploit and to understand the capabilities that they require to be successful in the context of different network structures. Through two comparative case studies, we find that different tie architectures and exchange structures form the push forces to shape the opportunities for digital intermediaries. Based on the type of network position they intend to occupy, digital intermediaries can increase their chance of success by developing distinct capabilities for bridging and/or bonding. The two cases also show that bridging benefits may be easier to obtain but harder to defend and scale, while bonding benefits are harder to obtain but easier to defend and scale. The findings are used to develop theoretical propositions related to successful digital intermediation in different network structures.

We examined 335 business process outsourcing (BPO) ventures to understand the effect of contractual and relational governance factors on BPO satisfaction from the client's perspective. While both contractual and relational factors explain significant variance in BPO satisfaction, relational factors dominate. By examining interactions between key contractual and relational mechanisms, we found that elements of the two governance approaches operate as substitutes with respect to BPO satisfaction. Specifically, the relational mechanism, trust, was found to substitute for contractually specified activity expectations, goal expectations, and contractual flexibility. Similarly, the relational mechanism, information exchange, was found to substitute for contractually specified activity expectations and goal expectations. Finally, the relational mechanism, conflict resolution, was found to substitute for contractually specified goal expectations. Our results can be applied to more effectively realize controls in outsourcing contexts and to design governance systems that integrate contractual and relational governance mechanisms based on the characteristics of client-vendor relationships.

There is growing recognition that firms’ information technology (IT)-enabled business models (i.e., how interfirm transactions with suppliers, customers, and partners are structured and executed) are a distinctive source of value creation and appropriation. However, the concept of business models’ (BMs) “IT enablement” remains coarse in the information systems and strategic management literature. Our objectives are to introduce a framework to elaborate the concept of IT-enabled BMs and to identify areas for future research that will enhance our understanding of the subject. We introduce the idea that two business-to-business (B2B) IT capabilities—dyadic IT customization and network IT standardization—are the mediating execution mechanisms between the strategic intent of interfirm collaboration and the (re)configuration of BMs to both create and appropriate value. We develop the logic that B2B IT capabilities for BM (re)configuration operate at two levels— IT customization at the dyadic relationship level and IT standardization at the interfirm network level—that together provide the complementary IT capabilities for firms to exchange content, govern relationships, and structure interconnections between products and processes with a diverse set of customers, suppliers, and partners. We discuss how these two complementary B2B IT capabilities are pivotal for firms to pursue different sources of value creation and appropriation. We identify how a firm’s governance choices to engage in interfirm collaboration and its interfirm networks coevolve with its B2B IT capabilities as fruitful areas for future research.

Recent work has shown that a firm’s plural sourcing strategy that determines how much it chooses to make vs. how much it chooses to buy requires consideration of the complementarities and constraints that affect the differential advantages of making and buying. Elaborating on this perspective, we theorize how (mis)fit between a firm’s plural sourcing strategy of simultaneously making and buying and its development of information technology (IT) enabled interfirm and intrafirm process integration capabilities influences firm performance in deregulated markets. We position our theory development and empirical tests in the context of the power-generation segment of the U.S. electric utility industry (EUI), an asset-intensive industry that has been deregulated to promote the separation of key value chain activities (i.e., generation, transmission and distribution) and the development of wholesale energy markets. We draw on the transaction cost economics, coordination costs, and IT capabilities perspectives to theorize that a firm achieves (1) fit, realizing performance benefits, by increasing market sourcing intensity (MSI)—or, how much it buys relative to how much it makes—and developing interfirm process integration capability for external coordination with the market, and (2) misfit, realizing performance penalties, by increasing MSI and developing intrafirm process integration capability for coordinating internal production. We collated data from archival sources for 342 investor-owned utility firms to construct a panel dataset for the 1994-2004 period on (1) firms’ MSI from wholesale electricity markets, (2) firms’ IT investment decisions to develop interfirm and intrafirm process integration capabilities, (3) measures of firm performance, and (4) several control variables related to exogenous shocks (i.e., regulatory change, Oil Crisis), region of operation, and firm-level factors. Our results suggest that fit between MSI and the development of IT-enabled process integration capabilities improves firm profitability, assessed by Returns on Assets (ROA), and misfit between MSI and the development of IT-enabled process integration capabilities extracts penalties in firm profitability. We also find evidence that fit between MSI and the development of IT-enabled process integration capabilities improves market valuation, assessed by Tobin’s Q, and asset turnover, assessed by operating revenue/assets. We discuss the implications of our findings for the development of IT capabilities to accompany a firm’s plural sourcing strategy and for the literature on IT business value.

In the context of software platforms, we examine how cross-side network effects (CNEs) on different platform sides (app-side and user-side) are temporally asymmetric, and how these CNEs are influenced by the platform’s governance policies. Informed by a perspective of value creation and capture, we theorize how the app-side and the user-side react to each other with distinct value creation/capture processes, and how these processes are influenced by the platform’s governance policies on app review and platform updates. We use a time-series analysis to empirically investigate the platform ecosystem of a leading web browser. Our findings suggest that while the growth in platform usage results in long-term growth in both the number and variety of apps, the growth in the number of apps and the variety of apps only leads to short-term growth in platform usage. We also find that long app review time weakens the long-term CNE of the user-side on the app-side, but not the short-term CNE of the app-side on the user-side. Moreover, we find that frequent platform updates weaken the CNEs of both the user-side and the app-side on each other. These findings generate important implications regarding how a software platform may better govern its ecosystem with different participants.

We investigate how firms use IT implementation to mitigate an anomaly in capital markets: investors underreacting to new public information. The theory of information uncertainty (IU) suggests that the anomaly is amplified with IU; that is, with ambiguity in information about firm value. We theorize that a firm’s IT in general—and enterprise systems (ES) in particular—can mitigate IU, thus reducing the IU-induced underreaction anomaly. Based on a difference-in-differences analysis of a sample of 572 ES implementations, our main finding is that ES implementation does reduce IU-induced underreaction anomaly. This is achieved through a reduction in the firm’s fundamentals volatility and an improvement in information quality. We also find that firms with greater IT capability are better positioned to realize the anomaly-reducing benefits of ES implementation and that ES’s anomaly-reducing effect is most pronounced when high levels of both functional and operational ES modules are implemented. We obtain remarkably consistent results when using alternate empirical design, samples, and measures of news. Such IT impacts are economically highly consequential as they improve capital market efficiency.

We use a social learning perspective to extend our understanding of information technology (IT) investment and return. Specifically, we investigate social learning in the context of interlocks between corporate boards, which allow firms to share knowledge and experiences with respect to their IT investments. Using a large dataset of firm-years from 2001 to 2008, we find (a) a positive relationship exists between a focal firm’s IT investment and that of its interlocked firms; (b) this positive relationship is amplified by the interlocked firms’ IT capability, but only if the focal firm has an active board, which devotes time to allow sufficient communication among directors; and (c) the component of the focal firm’s IT investment that is attributable to board interlock influence is positively related to the firm’s performance, but only if the firm has an active board. Collectively, these findings support our central thesis: social learning through board interlocks can play a significant role in influencing a firm’s IT investments and enhancing their payoff. That said, attaining such benefits requires boards to incorporate those firms with high IT management capability and to strengthen board activity so interlocked members can substantively share their knowledge and experiences with IT investments.

While prior research has established that information technology (IT) investment has a significant impact on firm performance, relatively few studies have provided insights into the antecedents of IT investment decisions. By integrating the behavioral theory of the firm and agency theory, we propose a behavioral agency theory to explain performance shortfalls and corporate governance, which monitors and controls managers’ tendency of overinvestment or underinvestment in IT, as key drivers that jointly determine IT investment. As such, IT investment facilitates a firm’s problemistic search that generates innovation in response to performance gaps. We further examine the role of innovation outputs as a mediating mechanism linking IT investment to firm performance. Our econometric analysis of a large-scale panel dataset provides empirical evidence corroborating our theory. Overall, this study contributes a behavioral agency theory to deepen our understanding about performance drivers and outcomes of IT investment decisions.

We investigate how public firms configure their enterprise systems (ES) portfolio when faced with information risk, which refers to the likelihood that corporate financial information is of poor quality. We focus on firms’ configuration of their ES portfolio by introducing a novel construct: ES portfolio balance, or the relative proportion of two categories of ES modules, operational and functional. We draw on the theory of information processing to hypothesize the impact of information risk on ES portfolio balance and how this impact is affected by internal controls. We construct a multi-source panel dataset of 697 firms and 1,993 firm-year observations from 2005–2008 and use econometric and multivariate procedures to test our hypotheses. We find that when faced with an increase in information risk, firms change their ES portfolio balance more toward operational modules. However, when such firms are also faced with materially weak internal controls, they change their ES portfolio balance more toward functional modules instead. These findings expand our understanding of how firms’ information processing needs drive the configuration of their ES portfolio and, more broadly, IT resources portfolio.

Upcoming.

Despite a growing demand for highspeed Internet and network access in the US broadband market, many digital-subscriber-line companies are downsizing, scaling back service, or closing their doors altogether. More importantly, upstart independent DSL providers have gone to war with the Baby Bells, alleging that they have purposely accelerated the shakeout of start-up companies by exploiting all DSL providers' dependence on the last-mile network infrastructure that the Baby Bells provide. Separating the economic interests of incumbent exchange carriers and their affiliates will ultimately serve consumers best. An open market for DSL access run exclusively by the Baby Bells would avoid existing distortions and let regulation focus on encouraging the regional Bell operating companies to provide access to underrepresented areas where investment would otherwise be unjustified.

Value nets are the architecture of sourcing agreements and alliances that firms implement to gain complementary resources and capabilities from other firms. They are a source of innovation, growth, and competitive success. However, governing value nets is challenging, and the IT support needed to enable them depends on the governance mode a firm chooses. Based on case studies of three Fortune 100 firms, we define three governance modes—prescriptive, evaluative, and collaborative. Prescriptive governance specifies partners’ activities and retains decisions rights. It is effectively supported by dashboards that monitor the status of partners’ activities, alerts that surface exceptions and errors, business rules that automate activities and handling of errors, and extended enterprise architectures that protect intellectual property. Evaluative governance delegates decision rights to partners for operational execution and assesses their capabilities through periodic evaluations. It is effectively supported by loosely coupled processes that provide partners with limited autonomy, periodic reporting of performance on service level agreements, and data and process mining directed at improving partners’ capabilities. Collaborative governance promotes peer-to-peer collaboration with value net partners. It is supported by metadata architectures that control repositories of information and process resources, by consistent business rules to coordinate processes, by monitoring of the total costs of the relationship, and by business intelligence for predictive monitoring. CIOs and senior IT executives can apply these findings to choose an appropriate governance mode and enable it with appropriate IT applications and processes.

Despite continued rapid growth in the outsourcing of supply chain services, longterm relationships between vendors and customers are challenged by the need to create sustainable value from the relationship. Our research suggests that the ability of client firms to align their collaboration modes and IT capabilities with their objectives for the vendor relationship is critical for creating value from supply chain relationships. In this article, we describe four collaboration modes being used for supply chain relationships, how they are aligned with value creation objectives, and the IT capabilities needed to achieve them. Our findings are based on a survey of a major supply chain vendor and 238 of its long-term customers, as well as interviews with IT and business executives responsible for over 100 long-term relationships.

Best practice suggests that a modular enterprise architecture, where interfaces between and among business processes and services are standardized, is a key IT capability for firms to achieve profitable growth. But few firms have successfully designed, implemented, and maintained such an architecture. This article presents findings on the drivers, constraints, and actions taken by two companies that transitioned to a modular enterprise architecture in response to competitive pressures from their business partners or customers. One company implemented an industry standard and the other developed custom partner interface processes (PIPs) to achieve business modularity. The lessons from these two case studies show how companies can smoothly transition to a modular enterprise architecture

We propose measuring software process improvement (SPI) success through implementation success - the extent to which initiatives lead to actual changes in software engineering practice. First, without implementation success, SPI success is impossible. Second, only when implementation succeeds can we see how SPI initiatives affect software practices. Third, implementation success is easy to assess. Finally, focusing on implementation success is a pragmatic way to steer SPI initiatives toward success. We studied the approach and outcome of 18 different SPI initiatives conducted over a five-year period at the telecom company Ericsson AB, based in Gothenburg, Sweden. Doing so gave us insight into how SPI initiatives can best 1) ensure stakeholder commitment 2) support organizational learning 3) distribute resources over different activities 4) manage customer relations.