How much does Information Infrastructure investing matter for firms?
Does Information Infrastructure (II) of an organisation refer to the tangible technical artefacts possessed by it? Or does it mean the way an organisation uses its intellectual capital to leverage from technology? This is an ongoing debate from which many interesting ideas evolve. There is no way in which the true nature of the Information Infrastructure can be captured, however I will attempt to do some justice by focusing and splitting the essay into three main sections, which will bring out the best of the debate.
The example of Information Infrastructure of the SKF Group and Procter & Gamble has been analysed to understand different aspects of investment in Information Infrastructure, in order to attain specific strategic goals by aligning business strategies with IT strategies.
This essay is split into three main sections. The first looks at the notion of Information Infrastructure, which explains the meaning of Information Infrastructure and brings to light that it is not just mere technology but a socio-technical system, by taking examples of electronic superhighway and the World Wide Web. The second examines the significance of investing in Information Infrastructure, which illustrates the need, necessity and the manner in which firms invest differently to achieve competitive advantage. This section is further stretched to understand the way investment is done to build infrastructure as utility and enabling in nature respectively. Finally, the debate draws conclusions, whereby through evidence of literature it is re-instated that whatever kind of Information Infrastructure a company invests in, success can not be attained if intellectual capital is missing.
Does IT matter? This is a question with emerging answers. This essay aims to best clarify the meaning of Information Infrastructure as a heterogeneous socio-technical network. There is no way in which the true depth of Information Infrastructures can be examined. However, by analysing the investment portfolio of a productivity focused and innovation focused firm, to some extent it can be justified that it’s not just technology but the way organisations leverage from IT.
“Information Infrastructure is best considered in terms of an analogy with a transport infrastructure” (Davies, 2002, p.265). Davies underlines that the way road infrastructure enables traffic to reach from one point to another with the help of automobile technology and explore new routes, similarly Information Infrastructure enable organisations to achieve their strategic aims and identifies new business opportunities by usage of various IT applications. After examining the notion of Information Infrastructure, the essay moves forward, bringing to notice the importance of investing in Information Infrastructure to attain business goals. Further, Carr (2003, p.41) has identified that “information technology’s power and ubiquity has grown and its strategic importance has diminished”. In order to attain competitive advantage and sustainability, he states it is important to invest differently and innovatively in technology, so that other firms cannot replicate it easily. Having said this, this essay has considered the way SKF Group and Procter & Gamble have invested in a utility-focused infrastructure, enabling focused infrastructure to link business strategies with IT strategies to achieve their strategic aims.
Finally, it is summarised that whatever kind of infrastructure the company may invest in, if it lacks human capital to develop, deploy and manage the technology, it is difficult to accomplish economic returns, distinction and long term growth.
Notion of Information Infrastructure
Duncan (1995) describes Information Infrastructure as a set of shared, tangible IT resources forming a part of business applications. These could be platform technology (hardware and operating systems), network and communication technologies or core software applications. But in the revolution of the information age, Information Infrastructure cannot just be mere technology. It is the way IT applications and frameworks get embedded in firms and help them attain strategic goals and competitive advantage. Information Infrastructure is a combination of process and technology adopted by organisations with certain intentions. Weill and Broadbent (1998), mirror an organisation’s Information Infrastructure as a collection of hardware, software, devices, data, policies and IT related personnel. According to them, IT infrastructure is made up of IT architecture and IT skills. IT architecture pertains to application, packages and data while IT skills refer to knowledge and capabilities needed to manage IT resources. “Information Infrastructure is chains or sequences of processes that are directly supported or enabled by the IT infrastructure” (Ciborra, 2000, p.16). Thus, an organisation must possess both tangible and intangible IT infrastructure to achieve the desired.
Hansth (2000) further argues that Information Technology cannot work on its own. It needs appropriate staff and knowledge capable of deploying, using and maintaining it. For instance flight-booking systems doesn’t work unless all booked seats are registered in the system. Hansth perceives Information Infrastructure as evolving socio-technical heterogeneous networks instead of pure technology. Information Infrastructure acts like an umbrella sheltering company’s technological components, human capital, data, information, policies, alliances, processes and strategies. It is an environment created by an organisation to achieve strategic aims by leveraging technology.
As a visual example, the Information Infrastructure of the electronic superhighway can be considered. According to a Clinton-Gore report, it is a heterogeneous network encompassing various well-developed and integrated technical and social components required to capture the promise of the information age. The components include:
- Equipments like cameras, scanners, telephones, computers, switches, cable, televisions, monitors, printers and much more.
- Information in the form of video programming, images, archives and so on.
- Applications and software that allow using, manipulating and organising information.
- Network standards and transmission codes to help connect various networks.
- Human resources which create softwares, information and use it.
Moving ahead, the World Wide Web is also one of the examples of Information Infrastructure. It depicts the heterogeneous socio-technical structure. At base level come the TCP/IP protocols which facilitate global communication. Upon that come ISP and then the end users. A network with various tangible and intangible components like routers, switches, monitors, cables, users, technicians, developers and many more exists. It is a kind of layered networked infrastructure in which the top level can not exist without the base below it (Hanseth & Braa, 2000).
Thus, Information Infrastructure can be concluded as a heterogeneous phenomenon, which can be socio-technical, layered or both. The following section highlights the attitude of different organisations towards investing in this kind of Information Infrastructure for attaining competitive advantage.
Significance of Investing in Information Infrastructure
In theetail, banking or manufacturing domain, Carr (2003) brings to focus that since technology is now easily affordable and available, it plays the role of a mere commodity like the building, electric generators or telephones, instead of a strategic resource. Investing in infrastructure for data processing and handling is part of every firm’s core business and thus a necessary area of investment. What now matters is how you invest differently in technology? This question can be answered if an organisation realises why there exists a need to invest, when to invest and how to invest.
It is true that the role and importance of IT has emerged from a traditional back-office role to an emerging strategic role. But Henderson & Venkatraman (1999) argue that anticipated value of the investment in IT is still found difficult to be achieved. They have identified that “IT has potential of not only supporting chosen business strategies but also to shape up new business strategies, but this is possible only if an organisation can achieve strategic alignment between its business and IT strategies”. An organisation must define its strategic goals by looking at its internal capabilities and analysing its position in the market to attain advantage over its competitors. Investment in infrastructure should be done interlinking internal capabilities with the external market in order to leverage technology to gain competitive advantage, uniqueness from competitors and maximise economic performance. Firstly, corporations should define their strategic goal and then, by analysing internal infrastructure and external forces, investment should be made. According to McFarlan(1984, p.98), if investment is done accurately, “organisations can build barrier to entry, build switching costs and even sometimes completely change the basis of competition”. For example, the business strategy of a firm could be innovation, strategic aim could be to increase sales and IT strategy used can be networking. Further, business opportunities vary from company to company. So, a company might invest to cut order-entry cost, to provide more flexibility to customers, for increasing sales or to improve customer supplier relationship.
Having analysed the need for investment, organisations further clarify when to invest by considering Porter’s framework for competitive edge. Learmonth & Ives (1984) discusses how McFarlan maps the competitive application of IST onto Porter’s competitive forces model and concludes that if the answer to even any one of the following questions is affirmative, a strategic opportunity exists and company should invest in IST.
- Can IST be used to build barriers against new entrants?
- Can IST change the basis of competition?
- Can IST be used to generate new products?
- Can IST be used to build in switching costs?
- Can IST change the balance of power in supplier relationships?
Considering point one “Can IST be used to build barriers against new entrants?”. “The harder the service is to emulate, the higher the barrier for the competition” (McFarlan, 1982, p.99). McFarlan illustrates the way a large financial service firm invested in a complex software package to launch a different and highly attractive financial product. And as result of the complexity of the process and sophisticated nature of the software, competitors lagged behind, giving the firm valuable time to establish market position. Similar is the case of Dell and Wal-Mart, their intelligent strategy leads to complex advantages that are hard to be replicated (Carr, 2004).
Finally, we will look at the third part, “how” to invest in Information Infrastructure. Different organisations invest differently with varied strategic aims. Some aim for standardisation while others desire flexibility and so on. Keen (1991) states that depending upon the reach, scope and especially the strategic objective of an organisation, it can build the kind of Information Infrastructure it desires. Reach refers to the number of activities or processes actually touched by the infrastructure, while scope refers to the range of processes partially or totally automated through the infrastructure. It could be infrastructure focusing on utility, dependence or enabling (Weill et al. 1996). The following paragraphs illustrate the way utility focused and enabling kind of infrastructures are implemented in organisations by considering real life scenarios.
Infrastructure as Utility
Ciborra (2000) mentions that infrastructure is a utility if the main aim is to reduce costs of processing and communicating information throughout the organisation. The main emphasis is to achieve economies of scale. This kind of infrastructure maximises efficiency in processing and transmission, but does not necessarily interfere much with the nature of applications or business processes. The following case study explains the way SKF Group has built utility-based infrastructure through standardisation, by keeping production cost minimal.
The SKF Group
The SKF Group, which is one of the leading global producers of ball and roller bearings, possess utility-based infrastructure. SKF, which now has 110 manufacturing sites distributed all around the world, was established in 1907 with 15 employees and has always been a production and distribution-focused company. SKF has always followed a conservative approach towards development of its infrastructure, instead of radical transformation in order to have production costs in control. Aligning business with IT by appreciating stability achieved through taking slow steps and thus being stable, has been its business strategy.
The primary aim of SKF has been to cut production costs and serve customers globally. Furthermore, with strategic aim to become more efficient, SKF has always laid emphasis on increasing productivity, reduction of products in stock and improved customer service. And in order to achieve the above goals, this organisation has used technology, but slowly and with the aim of achieving economies of scale and improved efficiency of production. Over the years, several systems like GFSS (Global Forecasting and Supply System), SCSS (Sales Company Service System) and PCS (Production Control System) have been introduced to improve the co-ordination between production and distribution, better integration of the entire firm, shortening of lead times and decreasing stock. Additionally, to serve its distribution process, the organisation has also collaborated with other organisations for transport alliance. As a result, they have also been able to control the distribution costs. Later, to encourage development of specialised products with minimal production costs, they introduced production channels. Each plant produced a complete bearing instead of just producing a specific component, like an inner ring of specific size or a 2mm outer metal ball. Over time, each channel became fully equipped with the machinery and this finally led to a reduction in production time by around 50%. This production channel concept was supported by a production control system strategy, in which orders, when collected from a computer system, were forwarded to managers to prepare production plans and thus demand and supply were carefully examined. “A heterogeneous socio-technical system exists at SKF involving humans, computers, paper and the metal material” (Dahlbom, Hanseth, Ljungberg, 2000, p95).
The SKF Group example highlights the way this organisation achieves its strategic aim of manufacturing high quality products by aligning the business strategy of low production and distribution costs with the IT strategies like centralised and integrated systems. This company has always been highly successful by investing innovatively, not just in technology, but in the right decisions needed to fulfil its business strategies and aim of increased productivity. It has built an Information Infrastructure that focuses on utility by keeping production cost as low as possible.
Infrastructure as Enabling
According to Ciborra(2000) and Weill(1998), enabling infrastructure builds and provides platforms for new business and application. It could include introduction of an online system or new ways of using the information. The following case study explains the way Procter & Gamble has built an infrastructure, which searches for information outside before investing directly.
Procter & Gamble
One of the finest consumer goods manufacture with products including Pringles, Tide, Charmin, Pantene, Pampers and Ariel is the company called Procter & Gamble. The family-operated soap and candle company of 1837, now employees 138,000 people in more than 80 countries worldwide. A company with 171 years of history is driven by innovation. “We invest more in innovation and marketing support than any other consumer products company” (Lafley, A. G., Chairman of the Board and chief Executive Officer, P&G). The strategic aim of this organisation is to improve sales growth and thereby ensure long term success. And in order to achieve the above mentioned goals, it pays primary focus on understanding consumer needs, branding and innovation. With a target of building a $4 billion business in one year, clinging on skunk works like internal R&D, acquisitions and selective innovation did not prove to be sufficient. It’s true that the invent-it-ourselves model with global research facilities and hiring and holding of the best talent of the world worked well until the year 2000, but sustaining high levels of top line growth became a challenge. The following lines exemplify the way radical strategy of open innovation helped the company achieve its business goals.
To fight the challenge, P&G launched a new approach to innovation, the Connect and Develop model, in the year 2000. This focuses on finding good ideas and information outside and bringing them in to enhance and capitalise on internal capabilities. The business strategy behind this model was to leverage innovation assets of products, people and property present externally and apply it to their internal R&D labs, manufacturing, purchasing and marketing capabilities, to create better and cheaper products faster. This business strategy focused on first identifying the top ten consumer needs. This was done to make sure that products satisfy customers and ultimately result in increased sales. This was followed by identification of similar products or relevant technologies already dominating in the market. Finally, they analysed how a technology acquisition in one area might affect products in other areas. The backbone of this approach is the networking. Besides sticking to open networking companies like Ninesigma and InnoCentive, the P&G group has technology entrepreneurs and suppliers all around the world. They play a critical role by finding the solution to P&G’s internal problem in the outside world. Thus, by building this kind of infrastructure P&G has not only attained the desired sustainability and steady top-line growth but also cut down on investment in technology. “By migrating to the Connect and Develop model our R&D productivity has increased by nearly 60% and our innovation success rate has almost doubled” (Huston, L. & Sakkab, N., 2000, p.3)
The Procter & Gamble examples mirrors how switching to new and innovative approaches of using information and technology can help maximise profit margins. It is one of the organisations which has developed an enabling infrastructure fabricated around innovation with a huge worldwide network, combining human capital, ideas and technology.
The Debate: Conclusions
It is true that Information Technology is the largest area of investment in most firms today and is critical to achieving business goals (Weill & Broadbent as cited in Symons, 2008). Additionally, Information Infrastructure enables new products and services, new organisational forms, access to new markets and innovative ways to deliver services faster. This essay has analysed the way the SKF Group, a productivity focused firm, and Procter & Gamble, an innovation focused enterprise, tailor information technology investment to business and their specific business conditions. It has also highlighted the way they invest differently in order to align their business strategies with IT strategies to achieve strategic aims.
But let us consider again the question from where the discussion started: Can an organisation achieve competitive edge by just investing in technology or a specific software application? At this stage, I would say investment in technology is not valuable without proper human resources to manage it (Powell & Dent-Micallef, 1997) and agree with that “The existence of specialised IT staff for processing, accessing, storing, and distributing information reduces the time and labour needed for integrating a new application with existing information technology resources and increases the organisation’s flexibility and responsiveness to changing business conditions” (Lewis, 2004). Looking at the SKF Group case study, if SKF doesn’t employ managers, who will prepare the production plan? Nobody would be there to analyse supply and demand requirements. Decisions to invest in specific systems like GFSS, SCSS and PCS were all taken by intellectual resources of the company. Ciborra (2000, p.17) states that “infrastructure can become a firm’s capability if management is able to deploy it in a way that is unique and strategic for the firm”. Thus, the SKF Group case study proves that for firms to attain growth and objectives, its infrastructure should be composed of not just technology but appropriate staff to develop, deploy and manage IT. This point is further re-instated as “Increasing the productivity of information technology (IT) resources, people and equipment, is the key challenge managers of information technology face today” (Lewis, 2004).
Similarly is the case of Procter & Gamble. Before investing in infrastructure, this organisation explores the world outside. It employss technology entrepreneurs and continuously co-ordinates with suppliers to know what is desired and what is not. Additionally, it invests in networking to find solutions to the problem globally, which could come from a school student or a scientist. According to McFarlan (1984, p.98) “it is important for executives to make this competitive analysis in assessing where IS fits in their companies, since in some cases it appropriately plays a support role and can add only modestly to the value of a company’s products, while in other settings it is at the core of their competitive survival”. Also, Hansen & Wernerfelt (1989) have found in resource-based empirical studies that human resource factors explained greater proportions of performance variance than strategy and economic factors (as cited in Powell & Dent-Micallef, 1997).
To summarise this debate, it can be concluded that intangible assets of an organisation play a vital role in shaping its success (Ciborra, 2000) and this point is also supported by Weill, Broadbent & Hanseth (1998), which consider Information Infrastructure as a heterogeneous socio-technical system with multiple layers comprising both humans and non-humans. Past experiences and learning gained by business executives and IT Managers becomes a key resource to the firm, which is difficult to imitate. Also, Reed & DeFillipi(1990) & Fiol(1991) have identified that “organisational cultures offer powerful forms of competitive advantage, because they are difficult to articulate and require the simultaneous manipulation of complex relationships and technologies” (as cited in Powell & Dent-Micallef, 1997).
Carr, N. G., IT Doesn’t Matter, Harvard Business Review, pp.41-49, 2003.
Carr, N. G., The corrosion of IT advantage: strategy makes a comeback, Harvard Business Review, pp.10-15, 2004.
Ciborra, C. U. (2000). A Critical Review of the Literature on the Management of Corporate Information Infrastructure. In: Ciborra, C. U. (ed), From control to drift: The dynamics of corporate Information Infrastructure, Oxford: Oxford University Press, pp. 15-40.
Duncan, N. B., Capturing flexibility of information technology infrastructure: a study of resource characteristics and their measure, Journal of Management Information Systems 12(2), pp. 37-57, 1995.
Dahlbom, B., Hanseth, O. & Ljungberg, J. (2000). Conservative Success: Organization and Infrastructure Evolution at SKF. In: Ciborra, C. U. (ed), From control to drift: The dynamics of corporate Information Infrastructure, Oxford: Oxford University Press, pp. 87-104.
Davies, P. B., Information Systems: An Introduction to Informatics in Organisations, Bath Press, Bath, 2002.
Hanseth, O. (2000). The Economics of Standards. In: Ciborra, C. U. (ed), From control to drift: The dynamics of corporate Information Infrastructure, Oxford: Oxford University Press, pp. 56-70.
Hanseth, O. & Braa, K. (2000). Who’s in control: Designers, Managers-or Technology? Infrastructures at Norsk Hydro. In: Ciborra, C. U. (ed), From control to drift: The dynamics of corporate Information Infrastructure, Oxford: Oxford University Press, pp. 125-147.
Henderson, J. C. & Venkatraman, N., Strategic alignment: Leveraging information technology for transforming organizations, IBM Systems Journal, Vol38, NOS 2&3, 1999.
Huston, L. & Sakkab, N, Connect and Develop: Inside Procter & Gamble’s New Model for Innovation, Harvard Business Review, www.hbr.org, 2006.
Ives, B. & Learmonth, G. P., The information system as a competitive weapon, Communications of the ACM, volume 27, number 12, pp. 1193-1201, 1984.
McFarlan, F. W., Information technology changes the way you compete, Harvard Business Review, pp.99-103, 1984.
Powell, T. C. & Dent-Micallef, A., Information Technology as Competitive Advantage: The Role of Human, Business, and Technology Resources, Strategic Management Journal, Vol. 18, No. 5,pp. 375-405, 1995.
Symons, C., Justifying and Funding Infrastructure Investment for CIOs, 2008.
Designed to Innovate, P&G Annual Report, 2008. [Online] Available at: http://www.annualreport.pg.com/ [Accessed 10 March 2009]
Information Infrastructure: the new discipline| Computer Technology Review | Find Articles, 2004 [Online] Available at: http://findarticles.com/p/articles/mi_m0BRZ/is_3_24/ai_n6026461 [Accessed 11 March 2009]
SKF Group Headquarters, SKF Group – Bearings and units lubrication solution Mechatronics Seals Services [Online] Available at: http://www.skf.com/portal/skf/home
[Accessed 09 March 2009]