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doi: 10.1145/ 1536616.1536647
by Rajiv Kohli and Nigel P. Melville
Learning to Build an IT Innovation Platform
Information technology (IT) pervades every aspect
What we learned is that while serendipity can sometimes play a role, developing a specialized set of competencies, which we call an IT innovation platform, plays a much larger and decisive role. IT capabilities drive innovation by enabling organizations to redesign business processes, craft a competitive strategy, and identify and cater to customer preferences. As we discuss below, understanding what these competencies are, how they are developed, and how they work together holistically can yield significant new sources of growth and bolster performance. While our research is exploratory in nature and requires rigorous testing, we believe that this new perspective on IT business value expands managerial understanding of how to extract evergreater value from existing IT assets. Adaptation as a Source of IT Business Value Pervasive IT such as networking, enterprise resource planning systems (ERP), and data warehouses offers myriad opportunities for adapting existing systems to valuable new uses. Bellwether technology firms such as Amazon and Google continuously mine available systems and data to generate valuable new uses, including novel services that delight customers. But IT adaptation is not limited to information-intensive or high-tech companies that were “born to innovate.” Companies in a wide range of industries are applying this idea to generate new sources of organizational growth, and sometimes, transform their businesses entirely. For example, a tire retreading firm was faced with the challenge of deciding when to schedule trucks for servicing. It was common for trucks to make several trips to the service center before the tires were certified to be in need of a retread. With the goal of improved customer service, the company matched its business requirement with its IT capability to deploy radio frequency identification chips (RFID) to measure tire conditions and tread thickness. RFID solved the operational issue, but the story doesn’t end there. Over time, the firm realized the
of a firm’s value chain as a vast electronic network of interconnected applications and data. Managers perceive the immense potential of this complex infrastructure to enhance products and processes and create altogether new ones. However, some have gone a step further and determined how to harness untapped IT business value again and again to create innovative and valuable applications by reconfiguring existing systems in new ways. Creative adaptation of existing functionality (such as broadband over power lines) to enable entirely new applications (such as real-time power grid monitoring) rules the day for these forward-thinking business leaders. What separates successful IT innovators from others? Is luck a primary driver, or are there deliberate actions that management can take to raise the odds of success? Given substantial implications for business performance, we set out to explore this question by interviewing senior IS and business executives with demonstrated track records of extracting untapped IT business value from existing IT infrastructural assets. Our objective was to uncover underlying mechanisms linking organizational actions with innovation outcomes.
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UPS sales managers gathered a cross-functional team comprising engineers. and the reason we know we need it is for servicing our customers. customers are able to bypass their distribution center because UPS sorts. including those linking manufacturers and retailers. TAL is unequivocal: “We know we need it. United Parcel Service: IT Cuts Out the Intermediary United Parcel Service (UPS) brands itself as “Synchronizing the World of Commerce” – a tall order for a company widely perceived to be a mere package delivery company. accountants conducted detailed cost analyses for the new IT-enabled service. Results indicated that three faces of adaptation – customers.” Clearly. To develop a plan. over the years TAL has developed a “baked-in” IT culture that embeds itself throughout the organization to fulfill and exceed customer expectations. http://pressroom. These competencies did not emerge overnight: they have taken decades to develop. a quick scan of trade journal articles describing its business reveals that. comfortable. to understand how UPS adapts information technology within key processes to satisfy customer needs.ups. accountants. among others. that leverage a variety of innovative process and product technologies.contributed articles value of the collected data and exploited it to provide consulting services for fuel efficiency. assembles. It realized that its customer could realize huge efficiency gains if the products were shipped directly to retailers’ shelves. people and creativity. As a result. Other examples abound. To ensure financial viability. and gain insights into their operational needs. With manufacturing spread over several overseas locations. (For an in-depth discussion of UPS’ capabilities see Kohli4). and functional clothing for preeminent global brands. Supporting this alignment. UPS is committed to serving its business customers by synchronizing processes. TAL services its ERP systems with a large in-house IT staff. IS professionals explored ways to integrate various information systems while operations managers tested the idea with a few key customers. Behind the scenes. TAL has developed one of the most extensive and agile IT infrastructures in the industry.com/pressreleases/current/ 0. including State Street in foreign currency trading and OnStar in vehicle telematics. The result is high alignment between information systems and business functions. vehicle routing.2 To examine this phenomenon in more detail. the biggest barrier to making this happen is not technology or process issues per se. an option to adapt an existing system that was not anticipated at the time of original system development. manufacturing. so much so that it is difficult to see where one ends and the other begins. the slogan is a reality. for example. but people issues. Through longterm engagement and deep knowledge of the customer’s business. indeed. Our interview with a managing director based in Hong Kong highlighted various themes that illustrate how challenging – and valuable – IT-based innovation can be. Regarding enablers for leveraging existing IT to effect change. When it comes to the impetus for leveraging IT to create business value.00.S. overseas and U. supporting its goal of providing unparalleled customer service. TAL is intimately aware of its customer processes and agile in responding to their needs. TAL realized it needed an internal champion among its custom123 au g u st 2 0 0 9 | vo l. Given TAL’s emphasis on superior customer service. What follows is a synopsis of our interviews.a The result – days in supply chain of customer goods dropped from 30 to 17 and overall costs to customer dropped by 40% – was clearly a win for both UPS and its customer. and repackages goods while they are in transit. TAL leverages its 60 years of experience to provide innovative products. UPS managers gain their trust and develop a partnering relationship. thereby creating new products that represent an ex post business option. supplemented with material from secondary sources such as trade journal articles. TAL can recognize patterns of sales and the impact of promotions.4168. UPS listens to the voice of the customer through managers assigned to specific customer accounts. we conducted a set of case studies.html.1403. we chose organizations in three distinct industries – logistics. their ability to change their day-to-day activities to support new ways of doing things. Case Studies To incorporate as much variability as possible. 8 | c om m u n ic at ion s of t h e acm . customer dynamics. allowing the customer complete supply chain visibility as well as the ability to direct and redirect goods in real time to any retail destination. and education – with different competitive conditions. and IS professionals to match this business problem driven by customer needs with available information technology infrastructure. and general fleet management. Interestingly. We interviewed a senior international manager. 52 | n o. Indeed. All of this was made possible by leveraging existing organizational processes and competencies to solve new business problems. These managers typically serve customers in the same industry. and processes – combine to form an IT innovation platform upon which successful companies create new sources of growth. In doing so it works closely to serve customer needs. a http://pressroom.1088. However. one UPS customer spent an extraordinary amount of time and effort taking delivery of components into a distribution center. What emerged was a new service in which UPS information systems connect with information systems of its manufacturers.00. TAL Apparel: Baked-in IT Culture TAL Apparel Group is a worldwide leader in the production of stylish. felt its pain. and strategic imperatives. Headquartered in Hong Kong. in particular. This is where the rubber meets the road in terms of customer focus: UPS was intimately involved with its customer’s business process. In particular. TAL leverages various forms of information technology. given the large investment it has made in developing novel and valuable business functionalities. To deliver high-quality products ontime and on-specification. as well as UPS ground and air transportation.html. retail or grocery. vessel companies.443. such as wrinkle free and stain resistant garments. using IT as an enabler and adapting systems to fit new purposes is a continuous process. TAL’s supply chain excellence turned out to be a key factor in partnering with its customers. Our customer wants to have supply chain visibility in terms of where we are in the manufacturing process. and set out to develop a win-win solution. customs agencies.5 Through constant IT linkages with customers’ business activity. then repackaging and shipping the components to retailers.com/ execforum/speeches/speech/text/0.ups.
Aligning IT with work processes and the larger organizational culture to meet student needs is challenging in an arena in which IT is a relatively separate orga- nization without the embedded matrixtype architectures seen in large global corporations. instead of dismissing the idea. Mostly you find people that are more tech than art… It is critical to signal that they can create something. We synthesized our data into a large tabular database along consistent dimensions by interview question. Platform for Adaptive IT Innovation ers who would promote innovations undertaken by TAL. The available processes and technologies for these requirements did not match. Due to the nature of our study. faculty. but it’s not always easy to identify those that can meld the tech with the art to enable a clear vision of the future and design applications accordingly. we summarized the findings in a truth table to identify conditions that were common to all three cases. experimenting. In doing so. Its mission to lead in thought and action focuses on both the development of intellectual capital and its application to improve the practice of management. multidisciplinary action projects (MAP) that place MBA students on-site in organizations worldwide for weeks at a time to tackle real business problems. Figure 2. visitors. – and the two-year turnover of MBA students. RSB experiments with ways for students to use IT within MAP teams. it maintains flexibility in developing new business opportunities to help its customers. and process focus (Figure 2). This raises unique challenges as well as opportunities to leverage the dynamic user population in anticipating needs. alumni. This is but one example of how RSB develops strategic IT options that can be rapidly deployed to a dynamic student population at an opportune time. Although RSB had proactively experimented with personal digital assistants and smart phones. necessary when some students are in Michigan while others are in Bangalore. One requirement of IT is that it must support a distinctive feature of the Ross MBA. it remained a strategic option until such time as the demand for mobile applications emerged in concert with technological innovation in mobile computing such as the iPhone RSB is poised to release more than twenty applications for use with leading mobile platforms. In addition. 5 2 | n o. In particular. Given this challenge. IT leadership is critical to bridging the gap between the technical aspects of information systems and the business and aesthetic dimensions. such as user design or going beyond functionality to understand how an application will be used by a student.” RSB experiments with IT behind the scenes so that it can respond to customer needs at an opportune time. Ross School of Business (RSB) is consistently rated among the top business schools worldwide. etc. Each requires | Au gu st 2009 | vo l . Ross School of Business: IT Supports Dynamic Student Population The Stephen M. Providing new interfaces to old applications illustrates the mindful evolution of IT adaptation. or Copenhagen.”6 We followed a simplified QCA approach to identify the processes of adaptive IT value creation among the studied firms. to accommodate a student population that spends a portion of its first year of study away from Ann Arbor. 8 . An overarching theme that emerged from the analysis was that new sources of value emerge when organizational competencies are matched with customer requirements within key business processes. A unique feature of Technology Services at the Ross School relative to UPS and TAL is the multiplicity of constituents – 124 c o mm unicatio ns o f t h e acm students. As the CTO noted: “I think it is a challenge to find the combination of the tech with the art [in IS employees]. Then. Shanghai. staff. RSB realized that students did not always want to carry laptops around. However.contributed articles Figure 1. Platform for Adaptive IT Innovation We used Qualitative Comparative Analysis to synthesize and extract meaning from our case studies6 (Figure 1). but it is an important enabler of its success. our simplified approach to QCA resulted in a truth table involving only firms that were successful in IT adaptation. this seemingly simple idea took years to develop because of a gap between student requirements and what the technology could deliver. Research Method: Qualitative Comparitive Analysis Qualitative comparative analysis (QCA) involves comparing a small number of cases to systematically identify and summarize evidence within a “truth table. TAL stays ahead of its customers by scanning cutting-edge applications on the horizon. such as course bidding systems. With action-based learning. we learned that Ross IT takes a proactive approach in identifying select technologies that align with the school’s mission. and integrating IT and business processes. RSB realized that it must leverage existing infrastructure. IT is not explicitly mentioned in the school’s vision. nurturing individual creativity. During our interview with its chief technology officer. three dimensions of adaptation comprise what we term an IT innovation platform: customer focus.
RSB understood student preferences and proactively experimented with IT to be ready to pull the trigger when the time was right. TAL integrates sales information from retailer transactions and leverages it for improving its own planning and manufacturing activities. • Recruit and retain problem solvers • Set up cross-functional teams • Institute flexible work environment that encourages creativity • Address resistance to change • Matching IT-supported capabilities to outcomes (resulting from customer focus) • Adaptation of current systems to address new problems • Integration of disparate data and information systems. Incentives and rewards that go beyond the financial dimension are critical components of a successful IT innovation platform. This intensive focus on customers creates value-added offerings as well as new business opportunities by adapting existing IT assets for valuable new uses. it is that Figure 3. Managers in the firms we studied invest significant time. This makes intuitive sense because developing new information systems that aren’t tied directly (product. 52 | n o. created a superior product or service. Both UPS and TAL recognize that process excellence requires standardization and dissemination of best practices across the organization. a customer focus allowed organizations to create capabilities which. Components of IT Innovation Platform Focus Customer Components • Discover unmet needs – current or future • Educate customers in the use of your product • Connect ‘best practice’ customers with other customers • Identify value–added services that will save time and effort for the customer. based on the companies we studied. etc. 8 | c om m u n ic at ion s of t h e acm . Customers may not always know what they want. Untapped value often lies at 125 au g u st 2 0 0 9 | vo l. We found a strong bias toward allowing people to experiment with new ideas. For example. If the business process reengineering revolution of the 1990’s taught us one thing. UPS managers estimate that more than half of its IT investment can be classified as “systems integration. As one of our interviewees put it: “A successful IT manager listens to customers.) to fulfilling customer needs are of limited business value. It is not difficult to achieve oneshot successes in innovating with IT. 4 Organizations in our study viewed process redesign as a form of adaptation. rather than getting 3 out of 3 right. we have found that continuous. we view the people and creativity dimensions jointly. This takes time. which does not happen overnight. when aligned with business processes. TAL leveraged its baked-in IT focus to connect its customer with other suppliers using its IT infrastructure. 4. Understanding their business well enough to anticipate and offer solutions to problems that they have yet to recognize is a critical piece of the IT adaptation puzzle. Finally.3. customer process) or indirectly (backend internal process. Each firm that we studied was resolutely focused on its customers’ current or potential needs. versus building exactly what customers think they want. and attention in understanding customer processes so that they can identify specific areas in which they can add value in a win-win approach. However. In some cases an outsider’s perspective helps team members conceive creative and novel solutions.” 3. Expected Outcomes • New business imperatives • Resolve nagging issues for customers • New products or services. RSB underscored the importance of creating a balanced portfolio of talent spanning both technical and business domains. Each organization in our study takes advantage of integrated data and systems to align its capabilities with customer needs. and then builds a solution around that. data requirements and system capabilities Process automating broken processes simply means that the wrong things get done more efficiently. For these reasons. Develop internal data capabilities and assign technical-business cohorts to find value-added uses of organizational capabilities. It is not always easy to envision how to convert data to business value. improved processes enabled greater customer intimacy. 1. effort.1 TAL’s experience suggests that to take advantage of human creativity an organization must overcome resistance and develop an appropriate culture.” rather than new systems development. Customer Focus. A UPS manager encouraged the team members to “get 7 out of 10 things right. in part via a recognition of each others’ constraints. the key was to integrate processes so that information is leveraged appropriately in usable and valuable ways. 2. People and Creativity Focus. demonstrable appreciation and support of people and their creativity. Similarly. tries to understand the business/process challenge. Companies successful at IT adaptation went beyond the cliché of recognizing the value of their employees to adopt an active. in turn leading to a pervasive understanding of the customer’s processes and an early recognition of the capabilities needed to support them. Process Focus. successful IT innovation requires the development of systematic processes aligned with the organizational context. especially with regard to employee creativity in crossfunctional problem identification. However. UPS recognized that its customers incurred significant expense in establishing distribution centers. some of which may be information-based People • New alliances with cross-functional colleagues • Novel solutions to old problems • Unforeseen solutions • Unanticipated new products and services (ex post options) • Business best practices • Alignment of capabilities with customer needs • Identification of new issues. Adapting IT assets for new sources of value means looking beyond the walls of the organization.contributed articles specific components and results in outcomes that are of interest to organizations (Figure 3). They recognized that in most situations there was sufficient data within their organization. For instance. developing a data culture among employees driven to innovate by leveraging existing data and information to drive new sources of value is well worth the investment. Lessons for Managers Here. Data are conceptual and intangible. we offer prescriptive guidelines for managers based on the preliminary findings presented herein. but appears to be well worth the investment.” Fostering cross-functional interaction unleashed team creativity. we found that successful organizations have demonstrated astuteness in feeding upon each focus to support the other.
N.edu) is an associate professor of management information systems in the Mason School of Business at The College of William & Mary. yet each has mastered the science and art of continuously adapting IT to generate new sources of organizational value. C.. Dr. University of Michigan. Farhoomand. risks include poor alignment between capabilities and customer requirements. 4 (1990). Bower. 199-210. 81-87. 7.. The idea that any firm can flourish without developing the necessary competencies to support an IT innovation platform is a relic of the past. and Christensen. 1225-1239. Obliterate. H. 6. Hammer. 3 (2004). and Melville. UPS. 5 (1999). Nonetheless. MIS Quarterly Executive 6. and Hoadley. the adaptive path may be quite a bit less risky. None of the firms we examined is considered a technology product company such as Google or Intel. Harvard Business Review 73. Innovation through supply chain reconfiguration. A. Rajiv Kohli (rajiv. poor IT execution ability. TAL Apparel Group. 104-112. Acknowledgements: We thank Ted Ley.contributed articles the intersection of business needs and IT capabilities and is uncovered when business problems collide with technical prowess. Ross School of Business for their generous support of our study. M. 5 2 | n o. As with any investment. Electronic frontiers in foreign exchange trading. © 2009 acm 0001-0782/09/0800 $10. Ragin.C.edu) is an assistant professor of business information technology at the Stephen M.kohli@mason. and Ho. The DATA BASE for Advances in Information Systems 37. and inadequate attention to redesigning work processes to match new IT adaptations. J. 40-58. Towards developing a framework for measuring organizational impact of IT-enabled BPR: Case studies of three firms. Comm. P. 8 (2004). REFERENCES 1. MISQ Executive 3.wm. 131-142. Disruptive Technologies: Catching the Wave. without whom this research would not have been possible. Kohli. E. Harry Lee. Stephen M. However. 43-53 2. Gallaugher. Low-tech can be high-tech. of the ACM 47.00 126 co m municatio ns o f t h e acm | Au gu st 2009 | vo l . 1 (2006). 2007. Health Services Research 34. Ross School of Business. and Ed Adams. Harvard Business Review 68. 4. 5. Innovating To create IT-based new business opportunities at United Parcel Service. Reengineering work . when compared with the costs of developing completely new systems with considerable failure rates. 8 . Melville (npmelv@umich. Nigel P. R. developing an IT innovation platform is not without risks. Using qualitative comparative analysis to study causal complexity. Kohli.Don’t automate. C. Lee. 3. 5. 6. 4. 1 (1995). J. R.
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