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Comprehensive Examination Written Responses Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy

William A. Huckabee, Jr. Project Management School of Business and Technology Capella University November 20, 2010

City, State, Zip: Phone: E-mail: Mentor: Dr. Mary Lind

Comprehensive Examination for (William A. Huckabee Jr.) QUESTION 1 A predicament companies face today is the challenge of finding the appropriate process for value creation within the organization. Value creation is defined as the method used to conceive new ideas for new products. Explore the value creation theories relating to software development and integrate these theories to the outsourcing of software development.

Comprehensive Examination for (William A. Huckabee Jr.) Response to Question 1 Introduction Sirmon, Hitt, and Ireland (2007) suggest the pursuit of every business is creating and maintaining value (p. 273), however, with the subjective view of value, many software development firms find it hard to define and create value for their customers. Sirmon, Hitt, and Ireland define six dimensions of value. These dimensions can be defined in both monetary terms and nonmonetary terms. Also, Slater (1997) defines three theories that provide the foundation for value creation. These theories include the "transactional cost theory, resource based view of the firm, and the value based theory of the firm" (p. 163). Each theory makes a significant contribution to value creation, but in different ways. Value creation in the manufacturing and service industry employs different strategies to such as product differentiation, developing core capabilities, and streamlining processes to reduce cost, which increase product value for the consumer. Technology firms however, can employ many of the same methods to create value. In the software development industry, some value creation methods employed in manufacturing and service organizations apply to the software development industry, but will not work as well. Therefore, three major value creation theories are explored for applicability in software development activities. These major theories are supported with some components of other minor approaches that work together to create value in a software development project (Thompson, Strickland, & Gamble, 2007). Evidence suggests that value creation in the software development industry is created by employing techniques that address requirements elicitation, stakeholder and relationship management, and software engineering. Each area can increase the capability of a firm to create value. However, outsourcing complicates value creation in this industry, and companies are

Comprehensive Examination for (William A. Huckabee Jr.) struggling to increase their capabilities by using outsourcing. Because outsourcing arrangements are complicated, an integrated approach to value creation must be taken. Instead of using a single approach in creating value, evidence strongly suggests that combining theories is a better, holistic approach to creating value in an outsourcing arrangement (Barney, Aurum, & Wohlin, 2008). It is suggested that value creation is a misunderstood concept in the software development industry. Outsourcing complicates this understanding of value creation as applied in an outsourcing engagement. This makes it much harder for software development companies to find innovative methods for creating value and increasing firm performance. Therefore, the purpose of this paper is to explore value creation theories and approaches that apply to software development and then integrate them into the outsourcing of software development activities. Value Creation Sirmon, Hitt, and Ireland (2007 suggest the pursuit of every business is creating and maintaining value (p. 273). However, companies are finding it difficult to define value creation. This could be the result of the variations in how value is defined. For instance, Nunamaker, Briggs, and Vreede (2001) suggest there are six dimensions of value including (a) economic (b) physical (c) emotional (d) social (e) cognitive and (f) political (p. 3). Also, Muller and Torronen (2003) suggest that value can be defined in nonmonetary terms such as sacrifices, competitive gains, and social relationships (p. 110). That said, there are three theories that serve as a foundation for value creation. Slater (1997) suggests these theories are transactional cost theory (TCT), resource-based view (RBV) of the firm, and value-based theory of the firm (p. 163). First, TCT comes close to promoting value creation because this theory suggests that a firm should aim for the lowest costs associated

Comprehensive Examination for (William A. Huckabee Jr.) with market transactions. Specifically, TCT suggests that when a firm is engaged in market activities, it should seek to minimize the transaction costs between two alternate sources of exchange; those associated with the market and those associated with other market players. This suggests that TCT promotes creating value through reduced transactional costs (Brickley, Smith, & Zimmerman, 2004). Second, the RBV is based on the thinking that value creation is a by-product of employing firm owned resources to produce products and services. The resources, both tangible and intangible, can be employed in configurations that facilitate effective and efficient market transactions, which create value. This aligns with what Thompson, Strickland, and Gamble (2007) suggest. They suggest a firm must use the full spectrum of capabilities and resources to create value in gaining a competitive edge. Further, Sirmon, Hitt, and Ireland (2007) suggest the resources a firm own drives value creation (p. 273). To realize value creation these researchers suggest that a company should work to collect, combine, and take advantage of their resources to effectively compete with rivals. Slater (1997) agrees and suggests that RBV can offer a firm superior performance (p. 163). However, to be productive, a firm must employ resources that are rare, invaluable, and difficult to imitate (p. 163). However, like TCT, the RBV does not specifically address value creation. As a final theory, Slater (1997) proposes the value-based theory of the firm (p. 163), which specifically addresses value creation. He suggests the theory is specifically designed to deal with the turbulent and complex competitive environment (p. 163) that businesses are experiencing today. Slater discusses the parts of the theory, which include market knowledge, the firms environment, and the value proposition (p. 166). For instance, a firms ability to learn from its environment promoting continuous improvement of value creation activities. This

Comprehensive Examination for (William A. Huckabee Jr.) allows a firm to become more innovative in meeting customer needs, which creates a sustained competitive advantage. Finally, the ability to increase knowledge and to develop innovative methods to meet customer needs enables a firm to maximize value creation activities (p. 165). A strategy to influence value creation can increase performance, but such a strategy can be complex. For instance, Slater (1997) suggests a value creation strategy can influence the scope and scale (p. 164) of a firms operations. Further, a value creating strategy can also influence the firms internal activities as well as those that are outside the firms boundaries. Slater suggests that such a strategy can affect the market objectives that a firm seeks to achieve. This mixture of complexities affects the value proposition the firm presents and the capabilities the firm develops to translate the value proposition into and deliver value to its customers. The evidence presented thus far suggests that value can be created by various methods. For instance, Brickley, Smith, and Zimmerman (2004) suggest there are six methods that a firm can employ to create value. A firm can pursue methods to reduce its transaction costs through increasing product and service quality, bundling products, and introducing substitutes (pp. 193-196) that counter rivals products. Further, these researchers suggest that creating new product and service offerings can create value. This can be done by creating core competencies and capabilities that rivals cannot imitate, creating a positional advantage in the firms industry, and developing value networks. Also, Brickley, Smith, and Zimmerman (2004) add that increasing cooperation between suppliers and other institutions can create value. This aligns to Moller and Torronens (2003) suggestion that nonmonetary activities can create value. This is done by creating improved processes that reduce costs and increase product and service quality in coordination and collaboration with other market participants. Finally, cooperation and collaboration allows firms

Comprehensive Examination for (William A. Huckabee Jr.) to create value because they share expertise (Hansen & Nohria, 2004, p. 5), which provides improved capabilities for reacting to market and customer changes. Value Creation in Software Development Much of what has been discussed thus far addresses value creation in the manufacturing and service industry. However, it is possible the technology industry looks at value creation differently, which increases the complexities in defining value in this industry. However, it could also be argued the methods used in the manufacturing and service industries still apply to the technology industry. Complicating the issue of value creation further, the software industry can be characterized by rapid change (Miller, & Floricel, 2004), which will require many different strategies for creating value. For instance, Miller and Floricel (2004) suggest that when developing software products, technology firms can create value by offering innovative products that reduce user uncertainty by developing products that are based on a stable architecture (p. 26). Take for example enterprise resource planning (ERP) industry. This industry has experienced substantial growth in recent years, but all ERPs such as "JD Edwards, Oracle, and PeopleSoft (Sprott, 2000, p. 63) contain modular functionality that offer companies the same basic business process abilities. However, each vendor distinguishes their products based on particular implementation processes and source code; Oracle having open source code and SAP having proprietary source code. Thus, ERP vendors are using the same techniques a manufacturing firm would to create value through differentiation. Also, Miller and Floricel (2004) suggest a technology firm will have to increase its coordination with other market players to "align products to a dominant architecture (p. 28). For example, Sun Microsystems (as cited in Miller & Floricel, 2004) collaborated with Microsofts

Comprehensive Examination for (William A. Huckabee Jr.) competitors, Oracle, IBM, and over 190 other firms (p. 29) to develop a standard architecture for running its Java platform. The move by Sun Microsystems afforded the firm with three benefits. First, the strategic move established an industry standard (p. 29). Second, the action created more value for customers, which resulted in an increase in demand (p. 29) for Suns products. This evidence suggest that although the software industry involves change, old ways of creating value still apply. However, others suggest this industry will require employing different methods of creating value. Value-based Requirements Engineering (VBRE) Barney, Aurum, and Wohlin (2008) suggest that 80% of the value driven from software comes from 20% of the software components (p. 576). This requires software developers to find methods to create value for the firms customers to increase firm performance. This requires a firm to be more competitive and responsive to customer (p. 576). Further, these researchers suggest that software development is tracked and monitored by project metrics, such as project cost and schedule (p.578), and this approach does not take value creation into consideration. Barney, Aurum, and Wohlin suggest that to create value in such cases, active customer participation (p. 577) in creating value is paramount. However, these researchers suggest that only a limited number of companies can define and measure value (p. 579) from a customers perspective. As a result, Barney, Aurum, and Wohlin (2008) suggest value-based requirements engineering (VBRE) is a method by which a firm can define and measure customer value. For instance, this process exploits the concept of economic value during system requirements elicitation processes. It also helps developers to identify stakeholders that are critical to the success of the program, extracting their value propositions, and reconciling the value

Comprehensive Examination for (William A. Huckabee Jr.) propositions into an agreed upon set of system objectives (p. 579). In fact, the results of their research suggest that when this process is performed properly, a firm can create customer value. Co-Creating Value Prahalad and Ramaswamy (2004) suggest yesterdays focus on market exchanges was separate from the value creation process and that these exchanges was more about value extraction (p. 6) rather than value creation. For instance, the idea of customer relationship management (CRM) was not designed to create value; it was designed to target and manage the right customer and is not a source of value creation (p. 6). Also, the transparency of todays business environment provides customers with the ability to negotiate prices and other market terms with companies (p. 7). This suggests that technology companies need to create a value co-creation (Prahalad & Ramaswamy, 2004, p. 7) strategy with customers sharing in the value creation process. This creates high-quality interactions (p. 7), which enables companies to unlock new sources of competitive advantages. Further, value is created in a cooperative arrangement with the customer, therefore, instead of targeting and managing the right customer, a joint effort must occur to create value. Further, this joint endeavor is not about pleasing the customer, it is about creating value. This increases the firm's capability of creating value and can lead to increased innovation and new market opportunities (Prahalad & Ramaswamy). Value Based Software Engineering (VBSE) Software is developed in a value-neutral (Boehm, 2003, p. 1) way. Boehm suggests that most software failures can be attributed to value-oriented deficiencies (p. 1). Among these deficiencies are (a) a lack of user input (b) changing requirements (c) unclear objectives and (d) unrealistic expectations (p. 1). All but one of these categories, changing requirements, can be

Comprehensive Examination for (William A. Huckabee Jr.) aligned with Moller and Torronens (2003) nonmonetary terms, e.g. social relationships. The value-neutral methodology of developing software is problematic when defining value. This is because the methodology involves the differing stakeholder perspectives in defining a systems utility functions or value propositions (p. 1). Further, Boehm (2003) defines a seven-step process that he describes as the value based software engineering process (p. 1) (VBSE). The process is used in the development process to create value by injecting user participation into the development processes during the design, cost estimation, and software investment analysis (p. 2) stages of the development lifecycle. This can positively affect the systems value. This seven-step benefits realization results chain (p. 2) assists developers in performing two functions that increase product value. First, the chain allows developers and clients to work together to define functionality that is needed to influence value creation. Second, the benefits realization chain helps developers to identify the stakeholders that are critical to the success of the system. These stakeholders typically include users, suppliers, developers, and maintainers (Boehm, 2003, p. 3). This process is much like the activities of the VBRE process described earlier. The VBSE process facilitates the removal of the stovepiped (Boehm, 2003, p. 3) boundaries that typically exists in software development processes. Further, VBSE allows all stakeholders to take on a more holistic view of system requirements enabling stakeholders to identify software and non-software initiatives that are focused on creating value producing (p. 3) results. Also, VBSE increases trust and mutual understanding of system value among the different stakeholders for the duration of the development process. Finally, following this framework, Boehm suggests a firm will see an increase in the number of successful software products being produced, which lead to higher system value.

Comprehensive Examination for (William A. Huckabee Jr.) Stakeholder Interaction Each of the preceding theories provide different aspects of how value can be created in the software development industry. However, there is an additional perspective that originates from an underlying theme in the preceding theories. For instance, each theories presents a series of actors working together to develop methods to create value from software products. These stakeholders can, and often do, influence the value that is derived from a development project. Also, Nunamaker, Briggs, and Vreede (2001) suggest that value is subjective, meaning that it can only be defined and measured from a particular point of view; the point of view of different stakeholders, users, customers, developers, and maintainers, among others. Boehm and Sullivan (2000) agree and add that many development project failures can be attributed to the failure in understanding how to translate system design decisions to create value from the resources expended. Like Nunamaker, Briggs, and Vreede (2001), Boehm and Sullivan (2000) suggest that the stakeholders "doing the valuing" (p. 325) significantly complicate the development process. This is because each stakeholder holds certain apprehensions about value. This follows the notion of Bowman and Ambrosini's (2000) view of "use value" (p. 2). These researchers indicate that stakeholders hold certain subjective perceptions about the quality of products in relation to meeting a need. Further, Boehm and Sullivan indicate that even when a consensus can be arrived on metrics to measure value, each stakeholder will have a different perspective with regard to the "distribution of gains" (p. 325). For success, Boehm and Sullivan argue that reconciling stakeholder differences is a "key factor in software development" (p. 325).


Comprehensive Examination for (William A. Huckabee Jr.) The Basics of Outsourcing The use of outsourcing varies by industry, however, DiRomualdo and Gurbaxani (1998) suggest outsourcing activities are steadily increasing. They estimate that outsourcing in the technology industry will increase from "$86 billion in 1996 to over $137 billion by 2001" (p. 67). More recent evidence suggests technology companies are spending upwards of "30%" (Levina & Ross, 2003, p. 332) of their information technology (IT) budgets on outsourcing. The reason for the increase is that many companies have discovered that it is more effective to outsource many of their "key value delivery activities" (Slater, 1997, p. 165) than retaining them in house. In fact, outsourcing is becoming a key method of generating a competitive advantage and creating value. Outsourcing is a strategic tool that provides a firm with several benefits. For example, Jennings (1997) suggest that these advantages include (a) providing a firm with access to economies of scale (b) increasing a firm's flexibility in reacting market and customer changes (c) allowing a firm to focus on core competencies (d) enabling a firm to increase their leverage and (e) reducing overhead costs (Jennings). According to Jennings, these advantages have provided numerous firms the ability to "achieve outstanding performance" (p. 86). That said, outsourcing allows firms to concentrate on developing their core competencies and capabilities in order to "create long-term distinctiveness in the customer's mind" (Slater, 1997, p. 165). As an example, Gallo Winery (as cited in Slater, 1997) outsources all activities that is not focused on wine making, such as "grape production, marketing, and distribution" (p. 165) functions. This allows Gallo to concentrate on their core activity of making wine. The other activities that Gallo outsources enhances the firm's wine making competencies and creating value for the firm's customers.


Comprehensive Examination for (William A. Huckabee Jr.) Also, Jennings (1997) suggests that outsourcing is becoming an "area of strategic importance" (p. 85). Outsourcing is based on the premise that vendors can provide a firm with "state of the art skills and capabilities" (p. 72), which enhances customer value. In fact, DiRomualdo and Gurbaxani (1998) suggest that many firms are struggling to maintain a strategic mix of technical and business skills that are necessary to "exploit technology" (p. 72). Therefore, technology firms are reaching out to vendors for the skills necessary to increase their capabilities and flexibility. Further, Htnen and Eriksson (2009) suggest that firms are motivated to outsource business activities for two reasons. First, there is the potential to reduce costs and as a byproduct, increase the firm's control over costs. Outsourcing can assist a firm in "lowering operational costs" (p. 146) in some areas of the firm. This allows management to redirect the savings to other more profitable areas of the organization, which can improves core competencies. Second, there is the process perspective. Companies increase the level of outsourcing so that they can "improve internal process and core competencies" (p. 146), which increases organizational flexibility. This allows a firm to "accelerate projects, reduce time to market, and gain access to a more flexible workforce" (p. 146). While this evidence suggests that outsourcing can provide great benefits to technology firms, other evidence suggests that many firms are unable to realize the potential benefits of this strategic tool. Levina and Ross (2003) suggest there is a great need for technology firms to reduce costs, improve IT management, and access outside talent. These researchers indicate that upwards of "54%" (p. 332) of outsourcing arrangements fail to provide firms with any cost savings.


Comprehensive Examination for (William A. Huckabee Jr.) Creating Value Through Outsourcing Evidence suggests that there are both positive and negative aspect of using outsourcing to create value. In order to compete effectively in today's market, technology firms must engage outsourcing to increase their strategic position. However, is no single theory, model, or concept that would work best to create value in an outsourcing relationship. Further, it could be postulated that an integration of multiple value creation methods would best suit a client-vendor relationship in order to maximize value creating among all parties. For instance, Miller and Floricel (2004) proposed that a stable systems architecture reduces customer uncertainty and creates value. Also, Barney, Aurum, and Wohlin (2008) posited that requirements elicitation increases a firm's value creation capabilities. Meanwhile, Prahalad and Ramaswamy (2004) suggest that high-quality interactions are needed in the client and vendor relationship to generate new sources of competitive advantages. Further, stakeholders influence what is defined as value with regard to the end product's value. Value can be created by establishing strong vendor-client relationship. For instance, Moller and Torronen (2003) suggest that when firms focus on their core capabilities, the will rely on partnerships to perform critical value creating functions external to the firm. However, to be successful, Moller and Torronen stipulate that a firm must develop a "strong relationship" (p. 109) with vendors in order to create value. These researchers indicate that the client and vendor must make "significant adaptations and commit significant resources" (p. 109) to the relationship. Also, relationships in the technology industry are dynamic and interrelated and can create significant value for the for customers. Further, these relationships are based on both "direct and indirect relationship functions" (p. 110), which affect value creation. For instance, a direct impact originates from "profit, volume, and safeguard functions" whereas an indirect


Comprehensive Examination for (William A. Huckabee Jr.) impact, which is subjective, originates from "innovation, market, scout, and access functions" (p. 110) of the relationship. The latter are harder to define and measure, but can influence value creation in a vendor-client relationship. That said, if the vendor-client relationship starts with a stable systems architecture to work from, value creation will be increased. For example, Helander and Kukko (2009) suggests that having a stable architecture does create value. In their study of "value creation networks" (p. 76) they found that a stable systems architecture can support value creation activities in an outsourcing arrangement. This is because a stable architecture provides a "framework for integrating" the software components of the project. Further, architecture acts as a "value system router" (p. 83) that gathers the streams of value throughout the development process. This provides the client with a single software solution that is the focal point of value. Also, these researchers suggest that in a vendor-client relationship, architecture is the "most specific feature" (p. 83) that positively influences the relationship, thus creating value for all parties in the arrangement. Once a comprehensive and stable system architecture is created, systems requirements are developed, analyzed , and are aligned to a technical solution. In fact, requirements are the bases of the relationship because they define the vendor-client contract (Boehm, Bose, Horwitz, & Lee, 1994). Hickey and Davis (2003) suggest that requirements often "determine the success or failure" (p. 169) during system development. Therefore, value is created when both the vendor and client have a thorough understanding of the specifications that meet the customer's needs. However, requirements elicitation and development is no easy task. Crowston and Kammerer (1998) suggest that the "hardest single part" (p. 227) of software development is designing what to build and that conceptually, no other part of software development processes


Comprehensive Examination for (William A. Huckabee Jr.) are more difficult. In fact, a Standish Group report (as cited in Crowston & Kammerer, 1998) reports that the most important factor that leads to success in software development process is "clear requirements" (p. 227). Also, the report suggests that the leading cause for software development failures are "incomplete requirements," which often leads to "project termination" (p. 227) which detracts from user value. This is because requirements elicitation "always requires a coordinated group effort" (p. 228). Crowston and Kammerer (1998) suggest that the problems with developing system requirements originate in this group effort as a result of poor communication and coordination and "fluctuating and conflicting requirements" (p. 230). Therefore, it could be postulation that much of the value created in a vendor-client arrangement is increased in the process of aligning stakeholder interaction during requirements elicitation process. This includes obtaining more user participation. For instance, Crowston, and Kammerer found that the two companies in their study on group processes during the requirements elicitation process discovered that user input "cannot be over emphasized" (p. 233). This is because users determine the system's "fit" (p. 228) once it is put into service. Further, as suggested by Prahalad and Ramaswamy (2004), allowing stakeholders to participate in the requirements process, value is co-created. Levine (2005) describes this as the "voice of the customer" (p. 293) and can be the "key to product success" because facilitating "cross-functional stakeholder" (p. 294) input increases the ability of the vendor and client to define the product's specifications. This also provides a link to responsibility. For instance, when the product is co-created, all stakeholders are accountable for product's end result. Co-creating value in this way adds additional benefits. For instance, Levine suggests that during requirements


Comprehensive Examination for (William A. Huckabee Jr.) elicitation, waste can be removed from the process of creating the product, increasing its quality and fit within the organization. In agreement with Crowston and Kammerer (1998) and Levine (2005), Boehm and Sullivan (2000) suggest that stakeholders are an important part of the value creation process. These researchers suggest it is important in obtaining consensus and suggest that when working with stakeholders, the vendor and client can take three perspectives in reaching consensus. First, there is a "utilitarian perspective" (p. 325), which suggests that to create value for any one stakeholder, the system must create value for any one stakeholder. Second, a "non-utilitarian perspective" (p. 325) can be used. This follows "Rawlsian ethics of fairness" (p. 325), which suggests that each stakeholder's view of value is given equal weight. Finally, the final method, which aligns to the "spiral development lifecycle" is the "win-win" (p, 326) concept. Conclusion Sirmon, Hitt, and Ireland (2007 suggested that it is the responsibility of every firm to create value in order to realize increased performance. However, value creation is a subjective topic, and many software development firms find it hard to define and create value. Three major value creation theories were explored, VBRE, Co-creating value, and VBSE. These major theories were supported by components of other theories, such as stakeholder interaction and relationship management. However, it was found that not one single theory would allow a firm to create value in the turbulent and changing environment that is associated with software development, even if the firm was working alone. Outsourcing complicates value creation in this industry.


Comprehensive Examination for (William A. Huckabee Jr.) Also, when creating value in an outsourcing arrangement, the vendor and client should work to create a strong relationship that nurtures the relationship factors that are addressed by Moller and Torronen (2003), which includes fair distributions of profit based on contributions of each player in the arrangement. Also, using a stable systems architecture, developing system requirements through a consensus of stakeholder agreement allows the client and vendor to cocreate value, allowing the different stakeholders to take responsibility. Applying the theories presented here in integrated fashion will allow the joint arrangement increase value for both firms, allowing for increased performance. Finally, using an integrated approach provides both firm's with a specific set of requirements that drives the contract arrangement, the development work, and end the end, a product that is value by the customer by meeting their needs and time requirements.


Comprehensive Examination for (William A. Huckabee Jr.) QUESTION 2 Total quality (TQ) programs, intended to improve operational performance, have frequently failed to live up to expectations. Siegal et al. (1996) found that although 73% of firms studied claimed to have implemented TQ programs, only 10% claimed the implementations were successful. Discuss different leadership styles and their impact on quality improvement programs. Specifically, compare and contrast the affects of transformational and transactional leadership practices on the prospects for successful TQ implementation. Assess which of these leadership styles is most likely to accomplish successful TQ implementation.


Comprehensive Examination for (William A. Huckabee Jr.) Response to Question 2 Introduction Total quality management (TQM) provides organizations with a unique approach to improving organizational effectiveness and has a sound conceptual foundation (Hackman & Wageman, 1995, p. 310) and has become popular in most industrialized nations (Samson & Terziovski, 1999, p. 396). TQM is an integrated comprehensive approach that involves every member of an organization. Further, Shin, Kalinowski, and El-Enein (1998) suggest that TQM is not a "short-term quick fix" (p. 13) because it requires sweeping reforms to a firm's culture, leadership style, and other core features (Powell, 1995, p. 21) of an organization. TQM is an important part of business strategy because it can produce increased profits and market share, improved products and services, and improved employee moral (Deming, 1981, p. 12). Although organizations can reap great rewards from the program, many TQM implementations have failed. In fact, Siegal, Church, Javitch, and Waclawski, et al (1996) suggest as many as 63 % (para. 2) of implementations have failed to provide the benefits that leaders planned for. Dean and Bowen (1994) suggest that this is because there is no underlying theory for TQM's use. Additionally, Siegal, et al (1996) identified the leading causes of TQM failure. Among them is the lack of leadership's involvement in the TQM implementation. Therefore, many researchers (Beer, 2003; Rui, Emerson, & Luis, 2010; Siegal, et al; Shin, Kalinowski, & El-Enein, 1998) and practitioners (Crosby, 1996; Deming, 1994; Juran, 1978; 1981; 1994) suggest that leadership could be the root cause of TQM failures. In fact, Savolainen (2000) suggests leadership can increase the chances of successfully implementing a TQM program, which is supported by Samson and Terziovski (1999), who suggest that leadership is the primary driver (p. 326) of TQM success.


Comprehensive Examination for (William A. Huckabee Jr.) Since leadership is identified as a leading cause of TQM failure, which form of leadership can best contribute to a successful implementation? TQM and leadership literature discuss many leadership styles that are congruent with TQM implementation and sustainment, however, there are too many to discuss in the constraints of this project. Therefore, two leadership styles are the primary focus of this project; transactional and transformational leadership. This is because much of TQM literature discusses these styles as being conducive to TQM. Further, Beer (2003) and Emery and Barker (2007), among others, discuss the importance of both transactional and transformational leadership to the success of a TQM implementation. Most research indicates that transformational leadership would be the best form of leadership that organizations should employ for successful TQM implementation. For instance, Howell and Hall-Merenda (1999) indicate that both transactional and transformational leadership, although conceptually distinct (p. 682) are both significantly and positively related to follower outcome, and that transformational leadership is more positively related (p. 682) than transactional leadership and can positively affect the successful outcome of a TQM implementation. As evidenced above, leadership is a major cause of TQM failure as well as a major contributor to its success. Moreover, research indicates that both transactional and transformational leadership can increase the success of TQM. Therefore, the purpose of this paper is to discuss these two leadership styles and their impact on quality improvement programs and to provide a comparison of the effects of transactional and transformational leadership for successful TQM implementation, and then provide an assessment for which leadership style is the best suitable for successful TQM implementation.


Comprehensive Examination for (William A. Huckabee Jr.) Total Quality Management Basics TQM can be traced back to the Union of Japanese Scientists and Engineers (JUSE) (Powell, 1995, p. 16) in 1949 and was a method used by the Japanese Government to increase post-war productivity. Additionally, TQM has become just as important as a firms quarterly financial results (p.15). Hackman and Wageman (1995) suggest there is a sound conceptual basis (p. 310) for TQM that can produce visible benefits. Others would suggest that there is a faddish element (Dean & Bowen, 1994, p. 33) associated with the program, however, Juran (1994) suggests that TQM can be used to achieve world-class quality (para. 54). Further, Deming (1981) and Powell (1995), among others, discuss the benefits that leaders can gain through a successful TQM. In fact, empirical evidence provided by Powell suggests that TQM does produce value (p. 17) for a firm through the realization of a variety of benefits including improved product quality, greater productivity, increase profits, reduced costs, improved employee moral (Deming, p. 12) and satisfied customers (Powell, p. 16). TQM can be defined in various ways such as a management philosophy (Powell, 1986, p. 16) or as a series of management obligations (Deming, 1981, p. 17). However, for this project, Crosbys (1996) definition of TQM is the best definition. For instance, he defines TQM as a deliberate action taken by organizations to create an organizational and personal culture where all transactions are accomplished correctly, on time, [and] where relationships with employees, suppliers, and customers are always successful (p. 18). This definition fits because the program can be applied in any organizational setting including the service industry and at the department level such as purchasing, billing, and product development (Powell, p. 16).


Comprehensive Examination for (William A. Huckabee Jr.) As suggested earlier, Dean and Bowen (1994) stipulate there is no underlying theory that provide the basis for TQM. To address this issue, Anderson, Rungtusanatham, and Schroeder (1994) conducted a Delphi study to develop a total quality management theory based on Deming's management method (p. 472) to aid researchers and practitioners in implementing TQM. Based on Deming's 14 imperative statements targeted at top-level management (p. 474), the theory was subsequently empirically tested. The results demonstrated empirical support for several relationships in the proposed theory (Anderson, Rungtusanatham, Schroeder, & Devaraj, 1995, p. 655). The findings of the study suggest that visionary leadership had a strong and direct effect on internal and external cooperation and learning (p. 648), among other relationships. Implementing TQM will be complex because of the level of change that associated with the program. Implementing TQM requires a fundamental shift in the organizations management practices and culture (Beer, 2003, p. 624) as well as in the core features of the firms leadership. Further, TQM requires significant changes in the firms structure, such as moving from a more centralized organizational structure to a less hierarchical and less controlling (Savolainen, 2000, p. 215) structure where employees take on a broader role through participation and team efforts (p. 216). To ensure that a TQM implementation is successful, leaders need to understand that making such changes will take time. In fact, Powell (1995) suggests corporate perseverance and leaderships' ability to commit may be a crucial element of success; without a long-term commitment from senior leaders, TQM programs have no foundation for success (p. 22).


Comprehensive Examination for (William A. Huckabee Jr.) Leadership As evidenced above, leadership can be a contributing factor of TQM failure. In fact, a lack of leadership can be directly credited for the failure of TQM (Beer, 2003; Dean & Bowen, 1994; Siegal, et al, 1996; Soltani, Liao, Singh, & Wang, 2010). For instance, Waldman, Lituchy, Gopalakrishnan, and Laframboise, et al (1998) conducted a study of three organizations that implemented TQM. Poor leadership in two of the three organizations directly contributed to the failure of the organizations TQM program. For example, in the hospital case, middle management did not feel compelled to promote or sell the QI philosophy on a hospital-wide basis (para. 54). Here the researchers suggest that the form of leadership espoused was laissez faire (para. 55), which was the root cause of the TQM failure in this case. In contrast, in the National Police Force (para. 63) case, leadership fully supported the TQM initiative down to the lowest level. The initiative was a top-down driven program and the physical presence (para. 53) of leadership was a contributing factor for its success. This suggests the level of leadership commitment has a direct impact on TQM's success. In fact, Hug (2005) suggests TQM implementations require the commitment of top leaders (Hug, 2005, p. 454) because they need to assess the status of the change throughout the implementation process. Waldman, et als (1998) evidence suggests leadership can have both a positive and negative impact on TQM's implementation. Further, Eisenbach, Watson, and Pillai (1999) suggest that implementing TQM requires leaders to create new systems and approaches while Shea and Howell (1998) suggest that the primary focus of TQM is the involvement of all organizational members in continuous improvement (para. 2). This suggests that leaders must create an environment that is conducive to cooperation and trust, which fosters employee involvement (para. 3). Here leaders must establish a solid business case for change to


Comprehensive Examination for (William A. Huckabee Jr.) communicate the need for change to all organizational members to obtain buy-in (Hug, 2005, p. 454). Also, Dancin, Goodstein, and Scott (2002) suggest that old norms and practices (p. 46) must be deinstitutionalized and new ones justified and diffused throughout the organization (p. 48). To institutionalize the changes, Siegal, et al (1996) suggest that leaders must create a vision (para. 16) for transitioning to the future organizational state and that the barriers to implementing the program be eliminated. Finally, Kavanagh and Ashkanasy (2006) suggest for leadership to be effective, leaders must behave differently in different situations (p. S82), which calls for leaders to move between different leaderships styles effectively without losing the momentum of change. This suggests both transactional and transformational leadership styles are conducive to successful TQM implementation. Transactional Leadership Emery and Barker (2007) define transactional leadership as being a bureaucratic form of authority and legitimacy (p. 79). Howell and Hall-Merenda (1999) define transactional leadership as a series of exchanges and negotiations between leaders and followers. Antonakis and House (2002) suggest that transactional leadership is associated with self-interests and that transactional leaders are often unable to influence the higher-order motives (p. 7) of followers. Also, Jung and Avolio (1999) suggest the focus of transactional leadership is on setting goals (p. 208). Waldman, et al (1998) suggest that transactional leadership follows the contingent reward theory, which suggests that leaders engage in behaviors that clarify follower roles and goals (p. 520) to obtain favorable follower behavior. This is the core component of effective leadership behavior (Bass, Avolio, Jung, & Berson, 2003, p. 208) and the basis of trust


Comprehensive Examination for (William A. Huckabee Jr.) (Antonakis & House, 2002, p. 5) and has two components; contingent reward and managementby-exception (MBE) (Howell & Hall-Merenda, 1999, p. 681). Contingent reward is based on leader-follower agreement with an arrangement of rewards and specific levels of performance. Navahandi (2006) suggests that followers receive resources in exchange for motivation, productivity, and the effective task accomplishment (p. 240). Howell and Hall-Merenda (1999) suggest that leaders can achieve positive outcomes with contingent reward leadership; they stipulate that research findings indicate that contingent reward has a positive effect on follower performance. In fact, Kavanagh and Ashkanasy (2006) suggest contingent reward can be very effective in integrating cultures. This is because leaders make followers feel like part of the collective because they are always communicating results to followers. This helps leaders in decreasing follower uncertainty and anxiety about the future state of the organization. Sarros and Santora (2001) suggest leadership is effective in changing culture when leaders and followers engage in a series of exchanges in the pursuit of company goals and individual needs (p. 388). MBE is based on deviations to standards, criticism, and reprimand and is often criticized for encouraging short-term individual performance (Waldman, et al, 1998, p. 520) and could negatively impact group goals and continuous improvement (p. 520). Also, there are two types of MBE; active and passive management by exception (Emery & Barker, 2007, p. 80) (MBE). The former provides active interaction with followers providing them more positive effects (p. 80). The latter, also known as laissez-faire (p. 80), is just the opposite; a leader practicing passive MBE preserves the status quo (p. 80) and provides direction only when mistakes are made, giving this form of leadership a negative connotation. In fact, Howell and Hall-Merenda (1999) indicate that when followers are constantly reprimanded, they develop hostility (p. 681)


Comprehensive Examination for (William A. Huckabee Jr.) toward leaders and the organization. This results in a reduction of effort and lower levels of performance (p. 681). This is supported by the evidence presented earlier by Waldman, et al (1998), where leadership's laissez faire behavior led to the failure of a TQM implementation. Transactional leadership requires much effort on the leader's part. For instance, Emery and Barker (2007) suggest that leaders must work to acquire information in order to determine the needs of the individual in order to increase the motivational levels (p. 81) of followers. Navahandi (2006) suggests further that transactional leaders must clearly state their goals, and communicate extensively (p. 240) with, and monitor the behavior of followers to ensure that there is a quality exchange. This could explain why Kavanagh and Ashkanasy (2006) postulated that transactional leadership facilitates cultural changes. Also, Navahandi suggests that transactional leadership can be highly satisfying and beneficial (p. 240) to all organizational stakeholders. Finally, Antonakis and House (2002) suggest that transactional leadership is used more often in a stable context, therefore, it could be suggested that transactional leadership would not be conducive to a TQM implementation because it associated with a low level of change (Navahandi). The evidence presented thus far suggests that transactional leadership can be effective in implementing TQM. However, TQM demands intense CEO commitment (Powell, 1995, p. 17) because the responsibility for quality is in rests in their hands (Choi & Behling, 1997, p. 38). To realize the benefits of TQM, it requires commitment of leadership to ensure that the changes are implemented in accordance with their vision and strategy (Douglas and Judge, 2001). This suggests that the short-term goal oriented transactional leadership style can represent an obstacle to a successful TQM implementation.


Comprehensive Examination for (William A. Huckabee Jr.) Transformational Leadership Leaders displaying charismatic or transformational behaviors are symbolic leaders who develop and communicate visionary and inspirational messages (Shamir, House, & Author, 1993, p. 578) that appeal to followers. Their attitude transcends everything (Antonakis & House, 2002, p. 5) and they are seen to be courageous because they challenge the status quo that is seen undesirable (p. 6) to others. They are self-confident and display pro-social assertiveness (p. 6) and show strong moral conviction toward specific goals, which followers can identify with, and idolize (p. 6). Further, transformational leaders have the ability to transform the needs, values, and aspirations of followers from self-interests to collective interests (Shamir, House, & Author, p. 577), which is important for a TQM implementation that is associated with teamwork and empowerment. Also, transformational leaders are associated with more satisfied and highly motivated followers than any other type of leadership, and according to Shamir, House, and Author, they are rated as being more effective leaders (p. 578). Trofino (2000) and Navahandi (2006) suggest these behaviors are indicative of the components associated with transformational leadership, which are such as individualized influence (b) inspirational motivation (c) intellectual stimulation and (d) individualized consideration (Navahandi, pp. 242-243). Leaders abilities of combining these components and displaying transformational leadership gives meaningfulness to work by infusing followers and organizations with moral purpose and commitment (Shamir, House, & Author, 1993, p. 578). Further, these behaviors enhance a leader's abilities to motivate followers toward a particular mission or goal. Motivating others towards a common goal starts with creating, articulating, and communicating a clear and compelling vision (Waldman, et al, 1998, p. 521). This provides followers with a focal point for change efforts, and according to Navahandi (2006)


Comprehensive Examination for (William A. Huckabee Jr.) vision is key to effective leadership (p. 246). Howell and Hall-Merenda (1999) and Kavanagh and Ashkanasy (2006) suggest that when leaders create a vision of the success that is associated with TQM, both the self-efficacy and self-worth (Shea and Howell, 1998, para. 30) of followers, which leads to higher performance outcomes and a successful TQM implementation. Further, Shea and Howell suggest serving as a role model also increases the self-efficacy (para. 26) of followers through the gradual exposure to certain behavior. Leaders actively participating in TQM implementations promote certain behaviors that communicate what they believe to be the correct behaviors for organizational members to emulate (Kavanagh and Ashkanasy, 2006). Role modeling would fit here. For instance, Shamir, House, and Author (1993) suggest that leaders can exhibit commitment to the TQM initiative through role modeling (p. 584) and taking a personal interest. They suggest that followers learn by observing leaders behaving in ways that encourage followers to adapt to the leader's behaviors, lifestyle, values, and aspirations (p. 584). This is a method by which transformational leaders motivate followers by appealing to their higher ideals and moral values (Trofino, 2000, p. 233). Redman and Grieves (1999) suggest that constancy of purpose (p. 521) is required for TQM success. For example, the Managing Director in their case study connected with the organizations' members by demonstrating his commitment to change by visiting with workers on the shop floor for six months (p. 521) talking with workers about how jobs could be improved. Trofino (2000) suggests this stimulates the creativity of an entire organization by connecting with the intellectual capacity of followers changing their beliefs and attitudes (p. 233). Transformation leadership is generally received positively (Trofino, 2000, p. 244) by all organizational members and can facilitate change in organizations because leaders transform the needs, values, aspirations, and preferences of followers from self-interests to collective


Comprehensive Examination for (William A. Huckabee Jr.) interests (Shamir, House, & Author, 1993, p. 577). Also, Bass, Avolio, and Goodheim (1987) add that transformational leaders instill in followers the best form of motivation, which is selfactualization (p. 8), which Maslow (1943) suggests is a level of motivation where leaders can expect the highest level of creativeness (p. 382) possible from followers, thereby increasing organizational effectiveness and TQM success. Kavanagh and Ashkanasy (2006) suggest leaders will have a daunting task (p. S82) of gaining the acceptance of organizational members when implementing TQM. In such a situation, Hackman and Wageman (1995) suggest that leaders must remove all organizational systems that create fear (p. 311) and establish an environment where organizational members can become committed to continuous improvement (p. 312). For instance, in the Redman and Grieves (1999) case study, an organization engaged in two simultaneous risky (p. 50) endeavors; an organizational restructure and a TQM implementation labeled the Total Quality Commitment (p. 51). In order to make this risky strategy take hold, the Managing Director eliminated managerial symbols such as reserved parking and separate canteen facilities (p. 51), which instilled an emphasis on teamwork and employee involvement (p. 50) in TQM activities. In this particular case, it was also noted that those that resisted the change progamme were eliminated while those junior leaders that supported the program were promoted (p. 52). Here the Managing Director demonstrated his courage to take on the risk of implementing a TQM program with other changes as well as making personal sacrifices, which Shea and Howell (1998) suggest is important in influencing followers to adopt a TQM program.


Comprehensive Examination for (William A. Huckabee Jr.) Leadership Style Comparison Transactional leadership provides an organization with a lower order of change (p. 8) based on leader-follower exchanges. Further, the ability of transactional leaders to influence follower productivity depends on the leader's power (Bass, Avolio, and Goodheim, 1987, p. 8) to reinforce follower behavior. In contrast, transformational leadership provides a higher-order of change that facilitates a higher level of follower motivation; these researchers call this selfreinforcement (p. 8). Also, transactional leadership is focused on short-term goals (Dean & Bowen, 1994, p. 399) and is based on the observation of task completion and employee compliance (Emery & Barker, 2007, p. 79), suggesting transactional leaders could be change agents because they are good at improving productivity (p. 79). However, because of transactional leaders task-orientation, they may not be good at providing a vision of the future direction of the organization. Also, Waldman, et al (1994) suggest in some cases, group oriented goals could be negatively affected, especially in the case of MBE leadership behavior. There is evidence that transactional leadership would not be good for change. For example, at Metco (as cited in Redman & Grieves, 1999), a transformational leader known as being ruthless but fair (p. 53) initiated a TQM implementation led by a successful vision (p. 53). His vision and motivation of the workforce led to early realization of benefits. However, this leader was promoted and replaced with a more directive and task-driven style (p. 54) of leader. This change in leadership was a factor in Metcos failure in implementing TQM because new ideas were no longer cascaded down to the workforce (p. 53). As a result of the leaders transactional leadership behaviors, many of the benefits realized early disappeared as did many of the TQM initiatives. This leadership behavior also negatively affected the commitment of the workers. For example, employees who were known to go the extra mile no longer strived for


Comprehensive Examination for (William A. Huckabee Jr.) excellence. Therefore, evidence suggests that transactional leadership negatively impacted this TQM effort. In contrast, transformational leadership provides the entire organization direction and motivation through the establishment of a long-term vision of the future as well as a strategy to get there (Navahandi, 2006). This is critical to the success of a TQM implementation; commitment of the entire organization as well as the organization's leadership is required for successful TQM (Beer, 2003). Additionally, Ehigie and Akpan (2004) suggest that leaders must instill a shared vision throughout the organization. Transactional leaders do not look beyond the task at hand while transformational leaders communicate their vision throughout the organization. For instance, these researchers suggest that when lower level employees share the vision of those at the top, change is implemented more effectively, which leads to success. In fact, Waldman, et al, (1998) provided evidence that shared vision is critical to the success of a TQM initiative. For example, in the National Police Force (para. 63) case of their study, the senior leaders persistent leadership effort (para. 63) instilled a shared vision in lower level leaders and employees, which led to the success of their TQM effort. In fact, one respondent stated that Ive seen the deputy commissioners more in the last six thats a cultural change, people at the top are willing to come down and talk to you (para. 67). This indicates that the communication of a vision to the lowest organizational element will lead to TQM success. Also, Ehigie and Akpan (2004) suggest that reward and incentives should be aligned to the change processes to effectively motivate organizational members in implementing the change. Transformational leaders help employees perform their best work by adequately developing rewards and incentives that match the level of effort by keeping them technically and behaviorally engaged (Soltani, Liao, Singh, & Wang, 2010, p. 678). Redman and Grieves


Comprehensive Examination for (William A. Huckabee Jr.) (1999) provided further evidence that transformational leadership is crucial for TQM success. For example, at Metco (as cited in Redman and Grieves, 1999), the Managing Director abolished the work-study based incentive plan (p. 51) and instituted a new plan based on organizational performance. In contrast however, the followers of transactional leaders may find fault with the equity that leaders place on rewards and incentives (Emery & Barker, 2007, p. 79) suggesting that self-interests will slow change activities. Leadership Assessment For a successful TQM implementation, Larsson and Vinberg (2010) suggest a leader must display a high level of relations-oriented and change-oriented (p. 318) set of behaviors. Relations-oriented behaviors allow leaders to develop the relationships necessary to build consensus of the organization's workforce for change while change-oriented behavior would improve the firm's abilities in adapting to environmental changes. This is indicative of transformational leadership, which Larsson and Vinberg suggest is positively related to successful implementation (p. 319) of TQM. These researchers also indicate that MBE and laissez faire are negatively associated (p. 319) with successful TQM. It is clear from the research presented here that transformational leadership is the form of leadership that is needed to reduce the failure rates that Siegal, et al (1996) described earlier. This is because the three factors of transformational leadership (a) intellectual stimulation (b) charisma and inspiration and (c) individual consideration when combined, provide leaders with the ability to achieve large-scale change (Navahandi, 2006, p. 242). Finally, by providing a forward-looking vision (p. 246), transformational leaders are able to develop a strategy for enacting change and motivating and empowering the workforce to engage in and successfully


Comprehensive Examination for (William A. Huckabee Jr.) complete the necessary changes to bring TQM to a successful realization (Bass, Avolio, & Goodheim; Beer, 2003; Larsson & Vinberg, 2010; Navahandi; Savolainen, 2000). Conclusion Total quality management (TQM) provides organizations with a unique approach to improving organizational effectiveness and it has a sound conceptual foundation (Hackman & Wageman, 1995, p. 310). Research indicates that organizations can reap great rewards from the program. Research also indicates that many TQM implementations have failed provide the benefits that leaders planned for. Siegal, et al (1996) suggested that the major contributors to these failures were leadership. To determine how leadership can influence a TQM implementation, this research project discussed two leadership styles that could positively impact the implementation of TQM; transactional and transformational. Both prior TQM and leadership research suggests that these leadership styles can contribute positively to TQMs success. Although transactional leadership is the core component of effective leadership (Bass, Avolio, Jung, & Berson, 2003, p. 208) and the basis of trust (Antonakis & House, 2002, p. 5) it cannot contribute effectively to support a successful TQM effort. For instance, the evidence in the Metco case study by Redman and Grieves (1999) indicates that transactional leadership fails to support the notion that transactional leadership is positively related to successful TQM implementations. In contrast, transformational leadership can contribute positively to the success of TQM implementations. Transformational leaders combine intellectual stimulation, charisma and inspiration, and individual consideration to effectively motivate followers. This is done by creating a vision of change, developing a strategy for achieving the change, and articulate this vision and strategy to followers. Influencing followers higher-order motives, these leaders


Comprehensive Examination for (William A. Huckabee Jr.) modify the values and beliefs of followers to collective interests toward the goal of change. They set clear standards and behaviors and then set the example by becoming a role model, thereby influencing followers to adopt the leaders behaviors. Finally, as evidenced in the Waldman, et al (1998) case study, being persistent, talking with followers to communicate their vision, transformational leadership can and does positively impact the success to TQM implementations.


Comprehensive Examination for (William A. Huckabee Jr.) QUESTION 3 Porter and Millar (1985) discuss how information gives organizations a competitive advantage. Identify, explain, and analyze the competitive advantage given by information to organizations. Evaluate how information technology allows organizations to compete on multiple competitive priorities. Compare and contrast the competitive benefits given by information to organizations with the alternative views of Carr's (2003), "IT Doesn't Matter."/ Porter, M., & Millar, V. (1985). How information gives you competitive advantage. Harvard Business Review, (63,4), 149 - 160/ Carr, N. (2003). IT Doesn't Matter. Harvard Business Review, (81,5), 41 - 50.


Comprehensive Examination for (William A. Huckabee Jr.) Response to Question 3 Introduction Over the past twenty five years, information has changed the way organizations conduct business. Porter and Millar (1985) suggest that no firm can "escape its effect" (p. 149). Drucker (1999) suggests that information is "key" (p. 123) to the competitiveness of a firm, and that organizations must gain control of information to be successful. As a strategic resource, information can be used to improve the firm's decision making process, provide signals that markets or competitors are changing activities. Also, information can be used to create new products, provide access to new markets, and attract new customers; information has a wealth of strategic uses if managed properly. For instance, Cachon and Fisher (2000) suggest the information contained in many of the logistics processes can be used to reduce lead time, reduce the frequency of shipping material, and material processing time and costs, creating a competitive advantage over rivals. In recent times, organizations have found that Information technology (IT) can be used to improve information and help organizations streamline business processes, add value to existing processes, and expand operations and reduce costs. IT can improve the way firms use information, but IT is misunderstood. In fact, Porter and Millar (1985) suggest that IT encompasses many aspects of an organization, from the "information that businesses create and use" to the technologies that businesses use to "process the information" (p. 149). In fact, organizations are realizing the competitive benefits of IT by expanding its use in supply chain management (SCM) and customer relationship management (CRM) products to increase their strategic positioning (Lummus & Vokurka, 1999; Rigby & Ledingham, 2004). The trick to IT


Comprehensive Examination for (William A. Huckabee Jr.) however, is to identify and explain the competitive advantages that both information and IT provide an organization. There are some however, that believe IT provides no competitive benefits to organization, and that IT is invisible and immaterial to anyone who uses technology for a competitive advantage (Carr, 2003). An analysis of Carr's postulations reveals that organizations can gain significant strategic benefits from IT, even though Carr suggest that none exist. In fact, even after Carr published his article IT Doesn't Matter, more recent evidence suggests that companies such as "Disney" (Collis & Montgomery, 2008, p. 149), "Shell Oil, Proctor & Gamble, and Liberty Mutual" (Marquis, 2006, p. 15) are still realizing strategic breakthroughs using IT which suggests there are still strategic benefits to be realized from IT's use. Although Carr (2003) suggests that IT does not play an important role in a firm's competitive advantage, research indicates both do affect competition, but it requires an understanding of the role information and IT play in establishing a competitive advantage. Therefore, the purpose of this paper is to identify, explain, and analyze the competitive advantages that information and information technology provides an organization and to analyze Carr's (2003) points that there are no competitive benefits with the use of IT. The Competitive Advantage of Information Drucker (1999) suggests that information can be a "key resource" (p. 123). As such, information can help organizations in creating a strategic advantage over rivals. Further, Drucker indicated the importance of information is not that a firm can create and store knowledge, it is about being able to "take the right action" (p. 130) strategically that is important. Kahaner (1996) describes as information as being "factual" and it includes "numbers, statistics, and scattered bits of data" (p. 20) about people, companies, and other entities and what they are doing that affect


Comprehensive Examination for (William A. Huckabee Jr.) the firm's operations. This can include actions taken by competitors, government regulation, and potential competitors, such as new entrants to a particular industry. Choo (1996) suggests there are three ways in which a firm can use information as a competitive tool. For example, information can be used to improve the firm's decision making process by searching for and evaluating information that is relevant to the firm's industry and operations. Also, information can signal environmental changes that affect operations, such as changes that effect the "supply of materials, resources, and access to energy" (p. 330). Changes in any of these areas can have both a positive and negative effect on a firm's competitive advantage. Choo noted the changes affecting these components should be "significant" (p. 330) but did not address the meaning of significant. Further, Choo (1996) suggests that when firms collect and organize information, it can provide a firm with the ability to "create new products, improve current products, attract new customers, and improve current organizational processes" (p. 330). The latter enables a firm to reduce the cost of their operations, which provides the firm with a cost advantage over rivals. Incidentally, Drucker (1999) suggests that by compiling information, an organization can create what he calls "business intelligence" (p. 123) which enables a firm to track the moves of current and potential competitors, creating an another advantage. Kahaner (1996) agrees; the intelligence that firm's creates allows them to act on potential changes in the market and learning from the "successes and failures" (p. 23) of other firms in the industry. Now that it is firmly established that information provides a competitive advantage, one would wonder where this information originates. Drucker (1999) suggests the strategic information that firms need comes from "outside the organization" (p. 101); however, he also suggested that competitive advantages originate in the "total cost of the process" (p. 111), which


Comprehensive Examination for (William A. Huckabee Jr.) follow Porter and Millar's (1985) value chain concept. For instance, Drucker suggested that for a firm to hold a competitive advantage over rivals, a company must have a firm grasp of the costs of the "entire economic chain," which allows a firm to "manage costs and increase the yield" (p. 114). Porter and Millar agree, suggesting that creating a strategic advantage over rival in either a "cost or differentiation" (p. 150) is a function of these activities. Although Drucker (1999) did not identify the components of his economic chain, Porter and Millar (1985) did. They identified nine activities that a company performs, which create and consume information that is of strategic value. These researchers calls these activities the "value activities" (p. 150) and a firm must "capture, manipulate, and channel" (p. 152) information from these activities to create strategic advantages over rivals. This allows a firm to increase the effectiveness of operations, thereby reducing costs and increasing quality. Rockart and Short (1989) suggest that this enables a firm to react more quickly react to market changes. This provides evidence that an organization must become intimate with the information of the interrelationships along its value chain to remain competitive. Also, Drucker suggests this is a strategic necessity and information must include the relationships that a firm has established with suppliers, distributors, and customers, which are technically outside the firm's legal boundaries. Drucker indicates that mismanaging the value chain can "spell disaster" because it creates a "cost disadvantage" (p. 115), which results in a loss of market share. More importantly, to effectively manage these links, "information sharing" (p. 115) among all participants in the value chain is required and Drucker suggests that sharing information is often difficult. That said, the information that originates from these activities is especially important for strategy development. For instance, Grant (1991) suggests the strategic foundation of a firm exists in its resources. In fact, Collis and Montgomery (2008) suggest that companies must work


Comprehensive Examination for (William A. Huckabee Jr.) to "leverage its resources into all markets that it wants to compete" (p. 149). Grant also suggests that to create a strategic advantage, a firm must effectively manage the linkages between these resources. This suggests there are "trade-offs" (Porter & Millar, 1985, p. 150) in performing these activities and information is the key to making these trade-offs. Porter and Millar (1985) and Grant (1991) suggest there are two ways for a company to compete strategically. Grant suggests the first method is by creating a cost advantage by "increasing the scale" of operations, which requires "efficient manufacturing plants with superior process technologies and access to low cost inputs" (pp. 117-118). The second method is through differentiation, which requires "brand reputation, extensive sales, service, marketing and distribution networks, (pp. 117-118). Many of these components, low cost inputs, sales, service, marketing, and distribution are part of Porter and Millar's value chain. The information gained from these value activities can increase the firm's competitive position. Using Information to Create a Cost Advantage Inbound logistics activities will provide management with the ability to manage the costs of the raw materials needed for production activities. This enables the firm to create a cost advantage from upstream value chain activities. For example, the information gained from these activities provides a firm with a wealth of strategic information, such as information about the inputs into the company's operations. Thompson, Strickland, and Gamble (2007) add that information about the "assets" used in these activities as well as the "costs" (p. 111) that are associated with the purchase of raw material, storage, and product quality are retrieved from the inbound logistics activities. Further, Lummus and Vokurka (1999) suggest that this activity provides a firm with information allowing it to manage "every effort involved in producing and delivering" (p. 11) a product or service.


Comprehensive Examination for (William A. Huckabee Jr.) Today, many firms combine both inbound and outbound value activities into one manageable activity that Lummus and Vokurka (1999) call "supply chain management" (Lummus & Vokurka, 1999, p. 11) because it encompasses the entire process. The information created by these activities allow a company to "plan, source, make, and deliver" (p. 11) its products. Also, this information provides visibility over the complete process, allowing a firm to manipulate any part of the process. This allows a firm to increase the effectiveness of their logistics activities to reduce costs, increase product quality, and increase the flexibility of production activities. Activities such as these are strategically important to a firm. For instance, Lummus and Vokurka (1999) suggest that firms can forecast production more accurately based on the information provided by this activity. This is because distributors and suppliers are part the activity, which creates the opportunity to anticipate demand through information sharing. This also increases the flexibility of the firm's production activities because of the improved "demand management" (p. 11), which reduces cost. In fact, Collis and Montgomery (2008) suggest that companies who can create a specialized capability such as an efficient supply chain can "secure a competitive advantage" (p. 149) over rivals. Using Information to Differentiate As suggested earlier, a company can create a competitive advantage through differentiation of its products and services. Choo (1996) suggests the information created and retrieved from a company's value chain can increase its ability to differentiate. Grant (1991) suggests further that an ability to differentiate requires a firm to have a "brand reputation, proprietary technology, or an extensive sales and service network" (p. 117). Further, Porter and Millar (1985) suggest that differentiation can come from the method by which a firm configure


Comprehensive Examination for (William A. Huckabee Jr.) their value chain activities, and suggest that this could increase the firm's "competitive scope" (p. 151). Further, the information contained in the value chain can be organized to better coordinate the interrelationships internal and external to the organization and to measure the activity's utilization. This information is strategically important because it provides signals that a firm's position is changing. Collis and Montgomery (2008) provides a good example. Disney (as cited in Collis & Montgomery, 2008) used information from its value chain to counteract an environmental threat of a hostile takeover. As a result, Disney expanded its segment scope by expanding into the "hotel, retailing, and publishing" (p. 149) industries. This allowed Disney to differentiate its product base and increase the utilization of its value chain, and as a by-product, reduce its cost basis. There are other ways of increasing differentiation. For instance, a firm can increase the amount of activities performed within the firm. Porter and Millar (1985) suggest that by performing more functions internally, a company can enjoy a competitive advantage through increased "vertical scope" (p. 151). However, Ray, Muhanna, and Barney (2007) suggest that these activities are based on the "unique" resources as well as the "specific business process" (p. 88) within the firm. Also, there are support activities that provide input information into the value chain. Of these activities, infrastructure and human resources (HR) can be of strategic importance. For instance, Bharadwaj (2000) suggests that infrastructure can provide a competitive advantage. Kettinger, Grover, Guha, and Segars (1994) agrees and suggest that "unique assets, alliances, and expertise" (p. 34) can create an advantage. This is because specific infrastructure configurations combined with HR specialty skills can create entry barriers for a specific industry, and this can


Comprehensive Examination for (William A. Huckabee Jr.) be true for technology based infrastructures. Kettinger, Grover, Guha, and Segars suggest a specific combination of these assets can create a proprietary like mix preventing imitation. Finally, a competitive advantage can be achieved through exploiting intangible resources, which are created through a good mix of infrastructure and HR capabilities. Some examples are "customer orientation, synergy, and superior organizational knowledge" (Bharadwaj, 2000, p. 176). Firms that can create this capability through a good mix of these resources can enjoy "superior financial performance and decreased costs" (p. 176). However, information is the key to all these activities and it must be managed properly for any strategy to be successful. Competitive Advantages of Using Information Technology Porter and Millar (1985) suggest that a firm's competitive strategy is firmly based in the way it "configures and links" the various value chain activities "relative to its competitors" (p. 102). Rockart and Short (1989) highlight that this arrangement must be continually enhanced to improve the value chain's effectiveness. This helps to preserve the firm's competitive positioning. To increase the effectiveness of the value chain, strategic literature points to IT as a tool for preserving its effectiveness. IT creates competitive advantages by reducing coordination costs, improving information quality and organizational flexibility, which helps in creating a sustainable competitive advantage (Cachon & Fisher, 2000; Henderson, 1990; Porter & Millar, 1985; Rigby & Ledingham, 2004; Rockart & Short, 1989). IT increases the strategic capability of an organization's value chain by integrating the entire value chain inducing "value-added" (Henderson, 1990, p. 7) components into the value chain, which reduces costs and improves product and service quality. For example, Rockart and Short (1989) suggest that IT introduces "electronic markets and hierarchies" (p. 9) into the value chain allowing organizations to share information creating what they called "value-adding


Comprehensive Examination for (William A. Huckabee Jr.) partnerships" (p. 9). This allows a company to view the entire chain as "one competitive unit" (p. 10). Further, Rockart and Short (1989) suggest that this improved capacity to connect with other organizations and sharing information increases value chain performance, which leads to a reduction in the cost of coordinating these activities. For example, Rigby and Ledingham (2004) provided several examples of organizations that integrated sales information creating a competitive advantage by "bolstering revenue and reducing market costs" (p. 118). In each of the examples, the firms integrated the information gained from their value chain using a CRM to establish a competitive standing in their respective industry. For instance, Aviall (as cited in Rigby and Ledingham, 2004) increased the geographic scope of the firm by increasing the capability of their customer service resources. The use of the CRM increased the firm's customer base by "33%" (p. 120) as well as increasing the "number of orders for new product lines" and converting customers from competitors. One such customer, "Rolls-Royce" awarded the firm with a "10-year, $3 billion contract," which according to the researchers, was the "first deal of the sort from any company in the industry" (p. 120). Nonprofits are also using IT to create favorable strategic positions with the use of IT. Hackler and Saxton (2007) suggest nonprofit organizations are using IT to increase their competitive position for the "acquisition of funding sources and gaining financial sustainability" (p. 474). They are also using IT to "create partnerships to obtain services and donor support" (p. 474). In fact, nonprofits are using IT to increase the return on their intangible resources, which are the many networks where they obtain the funding sources needed to operate and "expose" (p. 481) their organization to other funding sources. This is strategically important for these organizations as their survival depends on securing and maintaining adequate funding sources. For instance, Hackler and Saxton suggest nonprofits are exploiting IT for "research activities" (p.


Comprehensive Examination for (William A. Huckabee Jr.) 483) aimed at increasing the number of grants that can be obtained. Also, IT enables nonprofits to track web site visitors, which promotes "targeting marketing communications" (p. 483) and fund-raising appeals to their network of donors. This suggests that like for-profit organizations, nonprofits are also exploiting IT for strategic purposes. Finally, Teo and King (1997) suggest firms often exploit IT to reduce uncertainty that exists in market transactions. Further, Bharadwaj (2000) suggests that IT can help in developing a knowledge base that increases organizational flexibility enabling rapid reaction to environmental changes. Kettinger, Grover, Guha, and Segars (1994) suggest that a firm's value chain arrangement, the alliances and partnerships it developed, and how it uses IT will create a proprietary like mixture that will be hard to copy. This can create significant switching costs preventing new entrants into a particular industry, which will increase the strategic position that the firm holds in a particular industry. The Competitive Benefits of IT Carr (2003) made several postulations that IT is immaterial and it no longer provides organizations with competitive benefits, even though he suggested that IT is a "critical resource" (p. 41) for success. However, Grant (1991) suggested otherwise. He suggests the strategic foundation for a firm exists in its resources. Although Carr speaks to IT as being a strategic resource, he suggests the resource is widespread throughout many industries and therefore cannot be a strategic asset, suggesting that IT has been reduces to "commodity inputs" (p. 42). In his article, IT Doesn't Matter, he suggests that IT is a vanishing advantage, IT is becoming a commodity that every organization has access to, and that companies should use IT defensively versus offensively.


Comprehensive Examination for (William A. Huckabee Jr.) Carr (2003) describes IT as being "invisible" (p. 42) and immaterial because the technology has lost its effectiveness in providing a firm with a competitive benefit over rivals. Further, he suggests that "scarcity, not ubiquity" is a characteristic of strategic resource and that because IT has spread throughout many industries, it is becoming a commodity versus a strategic resource. According to Carr, IT is "a cost of doing business" (p. 42) rather than a distinctive capability. Further, he further makes a distinction between "proprietary and infrastructural technology" and describes IT as an "infrastructural technology" (p. 42) that provides more benefits as a shared resource versus a resource held by individual companies. Some would agree with this assumption. For instance, Clulow, Gerstman, and Barry (2003) conducted research in the financial services industry and found that senior management in an Australian financial firm stipulated that "IT systems are an important tangible resource" (p. 225). However, these managers suggested the resource was "easily replicated" and that IT did not provide much benefit except for its "back-up" capability, which "does not set the firm apart" (p. 225). In contrast however, Bharadwaj (2000) suggests technology itself may not provide benefits directly. However, he suggests IT provides many intangible benefits such as "improved customer service, enhanced product quality, increase market responsiveness, and increased coordination between buyers and sellers" (p. 174). All of these benefits can be strategic advantages. Carr (2003) also suggested IT provides firm's with the ability to increase the effectiveness of their internal processes, which leads to "broader market changes" (p. 43). Porter and Millar (1985) agree as they also identified that IT can create market changes and a firm's ability to influence market changes is a competitive advantage. Also, they suggested that IT can change the "competitive scope" of many industries, and creating interrelationships among industry


Comprehensive Examination for (William A. Huckabee Jr.) partners are changing markets. They suggest the "merging of the banking, insurance, and brokerage industries" (p. 157) were changing the context of the market. Here, one could suggest that IT is not so invisible or immaterial after all. Further, Carr (2003) suggests that IT is becoming a commodity much like that of other utilities that are bought and consumed. It appears that this is the case, however, the evidence that supports such a position does not exist. For instance, Slater (1997) suggest that when using IT in this fashion it would require the firm to consider the benefits of "both the customer and costs" (p. 165); this would include outsourcing key IT activities. However, Marguis (2006) suggest that using an IT utility is achievable where the IT capability being outsourced is easy, with repeatable tasks. Also, "most IT utilities cannot handle the complex tasks related to the core business practices of a firm" (p. 14). Marguis suggests that many organizations are unsatisfied with the performance of IT utilities and the problem is complicated when the activities are regulated by legislation such as the "Sarbanes-Oxley Act" (p. 14), for example. Further, Shell (as cited in Marquis, 2006) revamped its processes and migrated much of its outsourced IT support functions back into its control. By doing this, the company saved "5,000 working hours or about $5 million in costs" (p. 15). Also, Liberty Mutual (as cited in Marquis) reduced their outsourcing activities and reorganized their IT support activities and aligned them with the firm's business strategy. This move resulted in an "increase in their 2006 first-quarter revenue by $477 million" (p. 15). According to Marquis, this provides evidence there is still room for using IT to create a competitive advantage and that the commoditization of IT as a utility is not yet sustainable. To address Carr's (2003) final point that IT should be used defensively versus offensively, there are those that disagree. For instance, Ray, Muhanna, and Barney (2007)


Comprehensive Examination for (William A. Huckabee Jr.) conclude that taking such a stance on IT restricts a firm's innovative activities, which can stall further competitive actions the company wants to pursue. In particular, they suggest the benefits of an offensive stance outweighs the risks of a defensive stance. This can be done by aligning IT assets with non-IT assets. They cite "Wal-Mart" (p. 88) as an example. This firm aligned their non-IT assets, their "distributed stores" with its IT assets, "hardware and software" to create an "economy of scale" (p. 88) that cannot be matched. This would suggest that by taking a defensive stance, organizations would miss potential competitive opportunities. Conclusion Information is a key resource that organizations can use to create a competitive advantage over rivals. The strategic importance of this information is not the fact the organization has the information, it is because the information is actionable against market and competitor changes. Further, there are three ways that factual information can be used as a competitive advantage. For instance, the information can be used for better decision making, evaluating market actions that can affect the organization's operations and industry, and to create new products or improve current products. It could also be postulated the information could be used to attract new customers as in the Aviall (as cited in Rigby and Ledingham, 2004) case reviewed earlier. Therefore, information is strategically important, and if managed correctly, provides an organization with to create a competitive advantage through cost reduction, product differentiation, and market gains. Further, all the information needed to create a competitive advantage over rivals is created and consumed in the company's value chain activities. This information is used to reduce the coordination costs between activities, which create cost advantages. This information is used to enhance processes and product quality, which also contributes to a cost advantage and


Comprehensive Examination for (William A. Huckabee Jr.) increased sales. Further, this information, if processed effectively, provides the firm with actionable information increasing flexibility. Further, actionable information is used to coordinate the interrelationships between the firms supplier, distributors, and customers increasing trust between players increasing the competitiveness of the value chain. Further, mismanagement of this information or the interrelationships between activities can be catastrophic to a firm's survival. IT is used to enhance the interrelationships between internal and external value chain links, reducing the coordination costs and enhancing actionable information generated in the different activities. IT also decreases the management of the interdependencies and adds valueadded components to the interrelationships. Further, IT enables the firm to integrate the information along the value chain increasing information sharing among all activities, bolstering organizational revenues and reducing market costs. Nonprofits are also benefiting from the used of IT. For instance, these organizations are exploiting IT to conduct research for obtaining new sources of funding as well as creating new partnerships, which increases their strategic standing among other nonprofit organizations. Finally, in reaction to Carr's (2003) assumptions that IT no longer offers a competitive advantage. His assumptions suggested that IT is invisible and immaterial and that a company cannot achieve a competitive advantage using IT. The research presented here refutes his propositions. IT may be a cost of doing business, however, with the exception of a limited few examples, Marguis (2006), Porter and Millar (1985), and Grant (1991) suggests otherwise. IT mixed with other non-IT resources enable a firm to move beyond the cost of doing business to create more distinctive capabilities; Wal-Mart's unmatched economy of scale is evidence that IT still provides companies with competitive advantages (Ray, Muhanna, and Barney, 2007).


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Comprehensive Examination for (William A. Huckabee Jr.)

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Comprehensive Examination for (William A. Huckabee Jr.) Soltani, E., Liao, Y.-Y., Singh, A., & Wang, W.-Y. (2010). Managing service quality: The managers' orientations and their consequences - case study of current practice. Total Quality Management, 21(6), 673-685. doi: 10.1108/01443570610637030 Sprott, D. (2000). Enterprise resource planning: Componentizing the enterprise application packages. Communications of the ACM, 43(4), 63-69. doi: 10.1145/332051.332074 Teo, T. S. H., & King, W. R. (1997). Integration between Business Planning and Information Systems Planning: An Evolutionary-Contingency Perspective. Journal of Management Information Systems, 14(1), 185-214. Thompson, A. A., Strickland, A. J., & Gamble, J. E. (2007). Crafting and executing strategy: Text and readings (15th ed.). Boston: McGraw-Hill. Trofino, A. J. (2000). Transformational leadership: moving total quality management to worldclass organizations. International Nursing Review, 47(4), 232-242. doi: 10.1046/j.14667657.2000.00025.x Waldman, D. A., Lituchy, T., Gopalakrishnan, M., Laframboise, K., Galperin, B., & Kaltsounakis, Z. (1998). A qualitative analysis of leadership and quality improvement. The Leadership Quarterly, 9(2), 177-201. Retrieved from doi:10.1016/s1048-9843(98)90004-2