Organizational Impacts of Information
Technology
Balaji Parthasarathy, International Institute of Information Technology, India
Ricardo Lage, International Institute of Information Technology, India
Introduction 289
The Significance of Contemporary
IT and Its Adoption 289
Misconceptions about the Organizational
Impacts of IT 290
The Argument 290
Productivity Improvements and the
Adoption of IT 291
Spatial Unevenness and Social Differences
in the Adoption of IT 292
The Digital Divide 292
The Selective Globalization of IT Services
and Outsourcing to India 293
Differences among Developed Countries:
E-commerce in the United States and Japan 293
INTRODUCTION
The Significance of Contemporary IT and Its
Adoption
Drawing on Shapiro and Varian (1999, 3), this chapter
uses information to mean anything that can be digitized
or encoded as a stream of bits. However, unlike in formal
information theory, in which “ . . . the semantic aspects of
communication are irrelevant to the engineering aspects”
(Shannon and Weaver 1964, 8), not every bit stream qual-
ifies as information: following Bell (1999), there must be
a context to understand its structure and meaning. The
importance of a social context for information is cap-
tured in the widely held truism that knowledge is power.
Knowledge is information that is used to present “ . . .
a reasoned judgment or an experimental result, which
is transmitted through some communication medium
in some systematic form” (Bell 1999, 175). The work of
economists such as Stigler (1961) and Akerloff (1970) has
more formally established the importance of informa-
tion, especially for the functioning of efficient markets.
The Information Technology Association of America
defines Information Technology (IT), as “the study, design,
development, implementation, support, or management
of computer-based information systems, particularly soft-
ware applications and computer hardware” (ITAA n.d.,
30). Although, as the definition suggests, IT has become
closely identified with microelectronics-based comput-
ing and networking since the mid-twentieth century, it
has existed ever since there has been information and
the means to represent information, such as language,
graphics (including scripts), and number systems, were
invented. While the invention of writing or telegraphy in
Similarities in the Adoption of IT:
Conquering Space and Time 294
IT Adoption in the United States:
The Cases of G. F. Swift and
Company and Dell Computer 294
IT Adoption in Developing Contexts:
The Fisheries Industry in
Kerala, India 296
Conclusion: IT a Necessary Tool but Not a
Strategic Differentiator 296
Glossary 297
Cross References 297
References and Suggested Readings 297
earlier centuries means that microelectronics is just one
more in a sequence of forces transforming IT, there are at
least two reasons why this transformation is considered
significant enough to be the basis of a third industrial
revolution (Castells 2000).
First, advances in microelectronics ÎÎmake it possible
to obtain and deliver information from and to any corner
of the world, in real time, on a scale unparalleled in his-
tory. Although the importance of information has long
been recognized, the historical relevance of such possi-
bilities is heightened by concurrent economic and social
transformations. The acceptance of economic globaliza-
tion, for example, has increased the demand for infor-
mation about distant markets. Similarly, as the virtues of
political democracy are emphasized, access to informa-
tion is viewed as a fundamental right.
Second, as with other technologies, the adoption of
IT has been driven by the desire to improve productivity
and aggregate standards of living. This is especially the
case with general-purpose technologies like IT that not
only improve productivity in their own sector, in this case
information processing, but also have the potential “ . . .
to transform an economy by finding new applications and
fusing with existing technologies to rejuvenate other, pre-
existing sectors of the economy” (David 2000, 75). Indeed,
advances in microelectronics have made IT increasingly
more powerful, affordable, and versatile. As a result, it is
no more than a broad and fuzzy term to describe various
activities, ranging from issues connected with the tech-
nology, such as computer hardware and software, to the
deployment of the technology for information processing
in application domains as distinct as design, cartography,
and medicine.
289
290 ORGANIZATIONAL IMPACTS OF INFORMATION TECHNOLOGY
Misconceptions about the Organizational
Impacts of IT
The potential impact of adopting IT manifests itself not
only in direct and measurable productivity improvements.
It also manifests itself in changes in organizations, or the
“ . . . patterns of communications and relations among a
group of human beings, including the processes for mak-
ing and implementing decisions” (Simon 1997, 18–19).
Yet, while information and IT have had a long and impor-
tant role in various guises in human history, Brown and
Duguid (2000) lament the limited understanding of the
organizational changes that accompany the introduc-
tion of contemporary IT. They fear that a temptation to
vest hope in the explosion of bit streams alone, to help
overcome the challenges posed by working with incom-
plete information, is a case of 6-D vision, that empha-
sizes disintermediation, disaggregation, demassification,
decentralization, denationalization, and despatialization
(Brown and Duguid 2000, 22). However, by overlook-
ing the need for concomitant social changes, 6-D vision
reduces the bit stream explosion to a glut of data rather
than viewing it as a proliferation of information.
A consequence is what Brown and Duguid term end-
isms, which proclaims the end of various social organiza-
tions, including mass media, brokers and intermediaries,
firms and bureaucracies, universities, government, cities
and regions, and the nation state. Although many of these
organizations may well undergo changes, most proc-
lamations focus almost entirely on the organization as
an economic entity, and the changing transactions costs
that the introduction of new technology brings. But they
ignore that organizations are also social and psychologi-
cal entities, characterized by informal practices and flows
of information, with the possibility of individual goals
diverging from organizational goals (Simon 1997). As a
result, endisms typically lack empirical basis as the fol-
lowing examples attest.
Despite claims about the imminent arrival of the
paperless office as the use of electronic documents spread
since the 1970s, Sellen and Harper (2001) make a com-
pelling case for the importance of paper. They point
to certain physical properties of paper (it is thin, light,
porous, opaque, and flexible) that facilitate such human
actions as grasping, carrying, folding, and writing, in
a way that digital devices do not. The rise in the use of
paper, along with the growing use of e-mail, for example,
suggests a complementary role for both, rather than the
end of paper. More recent predictions about the end of
paper have accompanied the arrival of e-book readers.
However, such predictions ignore problems with ergo-
nomics, interfaces, incompatible standards, and digital
rights management, which plague these devices (Clark et
al. 2008). Clark et al. report a study of the usage of Kindle
(the e-book reader from the online retailer Amazon), at
Texas A&M University, in which users appreciated many
technical features of the product, such as the wireless
download of content. But concerns with page navigation,
graphics, and screen display, made them rule out regular
use. It is likely that many problems currently plaguing e-
book readers will be addressed over time, and they will no
longer “remain crude simulacra of books” (The Economist
2008a). While e-books are likely to be used for text-only
documents with a linear narrative, such as fiction, a wide-
spread switch to e-books, at the expense of p(aper)-books,
is unlikely (Clark et al. 2008). This is because of techno-
logical advances, which, for example, make the publish-
ing of print-on-demand (PoD) titles economically feasible
for even a tiny readership. This commercial opportunity
is lost even on Amazon, which has announced it will print
all the PoD books it sells (Clark et al. 2008).
In the late 1980s, business process reengineering was
offered as a means of overcoming organizational incon-
sistencies and inertia in firms to enhance their produc-
tivity (Brown and Duguid 2000). As consultants advised
managers to obliterate organizational structures, and to
start afresh by setting aside old practices, reengineering
was widely adopted. By the mid-1990s, however, reengi-
neering was viewed with much skepticism as it failed to
deliver the improvements it promised. Its reliance on tech-
nology was seen merely as another means of downsizing.
Claims about the “death of distance” (Cairncross 2001),
and about city downtowns being “leftover baggage from
the industrial era” (Gilder 1995) followed as inexpensive
bandwidth became available in the 1990s with the spread
of a fiber optics–led digital network infrastructure. But
Townsend (2003) shows that the new infrastructure did
not lead to the urban dissolution envisaged by the techno-
utopians because they mistakenly treated telecommuni-
cation and transportation as substitutes. Instead, digital
infrastructure witnessed the emergence of new elements
that only reinforced existing physical, social, and economic
networks within the urban fabric, but in a highly uneven
fashion. These elements included info-highways (providing
fiber connectivity from the global to neighborhood scales),
info-factories (located in urban financial and cultural
centers to produce the content for the information age),
info-warehouses (secure, climate-controlled data stor-
age centers, akin to industrial warehouses, located close
to urban areas for access to metropolitan data networks),
and info-ports (interconnecting various data networks and
located in urban centers).
The Argument
It is against this backdrop of the (mis)understanding of
contemporary IT that this chapter makes three interre-
lated arguments. First, aggregate improvements in pro-
ductivity will not automatically follow the introduction of
IT. That is, changing the technical division of labor will
lead to noticeable productivity improvements only when
accompanied by changes to the social and spatial divisions
of labor. Similarly, at a firm level, Teece (2006, 1133) argues
that “ . . . managerial choices, the nature of knowledge,
intellectual property protection, and the asset structure
of the firm impact the business enterprise’s ability to cap-
ture value from innovation.” But changes to the division
of labor, and the ability of firms to profit from innovation,
can neither be taken for granted, nor are they instantane-
ous. This argument is made in the section “Productivity
Improvements and the Adoption of IT” by discussing the
productivity paradox in the late twentieth century and
comparing it with a similar paradox that followed the
introduction of the dynamo in the late nineteenth century.
 PRODUCTIVITY IMPROVEMENTS AND THE ADOPTION OF IT
Second, despite economic globalization and the emer-
gence of an increasingly unitary global economy that oper-
ates in real time at a planetary scale, the organizational
impacts of IT suffer from sociospatial unevenness. Indeed,
capitalism has historically been characterized by such
unevenness and informational capitalism is no different
(Castells 2000). This argument is made in the section on
the digital divide by pointing to the international divide
that exists in the adoption of IT. The divide is not merely a
case of the poor versus the rich. The section “The Selective
Globalization of IT Services and Outsourcing to India”
describes how India, despite being poor, has managed
to become one of the largest non-OECD exporters of IT
services. The section immediately after that compares the
different approaches to e-commerce in the United States
and Japan to show how differences are manifest even
among developed countries. Furthermore, even within a
country like the United States, the adoption of IT need not
have a uniform impact across firms, reflecting differences
in organizational approaches.
Third, although its technical characteristics and the
context for its adoption have changed, the organizational
means of adopting IT have not changed over time. The
section “IT Adoption in the United States: The Case of
G. F. Swift and Company and Dell Computer” compares
the adoption of the telegraph in the mid-nineteenth cen-
tury by the Swift meatpacking company in the United
States, and the use of the Internet by the computer maker
Dell in the late twentieth century to illustrate how they
shared the goal of conquering space and time to boost
their competitiveness and profitability. A similar goal is
also evident in the adoption of mobile telephony by fish-
ermen in the Indian state of Kerala, as discussed in the
section that immediately follows the section on Swift
and Dell.
The chapter closes by pointing to a feature in the adop-
tion of a general-purpose technology like IT. While those
who deploy the technology productively profit, aggre-
gate benefits are realized only as others learn and imi-
tate them. In other words, as the advantages of deploying
technology become evident to more actors, any advantage
from its deployment will remain less with possessing the
technology than with the unique organizational means of
deploying IT (Carr 2004). This point is made by drawing
on the different routes to operational efficiencies taken
by Cisco Systems, a pioneer in the deployment of IT, and
the manual system of delivering meals by the dabbawal-
las (the lunchbox men, in Hindi) of Mumbai.
PRODUCTIVITY IMPROVEMENTS
AND THE ADOPTION OF IT
To understand why improvements in productivity will not
automatically follow the introduction of IT, it is worth
examining the spread of the dynamo, a general-purpose
technology from an earlier era. Like IT, the dynamo
witnessed many technical improvements after it was
first developed in the 1880s (David 2000). Although
dynamos began to substitute for water power and steam
engines as prime movers soon after electrification began
in 1881 in the United States, and its benefits became evi-
291
dent to the early adopters, the process was slow. Thus,
the productivity effects of this substitution were not felt
until the 1920s, when the electrification of mechanical
drives crossed the 50 percent mark, thanks in part to
falling prices (David 2000, 356). It was then that grad-
ual diffusion led to widespread use triggered by network
externalities.
David explains the sluggishness in substitution as a
technological and organizational regime transition, or
a set of technological and organizational adjustments
that must be made when a new technology is introduced.
Teece (2006, 1139) is in agreement with David when
he says that “many technologies today are systemic.
Successful commercialization requires bringing together
complementary technology as well as complementary
patents. . . . Of course, many innovations require com-
plementary infrastructure investments (for the automo-
bile, roads and service stations; for electricity, long-life
lightbulbs plus generators, transmission lines, and stand-
ards).” In the case of the dynamo, factories designed to
run on steam power had to depreciate their assets before
it became profitable to turn to electrical power. More
crucially, it took until the 1920s to understand that the
substitution was more effective when accompanied by
redesigning factory layouts that supplied machines and
tools with power from separate secondary electric motors
instead of relying on centralized transmission. In addition
to energy efficiency that came with the switch to easy-to-
distribute electrical power, factories could be better laid
out to accommodate redesigned workflows. Furthermore,
infrastructure investments (for example, the establish-
ment of transmission networks) contributed to many
quality changes, such as improvements in lighting equip-
ment and urban transit systems, which were unmeasured
at the time, resulting in depressed productivity.
A similar bias was noted from the 1980s when, with
falling prices in the 1970s, there was an expansion in
investment in IT to utilize its “ . . . broad power to reduce
the costs of coordination, communications, and informa-
tion processing” (Brynjolfsson and Hitt 2000, 24). But
economists did not find such investments necessarily
translating into productivity improvements—a phenome-
non that has been referred to as the productivity paradox.
This paradox was succinctly captured by Solow (1987)
when he said, “We can see the computer age everywhere
but in the productivity statistics.”
By the 1990s, however, evidence began to emerge from
firm-level studies about the contribution of IT to produc-
tivity (Brynjolfsson and Hitt 2000). The gap between the
firm-level findings and those at the macrolevel was due to
measurement problems (caused by lags, redistribution,
and the like). Conventional productivity measures focus
only on observable aspects of output such as price and
quantity, neglecting intangible gains such as improved
quality, new products, customer service, and speed.
Furthermore, measurement also neglected complemen-
tary investments in business processes and work prac-
tices that were crucial to ensuring the intangible gains.
As Cortada (2004, 37) puts it, “The direct contribution of
the computer is difficult to quantify because when com-
panies and government agencies were investing substan-
tially in computers, they were also acquiring other types
292 ORGANIZATIONAL IMPACTS OF INFORMATION TECHNOLOGY

of technology, all in the spirit of leveraging new tools to
improve operations.” In other words, IT was used as part
of a process to bring about more profound organizational
changes.
Drawing on their study of various performance indi-
cators of all publicly traded firms in the United States
between the 1960s and 2005, McAfee and Brynjolfsson
(2008) point to the consequences of the organizational
changes. They argue that a new competitive dynamic,
akin to Schumpeterian creative destruction, has emerged
since the mid-1990s, especially in those industrial sectors
that have invested the most in IT. This dynamic is char-
acterized by “ . . . greater gaps between the leaders and
laggards in an industry, more concentrated and winner-
take-all markets, and more churn among rivals in a sec-
tor” (McAfee and Brynjolfsson 2008, 100).
SPATIAL UNEVENNESS AND SOCIAL
DIFFERENCES IN THE ADOPTION OF IT
The Digital Divide
In her work on the digital divide, Norris (2001) highlights
the widespread unevenness in the diffusion and adoption
of the Internet. Although the diffusion of many technolo-
gies has tended to follow an S-shaped pattern (slow initial
adoption, a substantial surge that peaks when penetration
levels reach saturation point, followed by a slowdown in
demand), whether the S will be flat and elongated, or
whether it will be upright, requires empirical investiga-
tion (Figure 23.1). Similarly, there is no a priori reason to
believe that all organizations, groups, and locations will
be a part of the diffusion process.
In the case of the Internet, Norris points to a debate
between cyberoptimists, who believe that even as those
with the resources, knowledge, and skill to take advan-
tage of digital technology will have an early advantage,
extensive diffusion will inevitably follow as the costs of
connectivity and access devices decline rapidly, and net-
work effects make the Internet too valuable to ignore. The
cyberpessimists, on the contrary, argue that those already
Twentieth-Century American Technology
100
75
% of Households
well networked with older forms of IT, including radio,
televisions, and telephones, will prevail in the digital
economy, especially in the absence of initiatives to over-
come social stratification. In other words, the optimists
believe that technological and economic characteristics
of IT will ensure that absolute differences will narrow
over time, whereas the pessimists believe that relative
inequities will persist.
Norris’s analysis of the global divide across 179 coun-
tries shows that economic factors, especially per capita
gross domestic product (GDP), is the most important
predictor of cross-national differences in access to the
Internet. Since the same factors are also the best pre-
dictors of access to older forms of IT, she argues that
Internet access is limited less by the particular charac-
teristics of the technology, such as lack of Internet con-
nections or fewer non-English language web sites, than
by more entrenched socioeconomic conditions that also
deny access to telephones and televisions.
Kraemer and Dedrick (2001) share Norris’s conclusions
about “new technologies, old inequalities” when address-
ing the question of the payoffs from investments in IT at
a national level. They find evidence of a relationship with
increased productivity and economic growth, although
that result is influenced by the extent of complemen-
tary investments. They present a conceptual framework
wherein four factors drive investments in IT—national
wealth, wage rates, IT infrastructure, and the price-to-
performance ratio of IT products. These investments
offer a stimulus for greater national wealth and higher
wages through the formation of new IT-related industries
and higher skills. This relationship is clearer for devel-
oped countries that have a longer history of investment in
IT, in human resources, and in telecommunications. With
each of these investments reinforcing one another, there
is a virtuous cycle established between investment in IT
and productivity growth.
More recently, Andres et al. (2007) use data between
1990 and 2004 to explain differences in Internet diffu-
sion between 199 countries. Their findings confirm that
per capita GDP is the most relevant factor in explaining
cross-country divergence. GDP per capita is followed by
telecommunication infrastructure, as measured by the
number of phone lines, and the cost of a local call. Higher
cost makes it less likely that users will adopt the Internet.
Other factors include the degree of competition between
Internet service providers: The greater the competition,
the lower the prices of Internet access, which, in turn,

Phones
Radio
encourages diffusion.
TVs Andres et al. also explain Internet diffusion by relat-
50
Cable TV ing it, like Norris (2001), to an S-shaped curve defined by
VCR network effects. When the authors introduce the number
PCs of Internet users in a year in their regression model, the
25
Net variable becomes the most significant explanation for
the number of users in the following year, irrespective of
national income level. Network effects are more significant
0
in developed countries (high-income and upper- middle-
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000

income countries, as defined by the World Bank), where

Figure 23.1: The Diffusion of Various Technologies in the
United States in the Twentieth Century
Source: Adapted from Norris (2001, Figure 2.3).
a 10 percent increase in the number of Internet users in
a year leads to an increase of 8 percent in the number of
users the following year, 2 percent more than in devel-
oping countries, that is, low- and lower-middle-income
 SPATIAL UNEVENNESS AND SOCIAL DIFFERENCES IN THE ADOPTION OF IT
countries (Andres et al. 2007, 16). The authors argue
that this is because information-intensive services and
Internet-based jobs are in greater demand in developed
economies.
When Andres et al. compare two different time peri-
ods, 1985 to 1998 and 1999 to 2004, they find that Internet
diffusion in developed countries in the first period was
steep and similar to the diffusion in developing countries
in the second period. In the second period, however, the
growth curve in developed countries flattened. They esti-
mate that, by 2015, developing countries will catch up to
90 percent of the diffusion rates in developed countries.
But absolute differences will remain stark, and “a sim-
plified simulation indicates it would take low-income
countries more than fifty years to close the digital divide”
(Andres et al. 2007, 10). In this context, the authors argue
that language “ . . . as a proxy of network externalities of
users speaking and sharing contents” matters, by showing
that a 10 percent increase in the number of users shar-
ing the same language in other countries increases the
number of users in that country by 2.4 percent (Andres
et al. 2007, 21).
The Selective Globalization of IT Services
and Outsourcing to India
Despite the contrasts between developed and developing
countries, the unevenness of IT and its organizational
impacts cannot be reduced to any simplistic distinc-
tion between the rich and the poor. An example of this
is how India, despite having a relatively high proportion
of its population living in poverty and illiteracy (World
Bank 2008), exported $31.3 billion of IT services in 2007
(NASSCOM 2008). The trajectory of India’s software
industry illustrates the integration of India into the glo-
bal IT outsourcing network.
An independent global software industry grew fol-
lowing IBM’s decision in 1969 to sell software separately
instead of bundling it with hardware (Campbell-Kelly
2003). The decision was crucial, as it gave customers the
option of buying their software and hardware from dif-
ferent vendors, since IBM, at that time, commanded two-
thirds of the world’s computing market. Subsequently,
the invention of the microprocessor in 1972 facilitated the
availability of increasingly more powerful and inexpen-
sive hardware to trigger the personal computer (PC),
networking, and the Internet revolutions of the 1970s,
1980s, and 1990s, respectively. These revolutions led to
a proliferation of computing usage in various economic
sectors, creating a huge demand for software. However,
while automated, capital-intensive operations permit the
mass production of high-quality hardware, software pro-
duction, in comparison, has remained a craft-like, labor-
intensive affair, plagued by uneven productivity and
quality, relying more on trial and error to achieve its goals
(Brooks 1995). The result is that software development is
notoriously prone to bugs, delays, and cost overruns.
To overcome this software bottleneck, there has
evolved a discipline of software engineering, along the
lines of industrial engineering, to simultaneously auto-
mate and rationalize software development (Cusumano
2004). While the adoption of engineering practices has
293
improved the overall productivity and quality of software
projects, especially in large firms developing software for
stable markets, wide variations in programmer productiv-
ity and quality have meant that the practices are less effec-
tive for the vast majority of firms that develop software
with innovative features under tight budgets. In short,
quality and productivity improvements delivered by soft-
ware engineering have thus far been limited, supporting
Brooks’s (1995) point that there is no silver bullet for the
bottleneck. Thus, overcoming the bottleneck has required
the deployment of more software professionals.
The inability of software producers in North America
and Europe to deploy enough software professionals to
ensure cost-effective development provided an opportu-
nity that India, with its relatively large pool of English-
speaking engineers who were available to work at
comparatively low wages, capitalized on (Parthasarathy
2004). The opportunity also came in the 1980s just as the
Indian economy, which until then was stifled by autarkic
import-substitution-led industrialization policies, began
to emphasize greater private initiative, trade, and foreign
investment. Initially, software exports meant little more
than bodyshopping, or “ . . . providing inexpensive onsite
(that is, at customer locations overseas) labor on an hourly
basis for low value-added programming services such as
coding and testing” (Parthasarathy 2004, 669). It was not
until the early 1990s, when reliable and affordable data
communication facilities became available, that firms
could establish offshore development centers (ODCs)
in India. As the ODCs took independent responsibility
for the quality and productivity of their work, they also
began to undertake turnkey projects, which involve all
aspects of development, instead of just low value-added
programming services (Cusumano 2004). Thus, with the
establishment of IT infrastructure, India took advantage
of its human capital and the opportunities offered by the
global software industry to contribute to the organiza-
tional transformation of the industry.
One cannot underestimate either the economic signifi-
cance of software exports and IT outsourcing to India’s
GDP growth, or the demonstration effect it has had on
other sectors of the Indian economy (Arora and Athreye
2002). Opportunities in the industry, however, have thus
far been limited to select urban areas and to those with
education in a country where social deprivation abounds
(Parayil 2006). Although India has emerged as a major
IT producer, enhancing the quality of life of the socially
deprived will demand a transformation of various seg-
ments of the economy, to improve aggregate productivity,
by raising the relatively low levels of consumption and
use of IT (The World Bank 2006). The section on the fish-
eries industry in Kerala discusses an example of how this
might happen.
Differences among Developed Countries:
E-commerce in the United States and Japan
Arguments against simplistic rich-versus-poor distinc-
tions are reinforced by contrasts among and within
developed countries. For example, Norris (2001) points
to a social divide manifest in Internet usage within
Europe. Analyzing data from the fifteen nations of the
294 ORGANIZATIONAL IMPACTS OF INFORMATION TECHNOLOGY
European Union in 1999, she says that although educa-
tion and occupation are more strongly associated with
computer-related IT than with older forms of IT, demo-
graphics (age and gender) are the significant predictors
of Internet usage after controlling for resources such
as household income, education, and occupation levels.
National variables are significant even after controlling
for social background, highlighting the importance of the
macrocontext, including policy factors such as initiatives
to widen Internet use through training, connectivity, and
hardware prices.
The evolution of business-to-consumer (B2C) e-
commerce in the United States and Japan highlights the
significance of national context in the adoption of IT. In
2005, there were 65.7 users of the Internet per 100 inhab-
itants in the United States, while the corresponding fig-
ure for Japan was 66.8 (UNCTAD 2007, 70). Despite the
similarity in Internet penetration, Aoyama (2001) helps
us understand why U.S. e-commerce revenues in 2005
reached $186 billion (U.S. Department of Commerce
2008, 2), whereas they were only $35.6 billion in Japan
(OECD 2007, 10). Since the nineteenth century, the rapid
expansion of railroads, a reliable postal system, and
improvements in printing technologies in the United
States helped the growth of nonretail stores. Mail-order
operations using catalogs were launched by firms such
as Sears, Roebuck and Company to meet the demands of
a population spread across a vast territory with enough
space in their houses to stock large quantities of prod-
ucts. Thus, long before e-commerce was conceived,
suppliers and consumers gained experience in dealing
with the nonretail store. For example, retailers’ policies
and practices to deal with customer refunds, returns, and
exchanges only reinforced the business operation. Against
this historical backdrop, the arrival of Internet-based e-
commerce was but a new medium for nonretail stores,
and another distribution channel for retail stores.
In Japan, on the other hand, the concentration of pop-
ulation within a much smaller area, not to mention a rela-
tively inefficient postal system and undeveloped printing
technologies, discouraged the growth of nonretail stores
(Aoyama 2001). Besides, the stores that did emerge lacked
the commitment to ensure the quality of delivery and war-
ranties to win the trust of customers. Subsequently, the
U.S. model of e-commerce did not work. What emerged
instead was the use of IT in Japan’s dense network of
convenience stores, which thrive by providing accessible,
one-stop shops for a range of daily necessities that must
be frequently restocked in smaller houses, and for a vari-
ety of services. The convenience stores used IT to improve
delivery efficiencies and to identify and match customer
demand and product offerings. Thus, in a country where
personal checks and credit cards are seldom used, and
home use of PCs is not as widespread as in the United
States, these stores have become e-commerce access
points in a manner not observed in the United States.
Mobile phones, rather than PCs, are used more widely
in Japan to access the Internet: By September 2004,
94.1 percent of mobile phone subscribers had Internet-
connectable devices, in contrast to 33.5 percent in the
United States (OECD 2007, 11). But Internet access over
mobile telephone (3G) networks did not lead to mimicking
the U.S. model of e-commerce, since “ . . . the wireless web
was conceived to function much like Japan’s convenience
stores, providing a limited yet essential array of products
and service with instant access” (Aoyama 2003, 1214).
Thus, as the evolution of m-commerce in Japan has also
taken a path-dependent trajectory, it is used to primarily
deliver information goods and digital services (such as
banking and travel reservations), time-sensitive informa-
tion (such as news and weather), entertainment (such as
games and fortune telling), and text-messaging, rather
than nondigital goods.
Even within a country, at a firm level, the adoption of
IT does not deliver uniform results. Based on their survey
of firm-level literature in the United States, Brynjolfsson
and Hitt (2000) argue that making investments in IT
without organizational change, or only partially imple-
menting organizational changes, can lead to significant
productivity losses as any benefits from the introduction
of IT are outweighed by existing organizational practices.
These organizational changes must lead to greater decen-
tralization. Thus, while programmable equipment offers
versatility in the form of flexible production, it simul-
taneously demands greater delegation of authority and
decision rights to the shop floor than was the norm
when equipment was less flexible. This, in turn, requires
a better-educated workforce that displays commensu-
rate versatility to respond to a wider variety of tasks.
Decentralization will also alter the incentives, depending
on circumstances, for either vertical integration or disin-
tegration, as connecting to and tracking external supply
chains becomes easier.
SIMILARITIES IN THE ADOPTION OF IT:
CONQUERING SPACE AND TIME
IT Adoption in the United States:
The Cases of G. F. Swift and Company
and Dell Computer
Ironically, even as intranational and international differ-
ences are noticeable in IT adoption in any given time, the
organizational means of adopting IT have not changed
over time despite its changing technical characteristics.
This is evident in the comparison by Fields (2004) of how
the G. F. Swift and Company from the nineteenth cen-
tury, and Dell Computer from the late twentieth century,
used IT and other technologies in their respective eras, to
profitably conquer time and space.
In the mid-nineteenth century, the markets for cattle
slaughter and the consumption of beef, a perishable com-
modity, were characterized by a highly localized struc-
ture. The business also had many intermediaries: The
beef went from cattle grazers and stockers, to cattle com-
mission houses, to cattle shippers, to wholesale butch-
ers, and to retail butchers before reaching the customer.
When Swift entered the business in 1855, there were two
transformations taking place that helped the new firm
transform the meatpacking business to its advantage and
become the largest meatpacking firm in the United States
by the end of the century.
First, between 1850 and 1900, the percentage of the
population living in urban areas grew from 11.3 to 39.6,
 SIMILARITIES IN THE ADOPTION OF IT: CONQUERING SPACE AND TIME
as cities became the centers of factory industrialization
to complement their roles as commercial centers; sec-
ond, connecting these urban centers was a network of
two innovations. There was the telegraph network, which
expanded from 12,000 miles to 1,307,000 miles during
those 50 years, and the railroads, which expanded from
9,000 miles to 206,600 miles (Fields 2004, 85). To cater
to the opportunity offered by the demand for fresh meat
in growing urban areas, Swift took advantage of the
decreasing transactions costs offered by technological
innovation. Swift converted the localized beef business
to a national business by introducing a new product—
dressed beef—which meant slaughtering and butchering
beef in one location and selling it in another.
There were four components to the success of Swift’s
strategy. First, the firm based its operations on custom-
ers’ orders for specific cuts and grades of beef transmit-
ted over telegraph lines. That created a pull system with
which supply could be matched with the exact demand
instead of relying on demand forecasts. Swift used
the telegraph to balance supply from the cattle farms of the
Midwestern states with demand in the urban centers
in the East. Second, a distribution network was built
over the railway system to directly reach retail butch-
ers. As a standardized, nationwide railway infrastructure
grew, Swift made critical complementary investments by
designing refrigerated railroad cars to ensure that the beef
did not spoil when transported over long distances. In the
absence of such cars, live cattle used to be transported to
their final destinations, adding considerably to the cost.
Thus, trains with refrigerated cars allowed larger vol-
umes of shipments, which could be moved faster, more
reliably, and less expensively than by any other means of
transportation at the time.
Third, the firm adopted a vertically integrated struc-
ture to build scale and national reach, eliminating the
often locally focused independent firms. Not only did its
model of directly buying cattle and slaughtering them
eliminate the need for cattle commission houses and cat-
tle shippers but, when its strategy of supplying dressed
beef ran into opposition from wholesale butchers unwill-
ing to invest in refrigerated warehouses, Swift set up its
own branch houses to sell to retail butchers. Essentially,
Swift established itself as a new intermediary in the beef
business by obliterating the older hierarchy of beef distri-
bution. Finally, these three elements combined to create a
new form of organization that benefited from economies
of scale nationally, while concentrating production in
centers such as Chicago, which was also a railroad hub.
Fresh beef was delivered from these centers over long
distances across the United States according to customer
demand.
In the 1980s and 1990s, Dell took advantage of the
advent and development of the Internet, and improve-
ments in intermodal transit and airfreight, using them
as a platform to reconfigure the supply chain of the PC
industry. In the 1980s, the IBM standard was increas-
ingly dominant, thanks to IBM’s decision to build the PC
to a modular and open architecture and to decentralize
production by outsourcing even essential parts, notably
from Intel and Microsoft, and from other suppliers in
Taiwan, Singapore, and South Korea. This architecture,
295
combined with a demand that IBM alone could not meet,
provided the opportunity for producers, such as Compaq,
among others, to assemble PCs by globally sourcing com-
ponents and selling it to customers through an indirect
channel, typically distributors and computer resellers or
dealers. In 1987, selling PCs through an indirect chan-
nel accounted for 80 to 90 percent of all the shipments,
in a system that forced the PC makers to forecast mar-
ket demand and build accordingly, while waiting for the
customers’ purchases (Fields 2004, 176). Any delays or
biased forecasts were exacerbated by the short shelf life
of PCs.
Dell entered the business in 1983 with two notions that
were in contrast to the business model of the time—direct
selling and customization. To that end, the firm began to
assemble PCs by taking orders directly from customers,
which allowed it to tailor PCs to customer needs and to
minimize inventory. The firm also created a supply chain
that incorporated the least expensive computer compo-
nent sources from around the world, using overnight air-
freight. Dell’s goal was to assemble PCs quicker and at
lower costs, especially targeting corporate customers who
would regularly require upgrades and additional sales.
Like Swift, Dell also bypassed existing intermediaries and
placed itself between the suppliers and the final customer.
The success of the strategy was evident in the growth in
net sales from $6.2 million in 1985 to $388.5 million
in 1990 (Fields 2004, 181). But a steep fall in profit in 1990
showed that Dell’s custom-direct model was reaching a
saturation point as volumes grew. Remedial measures to
address this problem were taken by complementing the
direct sales model with sales through indirect channels.
Although these efforts made Dell the world’s tenth-largest
PC maker in 1994, it did not help profitability.
It was then that Dell turned to the Internet and, in
June 1996, it became the first PC maker to sell systems
online. After a period of trial and error, in 2001, Dell real-
ized 57 percent of its sales revenue online to become the
world’s largest online retailer (Fields 2004, 188). It also
became the world’s largest PC maker, thanks to formida-
ble advantages over its competitors. For example, by 2001
Dell held just four days of inventory compared to 42 days
at Compaq, its nearest competitor (Fields 2004, 190).
Such advantages were facilitated by Dell’s Internet-based
information platform for demand and supply planning,
parts procurement, build-to-order production schedules,
customer order intake, and product delivery processes.
Although Dell undertook long-term production and pro-
curement planning, its advantage came from separating
planning and execution. Dell balanced demand and sup-
ply by producing PCs at its factories around the world
only as orders came in. It also set up a supply chain that
required suppliers to invest in an information system
compatible with Dell’s platform, and to locate supply
logistics centers adjacent to its factories so they could
feed the assembly line at two-hour intervals.
Although separated by a century, both Swift and Dell
took advantage of new technologies in their respective
eras to reconfigure the organization of the meatpacking
and the PC manufacturing industries. They were able to
effectively use the telegraph and the Internet, respectively,
to manage information flows and to transform industries
296 ORGANIZATIONAL IMPACTS OF INFORMATION TECHNOLOGY
by relying on a pull instead of a push system to balance
demand with supply. In addition to using IT to ensure that
they delivered their products, each of which had a limited
shelf life, quickly to the customer, they took advantage
of transportation advances in new ways—railroads with
refrigerated cars and overnight airfreight. The conquest
of space and time by Swift and Dell was not just a con-
sequence of their deployment of technology. It also had
to do with attendant organizational changes: both elimi-
nated middlemen to create a vertically integrated organi-
zation in one case (Swift), and a virtually disintegrated
organization in the other (Dell).
IT Adoption in Developing Contexts:
The Fisheries Industry in Kerala, India
The adoption of IT to conquer space and time, even when
locations are both literally and metaphorically thousands
of miles apart, is evident from the impact of the introduc-
tion of mobile phones on the fisheries industry in Kerala.
The fisheries industry was long affected by information
asymmetries across local markets where fishermen sold
their catch. Although fish forms part of the staple diet in
Kerala, and the fisheries industry offers a major source
of employment, poor information flow across local fish
markets meant that there was wide variation in prices
and wastage of fish (Jensen 2007).
Fishermen returning from sea often relied only on
their local markets to sell their catch. This was because
of the potential cost and risk involved in traveling longer
distances to another market, with a highly perishable
product, especially if prices there happened to be lower.
Therefore, depending on the amount of fish caught in a
particular region, a specific market would have either
abundance or scarcity of fish, pushing prices down or up,
respectively (Abraham 2007). Furthermore, since each
market operated for only a limited duration, the uncer-
tainty also affected wholesale and retail merchants, and
commission agents, who formed part of a long supply
chain. Lacking reliable information from the fishermen at
sea, merchants had to almost randomly choose a particu-
lar market where they often found no fish to buy, while in
other markets fish would be dumped because there were
no merchants. The problem was aggravated by poor road
quality and high transportation costs. “If fishermen had
price information for all locations, the market should
achieve an outcome where price dispersion is reduced,
fish are allocated across markets more efficiently, waste
is reduced or eliminated, and total welfare is increased”
(Jensen 2007, 883).
The verification of Jensen’s hypothesis began with the
deployment of mobile telephony in Kerala in 1997.
The installation of base towers in the coastal areas allowed
service signals to reach over 25 kilometers out to sea,
enough for fishermen to use mobile phones while fish-
ing. Thus, by 2001, 60 percent of fishing boats were using
mobile phones to share information about the location
of swarms, saving fuel required for such a search, and
to inform agents about their exact time and location of
return, reducing waiting times on both sides (Jensen
2007, 883). Agents and merchants were also able to
share information regarding prices and fish availability,
thereby reducing price fluctuations. “The data showed
merchants, owners, and agents making a large chunk
of their business-related calls outside their local calling
areas, which can be interpreted as a sign that they are
monitoring prices at distant markets, providing further
evidence of greater market integration” (Abraham 2007,
11). The newly available information also allowed them
to save fuel and to reduce the time spent traveling on
poor roads searching for lower prices. As risk and uncer-
tainty were reduced for all parties involved, on average,
profits of fishermen rose by 8 percent; wastage, instead of
averaging 5 to 8 percent of the catch, was eliminated; and
consumer prices fell by 4 percent, while the coefficient of
variation of price across markets fell from 60 to 70 per-
cent to less than 15 percent (Jensen 2007, 883).
CONCLUSION: IT A NECESSARY
TOOL BUT NOT A STRATEGIC
DIFFERENTIATOR
After making the points that it set out to, this chapter
concludes by arguing that even if technological diffu-
sion does occur over a period of time, taking advantage
of the productivity benefits that IT can deliver will even-
tually depend on conscious organizational efforts. That
is, organizational advantage must provide the means to
deploy IT rather than relying on IT to bring about organi-
zational impacts.
This point is perhaps best illustrated by the fortunes
of Cisco Systems, the router manufacturer that, like Dell,
established a business model that relied on IT to connect
its customers, suppliers, partners, and employees in a vir-
tually integrated supply chain. Apart from being a tech-
nological pioneer of the Internet era, Castells (2000, 182)
credits Cisco with pioneering “probably the most self-
conscious model of the networking form of organization,”
and compares it with the role played by Ford in introduc-
ing standardized production in the industrial era. Cisco
proposed a “global networked business model,” arguing
that it is not enough to be only connected to other firms,
but that there must exist a “networked fabric” between
business relationships and the communication channels
that support them. The idea, therefore, was that the firm’s
network had to give it competitive advantage.
As Cisco put its ideas into practice, revenues grew
from $69 million in 1990 to over $12.2 billion in 1999,
outperforming all competitors in a rapidly growing mar-
ket (Castells 2000, 181). In less than a decade, the firm
ensured transformations in all relationships, using the
Internet as the means for automated interaction. For
example, with access to a network of suppliers online, by
1999, Cisco reduced its own production facilities from 30
to 2. In this model, Cisco was simply getting the payment
“for R&D, technology, design, engineering, information,
technical support, and business savvy in building a reli-
able network of suppliers, and in marketing to custom-
ers. This is a manufacturing company that does almost no
manufacturing” (Castells 2000, 182). In addition, as with
Dell, Cisco’s web site played a crucial role in support of its
interactions with customers and suppliers. Cisco handled
83 percent of its orders and 80 percent of customer-service
 REFERENCES AND SUGGESTED READINGS
issues online, resulting in an estimated saving of $500 mil-
lion between 1997 and 1999 (Castells 2000).
Notwithstanding the success it enjoyed in the 1990s,
Cisco suffered losses in 2001. Unable to foresee an immi-
nent reduction in the demand for network equipment,
despite a powerful real-time forecasting system, the firm
had to write off $2.5 billion and fire 8,500 workers (Carr
2004, 110). Aside from any cyclical reasons attributable
to the fortunes of Cisco, Carr argues that any advantages
that IT might confer on a first mover are limited. Although
IT gives firms the potential to rearrange business, “If a
company is unable to hold on to a technological advan-
tage for a substantial period, its early-mover strategy can
backfire. Competitors won’t just catch up; they’ll leapfrog
the first mover, introducing more powerful systems” (Carr
2004, 77). As technology evolves to become more afford-
able and more easily accessible, leading to its widespread
adoption, the systems deployed by firms such as Cisco,
or even Dell, become standardized infrastructure, that is,
simply another component of the cost of doing business.
In other words, what were once unique systems become
appropriable by other firms as generic complementary
assets (Teece 2006).
To Carr, as IT becomes a prerequisite to compete in the
market, the organizational means of adopting IT is not dif-
ferent from previous infrastructural developments such
as railroads and electric power. Carr is echoing Simon
(1997) who argued that, with the introduction of contem-
porary IT, working with limited information is no longer
a concern. An unlikely source of support for this argu-
ment comes from the 5,000 dabbawallas of Mumbai who
collect 170,000 homemade meals from across the city for
delivery to workplaces in various locations every day (The
Economist 2008b). Modern IT does not play any role in
the 99.9999 percent efficiency with which this operation
is carried out. Instead, the information to coordinate a
supply chain that relies on manual collection, for delivery
by bicycle, trolley, and commuter trains, is encoded in
the colored numbering system on special boxes holding the
meals. If the exclusive reliance on human and social inge-
nuity to coordinate effective meal delivery has attracted
the attention of management scholars, it is only because
even in the age of informational capitalism designing
organizational structures is far more crucial to business
success than technology per se.
GLOSSARY
Complementary Investments: The assets and infra-
structure required to facilitate the socialization and
spread of a technology.
Digital Divide: The gap between people with the
resources and the skills to access and use digital and
information technology and those without.
Division of Labor: The specialization of cooperative
labor in specific, circumscribed tasks and roles, to
increase aggregate labor productivity.
E-commerce: The buying and selling of products or
services over electronic systems and computer net-
works such as the Internet.
General-Purpose Technologies: Innovations that are
general enough in their characteristics to affect an
297
entire society in all of its aspects of economic and
social life.
Information Asymmetries: Manifest themselves when
one party to a transaction has better or more complete
information than the other.
Intermediaries: Third parties that act as conduits for
goods or services offered by a supplier to a consumer,
usually by adding some value to the transaction that
may not be possible with direct trading.
Network Effects: Signify the increase in the value of a
unit of a good to a user with the number of units used.
Outsourcing: The process of subcontracting a produc-
tion process, such as design or manufacturing, to a
third party.
Productivity Paradox: The discrepancy between
measures of investment in productivity-enhancing
technology and measures of output that result from
such investment.
Supply Chain: The system of organizations, people,
technology, activities, information, and resources
involved in moving a product or service from producer
to consumer.
Technology Diffusion: The process by which an inno-
vation is communicated through certain channels over
time among the members of a social system.
Transactions Costs: Incurred in making an economic
exchange, and include search and information costs,
bargaining costs, and contract policing and enforce-
ment costs.
CROSS REFERENCES
Click-and-Brick Electronic; Groupware; IT Economics;
Site Selection in the Supply Chain; Virtual Organizations
Commerce
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