IT support for core competences and competitive advantage: The indirect

4.4.2. IT support for core competences and competitive advantage: The indirect hypothesis

Although Ravichandran and Lertwongsatien (2005) argued for a direct relationship between IT support for core competences and competitive advantage, the DCP provides sufficient reason to doubt the existence of such a direct relationship. Here a distinction is made between static competences and adaptive competences (referred to in this thesis as adaptive IT capability).

While static competences create the necessary base IT support for core competences to enable a firm to reconfigure and rebuild its assets, due to the pervasiveness of IT and its ability to eliminate the trade-off between ‘reach’ and ‘richness’, they can be easy to catch up with, might lack heterogeneity, and might be easily imitated in the long run. Thus, static competences might have limited potency to directly provide a firm with an edge in either its market or operational performance.

IT support for core competences are, however, essential for building adaptive IT. As IT support for core competences enable a wide variety of business process and information sharing options, they can also exhibit an indirect impact on competitive advantage by enhancing organisations’ ability to adapt quickly and efficiently to environmental change (Piccoli & Ives 2005; Sambamurthy, Bharadwaj & Grover 2003). Therefore, it is proposed that the relationship between IT support for core competences (both market and operational) and competitive advantage might be mediated by the higher order resource of adaptive IT capability. The following section discusses several aspects of the impact of IT support for core competences on the higher order resource of adaptive IT capability, and the mediating effects this higher order resource might have on the relationship between IT support for core competences and competitive advantage.

Firstly, in order to adapt IT support to the product–market scope, market orientation is required.

IT support for market competence reflects the ability of IT to identify new market segments and analyse customer needs (e.g. through CRM systems). This ability to generate organisation-wide market intelligence creates a foundation from which organisations can leverage to utilise IT to induce more rapid changes in their products and services value chain (Pavlou & El Sawy 2006).

Furthermore, IT support for market competence enhances the ability to systematically capture market information and seamlessly exchange response and process information with customers and suppliers (Mendelson 2000). A basic IT support for core competence to sense and exchange market intelligence is an essential prerequisite for a successful reconfiguration of that competence in response to the intelligence gathered.

Secondly, for IT to enable adaptations in relation to products and market demands, it must first support the processes and knowledge sharing activities of organisations. Firms that use IT to capture market intelligence will find it easier to utilise their IT to support the adaptation of their product–market scope (Ravichandran & Lertwongsatien 2005). In other words, if IT already enables market competences it will be easier to support changes in these market competences.

Thirdly, adaptations in products and to market demands require changes in product development processes and information sharing at an organisational level. Hence, adaptive IT capability relies on the ability to acquire, transform and exploit new knowledge as well as the ability to bring the mindsets of a variety of individuals in an organisation in line with each other (McCall, Arnold & Sutton 2008; Ray, Muhanna & Barney 2005) in order to achieve organisation-wide renewal, building and reconfiguring of competences (Andreu & Ciborra 1996). IT systems such as groupware and multimedia systems can increase communication, eliciting tacit knowledge, and can store and structure information (Bharadwaj 2000; Grimaldi, Rippa & Ruffolo 2008). Embedding knowledge in databases and decision support systems enables its efficient transfer across organisations and thus enhances knowledge sharing (McCall, Arnold & Sutton 2008; Sabherwal 1999; Sambamurthy, Bharadwaj & Grover 2003).

IT support for knowledge sharing, cross-functional integration, business and innovation processes enhances the extent of digitised knowledge reach. Firms that possess intranets, databases and knowledge repositories are able to support interactions among individuals for knowledge transfer and sharing, enabling comprehensive codified knowledge accessibility through knowledge databases. Furthermore, advanced knowledge technologies, virtual videoconferencing systems and collaborative tools for knowledge sharing allow companies to activate systems that support the sharing and development of tacit knowledge through the interaction of organisational members. The notion of IT support for knowledge sharing and firms’ ability to adapt to change was also examined by Sher and Lee (2004).

In their study of major Taiwanese firms Sher and Lee (2004) suggested that both endogenous

and exogenous knowledge can enhance organisations’ ability to deal with change significantly through utilisation of several IT applications. These include, first, email, which was found not to be especially effective. Second is document management, which was found to undermine dynamic capabilities. According to Sher and Lee (2004), this is because document management across firms generally involves a great deal of effort in communication and coordination and sometimes can lead to interlocking effects and responsiveness deterioration. Third is powerful online knowledge search, which encourages an overemphasis on knowledge availability and thus reduces the ability of employees to make decisions. Hence, online knowledge searches may impede organisational renewal and could cause organisational inertia; and It was also found to reduce the exploratory power of managing knowledge (Sher & Lee 2004). Finally, knowledge management depends largely on powerful databases, whereas data warehousing in contrast was found to support dynamic capabilities through knowledge management (Sher &

Lee 2004). IT support for operational competence can facilitate adaptive IT capability by providing efficient knowledge management systems and enhancing the ability of enterprise units to acquire, assimilate, transform and exploit new knowledge (Pavlou & El Sawy 2006).

Fourthly, firms that build cross-functional and supply chain integration by utilising IT, when confronted with a need to respond to changes in customers, suppliers, technology, internal resources or networks, can unleash the ‘power’ of this integration to create IT-dependent

‘intangible’ value. Firms that possess high levels of IT support for business processes, cross-functional integration and knowledge sharing have common, integrated and connected IT-enabled processes. This allows firms to enable information flows across department units, functional units and network partners through integrated enterprise resource planning, supply chain management and customer relationship management systems as well as product and data management (Sambamurthy, Bharadwaj & Grover 2003).Through these means firms can effectively use IT for decision support, analysis and tracking of collected information about transactions, and enables them to utilise this information to re-engineer processes. Mathiassen and Pries-Heje (2006) and Shang and Hsiang (2006) further claim that the use of standardised data and process architecture allow for coordinated, organisation-wide responses to rapidly changing business environments which can then create a potential source of business value.

For example, web services allow enterprises to effectively re-use business functionalities and reduce the time required to respond to business challenges.

Fifthly, the ability of organisations to react to environmental change requires coordination competence (Pavlou & El Sawy 2006). High levels of IT support for operational competence underlie organisations’ knowledge management, innovation and business processes, and enhance organisations’ coordination competence through the ability of IT to process information (Mendelson 2000). This refines the ability of different organisational units to allocate resources, assign tasks and synchronise activities (Pavlou & El Sawy 2006).

Finally, high levels of IT support for core competence (market and operational) provide organisations with a foundation for strategic agility by enabling a wide variety of IT-supported business process and information sharing options (Sambamurthy, Bharadwaj & Grover 2003).

On the basis of the above arguments, the following two hypotheses are offered:

H4: IT support for operational competence can contribute significantly to adaptive IT capability

H5: IT support for market competence is positively related to adaptive IT capability