Barrie R. Nault

Information Technology and Process Performance: An Empirical Investigation of the Interaction Between IT and Non‐IT Resources

Drawing on the resource-based view, we propose a configurational perspective of how IT assets and capabilities affect firm performance. Our premise is that IT assets and IT managerial capabilities are components in organizational design, and, as such, their impact can only be understood by taking into consideration the interactions between those IT assets and capabilities and other non-IT components. We develop and test a model that assesses the impact of explicit and tacit IT resources by examining their interactions with two non-IT resources (open communication and business work practices). Our analysis of data collected from a sample of firms in the third party logistics (3PL) industry supports the proposed configurational perspective, showing that IT resources can either enhance (complement) or suppress (by substituting for) the effects of non-IT resources on process performance. More specifically, we find evidence of complementarities between shared business-IT knowledge and business work practice, and between the scope of IT applications and an open communication culture in affecting the performance of the customer-service process; but there is evidence of substitutability between shared knowledge and open communications. For decision making, our results reinforce the need to account for all dimensions of possible interaction between IT and non-IT resources when evaluating IT investments.

Added value and pricing with information technology

This study evaluates the extent to which the added value to customers from a suppliers application of information technology (IT) is manifested through premium prices of a traded good. We demonstrate that IT can add value to an otherwise undifferentiated good and study how these benefits accrue to customers from the adoption of IT. Analyzing a case in which the traded good is a homogeneous commodity, commercial fueling, our data shows that the critical impacts of IT are convenience and control -- that is, convenience that provides improved access to fuel and control that reduces problems of delegating purchasing authority for the customer. The value of this additional service is exhibited in premium prices customers are willing to pay for the IT-enhanced traded good, relative to the same good without IT. Compared to the price without IT, statistical analysis of the suppliers pricing history demonstrates the application of IT to commercial fuel yielded price premiums of between five and 12 percent of the retail fuel price.

Information Exploitation and Interorganizational Systems Ownership

We develop a model based on the theory of incomplete contracts for how ownership structure of interorganizational systems (IOS) can affect information exploitation and information technology adoption. Our model yields several propositions that suggest the appropriate strategic actions that a firm may take when there is potential for IOS adopters to question whether adopting the IOS will be value-maximizing. We analyze and illustrate the related strategic thinking in a real-world context involving a financial risk management IOS. We present a case study of the ownership and spin-off of RiskMetrics, developed by New York City-based investment bank, J.P. Morgan, in the late 1980s. The firm first gave RiskMetrics to its correspondent banking, treasury, and investment clients for free, in the context of its clearing account relationship services. Later, the bank spun off the product to an independent company that offered fee-based services. We model the banks clients in terms of their heterogeneous portfolio risks, and their effects on the value a client can gain from adopting the technology. We also examine the value they may lose if their private portfolio risk information is exploited. A key roadblock to the adoption of the free service may have been the potential for strategic information exploitation by the service provider. When Morgan spun off RiskMetrics with multiparty ownership, wider adoption occurred. Our theory interprets this strategic move as an appropriate means to maximize long-term profits when information exploitation may occur.

Research Note---Investments in Information Technology: Indirect Effects and Information Technology Intensity

Many studies measure the value of information technology (IT) by focusing on how much value is added rather than on the mechanisms that drive value addition. We argue that value from IT arises not only directly through changes in the factor input mix but also indirectly through IT-enabled augmentation of non-IT inputs and changes in the underlying production technology. We develop an augmented form of the Cobb-Douglas production function to separate and measure different productivity-enhancing effects of IT. Using industry-level data from the manufacturing sector, we find evidence that both direct and indirect effects of IT are significant. Partitioning industries into IT-intensive and non-IT-intensive, we find that the indirect effects of IT predominate in the IT-intensive sector. In contrast, the direct effects of IT predominate in the non-IT intensive sector. These results indicate structural differences in the role of IT in production between industries that are IT-intensive and those that are not. The implication for decision-makers is that for IT-intensive industries the gains from IT come primarily through indirect effects such as the augmentation of non-IT capital and labor.

Cooperative Planning, Uncertainty, and Managerial Control in Concurrent Design

We examine whether cooperative planning and uncertainty affect the magnitude of rework in concurrent engineering projects with upstream and downstream operations, and explore the impact of such rework on project delays. Using survey data from a sample of 120 business process (BP) redesign and related information technology (IT) development projects in healthcare and telecommunications, our results indicate that upstream (BP) rework and downstream (IT) rework is mediated and mitigated by cooperative planning through upstream/downstream strategy coupling and cross-functional involvement. In addition, uncertainty related to a lack of firm or industry experience with such projects increases the magnitude of upstream rework but not downstream rework or the amount of cooperative planning. After accounting for project scope, implementation horizon and whether delays are anticipated, we find that project delay is primarily influenced by the magnitude of downstream rework and downstream delay: the magnitude of both upstream and downstream rework significantly increases downstream delay, which significantly increases project delay. However, the magnitude of upstream rework does not directly affect project delay. These results suggest that project delay is under managerial control as cooperative planning is a managerial function that reduces downstream rework, while uncertainty from a lack of experience with the design affecting upstream rework is not directly under managerial control.

Research Note---Returns to Information Technology Outsourcing

This study extends existing information technology (IT) productivity research by evaluating the contributions of spending in IT outsourcing using a production function framework and an economywide panel data set from 60 industries in the United States over the period from 1998 to 2006. Our results demonstrate that IT outsourcing has made a positive and economically meaningful contribution to industry output and labor productivity. It has not only helped industries produce more output, but it has also made their labor more productive. Moreover, our analysis of split data samples reveals systematic differences between high and low IT intensity industries in terms of the degree and impact of IT outsourcing. Our results indicate that high IT intensity industries use more IT outsourcing as a percentage of their output, but less as a percentage of their own IT capital, and they achieve higher returns from IT outsourcing. This finding suggests that to gain greater value from IT outsourcing, firms need to develop IT capabilities by intensively investing in IT themselves. By comparing the results from subperiods and analyzing a separate data set for the earlier period of 1987--1999, we conclude that the value of IT outsourcing has been stable from 1998 to 2006 and consistent over the past two decades. The high returns we find for IT outsourcing also suggest that firms may be underinvesting in IT outsourcing.

Relative importance, specific investment and ownership in interorganizational systems

Implementation and maintenance of interorganizational systems (IOS) require investments by all the participating firms. Compared with intraorganizational systems, however, there are additional uncertainties and risks. This is because the benefits of IOS investment depend not only on a firm’s own decisions, but also on those of its business partners. Without appropriate levels of investment by all the firms participating in an IOS, they cannot reap the full benefits. Drawing upon the literature in institutional economics, we examine IOS ownership as a means to induce value-maximizing noncontractible investments. We model the impact of two factors derived from the theory of incomplete contracts and transaction cost economics: relative importance of investments and specificity of investments. We apply the model to a vendor-managed inventory system (VMI) in a supply chain setting. We show that when the specificity of investments is high, this is a more critical determinant of optimal ownership structure than the relative importance of investments. As technologies used in IOS become increasingly redeployable and reusable, and less specific, the relative importance of investments becomes a dominant factor. We also show that the bargaining mechanism—or the agreed upon approach to splitting the incremental payoffs—that is used affects the relationship between these factors in determining the optimal ownership structure of an IOS.

An efficient heuristic for adaptive production scheduling and control in one-of-a-kind production

Even though research in flow shop production scheduling has been carried out for many decades, there is still a gap between research and application-especially in manufacturing paradigms such as one-of-a-kind production (OKP) that intensely challenges real time adaptive production scheduling and control. Indeed, many of the most popular heuristics continue to use Johnsons algorithm (1954) as their core. This paper presents a state space (SS) heuristic, integrated with a closed-loop feedback control structure, to achieve adaptive production scheduling and control in OKP. Our SS heuristic, because of its simplicity and computational efficiency, has the potential to become a core heuristic. Through a series of case studies, including an industrial implementation in OKP, our SS-based production scheduling and control system demonstrates significant potential to improve production efficiency.

Sticky Prices: The Impact of Regulation

This paper finds that approximately one-third of the items in the CPI are governed by price regulations that can slow and add noise to the response of prices to changes in cost or demand conditions. Consequently, regulation is a possible partial explanation of sticky prices in the overall rate of inflation, and delayed response to changes in the money supply. A survey is used to decompose the CPI into freely determined and regulated sub-components. Evidence is provided that prices in the regulated sector of the economy respond approximately two quarters after prices in the freely determined sector, thereby contributing a source of stickiness in overall inflation and in the response of inflation to monetary policy.

Quality differentiation and adoption costs: The case for interorganizational information system pricing

Firms which employ a new technology to increase the quality of goods sold often require that customers adopt some aspect of the technology, and this adoption is typically costly. This study proposes a model of goods supported by interorganizational information systems (IOS) that captures the effects of increased quality and customer adoption costs. The model is developed for monopoly and duopoly, assuming non-IOS goods continue to be viable. Supporting the hypothesis that adoption costs act as a barrier to customers using IOS, our general results raise the possibility of a subsidy for IOS adoption, particularly when the added value after adoption is indispensable and when IOS adopters purchase similar or greater quantities to those they would purchase without IOS. Consistent with the notion that firms are better off with differentiated goods to reduce direct competition, duopoly results confirm that if one firm has an IOS then that firm should offer only the IOS-supported good and abandon the unsupported good to the competitor. These results also make clear that both firms can be made better off by only one introducing the IOS. Moreover, not only can the IOS result in benefits to both firms, but in aggregate customers may also be better off. In designing an IOS, any reduction in the cost of information technology inputs, or in the cost of increasing attributes such as timeliness, accuracy and fineness, results in a superior IOS offering, increasing the quality of the IOS-supported good. Prices for goods sold, however, do not necessarily increase with the quality of IOS support.