Eric K. Clemons

Sustaining IT advantage: the role of structural differences

Information systems are strategic business tools, frequently essential to a firm and central to its competitive strategy. Their importance is now acknowledged. But information technology-equipment and services-is available to all firms, and most applications can be duplicated. The copying firm often enjoys the advantages of newer and better technology, learns from the experience of the innovator, and thus can offer comparable services at lower costs. When can an information technology-based strategy confer sustainable competitive advantage? The answer may lie with the role of strategic resources in explaining the allocation of economic benefits from an IT innovation. Specifically, information technology can lead to sustainable competitive advantage when it is used to leverage differences in strategic resources. This may be true even in cases where duplication is relatively easy and there are few dynamic effects, like first-mover advantages, to protect the innovation. An important characteristic of IT is its ability to manage interactions among economic activities; the economic theory can be used to establish a link between this characteristic of IT and shifts in resource values. This allows us to identify and examine some opportunities for deploying IT to leverage structural resource differences among firms, including differences in vertical integration and diversification as well as differences in the quality and organization of key resources.

When Online Reviews Meet Hyperdifferentiation: A Study of the Craft Beer Industry

We analyze how online reviews are used to evaluate the effectiveness of product differentiation strategies based on the theories of hyperdifferentiation and resonance marketing. Hyperdifferentiation says that firms can now produce almost anything that appeals to consumers and they can manage the complexity of the increasingly diverse product portfolios that result. Resonance marketing says that informed consumers will purchase products that they actually truly want. When consumers become more informed, firms that provide highly differentiated products should experience higher growth rates than firms with less differentiated offerings. We construct measures of product positioning based on online ratings and find supportive evidence using sales data from the craft beer industry. In particular, we find that the variance of ratings and the strength of the most positive quartile of reviews play a significant role in determining which new products grow fastest in the market-place. This supports our expectations for resonance marketing.

Price Dispersion and Differentiation in Online Travel: An Empirical Investigation

Previous research has examined whether price dispersion exists in theoretically highly efficient Internet markets. However, much of the previous work has been focused on industries with low cost and undifferentiated products. In this paper, we examine the presence of price dispersion and product differentiation using data on the airline ticket offerings of online travel agents (OTAs). We find that different OTAs offer tickets with substantially different prices and characteristics when given the same customer request. Some of this variation appears to be due to product differentiation different-OTAs specialize by systematically offering different trade-offs between ticket price and ticket quality (minimizing the number of connections, matching requested departure and return time). However, even after accounting for differences in ticket quality, ticket prices vary by as much as 18% across OTAs. In addition, OTAs return tickets that are strictly inferior to the ticket offered by another OTA for the same request between 2.2% and 28% of the time. Overall, this suggests the presence of both price dispersion and product differentiation in the online travel market.

Information technology and industrial cooperation: the changing economics of coordination and ownership

Abstract:Cooperation is becoming increasingly important in the modern business environment. The resulting emergence of new forms of organizational relationships is challenging managers to understand the fundamental dynamics of cooperation in order to evaluate and restructure their industrial relationships. This paper applies transactions cost economics toward understanding cooperative relationships. Cooperation is viewed as an effort to increase resource utilization and value through higher explicit coordination of economic activities. However, increasing explicit coordination can create transaction risks: exposure to opportunistic behavior by the other party. Transaction risk limits the level of coordination that is achievable. Information technology can reduce the costs of coordination while also reducing the transaction risks associated with increased coordination. These dual effects suggest a move toward tightly coupled, cooperative relationships.

Evaluation of strategic investments in information technology

Developing a strategic application ― intended to make a company more flexible, more responsive to customer needs, or more able to adapt to rapidly changing conditions in the competitive environment ― is fundamentally different from investments undertaken to automate the back office to reduce expenses or increase capacity. Alternative techniques for evaluating the business case for strategic systems have been developed and have worked well in practice. Several cases are presented

Information systems for sustainable competitive advantage

Abstract There has been an increase in the attention paid to the strategic potential of information systems and a new willingness to accept the possibility that information systems can be the source of strategic gains. This belief is reflected in a host of publications, from the popular press to respected journals. Much of this has been supported by a very limited set of prominent and well publicized success stories, principally involving marketing and distribution, financial services, and the airlines. Unfortunately, there has been little attempt at an analysis that abstracts from these experiences to determine factors that determine strategic success. This can be attributed in part to the absence of attention paid to unsuccessful ventures in the use of information technology for competitive advantage. Although this paper relies on the same anecdotes, it augments them with data on a few unsuccessful attempts to exploit information technology and with economic theory where appropriate. General conditions that appear necessary for sustainable competitive advantage are developed.

Limits to interfirm coordination through information technology: results of a field study in consumer packaged goods distribution

Researchers have suggested that information technology (IT) can reduce coordination costs, leading to increased coordination and cooperation among buyers and suppliers in an industry. However, improved coordination through IT, and the economic benefits from that coordination, may not be fully realized in practice; this conclusion is suggested by a field study in the consumer packaged goods industry investigating the impact of IT on interactions between manufacturers and retailers. New coordination mechanisms are emerging, driven by checkout scanner systems and IT, that permit more tightly coupled logistics operations in the distribution channel. The potential benefits of this increased coordination, through reduction in inventory and more stable manufacturing, are dramatic. However, we have observed considerable resistance by retailers to these innovations. Analysis of our field study results suggests that this resistance is due to the impact of the new coordination mechanisms on bargaining power; retailers perceive that their bargaining power will be eroded under the new coordination structure, and fear that this will preclude their sharing in the economic benefits.

Strategic information technology investments: guidelines for decision making

Abstract:As the strategic importance of information technology (it) has increased, the decision of where and when to allocate resources to it programs has become more risky and more difficult. Executives are tempted by the opportunities for strategic impact, but struggle with the massive expenditures and uncertainties involved. Evaluating the opportunity afforded by a system and judging its strategic impact in advance have proven difficult, and even when analyses are performed well, they are frequently done on an ad hoc basis. IT can confer advantage under appropriate conditions, and equally important, even when it fails to confer advantage, it may still prove crucial. Both concepts—competitive advantage and strategic necessity—confound traditional financial analysis. We offer seven principles on which to base an evaluation of a strategic it venture. Although we have not performed a statistically validating study, these principles are expressed as guidelines we believe to be true, based on experience. The...

McKesson Drug Company: a case study of Economost—a strategic information system

There has been considerable attention paid to competitive and strategic information systems. Few cases, however, have been studied and presented in detail. McKesson’s order entry and distribution s...

Efficiently monitoring relational databases

An alerter is a program which monitors a database and reports to some user or program when a specified condition occurs. It may be that the condition is a complicated expression involving several entities in the database; in this case the evaluation of the expression may be computationally expensive. A scheme is presented in which alerters may be placed on a complex query involving a relational database, and a method is demonstrated for reducing the amount of computation involved in checking whether an alerter should be triggered.