Posted by: Monideepa Tarafdar | June 1, 2011

Information Techology’s Value Proposition: Explore or Exploit?

Two important trends have characterized firms’ use of IT in the last decade. One – there has been increased assimilation of IT across functions, within and across companies.  Inefficient, paper-based, undocumented and often ad-hoc workflows and information-processing have given way to automated transaction-processing and more digitized and integrated processes, powered by application such as ERP software for processes internal to the firm such as payroll processing, production planning, and goods receipt and dispatch. For inter-firm processes such as procurement and supply chain management, similar applications such as e-procurement and inventory management software have created possibilities for integration across the firm’s boundaries with its suppliers and customers. The second trend has been that many firms have begun to consider more advanced uses of digitization – such as for product and channel innovation. Particularly in highly information intensive and consumer-oriented sectors such as cell phone services, entertainment, automobile/high-tech manufacturing, retailing and banking, they are beginning to capitalize on emerging opportunities for partly or completely digitizing products and services, and using digital channels as possible means of their delivery.

So what is the value proposition for IT? Is it a mere enabler of efficiency in transaction processing, data storage and retrieval and workflows, or is it something more? Can IT be an enabler or driver of product and process innovation? Ever since Nick Carr’s IT Doesn’t Matter, which argued, rather fallaciously, that IT is like plumbing, a utility that is a requirement for running a business but not a differentiator for competitive advantage, there has a been a scramble to look at what is it that IT really does for a company.  A number of papers (e.g. Venkatraman and Henderson 2008, Sambamurthy et. al. 2003) have suggested that IT is expected to facilitate new product and business development by exploring and capitalizing on opportunities presented by new technologies. Firms like Google, Amazon, Wal-Mart, Nasdaq exemplify this view. They use IT to develop new products (e.g. Google analytics), new strategic partnerships (e.g. Amazon’s marketplace) and process innovations (e.g. Wal Mart’s logistics processes).

One way to look at this dual role of IT is through the exploration-exploitation lens. Exploration and exploitation reflect respectively, the strategic emphases of an organization on discovery of new products and technologies, and on refinement of existing ones. Exploration is characterized by activities of learning and experimentation in the context of new technologies. Exploitation focuses on activities for refining and improving established skills and processes (March 1991, Tushman and Benner 2003). In the exploration mode the firm seeks to innovate with IS through new IS initiatives, and search for, learn about and deploy, IT that can drive or enable the firm’s exploration of new products and markets. In the exploitation mode the firm seeks to create value through refining and improving existing IT assets and initiatives and utilizing existing IT for developing and delivering the firm’s offerings.

This brings us to an interesting dichotomy. If IT is both an enabler of efficient, structured, and repetitive information processing, as well as a potential facilitator of innovation, what are the implications for what the IT department and the CIO do? Do they bring the same set of skills, knowledge and competencies to both these roles? Are the skills required of exploration the same as that required for exploitation? We find that as a result of the need to both explore and exploit, the IT function (which includes the CIO and the IT department) is subject to dichotomous requirements. On the one hand, it is expected to facilitate new product and business development by exploring and capitalizing on opportunities presented by new technologies, spurring acquisition of new IS, and exemplifying the strategic importance of IT. On the other, there is an imperative for it to effectively exploit the firm’s existing IS in support of current products and processes, making it necessary to deliver and support reliable infrastructure and systems, and reflecting the operational importance of IT.

We find that IT functions having an exploration orientation should be good at (1) identifying emerging information technologies of potential strategic importance to their firms, (2) understanding and framing business and innovation opportunity emanating from such technologies, and (3) ensuring that the firm’s strategic planning process proactively considers these opportunities. That is, they should scan emerging and new technologies and identify which ones can be applied to create new products or processes. The CIO learns about emerging technologies, considers their possible application to the firm’s business, and creates awareness among executive management about how IT can further business innovation through new products and channels. The IS department organizes forums where middle and junior-level functional and IS mangers discuss IT buzzwords and competitor action trends with respect to emerging technologies, and gets going conversations about IT, within various levels in the company. The CIO also creates, along with executive management, shared visions about specific processes or products that can come about through emerging IT. Further, he or she tries to incorporate these visions and understanding into the firm’s strategic business plans, by, for example, playing a leading role in strategic planning process. The IT department often gets involved in the development of new products and processes that have high levels of IT embedded-ness.

IS functions that are oriented toward exploitation, should focus on (1) effective delivery and maintenance of technology and applications and (2) application of existing IS to product and process development or improvement. They do this through execution and delivery and end user interaction. Execution and delivery routines embody the ability to implement and maintain complex systems. The CIO should maintain relationships with top management executives and senior functional managers, to keep them informed about ongoing IT initiatives, acquire their support for resources for existing systems, and facilitate the IT department’s access to other functions. The IT department should facilitate timely and efficient execution of IT implementation initiatives and maintenance. As part of end user support, the IT function should anticipate and services support requirements from an end user population that, in Indian organizations, varies considerably in its IT related sophistication and comfort-levels. The CIO serves as spokesperson for existing systems and their broad capabilities, bridging the IT function and users. The IT department has a significant role in educating and training users on specific functionalities of existing applications, identifying solutions that can come from simple improvisations on them, and resolving user problems.

We thus see that exploration and exploitation orientations require innovation and utility based approaches towards using IT respectively. They also require distinct and different skills from the IT function.

References:

Benner, M. J. and Tushman, M. L. “Exploitation, Exploration, and Process Management: The Productivity Dilemma Revisited,” Academy of Management Review (28:2), 2003, pp. 238–256.

March, J.G., “Exploration and Exploitation in Organizational Learning,” Organization Science, (2:1), 1991, pp. 71-87.

Sambamurthy, V., Bharadwaj, A., and Grover, V. “Shaping agility through digital options: Reconceptualizing the role of information technology in contemporary firms,” MIS Quarterly (27:2), 2003, pp.237–263.

Venkatraman, N., and Henderson, C. Four Vectors of Business Model Innovation: Value Captured in a Network Era. Pantaleo, D., Pal, N., From Strategy to Execution: Turning Accelerated Global Change into Opportunity, Springer Berlin Heidelberg, Berlin, Heidelberg, 2008.

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