Business Strategy/Information- and Technology-Driven Strategy

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Strategic Change in the 1990s The Psychology of Business Management

Peter Drucker had theorized the rise of the “knowledge worker” back in the 1950s. He described how fewer workers would be doing physical labor, and more would be applying their minds. In 1984, John Nesbitt theorized that the future would be driven largely by information: companies that managed information well could obtain an advantage, however the profitability of what he calls the “information float” (information that the company had and others desired) would all but disappear as inexpensive computers made information more accessible.

Daniel Bell (1985) examined the sociological consequences of information technology, while Gloria Schuck and Shoshana Zuboff looked at psychological factors.[1] Zuboff, in her five year study of eight pioneering corporations made the important distinction between “automating technologies” and “infomating technologies”. She studied the effect that both had on individual workers, managers, and organizational structures. She largely confirmed Peter Drucker's predictions three decades earlier, about the importance of flexible decentralized structure, work teams, knowledge sharing, and the central role of the knowledge worker. Zuboff also detected a new basis for managerial authority, based not on position or hierarchy, but on knowledge (also predicted by Drucker) which she called “participative management”.[2]

In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the learning organization, expanded it, and popularized it. The underlying theory is that a company's ability to gather, analyze, and use information is a necessary requirement for business success in the information age. (See organizational learning.) In order to do this, Senge claimed that an organization would need to be structured such that:[3]

  • People can continuously expand their capacity to learn and be productive,
  • New patterns of thinking are nurtured,
  • Collective aspirations are encouraged, and
  • People are encouraged to see the “whole picture” together.

Senge identified five components of a learning organization. They are:

  • Personal responsibility, self reliance, and mastery — We accept that we are the masters of our own destiny. We make decisions and live with the consequences of them. When a problem needs to be fixed, or an opportunity exploited, we take the initiative to learn the required skills to get it done.
  • Mental models — We need to explore our personal mental models to understand the subtle effect they have on our behaviour.
  • Shared vision — The vision of where we want to be in the future is discussed and communicated to all. It provides guidance and energy for the journey ahead.
  • Team learning — We learn together in teams. This involves a shift from “a spirit of advocacy to a spirit of enquiry”.
  • Systems thinking — We look at the whole rather than the parts. This is what Senge calls the “Fifth discipline”. It is the glue that integrates the other four into a coherent strategy. For an alternative approach to the “learning organization”, see Garratt, B. (1987).

Since 1990 many theorists have written on the strategic importance of information, including J.B. Quinn,[4] J. Carlos Jarillo,[5] D.L. Barton,[6] Manuel Castells,[7] J.P. Lieleskin,[8] Thomas Stewart,[9] K.E. Sveiby,[10] Gilbert J. Probst,[11] and Shapiro and Varian[12] to name just a few.

Thomas A. Stewart, for example, uses the term intellectual capital to describe the investment an organization makes in knowledge. It is comprised of human capital (the knowledge inside the heads of employees), customer capital (the knowledge inside the heads of customers that decide to buy from you), and structural capital (the knowledge that resides in the company itself).

Manuel Castells, describes a network society characterized by: globalization, organizations structured as a network, instability of employment, and a social divide between those with access to information technology and those without.

Stan Davis and Christopher Meyer (1998) have combined three variables to define what they call the BLUR equation. The speed of change, Internet connectivity, and intangible knowledge value, when multiplied together yields a society's rate of BLUR. The three variables interact and reinforce each other making this relationship highly non-linear.

Regis McKenna posits that life in the high tech information age is what he called a “real time experience”. Events occur in real time. To ever more demanding customers “now” is what matters. Pricing will more and more become variable pricing changing with each transaction, often exhibiting price discrimination|first degree price discrimination. Customers expect immediate service, customized to their needs, and will be prepared to pay a premium price for it. He claimed that the new basis for competition will be time based competition.[13]

Geoffrey Moore (1991) and R. Frank and P. Cook[14] also detected a shift in the nature of competition. In industries with high technology content, technical standards become established and this gives the dominant firm a near monopoly. The same is true of networked industries in which interoperability requires compatibility between users. An example is word processor documents. Once a product has gained market dominance, other products, even far superior products, cannot compete. Moore showed how firms could attain this enviable position by using E.M. Rogers five stage diffusion (business)|adoption process and focusing on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries and pragmatists (See Crossing the Chasm). If successful a firm can create a bandwagon effect in which the momentum builds and your product becomes a de facto standard.

Evans and Wurster describe how industries with a high information component are being transformed.[15] They cite Encarta's demolition of the Encyclopædia Britannica (whose sales have plummeted 80% since their peak of $650 million in 1990). Many speculate that Encarta’s reign will be short-lived, eclipsed by collaborative encyclopedias like Wikipedia that can operate at very low marginal costs. Evans also mentions the music industry which is desperately looking for a new business model. The upstart information savvy firms, unburdened by cumbersome physical assets, are changing the competitive landscape, redefining market segments, and disintermediation|disintermediating some channels. One manifestation of this is personalized marketing. Information technology allows marketers to treat each individual as its own market, a market of one. Traditional ideas of market segments will no longer be relevant if personalized marketing is successful.

The technology sector has provided some strategies directly. For example, from the software development industry agile software development provides a model for shared development processes.

Access to information systems have allowed senior managers to take a much more comprehensive view of strategic management than ever before. The most notable of the comprehensive systems is the balanced scorecard approach developed in the early 1990s by Drs. Robert S. Kaplan (Harvard Business School) and David Norton (Kaplan, R. and Norton, D. 1992). It measures several factors financial, marketing, manufacturing|production, organizational development, and new product development in order to achieve a 'balanced' perspective.

ReferencesEdit

  1. Schuck, Gloria “Intelligent Workers: A new predagogy for the high tech workplace”, Organizational Dynamics, Autumn 1985.
  2. Zuboff, Shoshana In the Age of the Smart Machine, Basic Books, New York, 1988.
  3. Senge, PeterThe Fifth Discipline, Doubleday, New York, 1990; (also Century, London, 1990).
  4. Quinn, J.B. Intelligent Enterprise, The Free Press, New York, 1992.
  5. Jarillo, J. Carlos Strategic Networks: Creating borderless organizations, Butterworth-Heinemann, Oxford, 1993.
  6. Barton, D.L. Wellsprings of Knowledge, Harvard Business school Press, Boston, 1995.
  7. Castells, Manuel The Rise of the Networked Society :The information age, Blackwell Publishers, Cambridge Mass, 1996.
  8. Liebeskind, J. P. “Knowledge, Strategy, and the Theory of the Firm”, Strategic Management Journal, vol 17, winter 1996.
  9. Stewart, Thomas Intellectual Capital, Nicholas Brealey, London, 1997, (also DoubleDay, New York, 1997).
  10. Sveiby, K.E. The New Organizational Wealth : Managing and measuring knowledge-based assets, Berrett-Koehler Publishers, San Francisco, 1997.
  11. Probst, Gilbert, Raub, S. and Romhardt K. Managing Knowledge, Wiley, London, 1999 (Exists also in other languages)
  12. Shapiro, C. and Varian, H. (1999) Information Rules, Harard Business School Press, Boston, 1999.
  13. McKenna, Regis Real time: Preparing for the age of the Never Satisfied Customer, Harvard Business School Press, Boston, 1997.
  14. Frank, R. and Cook, P. The Winner Take All Society, Free Press, New York, 1995.
  15. Evens, P. and Wurster, T. “Strategy and the New Economics of Information”, Harvard Business Review, Sept/Oct 1997.
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Last modified on 4 March 2011, at 18:05