Nobuyuki SAKAI, Warwick Business School, sakainm@ibm.net
September 30th, 1999
This study undertakes a new look
at Information technology (IT) and business strategy alignment by developing
'the IT approach model'. This paper also applies this model to Japanese
companies via results of annual report and questionnaire surveys. Significant
differences are found across industries - automobile, financial services,
retailing, trading, manufacturing and advanced industries in IT. The features
and the economic situations of the various industries influence industry
differences. Another difference is found in Western and Japanese viewpoints
towards Japanese IT management. The findings indicate that Western researchers
have a bias toward Japanese management and thus Western literature tends
to assume that Japanese companies always focus upon operational effectiveness
and performance improvement. The findings contribute new insights concerning
IT and business strategy alignment and develop a new business network model
called Lego-Network(*1) in the new information age. Further research is
required to explore the IT approach and Lego-Network models by analysing
other factors such as the appraisal of IT investment and specific company
cases and by conducting two surveys of Western companies.
(*1) Lego is a trademark for the Lego Group
The relation of information technology
(IT) to corporate strategies, especially to the attainment of competitive
advantage, has been the focus of much discussion during the past decade.
Despite the fact that several empirical studies have been carried out in
this area, few studies cover the full range of topics from broad strategy
concepts to the Internet. If such research findings were available, practitioners
could link IT and business strategy and better survive in the new information
economy. Attention is now shifting to the Internet and the newest and most
publicised aspect of the IT revolution, and thus, as "the new economy"
mushrooms, it affects ever more aspects of businesses and is transforming
ever more functions of companies (Economist 1999a).
A central purpose of this study is
to take a new look at IT and business strategy alignment concept (IT strategy
alignment) by incorporating aspects of new thinking on business strategy,
and the management of change and the new technologies. This study describes
a trend of the alignment concept, and then introduces the framework, "IT
approach model". Furthermore, we will apply the model to IT strategy alignment
in Japan in order to analyse how IT strategies of Japanese companies relate
to this overall success.
The paper is organised as follows. First, the motivation for the research is discussed further. Next, the paper will give a broad review of current studies of the IT and business strategy alignment concept, covering both Western and Japanese viewpoints. This will be followed by a discussion of the research framework and methodology. In addition, two surveys will be conducted (the annual report and the questionnaire survey). Key findings are presented and expanded into a discussion of IT strategy alignment in Japan. Finally, the paper describes research limitations and suggestions for future research.
2. Motivation for the research
IT strategy alignment is one of the top ten challenges of the CIO (Corporate Information Officer) (Batholomew and Caldwell 1995, Niederman et al. 1991). However, alignment remains a nebulous concept, hence it is difficult to understand its effect on corporate strategies. This study attempts to improve the understanding of the concept.
Galliers (1994) suggests that the trend
in IT strategy has moved on from a purely competitive paradigm to internal
issues associated with process and on external issues associated as much
with collaboration as with competitors. However, it is necessary to rethink
this in view of the speed with which new business and technology developments
are being made. More importantly, current research tends to be focus on
one side, business strategy or IT. In addition, the framework that they
have provided seems to be based on a Western viewpoint. Therefore, this
study addresses both IT and business strategies, and develops a framework
of IT strategy alignment, associated it with trends in business management
thinking and practice. In addition, the framework incorporates new trends
coming from the Internet such as E-commerce. Moreover, this study presents
IT strategy alignment from a Japanese perspective because until now few
studies have linked Japanese management styles to IT strategies.
3. IT and business strategy alignment:
current research
3.1 IT and business strategy alignment
3.1.1. Trends in business strategy
Business strategy is concerned with establishing competitive advantage (Grant 1997). Identifying the basis of and opportunities for competitive advantage requires an understanding of competition within the industry. It also requires that we understand customers, their needs and motivations. In practice, there are many features of an industry that determine the intensity of competition and the level of profitability within the industry. A widely used framework for classifying and analysing these factors is the one developed by Michel Porter (Porter 1980).
In the 1990s, however, several studies dispute the validation of Porter's competitive model. Conventional business relationships are characterised by arm's length competition between firms as they buy and sell. Such relationships, which are the basis of Michael Porter's five forces model of competitive advantage, are based, to a large extent, on the development and exercise of market power (Rugman and D'Cruz 1997). The traditional microeconomic model is based on a rational industrial structure where each player competes at arm's length not only with its rivals, but also with customers and suppliers for control of economic rents. Co-dependent systems are cross-industry structures such as alliances, networks, and economic web (Coyne and Subramaniam 1996).
Bartlett and Ghoshal (1993) suggest that large global corporations are creating a new organisational model in the 1990s, which is significantly different from the multidivisional form organisation. The new model represents a real change in organisations caused by the change in environments and task demands. The combined impact of the slowdown in market growth, accelerating technological change and transforming organisational processes shifted the focus of firms from allocating capital to managing knowledge and learning as the key strategic task.
Mintzberg et al. (1998a) illustrates the trend of business strategies in the last 30 years (see Figure 3-1). Figure 3-1 shows the successive dominance of the three prescriptive or objective schools ? design in the early years, then planning in the 1970s, followed by positioning in the 1980s, which has since lost some of its popularity but remains highly influential. In the 1990s, the field became far more eclectic, with all the other schools gaining in importance. There has been growing attention, especially in practice but also in scholarship, to more subjective schools: the macro side of the power school, namely alliance or collective strategy. However, two other schools have really taken off in recent years ? configuration and learning. We can categorise key business strategy concepts into schools (see Table 3-1).
Figure3-1: Trends in Business Strategy
Table 3-1: Key business
strategy concepts
3.1.2 Trends in IT strategy
Before competitive advantage
In the early 1980s, the study of the
IT strategy alignment was not sufficient to work on any one of areas such
as business strategy, IT strategy and organisational process in isolation.
One reason for this was that, often, too much attention was placed on technology,
rather than business management and organisational issues.
Competitive advantage
In the second half of the 1980s, a
series of articles, books and seminars proclaimed the emergence of a new
competitive weapon ? information technology. The message was conveyed to
researchers and practitioners in many ways. They comment on the related
articles and then state that all of this material promotes and elaborates
upon the potential for creating competitive advantage through IT (McFarlan
1984, Porter and Millar 1985).
This concept is based on competitive strategy and advantage. Information technology is not only transforming products and processes but also the nature of competition itself. In addition, the information revolution is giving birth to completely new industries. McFarlan (1984) also states that it is important for executives to undertake a competitive analysis in assessing where IT fits in their companies. The IT strategy alignment studies seem to mimic the trend of business strategy after the competitive advantage concept as we have illustrated in Figure 3-1.
After competitive advantage, to enabler
Several studies still focus upon the
competitive model for IT strategy alignment in the 1990s (Peppard 1993,
Luftman et al. 1993, Feeny and Ives 1997). For example, Luftman (1993)
states that creating strategic advantage and competitive advantage are
not new concepts, but the use of IT to create these advantages quickly
is new. Feeny and Ives (1997) focus upon the sustainability of competitive
advantage.
However, IT for competitive advantage has begun to pale (Galliers 1993). IT research moved to other concepts such as those of the configuration and/or the learning school. IT has become a fundamental enabler in creating and maintaining a flexible business network (Venkatraman 1994, Applegate 1995). Venkatraman (1994) breaks IT-enabled business transformation into five levels: Localised exploitation, internal integration, business process redesign, business network redesign and business scope redefinition. Applegate (1995) also shows why this evolution requires companies to transform their outdated IT architectures and the IT organisations that support them. Moreover, Hsiao and Ormerod (1998) explore the dynamic nature of IT enabled strategic change by using empirical evidence from a variety of organisational contexts.
"Change management" comes from the same dangerously seductive reasoning as strategic planning (Clemmer 1995). They are both based on the shaky assumption that there is an orderly thinking and implementation process that can objectively plot a course of action. This is one of the reasons why companies have struggled to use BPR (Business Process Reengineering) even though BPR placed IT at centre stage in the early 1990s. In other words, the discussion of IT strategy alignment had not got beyond the concept at this stage.
Concept to product
For much of the 1990s, ERP (Enterprise
Resource Planning) was just about the biggest thing in business software
(Economist 1999b). ERP is a product rather than a concept like BPR, and
has changed the way companies worked by bringing together all their operational
parts into one smoothly functioning whole. However, ERP has lost its glamour
within the past year. One reason is that the ERP vendors seem largely to
have missed the first E-Commerce wave, being generally slow to adapt their
client/server architecture to the rigours of Internet computing. ERP also
focuses upon the internal processes and thus is likely to be a closed system.
Therefore, leading ERP vendors are striving to fit their products to the
fast emerging E-Commerce market (ft.com, May 1999a). Compared to the closed
ERP system, the Internet has made possible a different model in which applications
sit on web servers to which anyone on the Internet has access. This is
because any number of people can get into the system without incurring
extra costs and anyone can use it with ease.
Concept & product to business
The IT and business strategy alignment
concept was fragmented because of a lack of a product or a practical case,
and thus much of the literature has focused on competitive advantage and
business transformation. However, the research has been fragmented again
recently because of the Internet. For example, we can see different views
on the Internet, including the Internet on marketing (Paul 1996, Quelch
and Klein 1996), and the Internet on the emerging business (Amazon.com,
Dell online and Cisco systems). The Internet effects every part of the
business arena and thus it is particularly difficult to define electronic
commerce on the Internet. In this paper, we define E-Commerce as marketing,
selling, and buying of products and services on the Internet, while E-business
is using electronic information to improve performance, create value and
enable new relationships between businesses and customers. In short, E-business
includes E-commerce.
3.2 IT strategy alignment in Japan
3.2.1 Business strategies in Japan
The Japanese economy has remained
sluggish since the middle of the 1990s, with consumer spending declining
by an especially large margin. Several factors combined to adversely influence
consumer spending. In April 1997, the government raised the national consumption
tax rate and ended a programme of income tax rebates. In addition, the
cost of national health insurance and other social welfare programmes has
increased. Corporate performance has also been generally weak, and the
both number of bankruptcies and unemployment rate have reached high levels.
Another negative factor has been widespread concern about the nation's
financial system, which was heightened by the failures of several leading
financial institutions.
Before the bubble economy
Many Japanese companies have developed
a different philosophy of managing firms (see Table 3-2). They realised
that the route to competitiveness was to eliminate job insecurity, to give
people pride in their tasks, and to empower them to take initiatives in
organising their work to accelerate productivity, quality and innovation.
It is not surprising that examples of strategic management practice at
Japanese companies became widely quoted in the management literature during
the 1980s and the early 1990s. An undoubtedly successful country was attracting
attention. However, it remains likely to be difficult to implement Japanese
management style in Western companies.
The Honda motorcycle case may be typical.
The Boston Consulting Group (BCG) (1975) suggested that Honda exemplified
the analytic approach to strategy formation based on exploiting volume-based
economies to attain an unassailable position of cost leadership in the
world motorcycle industry. However, Pascale's interviews (1984) with the
managers actually involved revealed a different story. The initial decision
to enter the U.S. market was based on little analysis and included no clear
plan of how Honda would build a market position. The outstanding success
was a surprise to the company. Mintzberg et al. (1998b) also states that
Honda's success had a great deal more to do with learning than with positioning.
Table 3-2: The Japanese
management model (Mair 1997)
After the bubble economy
Porter (1996) emphases the importance
of strategy and states that strategy is essential to superior performance.
Although constant improvement in operational effectiveness is necessary
to achieve superior profitability, operational effectiveness is not usually
sufficient. Competitors can quickly imitate management techniques, new
technologies, input improvements, and superior ways of meeting customers'
needs. This point leads Porter to a conclusion that Japanese companies
rarely developed distinct strategic positions.
Mintzberg et al. (1998b) argue against
Porter's conclusion, because when we look at the performance of so many
Japanese companies, how could strategy be a necessary condition for corporate
success? However, the collapse of Japan's bubble economy has resulted in
a long-overdue revision of Western perspectives of the validity of Japanese
management techniques (Voss 1993). Once accepted uncritically as being
somehow superior to Western management precepts, such principles as lifetime
employment, consensus management and just-in-time manufacturing are now
regarded as being unwieldy and quite often unworkable, particularly when
applied outside the framework of Japan's group-oriented culture. For example,
the long-term trend of manufacturing management to adopt "best practice"
has led to an expressed preference for Japanese production systems as a
means of generating industrial success. However, Pilkington (1998) highlights
a lack of correlation between imitation and competitive advantage by using
evidence from the U.K. automobile industry to illustrate the disappointing
impact of Japanisation and best practice. He also suggests that managers
should concentrate on the development of strategic competencies and the
alignment of manufacturing with corporate strategy.
Strategic fit or a source of trouble?
'Strategic fit' among many activities
is fundamental not only to competitive advantage but also to the sustainability
of that advantage (Porter 1996). It is harder for a rival to match an array
of interlocked activities that it is merely to imitate a particular sales-force
approach, match a process technology, or replicate a set of product features.
Positions built on systems of activities are far more sustainable than
those built on individual activities.
The Japanese keiretsu, specifically
vertically linked firms, have attracted global attention, and there is
continuing dispute over their purpose. They act as close, long-term business
relationships between large corporations and a number of selected smaller
firms. They have been seen as a rational effective system, especially suited
to the circumstances of Japan's industrialisation, and as a factor in its
economic success. However, the Japanese keiretsu has been criticised as
a closed system that excludes potential competitors (Shimotani 1995).
Moreover, lean production became an effective manufacturing strategy within the Japanese bubble economy, but the economic recession has raised doubts about the effectiveness of lean production (Katayama and Bennett 1996). A key feature of lean production is that fewer resource inputs are required by the manufacturing system (less material, fewer parts, shorter production operations and less unproductive time needed for set-ups). At the same time there is pressure for higher output performance to be achieved (better quality, higher technical specifications and greater product variety). However, one major drawback of lean production is its failure to accommodate changes or reductions in demand for finished products.
From the above two cases, can we suggest
that these Japanese management styles have been a source of trouble since
the bubble economy and that few Japanese companies have business strategies
as Porter suggests? Keiretsu or lean production are likely to be linked
and thus are they a kind of strategic fit among many activities as Porter
mentions? Rugman et al. (1997) mention that a vertical keiretsu is significantly
different from the traditional Japanese keiretsu, which is a family of
broadly diversified companies with a bank/trading company at its centre.
Rugman applies the 'flagship' model to a vertical keiretsu. According to
Rugman, "a flagship firm is defined as a multinational enterprise which
has taken on the strategic leadership of a business network consisting
of four partners: key suppliers, key customers, selected competitors and
the non-business infrastructure. This is the 'flagship' model of business
networks." These networks have succeed in building global competitive positions
in such diverse fields as consumer electronics (Sony, Matsushita), automobiles
(Toyota, Nissan) and computers (NEC, Toshiba). We might regard vertical
keiretsu as a source of strategic fit.
3.2.2 IT strategies in Japan
The Western viewpoint
Of the management literature, few
have studied IT strategies of Japanese companies. According to Bensaou
and Earl (1998), Japanese companies experience few of the difficulties
that American companies commonly have with information technology. Table
3-3 shows the differences they identified in IT management between Western
countries and Japan. Bensaou and Earl suggest that Japanese companies choose
their IT to fit with their competitive goals and strategies and that evaluations
of technology costs are based on the improvements that will be realised
in operation and performance. They also mention that Japanese managers
are rotated through IT functions so that knowledge is spread.
However, Besnsaou and Earl's thinking is likely to be based on Porter's concept that Japanese companies have operational effectiveness but they rarely seek strategies. Furthermore, they quote advanced companies in IT such as Seven-Eleven Japan and Kao. For example, in Issue 3, they state that Japanese companies identify a performance goal and then select a technology that helps them achieve it in a way that supports the people doing the work. However, Bensaou and Earl use electric machinery companies such as Matsushita, Toshiba, Fujitsu and NEC that relate their businesses with technology and IT. In Issue 4, they also mention that Japanese companies encourage integration by rotating managers through IT function co-locating specialists and users, and giving IT oversight to executives who also oversee other areas, but they quote Seven-Eleven Japan, which may be the most advanced company in IT.
Therefore, Bensaou and Earl's suggestions
appear to have a bias towards the difference between Japanese and Western
management.
The Japanese viewpoint
Aoki (1988) compares the internal
characteristics of Japanese and Western companies, focusing on information
flows. Aoki stresses the comparatively stronger attention paid by the Japanese
to employee skill learning, job rotation, seniority-based compensation
and promotion, horizontal communications, innovative group self-management,
and information-sharing. These contrast with task specialisation, job classification
and evaluation, centralised direction and coordination, and "vertical"
authority relationships in the West. The differences, Aoki claims, arise
from historical timing, market structuring, and technological opportunity
rather than cultural influences. The net effect for the Japanese firm is
superior efficiency and effectiveness.
Moreover, Japanese industry, which
has relied on close relationships along the supply chain, tended to maintain
proprietary IT architecture in their collaborative systems. The economics
of globalisation, deregulation, and most notably the increasing power of
consumers have been instrumental in opening up the one closed supply chain
and thus IT has been a powerful enabler in this direction (Kokuryo 1999).
For example, Kao, which traditionally relied on its exclusive computer
network, decided to use a standard protocol in its efforts to accommodate
the changes in the industry structure.
Table 3-3: How Japanese
and Western Managers Frame IT Management (Bensaou and Earl 1998)
IT strategies in the new economy
In the face of a sluggish economy,
corporate investment has been sluggish. Despite such a weak economy, investment
in IT has remained relatively strong. The Ministry of Posts and Telecommunications
(MPT) report shows that corporate IT investment has increased since 1993
(MPT 1999) (see Table 3-4). MPT also explains that E-Commerce in Japan
is behind the US and the UK but it has rapidly emerged. Japan might follow
the Western companies in this emerging economy. Forrester Research shows
that countries will move into E-Business at different times (see Figure
3-2), and they expect the UK and Germany to go into the same hyper-growth
stage of E-Business about two years after the US, with Japan, France and
Italy a further two years behind. Japan is currently preparing to move
into E-Business.
How can Japanese companies enhance IT strategy alignment in this new economy? According to Nikkei Business (1999), there are four suggestions that Japanese companies should consider.
(1) the commitment of top management
to the alignment,
(2) the role and responsibility of
CIOs,
(3) the support of the IT department
to top management,
(4) the support of the IT department
to functional management.
Nikkei Business explains that Japanese
companies are suffering from the same problems in IT as Western companies,
as we have seen in much of literature. However, the important question
is whether Japanese companies can adapt to the new economy in their own
way or follow the Western approach as suggested by Nikkei Business. Japanese
companies have several specific characteristics, such as the keiretsu and
their manufacturing operations, but they have begun to be broken and restructured
when the bubble economy collapsed. While IT is not the central element
in such restructuring, IT is nevertheless an important enabler in running
the virtual corporation. For example, the Japanese traditional collaboration
through information sharing is synergistic with the nature of the Internet.
Thus, we will examine the IT approach within Japanese companies in coming
chapters. In order to do so, we will develop the framework of the IT approach
and then we will present the findings of two surveys (Annual Report and
Questionnaire) to analyse the practice of IT strategies in Japan.
Figure 3-2: Internet Commerce timing
Table 3-4: IT investment in Japan (MPT, 1999)
Table 3-5: E-Commerce (Business
to Customer) in Japan (MPT, 1999)
The various 'stage of growth' models are useful in designating the IT maturity of organisations. Two such models are described: (1) the Earl model (introduced by Galliers and Sutherland 1991), and (2) the Galliers and Sutherland model (1991) itself. However, it is true that these models focus upon a wide range of IT planning and management issues in organisations, but they may not deal with IT and business alignment in detail. Therefore, we have developed a new model, 'the IT approach model', matching the IT strategy alignment concept that we have discussed so far.
Earl model
As we can see in Table 4-1, Earl (1983,
1986, 1988 and 1989) argues that companies start their planning by assessing
the current operation to provide services which meet user demands. The
focus shifts to management concern for a stronger linkage with business
objectives. Finally, the objective shifts to a strategic focus, linking
IT and business strategy.
Table 4-1: Earl's planning
in stages model. (amended from Galliers and Sutherland 1991)
Galliers and Sutherland model
Galliers and Sutherland (1991) develop
a stage of growth model that can be represented as six stages in organisations,
each with its particular set of conditions associated with the Seven 'Ss'
(Pascale 1991). These stages are described in Table 4-2. Galliers and Sutherland
explain that the earlier stages tend to represent a historical perspective
of how organisations first began to come to grips with IT. Conversely,
the latter stages are essentially a distillation of what were then considered
to be the best features of IT management as organisations begin to utilise
IT more strategically.
McKinsey identified seven features
that characterise the more successful companies (Pascale 1991). The first
three ? strategy, structure and systems ? they call the hardware of success.
The other four, which are often more vital, they call the software of success.
The first of these is style, which refers to the dominant pattern of behaviour
and thinking of the management team. The second element is skills, which
means the specific capabilities possessed by employees that set the company
apart from competition. Staff refers to the dominant culture of the people
who work in the organisation. The final characteristic is shared values,
which are concerned with the organisation's common values or goals that
motivate people in the business. McKinsey believes that successful companies
exhibit shared values that fit their strategy.
The IT approach model
The Earl and the Galliers and Sutherland
models contribute the notion that management can focus upon a broad range
of issues associated with the planning and management of IT. In addition,
management can identify the strength and/or weakness of IT in organisations
in terms of the Seven 'Ss' by using the Galliers and Sutherland model.
However, their models seem not to reflect the trend of IT and business
strategy in the 1990s and also do no include the emerging business trend
of E-Commerce. Moreover, the topic of IT strategy alignment tends to have
been treated in separation from more recent business strategy theories
in their models.
Therefore, we aim to take a new look
at IT strategy alignment, incorporating the new Internet economy, and develop
a coherent framework in order to identify how companies regard IT as their
business strategies. As we have seen in the IT and business strategy alignment
literature, we can categorise IT strategy alignment in organisations into
six categories, each with its particular set of conditions with associated
elements. These categories are described in Table 4-3. Each of the elements
constitute an important aspect of how IT strategy alignment within organisations
might be within the different categories.
What is IT?
The meaning of the term has changed,
according to the times, and thus the term of Information Technology seems
to be unsuitable for the current business situation. For example, recent
IT-related terms seem to include a letter of 'E' such as E-Commerce and
E-Business. In addition, 'Technology' appears to be a technical term rather
than a business one and thus its meaning may be narrow. We try to understand
IT strategy alignment by identifying new trends in IT. The following is
a summary of each category of the IT approach model.
Category One: companies regard IT as Technology/System
Companies have used IT in order to
construct corporate networks and databases, and have sought new technologies
to re-construct them. Companies have also regarded IT as a source of products
or services, such as ATM (automated teller machine) in banking or ITS (Intelligence
transportation system) in automobile industries. In category one, the IT
department is in charge of IT planning and implementation. In addition,
top management might not be committed to IT, and people regard IT as a
speciality task.
Category Two: companies regard IT as Competitive
Advantage
Michael Porter introduced the concept
of Competitive Advantage in the middle of the 1980s. In those days, IT
people analysed the role of IT by using elements of Porter's model, such
as five forces, cost leadership and differentiation. According to Porter,
companies can compete with rivals by gaining competitive advantage. In
this category, IT is not only a technology and system, but also a source
of competitive advantage, and thus managers need to know the role of IT.
However, category two seems to be still at the level of a concept. Thus,
managers, in this category, regard IT as a tool of competitive advantage
in order to compete with rivals.
Category Three: companies regard IT as Enabler
Business strategies move to embrace
new concepts from competitive advantage, and the IT and business strategy
alignment concept has been studied alongside the new strategy concepts.
In this category, companies regards IT as an enabler to change their businesses
in order to realise the following concepts (1)-(9).
(1) Business transformation
In general, business transformation
can be applied to all in category one and thus researchers appear to study
the subject from the viewpoint of organisations, people, process and technology.
Technological change has been accelerating, reconfiguring industry structures
and boundaries, and increasing the need for speed and flexibility at the
firm level. Simultaneously, IT has been transforming internal organisational
activities and management roles. Therefore, the popularity of the business
transformation concept has been increased.
(2) Business process reengineering (BPR)
BPR is a pervasive tool for business
transformation (Grover et al. 1993) and ranked as one of the most important
issues for information systems executives since the early 1990s (Brancheau
et al. 1996). IT has a significant function in BPR by either permitting
or limiting successful BPR. According to Broadbent et al. (1999), the companies
which had higher levels of IT infrastructure capabilities were able to
implement their BPR faster than those which had lower levels of IT infrastructure
capability.
(3) Strategic change
Strategic change is a similar concept
to business transformation. The objective is to study how companies can
change strategically. Effective strategic change in organisations needs
leadership principles that are more likely to improve workplace change
through employee participation, motivation and commitment. Thus, much of
the literature studies leaders in organisations and how they develop the
attributes of corporate cultures and conduct organisational changes.
(4) Knowledge management
Knowledge management aims to utilise
the knowledge resources within organisations and improve performance. For
example, consulting firms tackle knowledge utilisation and then provide
their know-how as a business.
(5) CIOs/CKOs
The CIO (Corporate Information Officer)
is in charge of the strategic use of IT. Most companies regard the role
of CIOs as one of their critical success factors. The CKO is in charge
of sharing and utilising the knowledge resource within companies. In Japan,
the IT department has a technical expertise in many companies, but much
research states that the effect of CIOs will be limited when CIOs are not
members of the top management team (e.g. Earl and Feeny 1994)
(6) Collaboration
The traditional Porter model is based
on a rational industrial structure where each player competes at arm's
length not only with its rivals, but also with customers and suppliers
for control of economic rents. However, co-dependent systems are cross-industry
structures such as alliances, networks, and economic webs. Collaboration
between suppliers, customers, rivals and government, is more important
these days.
(7) Outsourcing
Successful companies are increasingly
focusing on their core business rather than diversification, because they
try to acquire the core competence through which they can compete with
rivals. Therefore, companies utilise outsourcing services with expert partners
to enhance the effectiveness of the business processes that support that
core. For example, accounting, human resource and network maintenance are
all potential targets for outsourcing.
(8) Customer relationship management
For many companies, building strong
customer relationships in an era of intense competition and diminished
consumer loyalty is an important challenge. Customer relationship management
is the practice of identifying, attracting and retaining the best customers
to generate profitable revenue growth.
(9) Supply chain management
Leading edge companies have created
a distinct competitive advantage through the optimisation of their supply
chains to enhance their market presence. They are now learning how to create
value chain networks. As we describe in "Collaboration", the functions
of integration and collaboration are now fundamentally required to successfully
manage a supply chain in today's fiercely competitive environment. The
best value chain networks will also be built utilising cross-company synchronisation
processes.
Category Four: companies regard IT as ERP
ERP (Enterprise Resource Planning)
means, "techniques and concepts for integrated management of businesses
as a whole from the viewpoint of the effective use of management resources
to improve the efficiency of enterprise management" (Nishijima 1997). Before
ERP, BPR (Business Process Reengineering) was the focus of many companies'
concern. Nowadays, it is even said that the success of BPR depends on the
success deployment of ERP. ERP is also one of the enablers, but ERP is
a software product rather than a concept in the early categories. ERP may
focus internal issues and thus can be seen as a closed system.
Category Five: companies regard IT in terms of E-Commerce
E-Commerce is the marketing, selling,
and buying of products and services on the Internet. There are two types
of E-Commerce. First, Business to Customers (B to C), the business is for
end customers (e.g. amazon.com, dell online, food retailers). Second, Business
to Business (B to B), the business is for business partners (e.g. manufacturing
companies buy materials from their suppliers). The Internet is an open
system, including internal and external networks, and thus is different
from the ERP system and the KEIRETSU system, which is one kind of business
partner relationship in Japan.
Category Six: companies regard IT as a Driver
In this category, companies consider
IT as a core resource of their business strategy. We can also use E-Business
for this category. E-Business is using electronic information to improve
performance, create value and enable new relationships between businesses
and customers. The difference in the IT approach between this category
(Driver) and the early one (Enabler) can be illustrated in Figure 4-1 and
Figure 4-2. Survival and fitness depend upon the adaptability of the organisation
and management's ability to match strategy to this new economy. In the
early categories, managers utilise IT in order to match their strategies,
but managers, in category six, create business strategies via IT.
Figure 4-1: IT as an Enabler to a Driver (1)
Figure 4-2: IT as an Enabler
to a Driver (2)
5. Research design and methodology
The research reported here is based on the IT approach model that we have developed in chapter 4. In this chapter we will explain the design of the research questions and objectives, and describe how both an annual report survey and a questionnaire will be utilised in this research.
5.1 Research questions
As we have viewed IT strategy alignment,
the categories of IT approach appear to vary in organisations and thus
it is not sufficient to offer one best practice solution for all companies.
There is also a danger in discussing IT strategy alignment in terms associated
with only the latest aspects of what appears in the literature. In addition,
many researchers have focused on the difference between Western and Japanese
management styles, but few have studied the link between Japanese management
and IT strategies. Therefore, the main research questions may be stated
as follows:
1. What are
Japanese companies' perceptions of the role of IT as a corporate strategy?
2. How is
the Japanese approach to IT different from the Western one?
3. What are
the specific characteristics of IT strategy alignment in Japan?
The primary objective of this research is to apply the new framework, the IT approach model, to Japanese companies in order to improve our understanding of IT strategy alignment. It is also necessary to identify the category to which the Japanese company belongs, and to analyse the IT approach in Japan.
5.2 Research methodology
We will study the IT approach in Japan
by analysing the reasoning expressed in companies' annual reports to shareholders.
We will also supplement this survey by conducting a questionnaire of managers'
perceptions of IT.
5.2.1 Annual report survey
There is a large amount of information
in Japanese annual reports and the information is not restricted to financial
data and future prospects in the Chairman's statement. In addition, there
is likely to be a statement of corporate objectives and a review of the
activities of each of the business divisions. This may be 'of interest'
to shareholders or potential investors. The non-financial information included
in the annual report is un-audited and thus it may be selective and will
inevitably be somewhat biased with an emphasis on marketing the companies
to investors. However, several papers have used annual reports as the primary
source of data on corporate strategy and reasoning.
Sample selection
We can see several surveys on IT and
business strategy. Table 5-1 shows the selected industries in recent literature
(Jarvenpaa and Ives 1990, Hsiao and Ormerod 1998, and Teo and Ang 1990).
From these surveys, we can select banking, telecommunications, publishing
and manufacturing companies. More importantly, we must focus upon Japanese
situations. According to an E-commerce survey in Japan (MPT 1999) (see
Table 5-2), we can select retailing, trading and manufacturing industries,
including automobiles and electronics, which are advanced in E-Commerce.
Manufacturing companies are likely to utilise E-commerce for their procurement.
MPT states that the Japanese system, Keiretsu, has a significant role in
effective procurement systems based on E-Commerce. It is easy for manufacturing
companies to build a uniform system within the Keiretsu group.
Therefore, the firms are selected
from six industries including automobiles, financial services, retailing,
electrical machinery, trading and manufacturing. Industries are selected
so as to provide a wide diversity of IT potential. In addition, companies
that people recognise to be advanced companies in IT are selected, such
as Kao (chemicals), Seven-Eleven Japan (convenience store), Dai Nippon
Printing (DNP)(publishing), Nippon Telegraph and Telephone (NTT) (telecommunications)
and Nintendo (game maker). The number of companies is 45 in total. Table
5-3 shows the industries and companies we select in the annual report survey.
Table 5-1: selected industries (Jarvenpaa and Ives 1990, Hsiao and Ormerod 1998, Teo and Ang 1999)
Table 5-2: E-Commerce survey in Japan
Table 5-3: Industries &
companies for the annual report survey
Sample year
We collected and checked annual reports
of 19982 because the late 1990s in the period in which information technology
for the new economy has been discovered by the business and academic press.
As we have seen in Figure 3-2, Japan is likely to be behind the US in the
emerging E-Commerce trend and thus it is necessary to check the latest
annual reports at the moment. However, it should be noted that the 1998
version has a one-year lag in comparison to the results of the questionnaire
that we conducted in August/September 1999.
Checklists for the IT approach
In order to check IT-related phrases
in annual reports, the IT approach is based on a checklist. Thus we include
phrases such as competitive advantage, transformation, knowledge management
and E-Commerce. An initial test with seven companies in the automobile
industry found that it was a little difficult to identify the IT-related
phrase with those terms and that annual reports had more strategy-related
phrases than those of IT. Therefore, we tried to mix the checklist with
that of Jarvenpaa's (see Table 5-4). In addition, we checked not only IT-related
phrases, but also the strategy-related phrases. The checklist for the IT
approach is shown in Table 5-5.
More importantly, we found that we
could understand the IT perceptions of Japanese companies, but it might
be difficult to undertake further analyses of IT strategy alignment in
Japan by only IT-related phrases. This is the reason that we conducted
a questionnaire to supplement the analysis of the IT approach in Japan.
Table 5-4: Context and nature of IT-related phrases and attributions to strategy (Jarvenpaa and Ives 1990)
Table 5-5: Checklist for
the annual report survey
5.2.2 Questionnaire survey
Items in the questionnaire are derived
from the IT approach model. Respondents are asked to indicate the relative
importance in influencing IT strategy alignment and the concerns of IT
strategies. We also provide the IT approach model as explained in Chapter
4, and they are asked to identify the IT approach in their companies as
a final question. The final question will be used for checking consistency
and identifying the mind gap between the annual report survey and the questionnaire.
Respondents are also asked to comment on IT strategy alignment in their
firms. The questionnaire was pre-tested by three respondents and reviewed
by one faculty member. Modifications were made to enhance the clarity and
comprehensibility of the items. Therefore, the questionnaire was ready
for use with actual respondents. Appendix-C shows the questionnaire.
It is also important to select target companies from the industries that we have chosen for the annual report survey in order to supplement it. We contacted workers who are (1) the new generation that can understand E-Business, (2) prospective managers and (3) can pass on questions to key persons in their companies.
Furthermore, we attempted to undertake a
survey on the World Wide Web (WWW), because this is a very efficient method
of collecting and answering questionnaires (see Figure 5-1). In addition,
we contacted selected respondents in order to interview them.
Figure 5-1: System image
of the questionnaire on the WWW
(URL: http://www.netpassport.or.jp/~wsakainm/index_e.htm)
6.1 Annual report survey
We checked a total of 45 annual reports.
Companies come from a wide variety of industries, specially automobiles,
financial services, retailing, electrical machinery, trading and manufacturing.
Table 6-1 summarises the categories of IT approach in Japanese companies
by analysing the annual reports (see Appendix-B (1) and (2) in detail).
The number shows the percentage of companies mentioning information technology
or strategy to the shareholders in each category.
Table 6-1: Annual report survey: Summary
6.1.1 Overview
The IT viewpoint
Over 75% of the companies include
IT-related phrases associated with category one. However, the number includes
IT-related products/services, which accounts for 47% of the companies in
category one. Thus, we can also see a significant number of these companies
in category three. Also Japanese companies are likely to regard IT as an
Enabler in order to transform their firms and businesses. In addition,
around 20% of the companies mention E-Commerce and E-Business3. This means
that Japanese companies gradually move IT strategies into the new economy.
Figure 6-1 illustrates the result of the IT approach in the annual report
survey. It should be noted that we could not see any terms related to ERP
(Enterprise Resource Planning) and thus we omitted category four in Figure
6-1.
Although Nikkei Business (1999) mentions
the importance of CIOs/CKOs in order to enhance IT strategy alignment,
we could not find phrases about CIOs/CKOs in the annual reports. In addition,
we have separated ERP from category three in the IT approach model because
EPR is a product rather than a concept, but we cannot find the ERP-related
phrases. We check these phrases in the questionnaire survey and examine
whether these things are important for Japanese businesses or not.
Figure 6-1: Annual report
survey: Category of IT approach
Strategy viewpoint
Compared to the IT viewpoint, Over
95% of the companies include strategy-related phrases in categories two
and three. From these numbers we can see that Japanese companies are still
tackling competitive advantage and business transformation.
More importantly, the Japanese economy
in this period suffered intensified stagnation due to prolonged sluggish
private consumption after the rise of consumption tax, accompanied by a
decrease in government spending necessitated by financial reconstruction,
financial unrest and other factors. The economic situation is likely to
be a possible reason why 40% of the companies include Restructuring to
organise the firm in a new way or to give a different structure to the
firm and thus 84% of companies include business transformation related
phrases. In addition, over 90% of companies mention Effectiveness/Efficiency,
as most literature assumes that Japanese companies are efficiency-oriented
and encompass Kaizen (continuous improvement) and TQM (Total quality management)
practices.
We have seen that 18% of the companies
include IT-related phrases of E-Business. Those companies also explain
the importance of E-Business, linking IT to their businesses. For example,
Mitsubishi Corp. (a trading company) states that they are in an age of
unparalleled technological innovation, as dramatically symbolised by the
information revolution and thus they focus upon promising strategic information
communications industries.
6.1.2 Industry differences
More interesting, however, are the
industry differences in the categories of IT approach. Table 6-2 shows
a breakdown, by industry, of the percentage of companies. There are some
wide significant differences across industry in the categories of IT approach.
Figure 6-2 illustrates the category of each industry.
From Figure 6-2, we can deduce that
manufacturing and retailing regard IT as an Enabler (category three), and
that the automobile and financial industries are currently tackling E-Commerce
(category five). On the other hand, electrical machinery, trading and others
(advanced in IT) are advanced in E-Business.
Japan's general trading companies, known as soga shosha,
brought us the most interesting result. They focus upon all categories
through System/Technologies (category one) to E-Business (category six).
One possible answer is that they are the spiders at the centre of Japan's
global economic web. This means that they are intermediaries for about
half the country's exports and two-thirds of its imports without their
own products/services. Therefore, they must utilise the intellectual resources
and focus on promising industries and products such as information communications
and E-Commerce. For example, an alliance between Itochu, Sumitomo, Nissho
Iwai Corp and Mitsui, was the first to introduce a digital satellite broadcasting
service in Japan. Moreover, they have various customers, including all
of the industries that we have investigated in the annual report survey,
and thus it is particularly important to understand and focus on all categories.
Electrical machinery and others (advanced
in IT) have a similar characteristic as regards the IT approach. They focus
on category one (system/technology) and category six (E-Business) at the
same time. One reason is that their businesses are related to IT products/services,
and thus they mention their business within category one. In addition,
it is particularly important for them to provide new IT products/services
to a greater degree from their customers expect or image and thus they
are concerned with understanding E-Business rather than simply E-Commerce
which most companies know.
Both the automobile and financial industries are currently
tacking E-Commerce. The purpose, however, appears to be different between
the two industries. Automobile companies focus upon Business to Business
(B to B) rather than Business to Customer (B to C). In close cooperation
with their suppliers, they are aiming for cost reductions in a wide range
of targeted components and materials and for efficient operations by enhancing
their supply chain management. On the other hand, bank and life insurance
companies are active in developing new types of channels and services,
such as 24-hour telephone banking and Internet banking, which they expect
to increase customer satisfaction.
In addition, we can find the different
attitudes to Restructuring in each industry due to the economic situations
of those industries. Financial services, retailing and manufacturing are
operating under particularly severe conditions, but the financial sector
seeks new opportunities due to the so-called Japanese version of the Big
Bang4, with the aim of revitalising the Japanese financial market commensurate
with the international markets of New York and London by the year 2001.
On the other hand, the retailing companies restructure their sales organisations
by closing unprofitable stores. Manufacturing companies also continue to
restructure their businesses, but they emphasise the efficiency of operations.
This is one of the reasons that manufacturing and retailing companies include
many phrases related to business transformation (category three), because
Restructuring appear to have a close relationship with business transformation.
Retailing
The markedly severe situation can be expected to continue, given the
current economic environment surrounding retailing companies, lingering
sluggishness in individual consumption due to anxiety overt the outlook
of financial systems and also because of apprehension over the adverse
effects on capital investments. Retailing companies will continue with
their restructuring effort, by taking a hard look at unprofitable stores,
business groups and affiliated companies.
Manufacturing
The Company employs measures to enhance its refineries' strengths by
cutting costs and operating effectively, such as restructuring refining
systems and domestic beer operations.
Table 6-2: Annual report survey (IT-related phrases): Industry difference
Figure 6-2: Annual report
survey (Category of IT approach): Industry difference
6.1.3 Winners versus losers
In our survey which took place over
three months, a total of 45 companies were investigated, of which 23 companies
report poor financial performance. Table 6-3 and Figure 6-3 shows a breakdown,
by winners and losers5. As we have seen, 40% of the companies include 'Restructuring'
to organise the firm in a new way and it may be that the economic situation
might affect the IT approach of such organisations in Japan. Losers include
'Restructuring' twice as many times as winners do. However, in terms of
the category of IT approach, we cannot see a significant difference between
winners and losers. The only difference is that 59% of winners mention
IT-related phrases in category three, but 35% of losers mention them too.
Table 6-3: Annual report survey: Winners versus losers
Figure 6-3: Annual report
survey: Winners versus losers
The questionnaire survey
In the next section, we examine the
results coming from the questionnaire survey. It is a particularly important
supplement to the annual report survey. Therefore, we checked the following:
(1) Categories of IT approach
(2) Other phrases that we cannot see
in annual reports, such as ERP (0%), CIOs (0%) and CKOs (0%).
(3) Perceptions of IT, including E-Commerce
and E-Business
6.2 Questionnaire survey
A total of 23 questionnaires were
received by email, of which 8 answered only the category of IT approach.
The demographic characteristics of respondents are shown in Table 6-4.
Respondents are from a wide variety of industries, including telecommunications,
banking/insurance, manufacturing, trading and consulting. Recall that the
respondents were asked to identifying the category of IT approach within
their organisations in the last question. Table 6-5 and Table 6-6 summarise
the results (see Appendix-D (1) and (2) in detail).
Table 6-4: Questionnaire
survey: Respondents
Table 6-5 shows a comparison of the category of IT approach between the annual report survey and the questionnaire. Figure 6-4 also illustrates the category of IT approach by analysing the questionnaire. We can see two differences between the two surveys. First, although 79% of companies regard IT as falling within traditional strategies from system/technology to business transformation in annual reports, the perception of IT strategy alignment may actually be more advanced. 51% of the companies are tackling the new trend of IT from ERP to E-Business in the light of their responses to the questionnaire. In addition, although there are no phrases about ERP in the annual reports, 76% of companies mention the introduction of ERP systems (see Table 6-6). Second, 21% of companies state that the main issue for their firms is E-Business. This number is nearly twice that of E-Commerce (11% in the annual report survey and 12% in the questionnaire). From the result of the questionnaire, we can see that managers of established companies are struggling to comprehend E-Commerce, but the next wave, E-Business, is already in their sights.
Table 6-5: Questionnaire survey: Category of IT approach
Figure 6-4: Questionnaire
survey: Category of IT approach
We also find that while there are no phrases about CIOs/CKOs in the annual reports, Japanese companies consider the role of CIOs/CKOs as an important matter. 53% of companies have CIOs and CKOs (see Table 6-6). However, companies seem to emphasise the role of the CIO rather than that of the CKO. 63% of CIOs are members of top management, compared to 14% of CKOs.
In terms of the knowledge sharing capability
of IT, the majority of Japanese managers learn IT-related issues from IT
departments. Only 13% of the companies answered that managers learnt by
job rotation (see Table 6-6) and all of them also regard IT as E-Business.
Moreover, 13% of the companies state that their managers leave IT issues
to others. It is quite understandable that the companies should regard
IT as System/technologies. Their managers may consider IT to be a special
task.
The next chapter
We have explained the results of the
annual report survey and questionnaire so far. We also have identified
several findings from the two surveys, such as survey difference, industry
difference, and winners and losers. In the next chapter, we will expand
these findings and discuss the following issues:
(1) Reasons for the difference between
the two surveys
(2) Comparison between Western and
Japanese viewpoints
(3) Implementation for IT management
in the new economy
7.1 Comparison between two surveys
Jarvenpaa and Ives (1990) state that
the annual report letter to shareholders presents a useful research tool
for analysing the relationship between IT and business strategy. However,
the questionnaire survey identifies differences in the IT perceptions in
Japanese companies from those in the annual report survey. For example,
there are no ERP-related phrases in the annual report survey, but several
companies mention ERP in the questionnaire.
One possible reason is that companies
aim to state their current performance and future potential to shareholders
and investors in the annual reports. In addition, most firms tend to evaluate
IT investment in terms of value for money and thus companies regard IT
as a cost. Therefore, it is particularly difficult to include ERP-related
phrases in their reports, because ERP requires huge investment ? and this
at a time of severe recession in Japan. Compared to ERP, companies regard
E-Commerce as a business opportunity and E-Business as a future opportunity.
Thus, it is particularly important for companies to appeal to shareholders
with their competence in the new economy.
7.2 Comparison between western and Japanese viewpoints
Findings from the two surveys identify
several differences between Western and Japanese viewpoints in the perception
of Japanese IT management. First, in terms of the new economy (E-Commerce
and E-Business), those companies that focus upon E-Business or E-Commerce
are still concerned with other issues. For instance, electrical machinery
companies, advanced in E-Business, include many phrases associated with
category one (system/technology) and two (competitive advantage). The Earl
model in Table 4-1 explains that the focus shifts to management concern
for a stronger linkage with business objectives. The Earl model also explains
that stage five is based on competitive advantage (category two in the
IT approach model) and stage six on collaboration (category three). However,
the findings from the two surveys suggests that the 'stage' model of IT
maturity in organisations seems to be unsuitable for IT management, because
the IT approach within organisations is not a single target and thus companies
may seek a further 'category' while tackling current issues. This difference
may be caused by the strategy-oriented perception of IT management in Western
companies. They develop IT strategy in correspondent with business strategy.
Therefore, Western companies tend to follow the trend of corporate strategy,
which we have seen in Figure 3-1, and thus the Earl model is likely to
be based on 'stages'.
Second, Bensaou and Earl (1998) explain that Japanese companies encourage integration by rotating managers through IT functions (see Table 3-3). Only 13% of the companies that responded answered that managers learn by job rotation (see Table 6-6). It is the electrical machinery and IT industries that regard IT as E-Business, as was the case with Bensaou and Earl's study whose conclusions were based upon analysis of Japanese electrical machinery companies. However, most companies answer that managers learn IT issues from IT departments. Japanese companies are also concerned about IT and business strategy alignment (60%) and IT knowledge sharing (53%). These responses cannot be ignored. The findings suggest that Japanese companies are suffering from IT issues similar to those experienced by American companies. In other words, the suggestions7 of Nikkei Business (1999) appear more pertinent to the issue of IT management in Japan than Bensaou and Earl's advice (1998).
Thirdly, our study contradicts Bensaou
and Earl's understanding of Japanese IT management in relation to IT investment.
Bensaou and Earl state that Western companies evaluate IT by value for
money, while Japanese companies judge investment based on operational performance
improvement. It is true that most companies (76%) answer that effectiveness
or improvement is an important factor, but 93% of companies evaluate IT
investment by ROI (return on investment). The findings suggest that Western
literature tends to assume that Japanese companies focus upon operational
effectiveness and performance improvement in reality they are more exercised
about the costs of IT.
7.3 Implementation for IT management in the new economy
Closed to open network
Japanese management style has emphasised
long-term close relations, known as keiretsu, among business partners.
Although the Japanese keiretsu has been criticised as a closed system that
excludes potential competitors, a vertical keiretsu is significantly different
from the traditional Japanese keiretsu and thus we regard it as a source
of 'strategic fit'.
However, Keiretsu and vertical keiretsu
seem incompatible with the open network proposition (Kokuryo 1997). Recognising
their flaws in the network era, Japanese firms should make serious efforts
to adapt the Japanese management system to the open network environment.
For example, the Big Bang in the financial industry means that Japan will
be open to the world for business based on global standards, but banks
might still prefer traditional Japanese management. Three of Japan's top
banks (Industrial Bank of Japan, Fuji Bank and Dai-Ichi Kangyo Bank) will
combine into a single holding company next autumn to create the world's
largest banking group by assets (ft.com August, 1999b). In addition, the
majority of Japanese companies (87%) are concerned about the security of
the Internet (see Table 6-6). The anxiety over security is likely to affect
the progress of Japanese companies in the new economy. For example, Japanese
companies prefer Extranet, which is a closed network of connected partners,
to the Intranet.
A New business model in the information age
A fundamental shift in the economics
of information is under way. "Over the past decade, managers have focused
on adapting their operating processes to new IT. Dramatic as those operating
changes have been, a more profound transformation of the business landscape
lies ahead". (Evans and Wurster 1997) More importantly, information is
the glue that holds together the structure of all businesses. New economy
opportunities are pressing traditional companies to build E-Business models.
Innovation of Information technology
is resulting in increasingly seamless markets and borderless economic activity.
Much of literature mentions the importance of 'virtualness'. "Every business
competes in two worlds: a physical world of resources that managers can
see and a virtual world made of information. To create and extract value
from information, managers must turn to the virtual world of the marketplace.
Each extract from the flow of information along the virtual value chain
could constitute a new product or service." (Rayport and Sviokla 1995)
Venkatraman and Henderson (1998) also explain virtual organisaiton and
view virtualness as a strategy that reflects three distinct interdependent
factors: customer interaction, asset configuration and knowledge leverage.
According to Kalakota and Robinson (1999)8, if managers seriously want to develop effective strategies for competing in the new economy, they must understand the fundamental structure of the next generation e-corporation built on an interconnected web of enterprise applications. Everyone communicates richly with everyone else on the basis of shared standards. Evans and Wurster (1997) call this structure hyperarchy after the hyperlinks of the World Wide Web. Hyperarchy seems to be based on virtualness through the Internet.
Finally, these discussions enable us
to develop a new model in the information age as shown in Figure 7-1. Companies
link with their business partners, competitors and customers by the virtual
hyperlinks and create an economic community like a Japanese keiretsu. However,
the difference from the keiretsu is that it must be an open and standard
network for all industries in the world. The community also links to other
business communities. The network can be called Lego-network.9 It is particularly
important for companies to build the new model that is a flexible, open
and fast moving, and restructure it whilst adapting to the rapid environmental
change. In other words, companies will create their networks and business
communities, in the manners that people make something out of Lego: that
is creativity.
Figure 7-1: LEGO-NETWORK:
New business structure in the new economy
There are three major contributions of this research. First, it provides a new look at IT and business strategy alignment by exploring the IT approach model developed from the literature review, including competitive advantage and E-Commerce. This research also applies the model to most Japanese companies by conducting two surveys. The findings identify that Japanese companies currently regard IT as an Enabler in order to transform their firms and businesses. Japanese companies are gradually shifting IT strategies into the new economy. Furthermore, although there are some significant differences across industry in the categories of IT approach, all companies appear to be tackling current issues while considering a further category at the same time. This means that the category model is appropriate for IT management analysis rather than the stage model.
Second, the two surveys identify several differences between Western and Japanese viewpoints of Japanese IT management. The findings suggest that Western researchers have a bias toward Japanese management and thus Western literature tends to consider that Japanese companies focus upon operational effectiveness and performance improvement, as Porter (1996) and Bensaou and Earl (1998) suppose. Moreover, comparison of the annual report survey and the questionnaire illuminates areas of difference between the two. The questionnaire identifies the differences in IT perceptions in Japanese companies from the annual report survey. This finding means that it is insufficient to analyse the relationship between IT and business strategy by the annual report survey alone, and so exposes the limitations of Jarvenpaa and Ives' (1990) study.
Third, we develop a new corporate model for the information age as a result of our research. The new model called Lego-Network is based on a flexible, open and fast moving structure in order to adapt to rapid environmental change. In particular, the traditional structure of Japanese companies, known as keiretsu, seems incompatible with the open network and thus Japanese companies must endeavour to understand and build a Lego-Network. A Lego-Network would enhance the current virtual models such as the virtual supply chain.
Finally, several guidelines have been
provided to help practitioners manage IT and business alignment:
Further improvements
We acknowledge that the evidence from
our surveys is limited, and our studies are lacking in depth. However,
we believe that the conclusion is sufficiently important to warrant wider
discussion, more in-depth research and refinement of the IT and business
strategy alignment concept. We will be conducting in-depth studies of several
industries through further interviews with Japanese companies, and will
conduct our two surveys on Western companies. We will continue to focus
on IT and business strategy alignment and enhance the two models (the IT
approach model and Lego-Network).
Research limitations
The first limitation relates to the
Western viewpoint in our research. The research has identified the Western
viewpoint from the literature reviews only, but it inevitably fails to
address the perception of Western companies to the understanding of Japanese
management. This seems to be a common problem, with arguing that only the
more recent articles have any worth in the rapidly changing environment.
The second major issue is the limitation of the two surveys. Although we supplemented the results of the annual report survey by conducting the questionnaire, the number of company was involved relatively small and the answers are based on the perception of respondents rather than formal letters from companies. In addition, the annual reports in this survey are not 1999 versions and thus the contents of letters to shareholders might have changed in the past year.
Further studies are needed to understand
IT and business strategy alignment by analysing other factors such as the
appraisal of IT investment and specific company cases, but the results
of this research go some way to helping us understand the IT and business
strategy alignment concept in the new information economy.
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