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Strategic Implications of the Information Age S A M U E L M. D E M A R I E

Iowa State University, Ames, IA 50011 M I C H A E L A. HITI?

Texas A&M University, College Station, TX 77843 I. Introduction Business organizations are in the midst of a fundamental restructuring. Old recipes for success are failing, and new ones often produce surprising results. The rules that determined value and performance in the past have changed, and leaders are struggling to guide their firms in this uncertain environment (Luftman, 1999; Shapiro and Varian, 1999). In order to provide a framework for better understanding where and how people will work in the future, we examine how the work organization changes in a technology-rich environment. Three main forces are driving how firms evolve: (1) the application and evolution of information and communication technologies, (2) the globalization of markets, and (3) the development and deployment of advanced manufacturing and logistical technologies, often supported by information technologies (Hitt et al., 1998). These interdependent forces pose formidable challenges and will radically alter the work organization in the coming decade. Herein we primarily examine the influence of information technology (IT) on the workplace of the future. II. Evolving Information Technologies Technologies, such as Internet-based desktop video conferencing, application sharing, collaborative communications software, and intranets/extranets collectively are changing the way that organization members work and interact. These and other advanced applications of information technologies are creating a rich infrastructure that is both empowering and at times overwhelming (Lucas, 1999). Consider that employees can communicate more efficiently, with more individuals, across larger distances, on more complex topics, share more information, manipulate more data, and use a wider variety of media choices than ever before. Moreover, this "brave new world" is continuing to evolve at a rapid pace (Townsend et al., 1998). The effects of this new infrastructure on the organization are not well understood. Managers are experimenting with new organizational structures and changing relationships in search of organizational and technological configurations that can thrive in this environment (Henderson et al., 1999). To this end, we examine some of the key ITJOURNAL OF LABOR RESEARCH Volume XXI, Number 3

Summer 2000

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related trends and organizational responses that are reshaping the business world and discuss the research opportunities that these changes present. III. Key Organizational Relationships Assessing the impact of information technologies on organizations can be difficult because these technologies affect almost all business operations. At its core, IT is concemed with creating meaningful connections among various stakeholder (intemal and external) groups. Thus, we focus our analysis by examining how information technologies empower changes in the relationships among important organizational stakeholders. Table 1 lists key organizational relationships and current trends influenced by recent applications of IT.

Employee-to-Employee Relationships. The primary way that IT has changed how employees collaborate is by facilitating richer and more complex computer-mediated interactions (Lucas, 1999). For example, desktop video conferencing (DVC) systems provide a broader range of communications media (voice, video, and text) than either e-mail or telephones. In addition, the use of a video interface allows nonverbal cues in these interactions. These systems also provide the infrastructure to allow real-time application sharing so that participants can collaboratively view, edit, and create information. When DVC is combined with intranets/extranets and collaborative software, such as Lotus Notes, employees are able to work, archive, and schedule future work sessions entirely online. The end result is the recreation of the dynamics of face-to-face communication and simultaneous participation in online collaboration, using sophisticated tools to achieve this collaboration. Thus, online interactions actually provide new ways for people to collaborate beyond traditional face-to-face business meetings, telephone conferencing, and e-mail (Townsend et al., 1998). This rich infrastructure allows people to collaborate effectively on complex projects even when they are not collocated. Connection to the electronic infrastructure allows meaningful interaction across geographic distances that would have once restricted a

Table 1

Organizational Trends of IT Empowered Relationships Relationship

Key Trend(s)

Employee to Employee

Virtual Teamwork

Organization to Employee

Telecommuters Contingency Workers

Organization to Supplier

Outsourcing

Organization to Customer

E-commerce

Organization to Outside Organization

Cooperative Strategies

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group's interaction, or even prohibited it altogether. As such, organizational leaders have been encouraged to experiment with new structures that require geographically dispersed members to work cooperatively on a regular basis. A major outcome of connecting employees in this manner is the increasing prevalence of virtual teams. Virtual teams (teams involving people who are not physically collocated) present many advantages to organizations primarily by increasing the potential talent pool for problem solving or to serve on projects, regardless of their location. At the same time, use of virtual teams eliminates the downtime and costs associated with travel to team meetings. Thus, advances in IT have changed virtual teams from a concept with limited real-world application, to a highly effective and increasingly common form of employee interaction. Finally, because virtual teamwork eliminates much of the downtime associated with travel and effectively increases employees' productive capacity, employees will be more likely to participate in multiple team assignments than before. Our analysis of this evolving group-work environment leads us to the following two propositions:

Proposition I: Virtual team membership will be positively related to organizational investment in advanced information technologies. Proposition 2: Per capita team membership will be positively related to organizational investment in advance information technologies. Organization-to-Employee Relationships. Relationships between the organization and the employee are also changing. Telecommuters represent one of the fastest growing segments of the work force; for telecommuters, the primary interface with their employer is through a combination of IT applications including computer modem, email, telephone, and DVC. Telework offers substantial benefits to both employees and organizations (Venkatraman et al., 1999). Telecommuters benefit from the elimination of daily trips to a central office, thereby allowing more scheduling flexibility in both their business and family relationships. Telecommuters have more choices regarding where they live in relation to a particular employer. Additionally, the number of potential employers for whom a telecommuter can work without relocating is expanded, which also expands opportunities for two-income households to have both partners employed to their maximum potential. From an organizational perspective, telework can reduce the size of office facilities, and their related costs, and can greatly expand the organization's potential labor pool by eliminating geographic barriers to recruitment. The organization may also benefit from increased employee satisfaction and commitment and decreased turnover because of the greater flexibility in the work schedules provided to employees. However, telework does present some challenges in management practice and work design. Most traditional jobs are structured so that employees accomplish them onsite, with relatively regular face-to-face interaction with supervisors. To effectively implement telework, organizations must redesign both jobs and managerial roles to take full advantage of the efficiencies afforded by IT infrastructures. Thus, managers in a telework sit-

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uation must find appropriate ways to supervise, direct, and motivate people with whom they infrequently have face-to-face interactions onsite (Maruca, 1998). The economy is becoming more service and information based, which also facilitates the growth of telework. Thus, a larger percentage of jobs can now be accomplished through telework channels because they primarily involve the creation, dissemination and management of knowledge and learning (Henderson et al., 1999). Based on this analysis, we offer the following proposition:

Proposition 3: The number of employees involved in telework will be positively related to organizational investment in advance information technologies. An unanticipated consequence of the restructuring of jobs and management practices in organizations to accommodate telework is the creation of positions that are more amenable to the use of contingency (or contract) workers. This occurs because telework requires standardization of procedures and job requirements, and this is usually accomplished by automating and embedding procedures within the IT infrastructure. Thus, employee training related to telework positions is often based on learning to use IT tools (e.g., following onscreen prompts and completing tutorials) rather than on learning specific organizational requirements or procedures. Many contingency workers receive up-to-date training on IT skills making them valuable to organizations that have reconfigured their job requirements to accommodate telework. In fact, a growing number of contingency workers are professionals who come to the organization with sophisticated IT skills. With a work force that is adept at the using information technologies, firms are better able to rapidly integrate contingency workers into telework positions. This then increases the likelihood that management might choose to replace regular telecommuters with contingency workers, who can be added and eliminated more quickly in response to changing market conditions. Because of this "as needed" staffing capability, the use of contingency employees increases a firm's flexibility to adapt more easily to changes in the marketplace. Thus, the use of contingency workers, which has been growing in popularity, is likely to continue to increase in the foreseeable future as work systems originally designed to accommodate telecommuters make contingency workers an attractive option (Hitt et al., 1998). This analysis yields the following proposition:

Proposition 4: Organizational use of contingency workers will be positively related to prior implementation of telework. While the use of contingency workers provides several benefits including the flexibility to respond to changes in the marketplace, it also has some disadvantages. Contingency workers should not be used in core areas of the business because of the importance of maintaining substantial knowledge and skills in these areas. Contingency workers may be less motivated and less committed to performing at the same level as regular, fulltime employees. It may also be difficult to integrate contingency employees into work groups with regular employees, even when telecommuting is employed. Therefore, while valuable, contingency employees should be used carefully and require effective mana-

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gerial oversight (Hitt et al., 1998). In effect, initial use of contingency workers may provide positive results, but the marginal value of adding more contingency workers will decrease, and at some point, become negative. This yields the following:

Proposition 5: Organizational use of contingency workers will not be linearly related to firm performance. Organization-to-Supplier Relationships. Relationships among organizations and external stakeholders are also changing. The number of stakeholders is growing along with the number of cooperative arrangements among firms, e.g., strategic alliances. As organizational leaders have recognized that their markets are becoming less predictable, they have worked to enhance their firms' abilities to react quickly to highly dynamic operating environments. Much of this change entails an evaluation of what is core to the central purpose of the organization and what is not; by outsourcing non-core organizational activities, the core firm disencumbers itself of noncritical structures and can concentrate on maintaining strategic advantage in what it does best (Business Week, 1999). Concurrently, as organizations become increasingly digitized, i.e., they build their capacity to interact with important stakeholders through electronic media, they also tend to explicitly codify the role, goals, and operating procedures of various functional areas. Once these functional areas become codified, it is much easier to migrate to a contractual outsourcing relationship that will perform these functions. Just as is the case with contingency workers, outsourced functions must be limited to non-core areas, such as payroll, human resources, and maintenance services. In theory, outsourcing increases the strategic flexibility of the firm by removing non-core functions and allowing managers to focus more attention and resources on core competencies. The reality of outsourcing in many firms, however, can be much different. Firms may find themselves in trouble if market conditions change to the point that a functional area that was viewed as non-core (and outsourced) becomes critical to survival. For example, many firms outsourced their IT departments over the past decade; IT was considered a staff function that simply supported other, more core areas. As the global economy evolved, and the Internet has become a central focus of current culture, many experts believe that IT expertise is central to the long-term viability of most, if not all, business organizations. Firms that previously outsourced their IT function may find that they have a considerable competitive disadvantage, as they no longer have IT capabilities in-house. Thus, outsourcing may lead to a loss in capabilities that are difficult and costly to rebuild. As such, firms must employ outsourcing only after careful planning, and the marginal value of adding additional outsourcing relationships will decrease and eventually become negative. This yields the following:

Proposition 6: Organizational implementation of outsourcing relationships will not be linearly related to firm performance. Organization-to-Customer Relationships. Perhaps the biggest changes that have occurred recently relate to how businesses interact with customers. In almost every segment of the economy, the number of internet-based e-businesses seems to be explod-

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ing. Some of these e-businesses are, in fact, new ventures, while others are simply extensions of traditional companies into the new medium. E-commerce (usually defined as business transactions across the Internet) is becoming a major force in the business world. Consider that a recent study estimated that in 1998 the Internet generated $301 billion in the U.S. economy, and was responsible for 1.2 million jobs. This same study also reported that the effect of the Internet on the U.S. economy has doubled in each of the past three years, with no slowdown in sight (Barua et al., 1999). At first glance, sales over the Internet do not seem much different from traditional mail order operations. There are, however, significant advantages both to businesses and to customers. Businesses benefit by having the customer input and verify all the information necessary to a sales transaction which can greatly reduce investments in sales and customer service personnel. Businesses also benefit because these transactions create valuable customer demographic and preference data in easily manipulated formats. These data are very important in planning future product/service ventures. Finally, businesses find the Internet attractive because they gain worldwide visibility for relatively minimal costs. Customer benefits from Internet-based transactions are equally powerful. Consumers can "travel" to a greater range of outlets and compare information from more sources prior to deciding to buy. They also have the convenience of shopping from home and having 24-hour access to their favorite companies. New start-ups designed as e-businesses seem to have an advantage over more traditional firms in the e-commerce environment, and investors and analysts often have found them to represent attractive investment opportunities. Consider that Amazon.corn's market capitalization is over 17 times larger than that of Barnes & Noble, its biggest competitor, despite the fact that Barnes & Noble has a formidable stable of large retail outlets in addition to a very good online sales site while Amazon.corn only sells online with no physical presence in retail markets (Brooker, 1999). Traditional firms that migrate onto the Internet frequently have difficulty in converting their procedures and mindsets to operate in a digital world. Toys-R-Us for example, had severe difficulties in managing its online venture, Toys-R-Us.com. The online company was supposed to be a stand-alone firm jointly owned by Toys-R-Us and a venture capital organization. Yet, when the CEO of the new online venture wanted to carry a broader line of toys than the physical stores, to place kiosks in stores so that customers could order out-of-stock items, to have the freedom to underprice the physical stores, and to have access to a majority of hot inventory items, the parent company balked. The partnership has since been disbanded (Useem, 1999). In a similar vein, many traditional firms primarily view the Internet as a threat to traditional market share. These firms, such as Proctor & Gamble, open new online ventures that carry only products not available through their primary retail outlets. They experience difficulties integrating use of the Internet into their overall strategy and try to minimize its threat to existing sales (often called e-cannibalism), instead of maximizing its potential for future sales. This is problematic because IT advances will make

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the lnternet even more accessible and convenient in the coming years. Our analysis of e-business and firm competitive structures yields the following propositions:

Proposition 7: Organizations that begin as e-businesses will outperform traditional firms that migrate into e-commerce. Proposition 8: Organizations that integrate e-commerce broadly across their operations will outperform firms that form separate e-business operations in areas that do not compete with current operations. Organization-to-Competitor Relationships. Other external relationships have also experienced much change recently. Organizations have been reaching out to their competitors to form joint ventures and other alliances in unprecedented numbers. A primary reason for these cooperative ventures is that market forces have become increasingly difficult to predict. Organizations, experiencing high levels of uncertainty, turn to other organizations in similar situations to share the risk and increase the longterm viability of both entities. Another reason why cooperative ventures have become so commonplace is the organizational mindset that is created from increasing numbers of outsourcing relationships. Organizational leaders who have outsourced many functions begin to develop an external focus in searching for solutions to problems. Just as outsourcing may provide relief from administrative problems, cooperative ventures with competitors can provide relief to market-based problems. This yields the following:

Proposition 9: Organizations that experience positive results from outsourcing relationships will be more likely to form strategic alliances. In particular, strategic alliances have become a highly popular strategy for entering international markets (Osborn and Hagedoorn, 1997). Such alliances not only reduce the risks of entering an international market for any single firm, they also reduce the resources required by a firm to enter that market as well. Furthermore, the alliance partners can share knowledge and may better gain access to a market by acting jointly. It should be noted, however, that many strategic alliances have not been successful (Park and Russo, 1998; Madhok and Tallman, 1998). The selection of a compatible partner with complementary resources may be one of the most critical elements of a successful strategic alliance (Hitt et al., 2000). Contributions from the resource endowments of both partners may be particularly important for the success of a new venture. Thus, alliance partners must be selected only after careful and deliberate evaluation of the alternatives. Strategic alliances may fail for a number of reasons, although most failures begin with incompatible strategic orientations and strategic intents (Hitt et al., 1997). In addition to compatible direction, strategic partners must develop trust and work together effectively; without trust, the alliance is likely to fail. Often, firms enter alliances to build their knowledge base and skills, and the alliance allows the firms to learn from

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each other. However, some partners may prefer not to share knowledge they consider proprietary, e.g., technology. Such alliances are also unlikely to succeed. Because quality of inter-finn relationships is more important than quantity, we arrive at the following:

Proposition 10: The number of a firm's strategic alliance relationships will not be positively related to firm performance. IV. Information Technology As a Fundamental Core Competence The cumulative effect of these changing organizational relationships has been to greatly increase the importance of IT to strategic decision making. From an organizational perspective, IT has moved from a relatively minor staff function that primarily supported the accounting area to an instrumental role in most major decisions, Given the current trends in the marketplace, the impact of IT on businesses is only likely to increase in the short and longer term. Thus, competence in IT use may be a necessary condition for development of competitive advantage in the future. Information technology is also critical to the development and maintenance of other core competencies. Recently, it has been argued that a firm's core competencies must be dynamic. That is, they must be continuously developed to remain on the forefront of knowledge (or changed) (Lei et al., 1996; Teece et al., 1997). Because IT is critical to the flow of information, advances in information technologies have helped firms to maintain their knowledge structures at the forefront in their respective areas. Employees' knowledge bases and skills can be updated using IT itself (software and electronic media). As such, IT will continue to play a critical role in the development and maintenance of organizational knowledge and employee skills.

V. Research Implications Each of the key trends we have discussed (and outlined in Table 1) offers potential for future research. Virtual teamwork, telecommuting, contingency workers, outsourcing, e-commerce, and cooperative ventures are all relatively new phenomena in terms of their popularity as strategic actions. None of these activities is well understood and each has the potential to significantly influence organizational performance. We have proposed relationships among some of the key phenomena, and each needs to be rigorously tested and investigated. Beyond the testing of individual relationships, it is critical that the interactions and combined effect of the various phenomena on organizations also be investigated. While these types of complex relationships are difficult to assess, all of the actions described above may be subsumed under the larger theoretical concept of strategic flexibility, that is, the capacity of a firm to quickly act during periods of changing competitive conditions and thereby develop or maintain competitive advantage (Sanchez, 1995; Hitt et al., 1998). Each of these actions can be accurately described as attempts to increase strategic flexibility. The degree to which they actually succeed in providing increased strategic flexibility may an important measuring stick to use in their assessment.

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VI. Conclusion The continued enhancements of information technologies facilitate and increase knowledge intensity in organizations. As such, knowledge and information technologies play critical roles in the development of competitive advantage by firms. For example, IT facilitates organizational learning and helps firms move into international markets by making it easier to coordinate geographically dispersed units and operations, Even entrepreneurial new venture firms are moving into international markets earlier in their life cycle (Oviatt and MacDougall, 1977; Zahra et al., 2000). IT has become especially important to smaller, entrepreneurial firms to facilitate their networking and cooperative ventures with other firms in order to compete more effectively with much larger firms for major projects. Furthermore, information technologies facilitate these firms' technological learning, a critical element to their survival and long-term success (Zahra et al., 2000). IT has also helped firms from emerging markets (e.g., Korea, Mexico) compete more effectively against firms from developed markets that have more resources. Thus, IT has helped facilitate the increasing globalization of businesses. As noted earlier, IT also plays an important role in helping to build and maintain critical employee skills. In fact, human capital is the most important asset of most firms. While many have argued the importance of human capital in the success of organizations (i.e., Pfeffer, 1994), recent evidence shows that human capital may be one of the most critical resources for firm performance (Hitt et al., 1999; Pennings et al., 1998). We suggest that there is a reciprocal interdependence between human capital and IT. While IT facilitates the continuing development of human capital, human capital is needed to continually update and effectively utilize IT in organizations. Both human capital and IT are involved in another important development likely to affect the business landscape in the future. Artificial intelligence remains in the embryonic stage of development, but breakthroughs are predicted. For example, it has been predicted that the raw computing power of the human brain will be available in computers by 2019 and by 2030 computer systems will have the power of 1,000 human brains. Such a development could have a profound effect on how businesses are operated and managed in the future. It will be a significant challenge to harness and use this artificial intellectual power (Hitt, 2000). In summary, IT is playing an increasingly important role in the development and management of organizations and is critical to multiple internal and external relationships and to a firm's competitive advantage. Information technologies, combined with human capital, represent a key component of organizational competitiveness in an increasingly dynamic, global business environment.

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