IT INNOVATION PERSISTENCE

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IT INNOVATION PERSISTENCE

• Theophanis C. Stratopoulos
• Jee-Hae Lim
• And
• Tony Wirjanto
• University of Waterloo

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Motivation IT Innovation

• IT investments are the largest capital spending
  item
• Average IT spending among large US firms 300-500
  million/year
• Average IT Innovation (Investments in new IT
  products and services) is 50-90 million/year

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MotivationThe IT Confidence Index (ITCI)

• Wall Street Journal (9/16/85) large retail
  chains make strategic use of computers in their
  drive for competitive advantage

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MotivationThe IT Confidence Index (ITCI)

• - Washington Post (2/1/1987), corporate
  America is in the throes of self-doubt and angst
  about the economic value of investments in new IT

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MotivationThe IT Confidence Index (ITCI)

• - Financial Times (11/27/1990) opinion surveys
  among top executives made the IT investment
  paradox painfully clear

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MotivationThe IT Confidence Index (ITCI)

• Minneapolis Star Tribune (12/5/1994)
  computers and high tech satellite location
  systems helped truckers save time, fuel and money

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MotivationThe IT Confidence Index (ITCI)

• Financial Times (1/8/1997) Internet has
  become the number one key for gaining competitive
  advantage

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MotivationThe IT Confidence Index (ITCI)

• - Financial Times (3/31/2000) IT investment are
  causing discontent in corporate boardrooms

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MotivationThe IT Confidence Index (ITCI)

• - Harvard Business Review (3/2003) IT Doesnt
  Matter

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MotivationThe IT Confidence Index (ITCI)

• Economist (4/7/2005) 90 of managers from
  around the world think that IT could still create
  a competitive advantage for their firm

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MotivationThe IT Confidence Index (ITCI)

• periods of optimism, in which IT innovation is
  celebrated as a panacea for all business ills,
  followed by periods of pessimism, in which doubt
  prevails about the value of investing in new IT,
  with persisting arguments regarding the ease with
  which IT can be replicated

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Motivation IT Innovation Persistence

• Wal-Mart was the first to computerize, the
  first to use wireless, the first to really deploy
  RFID, on which Wal-Mart is really pioneering from
  the retail end.
• they adopted and adapted faster to new
  technology than any other retailer in the world.
  And you've got to give them credit for that.
  You've got to worry about and be troubled by some
  of the brutal side of their business practices.
  But at the end of the day they
  out-innovated all their competitors.
• Chanda, N. (2005) 'Wake Up and Face the Flat
  Earth' Thomas L. Friedman. In an interview,
  columnist and author Thomas L. Friedman says
  globalization has outpaced its critics,
  YaleGlobal, 18 April 2005, http//yaleglobal.yale.
  edu/display.article?id5581 Accessed on March 29,
  2007.

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Research Questions

• How likely is it that a firm that has
  out-innovated its competitors this year will be
  able to repeat this performance in the following
  year?
• How do fluctuations in industry-wide managerial
  attitudes towards IT affect the persistence of IT
  innovation?
• In other words, how long does it take for a firm
  to acquire and develop the ability to
  out-innovate its competitors?

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Method - Data Set

• Information Week 500 (IW500) 1997-2004
• companies are evaluated in terms of their
  business-technology strategies and deployment of
  investments in IT architecture, infrastructure,
  business, and e-business application.
  Incidentally, IT budgets are not a deciding
  factor in the rankings. The end result is an
  annual list of 500 firms that are classified as
  IT innovators because they have demonstrated a
  consistent pattern of technological, procedural,
  and organizational innovation.

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Method - Data Set

• A sample from the list of innovators

Non-Innovative firms are not represented in IW500.
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Method - Data Set

• Criticism IT Innovation does not lead to
  sustainable competitive advantage because it is
  easily replicated by competitors
• Using Hoovers Handbook, we identified up to
  three top competitors of comparable size for each
  one of the IT innovative firms in our first
  dataset.
• Limiting our selection to direct competitors, we
  were able to control for size (revenue) and
  industry structure (SIC classification).

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Method - Data Set
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Method - Descriptive Analysis

• Transition Probability Matrix (TPM) approach
  leverages the cross-sectional and time series
  information by describing the evolution of a
  cross section distribution over time.
• Ft1PFt
• Ft1 maps the distribution of IT innovativeness
  across firms in period t1
• Ft maps the distribution of IT innovativeness
  across firms in period t, and
• P maps one distribution into another and tracks
  where points in Ft end up in Ft1.
• The TPM (P) captures information regarding the
  mobility of firms and the persistence of the IT
  innovation process. The elements of the TPM are
  the probabilities (pij) that a firm will move
  from, lets say, the status of non-IT innovator
  (i) in period t to the status of IT innovator (j)
  in time t1. The typical TPM will look as

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Results
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Results
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Results
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Method Dynamic Panel-Data Random Effects Probit
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Results
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Results
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Limitations

• Analysis based on the premise that a companys
  listing in InformationWeek is a true measure of
  IT innovation. While InformationWeek is a
  well-respected and widely used source of
  secondary information on IT, we cannot confirm
  that the companies ranked in the list of IT
  innovators are independently evaluated each year
• Since empirical results are consistent with the
  anecdotal evidence offered by numerous firms in
  our dataset, we feel that it does not compromise
  the overall message and implications for managers

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Implications for Research

• IT Innovation (Investments in new IT products and
  services) has been justified as a source of
  superior financial performance
• Hypercompetition no one-time resource-related
  investment that can lead to sustainable
  competitive advantage
• If we want to analyze the sustainability of
  payoffs from IT innovation, we will have to start
  with the sustainability of the capability to
  innovate with IT
• Future Research Antecedents of and Payoffs from
  the IT innovation capability

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Implications for Managers

• Avoid investing in new IT due to pressure from
  peers, vendors or other external source
• If you decide that it makes sense to compete with
  new IT, consider this as a long-term rather than
  a short-term strategy
• While competing firms may be able to acquire and
  replicate individual IT innovations, it will take
  them longer to understand and copy the ability to
  innovate with IT over time

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Implications for Managers

• If you can keep your head when all about you
• Are losing theirs -Rudyard Kipling
• http//www.swarthmore.edu/apreset1/docs/if.html