Professor T. Ravichandran: Large Enterprise Extension

By BTM Institute Staff Writer  |  Posted 2008-10-16 Print this article Print

T. Ravichandran, an associate professor at Rensselear Polytechnic Institute's Lally School of Management and Technology, has been studying what influences IT technology investment as a process in depth, along with teaching courses in IT value creation, IT strategy, and supply chain management. In fact, his latest paper, published by the Journal of Information Technology and Management, is called "A Comprehensive Investigation on the Relationship Between Information Technology Investments and Firm Diversification."

Q. Are you seeing large organizations making significant investments to extend their enterprise to all constituents?

Many large companies recognize that they can scale up whatever efficiencies they can gain from going to these extended platforms, either internally or with business partners. Companies are taking the initiative to create these platforms and then making them available for everybody else to subscribe or to be part of it.

For example, in the early 1990s, Procter & Gamble and IBM worked together to create this efficient consumer response system as a platform. P&G wanted to streamline its internal process and its interaction with dealers. Once it realized the efficiencies it could gain by doing it, P&G wanted to scale with every retailer it dealt with. P&G invested in this development and then make it available for us to adopt. It has become a standard type of platform in the retail industry.

Eastman Chemical also took the initiative to create a platform and make it available to its business partners in the chemical industry. These companies think that if they can get efficiencies by using these technologies with a small set of partners, they can gain more economies of scale with a standard platform everyone uses.

Q. What challenges do companies that create a standard extended platform face?

Who governs these platforms has become a big issue for these companies? Obviously, companies that initiate and create these platforms would want to govern them. However, companies might face the challenge of selling the idea to their business partners. Using the platform could cause partners to incur the cost of changing their internal processes to work with it. Business partners might not have the incentive to sign onto these platforms unless it is mandated. On the other hand, a major business partners might be pushing the platform for their own needs. Again, it goes back to the institutional pressures being a driver of what the organization needs to do, and how it wants to make IT investments decisions.

Q. Can you sum up what are the strategic implications of IT investments?

If companies today want to be successful, they need to do a good job of leveraging IT. To this end, successful companies have made a sustained effort to invest in IT, and have doubled up on the capabilities necessary to leverage IT effectively. These entire organizations have developed a mature attitude about IT, rather than just enhance the IT organization's capabilities.  They learned that to get more out of IT, they needed to change practices and routines, and even to change the organization's structure.

On the other hand, many companies go from one extreme to the other. When things are good, the CIO promotes the idea of IT begin a strategic enabler. When the business is in a downturn, the CIO is back to running IT as a cost center and trying to outsource as much as possible. Even in a down market, CIOs can still find ways to cut costs by improving processes. Two years down the road, these CIOs realize they've lost many capabilities and need to regroup. 

© 2008 BTM Institute. All rights reserved. The above material is copyrighted by the BTM Institute and may not be reproduced without written consent from the institute.

The BTM Institute (www.btminstitute.org) brings together the academic, corporate, government and thought-leadership communities as a multi-disciplinary research think tank to address the need to integrate business and technology.

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