Strategic IT Resources and Sourcing Strategy

Strategic IT Resources and Sourcing Strategy

Eng K. Chew (University of Technology, Australia) and Petter Gottschalk (Norwegian School of Management, Norway)
Copyright: © 2009 |Pages: 59
DOI: 10.4018/978-1-59904-802-4.ch008
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Abstract

As introduced in Chapter II and Chapter V, performance differences across firms can be attributed to the variance in firms’ resources and capabilities. The essence of the resourcebased theory of the firm lies in its emphasis on the internal resources available to the firm, rather than on the external opportunities and threats dictated by industry conditions. A firm’s resources are said to be a source of competitive advantage to the degree that they are scarce, specialized, appropriable, valuable, rare, and difficult to imitate or substitute. A fundamental idea in resource-based theory is that a firm must continually enhance its resources and capabilities to take advantage of changing conditions. Optimal growth involves a balance between the exploitation of existing resource positions and the development of new resource positions. Thus, a firm would be expected to develop new resources after its existing resource base has been fully utilized. Building new resource positions is important if the firm is to achieve sustained growth. When unused productive resources are coupled with changing managerial knowledge, unique opportunities for growth are created (Pettus, 2001). The term resource is derived from the Latin word resurgere, which means “to rise” and implies an aid or expedient for reaching an end. A resource implies a potential means to achieve an end, or as something that can be used to create value. The first strategy textbooks outlining a holistic perspective focused on how resources needed to be allocated or deployed to earn rents. The interest in the term was for a long time linked to the efficiency of resource allocation, but this focus has later been expanded to issues such as resource accumulation, resource stocks, and resource flows (Haanaes, 1997).
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Introduction

As introduced in Chapter II and Chapter V, performance differences across firms can be attributed to the variance in firms’ resources and capabilities. The essence of the resource-based theory of the firm lies in its emphasis on the internal resources available to the firm, rather than on the external opportunities and threats dictated by industry conditions. A firm’s resources are said to be a source of competitive advantage to the degree that they are scarce, specialized, appropriable, valuable, rare, and difficult to imitate or substitute.

A fundamental idea in resource-based theory is that a firm must continually enhance its resources and capabilities to take advantage of changing conditions. Optimal growth involves a balance between the exploitation of existing resource positions and the development of new resource positions. Thus, a firm would be expected to develop new resources after its existing resource base has been fully utilized. Building new resource positions is important if the firm is to achieve sustained growth. When unused productive resources are coupled with changing managerial knowledge, unique opportunities for growth are created (Pettus, 2001).

The term resource is derived from the Latin word resurgere, which means “to rise” and implies an aid or expedient for reaching an end. A resource implies a potential means to achieve an end, or as something that can be used to create value. The first strategy textbooks outlining a holistic perspective focused on how resources needed to be allocated or deployed to earn rents. The interest in the term was for a long time linked to the efficiency of resource allocation, but this focus has later been expanded to issues such as resource accumulation, resource stocks, and resource flows (Haanaes, 1997).

The resource-based theory prescribes that firm resources are the main driver of firm performance. The resources to conceive, choose, and implement strategies are likely to be heterogeneously distributed across firms, which in turn are posited to account for the differences in firm performance. This theory posits that firm resources are rent yielding, when they are valuable, rare, imperfectly imitable, and nonsubstitutable. Moreover, resources tend to survive competitive imitation because of isolating mechanisms such as causal ambiguity, time-compression diseconomies, embeddedness, and path dependencies (Ravichandran & Lertwongsatien, 2005).

Firms develop firm-specific resources and then renew these to respond to shifts in the business environment. Firms develop dynamic capabilities to adapt to changing environments. According to Pettus (2001), the term dynamic refers to the capacity to renew resource positions to achieve congruence with changing environmental conditions. A capability refers to the key role of strategic management in appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources, and functional capabilities to match the requirements of a changing environment.

If firms are to develop dynamic capabilities, learning is crucial. Change is costly; therefore, the ability of firms to make necessary adjustments depends upon their ability to scan the environment to evaluate markets and competitors and to quickly accomplish reconfiguration and transformation ahead of competition. However, history matters. Thus, opportunities for growth will involve dynamic capabilities closely related to existing capabilities. As such, opportunities will be most effective when they are close to previous resource use (Pettus, 2001).

According to Johnson and Scholes (2002), successful strategies are dependent on the organization having the strategic capability to perform at the level that is required for success. So the first reason an understanding of strategic capability is important is concerned with whether an organization’s strategies continue to fit the environment in which the organization is operating and the opportunities and threats that exist. Many of the issues of strategy development are concerned with changing a strategic capability better to fit a changing environment. Understanding strategic capability is also important from another perspective. The organization’s capability may be the leading edge of strategic developments, in the sense that new opportunities may be created by stretching and exploiting the organization’s capability either in ways which competitors find difficult to match or in genuinely new directions, or both. This requires organizations to be innovative in the way they develop and exploit their capability.

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Table of Contents
Foreword
Michael K. M. Leung
Acknowledgment
Eng K. Chew
Chapter 1
Eng K. Chew, Petter Gottschalk
A general understanding of business firms is required in order to be able to develop business and IT strategies. This chapter will present the... Sample PDF
Theories and Models of Business Firms
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Chapter 2
Eng K. Chew, Petter Gottschalk
Building on the understanding of the theories and models of firms, this chapter reviews the basic principles of strategic management of business... Sample PDF
Strategic Management Principles
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Chapter 3
Eng K. Chew, Petter Gottschalk
Over the last several decades, strategy researchers have devoted attention to the question of how corporate elites (i.e., corporate executives and... Sample PDF
Strategic Alignment, IT Value, and Organizational Analysis
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Chapter 4
Eng K. Chew, Petter Gottschalk
As discussed in Chapter III, a successful IT strategy must align with the business, fully at every stage of the end-to-end strategic management... Sample PDF
Critical Success Factors of IT Strategy
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Chapter 5
Eng K. Chew, Petter Gottschalk
Chapter IV defines the macromodel for achieving business/IT alignment. This chapter defines the detailed methodology for each step of the IT... Sample PDF
Strategic Alignment for Business Value Creation
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Chapter 6
Eng K. Chew, Petter Gottschalk
The role of integrated enterprise architecture in IT strategy and strategic alignment is explained in Chapter V. This chapter describes in detail... Sample PDF
Enterprise and Technology Architectures
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Chapter 7
Eng K. Chew, Petter Gottschalk
The previous chapters describe how IT strategy and enterprise architecture can be defined in line with business strategy. The success of business... Sample PDF
Strategic Programs: Planning and Execution
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Chapter 8
Eng K. Chew, Petter Gottschalk
As introduced in Chapter II and Chapter V, performance differences across firms can be attributed to the variance in firms’ resources and... Sample PDF
Strategic IT Resources and Sourcing Strategy
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Chapter 9
Eng K. Chew, Petter Gottschalk
In many organizations, information technology has become crucial in the support, sustainability, and growth of the business. This pervasive use of... Sample PDF
The CIO Enabling IT Governance
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Chapter 10
Eng K. Chew, Petter Gottschalk
The Global CEO Survey by IBM (2006) shows that two thirds of the CEOs anticipate significant change to their companies over the next two years. The... Sample PDF
Business Innovation and Information Management
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Chapter 11
Eng K. Chew, Petter Gottschalk
As described in Chapter X, fundamental to the company’s innovation capabilities is the level of collaboration and knowledge management capabilities... Sample PDF
Innovation and Driven Knowledge Management
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Chapter 12
Eng K. Chew, Petter Gottschalk
This chapter is about the “know-how” part of IT strategy and management best practices. This case example aims to illustrate a successful practical... Sample PDF
Business-Aligned IT Strategy Case Example: CLP Group, Hong Kong
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About the Authors