MANAGING IN THE INFORMATION ECONOMY. Current Research Issues

Transcription

1 MANAGING IN THE INFORMATION ECONOMY Current Research Issues

2 MANAGING IN THE INFORMATION ECONOMY Current Research Issues Edited by Uday Apte And Uday Karmarkar

3 Uday Apte Naval Postgraduate School Monterey, CA, USA Uday Karmarkar University of California Los Angeles, CA, USA Library of Congress Control Number: ISBN-10: (HB) ISBN-10: (e-book) ISBN-13: (HB) ISBN-13: (e-book) Printed on acid-free paper by Springer Science+Business Media, LLC All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now know or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks and similar terms, even if the are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed in the United States of America springer.com

4 TABLE OF CONTENTS Introductory Note Current Research on Managing in the Information Economy Uday S. Karmarkar and Uday M. Apte vii The Information Economy Chapter 1 Size, Structure and Growth of the U.S. Information Economy Uday M. Apte and Hiranya K. Nath 1 Chapter 2 Information Technology and the G7 Economies Dale W. Jorgenson 29 Structure and the Organization of the Information Economy Chapter 3 Business Process Outsourcing and Off-Shoring : The Globalization of Information-Intensive Services Uday M. Apte and Uday S. Karmarkar 59 Chapter 4 Information Systems Outsourcing Contracts: Theory and Evidence Vijay Gurbaxani 83 Chapter 5 Managing Network Organizations in the Knowledge Economy: Learning from Success and Failure Hamid R. Ekbia 117 Chapter 6 Understanding Sourcing as a Strategic Business: The Risks and Rewards of Strategic Sourcing and Inter-Firm Alliances in India Eric K. Clemons, Sashi Reddi, and Saleha Asif 149 Marketing and Ecommerce Chapter 7 Personalization and Technology-Enabled Marketing Lee G. Cooper 165 Chapter 8 The Real Value of B2B: From Commerce Towards Interaction and Knowledge Sharing Mohanbir Sawhney and Eleonora Di Maria 185 Chapter 9 Business-to-Business Electronic Markets: Does Trading on New Information Create Value, and For Whom? Haim Mendelson and Tunay I. Tunca 209

5 vi Table of Contents Emerging Issues in the Information Economy Chapter 10 Chapter 11 Chapter 12 Inter-Organizational Knowledge Transfer as a Source of Innovation: The Role of Absorptive Capacity and Information Management Systems Stephen S. Cohen and Cinzia Dal Zotto 231 Research Issues Concerning Ethics and the Internet: How Can We Live Well in Cyberspace? Richard O. Mason 259 Status Seeking and the Design of Online Entertainment Communities De Liu, Xianjun Geng and Andrew B. Whinston 281 Information and Transaction Based Services Chapter 13 Service Design, Competition and Market Segmentation in Business Information Services with Data Updates Bashyam Anant and Uday S. Karmarkar 305 Chapter 14 Channel Strategy Evolution in Retail Banking Reynold E. Byers and Phillip J. Lederer 335 Chapter 15 A Proactive Demand Management Model for Controlling e-retailer Inventory Uday M. Apte and S. Viswanathan 355 Empirical Studies of Business Practices Chapter 16 Information Technology Impact on Business Practices: The UCLA BIT Project Uday S. Karmarkar and Vandana Mangal 385 Chapter 17 Information and Communication Technology in India and its Impact on Business Sectors: A Pilot Study Atanu Ghosh and T. N. Seshadri 413 Chapter 18 Firms and the Digital Technology in Italy: The Network Moves Forward C. Demattè, A. Biffi, A. Mandelli and C. Parolini 429

6 CURRENT RESEARCH ON MANAGING IN THE INFORMATION ECONOMY Introductory Note Uday S. Karmarkar a and Uday M. Apte b a UCLA Anderson Graduate School of Management, 110 Westwood Plaza, PO Box , Los Angeles, CA ; b Graduate School of Business and Public Policy, Naval Postgraduate School, 555 Dyer Road, Monterey, CA There are two major trends visible in economies all over the world. The first trend, far along in developed countries, is the shift to a service economy. The second, also quite advanced in some countries, but barely visible in others, is the shift to an information economy. By the information economy we mean those sectors in the economy that are concerned with the production of information goods and services, including the creation of assets and technologies for processing and distributing information. Several researchers have followed the progress of this trend in the US economy over some decades. One of the most recent of such studies is the paper by Apte and Nath in this volume that uses data from 1997 for the US economy. They show that the information economy now comprises over 60% of private industry in the US in terms of GNP value added. What is also apparent is that information services make up the major part of the information economy. While Apte and Nath give us a broad and comprehensive look at changes in the economy over three decades, these economic changes have come about due to many underlying changes at the operation, task, process, firm and sector levels. As these changes have occurred in firms, managers have had to adapt to the need to manage the changes and to learn to manage in the changed environment. This is an ongoing process that we expect to take perhaps a couple of decades. Some of the changes underway have been compared to the industrial revolution, and the process of adaptation will not occur overnight. This volume presents a collection of recent research directions that address the issue of management in this economy. The contributors include leading researchers with interests in a diverse set of topics. Indeed the subject is so vast, that this collection cannot pretend to do more than provide a sample of the research that is being conducted. So the purpose of the volume cannot be to give a complete and comprehensive picture, but rather to provide introductions to important areas, and a few pointers to some important topics for future research. So the book begins with perspectives at the level of the economy as a

7 viii Introductory Note whole and then progressively addresses industrial structure, sectors, functions (ecommerce) and business practice. We provide brief introductions to the main sections and the papers in each section The Information Economy The paper by Uday Apte and Hiranya Nath, establishes that the US economy is indeed in the middle of a shift to an information economy. Using the Benchmark Input Output (I-O) tables for 1992 and 1997 as compiled by the Bureau of Economic Analysis (BEA) of the US Department of Commerce (the latest Benchmark data available as of 2006), they show that the US private sector is already dominated by information intensive firms and processes. The accompanying paper in the first section by Dale Jorgenson, entitled Information Technology and the G7 Economies, presents comparison of economic growth among the G7 nations. These comparisons focus on the impact of investment in information technology (IT) equipment and software over the period The paper concludes that surge in investment in IT equipment and software contributed substantially to economic growth in all G7 countries including the United States Structure and Organization of the Information Economy The economics of information intensive industries are of course far different from those of physical products. In addition market structures and mechanisms can also be very different. Uday Apte and Uday Karmarkar analyze the role that information technology plays in globalizing information-intensive services to discuss a theoretical framework that identifies the criteria and guidelines for successfully selecting service activities that can be globally outsourced. Applying this theoretical framework to year 2000 data for the US economy they estimate that about 10.5 million service jobs hold the potential for global outsourcing. The paper also analyzes the geographic distribution of language clusters and presents a conjecture concerning the emerging pattern of global trade in information-intensive services. The paper by Vijay Gurbaxani develops a model for the structure of contracts for outsourced information services and tests it against ten examples. Hamid Ekbia s paper looks at the mechanisms and driving forces behind network organizations. Finally Eric Clemons argues that new technologies are creating a much higher level of product and service differentiation in the economy. This notion is complementary to the idea that technologies are permitting higher levels of de-integration and vertical specialization in information chains. In other words, there is in a sense both a horizontal and vertical fragmentation visible in information intensive businesses.

8 Introductory Note ix 1.3. Marketing and Ecommerce Ecommerce was one of the earliest visible effects of the Internet and web on industry structure. Lee Cooper describes the application of advanced technologies in marketing and sales over the Internet. Mohanbir Sawhney and Eleonora Di Maria, turn their attention to B2B transactions, and posit that the real value of new technologies for B2B markets lies in the interaction and knowledge sharing that is enabled, and not just in efficiency in the sales transaction. Haim Mendelson and Tunay Tunca turn their attention to the specific case of B2B exchanges, and ask for whom they create value Emerging Issues in the Information Economy There are a number of major areas in which information technology has impacted market structure, company conduct and the nature of competition. Apart from some of these major issues dealing with operational costs, transactions, and structure, there are a number of other management issues that arise. Stephen Cohen and Cinzia Dal Zotto address the concept of organizational absorptive capacity in a world in which there is much more to absorb. Richard Mason introduces the complex issues surrounding ethics in the new world of the Internet. De Liu, Xianjun Geng, and Andrew Whinston discuss the emerging phenomenon of on-line communities, and the role of status seeking in these new social structures Information and Transaction Based Services This section presents analytical studies of three industry sectors that have been hugely affected by technological change. Bashyam Anant and Uday Karmarkar analyze business data services, keying on Aspect Development as an example. They use this sector to illustrate several basic ideas, including the effect of technologies on access and hence on market segmentation, and the connection between technology, process economics, and competition. Reynolds Byers and Phillip Lederer study consumer (retail) banking and analyze how different banking channels compete for market share. Both of these papers also illustrate the fragmentation of markets that occurs with the appearance of a new technology that competes with existing processes. Finally, Uday Apte and S. Viswanathan study the emerging opportunities available to e-commerce retailers in proactively managing inventory. The web-based buying process allows the e-retailer to adjust the display prominence of a product and thereby exercise better influence over the demand level for its products. This makes it possible for the e-retailer to link its inventory policy decisions to the display prominence actions and lower its overall inventory related costs. Apte and Viswanathan develop optimization models to investigate these issues and

9 x Introductory Note derive closed form equations for the optimal parameter values for implementing proactive demand management for controlling e-retailer inventory Empirical Studies of Business Practice In the final section we present three papers based on surveys of business practice in three countries at different levels of technology penetration and adoption and with different patterns of technology use. These surveys were all pilot studies for the Business and Information Technologies (BIT) project centered at the UCLA Anderson School. The paper by Uday Karmarkar and Vandana Mangal presents an overview of the BIT project and documents the information technology driven changes occurring in a wide range of industry sectors in the United States and Canada. Atanu Ghosh and T. N. Seshadri present a pilot study of information and communication technology in India and its impact on business sectors. Finally, the paper by Demattè, Biffi, Mandelli and Parolini present a study of digital technologies and e-business in Italy. The BIT project is now in its third year and includes studies of industry sectors and economies, in addition to the practice survey. More information about the project can be found at In the second year of the project, five countries conducted the survey, and the project has since expanded to over ten research teams. On the one hand, these surveys show that the actual pace of adoption of new technologies is not quite as rapid as the popular press might lead one to believe. However, the surveys also show some significant trends and evolutionary changes. For example, the US survey shows a marked degree of real shifts in organizational structure, including flattening of structures, increase in the average span of control, and a higher level of geographical distribution and cross firm interaction. On the other hand, the Italian survey suggests that in Italy technology adoption has primarily been a matter of using the technologies to strengthen existing networks and interrelationships, rather than changing internal organizational structure.