Deriving Business Value from IT Applications in Product Development: A Complementarities-Based Model - Information Technology and Product Development - page 19

resource planning (ERP) and customer relationship management (CRM) (Grieves,
2006; Saaksvuori, 2008).
The promise and the potential of PLM applications to reduce product devel-
opment cost and time and enhance product quality have led companies to invest
heavily in PLM applications. Indeed, the PLM market was approximately $25 bil-
lion in 2007 and is expected to grow up to $40 billion by 2012 (CIM, 2008).
Despite these large investments in PLM applications, however, few companies have
realized the set of benefits that have been predicted. To certain extent, the failure
to realize value from PLM applications could be traced to the lack of maturity
or quality of the PLM solutions themselves. However, it also points to a larger
issue that is plaguing investments in other enterprise IT applications too - the
lack of “fit” between the elements of IT and other organizational resources and
the resulting disconnect between IT investments and the business value from such
investments.
In this chapter, we formalize one important kind of “fit” between IT and organi-
zation and inform on the linkages between IT innovation investments and business
value by drawing on the logic of complementarities (Milgrom & Roberts, 1990,
1995). Specifically, we develop a multi-level, complementarities-based model of IT
innovation investments and business value. Our model posits that firms will obtain
more value from innovative IT investment initiatives when the resulting IT appli-
cations are fitted into a system of initiative specific - here, product development
context specific - complementary organizational elements (strategies, structures,
processes, etc.). In addition, we argue that firms will get more value from IT invest-
ment initiatives when they are combined with certain firm-level elements that are
not specific to any particular initiative, but rather, complement IT investments more
generally construed. These firm-level complements include a business strategy that
is especially amenable to IT support, strong IT capabilities, and a modern organiza-
tional architecture that incorporates a cluster of practices associated with “digital”
organizations (Brynjolfsson, 2003).
The integrated theoretical model of IT innovation investments and business value
makes several important and timely contributions. First and foremost, it helps to
enhance our understanding of the complementary organizational strategies and prac-
tices that would need to accompany the implementation of IT applications (such
as PLM) to support product development. Recognition of the broader product
development context in which these IT applications are situated also raises several
interesting issues for future research in both IT and product development areas.
Second, we use the logic of complementarities to join two important streams
of IT research that have proceeded largely in parallel: An innovation stream that
has examined the determinants of innovative initiatives to adopt and deploy new IT
(Fichman, 2000) and a business value stream that has examined the contribution
of IT investments to organizational performance (Melville, Kraemer, & Gurbaxani
2004). In doing so, we contribute to a better understanding of both firm-level
pre-conditions and initiative-level complementary investments that are required to
generate business value from IT investments in general.