Deriving Business Value from IT Applications in Product Development: A Complementarities-Based Model - Information Technology and Product Development - page 22

process efficiency). Similarly, Mishra, Konana, and Barua (2007) found that the
extent of Internet use in procurement order initiation and completion had positive
impact on the organization's overall procurement performance.
Despite the just-mentioned empirical work, there is as yet no systematic theo-
retical model that joins IT innovation and IT business value. Nevertheless, a fair
question to ask at this point is why do we need a theory that spans these two
domains, and supposing one is needed, why should this integration be based on
complementarities? We suggest the following points in answer to these questions.
First, managers need to understand the whole chain of causation from investment
to IT deployment and to business value. The bulk of innovation research cannot dis-
tinguish instances of IT deployment that produce value from instances that do not.
The business value research stream, on the other hand, tends to treat the organization
as a black box: IT investment comes in, and business value comes out, but specific
causal mechanisms are usually left unspecified. By providing an integrated theory
based on complementarities, we not only identify or specify the IT and the organi-
zational design elements that fall inside such a “black box,” but also explain how
one element or factor “catalyzes” another factor and contributes to the generation of
business value. Further, while we do not develop a process perspective of how the IT
and the complementary organizational elements come into existence or co-evolve,
our specification of an integrated model is a first step in that direction.
An additional advantage of the complementarities approach is that it provides a
broad, but still, manageable theoretical scope and allows a clear specification of the
model's theoretical boundaries. More importantly, the complementarities approach
suggests that many of the same variables affect both IT innovation and IT business
value, thus resulting in a true theoretical integration, rather than a “bolting together”
of a model of innovation with a model of business value.
2.3 The Logic of Complementarities
Complementarities exist when doing more of one thing increases the returns to
doing more of another. Thus, complementarities refer to a synergy between two
variables as they impact a third variable. In a landmark paper that formalizes
some key mathematical foundations of complementarities, Milgrom and Roberts
(1990) provide an extended example of complementarities in action using a stylized
description of computer-aided design (CAD). They recount how CAD has automatic
links to programmable manufacturing equipment, and hence increases the returns
to use of such equipment. CAD also makes it easier to update products more fre-
quently and thereby encourages a broader product line. This, in turn, encourages
shorter production runs, lower inventories, and a switch to more flexible manu-
facturing equipment that is cheaper to change over. They sum up their argument
like so: “Thus CAD equipment, flexible manufacturing technologies, shorter pro-
duction runs, lower inventories, increased data communication, and more frequent
product redesigns are complementary” (1990). However, the complementarities are
not limited to manufacturing, but spill over into marketing (e.g., faster delivery