Deriving Business Value from IT Applications in Product Development: A Complementarities-Based Model - Information Technology and Product Development - page 33

Proposition 2b: The effects of IT investment on IT innovation deployment will be
reinforced by complementary business strategies.
While we do not require that the same business strategy be involved in both
Propositions 2a and 2b, it can indeed turn out this way. Cisco's primary strategy
was to become the dominant supplier of Internet infrastructure worldwide. Through
both internal development and an aggressive program of acquisitions, Cisco sought
to assemble a broad product line that would permit “one stop shopping” for busi-
ness network equipment. This Internet leadership strategy reinforces the effects of
deployment on business value (Proposition 2a), in that it leads to especially rapid
sales growth; this, in turn, allows the benefits of Cisco's web-enabled systems to
leverage across a larger scale of business activities. Further, as a more diverse set
of acquisitions are made, it also allows Cisco to more tightly integrate the busi-
ness processes by enforcing the same web-enabled systems throughout the extended
enterprise, thereby further enhancing the extent of business value derived from it.
The Internet leadership strategy also reinforces the effects of Cisco's web-
enablement investment (Proposition 2b), because the deep knowledge of the Internet
that Cisco gained in the execution of this strategy can be applied to the task
of designing and deploying internal systems based on the Internet. The reinforc-
ing relationships go the other way as well (i.e., the relationship is symmetrical).
Deployment of web-enablement facilitates the effects of Cisco's Internet leadership
strategy by providing a unique marketing asset: Cisco can demonstrate firsthand
the potential benefits of Internet use for business, and thereby encourage Internet
adoption and increase the demand for their routers. Because they are the domi-
nant Internet infrastructure provider, they capture most of the benefits of demand
increases.
In addition, through their own web-enablement deployment, Cisco engages in a
cumulative learning process that can be shared with their customers. Cisco's acqui-
sition of KPMG as a consulting arm can be seen as a means to capture and replicate
this learning for the benefit of customers. To the extent that customers are more will-
ing to follow Cisco's example and web-enable their own systems, this will increase
the demand for the infrastructure that Cisco sells and thereby enhance their business
performance.
2.6.3 IT Capabilities
Several authors have noted IT capabilities as a critical determinant of a firm's “con-
version effectiveness,” i.e., the ability to translate any given level of investment
into business value (Weill, 1992; Markus & Soh 1993; Soh & Markus 1995). In
empirical work, Bharadwaj (2000) found that firms with high capabilities performed
better than a set of matched firms on various firm-level profit and cost measures.
While they relied on a proxy for IT capabilities (i.e., ratings of the most innovative
users of IT by Information Week's editors), several typologies have been offered to