The Development of IISI

CHATPER 5 THE FRAMEWORK OF CHALLENGES FOR IISI

In the literature, there are several studies addressing the issues of assessing IT values at different levels and of avoiding value discounting. These pioneering studies either propose a chain of three different process of IT value creation, or identify a series of specific barriers in a two-stage framework (Soh and Markus, 1995; Chircu and Kauffman, 2000). Nevertheless, in the context of web-based service, namely, a request-and-respond service pattern, the issues of identifying value and overcoming barriers are intricate because they span multiple level of analysis, including the use of IT and the impact of innovation on the marketplace, where it may alter the fundamental ways in which firms and individuals interact. At the latter level, the issues of interest are business process designs, technological standards, firm-to-firm competition, and alternative organizational strategies. A better understanding of these issues, along with the extent to which new innovations diffuse through the marketplace and are accepted by users, is required. Those studies described above do not seem to provide a comprehensive framework for exploring all the challenges involve in the IT-enable interactive service innovation. Next, we propose an analytic framework for delineating all the issues above.

The ultimate goal for IT-enabled interactive service innovation is to improve the organizational performance and gain competitive advantages. However, the most challengeable part for the executive management is to ensure this transformative potential will proliferate successfully and benefit the bottom-line.

5.1 The Development of IISI

The conversion from the initiation of an IT-enabled Interactive Service Innovation to its final outcome, the firm’s business performance, should be regarded

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as a process of transformation that comprises several intermediate states. Based upon the process-oriented approach of Soh and Markus (1995); Kohli and Sherer (2002), this research proposes the following three-phase development framework shown in Figure 5.1, which specifies how the tasks and underlying expenditures in each stage contribute to the outcome. Foremost, the IT acquisition phase, the development of enabling IT, specifies IT development, where the enabling IT assets of the service initiative are built up; then, the set-up phase, the set-up of IT-enabled interactive service innovation, focuses on the conversion of a firm’s IT assets to its competencies;

and the diffusion phase, the diffusion of IT-enabled interactive service innovation, specifies the diffusion through which the service initiative is commercialized through translating competencies into business performance. The outcome of each phase and its (customer) value may vary based on the level of expenditures and the quality of management. The details of this approach are described as follows.

Figure 5.1 The development framework of IT-enabled interactive service innovation

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The IT acquisition Phase:

Once the initiative to pursue an IT-enabled Interactive Service Innovation is approved by top management, the first major tasks are to form a business strategy that also specifies the business-IT integration and then, based upon the integration, to develop the IT assets that enable the IT-enabled Interactive Service Innovation. There are different types of IT assets, comprising a portfolio of tangible inputs, including hardware, software, infrastructure, communication technology, and other complimentary intangible elements, such as knowledge, enhanced technological and managerial skills in the use of IT, and so on.

During this phase, infusing “IT expense” is necessary for the acquisition of enabling IT, furthermore, the levels of IT expense may impact the breadth (number of IT assets) and the depth (levels of activities supported) of acquired IT assets.

Moreover, with the same level of IT expense, some organizations may be able to acquire more IT assets than others due to their ability to address technical challenges.

The set-up phase:

After acquiring IT assets, an organization should incorporate them into its IT-enabled Interactive Service Innovation projects by effectively integrating these assets into the competencies resulting from the synergy of the cross-functional capabilities of different functions. These competencies include the effective use of IT in service design and automated service processes and activities, a better understanding of service markets and of customers, and flexible and adaptive organizational structures in support of service development and delivery.

“Managerial expense” during this stage refers to exploiting the firm’s capabilities by leveraging all of its business resources, including tangible resources (such as manpower, management teams, and training) and intangible resources (such as culture

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and reputation). On the base of well utilizing all resources within business, the capabilities of different dimensions such as the R&D capabilities, production capabilities, and logistic capabilities etc. can be built on. Thereby, an effective co-ordination and integration of capabilities, the business competencies will evolve.

It is necessary to formulate a service strategy, select the right service projects, infuse business resources into the project, and manage the project effectively.

The diffusion phase:

As the competencies have been built up, this IT-enabled interactive service innovation will encounter the challenges whilst diffusing market wide, in particular, the competencies do not sufficiently result in a good organizational performance when a firm is in an unfavorable environment. The firm should develop a favorable environment through some deliberate activities that, for example, help diffuse the IT-enabled Interactive Service Innovation with either greater benefits (e.g., resulting from a larger customer base) or lower costs (e.g., resulting from a more efficient diffusion process) in comparison with its competitors.

In this phase, market expenses are required to handle (1) social issues, including gaining social acceptance and government support, (2) inter-organizational issues, entailing the strategies for satisfying the key stakeholders’ needs, seeking trustworthy partners, maintaining good governance, and understanding the competitors’ strategies, and (3) managerial issues, such as designing and maintaining an efficient process for diffusing the IT-enabled Interactive Service Innovation, building high market sensing capabilities, and responding the market proactively.

The forgoing discussion provide an exemplar of the transformation process of IT-enabled interactive service innovation, this three-phase framework can be further applied for investigating the retardants in the process of value generation.

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The value flow within the three-phase development framework of IISI is shown in Figure 5.2. Conceptually, the major challenge in Phase 1 is to acquire reliable IT assets through IT expenses. The major challenge faced in Phase 2 focuses on addressing managerial and organizational issues through managerial expenses, and Phase 3 calls for the use of market expenses to address social/environmental, managerial, and inter-organizational issues. The details are described as follows.

Instead of random trial and error, the company usually sets up several IISI proposals, each of which has a hypothesized value. The hypothesized value can be treated as a mix of performance measures for a particular service initiative, which determines the original decision for innovation. Later, the hypothesized value is tested through pilot studies to provide the firm with a better understanding of the potential value of associated IT assets. Here, the potential value of IT assets refers to that generated under optimal organizational and environmental conditions for IISI. Note that a high hypothesized value may not lead to a high potential value when the resulting IT assets do not provide the hypothesized functionality, the wrong IT is proposed, or suitable software/hardware is unavailable. That is, there are technical challenges related to the way in which the firm converts IT spending into IT assets.

Although technical challenges can be addressed by infusing more IT expenses, sometimes they cannot be effectively addressed with a limited budget; in this case, the decision to terminate or reshape these projects will be made. Thorough technical planning during this stage should be regarded as the foremost concern.

The set-up of IISI incorporates not only IT assets but also other essential business elements, such as people and the processes by which a service is created and delivered. When IT assets are infused into a firm’s business functions, the firm becomes more aware of what the consumer expects and is thus better able to deliver