IT-enabled Collaboration

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CHAPTER 2: LITERATURE REVIEW

In this study, we used resource-based theory to explore how SMEs can enhance their performance through IT-enabled collaboration. Before we propose our own model, we will review related literature. In this chapter, we will first focus on studies regarding IT-enabled collaboration and then turn to research on the resource-based view.

2.1 IT-enabled Collaboration

A firm can collaborate with two distinctly separate groups: partners and customers.

We will illustrate the importance of IT-enabled collaboration in terms of an SME’s interactions with each of these groups.

2.1.1 Collaborating with partners

During the past few decades, alliances have become one of the most important organizational entities. Collaboration with partners, also known as an “alliance,” is defined as any independently initiated inter-firm link that involves exchange, sharing or co-development (Gulati, 1995a; Kale et al., 2002).

The motivations for a firm to form an alliance include, for example, being able to solve market failure problems caused by resource specificity, strengthening the firm’s competitive position, and absorbing extra knowledge from partners (Williamson, 1985;

Porter and Fuller, 1986; Kogut, 1988). By forming a strategic alliance, a firm can increase its product complexity and variety and supplement its core competencies by allying with other providers of complementary competencies to satisfy customers (McIvor et al., 2003). An alliance could influence not only a firm’s capabilities, but also others’ perceptions of its capabilities (Baum et al., 2000). Deciding on a partner is complicated and depends on the size of each SME, resource constraints, strategic position, social structure, level of trust, and prior experiences with alliances (Powell et al., 1996; Eisenhardt and Schoonhoven, 1996; Gulati, 1995a; Gulati, 1995b).

Because SMEs have limited resources, they are in particular jeopardy in environments that are becoming increasingly complex and turbulent. Collaborating with partners in their sector is especially important to SMEs overcoming their resource shortages and increasing their viability in difficult economic times (Hoffmann and Schlosser, 2001). Fernández and Nieto (2005) also indicated that SMEs can make alliances to obtain necessary resources from other firms through the

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development of stable relationships. In addition, through collaborations, SMEs are able to build innovative capability and technological competence (Jarratt, 1998;

Forrest, 1990) and overcome weaknesses such as a poor financial budget or a lower level of expertise in production, marketing and management. By pooling partners’

resources and acquiring knowledge from others (Davenport, 2005; Dollinger and Golden, 1992), SMEs can enhance their performance.

As new technology continues to emerge, IT is the primary tool with which to facilitate communication and collaboration (Olesen and Myers, 1999). IT-enabled collaboration is a technology-based, collaborative system that provides opportunities for both local and geographically dispersed groups to communicate (Hossain and Wigand, 2006). IT is widely used to enable collaboration with partners, especially in supply chain management (Chae et al., 2005; Subramani, 2004; Li, 2006; Paulraj and Chen, 2007). Bakos and Brynjolfsson (1993) noted that search and coordination costs decline due to the use of IT. Bensaou (1997) identified IT as a mechanism that reduces uncertainty because IT can be used to increase inter-organizational information processing capabilities and thereby enhance cooperation with product suppliers with higher technological unpredictability. IT also enables and mediates the sharing of knowledge, the transcending of legal enterprise boundaries, and the providing of information in real time (Paulraj and Chen, 2007; Sexton et al., 2003).

Therefore, it helps partners to develop trust (Scott, 2000; Hossain and Wigand, 2006) and establish inter-firm communications (Stump and Sriram, 1997), and it reinforces and stabilizes existing inter-organizational structures and arrangements (Chae et al., 2005).

In summary, SMEs benefit from forming alliances with partners to conquer disadvantages, and IT enables this cooperation and makes it more effective and efficient. Therefore, IT plays an important role in the collaboration among partners in SME sectors.

2.1.2 Collaborating with customers

According to service-dominant logic, the customer is a co-producer of service who must interact with either a service or tangible goods over some time period that extends beyond the transaction (Vargo and Lusch, 2004a). Thus, collaboration with customers - or, in other words, value co-creation cannot be ignored in the context of a firm’s strategy. Value co-creation refers to innovations jointly undertaken by a company and its current and potential consumers (West, 2010). In contrast with traditional marketing approaches, in which value is created for average consumers, the primary purpose of value co-creation is to create unique and specific value for

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individual consumers (Bhalla, 2010).

An enhanced value offering only works when the customer appreciates it and value can be gained. SMEs are not typically the central players in an industry, so it might be difficult for them to offer integrated solutions. However, co-evolving with customers and emphasizing fitness-for-use could help (Matthyssens et al., 2009).

Philipsen et al. (2007) examined the relationships of small- and medium-sized suppliers with customers. They identified one group of suppliers as

“partnership-suppliers,” or suppliers who cooperate closely with customers through regular meetings and co-working to deliver customer-adapted products and services.

Consider InercityCom, for example; its relationships with customers have positively contributed to its development of technological capabilities and both the broadening of the scope and strengthening of the focus of its product portfolio. Although coordinating with customers is highly resource demanding and time consuming,the benefits are highly valued.

According to Prahalad and Ramaswamy (2004), the power of co-valuation lies in connected, informed, and active customers who have a global view and participate in information access, networking and experimentation with products. These activities are somewhat associated with IT; for instance, customers can use the Internet to experiment with and co-develop products.

IT enables new forms of producer-consumer collaboration in new product development processes (Füller et al., 2009). For example, a platform for collaborative design allows customers to effectively share their knowledge with producers, making them feel that they are autonomously contributing and that their input will be seriously considered. IT can integrate physical and virtual channels to co-create value for customers. Oh and Teo (2010) stated that the service-delivery system in retail can be adapted for use in IT to improve information access, order fulfillment and customer service, which will generate high customer value. The incorporation of technologies can greatly customize service offerings through the development of new types of services and new ways to provide services (Sheehan, 2006; Froehle et al., 2000).

Due to the limited size of SMEs, it is difficult for them to compete against large firms that have large-scale economies and can reduce prices. An alternative method for SMEs to establish advantages is to provide an excellent experience for customers (OECD, 2008). Although it requires time and resources to connect with customers, IT can help make communication faster and accurate. As it provides a channel for information sharing with customers, IT-enabled collaboration is becoming

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increasingly important to SMEs.

Although IT-enabled collaboration is important to all SMEs, the execution gaps in SMEs that conduct IT-enabled collaboration vary. How does one SME cooperate more effectively than another? The emphasis of the resource-based view on a firm’s resources and capabilities may provide an explanation.