V V E C D B S: Isions and Oices On Merging Hallenges in Igital Usiness TRATEGY (14-001)

VISIONS AND VOICES ON EMERGING CHALLENGES IN
DIGITAL BUSINESS STRATEGY (14-001)

MIS Quarterly Vol. 37 No. 2, pp. 1-XX/June 2013
http://ssrn.com/abstract=2379579
Anandhi Bharadwaj
Goizueta Business School, Emory University,
Atlanta, GA 30332 U.S.A. (Anandhi_Bharadwaj@bus.emory.edu)
Omar A. El Sawy
Marshall School of Business, University of Southern California
Los Angeles, CA 90089-1421 U.S.A. (elsawy@marshall.usc.edu)
Paul A. Pavlou
Fox School of Business, Temple University,
Philadelphia, PA 19122-6083 U.S.A. (pavlou@temple.edu)
N. Venkatraman
School of Management, Boston University
Boston, MA 02215 U.S.A. (venkat@bu.edu)
Electronic copy available at: http://ssrn.com/abstract=2379579

1 SPECIAL ISSUE: DIGITAL BUSINESS STRATEGY
2
3
4
5 VISIONS AND VOICES ON EMERGING CHALLENGES IN

6 DIGITAL BUSINESS STRATEGY
7 Anandhi Bharadwaj
8 Goizueta Business School, Emory University,
9 Atlanta, GA 30332 U.S.A. {Anandhi_Bharadwaj@bus.emory.edu)
10 Omar A. El Sawy
11 Marshall School of Business, University of Southern California
12 Los Angeles, CA 90089-1421 U.S.A. {elsawy@marshall.usc.edu}
13 Paul A. Pavlou
14 Fox School of Business, Temple University,
15 Philadelphia, PA 19122-6083 U.S.A. {pavlou@temple.edu}
16 N. Venkatraman
17 School of Management, Boston University
18 Boston, MA 02215 U.S.A. {venkat@bu.edu}
19
20 Introduction information-driven transparency will forever change the way

21 that power is derived by top leaders, and that leaders need to
22 This section is a collection of shorter Issue and Opinions embrace this new transparency. They must also be able to
23 pieces that address some of the critical challenges around the understand how to use the new management instrumentation
24 evolution of digital business strategy. These voices and the digital world brings, similar to how physicians take advan-
25 visions are from thought leaders who, in addition to their tage of the power of new medical instruments, such as
26 scholarship, have a keen sense of practice. They outline functional MRIs. Bennis also accentuates the criticality of
27 through their opinion pieces a series of issues that will need adaptive capacity as a leadership quality in the digital world,
28 attention from both research and practice. These issues have coupled with resilience and openness to the new. He argues
29 been identified through their observation of practice with the that such qualities are neither nature nor nurture but an
30 eye of a scholar. They provide fertile opportunities for interaction of the two, suggesting that effective leadership in
31 scholars in information systems, strategic management, and a digital world needs to be learned through embracing
32 organizational theory. transparency and adaptive capacity.
33
34 The first piece is titled Leadership in a Digital World: The second piece by Nelson Granados and Alok Gupta, titled
35 Embracing Transparency and Adaptive Capacity by Warren Transparency Strategy: Competing with Information in a
36 Bennis, University of Southern California. Bennis has been Digital World, addresses a different aspect of transparency:
37 a distinguished scholar of leadership for over 50 years, and market transparency related to the disclosure of information
38 has also engaged with hundreds of senior executives. Bennis outside the boundaries of the enterprise. Granados and Gupta
39 points out why and how digital business strategy is an impor- contend that there is a greater need for a transparency strategy
40 tant transformational issue for leadership. He argues that in a digital environment. They articulate the informational
MIS Quarterly Vol. 37 No. 2, pp. 1-XX/June 2013 1

Bharadwaj et al./Visions and Voices on Emerging Challenges in Digital Business Strategy
1 elements of an effective transparency strategy and some of the The fifth piece by Varun Grover and Rajiv Kohli is titled
2 strategic options around it (disclosing, distorting, biasing, and Revealing Your Hand: Caveats in Implementing Digital
3 concealing), and some of the dangers of ignoring it. Business Strategy. Grover and Kohli argue that indis-
4 criminate short-term digital initiatives can reveal an enter-
5 The third piece by Peter Keen and Ronald Williams is titled prises intentions to competitors and erode competitiveness in
6 Value Architectures for Digital Business: Beyond the Busi- this age of what they call micro-applications (what are
7 ness Model and argues that digital business strategy will be casually termed as apps). They propose a visibilityvalue
8 driven by value architectures rather than business models. framework that examines the trade-off between system
9 Drawing on many case examples from practice, they advocate visibility with the ability to appropriate value from such
10 taking a fresh look at the concept and tenets of value in the systems, and suggests how firms might make such choices.
11 context of digital business strategy. Keen and Williams argue
12 through illustration that in digital business, value is a function In the introductory article to this special issue, we identified
13 of the choice space rather than the product or serviceand, four key themes that could guide our future thinking on digital
14 most importantly, that value is always shifting and a moving business strategy: (1) the scope of digital business strategy,
15 target. Thus, digital business is driven by opportunities to (2) the scale of digital business strategy, (3) the speed of
16 expand the choice space by exploiting the forces of distur- digital business strategy, and (4) the sources of business value
17 bance. The critical task for effective digital strategy requires creation and capture in digital business strategy. These four
18 building value architectures that accommodate ever- themes are reflected within these five very thoughtful pieces,
19 continuing shifts in value, and Keen and Williams provide but are sliced differently.
20 new frameworks for understanding how to think that through.
21 They also provide implications for what that focus on value In combination, these five pieces indicate to us that the
22 architecture means for the IT organization. emerging challenges in digital business strategy are occurring
23 at several levels. There is a leadership challenge that will
24 The fourth piece by Lynne Markus and Claudia Loebbecke is require new capabilities of senior executives and CEOs, and
25 titled Commoditized Digital Processes and Business Com- embracing new values such as information transparency,
26 munity Platforms: New Opportunities and Challenges for adaptiveness, and resilience. There is a market challenge that
27 Digital Business Strategy. Markus and Loebbecke develop will require a deeper understanding of the strategic implica-
28 the notion of the larger unit of analysis as a business commu- tions of market disclosure and inadvertently revealing stra-
29 nity to accommodate the possibility of overlapping eco- tegic direction through digital moves. There is a broader
30 systems with multiple orchestrators. This brings into play the ecosystem challenge which requires new forms of digital
31 notion of a community platform that is tailored for use by all collaboration, processes, and infrastructures. There is a value
32 members of a community. They also contrast commoditized architecture challenge wherein value is a different animal, and
33 business processes (that are performed the same way through- is shifting and a moving target in the context of digital
34 out a business community) with standardized business pro- business strategy. These challenges are food for thought, and
35 cesses (that are tailored to an orchestrators preferences). provide wonderful opportunities for both research and
36 They then argue why and how these distinctions are critical leading-edge practice. We hope they will provoke others to
37 for digital business strategy, and what the consequences of further advance what we need to know about digital business
38 process commoditization and business community platform strategy. We need to address these exciting challenges while
39 adoption are for the strategic advantage of ecosystem also understanding that going forward we will have to con-
40 orchestrators. tinuously have new ways of re-imagining the future.
41
2 MIS Quarterly Vol. 37 No. 2/June 2013

1

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6 LEADERSHIP IN A DIGITAL WORLD: EMBRACING

7 TRANSPARENCY AND ADAPTIVE CAPACITY1
8 Warren Bennis
9 Marshall School of Business, University of Southern California,
10 Los Angeles, CA 90071 U.S.A. {warren.bennis@gmail.com}
11
12 Digital business strategy is a very important issue for leader- Middle East where revolutions often started with a few
13 ship because it is going to fundamentally change every protests and suddenly they became hundreds and then thou-
14 leaders lifewhatever type of institution they are leading. sands. Could this have happened that quickly without
15 The ubiquity of information and the bandwidth of access that digitization? Furthermore, the former dictators of those
16 leaders have and are exposed to will continue to grow in countries such as Egypt where the Arab Spring occurred were
17 amazing ways, and this will make transparency inevitable. clearly not in step with social networks and those technolo-
18 This means that leaders at every level of the organization will gies became a powerful weapon that accelerated their demise.
19 know what is going on every minute of the 24-hour day, and
20 no fact will be left behind. I am not talking about a totali- What I am getting at is that if a leader at any level does not
21 tarian surveillance state, although it can be used in such a understand how to use the digital world and its accompanying
22 way, but rather the beauty of it is the speed with which you instrumentation, and if they do not understand the power that
23 can get feedback on your products in the marketplace, and it has on their relationships with their stakeholdersbe it
24 how your customers are being dealt with, etc. their customers, employees, partners, or the whole supply
1
25 chainthen they will be seriously left behind. It is a blessing
26 This information-driven transparency will change the way that of the digital age to know the bad news quickly, so something
27 power is derived. Power in our society is mainly derived can be done about it as soon as possible. In a world of
28 from the absorption of uncertainty with multiple stakeholder increased transparency through digitization, leaders need to
29 groups. Information ubiquity in a digital world helps every understand the power of instrumentation and what it enables.
30 leader at every level to a better understanding of the various Like physicians understand the power of functional MRIs in
31 stakeholder groups that they have to take into account really understanding what is going on in the brain, so must
32 provided they take advantage of it. And when we think about leaders understand the power of digitization in really under-
33 the complex constituency of stakeholders today, they are more standing what is going on in their environment. Every
34 complicated, more eloquent, and more noisyand more development you get in the digital world that we are living in
35 important to consider. It would be very hard for leaders in can be our enemy or can be our best friend, and leaders have
36 this digital age to ignore or not be aware of social networks got to understand that it has got to be their best friend. And
37 and what is being discussed in them related to their organi- they need to understand the power of the instrumentation that
38 zation. They are also publicly exposed through all of the comes with it.
39 information available about them on the Internet, people
40 having a camera in their mobile phones, and the rapid viral Why are some leaders able to figure out the relationship
41 effect of social networks. Think of all those places in the between the instrumentation and what they are trying to do
and some are not? Is that a personal characteristic or is it a
1 function of the context and the environment? I believe it is
Anandhi Bharadwaj, Omar A. El Sawy, Paul A. Pavlou, and N.
Venkatraman served as the senior editors for this special issue and were
the interaction between the two. One of the things that is
responsible for accepting this paper. most important in effective leaders is their adaptive
MIS Quarterly Vol. 37 No. 2/June 2013 3

Bennis/Leadership in a Digital World
1 capacityand the digital environment can enhance adaptive part of openness is being able to learn what you dont know
2 capacity. When I use the term adaptive capacity, I typically from your failures and mistakes. I am 87 years old, for Gods
3 think of a number of important items. One of these is sake, and right now, I feel very fortunate because I do thinkI
4 resiliencethat is, coming back effectively, and rebounding am open to innovation and the qualities of leadership in the
5 from difficulty or adversity. Howard Schultz, the CEO of digital world. In addition to resilience and openness, the
6 Starbucks, recently wrote a book titled Onward: How quality of adaptive capacity is an optimistic sense of can do
7 Starbucks Fought for its Life Without Losing its Soul in which and can try. It does not mean that you have to crazily adopt
8 he talks about rebounding. I think a lot of it had to do with every innovation, but you have to believe in the power of
9 getting information from those 17,000 coffee shops. He says, digital technologies in changing the ways we lead and
10 I smelled something was wrong, and when he said I manage. Anyone who doesnt see the possibilitieswell
11 smelled, he was not just talking about his nostrils and then, if you want to be blind, be blind. Transparency is
12 smelling coffee. He was getting an idea of what was going on inevitable at every stage of our existence. Yes, it will be
13 through his various Internet connections with the stores in misused, but we had better learn about it and embrace it if we
14 New Orleans, the stores in Seattle, the stores in Paris, Hong are going to be effective leaders in the digital world. And we
15 Kong, China, all over the world. It wasnt just I smell that had better learn how to enhance our adaptive capacity in the
16 we are losing our way. What he smelled was more digital world. Unless we want to be seriously left behind.
17 importanthe smelled that the environment, the culture, was
18 different than what he had in mind. He said, Its not the
19 company I thought I founded. He got it from listening to About the Author
20 people through digital channels. How else would he know
21 what was going on in 17,000 coffee shops around the world? Warren Bennis, born in 1925, is a scholar, organizational con-
sultant, and author who is widely regarded as the pioneer of the
22 What an advantage that is, to get feedback so quickly if you
contemporary field of leadership. Bennis is University Professor at
23 want it, and you better well want it if you want to be an
the University of Southern California, and is Distinguished Professor
24 effective leader in a digital world.
of Business Administration at the USC Marshall School of Business.
25 He is also the Founding Chairman of The Leadership Institute at
26 Regarding this nature versus nurture issue with effective USC. In 2007, BusinessWeek called him one of ten business school
27 leaders in the digital world, it has to do with openness to the professors who have had the greatest influence on business thinking.
28 new. This is based on a lot of factors: sometimes it is Bennis has authored numerous books and articles on leadership for
29 persons personality: they have a hard time trying a new more than half a century. The Financial Times recently named his
30 food; they have a hard time finding a new hair dresser; they classic book Leaders (with Burt Nanus) one of the top 50 books of
31 have a hard time finding a new store in which to buy their ties all time. With Robert Thomas, he is the author of the 2002 book
32 or their clothes; they do not want to see that movie because Geeks and Geezers: How Era, Values, and Defining Moments
33 they dont see movies like thatthat is just part of their Shape Leaders. His most recent 2010 book is Surprised: A Memoir
34 temperament , which is more closed than open. The second of a Life in Leadership.
35

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3
4
5 TRANSPARENCY STRATEGY: COMPETING WITH

6 INFORMATION IN A DIGITAL WORLD1
7 Nelson Granados
8 Graziadio School of Business and Management, Pepperdine University, 6000 Center Drive,
9 Los Angeles, CA 90045 U.S.A. {nelson.granados@pepperdine.edu}
10 Alok Gupta
11 Information and Decision Sciences Department, Carlson School of Management, University of Minnesota,
12 321 19th Avenue South, Minneapolis, MN 55455 U.S.A. {alok@umn.edu}
13 We contend that in order to compete effectively in a digital business environment, firms should develop a
14 transparency strategy by selectively disclosing information outside the boundaries of the firm. We make the
15 case for transparency strategy by showing why it is relevant in the digital business world, and the consequences
16 of not having such a strategy. We then provide some foundations to develop the strategy and make a call for
17 research.
18
19 Keywords: Digital business strategy, electronic markets, transparency strategy
20
21 Background1 End consumers increasingly expect to be very well informed,

22 spoiled, and empowered by the Internet and by mobile
23 The Internet and mobile technologies have brought markets devices that provide instant access to information. This
24 closer to the utopian state of perfect information by reducing creates pressure for all players upstream in a supply chain to
25 the information asymmetries between sellers and buyers. For be more transparent, not just about the features, price, and
26 buyers to make a purchase decision, it is a lot easier to search quality of a product, but also about its provenance (New
27 online for product alternatives, prices, product performance 2010). How should firms strategize in this environment?
28 (e.g., reviews), and vendors. Some argue that the best approach is to satisfy this demand
29 for information by becoming more transparent (Tapscott and
30 In turn, firms have unprecedented flexibility to conceal or Ticoll 2003). In this article, we contend that the answer is not
31 disclose information to competitors, customers, and suppliers. so straightforward. Instead, we argue that firms should
32 That is, they are increasingly able to implement transparency strategically and selectively disclose information, and we
33 strategies. In fact, by pushing a mobile application to poten- make the case for the need to develop research and best
34 tial customers or with simple changes in a websites design, practices on transparency strategy.
35 a seller can reveal more or less information about its product
36 offerings. Also, information is increasingly consumed via
37 online news, blogs, and social networks, where viral effects
38 can significantly increase speed to market and communication Why Does Transparency
39 effectiveness. Strategy Matter?
1
In the past, legacy systems, industry norms, or firms with
market power dictated the level of transparency that was
responsible for accepting this paper. present in a market, leading to the existence of stable trans-

Granados & Gupta/Competing with Information in a Digital World
1 parency regimes (Granados et al. 2010). In the last few develop innovative business models and establish long-term
2 decades, the Internet and mobile technologies have disrupted competitive positions. For example, Blue Nile, an online
3 these regimes, making some players better off and others jewelry store, was launched by an entrepreneur to educate
4 worse off. For example, online travel agencies brought higher consumers on how to discern quality and features of jewels,
5 transparency of product offerings to travelers, which led to the and today it is still one of the leading online jewelry stores.
6 disintermediation of traditional travel agencies. In financial Not all winners are start-ups. In the 1990s, Microsoft
7 markets, the transition from floor trading to electronic trading launched Expedia, an online travel agency with a web-based,
8 made stock trade history more transparent, which benefitted transparent interface to display to consumers the travel
9 individual investors but threatened the viability of inter- offerings from traditional reservation systems. To date,
10 mediaries (Clemons et al. 2002). Expedia is the leader in online travel distribution. Progres-
11 sive, an insurance company, has been successful with a
12 In such turbulent environments, the effective use of IT transparency strategy to attract customers, by showing a
13 becomes a strategic imperative for firms (El Sawy et al. 2010) comprehensive matrix of all competitive product offerings.
14 as they develop dynamic capabilities to be alert, predict the Not all successful strategies are about higher transparency.
15 future, and effectively compete (Sambamurthy et al. 2003). Hotwire and Priceline.com emerged early on to become
16 We argue that one set of capabilities that a firm must develop leaders in the market niche of opaque travel offers, which
17 is to design policies for selective information disclosure and conceal travel itineraries and supplier identities prior to
18 to deploy technologies that enable them. But competitors are purchase.
19 bound to respond with their own innovations. This dynamic
20 process will lead to new transparency regimes that differ The interplay between strategy, IT, and the environment is
21 across industries, depending on the nature of the product sold complex, messy, and chaotic (El Sawy et al. 2010), which
22 and on the industrys competitive and regulatory forces may derail business executives from developing a vision to
23 (Granados et al. 2006). strategize with information. But this is no excuse for compla-
24 cency. Firms should be proactive and deliberate in under-
25 In the end, those who are able to foresee and adapt to the standing how IT impacts transparency in their respective
26 effects of technological breakthroughs on transparency will be industries, in order to develop sound transparency strategies.
27 better able to compete. However, the uncertainty associated We next provide some preliminary foundations and guide-
28 with technological progress can blur the vision on how to lines.
29 develop these capabilities. We have observed two common
30 myopic reactions (Granados 2008):
31
32 Defensive denial. In increasingly transparent markets, Foundations for Transparency
33 some firms retrench to protect their turf, fighting against Strategy
34 an inevitable trend. This reaction is partially motivated
35 by the fear of losing information advantages. For The traditional definition of information strategy is a firms
36 example, widespread availability of information about strategy to produce and manage information. It has long been
37 prices in electronic markets can lead to more competition a topic of research and practice in the IS field. We contend
38 and lower market prices. So in the 1990s, faced with this that in this digital world, firms need to move beyond this
39 threat, established firms across industries (e.g., music, scope to also develop a strategy to disclose information.
40 travel, financial services) initially avoided Internet-based Firms have to make decisions about information disclosure
41 distribution. both inside and outside the firm, but it is the latter one which
42 The passive reaction. Perhaps a betteryet not good we contend needs increasing attention from researchers and
43 enoughapproach is when firms acknowledge the trans- practitioners. Therefore, for the purpose of this article, we
44 formation, but they assume that there is not much that define transparency strategy as the strategy to selectively
45 can be done to manage and control information. For disclose information outside the boundaries of the firm, to
46 example, with the proliferation of customer reviews and buyers, suppliers, competitors, and other third parties like
47 other third-party information in social networks, firms governments and local communities.
48 often fall short in developing effective social media
49 strategies to protect and improve their reputation. There are four possible strategic options (Granados et al.
50 2010): To disclose, distort, bias, or conceal information (see
51 The consequence of these reactive approaches has been that descriptions and example in Table 1). Any of these may be
52 existing competitors and new entrants find fertile ground to valid depending on a firms business strategy, its competitive

1 Table 1. Example of a Firms Transparency Strategy

2 Strategic Disclose Distort Bias Conceal
3 Option Full revelation, Information is outdated, Preferential display of Full opacity,
4 Informational information is available incomplete, inaccurate, information to the information is
5 Element and easy to interpret or obfuscated detriment of competitors not available
6 Product features X
7 Product quality X
8 Price X
9 Cost X
10 Inventory X
11 Processes X
12 position, and other industry factors. In addition, a strategic only disclose whether the item is in stock or not. Another ap-
13 option can be selected for different informational elements, proach would be to show stock levels only when they are low,
14 such as product characteristics, price, costs, inventory, and which can induce sales by creating a sense of urgency in the
15 processes. mind of the buyer. But even then competitors may infer a
16 supply shortage and increase prices to improve their margins.
17 The firm in this example (henceforth the Firm) provides
18 biased information about product features and prices. Current Third, disclosure of an informational element can have unin-
19 practices include displaying only the Firms products and tended impact on other informational elements. For example,
20 prices in its web portal or social media page, applying search the Firm follows the common practice of being opaque about
21 engine optimization techniques to get preferential display in its costs. However, if the Firm sells its products in electronic
22 search engine results, and using price recommender systems markets, buyers will have increased access to price infor-
23 to rank high in search results sorted by price. mation and over time they may be able to infer the Firms cost
24 structure (Zhu 2004).
25 There are several factors that make transparency strategy non-
26 trivial. First, some managerial decisions not directly related In summary, the science and practice of transparency strategy
27 to information disclosure can nevertheless impact trans- is about selecting a strategic option (e.g., disclose, distort,
28 parency. For example, to increase its reach, the Firm may be bias, or conceal) for each informational element, and for dif-
29 inclined to offer its products in an electronic market (e.g., ferent parties outside the firm (e.g., buyers, suppliers, com-
30 Google store), but there are potential impacts on transparency petitors). But there are complex dependencies, trade-offs, and
31 that must be considered. One advantage of participating in indirect effects that must be considered. Next, we present
32 electronic markets is that the Firm will appeal to buyers who some managerial guidelines based on our observations of
33 demand unbiased information about offerings from all ven- practices in firms that have done it successfully.
34 dors. Also, by having high visibility of competitive prices,
35 sellers can tacitly collude in order to sustain higher prices.
36 However, electronic markets also make prices transparent to Guidelines to Develop a
37 buyers, which can lead to more intense competition and lower Transparency Strategy
38 market prices (Soh et al. 2006).
39 Four guidelines to develop a sound transparency strategy have
40 Second, information disclosure via the Internet cannot be emerged from our research. They stem from the fact that in
41 easily restricted to its intended audience (e.g., consumers), most organizations there is no single owner of the problem.
42 because other parties (e.g., competitors) also have access to When it comes to product and price information, marketing
43 the information. In our example, the Firm has chosen to managers take ownership. Cost transparency may fall in the
44 present inventory information in a distorted manner, because hands of the finance department. Lawyers and public rela-
45 while transparency of stock levels may add value to buyers, tions departments also play a role. Therefore, several func-
46 competitors can also see the information and use it to their tions should coordinate to develop a comprehensive and
47 advantage (Dewan et al. 2007). One common approach is to sound strategy.

1
2
3 Figure 1. Transparency Strategy Framework
4 Have a Strategy key component of its business strategy, was backed by an

5 innovative ranking algorithm and technology infrastructure to
6 We argue that it is imperative in todays digital world to have crawl the World Wide Web. Priceline.com has a patented
7 an explicit transparency strategy. When it is absent, related name-your-own-price mechanism that enables the bid process
8 managerial decisions are often made haphazardly or inadver- for its opaque travel offerings.
9 tently, leading to myopic reactions (see the earlier section,
10 Why Does Transparency Strategy Matter?). The strategy
11 should be deliberate both in development and execution, led Monitor Competitive Moves and
12 by C-level executives, and aligned with the business and IT Technological Advances
13 strategies (see Figure 1).
Today, with simple changes in lines of code or by innovating
with new technologies, a competitor can make strategic
14 Lead the Strategy moves to disclose, bias, distort, or conceal information in the
15 market. The CIO and her staff can play a key role in moni-
16 The CEO must lead to ensure that there is a transparency toring these innovations, designing a competitive response,
17 strategy and thatas a core component of an information and assessing whether the firm should revise its transparency
18 strategyit is well aligned to the business strategy (see strategy (see Figure 1, arrow D).
19 Figure 1, arrow B). C-level executives must jointly develop
20 it. Because there are so many interdependencies across infor-
21 mational elements and therefore across business functions, Future Research
22 close interdepartmental coordination is necessary to make
23 sure the strategy is comprehensive and coherent. Also, the Much remains to be learned to develop a core set of theory
24 CIO will play an important role to ensure that the firms IT and principles that guide the practice of transparency strategy.
25 infrastructure supports the transparency strategy. For decades, the IS field has focused on the supply side of
information, that is, how to produce and manage information,
primarily for a firms internal consumption. The agenda is
26 Enable the Strategy with wide open for research on the demand for information outside
27 Information Technology the firm, and on the strategic and technological implications.
28 What information is demanded by third parties? How do
29 A firms IT strategy and infrastructure can constrain or enable disclosure, distortion, bias, and opacity of specific informa-
30 its transparency strategy. If the current IT platform limits the tion elements affect buyers and other third parties? How do
31 ability to implement a strategy, it should be modified or different information elements affect each other? How can
32 enhanced accordingly (see Figure 1, arrow C). technology support a firms transparency strategy? In this
33 article we present some theoretical and practical guidelines,
34 The CIO can also lead IT innovations to create and enable but we have just touched the surface.
35 novel transparency strategies. For example, Orbitz developed
36 an advanced IT platform to become the most transparent More case studies about successful transparency strategies
37 online travel agency, effectively disrupting the industrys will help develop our understanding of emerging best prac-
38 transparency regime. Googles unbiased organic search, a tices. For example, it will be interesting to examine how

1 social media and other emerging technologies enable firms to Soh, C., Markus, M. L., and Goh, K. H. 2006. Electronic
2 implement strategies through a more interactive approach Marketplaces and Market Transparency: Strategy, Information
3 with customers and other third parties. Traditional methods Technology, and Success, MIS Quarterly (30:3), pp. 705-723.
4 like modeling and experiments can be used to examine the Tapscott, D., and Ticoll, D. 2003. The Naked Corporation: How
5 impact of disclosing, distorting, biasing, and concealing the Age of Transparency will Revolutionize Business, New York:
6 specific informational elements. We also foresee new theo- Free Press.
Zhu, K. 2004. Information Transparency of Business-to-Business
7 retical approaches being used to examine how technology
Electronic Markets: A Game-Theoretic Analysis, Management
8 impacts transparency regimes over time, such as novel
Science (50:5), pp. 670-685.
9 systems thinking methods and the use of combination theories
10 (El Sawy et al. 2010) to identify sustainable strategies.
About the Authors
11 Acknowledgments
12 Nelson F. Granados is an associate professor of Information
13 We thank Rob Kauffman for his valuable contribution to this Systems at the Graziadio School of Business and Management,
14 research. We also thank John Mooney, Hila Etzion, and the senior Pepperdine University. He holds a Ph.D. in Information and
15 editors of the MIS Quarterly Special Issue on Digital Business Decision Sciences, and a Ph.D. minor and M.S. in Applied
16 Strategy for their constructive comments. Economics from the University of Minnesota. His research interests
are related to the strategic and economic consequences of IT. His
current research focuses on the impact of IT-enabled transparency
17 References on consumer demand, market prices, and market structure. His
18 research has received multiple awards, including the Best Paper of
19 Clemons, E. K., Hitt, L., Gu, B., Thatcher, M. E., and Weber, B. the Year by senior scholars in the IS field, best paper by the Journal
20 2002. Impacts of e-Commerce and Enhanced Information of the Association for Information Systems, and best eBusiness paper
21 Endowments on Financial Services: A Quantitative Analysis of at the INFORMS Annual Conference. His published articles have
22 Transparency, Differential Pricing, and Disintermediation, appeared in Information Systems Research, Journal of Management
23 Journal of Financial Services Research (22:1/2), pp. 73-90. Information Systems, Journal of the Association for Information
24 Dewan, R., Freimer, M., and Jiang, Y. 2007. A Temporary Systems, Decision Support Systems, and elsewhere. He serves on the
25 Monopolist: Taking Advantage of Information Transparency on editorial boards of Journal of the Association for Information
26 the Web, Journal of Management Information Systems (24:2), Systems and E-Commerce Research and Applications, and on the
27 pp. 167-194. advisory board of several tech start-ups. Prior to joining academia,
28 El Sawy, O. A., Malhotra, A., Park, Y., and Pavlou, P. A. 2010. Nelson managed airline pricing and revenue management in Asia,
29 Seeking the Configurations of Digital Ecodynamics: It Takes North America, and Europe, and he was an enterprise systems
30 Three to Tango, Information Systems Research (21:4), pp. product manager for IBM in South America.
31 835-848.
32 Granados, N. F. 2008. IT-Enabled Information Transparency: A Alok Gupta is the Curtis L. Carlson Schoolwide Chair in Informa-
33 Strategic Approach, Graziadio Business Review (11:3) (avail- tion Management and the department chair of Information and
34 able at http://gbr.pepperdine.edu/2010/08/it-enabled-information- Decision Sciences at the University of Minnesota. He received his
35 transparency-a-strategic-approach).
Ph.D. in MSIS from the University of TexasAustin in 1996. His
36 Granados, N. F., Gupta, A., and Kauffman, R. J. 2006. The
research has been published in various information systems,
37 Impact of IT on Market Information and Transparency: A
economics, and computer science journals such as Management
38 Unified Theoretical Framework, Journal of the Association for
Science, Information Systems Research, MIS Quarterly, INFORMS
39 Information Systems (7:3), pp. 148-178.
Journal on Computing, Communications of the ACM, Journal of
40 Granados, N. F., Gupta, A., and Kauffman, R. J. 2010. Informa-
Management Information Systems, Decision Sciences, Journal of
41 tion Transparency in Business-to-Consumer Markets: Concepts,
Economic Dynamics and Control, Computational Economics,
42 Framework, and Research Agenda, Information Systems
43 Research (21:2), pp. 207-226. Decision Support Systems, International Journal of Electronic
44 New, S. 2010. The Transparent Supply Chain, Harvard Business Commerce, IEEE Internet Computing, and Journal of Computing.
45 Review (88:10), pp. 1-5. He received the NSF CAREER award in 2001 for his research on
46 Sambamurthy, V., Bharadwaj, A., and Grover, V. 2003. Shaping online auctions. He serves on the editorial boards of Information
47 Agility through Digital Options: Reconceptualizing the Role of Systems Research, Journal of Management Information Systems, and
48 Information Technology in Contemporary Firms, MIS Quarterly Decision Support Systems, and on the boards of various national and
49 (27:2), pp. 237-263. international research centers.
50

1

1

3
4
5
6 VALUE ARCHITECTURES FOR DIGITAL BUSINESS:

7 BEYOND THE BUSINESS MODEL1
8 Peter Keen
9 Kogod School of Business, American University,
10 Washington, DC 20016 U.S.A. {petergwkeen@yahoo.com}
11 Ronald Williams
12 AFFILIATION
13 AFFILIATION {email}
14
15 This article is a sense-making treatise that identifies the There is not much to learn from companies that miss the boat
16 general factors that seem to determine digital business stra- in digital business or throw technology and new products onto
17 tegy success and what they imply for management. It is based the market in the hope that, because it is the Facebook era
18 on a review of two types of polar companies that stand out as or the world is going mobile, throwing money at the rain-
19 exemplars of innovation. bow must at some point drop on the pot of Internet gold. All
1
20 one can offer is Dont be dumb (or Remember what
21 The first are ultrasuccesses, firms that surge to growth and happened with your e-commerce dot com venture?). The
22 redefine the dynamics of competition within and across more intriguing questions are why did Dell slip and how did
23 sectors and that have been able to sustain their pace-setting. Myspace somehow give away its lead? How did Tesco
24 Digital business-centered examples are Amazon, Apple, successfully build a highly profitable $2 billion online grocery
25 Expedia, Google, Facebook, Bharti Airtel (India), Huawei business, a sector where Webvan had been the largest ever dot
26 (China), and Tesco (UK), to pick just a few big names. com bust and no other player, even Walmart, has been able to
27 Longer-standing instances are Southwest Airlines, Li & Fung build a solid base? How did Facebook become such a success
28 (Hong Kong), Starbucks, Walmart, FedEx, and Toyota (it is and yet now seems adrift in building on its franchise?
29 unclear if Toyotas recent problems are hiccups or chronic
30 illness). In trying to make sense of all this, what is apparent is that
31 digital business is driven by the same forces as business in
32 There are other contrasting firms that are ultrafades. They general but that one single factor stands out: value is not a
33 were just as dominant, apparently invincible and quite literally function of the product or service, is not stable or fixed, and
34 the textbook pointers to management for the future. They is less and less under the control of providers. It is a function
35 include Dell, AOL, Blockbuster, Nortel, Nokia, RIM, Barnes of the choice space. In a closed space, such as an industry
36 & Noble, Gap, Kmart, Sony, Sears, and A&Pall in the same protected by regulation or limited in its range of offers by
37 class of legend. In most instances, these firms made no asset-specificity, the dimensions of value will be constrained
38 massive or sudden blunders and they were often still in the and largely centered on product features and prices. Digital
39 textbook Hall of Fame even as their erosion had become business is driven by opportunities to expand the choice
40 marked and even irreparable. space, often intruding on the space of other industries and
adding new dimensions of customer, company, and partner
1 value. Four realities of value generation emerge from the
history of ultrasucesses and ultrafades. These are less than
responsible for accepting this paper. proven truths but more than rules of thumbs. They usefully

Keen & Williams/Value Architectures for Digital Business
1 Reality 1: The buyer determines value Given choices, the buyer, not the seller, determines which dimensions of
value matter and how offers compare.
2 Reality 2: Value is always relative and Value is always relative and shifting, because it is a function of an
3 shifting expanding choice space, driven by a consistent set of historical forces
that disturb the business terrain.
4 Reality 3: Companies leverage Companies increasingly exploit the choice space to leverage adaptive
5 ecocomplexes ecocomplexes of relationships rather than go it alone.
6 Reality 4: Entrepreneurs will offer new The distinctive characteristic of the entrepreneur is to leverage the forces
7 dimensions of value of disturbance to offer new dimensions of value or find new ways to
enhance existing ones.
8 Figure 1. Value Realities
9 point to principles for defining the value architecture for newspaper industry; they decided that they wanted news but
10 digital business innovation and sustained growth. They are didnt need printed papers. Nokia dominated the mobile
11 shown in Figure 1. phone market; customers decided that Apples design was a
12 dimension of value that dominated function and price and
13 If the realities point to the answer, what is the question? chose accordingly. As products rapidly commoditize through
14 Basically, it is not what makes digital business new or global supply chain choices enabled by trade liberalization,
15 different, but why, where, and does choice, and hence value, technology, and modularity, the customer dimensions of value
16 shift? The answer to that question drives the firms value increasingly move from being centered on features and to
17 architecture, its blueprints for resource management that meet dimensions of a branded customer experience, with many of
18 todays demands and adapt to tomorrows uncertainties. these built on standardized interfaces and ecocomplexes.
19 Ultrasuccesses exploit an opportunity of their time. Ultra-
20 fades depreciate their annuity over time. Superextenders Amazon and Apple are prototypical examples. If you ask a
21 position to innovate in time by expanding beyond the bounds group of people if any of them have bought a book from
22 of the capabilities and context that brought them success. Amazon in, say, the past three months, you can expect a large
23 show of hands. Ask who the publisher is and the response
24 Three increasingly intersecting historicalnoncyclical will be a blank of ignorance and indifference; Amazon is the
25 forces stand out as opening up the choice space for customers, brand. It also relies on innovation via interface, linking to
26 companies, and ecocomplexes of relationships. While they two million stores that it doesnt own or run. Apple is an
27 are unpredictable in their timing, they move in the longer term instance of an ecocomplex as experience brand; it doesnt
28 in the same direction. Regulatory and trade liberalization make any of its products, relies on others content (which is
29 expand market and supply choices. Technology transforms increasingly modular: music, video, and photos) and makes
30 coordination opportunities in customer relationships, money from third-party apps and commission fees. Funda-
31 frenemy collaborations, and demand chain management. mentally, digital business rests on the design of customer
32 Standardized interfacing of modular processes and compo- experience in a context of constantly shifting choices as new
33 nents facilitates asset-blending investment that reduces the players exploit the historical forces of disturbance.
34 capital cost and risks of fixed, in-house capabilities via
35 variable cost sourcing. Figure 2 summarizes the dynamics of The pace and impacts of these general forces and shifts
36 the forces. It labels them as forces of disturbance. Digital demand a value architecture that balances a number of other-
37 business largely aims at exploiting jolts and fissures in an wise conflicting organizational factors: business model, value
38 industry status quo. engine, and opportunity platform (Figure 3). The focus must
39 be on enabling the innovation after next and then the one after
40 The forces shift the dynamics of value creation, since value is that, given that value will shift. In general, successful com-
41 entirely a function of the choice space. Control of value is panies in digital business have spotted the opportunity of a
42 less and less determined by industry boundaries, asset advan- new or opening choice and built real value but assume that the
43 tages of scale, or research and development capabilities. In same value dimensions will hold. They too often look for a
44 many regards, customers rather than the Web killed off the business model that will hold, provide value for the customer

1
2
Business Terrain Choice Space
Customers
(De)regulation &
Trade
Liberalization New/Different
Customer Offers
Entrepreneurs/
Disturb the
Existing
Business Terrain
Technology Companies
and Create New
Leverage the
Opportunities
Opportunities
New Ways to
Modularity & Generate the
Standardized Offers
Interfaces
Organizations
3 Figure 2. The Historical Forces of Disturbance
4
5 Our plan to generate value
For customers, company,
Value Narrative shareholders, and partners
For now and in the future
With specific metrics
Opportunity
Value Engine
Platform
Our business practices that Our operational capabilities
Determine the level to which we are willing Value generating activities

to invest to not be locked out of unknown Linked through process designs
future opportunities and relationships that we build
Invest in and manage our resources and source to deliver value now
accordingly
Identify and respond quickly to new value
generating opportunities
6 Figure 3. Value Architecture
7 of today, and source the talent they need to grow. But the Very roughly, digital business models aim at spotting oppor-
8 very intention of innovators in digital business is that the tunities and are customer-led in their views of innovation.
9 business model is not an end point, but an interim framework. This runs the risk of customer value coming at the expense of
10 A question that is neglected by many of the most successful company value as the firm offers new and more choices and
11 firms is, who is the customer of tomorrow and what will he or as the pace of invention fuels commoditization; this is the
12 she really, really value as new choices open up? This might dilemma in consumer electronics and mobile phones, where
13 suitably be the headstone on the graves of the newsprint every new product is quickly matched, process slashed, and
14 companies. time to market accelerated. The firm must build a value

1 engine that generates company value and is mainly cost- phone firms, and by far the most profitable player in online
2 centered. Digital business models challenge business as grocery sales. Oh, and it is the largest seller of branded gas
3 usual; their value engines have to create a new as usual. to car drivers and the national price-leader. Its loyalty card is
4 Amazon stands out, like Southwest Airlines or Walmart, as the second currency of the entire UK economy.
5 both a market innovator and low cost producer. It will be
6 interesting to watch how the value creation wars between Tescos value architecture was designed with the aim of
7 Google and Facebook play out, to see the extent to which earning the customers lifetime loyalty, not just selling
8 Googles value engine advantage offsets Facebooks ability groceries, at which it is superb. In many ways, Tesco is an
9 to add new dimensions of customer value. Googles opportunity platform readied for the next expansion and
10 advantages include its ownership and leverage of fiber optics looking for the one after that. It is notable that its platform,
11 capacity, bought at dot-com fire sale prices, plus its data built for growth, has become key in recovering from the
12 center scale, productivity, and energy efficiency, and its erosion of its basic business as the UK economy has slipped
13 software/hardware capabilities to manage more data than any back into recession. Its dark stores are a new digital hub for
14 other organization on earth. Googles estimated costs are online groceries and it is on track to reach a 50 percent market
15 one-third that of its main competitors. It is hard to see how share in the UK online business.
16 the global telecommunications establishment can escape the
17 margin erosion of price wars, data plan hypercompetition, and The erosion of such firms as Dell, Gap, and Sony seem to
18 dependence on fixed assets. The more efficient their value reflect assumptions about the nature and stability of value that
19 engine, the more value Netflix and Apple generate. led to underinvestment in the opportunity platform. Capa-
20 bilities for adaptation were at the margins of both the business
21 In general, business models have been the focus and source of model and value engine, investing for more rather than
22 news in the digital market discussion. The current focus of different in innovation. Need more new products? Beef up
23 innovation is generally on business models for digital busi- the research and development budget. More market power
24 ness. As this example indicates, this is just one determinant and reach to customers? Expand the technology base. More
25 of value creation. In addition, a combination of business profitability? Increase outsourcing. Broader markets and
26 model and value engine that provides for ultrasuccess today products? Make a merger or acquisition.
27 is more than just a little likely to fuel ultrafade tomorrow by
28 the very fact that it is a success. The four realities of value Digital business will be driven in its next phases by value
29 point to a continuing need to adapt to shifts in the choice architectures rather than business models. The starting point
30 space. That is hard to do if the firms resource base is built on for evolving research and practice to aid in the development
31 fixed assets, stable value dimensions in branding, and reliance of new best practices here must begin by taking a fresh view
32 on in-house core competencies. The main determinant of of value. Here is the key assertion for digital business:
33 ultrasuccesses relatively unobtrusively and suddenly losing
34 their edge is the lack of investment in an opportunity plat- Value is entirely a function of choice. Digital busi-
35 form. The opportunity platform designs of the new exemplars ness is centered on exploiting the forces of distur-
36 of innovation that is turned into sustained value are industry- bance that open up the choice space. It must, there-
37 independent and built for flexibility. They rely heavily on fore, build the value architectures that accommodate
38 asset-smart variable cost sourcing, licensing, and modularity ever-continuing shifts in value.
39 via ecocomplex relationships rather than asset-heavy capital
40 investments. They use this adaptability to enter new markets For the information systems organization, the conversations
41 at low cost and risk, redeploy and re-source capabilities and for innovation must shift to the language and concepts of
42 extend business models. value creation. A few obvious points are:
43
44 This has enabled Amazon, for example, to use its platform to Digital business is marked by innovation through inter-
45 take over book publishing, become a leader in cloud com- face: to customers, partners, and suppliers. The IT enter-
46 puting, and challenge any innovator in any emerging sector of prise architecture determines the platform for interfacing.
47 digital media. Li & Fung used its value architecture, which Hence, choices of technical and standards determine the
48 had made it the global coordinator of the apparel business, to firms business degrees of the freedom: its platform
49 move its services into other sectors, including toys and home opportunities.
50 furnishings. Tesco started out as a discount player in the UK
51 grocery business and is now labeled as Walmarts worst IT is a hub for contracting of relationships and enabling
52 nightmare, one of the three largest global retailers, a leading the source of human capital upon which the firm can
53 financial services company, one of the most successful mobile draw: up to 70 percent of IT budgets are for services; IT

1 needs a new style of talent chain and partner chain Peters most recent book, coauthored with Ronald William, is
2 management. The Value Path: Embedding Innovation in Everyday Business
3 When the Customer Makes the Rules. His next book, in press,
4 The most fundamental opportunity for IT is to recast the is From Bits to Pieces: Exploiting the Business Opportunities
5 discussion of cloud computing and managed networks to of 3D Printing.
6 move highlighting its contribution to the shift from a
7 fixed cost asset base to a variable cost financial structure Ronald Williams PLEASE PROVIDE BIO INFORMATION
8 that substitutes relationships for capital.
9
10 Every firm is now in digital business markets. Looking
11 for a business model or a strategy for technology in this
12 context is an inadequate approach to taking charge of
13 change. The need is for a value architecture for business
14 that is built on digital opportunity.
15 About the Authors

16
17 Peter Keens main professional interest since he was a pro-
18 grammer in the early 1960s has been practical futurism in
19 getting the news out about transformational business oppor-
20 tunities of IT. He has served on the faculties of leading
21 universities in the United States, Europe, Asia, and Latin
22 America. He is the author of around 30 books on building
23 senior executive dialogs across the business/IT divide, as well
24 as many academic articles in sundry journals.
25

1

1

3
4
5
6 COMMODITIZED DIGITAL PROCESSES AND BUSINESS

7 COMMUNITY PLATFORMS: NEW OPPORTUNITIES AND
8 CHALLENGES FOR DIGITAL BUSINESS STRATEGIES1
9 M. Lynne Markus
10 Bentley University, Waltham, MA 02452 U.S.A. {mlmarkus@bentley.edu}
11 Claudia Loebbecke
12 University of Cologne, 50969 Koeln, GERMANY {claudia.loebbecke@uni-koeln.de}
13
14 The emergence of the digital business strategy concept has forms have thus far been limited. Second, we distinguish
15 coincided with three other conceptual advances for our field. standardized and commoditized digital business processes.
16 First, it is increasingly recognized that companies need to Whereas standardized business processes are still heavily
17 strategize not just about product-market segments (Porter customizable to an orchestrators preferences, we see com-
18 1985), but also about their ecosystems (Iansiti and Levien moditized business processes to be substantially the same
19 2004). These expanded partner networks are typically across a business community (Davenport 2005). And third,
20 assembled by orchestratorslarge, powerful companies at we differentiate between customizable digital platforms that
21 the core of ecosystems. Second, there is growing awareness are shared by many companies (not necessarily in the same
22 of the potential benefits of replacing proprietary data ex- industry) and business community platforms that are tailored
23 change conventions with open, Internet-based standards such for use by all members of a business community (Markus and
24 as RosettaNets partner-interface-processes in high tech (El Bui 2012; Steinfield et al. 2011).
25 Sawy et al. 1999), MISMO standards in the mortgage industry
26 (Markus et al. 2006), and RFID standards in retailing (Loeb- We cannot predict the future adoption of commoditized busi-
27 becke and Palmer 2006). Third, there is great interest in the ness processes and business community platforms. However,
28 possibilities of shared digital platforms like Salesforce.com to the extent that these developments materialize, we believe
29 and Amazons cloud-based hosting services (Loebbecke et al. they will have profound implications for companies digital
30 2012). business strategies. For instance, these developments may
1
31 challenge our widely held belief in the competitive advantage
32 With this short essay, we invite the IS community to consider obtainable from investment in digitized business processes
33 the implications of three further conceptual developments (for and digital platforms.
34 a summary, see Table 1). First, we propose the concept of
35 business community, consisting of the overlapping ecosystems
36 of competing orchestrators in defined areas of business
37 activity, such as automotive retailing or mortgage lending. Unit of Analysis: From an Orchestrators
38 The concept of business community is useful for under- Ecosystem to a Business Community?
39 standing why the gains from open standards and shared plat-
Starting in the mid-1980s, strategic IS research focused on
1 individual firms seeking superior performance and compe-
titive advantage through the use of interorganizational
responsible for accepting this paper. systems designed to lock in customers or integrate with sup-

Markus & Loebbecke/Commoditized Digital Processes & Business Community Platforms
1 Table 1. Key Conceptual Developments in Digital Strategy

2 Conceptual Development
3 Unit of Analysis Ecosystem Business Community
An orchestrators extended network of partners Set of possibly overlapping ecosystems in a
defined area of business activity
4 Digitized Business Standardized Business Processes Commoditized Business Processes
5 Processes Digitized business processes that employ open Standardized digital business processes
standards and may be tailored (by selection performed in common by most members of a
and extension) to an orchestrators unique business community including competing
preferences orchestrators
6 Digital Platform Shared Digital Platform Business Community Platform
Digital platform supporting simultaneous use by Digital platform tailored to the processes of a
multiple companies, each of which can business community and used in substantially
independently customize business processes the same way by most community members,
for its own ecosystem including competing orchestrators
7 pliers (e.g., Johnston and Vitale 1988; Pavlou and El Sawy any orchestrator. As a result they are much less likely to con-
8 2006; Piccoli and Ives 2005; Sambamurthy et al. 2003). form to any orchestrators preferences around standards and
9 Familiar early examples include Baxter (Short and Venkatra- interconnection technologies.
10 man 1992) and Brun Passot (Jelassi and Figon 1994).
11 The possibility of overlapping ecosystems suggests the value
12 Current strategic IS research assumes larger units of analysis, of an even larger unit of analysisa unit that includes peer
13 such as extended (multitier) supply and distribution chains or (competitor or potential competitor) orchestrators and their
14 ecosystems, which are understood as loose sets of organi- respective ecosystems. We call this unit of analysis a busi-
15 zations engaged in the creation and delivery of a firms ness community. As analytic units, business communities
16 product or service offerings (Iansiti and Levien 2004). (e.g., the automotive and high tech industry communities) are
17 Companies in an ecosystem include not just customers and not collective actors and thus they do not have strategies.
18 suppliers, but also, for example, producers of complementary However, the digital business strategies pursued by the
19 products and services, logistics providers, outsourcers, and orchestrators in a business community may have effects that
20 financiers. They require interoperability on a large scale, extend beyond an orchestrators own ecosystem partners to
21 emphasizing the role of data and business process standards other community members.
22 (e.g., RosettaNets XML-based partnerinterfaceprocesses)
23 and the platforms or technologies that support interconnection So far, the business community is an important, but under-
24 such as services-oriented architectures and cloud computing. exploited, context and reference point for conducting research
25 on digital business strategy. To offer some guidance, we now
26 Theorizing about digital business strategy has often taken the explore two key dimensions of digital business strategy in
27 perspective of ecosystem orchestrators, whose position in the business communities: digitized business processes and digi-
28 ecosystem gives them substantial power to dictate terms to tal business platforms.
29 more dependent companies. Examples of orchestrators are
30 original equipment manufacturers (OEMs) in the automotive
31 and high-tech industries and leading consumer products
32 retailers. But partners in an orchestrators ecosystem might Digitized Business Processes: From
33 also be members of additional ecosystems. For example, a Standardization to Commoditization?
34 supplier of a particular automobile component or subassembly
35 may supply all U.S. OEMs; the respective OEMs ecosystems Even the simplest dyadic electronic interaction among com-
36 would be at least partially overlapping. The broader one panies requires some harmonization of data definitions and
37 defines the ecosystem concept, the more likely it is to include transaction formats. Earlier efforts by companies to develop
38 organizations belonging to multiple overlapping ecosystems. customized EDI transaction standards (Mukhopadhyay et al.
39 Obviously, entities like ports, public warehouses, customs 1995) have given way to more ambitious, industry-wide
40 agencies, and shipping lines are not the captive partners of XML-based business process standards (Markus et al. 2006).

1 The idea is sound: Individual companies do not have to Digital Business Platforms: From
2 reinvent the wheel each time they want to connect with a new Shared Platforms to Business
3 partner; they can alter their internal systems to facilitate easier
4 interconnection with more of their partners. Adopting stan-
Community Platforms?
5 dards allows them to take advantage of outsourcing, dynamic
As technology has advanced and technology companies have
6 reconfigurations of supply chains, and other kinds of stable or
matured, increasing numbers of orchestrators make use of
7 ad hoc business partnerships (Pavlou and El Sawy 2006;
some shared digital platforms (e.g., Salesforce.com,
8 Sambamurthy et al. 2003). Amazons hosting services) that are also used by others, even
9 their competitors. Using such shared platform, each company
10 The practice of standards implementation has not quite lived can independently customize business processes for its own
11 up to its promise. With every orchestrator adopting its own ecosystem. Typically, orchestrators use shared platforms only
12 standards, many non-orchestrator companies are forced to with members of their own ecosystems as they often have
13 employ multiple versions of the same business processes and great leeway in choosing and tailoring the processes they run
14 technologies with different partners. Even in the era of com- on the platforms. Other orchestrators in the same business
15 prehensive industry-wide standards (e.g., RosettaNet stan- community may adopt different platforms or take advantage
16 dards or GS1s product data synchronization), standards are of different tailor-made processes on the platform.
17 often customized to an orchestrators preferred ways of
18 working. This often causes non-orchestrators to bear the costs By contrast, digital business community platforms (Markus
19 of performing multiple variations of some business processes. and Bui 2012; Steinfield et al. 2011) are digital infrastructures
20 As a result, non-orchestrators often neither fully integrate designed to support interoperable business processes across
21 systems nor harmonize processes with the orchestrators, ecosystems in a particular business community. Tailored to
22 leading to costs, errors, and delays which reduce the non- specific business communities (of overlapping ecosystems),
23 orchestrators and even the orchestrators benefits. they could promote significantly greater commonality of busi-
24 ness processes and practices as they are used in substantially
25 Concerning the business processes, researchers often distin- the same way by most community members. Examples
26 guish between processes that are unique to each orchestrators include NEHEN (the New England Healthcare Exchange
27 ecosystem and processes that are standardized via use of Network), MERS (the Mortgage Electronic Registry System),
28 industry standards and/or commonly used business systems. and Nlets (formerly, the National Law Enforcement Telecom-
29 We call attention to a further distinction: that between stan- munications System). Such business community platforms
30 dardized and commoditized business processes (Davenport may support non-procurement related processes, such as
31 2005). Processes that are standardized via the use of industry health insurance claims processing and medical data sharing,
32 conventions and common systems can still be customized by keeping track of mortgage assignments, or facilitating the
33 orchestrators for their own ecosystems. For example, con- sharing of information across law enforcement agencies. Or
34 sumer products companies often perform the standard they can also be electronic marketplaces, in which the main
35 collaborative planning, forecasting, and replenishment process processes supported are those related to buying and selling
(Soh et al. 2006). Often, business community platforms are
36 using different software tools, forecasting periods, and aggre-
initiated by industry associations or consortia, although after
37 gation rules for each retailer they work with.
startup they may have independent (privately owned or
38
public) management companies. In many cases, they are built
39 By contrast, commoditized processes are performed essen-
and even operated by IT service providers on behalf of their
40 tially the same way by all companies. For example, widely
initiators or management companies.
41 used software products like SAP or shared platforms like
42 Salesforce.com may encourage all user companies to perform A key difference from shared platforms is that business
43 certain processes the same way, even if the companies do not community platforms support digitized business processes
44 interact with each other. Davenport (2005) predicted the only for qualified members of particular business com-
45 arrival of such process commoditization on a large scale and munities. They have the goal of being used by all overlapping
46 foresaw that process commoditization would promote greater ecosystems in the business community, but do not require
47 outsourcing. By the same token, increased outsourcing and members to interact with any community members not of their
48 improvisational partnering may accelerate the commonality of own choosing. The focus of business community platforms
49 business practices across companies and ecosystems. Another on harmonizing business activities across overlapping
50 potential driver of business process commoditization, we ecosystems may promote process commoditization within
51 believe, concerns companies choices of digital business communities to a greater extent than standards and shared
52 platform. platforms alone.

1 Discussion First, how much advantage do orchestrators really get

2 from business processes tailored to their preferences?
3 In this opinion piece, we introduced several distinctions that For the sake of argument, we hypothesize that, in busi-
4 are not frequently found in the literature on digital business ness communities with a high degree of ecosystem
5 strategy (for a summary, see Table 1). We differentiated overlap, orchestrators benefits of customizing standards-
6 business communities, comprised of the multiple, partially based business processes are outweighed by the costs of
7 overlapping partner networks in defined areas of business partners inefficiencies and errors. Future research
8 activity, from the ecosystems of large orchestrators. We con- should compare business communities varying in degree
9 trasted commoditized business processesperformed in sub- of ecosystem overlap on outcomes such as partners costs
10 stantially the same way throughout a business community benefits, extent of partners adoption of standardized
11 from standardized business processes that can be tailored to digital business processes and business community plat-
12 an orchestrators preferences. And we distinguished business forms, and orchestrators efficiencies and competitive
13 community platformsused in common throughout a business advantages.
14 communityfrom shared platforms, which allow orchestra-
15 tors to configure customized processes for exclusive use with Second, when, how, and why do business process com-
16 their own partners. moditization and/or widespread adoption of business
17 community platforms occur? We hypothesize that wide-
18 Why do these distinctions matter for research on digital spread adoption and use of commoditized business pro-
19 business strategy? We argue that, when ecosystems overlap, cesses and business community platforms are more likely
20 the digital business strategies of orchestrators have conse- to occur in business communities with a high degree of
21 quences beyond the boundaries of their own ecosystems. By ecosystem overlap. Important areas of future research
22 pursuing competitive advantage or even cooperative advan- include developing metrics of ecosystem overlap and
23 tage through customized business processes and closed (even identifying the other conditions (e.g., history, culture,
24 if shared) digital platforms, orchestrators impose the costs of presence of a 500 pound industry gorilla, etc.) that
25 multiple platforms and process variations on their partners. promote or hinder widespread adoption of commoditized
26 The resulting inefficiencies in terms of costs, errors, and processes and community platforms. It might also be
27 delays may ultimately harm the orchestrators as much as their useful to investigate under what conditions commoditized
28 partners. They may even offset the performance advantages business processes emerge without the use of business
29 that ecosystem orchestrators expected to gain by developing community platforms. For example, to what extent can
30 digital business strategies in the first place. orchestrators independent use of de facto standard soft-
31 ware packages like SAP promote process commoditi-
32 A holy grail of digital business strategy is to achieve effi- zation across business communities? Which metrics help
33 ciency without sacrificing flexibility or differentiation. Some predict such process commoditization scenarios early
34 scholars argue that XML and Internet-based standards, enough to prepare the respective digital business
35 service-oriented architectures, and cloud computing will strategies?
36 enable companies to be both efficient and flexible. By con-
37 trast, we wonder whether truly efficient, dynamic business Third, what are the consequences of process commodi-
38 interoperability can be achieved without commoditizing tization and/or business community platform adoption, to
39 business processes. We also wonder whether business com- the extent that they occur? Here, we believe, the key
40 munity platforms are the way in which process commodi- question is whether and how ecosystem orchestrators can
41 tization and commonality of business practices will first come create and sustain competitive advantage through digital
42 about. In addition, we wonder whether efficiency and flexi- business strategy, if and when processes become com-
43 bility will be achieved at the expense of competitive moditized and business community platforms become
44 advantage from IT, at least as competitive advantage from IT widely used. Further questions are whether and how
45 was traditionally conceived, that is, as differentiation non-orchestrators can benefit from eventual changes in
46 achieved via advanced IT use. competitive advantage and whether process commodi-
47 tization and/or business community platform adoption
48 We believe the concepts of business community, com- may even diminish the role and position of ecosystem
49 moditized business processes, and business community orchestrators.
50 platforms open up a range of important research opportunities
51 related to digital business strategy. Among them are the In conclusion, we believe that expanding the focus of IS
52 following: research beyond business ecosystems to business com-

1 munities calls attention to the little discussed possibilities and (27:2), pp. 237-263.
2 effects of process commoditization and business community Short, J., and Venkatraman, N. 1992. Beyond Business Process
3 platforms. This broader focus raises exciting new research Redesign: Redefining Baxters Business Network, Sloan
4 opportunities. Management Review (34:1), pp. 7-21.
Soh, C., Markus, L., and Goh, K. 2006. Electronic Marketplace
and Price Transparency: Strategy, Information Technology and
Success, MIS Quarterly (30:3), pp. 705-723.
5 Acknowledgment Steinfield, C., Markus, L., and Wigand, R. 2011. Through a Glass
6 Clearly: Standards, Architecture, and Process Transparency in
7 This research was supported in part by the National Science Global Supply Chains, Journal of Management Information
8 Foundation under award number SES-0704629. Systems (28:2), pp. 75-108.
9 References About the Authors

10
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1

2
3
4
5 REVEALING YOUR HAND: CAVEATS IN IMPLEMENTING

6 DIGITAL BUSINESS STRATEGY1
7 Varun Grover
8 Department of Management, Clemson University, 101 Sirrine Hall,
9 Clemson, SC 29634-1305 U.S.A. {vgrover@clemson.edu}
10 Rajiv Kohli
11 Mason School of Business, The College of William & Mary, PO Box 8795,
12 Williamsburg, VA 23187-8795 U.S.A. {rajiv.kohli@mason.wm.edu}
13 Digital business strategies (DBS) offer significant opportunities for firms to enhance competitiveness. Unlike the large
14 proprietary systems of the 1980s, todays micro-applications allow firms to create and reconfigure digital
15 capabilities to appropriate short-term competitive advantage. In the quest to provide value to customers through
16 digitization, such applications can be efficiently deployed. However, we propose that in the long-term not all
17 digitization is desirable. Indiscriminate digital initiatives through the use of micro-applications by a firm could
18 reveal its hand to competitors and erode competitiveness. We propose that a firms DBS must balance its
19 systemsoftware, process, and informationvisibility with the ability to appropriate value from such systems.
20 Through a visibility-value framework, and examples drawn from practice, this article illustrates the tradeoffs involved
21 in making these choices as the firm traverses a dynamic business environment. In doing so, it raises sensitivity to an
22 important caveat in digital environments epitomized by hyper-competition and transparency.
23
24 Keywords: Digital business strategy, competitiveness, flexibility, phasing, design, digitization
25
26 Introduction1 competitors. Our focus in this article is to raise a note of cau-

27 tion with respect to such DBS implementation.
28 The declining cost of replicating, processing, storing and
29 distributing digits gives firms the ability to digitize products Many traditional DBS frameworks in the IS literature have a
30 and services, conduct analytics, and ultimately implement static undertone to discover or influence productmarket
31 business strategies that take advantage of digital economics positions through IT initiatives (e.g., Porter 1996). These
32 (Porter 2001).2 Digital economics enable digital business initiatives often involved significant in-house development of
33 strategies (DBS) that leverage a firms ability to rapidly large-scale information systems (e.g., Merrill Lynchs CMA;
34 deploy systems on developmental platforms. However, in American Airlines SABRE) that were hidden from compe-
35 doing so, firms incur the risk of exposing their systems to titors and difficult to replicate. Todays digital environments
differ in two fundamental ways that have profound implica-
tions for DBS. First, the digital environment has greater inter-
1
Anandhi Bharadwaj, Omar A. El Sawy, Paul A. Pavlou, and N. connectedness and interdependencies catalyzed by IT that
Venkatraman served as the senior editors for this special issue and were make static analysis difficult and strategic positioning short-
responsible for accepting this paper.
lived. Second, the source of competitive advantage is shifting
2 away from large, proprietary systems and toward micro-
Porter argues that the Internet provides a better technological platform than
previous generations of IT and that it can enhance traditional strategies. applications that reside on digitally interconnected platforms.

Grover & Kohli/Caveats in Implementing Digital Business Strategy
1 Micro-applications, also referred to as enterprise mash-ups or zation.4 By digitizing processes just because they can be
2 composite applications, are applications that perform func- digitized, a firm risks revealing its hand to competitors who
3 tions ranging from data retrieval (e.g., UPSs package can imitate faster, better, and cheaper (Vitale 1986). Open
4 tracking) to data integration from disparate services (e.g., architectures, web services, and modular technologies, com-
5 Kayaks air-fare comparison) to more complex applications bined with reverse engineering and rapid deployment of
6 that create a business process (e.g., AutoSlash, a car rental applications, especially on the Internet, make it increasingly
7 monitoring application that rebooks a rental when cheaper difficult to protect innovative information systems. This is in
8 options become available). Pahlke and Beck (2010, p. 311) sharp contrast to the environment in the 1980s when proprie-
9 define traditional strategic systems as developed through tary strategic systems required thousands of human-hours of
10 centralized developmental processes, involving a large num- in-house application development and remained hidden from
11 ber of developers, and with full firm control over the quality competitors.
12 and processes of innovation (Gawer and Cusumano 2002).
13 By contrast, micro-application development involves new In todays hyper-competitive conditions, firms should be
14 approaches based on orchestration principles, typically on sensitive to the transparency that make applications suscep-
15 existing platforms (e.g., the Internet or smart phones). Indi- tible to imitation. Visibility of systems SPI is a choice vari-
16 vidual software components that are reusable and inter- able, often underemphasized in research and practice, and
17 operable can be mixed and matched to meet the demand for should be evaluated for its ability to appropriate value. A
18 larger, more complex applications within days by an indi- firm can appropriate greater value by strategically hiding
19 vidual, a team, an outsourcer or the open source community, some and making visible other components of the micro-
20 to provide agility and competitive advantage.3 applications SPI. We present a framework that illustrates
21 considerations for both visibility and appropriability. Our
22 Three principal components that comprise the micro- objective is to bring this important aspect of DBS into
23 application system yield independent or collective sources of corporate consciousness.
24 competitive value. These are referred to as software, pro-
25 cesses, and information (SPI):
26
27 Software (S): the application, which could be a product Tradeoffs in System Visibility
28 (e.g., an airline checked baggage tracking) or and Value
29 an enabler in the provision of information or
30 services; If the system from which the focal firm successfully appro-
31 priates value is visible to external entities, then there is
32 Processes (P): defined steps that interact with the software incentive for competitors to imitate and appropriate that value.
33 to create a capability (e.g., compile data for Of course, value appropriation by competitors depends on the
34 mining software); systems degree of embeddedness within complementary
35 assets (Pavlou and El Sawy 2006). The focal firm can, how-
36 Information (I): adds value to the firm or to the customer. ever, shield the system to extract supranormal rents but this
37 Information could be an input or output of comes at a cost. This entails costs of protecting the informa-
38 the software or could be independently tion, customizing the design, and opportunities lost that might
39 provided to the consumer (e.g., customer otherwise emerge from openness in sharing software, pro-
40 location to advertisers, or customer tickler cesses, and information. Lack of openness is also likely to
41 when an item becomes available at a sale inconvenience customers interaction with the firm. There-
42 price). fore, firms must assess the tradeoff between managing system
43 visibility and value of micro-applications when formulating
44 In contrast with prior work on DBS, our thesis is: should the DBS.
45 value from SPI be created rather than can the value be
46 created? Firms can get carried away by the efficiency and
47 low cost of modular and flexible building blocks of digiti-
3 4
We use the term micro to represent the typically smaller applications than During the dot com boom there was an implicit bias in favor of greater
large-scale strategic systems. Our focus, however, is more on rapid develop- digitization as business models were handsomely rewarded by venture
ment and not scale. Therefore, Googles search algorithm and other large capitalists and equity markets until traditional concepts of business value
systems fall well within our thesis. caught up with many digital firms.

1 Managing System Visibility A second approach to managing system visibility is through

2 design. Drawing upon the system design perspective (Rama-
3 System visibility indicates the revelatory aspects of the three chandran and Krishnan 2008), modular design of a system can
4 componentssoftware, processes and information (SPI) be the basis for extracting value by controlling visible and the
5 that a competitor can observe, replicate, or improve upon. invisible parts of the SPI. In a modular design, a part of the
6 Thus a key element of system visibility is what can be system can be made visible to competitors while another
7 discerned from the visible SPI that makes each vulnerable to invisible module remains the real source of value. Consider
8 imitation. For instance, how an insurance company mines Netflix that uses Cinematch, a strategically designed movie-
9 (software) proprietary data to gain insights into customer ratings system, to make movie recommendations to its
10 behavior (information) and then provides a micro-application customers. The visible part of the system allows users to pro-
vide inputs at various points during the online transaction.
11 for customers to customize insurance coverage (process) is
Although competitors can replicate the interface, the real
12 less vulnerable to imitation because of its low system visi-
value lies in the hidden module that comprises vast amounts
13 bility. Further, a DBS that leverages unique attributes of the
of data and algorithms that Netflix has refined over the years.
14 firm, such as a distribution channel, or develops and exploits
15 processes that are hidden from competitors such as Googles
16 search algorithm, are less vulnerable to imitation.
17
Managing Value
18 We offer two approaches for firms to manage system visi-
Along with system visibility (low versus high), firms can
19 bility: phasing (temporal revelation of SPI) and design
identify and control the source of value from the system.
20 (modular revelation of SPI). Drawing upon real options With low visibility, the value appropriation (low versus high)
21 thinking (Fichman 2004), phasing uses the option of planned depends on whether the firm can generate value from
22 sporadic releases of the digital application without making the proprietary SPI. With high visibility, competitors may imitate
23 entire digital initiative visible. In doing so, a firm can manage SPI but still not appropriate value if the real source of value
24 uncertainty and observe competitors response before exer- is in the way SPI leverages the unique complementary assets
25 cising its options in the next phase. When uncertainty is high, of the firm. This allows the focal firm to be more flexible in
26 the pioneer firm can phase its system in such a way that the opening up its system. For instance, Goodyears retail busi-
27 complete orchestrated plan remains ambiguous to its com- ness uses micro-applications for Search-and-Comparison
28 petitors. It can increase visibility by opening its hidden soft- and a Request-for-Quote on its website to help price-
29 ware, processes, or information, or commoditize the applica- conscious customers choose the right tires and then direct
30 tion when the uncertainty is resolved. Consider Medical them to an online Dealer Locator tool. Although the search
31 Health System (MHS)5 that followed a phased approach to tools are common micro-applications, they help Goodyear
32 digital application visibility through a comprehensive tracking appropriate value through integration with its distribution and
33 application. It monitored treatment and outcomes at various retail outlets. By using digital applications to leverage the
34 points during the patients hospital visit, yielding valuable physical assets of its distribution systems, Goodyear can be
35 performance metrics. MHS DBS leveraged this information far more flexible in opening up its system and still appro-
36 through a phased approach. By exploiting a portion of propriating value. Similarly, some major investment services
37 cess level data, it now broadcasts hospitals real-time emer- firms reveal their system and processes by putting a plethora
38 gency room (ER) patient wait times on roadside billboards or of micro-applications on their websites but draw synergistic
39 via text messages. This is a low visibility DBS phase because value through their national network of physical offices.
40 MHS does not reveal how it tracks specific processes behind Their high-end clients set up online portfolios and then meet
investment counselors for advice. While competitors can
41 ER wait times, yet it has enhanced competitive value by
appropriate some value by imitating the online system,
42 appealing to patients who need immediate care. While MHS
investment services firms gain significant value in provision
43 awaits competitors response, it continues to analyze patient
of high-end services by leveraging the synergy between their
44 data, for example, from social media including an application micro-applications and physical assets.
45 that engages parents by providing information regarding
46 nutrition, how-to videos, and available hospital services. This
47 information can be exploited in future DBS phases if MHS
48 feels that it can generate competitive value. It can accelerate System ValueVisibility Framework
49 or modify phasing depending on competitors response.
The two facets discussed above are presented as a value
visibility framework in Figure 1 to illustrate how a firm can
5
Name disguised. manage visibility and appropriate value. It is important to

1
2
3 Figure 1. ValueVisibility Framework
4 note that the unit of analysis is a system and its SPI compo- tally within the grid. Firms can orchestrate movement in the
5 nents. Given that firms manage a portfolio of macro- and grid but in many cases systems drift into other cells of the
6 micro-applications, a firm could have multiple application grid due to competitors action or technological changes. The
7 systems that can be mapped onto the frameworks grid. The extent to which a firms movements are managed will cause
8 x-axis, System Visibility (SV), represents the extent to which greater value to be realized from the DBS. In summary, when
9 SPI is visible to customers and competitors. The y-axis, managing system visibility, firms facilitate horizontal move-
10 Appropriated Value (AV), represents the extent to which the ment across the grid (i.e., sustain increased appropriated value
11 focal firm can appropriate value. through phasing and design). When managing value, firms
12 facilitate vertical movement through the grid (i.e., high appro-
13 In Figure 1, the top left cell, Fort Knox (low SV, high AV), is priation through proprietary value and complementary assets).
14 a desirable position as the firm appropriates value from a By managing the four movementsmarked as A, B, C and D
15 hidden system, such as Googles search algorithm, which in Figure 1firms can appropriate higher value as articulated
16 it zealously guards, or Progressive Insurance, which mines in the following questions for each movement.
17 customer data to develop new insurance products. If the
18 system fails to yield value, the application system slips into
19 Cold Storage (low SV, low AV), where investments to protect Movement A
20 system visibility may not yield commensurate returns. In the
21 top-right Exposure Zone (high SV, high AV), firms reveal Key Question: Can the focal firm generate a return on its
22 parts of the system to appropriate return on visibility open- system visibility?
23 ness benefits also proposed as open innovation (Chesbrough
24 2007). If the system does not create value, it could slide into Movement: In the left part of the grid, a firm can appropriate
25 Public Domain (high SV, low AV), where appropriated value value by hiding its system. In the right part of the grid, the
26 goes to the consumer (not the firm) and the system becomes firm increases the visibility of the systems SPI. When com-
27 a part of standard business practice. petitors get around patent protections or reverse engineer the
28 application, the Exposure Zone usually yields short-lived
29 In a dynamic environment, however, it is more appropriate for value followed by a slide to Public Domain. However, a firm
30 firms to think of how systems move vertically and horizon- could also manage this movement by phasing or design. The

1 firm could appropriate higher value by increasing visibility of Movement: In the top-right part of the grid, firms can gener-
2 the system than by hiding the system. In some cases, ate a return (e.g., in the form of innovation) on carefully
3 increased visibility has little downside because the system is managed system visibility. In the bottom-right part of the grid
4 part of a broader system of complementary assets that is the system is visible, making it difficult for an individual firm
5 difficult to replicate by competitors. to appropriate value. In some cases, this downward move-
6 ment is beyond the firms control as competitors may be in a
7 Illustration: Cambridge Temperature Concepts (CTC) devel- position to appropriate higher value from the application.
8 oped a technology for high precision temperature measure- Some firms with capabilities beyond the SPI might have an
9 ment (Fort Knox). Building upon this technology, it devel- easier time staying in the upper grid. However, movement C
10 oped a noninvasive micro-application body patch human could also be a part of a strategy where the focal firm fosters
11 fertility monitor. CTC exposed its temperature measurement imitation of the application for public use because it benefits
12 technology (Exposure Zone), which captures and transmits from its broader use, for instance, by expanding its Fort Knox
13 changes in a womans body temperature. Yet, it created value applications or by taking advantage of network effects.
14 from this visibility by analyzing a womans temperature pat-
15 terns and by informing her of an optimal time for conception. Illustration: Having exposed its precision temperature moni-
16 Further, the database, which CTC keeps protected, remains an toring micro-application (discussed in Movement A), CTC
faces a risk of sliding the application into the Public Domain
17 increasingly rich repository to build future instrumentation
if competitors replicate its functionality. CTC may stra-
18 products.
tegically choose a point in time and expose the temperature
monitoring application to let it become an industry standard.
CTC is in a position to leverage its database and the
19 Movement B knowledge of expectant mothers use of monitoring apps
20 residing in Fort Knox to extract value from future applications
21 Key Question: Can the focal firm appropriate value in the for prenatal diet, maternity supplements and mitigating
22 future from low application visibility? pregnancy risks.
23
24 Movement: The upper half of the grid represents appropri-
25 ated value from proprietary SPI or a capability. In the lower Movement D
26 half, value appropriation deteriorates or fails to ensue. Firms
27 usually dont voluntarily transition an application to the lower Key Question: Is it worthwhile to protect SPI when limited
28 half; market forces or insufficient investments lead it there value can be appropriated?
29 either because the SPI has limited or no proprietary value or
30 competitors have created better value through other substitu- Movement: In Cold Storage firms protect system visibility
31 table means. Firms with systems embedded in complemen- but with little or no immediate appropriated value, ostensibly
32 tary assets are likely to hold their position in the upper grid. for future returns. In Public Domain firms open the system,
33 possibly for industry-wide adoption. In both quadrants the
34 Illustration: A large office supplies company invested in a firm does not appropriate significant value because the cost of
35 neural pattern-based data mining software application. The protecting SPI might not be favorable. Given that path D is
36 software, coupled with carefully conceived data collection a lateral transition into continued low appropriated value, it is
37 from customers, allowed the company to compile granular unlikely to be a firms priority. However, under certain con-
38 cost reports across product lines. The firm was able to appro- ditions this path can benefit the firms DBS if it helps to
39 priate significant value from its business-to-business system, exploit its other, less visible valuable applications within Fort
40 while guarding its external visibility. However, a competitor Knox. Reversing course is another actionable way out of
41 partnered with another analytics company with superior infor- Cold Storage (path B) but this entails bearing the costs of
42 mation and built a better B2B business. The focal firms rebuilding the system and must be balanced against the
43 application slid into Cold Storage because it was no longer potential for new value appropriation.
44 viable to protect system value.
Illustration: A leading electronics firm developed proprietary
data exchange and process standards for Collaborative
45 Movement C Planning Forecasting and Replenishment (CPFR), a digital
46 application to synchronize its production with retail sales at
47 Key Question: Can the focal firm appropriate value from sellers. Despite protecting its proprietary system, its compe-
48 high system visibility? titors were able to recreate their own versions of CPFR and

1 the electronics firms application slid into Cold Storage. To within the firms complementary assets. Firms can strategi-
2 avoid the backlash from retailers having to deal with disparate cally identify SPI components of their key digital applications
3 CPFR systems, the electronics firm chose to move its CPFR and manage visibility such that their actions can expand over-
4 to Public Domain by opening its data exchange and process all value. Third, using our value-visibility framework, firms
5 standards. The electronics firm will leverage the learning can aggressively seek to disrupt competitors value (DAveni
6 from CPFR to further refine its processes and exploit its 1999) by regulating SPI visibility of their applications on their
7 vendor-managed inventory applications currently residing in own terms, for example, by phasing and modular design.
8 Fort Knox. Finally, firms should not hesitate to let the SPI of an
9 application slide into Public Domain if they are in a position
10 It should be noted that while we have assumed that the soft- to leverage complementarities, such as physical assets,
11 ware, process, and information (SPI) have low or high visi- technical know-how, joint ventures, and patents, particularly
12 bility together, in practice each of the SPI components could if such an action also erodes competitors positions.
13 be managed independently. This is tantamount to repre-
14 senting the valuevisibility framework with three separate There are several research opportunities for further explora-
15 grids, one each for S, P, and I. For instance, Netflix holds its tion. First, our thesis that all digitization is not necessarily
16 in-house algorithm-driven software, Cinematch, in Fort Knox advantageous needs to be further examined through contem-
17 and extracts value by recommending movies to customers. To porary cases in the context of emerging theories of competi-
18 thwart competitors attempt to imitate or to improve the pre- tiveness. Second, our conclusion that digitization can expose
19 dictive ability of Cinematch, Netflix increased information a firm to unwanted risks by signaling its high value processes
20 visibility by exposing a dataset of 100 million movie ratings or information needs to be further validated, for example, by
21 in Exposure Zone as part of a US$1millon contest. By care- modeling risk components of software, processes, and infor-
22 fully managing its information visibility, Netflix is able to mation. Finally, our proposed framework suggests that the
23 appropriate value from open innovation by customerswhich ratio of value appropriation to system visibility can serve as
24 has resulted in a significant improvement in its algorithm. a useful construct both at the firm and the industry level in the
25 (See the Appendix for illustrations of inter-grid movement.) study of strategic IT systems. Future research can test
conditions of high or low system visibility and how firms can
maximize value.
26 Implications
27
28 Todays competitive advantage is based on a succession of Conclusion
29 short-term advantages through digital initiatives that are a part
30 of broader DBS. The ease of implementing DBS through Although IS research has dealt with topics of sustainability
31 Lego-like micro-application systems allows firms to con- (Mata et al. 1995) and commoditization (Carr 2003), the
32 struct powerful digital initiatives. There is an inclination on importance of system visibility in the context of DBS requires
33 the part of business strategists to pioneer high digital content greater consideration. We believe that this is an increasingly
34 products and services in the hope that their firm can gain first important message for forward-looking firms in environments
35 mover advantage. While such moves have indeed benefitted where digital technologies make it easier to piece together
36 some firms, it is important to be sensitive to revealing your business applications, hypercompetition reigns and competi-
37 hand and the signal that these application systems, and their tors can capitalize on product-market gaps, and open architec-
38 SPI, sends to competitors. A short-term advantage may come tures and sourcing, thus making it easier to imitate. In
39 at the cost of long-term value. deploying digital initiatives, firms should evaluate tradeoffs
40 between information content and competitive content, other-
41 Our valuevisibility framework has several implications. wise they risk destroying profits and stifling innovation.
42 First, we sensitize firms to the use of system visibility as a
43 tool that covers a gamut of value appropriation tradeoffs The framework described in this essay offers an approach for
44 ranging from proprietary value to open innovation. We pro- firms to examine and evaluate issues of system visibility and
45 pose that managers should raise questions in their strategic IT appropriation of value. In that sense our goal is modest but,
46 planning forums about how to selectively expand system visi- in our opinion, critically important. We aim to sensitize firms
47 bility such that it extends current sources of value or create to the visibility caveat as a consideration in digitization. Ap-
48 new ones. Second, firms should examine their system compo- propriating value through visibility versus proprietary system
49 nents for return on visibility. In doing so, the risk of imita- is a fundamental tradeoff that needs to be carefully evaluated.
50 bility of components can be assessed through embeddedness Our framework provides a tool to begin such an assessment.

1 References About the Authors

2
3 Carr, N. G. 2003. IT Doesnt Matter, Harvard Business Review Varun Grover is the William S. Lee (Duke Energy) Distinguished
4 (81:5), pp. 41-49. Professor of Information Systems at Clemson University. He has
5 Chesbrough, H. W. 2007. Why Companies Should Have Open published extensively in the information systems field, with well
6 Business Models, MIT Sloan Management Review (48:2), pp. over 200 publications in major refereed journals. Ten recent articles
7 22-28. have ranked him among the top four researchers based on number
8 DAveni, R. A. 1999. Strategic Supremacy Through Disruption
of publications in the top Information Systems journals, as well as
9 and Dominance, Sloan Management Review (40:3), pp.
citation impact (h-index). Dr. Grover is Senior Editor (Emeritus) for
10 127-135.
MIS Quarterly, Journal of the AIS, and Database. He is currently
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12 Implications for Theory and Practice, Information Systems working in the areas of IT-based strategy, value, identity and process
13 Research (15:2), pp. 132-154. transformation, and recently released his third book on process
14 Gawer, A., and Cusumano, M. A. 2002. Platform Leadership: change. He is recipient of numerous awards from University of
15 How Intel, Microsoft, and Cisco Drive Industry Innovation, South Carolina, Clemson University, Association for Information
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17 Mata, F. J., Fuerst, W. L., and Barney, J. B. 1995. Information Anbar, PriceWaterhouse, and other groups for his research and
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19 Based Analysis, MIS Quarterly (19:4), pp. 487-505. Systems.
20 Pahlke, I., Wolf, M., and Beck, R. 2010. Enterprise Mashup
21 Systems as Platform for Situational Applications, Business & Rajiv Kohli is a Professor at the Mason School of Business, The
22 Information Systems Engineering (2:5), pp. 305-315. College of William & Mary. He serves as a Senior Editor for MIS
23 Pavlou, P. A., and El Sawy, O. A. 2006. From IT Leveraging Quarterly and as a member of editorial boards of several inter-
24 Competence to Competitive Advantage in Turbulent Environ- national journals. Dr. Kohli has worked for Trinity Health and
25 ments: The Case of New Product Development, Information consulted with IBM Global Services, SAS Corporation, United
26 Systems Research (17:3), pp. 198-227. Parcel Service, and Motorola Mobility, among others. He has held
27 Porter, M. E. 1996. What Is Strategy?, Harvard Business Review
positions at the City University of Hong Kong, MIT Sloan School
28 (74:6), pp. 61-78.
of Management, and National University of Singapore. He was an
29 Porter, M. E. 2001. Strategy and the Internet, Harvard Business
Erskine Fellow at the University of Canterbury, New Zealand, and a
30 Review (79:3), pp. 63-78.
visiting Gillings Fellow at the Cambridge Judge Business School,
31 Ramachandran, K., and Krishnan, V. 2008. Design Architecture
32 and Introduction Timing for Rapidly Improving Industrial England. Dr. Kohlis research is published in MIS Quarterly,
33 Products, M&SOM-Manufacturing & Service Operations Management Science, Information Systems Research, Journal
34 Management (10:1), pp. 149-171. of Management Information Systems, and Communications of the
35 Vitale, M. R. 1986. The Growing Risks of Information systems ACM, among other journals. He is a coauthor of the book IT Payoff:
36 Success, MIS Quarterly (10:4), pp. 327-334. Measuring Business Value of Information Technology Investment.
37 Appendix
38 Inter-Grid Movement with Software, Process, and Information in Separate Grids
39 We present three scenarios of inter-grid movements. For simplicity, we present one such movement in a graphical illustration (Figure A1).
40
41 Scenario 1: Software in Fort Knox and Information in Exposure Zone
42 In this scenario, companies protect their software assets, but use information judiciously to increase their value. Figure A1 illustrates online
43 movie rental provider Netflixs movement between software and information components. The in-house algorithm-driven software, Cinematch,
44 is a treasured tool that resides in Fort Knox and recommends movies to Netflix customers. To thwart competitors attempts to imitate, and to
45 improve the predictive ability of Cinematch, Netflix increased information visibility by exposing a dataset of 100 million movie ratings (in
46 Exposure Zone) as part of a US$1millon contest.6 The winning team improved the predictive ability of the Cinematch algorithm by 10 percent
47 thus offering significant value appropriation to Netflix. By carefully managing visibility, Netflix appropriated greater value from data that
6
The contest was called Netflix Prize. More information is available at http://www.netflixprize.com/.

1
2
3 Figure A1. Movement Across Software and Information Grids Shown in Scenario 1
4 would have otherwise remained hidden in Fort Knox. Although by exposing the data Netflix bore some risk of competitor imitation, it managed
5 value by improving the algorithm that was deemed to yield higher net returns.
6
7 Scenario 2: Information in Fort Knox and Software in Exposure Zone
8 In a reverse of Scenario 1, in this scenario a firm opens up its software in order to capture better information. In the case of a fertility monitor
9 micro-application, called Duo-Fertility, CTC increased the visibility of its hidden precision measurement software, thus exposing it to
10 competitor imitation. But it managed the value from information in its database resulting in analytics that remain protected in Fort Knox.
11 CTCs future value may emerge from building superior products by refining instrumentation, understanding differences in human physiology,
12 and expanding into other clinical and health maintenance domains.
13
14 Scenario 3: Software in Public Domain but Process in Exposure Zone
15 In this scenario, firms capitalize on the complementarities between applications and physical assets to manage value. Due to inimitability of
16 assets, such firms are less concerned about managing visibility. Therefore, firms can focus upon managing value by configuring SPI
17 components in high visibility quadrants (Exposure Zone and Public Domain). The Goodyear Tires micro-application software Search and
18 Compare (mentioned in the paper) uses automobile models, driving and performance conditions, and other specifications and is built on
19 commonly used e-commerce tools that reside in the Public Domain. This micro-application links customers to Request a Quote and Dealer
20 Locator applications that can expose Goodyears process of supply and distribution to customers as well as to competitors. However,
21 Goodyear Tires manages value by leveraging its warehouses, dealerships, and tire replacement facilities through managing higher software
22 and process visibility.
23

V V E C D B S: Isions and Oices On Merging Hallenges in Igital Usiness TRATEGY (14-001)

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VISIONS AND VOICES ON EMERGING CHALLENGES IN

DIGITAL BUSINESS STRATEGY (14-001)

Electronic copy available at: http://ssrn.com/abstract=2379579

5 VISIONS AND VOICES ON EMERGING CHALLENGES IN

20 Introduction information-driven transparency will forever change the way

MIS Quarterly Vol. 37 No. 2, pp. 1-XX/June 2013 1

Electronic copy available at: http://ssrn.com/abstract=2379579

2 MIS Quarterly Vol. 37 No. 2/June 2013

Electronic copy available at: http://ssrn.com/abstract=2379579

2 SPECIAL ISSUE: DIGITAL BUSINESS STRATEGY

6 LEADERSHIP IN A DIGITAL WORLD: EMBRACING

MIS Quarterly Vol. 37 No. 2/June 2013 3

4 MIS Quarterly Vol. 37 No. 2/June 2013

5 TRANSPARENCY STRATEGY: COMPETING WITH

21 Background1 End consumers increasingly expect to be very well informed,

MIS Quarterly Vol. 37 No. 2/June 2013 5

6 MIS Quarterly Vol. 37 No. 2/June 2013

1 Table 1. Example of a Firms Transparency Strategy

MIS Quarterly Vol. 37 No. 2/June 2013 7

3 Figure 1. Transparency Strategy Framework

4 Have a Strategy key component of its business strategy, was backed by an

8 MIS Quarterly Vol. 37 No. 2/June 2013

MIS Quarterly Vol. 37 No. 2/June 2013 9

10 MIS Quarterly Vol. 37 No. 2/June 2013

2 SPECIAL ISSUE: DIGITAL BUSINESS STRATEGY

6 VALUE ARCHITECTURES FOR DIGITAL BUSINESS:

MIS Quarterly Vol. 37 No. 2/June 2013 11

8 Figure 1. Value Realities

12 MIS Quarterly Vol. 37 No. 2/June 2013

3 Figure 2. The Historical Forces of Disturbance

Our business practices that Our operational capabilities

Determine the level to which we are willing Value generating activities

6 Figure 3. Value Architecture

MIS Quarterly Vol. 37 No. 2/June 2013 13

14 MIS Quarterly Vol. 37 No. 2/June 2013

15 About the Authors

MIS Quarterly Vol. 37 No. 2/June 2013 15

16 MIS Quarterly Vol. 37 No. 2/June 2013

2 SPECIAL ISSUE: DIGITAL BUSINESS STRATEGY

6 COMMODITIZED DIGITAL PROCESSES AND BUSINESS

MIS Quarterly Vol. 37 No. 2/June 2013 17

1 Table 1. Key Conceptual Developments in Digital Strategy

18 MIS Quarterly Vol. 37 No. 2/June 2013

MIS Quarterly Vol. 37 No. 2/June 2013 19

1 Discussion First, how much advantage do orchestrators really get

20 MIS Quarterly Vol. 37 No. 2/June 2013

9 References About the Authors

MIS Quarterly Vol. 37 No. 2/June 2013 21

22 MIS Quarterly Vol. 37 No. 2/June 2013

5 REVEALING YOUR HAND: CAVEATS IN IMPLEMENTING

26 Introduction1 competitors. Our focus in this article is to raise a note of cau-

MIS Quarterly Vol. 37 No. 2/June 2013 23

24 MIS Quarterly Vol. 37 No. 2/June 2013

1 Managing System Visibility A second approach to managing system visibility is through

MIS Quarterly Vol. 37 No. 2/June 2013 25

3 Figure 1. ValueVisibility Framework

26 MIS Quarterly Vol. 37 No. 2/June 2013

MIS Quarterly Vol. 37 No. 2/June 2013 27

28 MIS Quarterly Vol. 37 No. 2/June 2013

1 References About the Authors

MIS Quarterly Vol. 37 No. 2/June 2013 29

30 MIS Quarterly Vol. 37 No. 2/June 2013

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