The impacts of it on firm and industry structure

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The Impacts of IT on Firm and Industry Structure:

Jason Dedrick Kenneth L. Kraemer

he use of information technology (IT) is thought to have wideranging consequences for the organization of economic activities within firms and across firm boundaries. The adoption of IT within firms has been closely associated with organizational changes such as processrestructuring and the elimination of layers of management.1 As companies have applied IT to improve their internal processes, they also have developed interorganizational systems (IOS) linking suppliers, customers, and business partners to improve efficiency throughout the value chain.2 The Internet has increased the potential impacts of IT by lowering the cost and expanding the reach of electronic networksfar beyond those of earlier proprietary systems. Because of the explosive growth in Internet-based electronic commerce since the mid-1990s, along with continued growth in IT investment, it is important to look closely at the impacts of such technologies on the value chains of individual firms and the production networks of entire industries. Major changes in firm and industry structure have occurredin the PC industry since the mid-1990s, driven by technological change, competitive pressures, and strategic responses to those forces. PC vendors have adopted demanddriven, build-to-order production techniques and have outsourced functions in the value chain to outside partners in order to reduce costs and to respond more quickly to changes in a volatile market. PC makers increasingly focusinternal efforts on core activities such as marketing, sales, and product management. They coordinate other activities such as product development, manufacturing, distribution, and customer service with external partners who include contract


This research has been supported by grants from the Alfred P. Sloan Foundation, and the U.S. National Science Foundation (CISE/IIS/DST). The authors wouldlike to thank Thomas Malone, Rolf Wigand, Tim Sturgeon, and two anonymous referees for valuable comments and suggestions.



VOL. 47, NO. 3


The Impacts of IT on Firm and Industry Structure: The Personal Computer Industry

manufacturers (CMs), original design manufacturers (ODMs), logistics providers, distributors, and various servicespecialists. At the industry level, a broad value network has developed that encompasses specialized industry clusters in the U.S., Taiwan, China, and elsewhere, yet this network is global in scope and not bound by the need for physical proximity. The capabilities of this network allow PC makers flexibility in configuring value chains for different products and markets. Information technology hasplayed a critical role in supporting the growth of this flexible value network. First, the internal information systems of PC makers have enabled them to manage complex demand-driven processes. Second, the internal information systems of outside specialists (such as CMs, ODMs, distributors, and logistics specialists) enable them to take over broad processes such as order fulfillment (including assembly)and new product development. Third, interorganizational systems link members of the value network electronically, enabling them to standardize routine processes and transfer data in real time to operate in a high-volume, high-clockspeed environment.

Industry Structure:Theory and Overview of Findings
Transaction cost theory identifies two ways of organizing economic activity: hierarchies andmarkets.3 Hierarchies organize activities within the boundaries of the organization, using managerial authority to make and execute decisions. Markets organize activities by means of arm’s-length transactions, with Jason Dedrick is executive director of the Personal decisions based on price. According to Computing Industry Center and senior fellow at the transaction cost theory, firms chose...