IT INNOVATION PERSISTENCE Theophanis C. Stratopoulos Jee-Hae Lim And Tony Wirjanto University of Waterloo

Motivation: IT Innovation IT investments are the largest capital spending item Average IT spending among large US firms $ million/year Average IT Innovation (Investments in new IT products and services) is $50-90 million/year

Motivation: The IT Confidence Index (ITCI) + Wall Street Journal (9/16/85) … large retail chains make strategic use of computers in their drive for competitive advantage

Motivation: The IT Confidence Index (ITCI) - Washington Post (2/1/1987), … corporate America is in the ‘throes of self-doubt and angst about the economic value’ of investments in new IT

Motivation: The IT Confidence Index (ITCI) - Financial Times (11/27/1990) … opinion surveys among top executives made the IT investment paradox painfully clear

Motivation: The IT Confidence Index (ITCI) + Minneapolis Star Tribune (12/5/1994) … computers and high tech satellite location systems helped truckers save time, fuel and money

Motivation: The IT Confidence Index (ITCI) + Financial Times (1/8/1997) … Internet has become the number one key for gaining competitive advantage

Motivation: The IT Confidence Index (ITCI) - Financial Times (3/31/2000) … IT investment are causing discontent in corporate boardrooms

Motivation: The IT Confidence Index (ITCI) - Harvard Business Review (3/2003) “IT Doesn’t Matter”

Motivation: The IT Confidence Index (ITCI) + Economist (4/7/2005) … 90% of managers from around the world think that IT could still create a competitive advantage for their firm

Motivation: The IT Confidence Index (ITCI) periods of optimism, in which IT innovation is celebrated as a panacea for all business ills, followed by periods of pessimism, in which doubt prevails about the value of investing in new IT, with persisting arguments regarding the ease with which IT can be replicated

Motivation: IT Innovation Persistence “Wal-Mart … was the first to computerize, the first to use wireless, the first to really deploy RFID, on which Wal-Mart is really pioneering from the retail end. … they adopted and adapted faster to new technology than any other retailer in the world. And you've got to give them credit for that. You've got to worry about and be troubled by some of the brutal side of their business practices. But at the end of the day … [they] … out- innovated all their competitors.” Chanda, N. (2005) 'Wake Up and Face the Flat Earth' – Thomas L. Friedman. In an interview, columnist and author Thomas L. Friedman says globalization has outpaced its critics, YaleGlobal, 18 April 2005, Accessed on March 29, 2007.

Research Questions 1.How likely is it that a firm that has out- innovated its competitors this year will be able to repeat this performance in the following year? 2.How do fluctuations in industry-wide managerial attitudes towards IT affect the persistence of IT innovation? 3.In other words, how long does it take for a firm to acquire and develop the ability to out- innovate its competitors?

Method - Data Set Information Week 500 (IW500): … companies are evaluated in terms of their business- technology strategies and deployment of investments in IT architecture, infrastructure, business, and e-business application. Incidentally, IT budgets are not a deciding factor in the rankings. The end result is an annual list of 500 firms that are classified as IT innovators because they have demonstrated a “consistent pattern of technological, procedural, and organizational innovation.”

Method - Data Set A sample from the list of innovators Non-Innovative firms are not represented in IW500.

Method - Data Set Criticism: “IT Innovation does not lead to sustainable competitive advantage because it is easily replicated by competitors” Using Hoover’s Handbook, we identified up to three top competitors of comparable size for each one of the IT innovative firms in our first dataset. Limiting our selection to direct competitors, we were able to control for size (revenue) and industry structure (SIC classification).

Method - Data Set

Method - Descriptive Analysis Transition Probability Matrix (TPM) approach leverages the cross-sectional and time series information by describing the evolution of a cross section distribution over time. F t+1 =P*F t – F t+1 maps the distribution of IT innovativeness across firms in period t+1 – F t maps the distribution of IT innovativeness across firms in period t, and – P maps one distribution into another and tracks where points in F t end up in F t+1. The TPM (P) captures information regarding the mobility of firms and the persistence of the IT innovation process. The elements of the TPM are the probabilities (p ij ) that a firm will move from, let’s say, the status of non-IT innovator (i) in period t to the status of IT innovator (j) in time t+1. The typical TPM will look as

Results

Method: Dynamic Panel-Data Random Effects Probit

Results

Limitations Analysis based on the premise that a company’s listing in InformationWeek is a true measure of IT innovation. While InformationWeek is a well-respected and widely used source of secondary information on IT, we cannot confirm that the companies ranked in the list of IT innovators are independently evaluated each year Since empirical results are consistent with the anecdotal evidence offered by numerous firms in our dataset, we feel that it does not compromise the overall message and implications for managers

Implications for Research IT Innovation (Investments in new IT products and services) has been justified as a source of superior financial performance Hypercompetition = no one-time resource- related investment that can lead to sustainable competitive advantage If we want to analyze the sustainability of payoffs from IT innovation, we will have to start with the sustainability of the capability to innovate with IT Future Research: Antecedents of and Payoffs from the IT innovation capability

Implications for Managers Avoid investing in new IT due to pressure from peers, vendors or other external source If you decide that it makes sense to compete with new IT, consider this as a long-term rather than a short-term strategy While competing firms may be able to acquire and replicate individual IT innovations, it will take them longer to understand and copy the ability to innovate with IT over time

Implications for Managers If you can keep your head when all about you Are losing theirs … -Rudyard Kipling