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THE IMPACT OF BUSINESS INTELLIGENCE TECHNOLOGIES ON ORGANIZATIONAL ABSORPTIVECAPACITY AND AMBIDEXTROUS INNOVATION COMPETENCE LihBin OhHockHai Teo School of ManagementSchool of Computing Xi’an Jiaotong UniversityNational University of Singapore Xi’an, 710049 Shaanxi, P.R. ChinaSingapore 117590 ohlb@mail.xjtu.edu.cn teohh@comp.nus.edu.sg ABSTRACT Organizations today are faced with the dual challenge of managing intraorganizational information and monitoring a vast reservoir of information from the external environment. Survival requires the effective use of information and decision technologies to gather, manage, and exploit knowledge. This paper proposes a conceptual framework to examine the effects of IT infrastructure and business intelligence technologies on a firm’s information acquisition, assimilation, and exploitation processes. We posit that IT infrastructure flexibility and use of business intelligence technologies are complementary resources, which act as technological enablers to enhance organizational learning and the development of absorptive capacity. We further propose that enhanced organizational absorptive capacity would lead to improved exploitative and exploratory innovation competences (i.e., ambidextrous innovation competence), and subsequently resulting in sustained competitive advantage. We provide several implications for theory and practice based on the proposed framework. Keywords:Business Intelligence Technologies, Organizational Absorptive Capacity, Ambidextrous Innovation Competence, Sustained Competitive AdvantageINTRODUCTION In today’s informationintensive economy where continual knowledge renewal is the basis of competitive advantage, it is strategically important for organizations be it local, regional, or multinational to manage its internal information so as to augment its capacity to learn. This knowledge imperative is further accentuated by the hypercompetition of a fastchanging environment brought about by globalization and the advent of Internet technology. As shorter product lifecycles and dynamic market forces drive the need for innovation, it is likewise vital for organizations to keep abreast of developments in the external environment. This will allow them to deploy strategic maneuvers so as to respond appropriately in a timely fashion. It should be noted, however, that information management in and of itself is insufficient to sustain a strong competitive position – the mere acquisition and sharing of new information or knowledge do not automatically lead to improved firm performance. Rather, information has to be first internalized and transformed into new knowledge, which then has to be exploited or applied in new processes, products or services, before firm performance can be improved. The 1541
process by which organizations achieve this is represented by the concept of absorptive capacity (ACAP), which refers to the firm’s capacity to identify, acquire, assimilate, transform, and exploit knowledge from the environment such that the firm’s behavior is modified “to reflect new knowledge and insights” [7] [13]. Central to the discussion of a firm’s absorptive capacity is information technology (IT) itself. Information Systems (IS) researchers have long studied IT’s potential to enable and expedite the acquisition, processing, storage, sharing, and dissemination of data, information and knowledge. In the area of information acquisition for instance, ‘push’ technologies such as subscription based Really Simple Syndication (RSS) feeds and ‘pull’ technologies such as webbased search engines Google have undoubtedly enhanced the availability of and the ease with which information may be monitored and obtained [13]. Likewise, technologies ranging from groupware, databases, and expert systems collectively facilitate the storage and codification of knowledge, access to existing organizational memory or knowledge sources, and the communication and crosspollination of ideas across organizational units [1] [3]. In addition, we are also witnessing a plethora of specialized business intelligence (BI) technologies such as digital dashboards, which visually present summaries of business data that show ataglance understanding of business conditions and risks through metrics and key performance indicators [12]. Manycommon BI tools are also equipped with Online Analytical Processing (OLAP) capability that supports interactive examination of large amounts of data by apply mathematical modeling and simulation in the measurement and analysis of the likelihood and report of the impact of possible risks. In fact, BI technologies have been rated as the top technology priority by CIOs [6]. Organizational learning scholars have traditionally argued that there is a tradeoff between developing shortterm exploitative competence and longterm exploratory competence [14]. However, there is an increasing call to recognize the importance of simultaneously balancing seemingly contradictory tensions, and to begin to shift their focus from tradeoff (either/or) to paradoxical (both/and) thinking [8]. This has led to an emerging interest in the viability and performance implications of so called ambidextrous organizations. An ambidextrous organization that possesses competences to simultaneously exploit and explore is more likely to achieve superior performance than firms emphasizing one at the expense of the other [15]. Organizations can attain ambidextrous innovative competence by building up its organizational absorptive capacity through the deployment and use of business intelligence technologies. To shed light on the enabling role of BI technologies on organizational absorptive capacity and innovation competences, we propose a conceptual framework that looks inside the black box of how BI technologies could enhance competitive advantage. Synthesizing prior research in IS, organizational learning and strategic management, we present a set of propositions elucidating the relationships between BI technologies, absorptive capacity, innovation competences and sustained competitive advantage. Specially, the main objective of our exploratory effort is to advance renewed knowledge of the antecedents and outcomes of organizational absorptive capacity in the context of business intelligence technologies. We provide numerous implications for theory and managerial practice based on our conceptual developments.
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CONCEPTUAL FRAMEWORK AND PROPOSITIONS Figure 1 presents the framework depicting the proposed relationships between IT infrastructure, business intelligence technologies, absorptive capacity, ambidextrous innovation competence and sustained competitive advantage. We adopted Lane et al.’s (2006) [13] conceptualization of the three sequential processes of exploratory learning, transformative learning, and exploitative learning as firstorder factors to the secondorder factor of ACAP. IT Infrastructure Flexibility P1 Sustained Organizational AmbidextrousP4 P3 Competitive Absorptive Innovation Advantage Capacity Competence Business IntelligenceP2 Technologies
Exploratory Learning
Transformative Learning
Exploitative Learning
Fi ure1. A Framework of IT, Absortive Caacit ,Innovation Cometence, and Cometitive Advantae Impact of IT infrastructure flexibility on absorptive capacity IT infrastructure is the underlying foundation of IT resources upon which core business applications, organizationwide communication capability, data, information, and knowledge transfers are built. IT infrastructure flexibility refers to the speed and ease with which new business applications may be implemented, supported and deployed in the context of IT infrastructure such that organizational flexibility is increased [4]. The dimensions of IT infrastructure flexibility has been conceptualized as i) connectivity – the extent to which technology components can attach to components both inside or outside the organization; ii) compatibility – the ability to share any type of information be it text or more complex forms of data such as a combinations of text, images, or audio; and iii) modularity – the ability to “add, modify, and remove any software, hardware, or data components of the infrastructure with ease and no major overall effort”. IT infrastructure flexibility is characterized by high levels of all three dimensions [4]. Flexible IT infrastructure is required to ensure the seamless flow and sharing of information across the organization. It facilitates and enhances absorptive capacity in that a highly connected, robust, and interoperable IT infrastructure can augment and enhance the firm’s information acquisition, assimilation, and exploitation processes. Organizations with high level of IT infrastructure flexibility would find it easier to engage in the various ACAP processes. We thus posit that an organization’s IT infrastructure flexibility positively influences its absorptive capacity. Proposition 1 (P1): The degree of IT infrastructure flexibility is positively related to the degree of organizational absorptive capacity. Impact of business intelligence technologies on organizational absorptive capacity Business intelligence technologies encompass a broad range of applications and practices for the collection, integration, analysis, and presentation of business information, with the overriding objective to support better business decision making. In the past, BI tools like decision support
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systems were only available to senior executives. With the advent of Internet and proliferation of Web 2.0 applications, business intelligence has been made accessible to employees at lower levels. While senior managers and analysts have access to more specialized BI tools like digital dashboards, OLAP and data mining, more junior employees can now also use search engines and subscribe to RSS feeds to monitor competitors’ actions (e.g., press releases) and customers’ feedback on new media such as blogs. Coupled with the access to feebased subscription databases (e.g., industry indicators, statistics and technological developments news), the acquisition process of external information has been markedly increased over the years. Besides, most organizations have in placed knowledge management systems (KMS) to integrate internal information with externallyacquired information. With the advancements in groupware technologies such asLotus NotesandMicrosoft Office Sharepoint, organizations can now more effectively engage in knowledge sharing, assimilation and exploitation. Expectedly, the use of such BI technologies would enhance the informationintensive absorptive capacity processes significantly. We thus posit that the greater the use of BI technologies in the organization, the higher the degree of organizational absorptive capacity will be. Proposition 2 (P2): The level of business intelligence technologies use is positively related to the degree of organizational absorptive capacity. Impact of organizational absorptive capacity on ambidextrous innovation competence Innovation has been regarded as an importance outcome of enhanced organizational learning and absorptive capacity. The building of exploitative innovation competence is necessary for firms to respond to current opportunities and threats to survive in the short term. Concurrently, they must develop exploratory innovation competence that provides strategic options for meeting future demands. Organizational survival requires a balance of engaging in sufficient exploitation for current viability, and at the same time, devoting enough energy to exploration to ensure future viability [14]. Ambidextrous organizations have the capacities to compete in both mature markets (where cost and efficiency are essential) and develop new products and services for emerging markets (where innovativeness and speed are critical). In increasingly turbulent markets, organizations need to be flexible so that they can respond quickly to competitive threats yet remain stable so they can learn and grow based on their strengths [16]. By taking a process oriented view of absorptive capacity as three sequential constituent processes of exploratory learning, transformative learning, and exploitative learning, we expect that enhanced capability in these three ACAP processes would result in the nurturing of both exploitative and exploratory innovation competences. Hence, we posit that: Proposition 3 (P3): The degree of organizational absorptive capacity is positively related to the level of ambidextrous innovation competence. Impact of ambidextrous innovation competence on sustained competitive advantage Assets and capabilities that are hard to imitate, less visible, nonsubstitutable, and valuable, are regarded as sources of competitive advantage [19]. Competitive advantage may be accrued when the value derived from the production of products and services surpasses that of the opportunity costs incurred by the organization in the utilization of the resources necessary to produce the outputs in question. Sustained competitive advantage arises when competitors face significant challenges in acquiring, developing, and using the resources underlying the value creating strategy [17].
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Innovations create economic value by increasing the efficiency with which current goods and services are produced, improving their quality, or by creating entirely new products for which there is market demand [5]. More precisely, exploitative innovation competence impacts competitive advantage through improvements to quality (enhancing the value of the organization’s current products and services) or production efficiencies (reducing the costs of production), while exploratory innovation competence creates competitive advantage through radically new products and services that captures emerging markets and customers. First mover advantages may also be enjoyed by firms with exploratory innovations, to the extent that the innovating firm is able to protect its innovation from imitation by competitors. Exploitative innovation enhances the firm’s current competitive position while exploratory innovation enhances the firm’s future viability. We regard exploitative and exploratory innovation competences as simultaneously achievable and hence orthogonal [9]. Therefore, we consider firms as possessing ambidextrous competence if they score high on both exploitative and exploratory competences. Consequently, the product of the two scores would offer a good proxy measure of ambidexterity [10]. When exploitive and exploratory competences are treated as orthogonal, a positive interaction effect would suggest that exploitative and exploratory competences add value to each other to improve firm performance [9]. Organizations must meet current customer requirements and new customer demands, and be able to deal simultaneously with the inconsistent demands of exploitation and exploration [2]. They focus on exploiting existing capabilities to reduce cost and increase profits while at the same time exploring new opportunities for growth [15]. Lending support to these paradoxical demands, Rivkin and Siggelkow (2003) [18] found evidence in their simulation results for a need to balance the attributes of stability and search in an organization so that the organization may improve its performance. We thus posit that ambidextrous innovation competence will positively influence sustained competitive advantage. Proposition 4 (P4): The level of ambidextrous innovation competence is positively related to the degree of sustained competitive advantage. DISCUSSION AND IMPLICATIONS Our proposed framework has laid the groundwork to address the role of IT, in particular business intelligence technologies in building organizational absorptive capacity, innovation competences, and sustained competitive advantage. It advances our knowledge about the processes to which IT can lead to sustained competitive advantage by delving into the mediating mechanisms of IT enabled ACAP and innovation competences. There are numerous managerial and theoretical implications that can be derived from our framework. Implications for Practice The framework holds several implications for managers looking to increase their organization’s capacity to absorb new knowledge through IT. We argue that the effective use of business intelligence technologies, when combined with flexible IT infrastructure, strongly enhances the informationintensive processes of ACAP. This explicates the vital role of IT as a resource that enables value derivation from other core organizational resources. Next, we propose that organizations that have attained a high degree of ACAP through exploratory learning, transformative learning, and exploitative learning would be able to achieve ambidextrous innovation competence leading to sustained competitive advantage. Organizations aspiring to
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improve their competitive positions should be mindful of the central role that ACAP has in enhancing their shortterm and longterm viability. Implications for Theory First, this paper contributes new perspectives to current stream of work on ACAP by incorporating the construct as a core component in the framework. Past studies citing ACAP have mainly included it as a mere ritual citation, contributing to the reification of the concept [13]. Our framework offers a renewed examination of ACAP and innovations in the context of business intelligence technologies. Next, by synthesizing the more recent processoriented view of ACAP, and by linking it to innovation outcomes, we provide a more holistic view of ACAP as secondorder construct composed of three sequential and equally important processes. By operationalizing ACAP as processes and innovation as an outcome separately, we also rectified the common problem of previous studies which measured both ACAP and innovation in an outcomeoriented manner, as patents and new products. Third, to the best of our knowledge, our proposed framework is the first attempt to study the complementary effects of IT infrastructure flexibility and business intelligence technologies, thereby extending the understanding of both as integral aspects of an organization’s knowledge management capability, which is an increasingly crucial factor in business responsiveness. Fourth, we offered conceptual developments to support the concept of ambidexterity in an organizational innovation context. This is of particular relevance to IS researchers who have interest in exploring the contributions of information technology to the development of organizational ambidexterity. It also provides useful foundation for other researchers in ITenabled organization designs. The present informationintensive era offers both opportunities and threats to organizations. Competitiveness hinges on the organization’s ability to effectively leverage on IT to acquire, manage, assimilate and exploit information.By taking a processoriented perspective of organizational absorptive capacity, and examining its IT enablers as antecedents and innovation competences as outcomes, the proposed framework would serve as a guiding foundation for future work on the role of information technologies in enhancing organizational absorptive capacity and innovation activities. REFERENCES References available upon request from the first author.
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