Digital TransformationsA Research Programme at London Business School

Funded by the Leverhulme Trust

ICT, Industry Architectures & Globalization

Michael G. Jacobides, Principal Investigator

From Micro back to More Macro:How ICT leads to Global Changes

ICT does relate to greater geographical dispersion – but

– …we need to understand what can be done and what cannot

– And also consider how to complement ICT with other coordination

So, how exactly does ICT affect global dynamics?

– Changes both in capabilities and in modularization…

– …driven, surprise, surprise, by those who can benefit

Study of same sector in different countries: Big differences

– Each country a different way to chop up the value chain

– Study of US mortgage banks and EU construction firms

An example from Construction, pun included: Under-

standing what architects do, and why they don’t globalize

“Although architecte, architect, arkitekt, architetto, and Architekt appear to mean

the same thing, they do so only in a limited sense. All are designers of buildings,

and all share a common root in the Greek architekton, but the historical evolution

of the contracting systems means that their social meanings are very diverse,

and that even their functional meanings are not coextensive. The French

architecte has a much more constrained and limited role in the construction

process than the British architect; the German Architekt has a state-derived role

in obtaining building permits which the British counterpart does not, and so on. In

the case of some actors such as the German Prufstatiker, the British quantity

surveyor, and the French bureau de controle, there is simply no close

comparator in other systems.”

(Quote from Winch, 2000)

So, how do Industry Architectures drive Globalization?

And how do Globalization Prospects shape Architectures?

Each country has a particular way of organizing it value chain

– Local forces shaping how you divide labour- entrenched interests

– Along with different “vertical modules” come different capabilities

Exporting your capabilities depends on whether you “fit” the module

– Sectors which differ (many service sectors) are slower to globalize

– …as your capabilities must “fit” and the modules must be consistent

But as sectors homogenize great opportunities & threats arise

– Those who stand to gain help global homogenization – Pandora’s box!

– Technology, standards, regulation and lobbying change architectures

The Global Business a-ha:How ICT directly and indirectly shapes globalization

As value chains de-construct, new opportunities emerge

– “Dis-integration of production and integration of trade”

– Increase in intermediate trade as a result of changes in value chains

Opportunities for outsourcing boosting trade in services

– Together with a reduction of transportation costs

– Lower taxes; lower transport costs for labour; capability building

New opportunities lead to further skill and specialization…

– India used to be attractive because of low labour costs; no longer true!

– Superior capabilities and centres of excellence built across the globe

A new path-way for IT: Leading Architectural Convergence

IT leads to convergence in the way labour is divided

– Technological structures and interoperability: Read, entry

– Standards are not innocent – and change global dynamics

New capabilities relating to ICT lead to new sectors

– Segments cutting across traditional boundaries: Offshoring dynamics

– Centres of excellence in India, Viet-nam…

More “open” firm and industry ICT architectures change the game

– Global value chain homogenization an important issue

– Substantial changes in global division of labour

How competition differs in the ICT-enabled world:

Building Architectural Advantage

Gain architectural advantage – manage the position in your sector

– Where does profit flow to? How did MSFT beat Apple and IBM?

– How can we build architectural advantage, controlling without owning?

Use strategic business design – capitalize on dynamic architectures

– If we were not born with a silver spoon, what can we do?

– How can we move beyond just “saving costs” by outsourcing?

Invigorating firms by linking to the markets: How ICT can help

– How can we change the very capabilities of a firm through design?

– Beyond outsourcing: Harnessing the disciplining power of the market

Theme 3 in the Programme’s context: Linking Across Levels of Analysis

International differences = f division of incentives & power

– Differences may relate to unobserved structural heterogeneity

– Why some puzzles are not puzzling after all…

Even if no divide in use, divide in ICT impact

– ICT can transform sectors or firms if some BPR can take place

– But many sectors require complements and reasons to have ICT do its trick!

In addition to practices, we care about processes

– ICT is a complement. Not a solution; it combines with strategy

– Wal-Mart & ICT. Brokers & ICT. What makes a difference?

ICT and Changing Boundaries:Some Provocative Policy Implications

Policy that focuses on subsidies on PC or telephone uptake may be socially

wasteful and managerially irrelevant

– “Bottlenecks” are what matters; and “hard” technology is always the bottleneck

In addition to “practices”, “processes” must be looked at

– Complementarity with ICT investment at the level of an industry (US paradox?)

ICT’s do not automatically lead to disintegration

– But, state-of-the-art ICT can lead to more effective organizations, f (BPR)

ICT may lead to global changes through value-chain homogenization

– More “integration of trade through dis-integration of production” and the creation

of global centres of excellence

Some concluding thoughts:

Deferring to the Princes of Light and Darkness

“Wars in every period have independent forms and independent conditions, and, therefore, every period must have its independent theory of war.”

Karl von Clausewitz, On War, 1837.

“As regards the form of fighting, it is unconditionally requisite that history be investigated in order to discover the conditions of environment, the state of economic progress, and the political ideas that obtained... [as] progressive changes in conditions create new methods [of fighting].”

Lenin, On Guerilla Warfare, 1937