The Impacts of Information Technology, the Internet and Electronic Commerce on Firm and Industry Structure: The Personal Computer Industry
Year: 2002
Type: article
Abstract: The adoption of information technology is expected to have major impacts on firm and industry organization.We study the personal computer industry, and find a shift from supply-driven to demand-driven production, accompanied by the creation of a modular production and distribution network.The use of IT has been a key enabler of both trends, allowing firms to coordinate more complex business processes associated with demand-driven production, to standardize data transfers among firms, and to reduce the asset specificity of investments made by PC makers and their suppliers. I.The impact of IT has been threefold.First, the internal information systems of PC makers have enabled them to manage the increased complexity of demand-driven production.Second, the internal information systems of outside specialists such as contract manufacturers and distributors enable them to take over larger pieces of the value chain and manage complex processes on behalf of the PC makers.Third, interorganizational information networks such as EDI, e-commerce networks, and the Internet link members of the value chain electronically and enable them to standardize and automate the transfer of complex data.This helps reduce external coordination costs and increases flexibility in organizing appropriate value chains for different products and markets.For the most part, major changes in firm and industry structure have been driven by competitive pressures in the industry and strategic responses to those pressures.However, IT, the Internet and e-commerce have played a critical role in supporting the restructuring of business processes, for instance by allowing firms to adopt highly complex demand-driven production processes in a high-volume, high-speed environment.As such, they have enabled changes in the organization of firm value chains, as well as in the structure of the industry's global production and distribution network. II. TheoryForms of economic organization Williamson (1975) identified two ways of organizing economic activity: markets and hierarchies.Markets organize value chain activities by means of arms-length transactions between independent firms or individuals, with decisions based primarily on price.Hierarchies organize activities within the boundaries of the organization, using managerial authority to make and execute decisions.Ensuing research, including that of Williamson himself (1985), as well as Powell (1990) Clemons et al., (1993), Wigand (1997), Bakos and Brynjolffson (1997), Dyer and Singh (1998), and Helper et al. (2000) have argued that a third type of organizational form is increasingly prevalent in many industries-the network organization.1 Powell (1990) states that networks "involve neither the explicit criteria of the market, nor the familiar paternalism of the hierarchy."Instead, "one party is dependent on resources controlled by another and there are gains to be had by the pooling of resources."According to Wigand (1997), these networks are based on trust, and enable the network members to gain or sustain competitive advantage vis a vis competitors outside the network by reducing both production and coordination costs.Examples of such networks include subcontracting relationships in the construction industries, supplier networks in Japanese industry groups (keiretsu), Italian industrial districts, and technology districts such as Silicon Valley. 2 1 Different authors use different terms, such as strategic network, value-added partnership, community or virtual organization to refer to this type of organizational structure.They also define these structures somewhat differently, and in most cases acknowledge that they are describing a stylized form of organization (e.g., see Powell, 1990, p. 300) . 2 Other explanations have been offered for the organizational forms adopted by firms and industries outside the U.S. For instance, the Japanese keiretsu and Korean chaebol forms of industrial groups have been explained as partly the result of government industrial policy incentives (Dore, 1986;Amsden, 1989;Wade, 1990), while Chinese business
Authors: Jason Dedrick, Kenneth L. Kraemer
Institution: University of California, Irvine
Language: English
Subfield: Management Information Systems
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W267405532