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Information Technology and Resource-Based

Theory

A Research Report

presented to

The Graduate School of Business

University of Cape Town

In partial fulfilment of the requirements for the

Masters of Business Administration Degree

by

Gennis V Makura

1 December 2001

Supervisor: Kurt April

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PREFACE

This report is not confidential and may be used freely by the Graduate School of

Business except for the interview transcripts.

I would like to thank the following people for their assistance:

My supervisor, Kurt April, for coming up with this research idea and for all his

guidance and the constant enthusiasm that he showed throughout the research report

process. I would also like to thank him for giving me the names and contact details of

most of the people interviewed for this report and for lending me his dictaphone to

record the interviews.

My brother, Stewart Makura, for his moral and financial support throughout the year

and for the giving me the names and contact details of some of the people I

interviewed for this report.

Finally I would like to thank all the people I interviewed for this report. This research

would not have been possible without their kind cooperation.

I certify that, except as noted above, the report is my own work and all references

used are accurately reported.

Signed:

GENNIS MAKURA

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ABSTRACT

This research report investigates the link between information technology (IT) and the

applicability of the resource-based theory. The resource-based view, or theory, is

based on the idea that competitive advantage can only be maintained if it is based on

the unique capabilities of a firm that are difficult for its competitors to imitate. A

firm’s ‘set of complementary resource combinations’ result from bundles, or

combinations, of certain assets and resources. The research investigated whether IT

was part of the complementary resource combinations that give rise to competitive

advantage.

One-on-one interviews were conducted with strategy and marketing executives, IT

directors, chief information officers, heads of business units and heads of IT units in

the major financial services firms in Cape Town. It was found that IT is considered a

“key enabler” in financial services firms, and that IT is necessary, but not sufficient,

for a firm to have competitive advantage. The research also showed that the

managers that were interviewed are aware of their firms’ sources of competitive

advantage. Evidence to support the hypothesis that the senior management of a firm

are central to the success of resource-based strategies within financial services firms

in South Africa was found.

Finally the research found that IT is a part of the complementary resource

combinations that give rise to competitive advantage in the firms studied.

Keywords: Information technology, resource-based view, resource-based theory,

competitive advantage, financial services

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TABLE OF CONTENTS

1 IMPORTANCE OF RESEARCH .........................................................................6

2 LITERATURE REVIEW.......................................................................................7

2.1 STRATEGY AND COMPETITIVE ADVANTAGE......................................................7 2.2 THE ORIGINS OF RESOURCE-BASED VIEW ........................................................9 2.3 THE RESOURCE-BASED VIEW/THEORY.............................................................9 2.4 DEFINITIONS OF RESOURCES............................................................................11 2.4.1 ASSETS OR RESOURCES...............................................................................11 2.5 THE SEVEN ELEMENTS OF RESOURCE-BASED SUSTAINABLE COMPETITIVE

ADVANTAGE ......................................................................................................14 2.6 INFORMATION TECHNOLOGY AS A STRATEGIC RESOURCE ............................15 2.7 IT AND COMPETITIVE ADVANTAGE .................................................................16 2.8 STRATEGIC NECESSITY OR BURDEN ................................................................17 2.9 IT, SUSTAINABILITY AND RESOURCE-BASED THEORY ...................................18

3 RESEARCH METHODOLOGY ........................................................................21

3.1 INSTRUMENTATION ...........................................................................................21 3.2 RESPONSE RATE................................................................................................23 3.3 SCOPE AND LIMITATIONS OF THE RESEARCH..................................................23 3.4 ANALYSIS...........................................................................................................24

4 RESEARCH FINDINGS......................................................................................25

4.1 INTRODUCTION..................................................................................................25 4.2 IT, SUSTAINABILITY AND RESOURCE-BASED THEORY ...................................25 4.2.1 ENVIRONMENTAL FACTORS........................................................................26 4.2.2 FOUNDATION FACTORS...............................................................................26 4.2.3 ACTION STRATEGY .....................................................................................29 4.2.4 THE LINK BETWEEN IT AND THE APPLICABILITY OF THE RESOURCE-

BASED THEORY ............................................................................................30 4.3 INFORMATION TECHNOLOGY IS NECESSARY, BUT NOT SUFFICIENT, FOR A

FIRM TO HAVE COMPETITIVE ADVANTAGE.......................................................30 4.4 THE MANAGEMENT OF A FIRM IS UNAWARE OF ITS SOURCES OF

COMPETITIVE ADVANTAGE ..............................................................................32 4.5 THE SENIOR MANAGEMENT OF A FIRM ARE CENTRAL TO THE SUCCESS OF

RESOURCE-BASED STRATEGIES WITHIN FINANCIAL SERVICES FIRMS IN SOUTH AFRICA. .............................................................................................................32

4.6 COMPLEMENTARY RESOURCE COMBINATIONS ..............................................33

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5 CONCLUSIONS ...................................................................................................34

6 FURTHER RESEARCH......................................................................................35

7 REFERENCES......................................................................................................36

8 APPENDIX A ........................................................................................................42

9 APPENDIX B ........................................................................................................47

10 APPENDIX C.......................................................................................................48

11 APPENDIX D.......................................................................................................49

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1 IMPORTANCE OF RESEARCH

With the advance of globalisation, distances to market are becoming smaller; the

world is becoming a global village. This trend, coupled with the opening of South

Africa’s borders to foreign competitors, makes it vital for South African companies to

be well equipped to face the competition. Given the speed with which technology is

advancing, it is imperative for South African firms to keep up with their peers

worldwide. Now more than ever, there is a need for organisations to identify exactly

what it is that they are good at. They need to identify these core competencies so that

they can use them to survive in this new millennium.

This research report is aimed at helping them to do that. It will look at the link

between information technology and the applicability of resource-based theory. Since

it is no longer guaranteed that a firm will have exclusive access to a particular

resource in the future, firms have to find new ways to distinguish themselves from the

competition. The resource-based view, or theory, suggests that firms need to look

inward for this, whilst keeping an eye on the external factors. This research is

important in that it aims to help the leaders of financial service companies in South

Africa to discover the unique combinations of resources that give their organisations a

competitive edge. The research investigated the role of information technology in

these bundles of resources.

This research report tested the following hypotheses:

1) Information technology is necessary, but not sufficient, for a firm to have

competitive advantage.

2) The management of a firm is unaware of its sources of competitive advantage.

3) The senior management of a firm are central to the success of resource-based

strategies within financial services firms in South Africa.

Before presenting the research methodology and findings, a literature review was

considered appropriate as necessary background to understanding the underpinning

resource-based view of a firm.

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2 LITERATURE REVIEW

2.1 Strategy and Competitive Advantage

The simplest way to describe strategy is; “a specific plan of action directed at a

specified result within a specified period of time” (Andrews, 1980: vi). The idea of

corporate strategy was popularised in the 1980s by Michael Porter when he published

his five forces model of strategic analysis, which is shown in Figure 1.1 below. Porter

(1980) suggested that competition, in any industry, was based on its underlying

economic structure. In order to fully understand the competitive forces within a

certain industry, one had to look beyond current competitors and include customers,

suppliers, firms producing substitute products and potential entrants.

Figure 1.1 Porter’s Five Forces Model (1980)

The objective of strategic analysis is for the firm to come up with strategies that allow

it to gain an advantage over its competitors. Porter (1980) highlighted three such

strategies: low cost leadership, product differentiation and the pursuit of niche

markets. From an industrial organisation point of view, competitive advantage is

attained when a firm outperforms its rivals by offering cheaper products or services,

or by distinguishing its products or services so that customers are prepared to pay a

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premium for them (Lado, Boyd and Wright, 1992). These strategies are concerned

with the external view of the organisation.

Porter introduced the idea of a ‘value chain’ in 1985 (Figure 1.2). A value chain is

basically a collection of value activities. “A firm’s value chain is embedded in a

larger stream of activities (value system),” and a business is a “collection of value

activities that are performed to design, produce, market, deliver, and support its

product” (Porter, 1985: 34). Porter suggested that there were two types of value

activity: primary and support. Primary value activities were inbound logistics,

operations, outbound logistics, marketing and sales, and service. Support activities

were defined as firm infrastructure, human resource management, technology

development, and procurement. Support activities are there to improve primary

activities over time.

Figure 1.2: Porter’s Enterprise Value Chain (1985)

By breaking a firm into its value activities, a manager could understand cost

behaviour and identify possible bases for differentiation. Porter argued that the

difference in value chains between firms was a source of competitive advantage. This

was a slight departure from his five forces model, which focused on the external

environment as a source of competitive advantage.

Whilst most discussion of strategy and competitive advantage in the 1980s focused on

an external view, some researchers were turning their attention to the internal view of

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a firm. The concept of ‘distinctive competence’ was put forward by several authors

(Hofer and Schendel, 1978; Snow and Hrebiniak, 1980; Hitt and Ireland, 1986; 1985).

Hamel and Prahalad (1990) defined a ‘core competence’ as a capability or skill that

provided the thread running through a firm’s businesses, weaving them together into a

coherent whole. In 1991, Teece, Pisano and Shuen wrote about firms competing on

capability. This internal focus looked at resources and their importance in the

development of strategy and competitive advantage.

2.2 The Origins of Resource-based View

In 1959, before strategy was considered a separate academic subject, Penrose, an

academic economist, turned economic thinking on its head. She did this by

suggesting that what happened inside the firm was just as important as what was

happening outside the firm. After exploring how firms grew, Penrose concluded that

this was related to three things: the firm’s resources, its past history and its evolution

over time. In 1962, Chandler published a study of four major US companies whose

findings were similar to Penrose’s. These two authors together, with Chamberlin

(1933) and Selznick (1957) are credited with pioneering the resource-based view, or

theory, of strategy. Table 1.1 overleaf is a summary of some of the contributions that

led to the development of the resource-based view, or theory.

2.3 The Resource-Based View/Theory

The resource-based view, or theory, is based on the idea that competitive advantage

can only be maintained if it is based on the unique capabilities of a firm that are

difficult for its competitors to imitate. That is, a firm’s resources must present

‘barriers to imitation’ (Rumelt, 1984) to its competitors.

Resource-based theories of the firm stress how a firm’s resources include tacit skills,

patterns of co-operation and intangible assets that take time and learning to evolve.

These resources cannot be traded, changed or imitated with ease. The origin of a

firm’s competitive advantage, therefore, lies in what is unique and embedded in its

resources – these constitute its core and distinct competencies (Grant, 1991).

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Author(s) Date Summary

Wernerfelt 1984 Companies were seen as a collection of resources rather than

holding market positions in the development of strategy

Barney 1986,

1991

Competitive market imperfections, market entry barriers and other

constraints require differing company resources and the

immobility of resources for the development of successful strategy

Rumelt 1987 Importance of resources in strategy development

Dierickx and

Cool

1989 Strategic assets are developed internally, not acquired. Such

assets take time to develop.

Schoemaker 1990 Identified factors important in determining useful assets. Some

assets not readily tradable because of specialist skills, know-how

and reputation

Prahalad and

Hamel

1990 Key resources: skill and technologies called core competencies

Peteraf 1990 Identified four distinguishing features of resources

Grant 1991 Definition of resources, capabilities and competitive advantage

Connor 1991 Resources long lived, difficult to imitate

Amit and

Schoemaker

1993 Explored processes through which resources are developed, e.g.,

bounded rationality

Kay 1994 Identified the three most important resources as the firm’s ability

to innovate, its reputation and its network of relationships inside

and outside (architecture)

Teece,

Pisano and

Shuen

1997 Explored the changing nature of resources

Table 1.1 Recent contributions to the development of the Resource-Based View

Lynch (2000 : 279)

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2.4 Definitions of Resources

The first part of this section will look at how various authors define resources and

capabilities. In the second part of this section, the definitions of resources and

capabilities, for the purposes of this research will be given.

Grant (1995) claims that ‘resources’ are inputs into the production process – they are

the basic units of analysis, but, on their own, few resources are productive. The

individual resources of a firm include items of capital equipment, skills of individual

employees, patents, brand names, organisational culture and finance. Productive

activity, according to Grant, requires the co-operation and co-ordination of teams of

resources. Wernerfelt (1984) defined a firm’s resources, as those tangible and

intangible assets which are semi-permanently tied to the firm, e.g., brand names, in-

house knowledge of technology, employment of skilled personnel, trade contracts,

machinery, efficient procedures, capital, etc. Several other researchers (Barney, 1986;

Itami, 1987; Aaker, 1989; Porter, 1991; Mahoney and Pandian, 1992; Black and Boal,

1994) use the terms ‘assets’ and ‘factors’ when decomposing firm resources into

combinations of resource ‘factors’ or ‘assets’.

In the interests of clarity, I will set out definitions of some important terms for the

purposes of this research proposal. Since this research is a continuation of the

research by April and Cradock 2000) it will use the same definitions that they used in

their research.

2.4.1 Assets or Resources

These vary from common inputs like labour and raw materials to brand names that

have been developed over a number of years and are difficult to imitate. Collis and

Montgomery (1995) have classified resources/assets broadly as tangible, intangible

and organisational capabilities.

Tangible resources – these are the easiest to value. This type of resource

exists in a physical form and includes raw materials, real estate and production

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facilities among others. Although these resources are essential to a firm’s

strategy they are not usually a source of competitive advantage because they

are usually available to all competitors.

Intangible resources – this type of resource does not exist in physical form.

Company reputation, technical knowledge, brand names, learning and

experience are all examples of intangible resources. These assets are an

important source of competitive advantage (or disadvantage) because some

like company reputation take time to build up and others like brand names

cannot be copied. In addition, intangible assets are not consumed by usage

like most tangible assets.

Complementary resource combinations – A firm’s ‘set of complementary

resource combinations’ result from bundles or combinations of certain assets

and resources. The firm’s assets and resources may further exhibit

complementarity in deployment or application (Barnard, 1938).

Complementarity represents an enhancement of resource value, and arises when

a resource produces greater returns in the presence of another resource than it

does alone, e.g., an electronic data interchange (EDI) system that only

marginally improves performance under ordinary conditions, but produces

sustainable advantages when combined with pre-existing supplier trust (Powell

and Dent-Micallef, 1997).

‘Complementary resource combinations (CRCs)’ are not factor inputs like

tangible and intangible assets; they are complex combinations or clusters of

assets, people, and processes that organisations use to transform inputs to

outputs. Thus, CRCs can be viewed as a configuration, or network, of assets

or resources, which in turn implies that there will be specific relationships

between the assets or resources. Many of these configurations are a blend of

‘hard’ tangible assets (such as buildings, equipment, people, training manuals)

and ‘soft’ intangible assets (such as how well teams work together and the

relationships between the people in those teams, the internal culture or the

external image of the organisation) which simply cannot be recreated by

another organisation.

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Finely-honed CRCs can be a source of competitive advantage. They enable a

firm to take the same factor inputs as rivals and convert them into products

and services, either with greater efficiency in the process or greater quality in

the output. While assets or resources are the source of a firm’s set of

complementary resource combinations, complementary resource combinations

are the main source of its competitive advantage. Applied to the firm’s

physical production technology, these organisational routines govern the

efficiency of the firm’s activities.

Strategic Architecture – This refers to a firm’s capabilities when applied to

the marketplace. A firm’s capabilities can be split into two categories, its

‘key capabilities,’ and ‘core capabilities.’ ‘Key capabilities’ refer to

capabilities that are merely necessary for the firm to be a player in its industry.

‘Core capabilities’ are the ones that a firm relies on to gain a competitive

advantage. CRCs are the basis of both the key and core capabilities of a firm.

STRATEGIC ARCHITECTURE (e.g., JIT production, networked reservation system, lean manufacturing) SET OF COMPLEMENTARY RESOURCE COMBINATIONS (e.g., training, open communication, BPR, organisational flexibility) POOL OF ASSETS / RESOURCES (e.g., computers, people, reputation, training manual, manufacturing equipment)

Figure 2.1: ‘Pool of assets or resources’ that combine to make the ‘set of complementary resources combinations,’ and it is these

‘complementary resource combinations’ that serve as the bases for competitive advantage when firms compete strategically on ‘core capabilities’ in the marketplace. Source: April & Cradock (2000)

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2.5 The Seven Elements of Resource-based Sustainable Competitive Advantage

Various authors have argued that firms develop and build sustainable competitive

advantage through the use of certain ‘characteristics’ (Barney, 1991), imitation

barriers or ‘isolating mechanisms’ (Rumelt, 1984). These are also commonly referred

to as barriers to entry. Lynch (2000: 280) has identified seven elements that

contribute to resource-based sustainable competitive advantage:

Prior or acquired resources – It is easier to create value by building on

strengths that are already available to the organisation. Building on existing

strength allows the exploitation of any uniqueness that derives from the

organisation’s history and investment over time; Economists refer this to as

path dependency. It may be difficult for competitors to develop similar

complex resources. Reputation is an example a resource that takes years to

acquire and is difficult for competitors to copy.

Innovative ability – The ability to innovate is vital because it can deliver

competitive advantage that competitors will find difficult to imitate. Sony is

an example of a company that used its ability to innovate i.e. Walkman and

Playstation for competitive advantage.

Truly competitive – Identifying a resource as a strength is not sufficient. The

resource in question must be comparatively better than that of the competitors.

Substitutability – A resource must be unique so that it cannot be replaced by

alternatives. Mickey Mouse is an example of a resource that does not have a

substitute.

Appropriability – This refers to the ability of competitors or stakeholders to

derive some benefits of a resource from the firm. Resources must deliver their

competitive advantage to the individual firm and not be distributed to others.

One way to ensure this is through the use of patents.

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Durability – A resource must have some longevity in order to give

competitive advantage. In other words, a resource must be sustainable. The

patents on pharmaceutical drugs like Prozac are unsustainable resources

because once the patent expires Eli Lilly loses its right to manufacture and sell

Prozac exclusively.

Imitability – If resources are to offer a competitive advantage, they must be

difficult to imitate. Eventually most resources can be copied, but the

following can make it more difficult for competitors to imitate them:

Tangible Uniqueness - Some form of specific differentiation, such as

branding or a specific geographic location or patent will delay

imitability.

Causal Ambiguity - It may not be obvious to competitors what causes a

resource to contain its competitive edge. There may be some complex

organisational processes that have taken years to develop that are

difficult for outside companies to acquire. Japanese car manufacturers

are a good example of this, despite sharing all their methods with their

German and American competitors they still produce cars at a faster

rate than their western competitors.

Investment deterrence - When the market has limited or unknown

growth potential and it is difficult to make a small initial investment, a

substantial investment by the organisation in the new strategy may

deter competitors from entering the market. This is true where large

capital plant investment e.g. the mining industry or advertising

campaigns are required to launch products and services.

2.6 Information Technology as a Strategic Resource

This section looks at the idea of information technology as a strategic resource. It

begins with a review of the literature on strategy and information technology. This is

followed by a review of the literature on the use of information technology to attain

competitive advantage. Finally there is a review of the literature on the link between

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information technology and resource-based theory, as well as combining information

technology with the characteristics of sustainability.

As the field of strategic management has grown, researchers and managers have paid

more attention to the role of information technology in the formulation and

implementation of strategy and its impact on financial performance (Powell and Dent-

Micallef, 1997; Cho, 1996; Kettinger, Grover, Guha and Segars, 1994; Henderson and

Venkatraman, 1993; Holland, Lockett and Blackman, 1992; Sabherwal and King,

1991; Earl, 1988; 1989; Farrel and Song, 1988). Information systems (IS) strategy is:

“the long term directional plan which decides what to do with information technology

(IT). Information systems strategy is seen to be business-led and demand-oriented,

and concerned with exploiting IT either to support business strategies or create new

strategic options” Earl (1989: 67).

IS strategic planning includes the identification of IT applications which could

support business strategies or create new strategic opportunities and the allocation of

scarce IS resources (Earl, 1989; Henderson and Venkatraman, 1993). An empirical

study conducted in 1989 found that IT structure, as measured by the locus of

responsibilities for information systems, was strongly related to competitive strategy

(Tavakolian, 1989).

2.7 IT and Competitive Advantage

In 1980, Kantrow proposed that strategy and technology were inseparable. At first, it

was believed that strategy determined structure, which in turn determined the

information systems required. But, by 1984 researchers and writers such as

McFarlan, Earl and Feeny were saying that information systems beget strategy

(Mason, 1984). This led to initiatives by CEOs and IT directors of leading firms to

emulate those firms that were supposedly using IT for strategic advantage.

The strategic role of IT in achieving the goals of business started to be recognised.

Many case studies, about the use of IT for strategic advantage, appeared in academic

and professional literature, and various frameworks linking IT and strategy were

proposed (Ives and Learmonth, 1984; King, 1984; Wiseman, 1985a; McFarlan, 1984).

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By the mid-80s researchers were advocating strong links between strategy and

technology, asserting that IT affected strategy and vice versa. They encouraged firms

to integrate strategic thrusts with IT capabilities (Rackoff, Wiseman and Ullrich,

1985; Bakos and Treacy, 1986; Beath and Ives, 1986). Johnston and Carrio (1988)

found that a firm’s IT should be co-aligned with the strategy of a corporate, or

business unit, in order to achieve competitive advantage from IT.

Porter (1985) stated that since IT was embedded in all of a firm’s value activities, it

could provide competitive advantage. Porter and Millar (1985) suggested that IT

affected competition in three ways:

1) it changes industry structure, thus altering the rules of competition;

2) it creates competitive advantage by providing firms with new ways to

outperform the competition; and

3) it sponsors whole businesses, often from within the firm’s existing

operations.

They concluded that the strategic purpose of IT was to co-ordinate activities in the

value chain, giving a firm more flexibility in deciding the breadth of its activities. In

general, literature on information technology before 1990 focused on the strategic

importance of IT adoption and innovation and showed optimism for the ability of IT

to create competitive advantage.

2.8 Strategic Necessity or Burden

A series of studies on competitive advantage and IT led Clemons and his co-authors

to label the use of IT as a ‘strategic necessity’ and not a source of competitive

advantage, because it was easy for a firm’s competitors to imitate (Clemons and Row,

1992; 1990; 1988; Clemons and Kenz, 1988; Clemons and Kimbrough, 1986;

Clemons, 1986). The ‘strategic necessity hypothesis’ was noted by other researchers

(Floyd and Wooldridge, 1990; Kettinger, Grover, Guha and Segars, 1994; Powell and

Dent-Micallef, 1997). This hypothesis has two main ideas:

(1) technology resources provide value to the firm by increasing internal and

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external co-ordinating efficiencies, and firms that do not adopt them will

have higher cost structures and therefore competitive disadvantage; and

(2) notwithstanding (1), firms cannot expect technology resources alone to

produce sustainable advantages because most technology resources are

readily available to all firms in competitive factor markets.

This hypothesis put a damper on the optimism of the pre-1990 researchers, “treating

IT decisions more as threats than opportunities, i.e., as investments to avoid

competitive decline, but with little likelihood of producing sustainable advantages”

(Powell and Dent-Micallef, 1997: 378). Davenport and Prusak (1998: 16) support the

second part of the strategic necessity hypothesis by pointing out that, “for the most

part, it is virtually impossible to prevent competitors from copying and even

improving on new products, production methods and services fairly quickly in an era

characterised by mobility, the free flow of ideas, reverse engineering, and widely

available technology. A global marketplace for ideas has developed and there are

very few concepts and formulae that are not generally available.”

2.9 IT, Sustainability and Resource-Based Theory

It is clear, from what has been discussed so far, that the idea of IT as a strategic

resource is widely accepted. What is not clear, however, is whether IT can be used as

a source of sustainable competitive advantage (Feeny and Ives, 1988). The idea of

competitive asymmetry involving IT, as one of the sources of sustainable competitive

advantage, was first suggested by Feeny and Ives (1990; 1988) and then again by

Clemons and Row (1991) and Clemons (1991).

Weill and Olson (1989) argue that asymmetry in a firm’s ability to gain, and sustain,

competitive advantage is dependent on a firm’s investment in its IT resources, since

investment in IT is likely to be converted to productive outputs. They further argue

that the conversion process, which in effect is the source of asymmetry, is dependent

on four internal components that would manifest itself in the firm’s effectiveness.

These components were listed as:

(1) top management’s commitment to IT;

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(2) previous firm experience with IT;

(3) user satisfaction with systems; and

(4) the turbulence of the political environment within the organisation. An

aggregation of these components was found to moderate the relationship

between IT investment and performance.

Most authors agree that IT is available to all firms. To develop a resource-based

theory for competitive advantage from an IT application, Clemons and Row (1987)

established a theoretical link between IT applications and specific complementary

resources. They explain how competitive advantage can be sustained from IT in the

presence of resource differences among firms: differences in degree of vertical

integration, differences in diversification, and differences in resource quality and

organisation.

It therefore follows that the issue of sustainability, through complementing IT with

other in-house resource endowments, is an important research issue within the current

domain of IT. It is the differences in resources (heterogeneity) among competing

firms that enable them to achieve and sustain competitive advantage from IT. These

notions are aligned with some of the key assumptions of resource-based theory. From

this perspective, the combination of unique firm assets and resources in conjunction

with IT, are critical factors in achieving sustained competitive advantage.

After an investigation of the relationship between firms’ performance in sustaining

their competitive advantage and IT, and the factors that facilitate the sustainability

Kettinger, Grover, Guha and Segars (1994) developed a framework to identify factors

that contribute to sustainability. Three categories of factors were identified:

1) environmental factors - these include the characteristics of the industry

and the competitive forces which determine a firm’s ability to achieve

and sustain competitive advantage. Political, regulatory and

macroeconomic conditions that affect a firm’s ability to sustain

competitive advantage are included in this category.

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2) foundation factors - those which exist by virtue of the firm’s

infrastructure and which have evolved over time, e.g., geographic

scope, product scope, vertical scope, learning curve, technological

resources and information resources.

3) action strategy - definitive actions or strategies taken by a firm which

attempts to achieve competitive advantage, and includes, for example:

pre-empting, creating high switching costs, and exploiting firm

flexibility.

Jarvenpaa and Ives (1990) observed that research, into the assertion that IT might be

able to create sustained competitive advantage, was relatively underdeveloped, both

empirically and theoretically. Similarly, in 1990, Reich and Benbasat (1990 : 326)

asserted that research on IT and competitive advantage has emphasised “describing

how, rather than systematically why” IT can lead to such an advantage. Recently,

Powell and Dent-Micallef (1997 : 375), in referring to the relatively few studies done

on the topic, claimed that “the literature is fragmented and far-flung, and – despite

some recent advances – weighs heavily toward case studies, anecdotes, and

conceptual frameworks, with insufficient empirical work and minimal synthesis of

findings.”

It is for the reasons stated above that a framework to investigate how the

complementary resource combinations, with a particular focus on the role of IT,

within a firm can lead to the development of sustainable competitive advantage was

developed. The framework is discussed in the research methodology section.

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3 RESEARCH METHODOLOGY

3.1 Instrumentation

One-on-one interviews were the instruments of the research. People in the following

positions at financial services firms were interviewed.

(1) Executive in Strategy Development and/or Marketing Executive;

(2) IT Executive, e.g., CIO or IT Director;

(3) Business Unit or Department Heads; and

(4) Heads of IT Units, e.g., IT Projects Head, IT Architecture Head, etc.

Four sets of questions, one set for each of the categories named above were used

during the interviews. These questions are based on a framework that specifies how

information technology, in conjunction with a firm’s other resources can be a source

of competitive advantage. A sample of these questions can be found in appendix A of

this report.

Structured questions were used because this format makes it easy for the interviewer

since he/she does not have to develop questions as the interview progresses. “In a

structured interview, the evaluator asks the same questions of numerous individuals in

a precise manner, offering each individual the same set of possible responses” (Eric

Digest, 2000).

Interviews were chosen because they were considered to be the best way to ensure

that the correct information was obtained. The interviewer was able to explain to the

interviewees, exactly what was required for each question. Of course this may have

introduced some bias to the results. Interviews also allowed for more complex

questions than are possible with other types of data gathering. In addition, they

enabled the interviewer to establish a rapport with the respondents and to observe

their reaction to questions and respond to non-verbal communication signals, as well

as listen.

Each interview lasted for, at most, an hour. The interviews were recorded on micro

cassettes using a dictaphone and then transcribed. A dictaphone was used to

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accurately capture the interviewee’s responses. Recording the interviews also meant

that the interviewer could direct her full attention to the interviewee during the

interview, and had the added advantage of allowing the interviewer to review an

interview more thoroughly. In cases where the interviewees did not wish to have the

interview recorded, their responses were summarised by the interviewer.

Prospective interviewees were contacted by electronic mail (email) initially, except in

cases where email addresses were not available. A sample of the email is shown in

appendix B. If they did not respond, a follow-up telephone call was made. Overall,

seventy people were asked if they could be interviewed and twenty-seven of them

agreed to be interviewed. Two of these interviews did not take place because, in one

instance the interviewee was ill and could not reschedule and in the second case the

interviewee was not available at the appointed time for a telephone interview. The list

of those who were interviewed and the position that they hold in their respective firms

is shown in appendix C.

Interviewees were drawn from Old Mutual, Sanlam, Metropolitan, Investec, Liberty

and Momentum. Table 3.1 below shows the number of people interviewed from each

of the companies.

Company Number of People

Interviewed

Number of People Interviewed by

Protocol Number

One Two Three Four

Sanlam 8 2 2 1 3

Metropolitan 7 1 2 3 1

Old Mutual 5 2 1 2

Investec/Fedsure 3 1 2

Liberty 1 1

Momentum 1 1

Total 25 4 7 7 7

Table 3.1 Breakdown of Interviewees by Firm and Questionnaire Type

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3.2 Response Rate

The response rate was very low. Although seventy people were contacted less than

half of those were interviewed. This was due to a number of reasons; some people

were not available during the period set aside for interviews, whilst others declined to

be interviewed because they were too busy or felt they could not answer questions

about IT. The latter was common with people in the human resources function, who

preferred to refer the researcher to the members of their respective firm’s IT

department despite the assurance that no ‘technical questions’ would be posed during

the interview.

Some potential interviewees were not traceable because they had left the firm, or been

moved due to the takeover of Fedsure by Investec and the merger of Momentum with

Southern Life. In these cases their replacements were interviewed where possible.

Others did not respond to the e-mail requests, and were not available when follow-up

telephone calls were made. Others promised to confirm a time for interview and

never did, despite several follow-up telephone calls being made to their offices.

3.3 Scope and Limitations of the Research

Due to a lack of funding, the scope of the research was limited. Only managers from

those financial services companies that have operations in the greater Cape Town area

were interviewed. The availability of the senior managers was another constraint.

Initially it was believed that there were at least five financial services firms in Cape

Town, and it was hoped that thirty interviews would be conducted. However after the

merger and takeover there were only four financial services firms left. Twenty-five

interviews were successfully arranged and conducted.

In order to try and increase the amount of data collected, the protocols were sent to

senior managers from Momentum and Liberty by email, and the managers were

invited to either complete the form on their own or to arrange a time for an interview

over the telephone. The response rate for this was also very low, with only one

response being received from the fourteen e-mails that were sent.

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3.4 Analysis

Once an interview was recorded, it was transcribed as a separate Microsoft Word

document. The document names were coded for easy identification. For instance the

interview with Anton Berkovitz was named AB2109metint3.doc; the first two letters

are the initials of the interviewee, 2109 is the twenty-first of September, the day the

interview took place, met is short for Metropolitan the company where the

interviewee works and int3 indicates the protocol of questions used in this case the

operational level protocol. Atlas.ti software was used to analyse the data for trends

and statements that prove or disprove the hypotheses set out at the beginning of this

report. The research findings are presented in the section four.

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4 RESEARCH FINDINGS

4.1 Introduction

The research aimed to investigate the link between information technology and the

applicability of resource-based theory, and to test the following hypotheses:

1) Information technology is necessary, but not sufficient, for a firm to have

competitive advantage.

2) The management of a firm is unaware of its sources of competitive advantage.

3) The senior management of a firm are central to the success of resource-based

strategies within financial services firms in South Africa.

The research hoped to assist South African financial services firms in identifying

those complementary resource combinations that deliver competitive advantage to

their organisation.

The transcripts of the interviews, which form the bulk of the findings of this report,

are in appendix D. These will be referred to throughout this section, and appropriate

quotations extracted from them have been inserted where necessary. Certain themes

have been identified from the questions used during the interviews, and these will be

explored in the following sections. The hypotheses presented at the beginning of this

report will also be discussed below in terms of the findings of the research.

4.2 IT, Sustainability and Resource-Based Theory

To address the relationship between IT, the resource-based theory and sustainability

the analysis will be based on the factors identified by Kettinger, Grover, Guha and

Segars that was discussed in section 2.9 of the literature review. These factors which

contribute to sustainability are environmental factors, foundation factors and action

strategy. Table 4.1 below shows some of the questions that were used to identify the

factors, which contribute to sustainability of competitive advantage in the financial

services sector.

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Question Number

Theme Protocol 1 Protocol 2 Protocol 3 Protocol 4

Main contributors to

sustainability of competitive

advantage

18 22 25 22

Key and core capabilities 6, 9 1 5

Resources tangible and

intangible

6, 9 1, 22b 5, 6 8, 21

IT’s contribution to “way of

competing”

14c 7

The basis of competition

and reasons for firm success

2-4 1 17

Table 4.1 Questions from which Sustainability Factors were identified.

4.2.1 Environmental Factors

These include the political, regulatory and macroeconomic conditions. At present the

political environment in South Africa is stable. The regulatory environment and the

macroeconomic conditions, however, are not very stable. Capital gains tax has just

been introduced and this has affected financial service companies, as they had to

come up with new procedures, products and services to comply with the new

regulations and to address the tax concerns of their clients. This change in tax

regulations provided an opportunity for firms to come up with innovative products

and services. The macroeconomic situation in South Africa, although largely stable,

has been affected by the recent depreciation of the Rand, which will probably result in

higher inflation leading to interest rate adjustments by the Reserve Bank and changes

in interest rates affect firms in the financial services sector.

4.2.2 Foundation Factors

Foundation factors are those, which have evolved over time and include geographic

scope, product scope, vertical scope, learning curve, technological and information

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resources. The interviewees were drawn from firms that are the major players in the

South African financial service sector, which as a result of their large client bases and

assets under management possess a significant amount of resources.

In terms of geographic scope most of the firms operate in South Africa and some, Old

Mutual and Investec, have international operations. Sanlam, Metropolitan and Old

Mutual have their head offices in Cape Town, which explains why most interviewees

were drawn from these three firms. Investec and Momentum have offices in Cape

Town, whilst Liberty has a sales office in Cape Town.

One respondent from Old Mutual believes that their international scope gives them a

competitive advantage; “Our presence in the UK and the US gives us the competitive

advantage that our customer investing in South Africa understands that the assets of

this company are not just in South Africa” (Alfons Joubert, Interviews 2001). This

advantage is not sustainable since most of their competitors have already begun to

look at international options.

In terms of vertical scope there is a trend in South Africa towards supplying a

customer with a one stop financial services shop. This has led to attempts by most

companies to form alliances with banking groups or to even form their own banks like

Old Mutual, which has just opened a virtual bank. “Where I think we are missing the

boat, we probably trying to bridge the gap, is that most of the major financial services

firms are forming complete financial services groups whereby they would get a foot

in the door to the customer by banking opportunities and then get their insurance

products behind them”(Alwyn Dippenaaar, Interviews 2001). The competitive

advantage, in this case, is gained by selling the convenience of doing all their

financial transactions at one place, essentially not giving the customer a reason to

want to go and try out the competition’s products thereby raising switching costs for

customers. If a firm manages to “lock” in a large percentage of the market it will

naturally have an advantage over its competitors who may even go out of business.

The older firms benefit from their brands, which are well established in the market.

Ten of the interviewees cited brand when asked to state why they thought their firm

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was winning business, or to explain how they thought their firm achieved its position

in the marketplace.

A firm’s distribution network is also a source of competitive advantage, this was

confirmed by eight of the interviewees who cited distribution as a key capability and

it is a foundation factor because it takes time to build up such a network. There is

evidence that technology is creating new options with respect to distribution for

financial service firms. For Liberty their, “investment in mobile sales force

automation tools have automated selling cycle” (Derek Gowans, Interviews 2001) and

enabled the company to become a leader in this environment. Interviewees from

Sanlam reported gains in the form of improved cost effectiveness, as automation of

their sales people and the introduction of call centres have allowed the firm to shut

down most of its branches around the country.

The most common examples of how IT was enhancing the firm’s distribution

networks involved the Internet, e-commerce and to a lesser extent mobile commerce.

The Internet and technologies like enterprise integration portals (EIP) are allowing

firms the opportunity to interact seamlessly with their customers, suppliers and

intermediaries who are crucial in the asset management and life insurance areas. With

an EIP, a firm can become more efficient by eliminating unnecessary administration

work like filling out forms and changing customer details, since they can allow the

third parties to access their database and make changes accordingly (Laura de Bruin,

Interviews 2001). Old Mutual Bank interacts with its clients through the telephone or

Internet. They are planning to use single text messaging (SMS) services for

confirmation of deposits and withdrawals.

Naturally a firm’s skills or knowledge are a source of competitive advantage, and as

these are built up over a period of time they can certainly provide a sustainable

advantage. These are usually found in the people working for the firm and are a great

source of sustainable advantage as it is not easy to replace an experienced worker.

Quentin Joshua of Momentum said the following on the importance of employee

skills; “If you work with somebody and he's acquired all this skill… if you tell the

person to go, and get another person. How long is it gonna take you to get that person

up to speed when the other one is gone?”

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Information and technology resources provided mixed results in terms of the

competitive advantage. The older (Sanlam, Metropolitan and Old Mutual) companies

have technology infrastructure like mainframes, which have served them well in the

past but are now beginning to cause problems because most new applications that are

available do not work on mainframes. It is also becoming difficult to find people who

know how to operate this old technology. However the mainframes cannot just be

abandoned because they hold a lot of data, and it will take a long time to migrate this

to a server environment.

This comment by Mark Louw (Interviews 2001) sums up how foundation factors

deliver sustainable advantage: “We win because of our brand, our service, our

products and our distribution network. It is expensive for a new entrant just overnight

to have a distribution network the size of ours, a product range the size of ours, the

skills that our company has honed over eighty years. It takes time to grow a company

this size, and it takes time to get the resources in place that a company of our size has

got. I'm not saying its impossible, but for a company to do it, it can cost a lot of

money for a new company to come in tomorrow and buy all the systems and people it

needs.”

4.2.3 Action Strategy

Action strategies are specific actions or steps taken by the firm to achieve competitive

advantage. When interviewees were asked how they thought their firm could sustain

competitive advantage the most common answer, cited by thirteen interviewees, was

that improving customer service could achieve this. Reducing costs, innovation and

infrastructure were each cited by six interviewees as strategies for sustaining

advantage. Other strategies mentioned were improving time-to-market, brand,

people, products, management, size of the firm and building relationships.

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4.2.4 The link between IT and the applicability of the Resource-based theory Question Number

Theme Protocol 1 Protocol 2 Protocol 3 Protocol 4

The current, future and total

contribution of IT

14b 21 19 21c

The contribution of IT to the

way of competing

14c 7 21

Is there a direct link

between IT and performance

13 2,6 20 5

Table 4.2 Questions addressing the link between IT and Resource-based theory The research findings indicate a clear link between information technology and the

applicability of resource-based theory. Seventy-six percent or nineteen of the twenty-

five people interviewed believed IT to be a “key enabler” in the financial services

sector. Some of these people stated that they considered IT to be a strategic resource.

The interviewees who work in asset management stated that it if it weren’t for IT;

they would not be in business. However, it is clear that IT alone doesn’t give

competitive advantage because especially in asset management people and firm

performance are considered to be the source of advantage. Since people cannot do

their work without information only the combination of people, IT infrastructure such

as computer hardware, communication networks like the Internet, information

services like Bloombergs and Reuters and applications like Microsoft Excel can

deliver competitive advantage. That is a complementary resource combination

4.3 Information technology is necessary, but not sufficient, for a firm to have

competitive advantage

Only four of the people interviewed clearly stated that IT is not a source of

competitive advantage. One gave the following reason for not believing that IT is a

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source of competitive advantage, "it's probably relatively well known or accepted in

our industry that IT is not a competitive advantage. We all have to be at the

same level to survive. For that reason, there is a huge amount of collaboration

between the competitors with regard to their IT systems. You wouldn't have

the level of cooperation that you've got if it were a competitive advantage” (Anton

Berkovitz, Interviews 2001). At least two respondents believed that IT could provide

a short-term competitive advantage to the first firm to implement a new IT solution,

but they recognised that the advantage was not sustainable since all players in the

financial services industry have access to similar IT solutions.

For the strategy/marketing level protocol, question numbers 14 and 21 asked for

respondent’s views on the overall contribution of IT to their firm and to sustainability

of advantage respectively. The four interviewees described IT contribution to the

firm as integral, an enabler, key to any project they do and a necessity. On the

question of sustainability of advantage Mark Louw said, “IT can take you to a point;

ultimately it still is how IT gets leveraged in the entire business. If your people and

your culture aren't up to scratch then the world's best IT system is not going to help

you much. It's not the only component that will ensure success”.

For the senior IT protocol, questions 7, 21 and 22 dealt with this hypothesis. Here the

overall message from those interviewed was that IT is an enabler and the firm cannot

do without it, however, IT supports other factors like the people, innovation and

relationship-building when it comes to sustaining competitive advantage.

Interviewees for the operational level protocol believe that IT is a support upon which

the, “success of the firm is heavily dependent”(Alfons Joubert, Interviews 2001) and

that IT contributes to the sustainability of advantage by allowing better levels of

customer service.

Finally, the IT unit heads felt that IT’s role in sustainability of competitive advantage

is to assist by keeping costs down and improving customer service, which most felt

was the key to sustainability of advantage. One interviewee felt that IT was core to

the sustainability of advantage, whilst another said IT was critical to the sustainability

of advantage. These results, together with the large number of interviewees who

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stated that IT was an enabler, indicate that the hypothesis that IT is necessary but not

sufficient for a firm to have sustainable advantage must be accepted.

4.4 The Management of a Firm is unaware of its sources of Competitive

Advantage

The research has shown that the strategy and marketing executives interviewed knew

what their company’s competitive advantages were. In general, most interviewees

were aware that sustainable competitive advantage can only be obtained through

factors that cannot easily be duplicated by competitors, like the knowledge of

employees and the use of certain processes and leveraging brand and size which

present barriers to imitation by competitors due to their uniqueness and the time it

would take for a competitor to grow respectively.

4.5 The Senior Management of a Firm are central to the success of Resource-

based strategies within Financial services firms in South Africa.

This hypothesis was addressed mainly by question 18 in the protocol for the senior IT

executives and question 14 in the protocol for IT Unit Heads. These two questions

are exactly the same. Evidence to support this hypothesis was also found in the

answers to question 17 of the protocol for senior IT executives and question 18 in the

operational head protocol which are very similar.

It is worth noting that, of the seven senior IT interviewees, almost every one of them

mentioned money or a budget cut in their answers to questions 17 and 18. In addition

all of the interviewees indicated that leadership was committed to IT initiatives. It is

clear from the answers to these two questions that decisions about IT initiatives and

the pursuit of new opportunities are controlled by the top executives who sit on the

steering committees that accept or reject projects.

It was stated earlier that innovation and information technology resources are

considered necessary for a firm to have a competitive advantage. Keith Mould

(Interviews 2001) mentioned that members of his team developed a prototype for

account aggregation about three and half years ago which is a prevailing practice in

financial services worldwide today, but it was never implemented because he suspects

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that when the suggestion was put forward it was rejected. He observed that, “now

we're behind where we were before any one thought of it.” This is an example of a

case where senior management had an effect on the success of the firm’s resource-

based strategy, as they prevented the firm from obtaining the benefit of a three-year

lead on the competition.

All interviewees agreed that the leadership of the firm had a role to play regarding the

way IT was used throughout the firm. So it can be concluded that the senior

management of the firm is central to the success of resource-based strategies within

financial services firms in South Africa, because they are the ones that control the

budgeting and strategic decision-making within these firms. This also affects how,

and when, a firm obtains the resources it requires to implement resource-based

strategies.

4.6 Complementary Resource Combinations

One important complementary resource combination was identified by the research,

and this is the combination of people, computer hardware, communication networks

and computer software applications and data. An example of this was given by Tania

Miglietta, “I suppose all the database, the historical data and stuff works very, very

well with Excel. A lot of our work is spreadsheet driven because a lot of it is

mathematical and so anything that is able to be downloaded off Excel is extremely

useful because that is where we do most of our work. I think the number-related stuff

works very well together” (Interviews, 2001).

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5 CONCLUSIONS The resource-based view or theory is based on the idea that competitive advantage

can only be maintained if it is based on the unique capabilities of a firm that are

difficult for its competitors to imitate. That is, a firm’s resources must present

‘barriers to imitation’ (Rumelt, 1984) to its competitors. These resources may be

tangible or intangible. Complementary resource combinations were defined as

bundles of certain resources. Theses CRCs can be a source of competitive advantage.

Information technology is necessary for a firm to be in business. Given that

information technology is widely available, it alone cannot be a source of competitive

advantage. This was confirmed by the research findings. The literature review

suggests that, in combination with other resources, information technology can be

used to gain competitive advantage. The research confirmed this, as it showed that

most interviewees believe IT to be a key enabler in their firms. This research has

shown that IT is a part of the bundle of resources, or complementary resource

combinations, that allow a firm to gain a competitive edge over its competitors.

It was found that the management of the financial services firms interviewed are

aware of the sources of their firms’ competitive advantage. In addition, the research

yielded evidence to support the hypothesis that the senior management of a firm are

central to the success of resource-based strategies within financial services firms in

South Africa.

The following trends were identified in the financial services sector: most

interviewees believe that future competitive advantage can be realised through

superior customer service. Innovation was identified as one of the key ingredients for

sustainable competitive advantage in the future. In terms of the move towards

customer centricity and account aggregation, IT will act as an enabler by providing

business with the necessary infrastructure and applications such as Siebel for this.

Financial services firms are shifting their focus and changing from being

product-oriented to customer-oriented. The way that IT can contribute to competitive

advantage is by providing guidance to the business by following the latest trends in

technology and making sure that they keep up.

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6 FURTHER RESEARCH

As mentioned in the report there is a shift from product-orientation to

customer-orientation that is account aggregation and a single view of the customer

from a firm point of view. At least three of the firms in this research (Old Mutual,

Sanlam and Metropolitan) are using Siebel in their call centres for customer

relationship management. Future research could look at whether the three firms differ

in the manner in which they have deployed Siebel, to see if any of them are deriving

more benefits from it than the others. This would involve essentially looking at each

company’s processes and procedures to see what effect these have on the firm’s

ability to obtain a return on its investment in technology resources.

Most of the Old Mutual employees interviewed indicated that the company has a

stringent process that it uses to decide whether it will make an investment in

technology or not. Further research could look at several other firms, and Old

Mutual, to see whether its business case method gives it advantage by providing a

better return on investment in information technology than it’s competitors.

Several of the financial services firms, that were looked at have created divisions or

business units to look into the opportunities that are available in the Internet, E-

commerce and M-commerce areas. It may be worth looking at the methods being

used by these divisions to decide which opportunities to pursue. Several banks and

insurance companies have sunk millions of rands into developing financial services

portals which have either not been launched or have been aborted a few months after

launching.

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Davenport, T.H. and Prusak, L. 1998. Working Knowledge : How Organisations Manage What They Know, Boston, Massachusetts : Harvard Business School Press. ‘Designing Structured Interviews for Educational Research’ ERIC/AE Digest. Note: Adapted from "Using Structured Interviewing Techniques," General Accounting Office (1991), Washington, DC: Program Evaluation and Methodology Division Report No. 10.1.5. Dierickx, I. And Cool, K. 1997. ‘Asset Stock Accumulation and Sustainability of Competitive Advantage,’ in N. J. Foss (Ed.), Resources, Firms and Strategies : A Reader in the Resource-Based Perspective, Great Clarendon Street, Oxford (UK) : Oxford University Press, pp. 161-172. Dierickx, I. And Cool, K. 1989. ‘Asset Stock Accumulation and Sustainability of Competitive Advantage,’ Management Science, Volume 35, Number 12, pp. 1504-1511. Earl, M.J. 1989. Management Strategies For Information Technology, London : Prentice Hall International (UK) Ltd. Earl, M.J. 1988. Information Management : The Strategic Dimension, Oxford (UK) : Oxford University Press. Farrell,C. and Song, J.H. 1988. ‘Strategic Uses of Information Technology,’ SAM Advanced Management Journal, Volume 53, Number 1, pp. 10-16. Feeny, D.F. 1988. ‘Creating and Sustaining Competitive Advantage with IT,’ in M. Earl (Ed.), Information Management : The Strategic Dimension, Oxford (UK) : Oxford University Press, pp. 98-117. Feeny, D.F. and Ives, B. 1997. ‘IT as a Basis for Sustainable Competitive Advantage,’ in L.P. Willcocks, D.F. Feeny, and G. Islei, Managing IT as a Strategic Resource, Berkshire : McGraw-Hill Publishing Company, pp. 43-63. Feeny, D.F. and Ives, B. 1990. ‘In Search of Sustainability : Reaping Long-Term Advantage from Investments in Information Technology,’ Journal of Management Information Systems, Volume 7, Number 1, pp. 27-46. Feeny, D.F. and Ives, B. 1988. In Search of Sustainability : Understanding How IT Applications May Bring Long Term Competitive Advantage (Working Paper, Oxford Institute of Information Management, Templeton College : Oxford University, RDP 88/4). Grant, R.M. 1995. Contemporary Strategy Analysis : Concepts, Techniques, Applications. Second Edition, Blackwell Publishers Ltd., Oxford, U.K. Grant, R.M. 1991. ‘The Resource-Based Theory of Competitive Advantage : Implications for Strategy Formulation.’ California Management Review, Volume 33, Number 3, pp. 114-135.

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Hamel, G. and Prahalad, C.K. 1994. Competing for the Future, Boston : Harvard Business School Press. Hamel, G. and Prahalad, C.K. 1992. Letter. Harvard Business Review, May-June 1992, pp. 164-165. Hamel, G. and Prahalad, C.K. 1990. ‘The Core Competence of the Corporation,’ Harvard Business Review, Volume 68, May-June 1990, pp. 79-91. Hamel, G. and Prahalad, C.K. 1989. ‘Strategic Intent,’ Harvard Business Review, May-June 1989. Henderson, J. and Venkatraman, N. 1993. ‘Strategic Alignment : Leveraging Information Technology for Transforming Organizations,’ IBM Systems Journal, Volume 32, Number 1, pp. 4-16. Hitt, M.A. and Ireland, R.D. 1985. ‘Corporate Distinctive Competence, Strategy, Industry and Performance.’ Strategic Management Journal, Volume 6, pp. 273-293. Hitt, M.A. and Ireland, R.D. 1986. ‘Relationships among Corporate Distinctive Competencies : Diversification Strategy, Corporate Structure and Performance.’ Journal of Management Studies, Volume 23, pp. 401-416. Hofer, C. W. and Schendel, D. 1978. Strategy Formulation : Analytic Concepts, St. Paul, MN : West. Itami, H. 1987. Mobilizing Invisible Assets. Cambridge, MA : Harvard University Press. Ives, B. and Learmonth, G.P. 1984. ‘The Information System as a Competitive Weapon,’ Communications of the ACM, Volume 27, Number 12, pp. 1193-1201. Jarvenpaa, S.L. and Ives, B. 1990. ‘Information Technology and Corporate Strategy : A View from the Top,’ Information Systems Research, Volume 1, Number 4, pp. 351-376. Johnston, H.R. and Carrico, S.R. 1988. ‘Developing Capabilities to Use Information Strategically,’ MIS Quarterly, Volume 12, Number 1, pp. 37-48. Kantrow, A.M. 1980. ‘The Strategy-Technology Connection,’ Harvard Business Review, July-August 1980. Kay, J. 1993. Foundations of Corporate Success : How business Strategies Add Value, Oxford, England : Oxford University Press. Kettinger, W.J., Grover, V., Guha, S. and Segars, A.H. 1994. ‘Strategic Information Systems Revisited : A Study in Sustainability and Performance,’ MIS Quarterly, Volume 18, Number 1, March 1994.

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King, W.R. 1984. ‘Exploiting Information as a Strategic Business Resource,’ Policy and Information, Volume 8, Number 4, pp. 12-28. Lado, A. A., Boyd, N.G. and Wright, P. 1992. ‘A Competency-Based Model of Sustainable Competitive Advantage : Toward a Conceptual Integration.’ Journal of Management, Volume 18, Number 1, pp. 77-91. Lynch, R. 2000 Corporate Strategy, Pearson Mahoney, J. and Pandian, J. 1992. ‘The Resource-Based View within the Conversation of Strategic Management,’ Strategic Management Journal, Volume 13, pp. 363-380. Mason, R.O. 1984. ‘IS Technology and Corporate Strategy : A Historical Overview,’ in F.W. McFarland (Ed.), The IS Research Challenge, Boston, MA : Harvard Business School Press, pp. 261-278. McFarlan, F. ‘Informational Technology Changes The Way You Compete,’ Harvard Business Review, Volume 62, Number 3, pp. 98-103. Penrose, E. 1995. The Theory of the Growth of the Firm, Third Edition, Oxford : Oxford University Press. Penrose, E. 1959. The Theory of the Growth of the Firm, New York : John Wiley. Peteraf, M.A. 1993. ‘The Cornerstones of Competitive Advantage : A Resource-Based View,’ Strategic Management Journal, Volume 14, Number 3, pp. 179-191. Porter, M.E. 1996. ‘What is Strategy?,’ Harvard Business Review, Volume 74, Number 6, pp. 61-78. Porter, M.E. 1991. ‘Towards a Dynamic Theory of Strategy,’ Strategic Management Journal, Summer Special Issue, Volume 12, pp. 95-117. Porter, M.E. 1985. Competitive Advantage : Creating and Sustaining Superior Performance, New York : Free Press. Porter, M.E. 1980. Competitive Strategy : Techniques for Analyzing Industries and Competitors, New York : Free Press. Porter, M.E. and Millar, V. 1985. ‘How Information Gives You Competitive Advantage,’ Harvard Business Review, Volume 63, Number 4, July-August, pp. 149-160. Powell, T.C. and Dent-Micallef, A. 1997. ‘Information Technology as Competitive Advantage : The Role of Human, Business, and Technology Resources,’ Strategic Management Journal, Volume 18, Number 5, pp. 375-405.

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Prahalad, C.K. and Hamel, G. 1990. ‘The Core Competence of the Corporation,’ Harvard Business Review, Volume 68, Number 3, pp. 79-91. Rackoff, N., Wiseman, C. and Ullrich, W. 1985. ‘IS is for Competitive Advantage : Implementation of a Planning Process,’ MIS Quarterly, Volume 9, pp. 285-294. Reich, B.H. and Benbasat, I. 1996. ‘Measuring the Linkage between Business and Information Technology,’ MIS Quarterly, Volume 20, Number 1. Reich, B.H. and Benbasat, I. 1990. ‘An Empirical Investigation of Factors influencing the Success of Customer-Oriented Strategic Systems,’ Information Systems Research, Volume 1, Number 3, pp. 325-347. Rumelt, R.P. 1984. ‘Toward a Strategic Theory of the Firm,’ in R. Lamb (Ed.), Competitive Strategic Management, Englewood Cliffs, NJ : Prentice Hall, pp. 556-570. Sabherwal, R. and King, W. 1991. ‘Toward a Theory of Strategic Use of Information Systems,’ Information and Management, Volume 20, pp. 191-212. Selznick, P. 1957. Leadership in Administration, New York : Harper & Row Publishers, Inc. Snow, C.C. and Hrebiniak, L.G. 1980. ‘Strategy, Distinctive Competence, and Organizational Performance,’ Administrative Science Quarterly, Volume 25, pp. 317-336. Tavakolian, H. 1989. ‘Linking the information technology structure with organizational competitive strategy: A survey,’ MIS Quarterly, 13(3), 309-317. Teece, D.J., Pisano, G. and Shuen, A. 1991. Dynamic Capabilities and Strategic Management (Working Paper, University of California, Berkeley). Teece, D.J., Pisano, G. and Shuen, A. 1990. Firm Capabilities, Resources and the Concept of Strategy (Working Paper, University of California EAP-38). Wegner, T. (2000), Quantitative Research Methodology with emphasis on survey sampling design, Cape Town: UCT GSB. Weill, P. and Olsen, M. 1989. ‘Managing Investment in Information Technology : Mini Case Examples and Implications,’ MIS Quarterly, Volume 13, Number 1, pp. 3-18. Wernerfelt, B. 1984. ‘A Resource-Based View of the Firm,’ Strategic Management Journal, Volume 5, pp. 171-180. Wiseman, C. 1985a. Strategy and Computers : Information Systems as Competitive Weapons, Homewood, Illinois : Dow Jones-Irwin. Wiseman, C. 1985b. ‘Strategic Vision,’ ComputerWorld, 20 May 1985, pp. 1-17.

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8 APPENDIX A Protocols For Case Interviews:

The following are the four proposed protocols, which would form the guidelines for

my interviews with the various individuals in my research. The four protocols will be

used during interviews with:

(1) Executive in Strategy Development and/or Marketing Executive;

(2) IT Executive, e.g., CIO or IT Director;

(3) Business Unit or Department Heads and

(4) Heads of IT Units, e.g., IT Projects Head, IT Architecture Head, etc.

STRATEGIC / MARKETING LEVEL PROTOCOL (STRATEGY / MARKETING)

1) How’s the firm doing? 2) What, would you say, is the basis of competition in ‘your game’? 3) How is the firm winning? How is it winning business? 4) What are the key ingredients of the winning elements? Complete the sentence

: “We win because … ? ” If that is your source of advantage, then why hasn’t every firm got that?

5) What is the basis of your firm’s success? 6) What would you describe as the most important resources in the firm? What are

the ‘enablers’ for the bringing together of those resources to create value for your firm? What enables you to put those resources together? (Example : a call centre needs an IT kit, location, certain resources -> 3 firms all have the same building blocks, but perform differently. Why?)

7) How are you trying to achieve competitive advantage? How do you/ did you create your position in the marketplace?

8) As a potential customer, why should I buy your product(s)? What makes your product(s) and/or service(s) different from your competitors?

9) What do you consider to be the key capabilities (‘qualifiers-‘ – key commodities to be in the game) and core capabilities (‘order winners’- distinctive things about the firm) of this firm?

10) Would you consider your firm to be flexible/adaptive to new challenges and trends in the marketplace? What enables your firm to be so flexible/adaptive? If not, what are the main hindrances?

11) Tell me what is done in your domain of the firm? What major activities, initiatives are currently being undertaken (and what will be done in the near future)? So how does that impact on the overall impact of the firm? Can you see it threading through to core- and key capabilities?

12) Do you feel that IT is creating new options that are potentially of relevance to the firm (both your firm, and the other big insurance houses)?

13) Do you think that IT has enabled the firm to improve its performance (financially and otherwise)?

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14) Where does IT feature in your domain of the firm? IT in your view – what is its contribution or lack of it to the organisation as a whole? What is the role of IT in terms of ‘this way’ of competing?

15) Has IT enabled you (or your ‘department’) to work differently than before? 16) What further contributions in your area can IT make? 17) How important is the synergies between the various departments within the

firm? Also, the relationships between people – what is its importance for the sustainability of advantage, and for future innovation, etc.?

18) How does your firm go about putting things in place that will lead to the sustainability of your competitive advantage? What are the main contributors to the sustainability of your advantage?

19) Do you think that IT has a role to play in sustaining advantage? If not, why not? If so, in which way?

SENIOR IT PROTOCOL (CIO Or IT Director)

1) What, in your opinion, are the key- and core- capabilities of the firm? 2) Would you say that there is a direct link between IT investment and actual

business performance of the firm? Any evidence of your statement? 3) How do you see IT enabling or facilitating the key- and core capabilities of

the firm? 4) Do you feel that IT is creating new options that are potentially of relevance to

the firm (both your firm, and the other big insurance houses)? 5) Does an IT strategy for the organisation, as a whole, exist? What is the level

of IT planning that takes place – how important has this been in relation to how the total business operates?

6) Do you think that IT has enabled the firm to improve its performance (financially or/and otherwise)?

7) What would you say is the key connections between IT and the way your firm is trying to compete?

8) What IT domain is most important to the firm? 9) Where does IT most need improvement? 10) As regards IT above: (a) what does the firm currently have in place, and (b)

what is the firm developing / seeing as future key connections? 11) How would you describe the IT-Business alignment within your firm? What

else can be done to either, sustain it if it is very good, or improve it if it is bad?

12) Do you think that business executives recognise the strategic potential of IT? How important do you think that is, in terms of future competitive advantage?

13) Is there shared agreement about the ‘vision’ of the firm and IT’s role in it? 14) Has IT impacted the organisational structure of the firm? In which way – and

has it, in your opinion, impacted positively or negatively on the business and performance of the firm?

15) Is IT centralised or decentralised within the firm? Do you think ‘that’ is the most effective configuration for the firm? How does it facilitate what your business does well?

16) What is the role of training, specifically IT training, in the firm? How does it feed into what the firm is good at?

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17) Are there examples of important opportunities that were ignored, discounted, or undiscovered by your firm that proved costly to your business? What norms and practices created this gap?

18) How would you describe top management/leadership commitment to IT initiatives? How important is the role of leadership, and their decision-making? Do you think that leadership has a role to play regarding the way IT is used throughout the firm?

19) Would you consider, as a result of the current IT infrastructure, the firm to be flexible and adaptive? Would the firm be able to ‘turn on its heels quickly’ to support changing market demands or trends?

20) What of the Internet, E-Commerce and M-Commerce? Where do you see the future of the sector going? How will this affect what your unit does?

21) On a broader scale: What is the existing contribution of IT to the business? How would you describe the future contribution?

22) How do you think your firm is going to sustain its competitive advantage in the future? What do you think will be the key ingredients/resources within the firm for sustainability of advantage? What do you think IT’s role will be in the sustainability of that advantage?

OPERATIONAL LEVEL PROTOCOL (Business Unit Heads)

1) Do you think that you fully understand how the firm currently achieves its position in the marketplace?

2) What are the sets of activities going on in the firm? How does your business unit/department contribute to those activities?

3) How widely is the strategy knowledge of your business unit disseminated, both internally and externally to the firm? Is a strategy only effective if it is broadly known internally?

4) What are the existing applications on the “floor” / within your business unit? 5) What are the key tangible, and intangible, resources within your business unit? 6) How do these resources ‘come together’ to enable/facilitate what the firm does

well (i.e., its core- and key capabilities)? 7) How important are your relationships with your external providers with regard

to the success of your business? 8) What aspects of your business unit need the most improvement? Which, of

the mentioned aspects, can be improved by/through the use of IT? 9) In which way has IT impacted the organisational structure of the firm? Has it,

in your opinion, impacted positively or negatively on the business and performance of the firm?

10) What are the major investments in IT? What are the current developments? 11) What is the perceived current health of IT in the organisation? 12) What are the IT relationships like with other areas of the business? Track

record? 13) What are the business-IT linkages? 14) How would you describe the organisational culture within the firm, and/or

your business unit? Do you think that IT has a role to play in developing/sustaining/changing that culture? What are the implications of this?

15) What is the impact of IT on teamwork within the business unit?

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16) Is there an IT strategy process within your business unit? How does it fit in with the business strategy process? What complementary resource combinations have been created?

17) Organisations are complex social entities with their own inertia and constraints. Inter-organisational conflict is a serious challenge encountered by management in making resource decisions. What are the ‘conditions’ that exist within your business unit for facilitating organisational trust, cooperation, and the absence of fundamental conflict? Has/can IT play a role in enhancing those ‘conditions?’

18) Do you think that your values, norms and historical practices lead you to overlook opportunities, or does it aid in ‘sifting out’ good, from bad, opportunities?

19) What is the current contribution being made by IT to the overall success of the firm? What do you think would be the future contribution?

20) Would you say that there is a direct link between IT investment and actual business performance of the firm? Any evidence of your statement?

21) What further application of IT can make a real difference for this firm? 22) What are the main stumbling blocks with regard to IT implementation that can

really make a difference to your business? 23) What of the Internet, E-Commerce and M-Commerce? Where do you see the

future of the sector going? How will this affect what your unit does? 24) What new practices are needed to generate the behaviours required to support

your future strategy? 25) How do you think your firm is going to sustain its competitive advantage in

the future? What do you think will be the key ingredients/resources within the firm for sustainability of advantage? What do you think IT’s role will be in the sustainability of that advantage?

IT UNIT LEVEL PROTOCOL (IT Unit Heads)

1) What is the perceived current health of IT in the firm? How would you describe its relationships with other areas of the business?

2) What are the sets of business initiatives/activities going on in the firm, as it relates to IT? How does your business unit/department contribute to those activities?

3) What are the current focus areas of the IT department? 4) What are the exiting applications on the “floor” / within the organisation?

What are the major IT investments at present? 5) Would you say that there is a direct link between IT investment and actual

business performance of the firm? Any evidence of your statement? 6) Would you say that IT planning and/or specific decision-making had a role to

play as regards the use of IT in sustaining the firm’s competitive advantage? 7) What are the basic building blocks of a successful IT department? 8) What are the important intangible resources in this IT unit that enables the

tangible resources to work well together? 9) What is the role of the IT infrastructure as regards the firm’s competitive

position? 10) Would you consider, as a result of the current IT infrastructure, the firm to be

flexible and adaptive?

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11) Would the firm be able to ‘turn on its heels quickly’ to support changing market demands or trends?

12) Are there examples of important opportunities that were ignored, discounted, or undiscovered by your firm that proved costly to your business? What norms and practices created this gap?

13) What is the importance of coordination of education and training programmes between business functions, human resources, and the IT departments?

14) How would you describe the ‘general business’ understanding of your IT people?

15) How would you describe the role of the CEO’s/Chairman’s commitment to the success of IT implementation? How would you describe the relationship between the CEO/Chairman and the CIO/IT Director? Has that relationship influenced the role of IT within the firm?

16) How important are your relationships with your external providers with regard to the success of your business?

17) Do you think that you understand how your firm currently achieves its position in the marketplace?

18) What do you think is the core business of your firm? How does it fit into that? 19) What further applications of IT can make a real difference for this firm? What

are the future developments, or future IT investments? 20) Do you use benchmarking as a tool for focussing your energies for the future?

Would you say that there is a specific link between benchmarking and actual business performance?

21) What of the Internet, E-Commerce and M-Commerce? Where do you see the future of the sector going? How will this affect what your unit does?

22) What are the most important technology resources in the firm? What would you describe as the most important business- and human resources? In which way does IT enhance or complement the important business- and human resources?

23) How do you think your firm is going to sustain its competitive advantage in the future? What do you think will be the key ingredients/resources within the firm for sustainability of advantage? What do you think IT’s role will be in the sustainability of that advantage?

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9 APPENDIX B Sample Interview Request Letter

Dear Interviewee

As part of my graduate studies, I am conducting a study on the use of information

technology as a tool for competitive advantage. To form a clear opinion on this I

need to solicit the opinions of people working in the financial services sector. Please

may I interview you for an hour on this issue?

Ideally I would like to conduct interviews between the 14th and the 21st of September

2001. Please let me know what date and time is convenient. If you are not available

during this period please suggest an alternative date before the 31st of October 2001.

I look forward to hearing from you soon.

Regards

Gennis Makura

MBA Student 2001

Graduate School of Business

University of Cape Town

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10 APPENDIX C

List of Interviewees

Name Function Interview Page Protocol NumberSanlam Keith Mould E-commerce Strategy - Group IT 2 58 Lize Lambrecht Life Executive 3 70 Mark Louw Marketing Head - Personal Finance 1 49 Graham McCarthy Sanlam Life IT Manager 4 82 Timothy Prigge Systems Analyst, Sanlam Unit Trusts 4 77 Hennie de Villiers Head of Business Implementation & IT 2 57 Jan Paul Roodbol Head of Group Strategic Planning 1 52 Michael Eidne Sanlam Investment Management 4 86 Metropolitan Willem Coetzee CIO and Head of Business Strategy 2 63 AJ Kruger IT & Marketing - Life Division 3 66 Alwyn Dippenaar Senior Manager - Business Systems Support - Life 4 77 James Denton Head of Business Development - Asset Management 1 48 Anton Berkovitz Head of Special projects - Asset Management 3 73 Laura De Bruin Senior Manager - Business Solutions 2 61 Roux Truter Group HR - Recruitment 3 72 Old Mutual Greg Havenga Group IT Strategy 2 54 Hugh Hacking IT Head - Unit Trusts 4 83 Greg Groenmeyer IT Executive - Old Mutual Bank 2 55 Alfons Joubert CIO - Old Mutual Life 4 79 Adelle Hordijk Galaxy 3 75 Investec/Fedsure Eugene Goosen Portfolio manager - Asset Management 3 68 Paul Hutchinson Marketing Manager - Unit Trusts 1 50 Tania Miglietta Portfolio Manager - Asset Management 3 64 Momentum Quentin Joshua IT (South) 4 84 Liberty Derek Gowans Head of IT Architectural & Research Services 2 53

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11 APPENDIX D Interview Transcripts