2 Theoretical foundation
2.2 Digitalization shaping the use of information technology
Digitalization cannot be described as a concept, but it is an economic and societal change re-sulting from the development of information and communication technology, commonly known as ICT (Itkonen 2015). Itkonen (2015) defined digitalization also as storing, transmit-ting and processing information (Tilastokeskus 2017). As Schou and Hjelholt (2018, 8-9) put it, digital technologies have been integrated in the western lifestyle and they have become a significant part of the daily life of western people. Urbach and Röglinger (2018, 1), Gartner (2016) and Gimpel, Hosseini, Huber, Probst, Röglinger, and Faisst (2018) stated that digitali-zation reflects the adoption of digital technologies in business and society as well as the changes in connectivity of individuals, organizations and objects.
Digital technologies drive digitalization. Due to all investments in technological processes, a great number of digital technologies are on the market today. Loebbecke (2006) defined digi-tal technologies as all technologies for creation, processing, transmission and use of digidigi-tal goods. Yoo, Henfridsson and Lyytinen (2010) claimed that digital technologies are different to earlier technologies by their characteristics of re-programmability, homogenization of data and self-referential nature. (Urbach & Röglinger 2018, 1-2.) Ross (2018) suggested that new digital technology has a role of inspiring business strategies. Digital technologies, such as so-cial, mobile, analytics, Internet of things, artificial intelligence, blockchain and cloud etc., provide capabilities of unlimited connectivity, omnipresent data and massive automation. For the disrupting role of technology in business, Ross (2018) wanted to separate information technology, which for 50 years, has been key to enable understanding of people, products, services, customer relationships and processes in business and to make them more efficient, reliable and measurable.
Iansiti and Lakhani (2014) examined how digital omnipresence started with the transfor-mation of software companies and adapting to omnipresent digital connectivity is essential to be compatible today in most economical sectors. Transactions are now digitized, data is gen-erated and analyzed in a new way and any objects, people or activities formally discrete are being connected. Number of connected devices has dramatically increased all over the world and those devices are getting more and more intelligent. (Iansiti & Lakhani 2014, 3-5.) Digital technologies are accessible to all, which means that employees, customers, partners and com-petitors can access these technologies and demand how they should be harnessed by the
company. Therefore, it is stated that digital technologies cannot be a competitive advantage of a corporation since everything done with digital technologies is replicable. (Ross 2018.)
2.2.1 Information technology and IT capability
Bharadwaj (2000, 171) stated, that IT capability is company’s ability to obtain, deploy and leverage IT-related resources together with other resources to achieve business objectives and goals. Carbonara (2005) introduced how IT develops communications, information and knowledge sharing as well as interorganizational exchange. Banker, Bardhan and Asdemir (2006) and Carbonara (2005) claimed that the use of IT in product design and development processes cuts the development cycle, reduces development costs, improves the quality of product design and increases the number of designs. Desouza et al (2008) expressed that us-ing IT can help companies in communicatus-ing with customers and increasus-ing their contribution to the development of new products. (Kmieciak et al 2012, 710-711.) The organizational ca-pabilities are influenced by the resource-based view introduced by Penrose in 1958 and as re-sources of companies are easy to replicate, capabilities are mostly inimitable as they are con-nected to the culture, experience, history and skills of a company (Bharadwaj et al 1999).
Karimi, Somers and Gupta (2001) introduced four categories of the impact of IT on customer service. These categories by Karimi et al (2001) are IT-laggard firms, IT-enabled operations-focus firms, IT-enabled customer-operations-focus firms and IT-leader firms. There are two dimensions to the framework: IT’s potential impact on marketing (customer focus) and IT’s potential im-pact on operations (operations focus). The aim of any company should be reaching of a posi-tion of an IT-leader, where a sustainable leading posiposi-tion is gained with a combinaposi-tion of pro-cess reengineering and IT. The integration and coordination of operations is a main challenge in IT-led firms, claims Reponen (2003) based on Karimi et al ‘s (2001) framework. (Reponen, 2003, 6-7.)
Kmieciak et al (2012) examined the effects of information technology (IT) in small to me-dium-sized firms. They used the context of IT capability, previously studied by Bharadwaj (2000), Tippins and Sohi (2003) and Webb and Schlemmer (2008), and divided it into IT knowledge, integration of IT with business strategy and IT in internal communications.
Kmieciak et al (2012) also measured corporate performance with subjective and objective measures such as change in profitability and income growth rate as well as consumer
satisfaction and market share growth. The interest in IT capability lies in whether investing in technology creates superior intangible resources for the firm (Bharadwaj 2000, 174). Finding IT capability so closely related to the resource-based view, the orientation of the subject will be turned towards RBV -theory and the competitive advantage of IT.
2.2.2 Resource-based view theory
The origins for the resource-based view can be tracked down to Penrose in 1959. He defined that an enterprise is a combination of resources that determine the company’s possibilities for success. Nevertheless, the first coherent statement of resource-based view (RBV), was created by Wernerfelt in The resource-based view of the firm in 1984 and since then it has been estab-lished by many other authors and researchers before the 21st century, such as Prahalad and Hamel (1990), Barney (1996), Grant (1991) and Lado and Wilson (1994). The success of a firm is based on its industrial sector features and on the combination of its resources and capa-bility that make a company different from its competitors. Those can be company’s external and internal factors as well as tangible and intangible resources. Resources are all those tangi-ble and intangitangi-ble assets the firm has, such as brand, skilled personnel, technology, culture, experience and history (Olalla 1999; Bharadwaj et al 1999.)
The VRIO framework of RBV by Barney and Clark (2007) explains resource-based analysis through four key measures of business activities in a firm. These VRIO attributes are value, rarity, imitability and organization. (Barney and Clark 2007, 69-71.) If a resource or capabil-ity is valuable, rare and costly to imitate, utilizing that resource generates sustainable compet-itive advantage. If a company has all these resources or capabilities but fails to organize them, it can face competitive parity or even competitive disadvantage. (Barney & Clark 2007, 71-72.) Webb and Schlemmer (2008, 17) pointed out based on Newbert’s (2007) findings, that a competitive advantage can increase corporate performance, but the relationship is not bidirec-tional as increased corporate performance cannot lead to competitive advantage.
2.2.3 IT and the resource-based view
Mata, Fuerst and Barney (1995) claimed that managerial IT skills are rare and company spe-cific which makes them sources of sustainable competitive advantage. Ross, Beath and
Goodhue (1996) suggested that reusable technology bases (which serve as technical assets) and cooperation between a company’s IT and business unit management (relationship assets) effect on company’s abilities to harness IT for strategic objectives. Based on Grant’s classifi-cation scheme, Bharadwaj (2000, 171-172) divided the IT-based resources to IT infrastructure (tangible asset), technical and managerial IT skills (human resources), IT-enabled knowledge, customer orientation and synergy (intangible asset). The IT infrastructure comprises all com-puter and communication technologies as well as the shareable technical platforms and data-bases in a company. The human IT resources include the training, experience, relationships and insights of a company’s employees, where the technical IT skills refer to programming, system analysis and design and competencies in emerging technologies. The managerial IT-skills mean coordination and interaction with user communities and IT function management as well as project management and leadership. The intangible IT assets include the know-how, corporate culture and reputation as well as the environmental orientation. (Bharadwaj 2000, 172-174.)
In the late 20th century and early 21st century, many researchers, such as Huang and Liu (2005), Mata et al (1995) and Tippins and Sohi (2003) claimed that information technology in terms of hardware and software is not a competitive advantage since it is easily duplicated.
Therefore, a resource-based view for IT adoption in firms was developed and the sources for competitive advantage included IT-related skills and resources that create an inimitable, valu-able, rare and non-substitutable IT capability. (Bharadwaj 2000.) Kmieciak et al (2012, 710) added IT governance and IT maturity to the model as IT governance may help in defining a strategy for developing IT capability.
As Carr (2005) started the discussion of the strategic importance of IT, there has been a de-bate of whether IT enables a strategic differentiation or diminishes it. Webb and Schlemmer (2008, 2-3) investigated if an IT hardware or software can add value to firm performance based on the Schumpeterian economic theory and strategic management theory. McAfee (2005) defined IT hardware, software and networks as raw materials whilst information tech-nology used to add value were finished goods. As the raw materials of IT have become a util-ity, management of IT resources has become more relevant and it can deliver sustainable competitive advantage in companies (Webb & Schlemmer 2008, 118). Kmieciak et al (2012, 707) suggested that IT knowledge has a positive effect on companies’ subjective performance measures that are correlated with the objective performance measures.
The framework of IT capability has been researched through different dimensions where Bha-radwaj et al (1999) introduced the concept as IT capability and divided the it to IT business partnerships, external IT linkages, business IT strategic thinking, IT business process integra-tion, IT management and IT infrastructure. Tippins and Sohi (2003) introduced the concept as IT competency since competencies are inimitable from a resource-based perspective as the development of original resources have little value outside the context of that firm. Tippins and Sohi (2003) divided IT competency to IT knowledge, IT operations and IT objects whereas Webb and Schlemmer (2008) used the same dimensions as they introduced the con-cept as IT assets. Kmieciak et al (2012) introduced dimensions of IT capability as IT
knowledge, integration of IT with business strategy and IT in internal communications.