Executive Summary: A Different Theory of the Firm and IT: Comprehensive Value and Dynamic Capabilities


Published: 01 April 2011 ID: G00212600

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Summary

Customer, regulatory, social, financial and environmental forces are pressuring firms to add value beyond making a profit; these value additions build comprehensive value. While technology advances open firms to scrutiny and high expectations, they also allow delivery of comprehensive value.

Foreword

If you were creating a company from scratch, would you immediately copy the processes, practices and structures of today’s enterprises, or would you do something different? Either way, you would start with the need to create value, but then the idea of value may change, broadening beyond simply making a profit. This, in turn, would change your thinking about the new firm and how it would be different.

In defining a different theory of the firm, information and technology, this report confronts these issues.

This report is essentially a thought piece, intended to spark discussion and help CIOs reframe their conception of IT and its future. We address these questions: What are the non-economic expectations facing firms? How do these expectations change what it means to be a firm? What are the different theories of the firm that stem from this view? How does a different theory of the firm change the theory of IT?

“A Different Theory of the Firm and IT: Comprehensive Value and Dynamic Capabilities” was written by Mark McDonald (group vice president and Gartner Fellow), assisted by Jeffrey Cole (senior writer).

We would like to thank the many organizations and individuals that generously contributed their insights and experiences to the research, including:

  • The contributors to our interviews: Tom Austin and Nick Gall, Gartner (U.S.); Jamais Cascio, Institute for Ethics and Emerging Technologies, and openthefuture.com (U.S.); Michael Lissack, Institute for the Study of Coherence and Emergence, and Knowledge Ventures Inc. (U.S.); John Johnson, Intel (U.S.); Eamonn Kelly, Monitor Group (U.S.); and Steve Sato, Sato + Partners (U.S.).

  • Other Gartner colleagues: Amos Auringer, Moacyr Gomes, Chris Howard and David Pack.

  • Other members of the CIO & executive leadership research group: Jorge Lopez and Leigh McMullen.

Executive Summary

Increasingly, we expect firms to do more than make a profit. We expect them to create shared, sustainable and personal value—comprehensive value. This requires a different theory of the firm, one based on building defined and dynamic capabilities rather than allocating costs. In a firm that creates comprehensive value, information and technology become important in different ways.

Comprehensive value shapes a different theory of the firm

Customer, regulatory, social, economic, environmental and financial forces are pressuring firms to add new forms of value beyond just making a profit; together these forms of value constitute comprehensive value. While technology advances have opened the firm to intense scrutiny and rising expectations, they also provide a means to deliver the elements of comprehensive value. Firms will need comprehensive value to meet the new expectations being placed on them.

Defined and dynamic capabilities support comprehensive value in a different theory of the firm

Managing to cost creates trade-offs throughout the firm. As these trade-offs drive complexity and costs, they reduce the firm’s capacity to change. Moreover, managing to cost ignores trade-offs that exist outside traditional accounting in the social and political worlds. To create comprehensive value, building capability must be a priority.

A different theory of the firm creates new possibilities for IT

Applying a capabilities view to IT requires splitting IT’s defined and dynamic characteristics. This separation reflects the increasingly embedded nature of technology in modern business, and the need to create solid capacity for the technology-intensive innovations required to realize comprehensive value.

Understand your appetite for, and ability to create, comprehensive value

Creating comprehensive value involves thinking about the firm in different ways. Firms that concentrate on creating economic value will have little interest in expanding their view. This places them at a lower level of maturity than firms looking to do more for themselves, and for their customers and partners, by thinking differently.

© 2011 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

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