The Research on the Formation Mechanism of the Dynamic IT Capability

M & D FORUM
The Research on the Formation Mechanism of the Dynamic IT
Capability in the Process of Chinese Enterprise Informatization
HAN Yanhua
School of International Business, Qingdao University, China, 266071
[email protected]
Abstract: IT capability is a hot issue in domestic and international research in recent years. This paper
proposes a model of formation mechanism of dynamic IT capability based on the theory of dynamic
capabilities, and according to the characteristics of Chinese enterprises informatization, detailedly
analyzes it how to play a role in the process of business informatization in China and promote the
evolution of IT capability from junior to senior.
Keywords: dynamic IT capability, formation mechanism, enterprises informatization
1 Introduction
In the 20th century 60 years, scholars gradually begin to research the informatization construction. In
the study of information construction, scholars believe that IT capability is a source of competitive
advantage; they studied it from different theoretical perspectives since it has been proposed. The
resource-based theory represented by Wernerfelt and with the core competence and the dynamic
capability theory as the main content of the capability theories are the more representative studies. But
the resource-based theory is a static analysis, it can’t explain the relationship between IT capabilities and
the sustainable competitive advantage in the current ultra-competitive environment [1]; and the core
competence is easy to form the core rigidities, so that enterprises can’t maintain a dynamic strategy
adaptation with the environment, which may hamper the sustainable development of enterprises [2]. Thus
dynamic capabilities theory gradually go into the people's vision on their own unique advantages and
become an focus of academic research on IT capabilities.
Relevant scholars have done a lot of research on IT capabilities’ concept, composition, and the
relationship with competitive advantage from the perspective of dynamic capability, but in terms of IT
capabilities’ building and formation the study is rare. In this regard, relevant scholars only propose a
simple theoretical model; have no systematic analysis and in-depth explanation on it. This paper agrees
the view of Zhijun Kuang scholar that IT capability is a dynamic capability in fact [3], and proposes the
concept of dynamic IT capability, that is, it is the ability of deploying IT resources to gain competitive
advantage and itself showing a dynamic developing features in dynamic changing environment. In fact,
this dynamic IT capability is looking at IT capability from dynamic capability theory perspective.
Chinese enterprises informatization level is relatively low and the development is relatively backward,
this paper based on the theory of dynamic capability proposes a model of the formation mechanism of
IT capabilities and analyzes it how to play the role in enterprises’ information construction .It has
important theoretical and practical significance to enterprises’ information construction in China.
2 The Model of Formation Mechanism of Dynamic IT Capability
Ramiro Montealegre [4] points out that the essence of capability is a process or procedure on the idea of
developing capability, and the formation of dynamic IT capability is also a complex process. This paper
proposes a model of formation mechanism of the dynamic IT capability on the basis of domestic and
foreign scholars’ research on building dynamic capability. That is, the model is constituted by the five
stages of the dynamic IT capability evolution (Identification - Absorption - Integration - Application and
Feedback - Adjustment and Reconstruction) [5] and the three mechanisms (the organizational learning
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mechanism, the coordination and integration mechanism and the innovation mechanism) [6,7] , shown in
Figure 1. This paper argues that the formation of dynamic IT capability is based on the effect of
collaborative interaction between the evolutionary process and the three mechanisms, and this
mechanism is throughout the process of information development from beginning to end.
The coordination
and integration
mechanism
The organizational
learning mechanism
IT capability from junior to senior
Adjustment and Reconstruction
The innovation
mechanism
Application and feedback
Integration
Absorption
Identification
The existing IT resources
within organization
The available IT resources
external organization
Figure 1 The Model of Formation Mechanism of Dynamic IT capability
In the process of IT capability evolution, identification is the beginning. Enterprises prepare for
information construction by identifying all available internal and external resources. The resources
which are recognized must go through the absorption process of screening, eliminating and digesting so
that enterprises are able to get truly useful resources. The new knowledge and resources absorbed can’t
be used directly for the enterprises, they must be integrated, that is the related resources are integrated
into the enterprises’ business processes, and have reached the state of coordination with aspects of
business. After integration, it is the application step. In the application process enterprises should
observe and improve the problems and timely feedback them to the IT decision-makers, preparing for
the adjustment step. After the series of steps, the original IT resources gradually are transformed into
related IT capabilities. And after repeated application and feedback, IT capabilities are gradually
strengthened and consolidated. This cycle is repeated, so that IT capability has been upgraded.
The three mechanisms played important role in the process of the formation of IT capability.
Organizational learning is the process of gaining, disseminating and creating new knowledge [8], it is
reflected in the products, services and all levels of organization system. This kind of study can
constantly use and develop new technologies, revise and improve organizational structure, accumulate
and create new intangible assets when enterprises are in the face of turbulence and complex business
environment, so that enterprises can maintain a sustainable competitive advantage. In a sense, the
formation of dynamic IT capability is the process of organizational learning [9]; The coordination
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mechanism is a mean of realizing the match of organizational resources, capabilities and environment, it
enable enterprises to make appropriate changes in the changing environment and enhance the
enterprises’ dynamic adaptability [6]. It promote the formation of IT capability by promoting the
coordinated integration between enterprise information and corporate strategy, business processes, the
original knowledge structure, organizational structure and etc; And the innovation mechanism achieves
the changes in products, technology, workflow, or management by constantly breaking the companies’
original equilibrium [7]. It promote the formation of enterprises’ IT capability through knowledge
innovation, management innovation and technological innovation, it also plays a very important role in
the process of IT capability formation.
The process of dynamic IT capabilities evolution and the three mechanisms promote and coordinate
each other, together constitute the formation mechanism of the dynamic IT capability. The mechanism is
throughout every stage of the enterprise information. On the basis of the mechanism, enterprises make
IT capabilities constantly evolve and improve in the dynamic changing environment, and build a set of
unique IT capabilities for their own development, and bring a steady stream of competitive advantage.
3 The Analysis of the Formation Mechanism of IT Capability in Chinese
Enterprises’ Information Process
3.1 The mechanism Model of the formation mechanism of IT capability in Chinese enterprises’
Information process
This paper based on the past theory proposes four stages of the enterprise information development - the
initial stage, the system stage, the integration stage and the maintenance and innovation stage,
combining the characteristics of Chinese information development [10]. And according to the analysis of
the second part, this paper proposes a mechanism model of formation mechanism of IT capability in
enterprises’ information process, shown in Figure 2. With the advancement of the process of enterprise
information, the formation mechanism of IT capability play a role at each stage ,and promote the
evolution of IT capability from junior to senior.
The process of
enterprises
information:
The initial
stage
The formation
mechanism of
Dynamic IT
capability
The formation
mechanism of
Dynamic IT
capability
The formation
mechanism of
Dynamic IT
capability
The
integration
stage
The system
stage
The
maintenance
and innovation
stage
IT capability from junior to senior
Figure 2 The mechanism Model of the formation mechanism of IT capability in Chinese enterprises’
Information process
3.2 The analysis of the formation mechanism of IT capability in Chinese enterprises’ Information
process
In the initial phase of the informatization implementation, enterprises start to carry on the initial
construction and application of information systems after doing some preparatory work. Now the
formation mechanism of IT capability comes into play. The enterprises absorb and introduce the internal
and external IT resources which are required in the initial stage and establish preliminary information
systems. Through continuously integrating and applying the information systems, enterprises observe
the effect and question in application and timely feedback and resolve the problems. The information
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systems could be continuously improved with the repeated adjustment and application. In this process,
the relevant IT staffs continuously obtain the required knowledge at this stage through the organizational
learning mechanism, the coordination and integration mechanism makes the preliminary information
systems accord with the departments and the innovation mechanism makes the information systems
gradually improve through some innovation application. This process gradually lead some lower-level
IT capability to bring. This kind of IT capability at this time only affects the business’ operational level
and can greatly improve the efficiency of enterprises.
The enterprise informatization commences gradually to get into the system stage after the success of the
initial application, in which companies begin to progressively implement informatization with
department as a unit. The departments establish suitable information systems through absorbing and
introducing all kinds of information resources, then continuously discover and solve the problems
through integrating, applying, feed-backing and adjusting the systems so that the systems are gradually
perfecting. The coordination and integration mechanism continuously improves business processes and
management programs within departments so that information systems would achieve full integration
with these departments; The organizational learning mechanism continuously improve the IT skills of
departmental IT staffs by learning the needed knowledge. All departments have formed a lower-level IT
capability in this process, and this kind of IT capability are extended on the whole. At this time the
application of information technology greatly improves the efficiency of all departments, and is
beneficial to saving resources and reducing costs for all departments, but it only diffuses within the
department and is still acting on the business’ operational level.
When the informatization is mature in the different departments, it can cross the boundaries of
departments to spread within the enterprise. Now it is the integration phase of informatization. In this
phase, companies continue to introduce and absorb some technologies and resources which are needed
in this stage on the basis of original low- level IT capability, and establish a completed information
system which support the whole organization’s operation. Then through the cycle of the evolutionary
process of integration → applications and feedback → adjustment and reconstruction and the action of
the three mechanisms, a higher- level IT capability is gradually formed. In the process, the coordination
and integration mechanism through reforming the business processes, organizational structure and
general practices not only make all aspects of the enterprise fully coordinate and integrate with the
informatization, but also make departmental information system integrate better and form a unified ,
integrated, based on the organizational level information system; The organizational learning
mechanism and innovation mechanism constantly obtain more advanced technologies and resources by
learning and innovation to support the development of information. At this point, the effect of
information technology has been from the original operational level gradually raised to the tactical level,
and also impact the whole strategy of business. The formed IT capability is also gradually embedded
into business processes and general practices and become the enterprise's unique, heterogeneous core
resources.
After the integration stage, informatization began to work closely with all aspects of enterprise, and
gradually reach the state of stable application and maintenance. With the further development of
informatization, information technology applications may be spread among the companies across
organizational boundaries, and it will become a link with the outside world. In this process, the
formation mechanism of IT capability continues to have an effect. In the process of information sharing
and exchanging, companies can widely get some new resources and technologies from the outside , and
these resources can constantly be applied to the new process of the formation of IT capabilities, and the
cycle is repeated; The coordination and integration mechanism promotes informatization to coordinate
and integrate with all aspects of business in a greater degree; The organizational learning and innovation
mechanisms learn and create new knowledge and technologies in a wider range to fully exert the
advantages of information technology. With the continuous adjustment and innovation, informatization
is showing the trend of sustainable development, IT capabilities are upgraded to a higher level on the
basis of the original. At this time IT capability fundamentally change the methods of the enterprise's
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production management and the organizational structure by being effectively and highly integrated with
the corporate strategy, it impacts on the overall strategy of the enterprise. Now the development of
enterprise is based on the development of IT capability, IT capability becomes a source of sustained
competitive advantage. This is the goal of enterprise information construction.
The formation mechanism of the dynamic IT capability goes through every stage of the enterprise
information process. At every stage, the process of capability evolution drive each stage’s IT resources
to be converted into IT capability; The organizational learning mechanism will be a source of promoting
the formation of IT capability through constantly learning new knowledge and IT skills; The
coordination and integration mechanism continuously optimizes and recombines the enterprise's
business processes and general practices , it provide a good safeguard for the enhancement of the
dynamic IT capability; and the innovation mechanism brings a steady stream of fresh vitality for
enterprises and continuously promotes the evolution of IT capability. The formation mechanism of the
dynamic IT capability plays an important role in promoting the formation and evolution of IT
capabilities.
4 Conclusion
This paper proposes a model of the formation mechanism of IT capability based on the dynamic
capability theories, and detailed analyzes it how to play a role in the process of Chinese enterprise
information and how to promote the evolution of IT capability from junior to senior. IT capability
formation is a very complex process; this process will be subject to a variety of uncertain factors. This
theoretical model is proposed on the basis of the existing theory, it has certain limitations. Further
amendment and improvement is expected to be done by relevant scholars.
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