it-intensive value information in the electronic economy ...€¦ · ways. of creating value in the...

El Sawy et al./Value Innovation in the Electronic Economy

MIS-

rterly RESEARCH A R’FI cI~i~

IT-INTENSIVE VALUE INNOVATION IN THE

ELECTRONIC ECONOMY: INSIGHTS FROM MARSHALL

INDUSTRIES1

By: Omar A. El SawyMarshall School of BusinessUniversity of Southern CaliforniaLos Angeles, CA [email protected]

Arvind MalhotraKenan-Flagler Business School, CB# 3490University of North Carolina at Chapel HillChapel Hill, NC [email protected]

Sanjay GosainRobert B. Smith School of BusinessUniversity of MarylandCollege Park, MD [email protected]

Kerry M. YoungMarshall Industries9320 Telstar AvenueEl Monte, CA [email protected]

Abstract

The emerging electronic economy is bringingwith it new forms of IT-enabled intermediation,

1Robert Zmud was the accepting senior editor for thispaper. Also, an earlier version of this paper won firstprize in the 1997 SIM Paper Competition.

virtual supply chains, rapidly changing electron-ic commerce technologies, increasing knowl-edge intensity, and unprecedented sensitivity fortime-to-market by customers. Customers aredemanding more value, customized to theirexact needs, at less cost, and as quickly as possi-ble. The enterprises that will survive in such ademanding environment will need to innovateand invent new ways of creating value, and willrequire different enterprise architectures and dif-ferent IT infrastructures. This article focuses onproviding a framework for guiding an enterpriseas it transforms itself to function more effectivelyin the electronic economy. Using the distributionindustry in general and Marshall Industries inparticular as a context, the article draws insightsfor transforming an extended enterprise’s archi-tecture and its IT infrastructure to enable newways. of creating value in the electronic econo-my. The article provides a staged junction boxmodel for guiding the transformation and alsoarticulates the elements of the new value logicfor enterprises in the electronic economy.

Keywords: Electronic value chains, electroniceconomy, intermediation, distribution indus-try, supply chain management, intranet,extranet, Internet, electronic commerce, valueinnovation, time-based competition, fastresponse, CIO, IT architecture, strategic infor-mation systems, total quality management,systems approach, e-business

ISRL Categories: AF0101, AF10, AH05, CA09,DA06, DA10, DD0, DD05, DD0402, EG,EL06, FA, FB04, FC02, GA01, HA07

MIS Quarterly VoL 23 No. 3, pp. 305-335~September 1999 :305

El Sawy et aL/Value Innovation in the Electronic Economy

Electronic Economy Quiz

True or False About Managing a Business in the Electronic Economy?

1. In the electronic economy, the middleman role will disappear and be disintermediated byinformation technology.

2. In the electronic economy, the movement of physical goods will be replaced by the movementof information.

3. In the electronic economy, the value chain model is a good model for thinking about anextended enterprise.

4. Ubiquitous access of product information and self-service transactions through open networkssuch as the Internet will make product pricing a more critical differentiator.

5. In the complexity of the electronic economy, incentive and reward schemes such as pay-for-performance will still be effective.

True or False About Managing Information Systems in the Electronic Economy?

6. Web-enabling your IS applications is a technical job that can be easily outsourced.7. Do not deploy an IS application on open networks until it is thoroughly tested.8. It is better to develop integrated architecture solutions for electronic commerce rather than

continually adding incremental functionality.9. In building your IT architecture, decide on one standard platform and use software products

that conform to it.

True or False About the CEO-CIO Relationship in the Electronic Economy?

10. In the networked environment of the electronic economy in which the ClO’s role will increasein importance, complexity, and centrality, the CEO’s role and the ClO’s role will beincreasingly intermingled.

True or False ? Read on ....

Value Logic and EnterpriseArchitecture in the ElectronicEconomy

The electronic economy quiz at the outset of thispaper brings into the foreground several issuesthat enterprises will grapple with as they adapt tothe demanding requirements of the electroniceconomy. The electronic economy brings with itnew forms of IT-enabled intermediation, virtualsupply chains, rapidly changing electronic com-merce technologies, increasing knowledge inten-sity, and unprecedented sensitivity for time-to-market by customers (El Sawy and Bowles 1997;Mougayar 1998; Tapscott 1996). This demandingenvironment presents new challenges andopportunities for enterprises, and the ones thatwill survive will need to continuously innovateand invent new ways of creating value (Kim andMauborgne 1997). Conventional business logicand traditional strategic approaches for value

creation are becoming increasingly challengeddue to a number of factors that include:

¯ Time compression: While the strategic con-cepts of time-based competition have beenknown and used for the past I0 years (Stalkand Hout 1990), product lifecycles in high-growth industries are becoming amazinglyshort as products are being developed on"Internet time" (lansiti and West 1997). Forexample, product obsolescence is so preva-lent in the IT industry that IT products havebeen likened to fresh produce that spoil andhave sharp price drops if not moved quickly(Kraar 1995). Short product lifecycles are alsoaccompanied by very frequent and rapid newproduct introductions. Time-to-market con-siderations and fast customer response thusbecome overriding issues in value creationlogic.

Strategic discontinuities: Major discontinu-ities are being triggered by time compression,

306 MIS Quarterly VoL 23 No. 3~September 1999


technological advances, and complex globalinterdependencies (Bettis and Hitt 1995).Discontinuities may quickly change somecore competencies into core rigidities, whilesimultaneously requiring new core competen-cies to be developed rapidly to take advan-tage of new opportunities (Prahalad 1998). an environment of rapid and unpredictablechanges, traditional approaches to strategytend to collapse. Traditional approachesassume it is possible to predict which indus-tries, competencies, or strategic positions willbe viable and for how long. In an environ-ment of strategic discontinuities, enterpriseshave to compete on the edge of chaos wheresuccess and value creation are based on theexecution of continual reinvention (Brownand Eisenhardt 1998).

¯ Blurring industry and organizational bound-aries: The electronic economy blurs clearindustry boundaries as technological changestrigger convergence across some industriesand regrouping across others. With suchindustry volatility, competition for migrationpaths becomes a critical value proposition(Prahalad 1998). Similarly, the boundariesbetween an enterprise and its suppliers, cus-tomers, and partners are increasingly blurredand their destinies increasingly interdepen-dent (Hagel 1996). Conventional logic, whichseeks to maximize value at an individualcompany level, becomes questionable, andvalue-creating processes become increasinglyinterlinked with those of partners (Normanand Ramirez 1994).

¯ Knowledge intensity: The speed of newknowledge creation and knowledge transferacross markets and enterprises becomes a keydeterminant of enterprise success in an envi-ronment which is fast, discontinuous, andvolatile. Knowledge is critical to satisfyingcustomer needs for customized products andservices, and speedier and improved service(Davenport and Klahr 1998). Harnessing thevalue of knowledge through information sys-tems is becoming key to learning and valuecreation for the enterprise (El Sawy andBowles 1997).

¯ Increasing returns to scale: Increasing knowl-edge intensity in products and services brings

with it increasing returns to scale. Increasingreturns means that the value from a product orservice increases through positive feedbackloops as the number of users of the product orservice increases (Arthur 1996). This furthersolidifies the incentive to be fast, as earlymovers control the market size and enjoy theincreasing returns. Conventional industrial-age economic value models with diminishingreturns no longer apply in such conditions.

¯ IT-intensive strategic options: New maps ofcompetition are being drawn up as enterpris-es use networking technologies intensively toform "virtual keiretsus" to add value for eachother (Reinhardt 1998). In such an environ-ment, "silicon-powered" intermediaries areincreasingly performing the role of collabora-tive coordination of value-creation for busi-ness partners (Huber and Korn 1997). Smallcompanies are using the Internet to buildinteractive relationships with customers andsuppliers. This undermines the competitiveadvantage of established businesses that relyon brands and physical distribution relation-ships, to the extent that the new Internet-based intermediaries threaten to destroy theirvalue proposition in the physical world(Ghosh 1998).

In combination, the above factors challenge theconcepts and assumptions of value creation forenterprises. Enterprises in the electronic econo-my compete in an IT-intensive, time-compressed,discontinuous, knowledge-intensive environ-ment in which they are inextricably linked to thevalue creation processes of their customers andsuppliers. This leads to the first question that thisarticle seeks to answer:

How does an enterprise maximize valuecreation in such an IT-intensive environ-ment? What is the new value logic in theelectronic economy?

In order to effectively execute value creationstrategies in the electronic economy, enterpriseswill need to transform their organizational archi-tectures appropriately. Core business processesmay need to be rethought and redesigned, neworganizational forms that foster collaboration andpartnering may need to be developed, and humanresource and reward systems may need to be

MIS Quarterly VoL 23 No. 3~September 1999 307


redesigned. It has been argued that enterprisespass through levels of IT-enabled transformation(Venkatraman 1994) that range from localizedautomation through business process redesign tobusiness scope redefinition. Organizations thenproceed to the higher levels of transformation asthe demands of comp.etition and value creationfor customers increases. Such a model could stillapply in the electronic economy. Furthermore,given the volatility of the environment in the elec-tronic economy, enterprise architectures willhave to be designed for dynamic stability(Ghemawat and Ricart i Costa 1993). Dynamicstability implies a continuous transformation asconditions change and new opportunities arise,again suggesting that a stage model may be appro-priate. This leads to the second question that thisarticle seeks to answer:

How does an enterprise transform its organi-zational architecture to function more effec-tively in the electronic economy? What arethe stages that an enterprise goes through asit transforms itself?

An IT infrastructure is integral to the transforma-tion of enterprise architecture to suit the needs ofthe electronic economy. IT infrastructure capa-bilities are vital for success of business initiativesin industries going through dynamic change, andIT infrastructure investments can account forover 50% of the total IT budget in large compa-nies (Broadbent and Weil 1997). The challengesto building an IT infrastructure in a rapidlychanging environment are many and include thepresence of legacy technical architecture, theneed for distributing responsibilities within tradi-tional structures, and making the whole organi-zation aware of the infrastructure (Keen 1997).Building IT infrastructure that is dynamicallyaligned with the enterprise’s business strategy hasbecome one of the most critical core activities forthe IT organization of the late 1990s (Rockart etal. 1996). This leads to the third question that thisarticle seeks to answer:

Can we identify new practices for IT orga-nizations for building and managing anevolving IT infrastructure for the electroniceconomy?

In order to answer these three questions, wesought the context of an exemplary enterprisethat transformed itself to manage the challengesand opportunities of the electronic economy.while in the precarious position of being a mid-dleman in a highly, competitive industry. Thecompany selected was Marshall Industries,which is in the electronic components distribu-tion industry. We believe what has started to hap-pen in the distribution industry is a harbinger ofthings to come.

The Distribution Industry asHarbingerAlthough every business will be impacted by thecoming of the electronic economy, distributorsare at the forefront of the changes by virtue ofbeing in the middle and operating on thin mar-gins. They are facing a squeeze from both thecustomers and the suppliers to add more value inthe value chain. The conventional structures andstrategies in the distribution industry are beingtorn apart by new IT-intensive business models.Information technologies, such as the Web, makedisintermediation of existing channels a seriousthreat; at the same time, they provide an oppor-tunity for some distributors to succeed by rein-venting their value logic. Distributors that do notadd significant value in a value chain and simplymove the product through the channel are themost threatened species. Other players, such asshippers and logistic providers, are encroachingon the competitive space of distributors. Facedwith the squeeze from customers, suppliers, andnew entrants, some progressive companies in thedistribution industry are adopting a proactivestrategy of reinventing themselves.

In the past, distributors played an important rolein the value chain by allowing manufacturers toreach a broad range of customers without havingto maintain an extensive distribution setup oftheir own. However, faced with the pressures ofreinventing themselves, distributors have gonebeyond ensuring the movement of the physicalproduct. They are increasingly taking on rolessuch as providing technical service support tocustomers, processing payments and accounts



receivables for the manufacturers, offering credit,and making investment in inventories, personnel,and information technologies. Component sup-pliers and system producers are increasinglyturning responsibilities over to distributors to docontract manufacturing for them. The benefits tocustomers are in the form of rapid deliveries ofproducts customized to their needs.

The electronics distribution industry offers anexample of the changes that are brought by theelectronic economy. Large customers have glob-alized their business processes and require glob-al sourcing of electronic components. Emphasison time-to-market has compressed product life-cycle to unprecedented levels (some as short asthree months). There is a growing demand fromcustomers for distributors to take over theirinventory management and to play a greater rolein auto-replenishment and just-in-time deliver-ies. Sharing of information rapidly along supplychains and to develop effective coordination hasbecome crucial. The growing pressure of mass-customization in manufacturing is further com-plicating the distribution process. Concurrently,the power of new information technology net-works with distributed architectures, bandwidthproliferation, and increasing user friendliness areproviding new opportunities for conductingoperations in the distribution business.

The competitive situation faced by the distribu-tion industry is succinctly captured by RobRodin, the president and CEO of MarshallIndustries, an electronic components distributioncompany:

The traditional form of middleman isbecoming obsolete and our company is bydefinition in the middle. We are a junctionbox between suppliers and customers. Theforces around us are so intense. Our suppli-ers compete with each other, but they allwant the same thing--100% share of mind.No two customers have the same need butthey all want the same thing--Free. Perfect.Now.

How Marshall Industries transformed itself tomeet those challenges in the period from 1991through 1996 is examined below.

Systemic Alignment of theEnterprise: The Case of MarshallIndustries

Box 1. About Marshall

Marshall Industries is the fourth largest dis-tributor of industrial electronic componentsand production-supplies in the USA. It’is apublicly held, medium-sized company withapproximately 1,450 employees and 1996sales of nearly $1.2 billion. Marshall distrib-utes 125,000 different products manufacturedby over 100 major suppliers in the USA andJapan to over 30,000 business customers. Ithas a network of 38 sales and distributionbranches and three corporate support and dis-tribution centers in North America. It has asizeable investment in SEI, one of the largestelectronics distribution companies in Europe,and it is also a major distributor of Japanesesemiconductor products in the USA. Over75% of Marshall Industries’ sales are fromsemiconductor products. Their product linealso includes passive components, connec-tors, computer peripherals, instrumentation,and industrial production supplies. In addi-tion, it provides customers with value addedservices such as inventory management, kit-ring, and testing and programming of pro-grammable logic devices.

Much like a subtle spider which doth sitIn middle of her web, which spreadeth wide;If aught do touch the utmost thread of it,She feels it instantly on every side.

Sir John Davies,The Immortality of the Soul

In 1991, when Rob Rodin took over as CEO ofMarshall, misalignm.ents in their organizationalsystem were distorting the voice of the customerand prompting behaviors that were not con-ducive to serving the customers well (Hartman1997). While the choice of the little medievalpoem above is ours, it epitomizes how MarshallIndustries started to think about its future in its



web of customers and suppliers. Drawing onDeming’s (1993) ideas on systemic thinking,Rodin began to transform Marshall to cope withthe challenges of intense competition in theemerging electronic economy. It involvedrethinking quality in terms of the voice of thecustomer, developing an organizational strategy,structure, systems, and process to deliver quality,and building the necessary IT infrastructure.

The Misalignments

The company’s 600 salespeople and branchesoperated on an independent basis that resulted insuboptimal performance for the company as awhole. Everyone was paid based on an MBO(management by objectives) incentive system. Thecredit department was paid on days outstanding,regional managers were paid on the profit and lossof their own divisions, salespeople were paid ongross profit dollars, and product marketing man-agers were paid on sales versus forecast and oninventory budgets. Complicating matters wasMarshall’s practice of allowing their suppliers torun contests and promotions (sometimes as manyas 20 at the same time) for salespeople whenever new product was to be introduced. This system ofincentives and promotions caused distortions:20% of total sales were shipped in the last threedays of the month or quarter; salespeople wouldship ahead to make a quota, a number, or win aprize even, if that was not best for the customer.There were constant conflicts between depart-ments about corporate cost allocations, and ram-pant were practices such as divisions hiding inven-tory from each other for their own customers,resulting in shortages. Selling of products in inven-tory was pushed even though it could mean thecustomer not getting state-of-the-art products.While the customers were interested in solutionsto their problems, Marshall’s internal processeswere geared toward selling products to them. Thevoice of the customer was lost in this web of con-flict. Additionally, the hierarchical organizationalstructure and accompanying culture were drivingemployees to work with the overriding objective ofsatisfyingtheir boss in the hierarchy, rather than thecustomer.

Rethinking Quality

It became imperative to remove the obstacles toserving the customer. The voice of the customer

had to be heard by all, and customer responsive-ness had to become the highest priority. In accor-dance with Deming’s (1993) system of profoundknowledge, Marshall had to adopt a broaderview of quality. They had to go beyond instru-mental use of quality management concepts suchas statistical quality control and quality circlesimplemented at the worker level. Rodin realizedthat quality is made in the boardroom and it isthe responsibility of top management to studysystemic effects and adopt a management philos-ophy that aligns the organization with the voiceof the customer. As Deming points out, noisefrom conflict and distortion can be a majorsource of waste in the system and it is importantto effect individual transformation at the deepestlevel of commitment in all parts of the organiza-tion to better serve the customers (Deming 1993;Rodin and Backaitis 1994). In addition, thisrequires increasing and leveraging the intelli-gence of the organization.

Operationalizing the Voice of theCustomer: Free. Perfect. Now

The first step in aligning the organization and itsprocesses with the voice of the customer was tounderstand the voice of the customer. It meantoperationalizing customer needs in a simple waythat all employees and customers could under-stand and aim to fulfill. Marshall realized thatcustomers, if given a ~:hoice, wanted everything:products and services at the lowest possible cost,highest possible quality, greatest possible cus-tomization, and fastest possible delivery time. Atthe limit, this translates to the impossible goals of"Free. Perfect. Now." That was the bull’s-eye thatMarshall Industries would use to rally people tomove toward greate~ customer intimacy. Thatwould be the guiding light for aligning the voiceof the process with the voice of the customer. Inaddition, being in the distribution industry, theirdefinition of the customer had to encompassboth the suppliers as well as their customers.

Marshall Industries knew they needed to work onall three aspects in order to satisfy the customer.They would need to further elaborate and opera-tionalize the dimensions of each aspect.Furthermore, they needed to find a way to prior-itize when tradeoffs among aspects or theirdimensions were involved. The elaboration ofthe three aspects of the voice of the customer is



shown in Figure 1. Marshall realized that it wasno longer adequate for longer-term minded cus-tomers to think of "Free" in terms of cost of indi-vidual transactions and expanded that to includethe total cost of value-added services such asinventory management and testing for customers.Marshall also realized that it was obviously inad-equate for "Perfect" to be thought of in terms ofconformance to specifications and no defects,and that quality could be enhanced by featuresand benefits, customization, and the anticipationof future needs. The "Now" aspect was also artic-ulated to include increased accessibility (7 x 24),reduced delivery time, and time-to-market forcustomers’ products.

With ever shortening product life cycles, the cus-tomers needed all the assistance they couldreceive to get their products to market faster.Thus, while all three aspects of the voice of thecustomer had to be worked on, it appeared thatthe "Now" aspect and the customization dimen-

sion of the "Perfect" aspect would need the mostattention and would drive the others. This is con-sistent with the findings of time-based competi-tors that taking care of speed and flexibility takescare of quality and cost while the reverse is nottrue (Stalk and Hout, 1990).

Rethinking Strategy, Structure,Compensation, and ProcessMarshall’s processes and thinking were internallyfocused and this was forcing it to be reactive. Allwork was centered on meeting deadlines andshort-term financial goals. There was a need for amore proactive approach to achieve the perfectdimension of the customer voice. Customer needshad to be assessed and anticipated to deliver totalsolutions. This required development of a strategywith the input from employees, especially theones closest to customers, to drive the vision of"Free. Perfect. Now." The strategy then had to becomplemented with an appropriate organizational

PERFECT

ANTICIPATION OFFUTURE NEEDS

CUSTOMIZATION

NOW

Figure 1. As )ects of Voice of the Customer

MIS Quarterly Vol. 23 No. 3~September 1999 311


structure, compensation scheme, and a process toachieve "Free. Perfect. Now."

The new strategy called for conceptualizingMarshall as a junction box between customersand suppliers, focused on adding value, seekingto create a brand name by emphasizing the ser-vices through partnerships with customers andsuppliers. Marshall wanted to manage itself as anexternally focused system where every employeehad the responsibility for developing closer rela-tionships with the customers. Th:is new organiza-tional philosophy was mirrored in its organiza-tional chart, with customers on top (Figure 2). was meant to emphasize that employees weremore accountable to customers than any internalsupervisor. This "inverted" organization structuresymbolizes the importance of the contact personin delivering the company’s full capabilities atthe moment of customer contact (Quinn 1992). emphasizes that every employee in the organiza-tion has to support the contact person in his or

her relationship with the customer. The tradition-al line executives and systems and support staffsnow "work for" the front-line person. Marshalltakes this concept of inverted organization a stepfurther, such that there are no permanent "line"or "staff" functions. At any point, anyone in theorganization could be the contact person for aparticular customer. At that point, others in theorganization become the support functions forthe contact person. Another interesting variationin Marshall’s inverted pyramid organizationalchart is that they have the chief quality officerinstead of the president at the pointed end. It isindicative of Marshall’s beliefs that everyone inthe organization is driven by the goal of provid-ing the highest quality service to the customers.Every action taken and every decision made atMarshall, even the president’s, is guided by qual-ity goals set forth by the chief quality officer.

The chart is devoid of functions and departments,reflecting Marshall’s "surround strategy," where

Figure 2. Marshall Organizational Chart



work is organized around needs of the customerrather than according to rigid functional bound-aries. This boundaryless philosophy extends tocustomers and suppliers, driving Marshall todevelop close ~elationships with them.

In order to develop a customer-solution orientedteam-based cooperative culture, Marshall had toredesign its compensation structure. It meant tak-ing a very controversial step that went against theestablished, industry norm of compensation forsalespeople based on commissions, promotions,and contests. To foster a collaborative organiza-tion, Rodin decided that each employee atMarshall would be paid in the same way andshare in a company-wide profit-sharing bonuspool. This change did not come easy, as severalsalespeople were apprehensive about losing theircommissions. Compounding the situation werethe doubts that Marshall’s suppliers expressed:whether Marshall would be able to adequatelypromote their products without the driving force

of promotions. The employees’ concerns wereaddressed through educational seminars formonths after the change, whereby stability andeven flow of workload were pointed to as thebenefits of the new incentive system. Star earnersunder the old compensation structure wereenlisted to promote the virtues of the new struc-ture. Marshall developed its information systemsto support its sales force and enable them togather and leverage market intelligence, therebydemonstrating to suppliers that it had developedcapabilities to effectively support the sales oftheir products.

In addition to the new compensation scheme, astandard process, called the Marshall process(Figure 3), was instituted to provide a frameworkto orient all activities in the organization. Qualityconsiderations and constant feedback were thecornerstones of all the internal activities whetherthey were marketing, operational, informationsystems related, etc. The aim of the process was

Follow-upMeet commitments,continuous improvement

Market Research & MarketingMarket knowledge to serve intemal& external customers

CommitmentValid commitments to ensuremutual satisfaction with customers

Prospect & QualifyIdentifying needs & priorities

PresentInnovations to enhance value addition

Figure 3. The Marshall Process



to satisfy customers rather than meeting internalfinancial goals. It was the foundation for buildingan infrastructure for market penetration throughcloser relationships with customers. Eachemployee was assessed in terms of their businessskills, customer knowledge, supplier and productknowledge, system knowledge, and personaldevelopment and leadership to ascertain theircompetency in performing the customer-focusedactivities of the Marshall process.

Roles were assigned based on suitability of indi-vidual skill and knowledge for each phase of theMarshall process. Current performance level andareas for performance improvement were con-stantly evaluated based on assessed competencelevel in the requisite skill area. For instance, the"prospect" and "qualify" tasks in the Marshallprocess refer to "looking, learning and listeningto identify needs and priorities." Business skillsneeded for this include the ability to understandand communicate industry and business process-es. Therefore, as part of business skills assess-ment for prospect and qualify tasks, a Marshallemployee, such as a sales manager, would beevaluated on the applicability of his or her timeand territory analysis and richness of his or heraccount profiling.

The "present" task involves introducing innova-tive products and offering ideas to customers con-gruent with their business priorities that wouldhelp them enhance their business processes. Itrequires thorough knowledge of the customers’processes and needs as well as the knowledge ofnew value-added offerings available. The abilityto make valid and achievable commitments withcustomers to ensure mutual satisfaction is thecharacteristic of the "commitment task."Quarterly planning sessions are held with suppli-ers so that Marshall is in the best possible positionto make viable commitments to customers.Finally, the "follow-up" task ensures that theresults delivered to the customers are aligned withthe commitments made to them. Marshall collectsand analyzes data to continuously improve itsprocesses and set new quality goals.

The key elements of the organizational changeinstituted in order to achieve alignment with thevoice of the customer are summarized inFigure 4. These elements are similar to theoreti-

cal frameworks advanced to transform organiza-tional architecture (cf. Nadler et al. 1992): work,people, informal structure and process, and for-mal organizational arrangements. In the case ofMarshall, a coherent change in each of these ele-ments was achieved by using a framing lensbased on Deming’s ideas on orchestrating theefforts of all components toward achieving sys-temic goals.

Finally, there was a need to build IT infrastructureand take advantage of information technologieswhile keeping all of these elements aligned andmoving toward "Free. Perfect. Now." That iswhat is described in ’the next section.

Reinventing the Junction Box:IT-Intensive Value Innovation

With the organization reinvented to be aligned tothe voice of the customer and a collaborativestructure in place, Marshall was now ready tobegin its journey of pursuing "Free. Perfect.Now" and to push that envelope by leveragingthe power of evolving information technologies.They reinvented the way in which value was cre-ated for customers and suppliers and transformedthe business to one that was advantageouslypositioned for the electronic economy. Theyreinvented themselves to be a different kind ofintermediary---or, as Marshall Industries likes tocall it, a different kind of "junction box."

This section describes how Marshall’s valueproposition changed through various stages of IT-enabled organizational transformation (Figure 5).Extending the framework provided byVenkatraman (1994), Marshall’s transformationaltrajectory is traced as they progress from achiev-ing operational excellence to being a value inno-vator. Figure 5 shows the stages of organization-al transformation, the IT infrastructure thatenabled the transformation, and the resultingvalue proposition for customers along the "Free.Perfect. Now" axis.

Marshall considers itself as a "junction box" thatconnects customers with suppliers. In the initialstages of its transformation, Marshall used IT infra-



Marshall as a "Junction Box"Customer IntimacyMarshaltized CusfomizationAny Time, Any Place, Any Method

STRATEGY ~ooProfit Sharing

pCr°o~ om itiSoMn? s

ORGANIZING ~~PPEFRRFEEEGT~~ COMs~EHNESMA~ION ’PRINCIPLES

~

Org Chart ~ INoMBO ~ ¯Collaborative Teaming ~ IMarshall Process

"N~ INFORMATION~ TECHNOLOGY I Marshall on the Net~ [ PartnerNet

MarshallNetElectronic Design CenterNetSeminar

Figure 4. Key Elements of Organizational Alignment

structure to be a clean conduit for transactions--a junction box that created the least friction in theautomation of transactions. The focus was on cre-ating value by achieving cost savings through effi-ciency gains from automating internal processes.Internal integration was the focus to move to thenext level of the junction box. Marshall focusedon the interconnectivity and interoperability of itsinternal systems using technologies such asintranet. At the same time, they continued to har-vest the collective knowledge of the people in theorganization by building a collaborative environ-ment. A data warehouse was built to capture andexploit this knowledge. The result of thesechanges was improvement in the quality ofMarshall’s products and services. Customer bene-fits in terms of speedy delivery of customizedproducts and services were delivered by combin-ing the IT infrastructure with appropriate organi-zational changes to achieve higher manifestationsof the junction box. As Marshall progressed as a

junction box, processes were redesigned andorganizational boundaries were blurred throughthe use of IT to link and form interdependencieswith business partners and customers. Finally, thejunction box became one that anticipated andmet the future needs of the customers and busi-ness partners by prototyping future opportunities.Marshall redefined and extended its businessscope by undertaking technology initiatives thatpositioned it for value innovation in a turbulent,competitive environment. Throughout its trans-formation as a "junction box," Marshall Industriesbootstrapped the capabilities of its existing IT sys-tems to create new systems that complementedthe evolving business strategy. The underlying ITarchitecture leverages the Internet, client-serverand groupware platforms, and mainframes and isshown in Appendix A. The transformation levelsof the junction box model that capture the pro-gression in a way that is hopefully generalizableto other enterprises is outlined below.



FREEPERFECF

NOW

VALUEINNOVATION

CUSTOMIZATION

QUALITY

PHASES OFORGANIZATIONALTRANSFORMATION

¯

LOCALIZEDIMPLEMENTATION

BUSINESS BUSINESS BUSINESSINFERNAL PROCESS NETWORK SCOPEIN3XGRATION

RI~ESIGN RI~ESIGN REDEFINITION

Level 1 Junction Box: Clean conduit for transac-tions. The first step was to pursue operationalexcellence through streamlining for cost, efficien-cy, and basic reliability. As an intermediary, thesewere necessary qualifying factors for market par-ticipation and transaction processing. The sys-tems developed initially (QOBRA and AS/RS)were aimed at supporting Marshall’s basic opera-tional capabilities (see Box 2, Backbone Systems).

Level 2 Junction Box: Internal integration--intelligently connecting the insides to better con-nect to the outside. Marshall had adopted a flatorganizational structure based on informationsharing, and they needed IT to support informa-tion flows that were more networked in nature.The technology also had to automate routine pro-cessing and free up employees to leverage andshare their expertise in providing value to cus-tomers. In order to make the external connectionbetter, it was expedient to connect the insides sothat expertise of the organization could be avail-

able to anyone at anytime. In order to enableemployees to obtain information at their fingertips

Box 2. Backbone Systems--QOBRA and AS/RS

Core operational systems supporting the busi-ness. Implemented in 1992, QOBRA (Qualityorder booking, resell application) is the day-to-day order management system based on a0IBM-DB2 platform~ Internet and EDI basedfront-ends pass transaction information toQOBRA. A Sun/Unix-based data warehouseis the repository for archived transaction infor-mation as well as product-related informa-tion. AS/RS, implemented in 1991, is theautomated shipping and receiving system thatinterfaces with the automated warehouse forrobotic movement of inventory. These sys-tems are the service providers for the Internetinfrastructure.

316 MIS Quarterly Vol. 23 No. 3~September 1999


so as to serve the customer better, Marshall insti-tuted an intranet (see Box 3, MarshallNet).

Box 3. MarshallNet--The Intranet

MarshalINet supports approximately 400 fieldsales employees equipped with laptop com-puters who travel to customer sites. It enablesthem in real-time to check inventory andproduct specs datasheets, quote orders, com-municate with other employees, collaborateon projects, and make presentations.

The salient feature of the intranet is Compass,the "marketing encyclopedia." It consists of2,500 different documents, containing detailsabout suppliers and their product lines.Employees can prepare and make presenta-tions to customers, on the fly, and adapt themto needs of both the engineering types of cus-tomers as well as buyers. Further, if the cus-tomer is interested in buying products frommore than one supplier at the same time, thefield sales employee can seamlessly integratepresentations from different suppliers.

The marketing personnel directory informsfield personnel about who to contact for moreinformation when they call the branch office.as well as the person’s supervisor or theirbackup. Compass also informs employeesabout key programs, new products, advertis-ing campaign details, Internet Web site visi-bility, and services.

The intranet was successful due to its cus-tomizable interface. Each user can organizethe information according to his or her prefer-ence. For example, if the customer wantsproducts from a specific supplier, the salesperson can arrange the information accordingto supplier name, product category type, etc.MarshallNet is now integrated with Marshall’sWeb-based extranet, PartnerNet. Anotherpiece of MarshallNet is the "intranet’--acombination of LotusNotes/Domino and Webapplications. It includes visibility of the appli-cations that were developed for the salesforce p us others that are meant to be usedspecifically by their operations and marketingorganizations.

Level 3 Junction Box: Empowering the outsidesto more intelligently connect to the insidesthrough multiple modes of service. This stagefocused on redesigning the business processesaround the customer for anytime, anywhere, anymethod access with more intelligence and con-venient self-service. The voice of the customerwas clamoring for 24 x 7, easy accessibility ofservices. Marshall sought Web browser technol-ogy in the early 1994 Mosaic days directly fromthe University of Illinois to provide an easierinterface to users. That was the start of Marshall’seffort to build a Web site that would provide thecustomers with a round-the-clock, fully-automat-ed, hands-free order fulfillment process (seeBox 4, Marshall on the Internet). Marshall, how-

Box 4. Marshall on the Internet(www.marshall.com)

Commissioned on July 24, 1995, it started outas an effort to present customers with infor-mation on products, pricing, and availability.Using an object-relational database, visitorsto the Web site are presented a dynamic viewwith different information text, banners, newproducts, etc., each time they visit the site(see Appendix B).

Today the site gets over a million hits eachweek by customers from over 59 countries. Itcontains information about 170,000 partnumbers, 100,000 pages of data sheets, andreal-time inventory pricing from over 100suppliers. Visitors can search for products bypart numbers, part description, or the name ofthe manufacturer. Marshall’s endeavor is tomake the navigation as easy as possible forthe visitors. The site also allows the customersto order the parts, request samples, and tracktheir orders online.

Order tracking is made available by Marshallin conjunction with its partner, UPS. The inno-vative part about it is that customers can tracktheir orders without ever having to leaveMarshall’s site. In the beginning, UPS did nothave such a provision so the IS people atMarshall wrote an API themselves to connectto UPS’s order tracking system.

Besides offering customers valuable productinformation, the site also provides electronic



Box 4. Continuedindustry news using RealAudioTM broadcast.Visitors can also chat with Marshall’s engi-neers online, real-time, and 24 hours a day,getting help in buying products, trou-bleshooting problems, and obtaining exper-tise in product design. The site also provideslinks to Marshall’s other Web sites, ElectronicDesign Center, NetSeminar, and thePartnerNet.

SEI on the Internet (www.sei.com)

Marshall formed a strategic alliance with aEuropean distributor (SEI) and developed Web site for them that offers features ofMarshall on the Internet with customizedinterfaces in 17 different languages. The ideawas to develop an Internet Web site that feltlocal to the particular market place it was try-ing to serve, yet make sure that the totalEurope perspective was still there. The cus-tomers enter the main site and are able tonavigate to their local home page, which isnot only in their local language, but alsoincludes local events, specials, etc

ever, does not restrict itself to the Internet to pro-vide access to customers. EDI, fax, and an inno-vative phone system (see Box 5, Open 24 Hours)complement the Internet efforts. For instance,large customers with fairly well defined require-ments over time can use an auto-replenishmentchannel using EDI, while small customers withidiosyncratic orders can order in through theInternet and pay using credit cards.

Level 4 Junction Box: Customizing the connec-tions to the outside for added value. Marshallrealized that creating value for the customerrequires the formation of close links with the cus-tomers and suppliers that are customized and tar-geted to their needs. It established an extranet toimplement this strategy (see Box 6, PartnerNet).There was also a pressing need to understandhow customers’ notions of value were changingand how they could be enabled to create valuefor themselves. The Marshall Account ProfilePlanner (see Box 7, MAP2) is the system thatenabled the acquisition and management of mar-ket intelligence for that purpose.

Box 5. Open 24 Hours

In line with Marshall’s philosophy of "anytime, any place, any method" is the telephoneordering/assistance system. Marshall on theInternet and PartnerNet caters to the informa-tion needs of customers who work from 6p.m. to 6 a.m. Complementing the Webefforts is the telephone system that satisfiesthe customers’ need to speak to or order froma real person on the other end. This facilitygoes beyond the industry norm of nine to sixbusiness hours.

Customer calls to East Coast offices after 6p.m. are rolled over to the El Monte,California, office where a live voice greets thecustomers. The testament to the success ofthis effort is folklore of how Marshall won thebusiness of a New Hampshire manufacturer.On a night before Christmas when the partsbegan to run out, the customers frantic anddesperate employees called several of its reg-ular distributors, only to find that the earliestthe parts could get to them was on Mondaymorning. Upon calling Marshall’s Bostonoffice, their call was redirected to California.It being Christmas Eve meant that the ware-house and packing facility operations wereclosed. This did not stop the telephone oper-ator from taking the initiative to page keyoperations personnel. Marshall’s 24 by 7operations were then mobilized, the opera-tions were cranked up, and the parts werepicked and packed. They were then placedon the next flight and the parts were on thecustomer’s floor on Sunday morning, keepingtheir operations going without stopping.

Level 5 Junction Box: Leveraging knowledge inthe insides and outsides for value innovation.Marshall has been augmenting and reinventingits role as a junction box by building the IT infra-structure that leverages the knowledge of its cus-tomers and suppliers and its own thinking andexpertise to answer such questions as "Whathappens to memory prices when IBM launchesits new thinkpad?", "What happens if a certainsupplier goes on allocation?", and "How can Ipredict the demand for X component two monthsin advance?" (see Box 8, DRP). Marshall’s IT ini-



Box 6. PartnerNet (partnernet.marshall.com)

A secured connection behind the firewall forthe registered customers and suppliers,PartnerNet draws visits from approximately1,300 suppliers and customers daily. QOBRA,the Smart system (DRP), and Marshall’s salesforce applications tie into PartnerNet. Itenables customers and suppliers to accessWeb pages customized to their requirements.Customers can obtain information such as pur-chase history over a specific period, consoli-dated as well as breakdown orders for multipleorder points, and prices that are unique toeach customer based on their profile. Itenables Marshall to coordinate the entire pur-chasing cycle~from product information tocustomer support. PartnerNet also affords cus-tomers the ability to name the components,whatever they choose, and place future ordersbased on the name they have chosen. Marshallhas been working with DigiCash and creditcard companies to give their customers theability to pay for their purchases online.Suppliers can utilize PartnerNet to track salespatterns by product line, by region, and bycustomer, as well as get a view of customeropportunities, registrations, and lead tracking.

Box 7. MAP2= Manufacturing AccountProfile Planner

This marketing intelligence system profiles allcustomer projects, down to the part numberlevel, for every Marshall account. It allowsMarshall to better target its marketing effortsand to provide its suppliers increased visibili-ty into the types of applications its customersare building along with trending informationabout the sales patterns by product line, byregion, by customer, etc. The system ties intoan opportunity tracking/design system andlead management system that providesMarshall and its suppliers with an end-to-endclosed-loop sales and marketing system. TheMAP2 system profiles all the visitors toMarshall on the Internet requesting samplesas well as using information fed in by fieldsales employees through the intranet. Thisenables them to follow up on the marketingleads generated by the system.

tiatives also leverage the intellectual capabilitiesof its salespeople and engineers. This is comple-mented by acquiring an acute understanding ofcurrent customers as well as the future customers(see Box 7, MAP2). Marshall is also providingnew ways of transferring expertise within its net-work of partners (see Box 9, Electronic DesignCenter).

Level 6 Junction Box: Prototyping future oppor-tunities for value innovation. Marshall Industrieshas seen very clearly that, in the electronic econ-omy, the rate of change will accelerate furtherand new information technologies will increas-ingly shape rather than support corporate strate-gies and create entirely new opportunities forvalue innovation. Marshall also knows that it hasto seek to maximize its share of future opportu-nities if it is to remain competitive--even if thatmeans reinventing the whole industry. It mustalso anticipate and provide answers to problemssuppliers and customers don’t even know theyhave.

Box 8. Distribution Resource Planner(DRP) system

Smart--the DRP system--is a database man-agement system to support both the cus-tomers’ as well as the suppliers’ needs. Itenables both Marshall and its suppliers to for-mulate plans for replenishment and schedul-ing shipments. For the customer, this meansthat Marshall is able to recognize their needsbetter than they can themselves. For cus-tomers that have multiple order points, itmeans that Marshall can keep track of con-solidated requirements, provide price dis-counts based on the consolidated order, andalso plan for the consolidated requirements ofthe customer. Marshall harnesses the marketintelligence to plan for the customer and pro-vide expertise in design and selection of com-ponents. It uses the customers’ bill-of-materi-als as an input and also tracks the events thatwould affect the suppliers of the requisitecomponents. Utilizing the customer’sdemand plan, it tracks the customer’s stockand replenishment needs for the period of sixmonths or up to a year. This system is the har-binger of Marshall’s effort to manage thewhole supply chain for the customer.



Box 9. Electronic Design Center(www.electronicdesign.com)

Provides customers with technical specifica-tions of chips carried by Marshall. Further, itenables customers to download softwarecode to simulate the performance of thosechips in their product design by modifying thecode to incorporate their design parameters.Prior to this, the customers had to purchaseseparate testers for different chips. This notonly makes testing "virtual components"inexpensive but also reduces the time. If theyike the results, customers can request

Marshall to use the software testing code toproduce physical chips as samples, whichcan then be used by customers for prototypedesign. This process has helped customers tosignificantly reduce their time-to-market, i

As is often said, the future is here but it is uneven-ly distributed. Marshall has sought to take advan-tage of that by building IT platforms that serve toprototype the future. That is their strategic R&Deffort, which is unusual for a mid-size companyin the distribution business. These efforts link thepresent to the future (see Box 10, NetSeminar,and Box 11, E.N.E.N) and provide opportunitiesfor developing new competencies. Other suchR&D efforts to build competencies and IT infra-structures for the future normally (now) outsidethe usual scope of a distribution company arealso underway.

There are a number of insights that can be gainedfrom the junction box model level progressionthat may be useful for enterprises transformingtheir IT infrastructures for the electronic econo-my. First, the model articulates the focus of eachlevel and the sequence as a guideline for build-ing an IT infrastructure for the electronic econo-my. Second, the sequence of level progression isimportant and one cannot move to the next high-er level until a threshold level of functionalitythat satisfies the focus of that level is attained.That does not mean that work focusing on a par-ticular level’s intent should stop when there is aprogression to a higher level; rather, work con-tinues to improve the functionality and technolo-gy for that junction box level. At any given time,the work centered around the higher junction

Box 10. NetSeminarTM (www.netseminar.com)

NetSeminarTM virtually brings together poten-tial customers and suppliers who design newproducts. It is also used to provide customerswith after-sales training for new technologies.From its studio at El Monte, California,Marshall can broadcast real-time video andaudio streams over the Internet using productslike RealVideo and RealAudio. The presen-ter’s presentation material can be browsedsimultaneously by participants, who can also,in real-time, ask questions and provide feed-back to the presenter using GlobalChat.Registration is required in advance, by choos-ing a password to allow access to the seminar.Participation ranges from a few thousand toover 30,000 for some presentations. The live)resentations are archived for future use.

Box 11. E.N.E.N. (www.enen.com)

The success of theNetSeminarTM was the dri-ving force behind the creation of a separateconsulting arm called Education News andEntertainment Network. It enables clients tohold real-time seminars over the Internet livefor the purpose of interactive public productannouncements, sales training, etc. Anotherservice of ENEN is the NetPresentationTM thatany business can use to deliver self-running,synchronized audio-visual presentations.NetlnterviewTM enables businesses to providetheir customers with interviews deliveredover the Internet. Capitalizing on the popular-ity of information push to employees within acompany, NetHeadline NewsTM affords busi-nesses the ability to broadcast a "radio-like"show over the Internet every day, weekly, ormonthly. Further, these shows can bearchived to allow them to be played after theinitial show has been delivered.

box level is more leading-edge and exciting, andit is a challenge to motivate people who are nolonger working with the higher levels of the junc-tion box. Third, the higher the junction box level,the more knowledge sharing and creation isleveraged and the higher the degree of valueinnovation. Thus, there is an enlargement of



focus as we move up the junction box levelsfrom data to information to knowledge. Fourth,as mentioned earlier, there is a ~equisite organi-zational transformation effort that must accom-pany the change in IT infrastructure as explainedearlier in the section of the article on systemicalignment. That transformation comes with thetypical organizational and technical challengesof large-scale transformational efforts.

This progression Of six levels of the junction boxdepicts what went on at Marshall Industries from1991 through early 1997. Some of the impacts ofthis progression are outlined in the next section.Will there be higher levels of junction boxeswhich create value in new ways? The answer is aresounding yes at Marshall Industries. The pur-suit of "Free. Perfect. Now" will continue, andthe junction box will continue to be reinventedthrough the forward-looking use of existing andemerging information technologies.

Assessing the Impacts ~

The journey that began at Marshall in 1991 inresponse to changing dynamics of business wasvery successful. It has helped Marshall reinventits role as a distributor while satisfying thedemands of their customers and suppliers andanticipating their future needs and demands.Along the journey, the company’s revenues morethan doubled from $582 million in 1991 to a$1.2 billion in 1996 (see Figure 6).

The remarkable aspect of this growth is that itwas achieved without ballooning of the compa-ny in terms of number of employees. In fact, thecompany in 1997 had 250 fewer people than ithad in 1991, the year they began their upwardswing and productivity per employee has soaredfrom $360,000 to $740,000 (see Figure 7).

The innovative use of Internet technologies atMarshall has also been substantiated in a recent

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Year

1994 1995 1996

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Figure 6. Marshall’s Sales and Net Income: 1991 to 996



1996

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Figure 7. Marshall’s Employee Productivit, r: 1991 to 996

survey by Shaw (1997). Marshall was ranked firstas the best business-to-business Web site among200 major U.S. corporations in the survey, whichranked larger companies with substantial elec-tronic commerce business presence such asCisco, Dell, and Federal Express.

Just as it listens to the voice of the customerwhen formulating strategies and building the ITinfrastructure, Marshall feels that the success oftheir endeavor is best reflected by the voice ofthe customer. The IS group receives numerousaccolades from customers who perceive greatervalue from the services that Marshall is nowable to provide them. As a sample of a recentmail sent to the IT group by a field salesemployee indicates,

I was in to see the folks at [Customer] yes-terday and was told how impressed andgrateful they were for the existence of theMarshall Net. [Customer] received an orderfor 15 micro controller boards, with delivery

required in one week. With the aid of theNet stock check, [Person] at [Customer] wasable to design the bill of material based onwhat we had and finally ship to their cus-tomer in one week of receiving their P.O.[Person] said that if it wasn’t for Marshall’sNet access with its ease and accurate infor-mation, they would never have been able tosatisfy their customer. Another convert . . .you think???

The impact of Marshall’s value innovation initia-tives can be assessed from the acceptance theyhave received from customers. One of them,upon using NetSeminar, commented

It is this type of groundbreaking that cor~tin-ues to set Marshall apart from the rest of theelectronic components industry. We areexcited about using this technology todeliver seminars and training to our mutualcustomers.

322 MIS Quarterly Vol. 23 No. 3~September 1999


Marshall’s innovative adoption of technology toreduce time to market for customers has alsoenabled it to make in-roads into customer seg-ments that are extremely sensitive to the issue.For instance, WebTV, the consumer-electronicstart-up, did not do any business with Marshallinitially, but with Marshall’s accessibility throughthe Internet, its volume of business with Marshallwent up to $1.5 million per month.

Marshall’s strategy and technology has also had asignificant impact on its relationships with sup-plier. Traditionally, many powerful U.S. electron-ic suppliers have refused to share shelf spacewith Japanese manufacturers, opting to gothrough separate distributors. In late 1995,Advanced Micro Devices (AMD) chose Marshall,who also carries Japanese products. This wasseen as "a major coup" in the trade press and asign that "the silent code between U.S. andJapanese manufacturers is starting to crack." Thedevelopment highlights Marshall’s strategy ofchanging the ground rules and was especiallysignificant given that AMD had not franchised anew distributor in almost a decade.

Identifying New Practices for ITOrganizations

Can we identify new practices for IT organiza-tions for building and managing an evolving ITinfrastructure for the electronic economy? That isthe third question that this article sought toanswer. In order to help answer that question,some of the distinctive practices at Marshall areoutlined. These practices are grouped into threefamiliar sets as shown in Table 1, and then com-pared to conventional practices in building andmanaging IT infrastructure for large enterprises.Based on this comparison, some insights aredrawn about new practices that we believe canbe useful to IT organizations in other enterprisespreparing to take on the challenges of the elec-tronic economy. Despite the lack of systematicvalidation of these practices in other contextsand larger enterprises, it is important to expositthese new practices and their underlying princi-ples to the IS community so they can be furtherdeveloped. The practices are presented in Table1 and the text that follows.

Marshall’s business strategy is driven by the needto continually improvise to better target the voiceof the customer and find new ways of creatingvalue through the use of information technolo-gies. The resulting IT strategy and the enterprisestrategy can be viewed as being mutually co-adaptive (Brown and Eisenhardt 1998). Theyderive mutual advantage from each other, whileevolving individually. Co-adaptation entails thatthe two strategies unfold in a connected anddynamic fashion as one. The unfolding is nothaphazard but is guided by clear, predeterminedvalues surrounding the voice of the customer asthe company seeks to target higher levels of thejunction box (see examples given above in Level6 of the junction box model). This approachtakes aidvantage of both chaos and order and canperhaps be termed strategic improvisation.

Strategic improvisation is different in principlefrom conventional "one-way" strategic align-ment in which IT strategy tracks specified enter-prise strategies to ensure that IT investments aretargeted to strategic priorities. It is also differentin execution from conventional "two-way"strategic alignment (Rockart et al. 1996), which the CIO as a member of the top manage-ment team of the enterprise provides an IT visionwhich identifies the business threats and oppor-tunities that IT poses and the business optionsthat it shapes. In the strategic improvisationapproach, it is the guiding business values ratherthan the articulation of the specifics of businessand IT strategies that are predetermined.Furthermore, the CEO takes on a much moreproactive role and is a full participant in shapingthe IT vision jointly with the CIO. It goes beyondthe typical CEO role in progressive enterprisesthat have the strong CIO-CEO relationshipsneeded for IT-based transformation (Cross et al.1997; Feeny et al. 1992; Martin 1995). For strate-gic improvisation to work effectively, not onlydoes the CIO share the business language andvision of the CEO, but also the CEO shares the ITvision of the CIO and together they shape itthrough a common mental framework. This isconsistent with what has previously been calledfor: in dynamic business environments, businessmanagers and IT managers must jointly shareresponsibility for the development of IT infra-structures for their enterprise (Broadbent andWeill 1997). At Marshall Industries, the CEO is



Table 1. Building and Managing IT Infrastructure for the Electronic Economy

Organizing Element

Managing theconnection betweenIT strategy andenterprise strategy

Managing applicationdeployment andtechnology platforms

Managing the ITorganization

Marshall’s Distinctive Practices

¯Strategic improvisation: IT strategy andenterprise strategy co-adaptively unfoldbased on clear guiding values

¯CEO proactively shapes IT vision jointly with ClOas part of enterprise strategy

¯IT initiatives colocated holistically with businessinitiative to form centers of IT-intensive businessexpertise

¯Perpetual application development based oncontinuous learning from rapid deploymentwith incomplete functionality

¯Best-of-breed approach to IT infrastructure inwhich effective match with business needs takesprecedence over commitment to technologyplatforms choices and vendor homogeneity

¯ Hire "best athlete" who can flexibly integrate newIT and business competencies

¯ Evolving work-groups organized aroundemerging IT-intensive business initiativeswith little explicit delegation of tasks

¯ IT funding typically based on value propostionaround business opportunity related tobuilding services for customers. IT projectinseparable part of business initiative

very actively involved with IT initiatives. Heproactively helps to project each nascent tech-nology or application "several iterations beyond"in order to determine what it could do for thecustomers and the business.

At Marshall Industries, the meshing of IT andbusiness issues is also pervasive from the top tothe bottom of the organization. IT initiatives aremeshed with business issues and holisticallyaddressed in an embedded way. Thus, the work-groups that are overseen by the director of infor-mation technology are organized around busi-

Conventional Practices

¯ Stategic alignment: ITstrategy tracks specifiedenterprise strategy

¯CEO endorses IT visionshaped through CIO

¯ IT initiatives funcionallyorganized as technologicalsolutions to business issues

¯Phased applicationdevelopment based onlearning from pilots

¯ Approach to IT infrastructuremay sacrifice match withbusiness needs for vendorhomogeneity and technologyplatform choices

¯Hire "best by position" whocan bring specific IT expertise

¯Departments organized aroundIT expertise with businessliasons and explicit delegationof tasks

¯ IT projects have separablecost/value considerations.Funding typically allocatedwithin constraints of yearlybudget for IT function

ness initiatives. The only exception is the com-puter/communications operations group, whichmaintains the hardware and operating systemsinfrastructure. The balance of the 135 peoplewho report to the director of information tech-nology are organized into four main work groupsalong key business initiatives: (1) enterprise inte-gration, (2) electronic commerce and supplychain management, (3) marketing and visibilityinitiatives, and (4) global alliances. The IT func-tion at Marshall is perhaps best conceived as anorbital structure in which the CIO and CEO col-laborate closely and form the nucleus [Figure 8].



The constellation of groups is then organized inorbits around the nucleus based on business ini-tiatives rather than technologies. This approachis close in orientation to what has been observedabout the way that Japanese managers frame ITmanagement: there is much meshed organiza-tional bonding at all operational and strategiclevels (Bensaou and Earl 1998). In retrospect, it not surprising that Marshall Industries’ approachto IT management would be closer to Japanesepractices given their adherence to the teachingsof Deming.This continuous learning strategy is also carriedover to managing application deployment andbuilding IT architecture within the work groups.Given the speed at which IT applications need tobe deployed in the electronic economy torespond to emerging business needs, and giventhe rapid technological change in Internet-relat-ed technologies, applications are developed insmall chunks and deployed very rapidly (typical-

ly a one- to three-month cycle). It is assumed thatmuch learning and redevelopment will occurfrom feedback in use, and that there will be per-petual application development as well as rapidtechnology change. This is not a new practice interms of similarity to prototyping practices, rapidapplication development, and piloting. What issomewhat different at Marshall is that the philos-ophy is extended to deployment rather than justdevelopment and piloting. Thus there is muchmore direct codevelopment with customers. AtMarshall, an application solution may bedeployed to customers even if it is 50% completein terms of full functionality if the deploymenthelps to generate more business quickly. Thenew way of thinking about application develop-ment for the electronic economy is perhapsreflected in a question and a statement: "Whatcan we turn on next week?" and "We will neverdesign the absolute best product." This works atMarshall because of an enterprise culture that

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fosters learning with and from customers.Mistakes are not hidden from customers and areviewed as joint learning experiences.

In terms of IT application architecture, Marshalluses a best-of-breed approach rather than goingin for off-the-shelf applications that do not effec-tively serve individual business needs. Forinstance, when Marshall developed its sales-force automation application, no off-the-shelfproduct satisfied what it wanted to do through itsIntranet. They did not hesitate to attempt to inte-grate several technology platforms and softwareproducts to rapidly satisfy their business need.They used LotusNotes as a base platform, MFJInternational’s Overquota for sales automation,Quality Decision Management’s BusinessBuilder for work management layer, andWorkflow Design’s @ScheduleBase for groupcalendar/scheduling. This best-of-breedapproach is being increasingly used by business-es to achieve better fit to business needs. Inrecognition, ERP software vendors such as SAP,Baan, Oracle, and PeopleSoft have announcedaggressive programs for certifying third partyproducts to extend their application packages.Also, these vendors have been moving to converttheir application packages to components thatcan be better adapted to business needs (Weston1997).

There are obvious tradeoffs when choosingbetween off-the-shelf packages and custom best-of-breed applications. Integrating best-of-breedapplications may be challenging because of lackof uniform interfaces and interoperability.Nevertheless, given appropriate IS skills, theadditional functionality that accrues may beworth the effort. It may be pointed out thatenterprise software vendors are forging alliancesand using modular approaches to make thisstrategy more viable for the future (Warren1997).

Marshall allows business needs to take prece-dence over standardized technology platformsand vendor homogeneity. This has allowed it tomake application software choices independentof the operating system platforms needed to runthem--based on the view that if business needswarranted, they would add a new operating sys-tem platform. In contrast, traditional IS organiza-tions sometimes limit their application choices

based on the kind of hardware and operating sys-tems platforms they have. The value of homoge-neous technology platforms as an ideal is not dis-puted; however, there is a lesson to learn fromMarshall. The realities of a more rapidly chang-ing business and technology environment in theelectronic economy may make it desirable tosacrifice technology homogeneity for pressingbusiness needs on a more frequent basis than inthe past.

Marshall also has some distinctive practices formanaging the IT organization. As mentionedabove, work groups in the IT organization areorganized around business issues rather than"around IT expertise. They look to hire peoplewho are "best athletes" who can flexibly inte-grate new IT and business competencies in alearning-by-doing environment, rather than "bestby position" (an athletic term), who can bringspecific IT expertise to business problems.Furthermore, all individuals in the IT groups atMarshall interact directly with customers andsuppliers in the marketplace, and it is estimatedthat these interactions comprise roughly 50% oftheir time. This fosters both customer intimacyand bonding between business and IT issues forall staffers. It also reinforces the incentive struc-ture for all Marshall employees (and IT staffersare not any different), which is based on listeningto and satisfying the voice of the customer.However, it requires staffers who are comfortablein a flexible, ill-defined environment where tasksare molded rather than delegated, and collabora-tion across groups is necessary for coordination.This is very different from IT departments that areorganized around specialized IT expertise withbusiness liaisons and well-specified tasks (cf.Clark et al. 1997).

Funding decisions at Marshall are usually basedon a value proposition that centers around abusiness opportunity related to building servicesfor customers. Thus, an IT project is an insepa-rable part of a business initiative, and cost/valueassessment is made based on the total businessinitiative. Funding is allocated and negotiatedon a business "project-by-project" basis ratherthan a yearly IT budget. This method of fundingis suited to the strategic improvisation approachthat Marshall follows, the external customer ori-entation of the IT function, and the way that theIT function is organized. Expenditures are



tracked and monitored through the office of thechief financial officer, but are based on businessinitiative budgets rather than a total IT budget.One caveat of such a funding method is that ITprojects that are for general infrastructuralimprovement can be neglected from a fundingperspective.

By looking at Marshall Industries, some distinc-tive practices in building and managing ITinfrastructures for the electronic economy havebeen identified. These practices depart fromsome of the conventional practices. An attempthas been made to articulate the logic behindthese practices and their underlying principlesto the IS community. The logic suggests thatthey might be useful to IT organizations inother enterprises. We hope that IS practitionerswill examine their suitability to their own busi-ness contexts and that IS researchers will fur-ther develop and test the validity of those prin-ciples.

Elements of IT-Intensive ValueInnovation in the ElectronicEconomyConventional logic no longer applies in the elec-tronic economy! In the quiz at the start of thepaper, allusion was made to the ways in whichthe electronic economy is impacting the logic ofmanaging businesses and information technolo-gy. The Marshall story has highlighted new waysof thinking that reflect this logic. In this section,four shifts in logic that will increasingly super-sede the older conventional logic are presented(see Table 2).

Shift #1: From Traditional Value Chainsto Value Constellations

The traditional value chain model, with itssequential assembly-line processes and linearpoint-to-point information flows, is no longer anadequate representation. Increasingly, interorga-nizational processes aimed at creating value forcustomers are being characterized by non-linearflows of information and knowledge (Rayportand Sviokla 1995). The Marshall Industries casehas demonstrated that the value chain metaphoris inadequate for the electronic economy:Marshall has organized a constellation of cus-tomers and suppliers who are engaged in a richweb of relationships that are instantiated in vari-ous ways and directions. The junction boxmetaphor is a variant of the value constellationmodel (Norman and Ramirez 1993) and com-bines some elements of virtual communities(Armstrong and Hage11996) and value networks(Stabell and Fjelstad 1998). In a value constella-tion, there is a move from a focus on activitiesperformed by enterprises to a focus on reconfig-uring roles and relationships among a constella-tion of suppliers, business partners, and cus-tomers in order to mobilize the creation of valuein new forms by new players. The dynamicaspects of the constellation are captured throughthe progression in capabilities of the junctionbox.

Shift #2: From Conventional Strategy toValue InnovationConventional strategy formulation based on theprinciples of competitive advantage stresses theleveraging of given resources and competenciesvis-a-vis the competition. The electronic econo-

Table 2. The New Logic of the Electronic Economy

Conventional Logic New Logic

Sequential Value Chains Concurrent Value Constellations

Competitive Advantage Logic Value Innovation Logic

IT-supported Innovation IT-Shaped Cybermediation

Alignment of IT Strategy and Business Strategy Managing the Dynamic Unfolding of ITStrategy and Business Strategy



my is characterized by fluid industry and organi-zation boundaries, shifting alliances, and chang-ing technologies. In this scenario, the competitoris no longer a given entity, and an enterpriseneed not be constrained by existing resources ifit can leverage its intellectual assets. The newlogic is based on value innovation (Kim and

Mauborgne 1997) and derives strategic directionfrom what is valued by the customer, withoutbeing constrained by existing industry rules.Marshall has embarked from an earlier emphasison operational excellence to one of satisfyinghigher order conceptualizations of "Free. Perfect.Now." Marshall is forging new relationships with

Table 3. Value Innovation Logic at Marshall(Adapted From Kim and Mauborgne 1997

Strategy Dimensions

Industry Assumptions

Strategic Focus

Customers

Assets and Capabilities

Product and ServiceOfferings

Conventional Logic

Play by the old given rules¯ Pay-for-performance¯ Business hours 8 a.m.-6 p.m.¯ MBOs, P&Ls, budgets, etc.

To beat the competition--benchmark and improve.Benefits are marginal

Expand and retain currentcustomers through furthersegmentation.

Leverage what you have

The industry you are indetermines the products andservices you offer. The goalthen is to add as much valueas you can

Value Innovation Logic

Marshall: Out with the old in with thenew, industry assumptions can bereshaped¯ Profit Sharing¯ Open 24 hrs/day, 7 days/week¯ No budgets, no MBOs

Marshall does not believe incompetitors as benchmarks. Goes forthe quantum leap in value-- benefitsin multiples¯First in the industry on the Internet,

one of the earliest among allbusinesses

¯First in the industry with lap-topsand intranet to connect employees

Expand customer base throughstrategic alliances and newofferings:¯ SEI on the Internet¯ E.N.E.N.

Marshall not constrained by what italready has--IT platforms orinfrastructure. Fresh starts andwhiteboards--builds whatcomplements the strategy:¯ Marshall on the Internet¯ PartnerNet¯ MarshallNet

Marshall not constrained by theindustry boundaries. Thinks in termsof total solutions for the customeras well as suppliers. This has takenit in new directions beyond theroutine offerings:¯ NetSeminar¯ E.N.E.N.

328 MIS Quarterly VoL 23 No. 3/September 1999


its customers and suppliers to create offeringslike E.N.E.N. and Electronic Design Center andmanagement of the whole constellation throughits DRP system. In doing so, they have not hesi-tated to extend their traditional business bound-aries and go against the conventional logic. Table3 shows the shift to value innovation logic as itapplies to Marshall Industries.

Shift #3: From IT-SupportedIntermediation to IT-ShapedCybermediation

The literature suggests that the intermediarieswill be under pressure as value chains recon-figure to take advantage of the electronic net-works (Benjamin and Wigand 1995). The logicbehind this argument is that producers of goodsand services will use new technologies, such asthe Web, to forge direct links with the cus-tomers. This will create value for both tt~e p~o-

ducer and the customer by lowering costs relat-ed to transactions and coordination with inter-mediaries. A contrary opinion is that electronicnetworks will reinforce the position of tradition-al intermediaries and will rise to "cybermedi-aries" (Sarkar et al. 1995). This phenomena,labeled "disinter-remediation," occurs as theelectronic networks lower transaction costs andthe volume of transactions increases (Saffo1997). With the rising volume and greater cus-tomization, business becomes more complexfor any single producer to handle on its own,giving rise to new opportunities for intermedi-aries. The new intermediaries utilize the knowl-edge derived from transactions to add value forthe customers as well as the producers(Prahalad 1998). Web-based businesses arefinding new ways to act as intermediaries--por-tals-based on close relationships and expertunderstanding of the needs of a specific cus-tomer segment (Ghosh 1998).

Level 6

Level 1

Customer C)Pull

PROTOTYP[NGFUTURE

OPPORTUNITIES

LEVERAGING ~KNOWLEDGE

CUSTOMIZINGTHE ~CONNECTIONS

EMPOWERINGTHE ~OUTSIDE

INTEGRATION

CONDUIT

TIME

Figure 9. Evolving Intermediary Roles: Reinventing the Junction Box



The experience of Marshall supports the latterview of "cybermediation." It serves as an exam-ple of the need for intermediaries to constantlyevaluate the needs of customers and producers.Intermediaries have to assess their value creationlogic and its match with the needs of the marketto avoid being bypassed in the electronic econo-my (Konsynki 1996). In doing so, Marshall hasbeen evolving the role of an intermediary~froma mere conduit for transactions to creating valuein new ways in cyberspace (see Figure 9). elaborated earlier, the new roles are supportedby a change in processes, information systems,knowledge management, and supplier and cus-tomer relationships. At the lower junction boxlevels, Marshall used information technology tosupport the creation of value, but at the higherlevel junction boxes, it is information technologythat shapes and defines new options and strate-gies that create value.

Shift #4: Managing the DynamicUnfolding of IT Strategy and BusinessStrategy

The electronic economy will be characterized byincreasing complexity and opportunities derivedfrom information technology. The change in therole of the middleman--from IT-supported inter-mediation to IT-shaped cybermediation--strong-ly suggests that information technology willbecome more embedded in the essence of busi-ness strategy and become less separable. As dis-cussed in the section on the identification of newpractices for IT organizations, it will no longer bea question of aligning corporate strategy and ITstrategy, but rather managing their joint unfold-ing as one. Furthermore, Marshall’s new venturessuch as E.N.E.N. suggest that it is prototyping itsstrategy through different IT-shaped initiativesThis requires more of what is here called strate-gic improvisation in which it is guiding businessvalues and principles, rather than the specifics ofthe business and IT strategies that are predeter-mined. Furthermore, this will mean that CEOswill be more proactively involved in shaping ITvisions with CIOs as part of enterprise strategy.

The four shifts in logic articulated above are butthe beginning of the new logic of the ITqntensiveelectronic economy. While insights have beendrawn from a medium-sized distribution compa-

ny, we believe that the lessons and insights applyto any organization that sits between demandingcustomers and fast-moving suppliers. Everyenterprise can be viewed as an intermediary or ajunction box that can create value through theuse of IT. The IT infrastructures of the electroniceconomy are just emerging, and the future needsof business customers are not known. However,we do know that customers will relentlessly con-tinue to demand the holy grail of "Free. Perfect.Now," and enterprises will continue to stretchand seek ways to help find it through IT-intensivevalue innovation strategies.

Acknowledgements

We wish to thank Robert Rodin, Robert Watson,and Steve Knipping at Marshall Industries fortheir valuable insights. We also wish to acknowl-edge the help received from Sam Hariharan, RaviKumar, and Jim Sutter. We would also like tothank Bob Zmud, senior editor, and the anony-mous associate editor for their most helpfulsuggestions.

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About the Authors

Omar A. El Sawy is professor of information sys-tems at the Marshall School of Business at theUniversity of Southern California. He holds aPh.D. from Stanford Business School, an MBAfrom the American University in Cairo, and aBSEE from Cairo University. He was previously

with NCR Corporation and the HooverInstitution, Stanford University. His currentresearch interests include the redesign of busi-ness processes and electronic value chains in tur-bulent environments, and the improvement ofknowledge management practices. He teachesand consults in the areas of information systemsmanagement for global operations, knowledgemanagement, and fast response management. Heis active in Asia and Europe, has been an advisorto the United Nations Development Program inEgypt, and was recently a Fulbright Scholar inFinland at the Swedish School of Economics andBusiness Administration. El Sawy is a four-timewinner of SIM’s International Paper AwardsCompetition and a member of the ExecutiveCommittee of SIM’s Southern California Chapter.This is his sixth MIS Quarterly article~

Arvind Malhotra is a faculty member at theKenan Flagler Business School, University ofNorth Carolina at Chapel Hill. He is completinghis Ph.D. in information systems at the MarshallSchool of Business, University of SouthernCalifornia. His current research interests are inthe areas of e-commerce business models, valueinnovation in electronic economy, knowledgemanagement, supply-chain management for e-business, and virtual communities and theirimplications for marketing. He won the SIMInternational paper award competition in 1997based on his research on how companies canexploit IT infrastructures to reinvent themselvesfor e-business. He was awarded the Jim S. FordDoctoral Fellowship in 1997. He has presentedresearch papers at the International Conferencefor Information Systems, Association ofInformation Systems conference, and Workshopon Information Systems Research andDevelopment.

Sanjay Gosain is a faculty member at the RobertH. Smith School of Business at University ofMaryland. He is completing his Ph.D. in infor-mation systems at the Marshall School ofBusiness, University of Southern California. Hiscurrent research interests are in the area of elec-tronic value chains and knowledge management.Sanjay is the recipient of the Jim S. Ford DoctoralFellowship for 1998. He has presented researchpapers at the 1997 International Conference forInformation Systems, Association of Information



Systems conference, and Workshop onInformation Systems Research and Development.He has also written several cases on the role ofglobal information technology in multinationalorganizations. He has held management posi-tions in the Global Consumer Banking division ofCitibank N.A. and has worked on large softwaredevelopment projects.

Kerry M. Young is director of InformationTechnology at Marshall Industries. He is respon-sible for all facets of Marshall Industries’ infor-

mation technology activities--including elec-tronic commerce, internet, sales force automa-tion, and data warehouse strategies. He is alsoresponsible for Marshall’s technology consultingpractice. Before joining Marshall Industries in1993, he held several positions at McDonnellDouglas in Long Beach, including managementpositions in IS and manufacturing. Youngreceived a BS in computer science from Cal PolySan Luis Obispo and an MBA from Cal StateFullerton. He is a member of SIM’s SouthernCalifornia Chapter.


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