Stuck in the Middle: Overcoming Strategic Complexity through IT Flexibility

Global Journal of Flexible Systems Management, Oct-Dec 2008 by Tallon, Paul P

Abstract

Firms have reacted to a recent surge in environmental volatility by turning to mixed business strategies as a way to protect their existing markets and to establish new markets. Rather than choose a single focus for their strategy, these firms pursue operational excellence, customer intimacy, and product leadership at the same time. Research shows that mixed strategies - a characteristic of so-called stuck in the middle firms - lead to lower firm performance than single or pure-strategies. Mindful of the potentially conflicting goals and complexities found in firms with mixed strategies, in this paper, we assess the role of IT flexibility in helping firms to overcome such complexity and to ultimately thrive in a volatile environment that calls for increasingly mixed strategies. Using data from matched surveys of executives in 241 firms, we reveal that IT flexibility (hardware compatibility, software modularity, and network connectivity) is highest in mixed strategy firms and that such firms predominate in volatile settings where flexible IT is more apt to provide the means of responding to sudden or unexpected market change. These findings help explain why mixed strategy firms have higher IT business value than pure strategy firms, a result noted in prior research. For firms trying to prosper under mixed strategies, our results confirm the importance of IT flexibility and the broader implications of using IT to pursue multiple strategic goals, as defines stuck in the middle firms.

Keywords: IT flexibility, market volatility, mixed strategies, strategic complexity, stuck in the middle

Introduction

In a world that is increasingly volatile and economically uncertain, firms are asking whether their existing business strategy is viable or in need of revision. With new forms of global competition and amid fears of a recession, firms are trying to secure their market position by broadening their product mix or by developing new markets. From an information technology (IT) perspective, there is still some question as to whether IT allows firms to extend the life of an outdated or ineffective strategy or to instead facilitate a move to a new strategy. However, given the cost and risk of switching from one strategy to another, firms have instead opted to extend their current strategies into new areas. For example, full-fare airlines such as United and KLM have added low-cost carriers to their fleet as a way to counter the threat from rivals such as Southwest Airlines and Ryanair. Similarly, boutique brokerage firms are now offering lowcost, online trading as a way to contain customer defections to low-cost rivals such as Scottrade and Zecco while Dell, in parallel with its established build-to-order model, is now offering pre-c on figured computers through mass-market retailers such as Staples, Best Buy and Wal-Mart.

A concern with this form of diversification involves strategic complexity and its impacts on firm performance. Complexity arises from the possibility that in pursuing multiple strategies at the same time, conflicts will arise as business units compete for the same resources or as customers learn to trade off one strategy against the other. For example, when Merrill Lynch first offered online trading alongside its full service trading model, clients could obtain free advice from their traditional brokers but then place trades at a steep discount through the online channel. What this suggests is that firms that diversify their strategy to compete not just through low -cost offerings but through niche channels or innovation face considerably greater challenges than firms with a single strategy. Indeed, studies find that firms with mixed strategies - euphemistically described by Porter (1980) as being stuck in the middle underperform those with a single strategy (Dess and Davis, 1984; Robinson and Pearce 1988; White 1986). Strategic complexity, even if it is a symptom of competition and changing economic times, comes at a steep cost to firms in terms of reduced profitability. Yet in a somewhat paradoxical finding, Tallon (2007) notes that stuck in the middle firms realize higher business value from IT than firms with single strategies. In effect, IT is helping firms to meet diverse goals and survive in an ever-more volatile world even if overall firm performance is likely to suffer. Our goal in this paper is to explore why IT business value is higher in stuck in the middle firms. Confirming arguments noted in Tallon (2007), we find that stuck in the middle firms possess significantly more flexible IT than single strategy firms. As such, flexible IT means that IT can, with relative ease and speed, scale or adapt to accommodate the strategic complexities associated with mixed strategy firms. In a technical sense, IT flexibility is based on key characteristics such as reusable software that can enable the rapid development and deployment of IT applications, interoperability across different operating systems, and an ability to expand or contract essential IT resources such as network bandwidth and server capacity. Our results show the value ot employing a flexible IT infrastructure, notwithstanding the higher cost of IT flexibility when firms are trying to diversify their strategy in order to survive in a turbulent environment.