Changing the Firm's Digital Backbone: How Information Technology shapes the Boundaries of the Firm

How does Information and Communication Technology (IT) influence boundaries within and across organizations? Most of the research to date has considered the impact of technologies linking buyers and suppliers, focusing on interorganizational technology such as electronic markets. Our paper takes a different view, focusing on a firm’s overall boundaries, as opposed to individual make-orbuy decisions that an electronic market would manage. Drawing on a large apparel manufacturer’s vertical redesign, we show that different types of IT play different roles in boundary design. We find that “mediating” technologies that link two parties (e.g. Electronic Data Interchange or e-markets) are not as critical as “architectural” technologies (e.g. Enterprise Resource Planning systems) in shaping firm boundaries. We consider how IT, and in particular architectural IT, helps create easily re-configurable “vertical packages”, i.e. configurations of business processes that fulfill a distinct business need. We find that IT facilitates the optimization of an organization’s resources and capabilities and thus increases a firm’s flexibility. We also predict that recent developments in Enterprise Resource Planning (ERP) systems will have substantial impact on organizational design.