A Conceptual Model of Value Creation at the Base of the Pyramid and in Electronic Business Firms: An Integration of Theoretical Perspectives

Abstract

While electronic business has created unprecedented value for Internet firms and other industries, the sources of value creation have remained ambiguous. Since such sources of value creation and the action repertoires of these firms are essential to their survival, there is continued interest in this stream of research. Although value creation in electronic business has been studied by both strategy and IS researchers, empirical evidence for value creation through specific mechanisms is still lacking. For instance, how does IT contribute to value creation in electronic business environments through efficiency, novelty and complementarities? I build on prior research to examine two sources of value creation in electronic business – IT patents and IT-enabled coordination mechanisms. While prior research has indicated that IT patents enable firms to execute a variety of strategic actions, which can create value, theoretical justifications for the role of such novelty have been lacking. Similarly, while IT-enabled coordination has been studied to understand their role in business value creation, specific mechanisms in electronic business and their impact on efficiency gains need to be clarified. Finally, there is also a need to understand the role of IT patents in enabling complementarities with other innovative activity.I examine the role of IT enabled coordination mechanisms and IT patents through three frameworks from strategy namely Porter’s five forces framework, the resource-based view of the firm and the dynamic capabilities framework in providing competitive advantage for firms. Using the dynamic capabilities framework as the theory base, I then analyze the impact of IT enabled coordination mechanisms on the organizational processes in electronic business as well as the role of patenting business processes on the impact of organizational capabilities on electronic business performance. I then develop a theoretical framework and a set of propositions to investigate value creation in electronic business through the strategic use of Information Technology (IT). Furthermore, I integrate the dynamic capabilities perspectives with the coordination theory perspectives to integrate the micro-level views about coordination mechanisms with the macro-level views about capabilities. The investigation of these mechanisms suggests that the strategic use of IT can indeed create sustainable value in electronic business and that the dynamic capabilities framework can be a suitable theory base for investigating such impacts.