Getting Value from Internet of Everything May 22, 2014

Hossein Ghasemkhani Postdoctoral Fellow, CDB

Ewan Morrison Content Strategist, Cisco

Research conducted in collaboration with E. Brynjolfsson, D. Soule and G. Westerman

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Maximizing the Value of Connections

The Emerging Internet of Everything

Cisco estimates that there is a $19 trillion opportunity over the next decade

Outcomes Trump Connections

Our Quest: Help our customers achieve better outcomes (and create more value)

The better we understand the success factors, the more we can help our customers

Partnership with MIT CDB = Better Understanding

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Internet of Everything at Work Daimler Trucks NA

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Getting Value from IoE: Research Approach

New phenomenon, but some existing knowledge should apply:

Established the theoretical ground

Designed and conducted a large-scale multi-industry and multi-country survey

Conducted statistical analysis and extended the theory

Analyzed the relationship between survey constructs and financial performance for a subset of responses

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The Main Theory We combined theories of resource-based (Barney 1991; Wernerfelt 1984) and knowledge-based (Grant 1996) views of the firm and firms’ dynamic capabilities (Teece et al. 1997; Eisenhardt and Martin 2000) to formulate an information-based view of the firm

Key Point: Information is becoming a more important source of competitive advantage, but strategy theory has not kept up

• A firm’s Information is a strategic resource • Management capabilities enable firms to use their information

resources to create value • Dynamic capabilities enable firms to create synergies and

develop new sources of competitive advantage • The value of information-based resources and capabilities

may be different for domains with different characteristics

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Survey Design

7,501 respondents from: • 12 countries • 21 industries • Companies with at least 500 employees • Managers with at least 5 employees

Data gathered in spring 2013

Key survey measures: • Information quality • Management capabilities • Organizational performance

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Information Quality

Information Availability (5 questions)

Information Usability (9 questions)

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Management Capabilities

Data-driven management (8 questions)

Collaboration management (10 questions)

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Organizational Performance

Perceived performance in particular domains (all 7501 responses)

• Customer experience (CE) • Employee productivity (EP) • Supply chain and logistics (SC) • Asset utilization (AU) • Innovation (I)

Financial performance (452 responses which included valid tickers)

• EBIT margin and EBITDA margin • Profit Margin • Return on Assets • All measures normalized relative to industry

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Research Hypotheses (I)

H1: Higher information quality is associated with better performance

H2: Better information management capabilities are associated with better performance

H3: Higher performing firms exhibit dynamic capabilities

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Research Hypotheses (II) The value of information quality and management capabilities

may be different for different domains

Explicit knowledge: can be readily transferred and appropriated Tacit knowledge: can only be revealed through its application

H4: The relative impact of Information Quality is higher in domains exhibiting lower levels of tacit knowledge

H5: The relative impact of information-based Management capabilities is higher in domains exhibiting high levels of tacit knowledge

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Profit Margin: IoE-Ready vs. Others

IoE-ready firms are more profitable: They average 5 percentage points higher net profit margin than their competitors.

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Conclusion Strategy theory has not coped with the increasing importance of information to firms

It is not really just about the IoE technology, it’s about how you use the information from that technology

• Information quality matters: Usability matters most • Management capability matters: Data-driven management

matters most

IoE-ready firms outperform other firms: • able to drive more synergies • profitability 5 percentage points higher

IoE usage is increasing quickly: Developing information-based strategic capabilities is more important than ever

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Thank you

Contact Information: • Hossein Ghasemkhani

– Postdoctoral Fellow, CDB – hosseing@mit.edu

• Ewan Morrison

– Content Strategist, Cisco – emorriso@cisco.com

Slide Number 1Maximizing the Value of ConnectionsInternet of Everything at WorkGetting Value from IoE: Research ApproachThe Main TheorySurvey DesignInformation QualityManagement CapabilitiesOrganizational PerformanceResearch Hypotheses (I)Slide Number 11Slide Number 12Research Hypotheses (II)Slide Number 14Profit Margin: IoE-Ready vs. OthersConclusionThank you