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The Commoditisation of IT and how it Affects the Content, Purpose, and Value of IT Strategy

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Dec 30, 2016 | #1

The prevalent usage of IT at commercial companies and universities has led firms to advance their various aspects of operations, production, and quality assurance system. Nowadays, advancement in technology is a crucial matter for firms and lack of it can put one to a severe disadvantage. It may even be claimed that information technology is a key aspect of firm operations that can enable the firm to compete globally and gain competitive advantage. Several aspects of the firm's operations are already made on the domain of IT such as accounting, auditing, human resources, production, quality control, and the like. Indeed, today's extraordinary complexity of global operations is being managed by information technology. This paper shall look into the IT commoditisation and how this commoditisation affects the content, purpose, and value of IT strategy.

E-business has witnessed the emergence of IT processes that needed to be built and performed by people within the organisation, which can be either done well or badly. These activities were kept in-house since the firm had not enough knowledge to determine how well an external business might perform. IT commoditisation is seen in firms' pursuit to purchase their information technologies as services provided over the internet or as an outsourced service provided by an outsourcing firm rather than owning and maintaining all their own hardware and software.

IT Strategy DevelopmentThe IT strategy has gone through several stages out of the firm's pursuit to enhance its IT delivery systems. The most recent is the IT commoditisation, more profoundly expressed in outsourcing, which began to gain currency as a means to gain more rapid benefits and limit costs. Outsourcing refers to the process in which an organisation makes an arrangement or a set of arrangements with an external source to provide itself with goods and/or services to replace or supplement internal efforts. This IT commoditisation can be claimed to have started with the example set by Kodak and DuPont which were the first to outsource their information technology management, followed by BT and AT&T which began outsourcing their information technology alongside other HR administration processes such as recruiting, payroll, information services, and benefits management among others. The bottomline in this commoditisation is outsourcing only the peripheral activities of the organisation such as information systems and retaining its core strengths.

IT Strategy

IT strategy refers to an organisation's pursuit to generate overall obejectives, principles, and tactics in relation to the technologies it utilises. Strategy per se is a plan of action that the organisation designs to achieve a particular goal.

An assessment of strategic trajectories can enable derivation of IT strategies. There is an invariably fixed scope and fixed time horizon for both organisational and IT strategies, outlining the initiatives to be carried out in such time frame.

The core purpose of the firm to develop an IT strategy is to ensure that its overall strategies, goals, and objectives are strongly and clearly supported by IT investment decisions. The importance of developing a sound IT strategy rests on the fact that incorrect - or partially correct - IT agenda can lead to misdirected significant organisational resources. It is from the organisation's strategy that IT strategy is derived. For example, an IT strategy of adopting computerised practitioner order entry may be adopted by an organisation that is interested in patient safety. If the organisation intends to focus on patient service, IT strategy can focus on service applications such as creating patient portanls and scheduling systems. These examples show the interconnectedness between IT strategy and organisational goals.

It is important to note that relentless focus on improving core operational processes is a concern of IT strategy, alongside addressing critical needs for information management (Glaser, n.d.). Determining the IT strategy can be done by examining the role of new information technologies. This would mean finding out whether the organisation, through new IT capabilties, can enable itself to consider new aproaches to its strategies. It would then hence ask itself whether it can advance its strategies or its core processes through a particular application of technology (Glaser, n.d.).

The Impact of IT Commoditisation on the Content of IT Strategy

The content of IT strategy is impacted by IT commoditisation through changes in major IT participants from mere dot-coms which in the past partook largely in the e-commerce hype, to the big providers of computer software, harware, and services, whose object of promotions became a whole new approach to corporate information systems. The impact of commoditisation of IT on the content of IT strategy is seen in the fact that CIOs became relationship managers who coordinate the efforts of various firms as these firms start to outsource their IT services and activities from external sources. In this IT commoditisation, CIOs have become negotiators whose leadership styles have been likewise transformed from command-and-control to persuade-and-influence. From merely focusing on the internal information technology systems of the firm to ensure functionality of the overall organisational systems, IT departments start taking the lead in shaping the standards required to operate effectively within business and industry communities.

Moreover, the content of IT strategy is impacted by IT commoditisation through changes in business process standards that go with such commoditisation. According to Davenport, a business process pertains to the manner that a firm does its work, including the activities adopted to accomplish a specific objective for a particular customer. The standardisation of processes stemmed from various reasons such as facilitating communication within the business, performance benchmarking, and more efficient handoffs. The essential feature of information systems being supportive of processes paves way to a kind of standardisation that enables the occurrence of uniform information systems within the organisation as well as standard systems interface among various firms. Process standards for software development are being created and installed within various organisations, public and business alike. The Carnegie Mellon's Software Engineering Institue for example, intends to provide the basis for measuring progress in software engineering as well as comparing processes of different software providers.

The impact of IT commoditisation on the content of IT strategy is seen in the fundamentally different nature of this commoditisation, i.e. IT outsourcing, which is pervasive throughout the organisation. The commoditisation of software development processes has paved way to the growth of offshore providers such as those of China and India, making these software development processes more transparent to buyers. The non-homogenous function of IT outsourcing as well as the interrelated character with practically all activities within the firm is contributory to the corresponding changes in the adoption of IT strategy, which in the past used to deal with massively complex enterprise-resource-planning systems that are restricted within the firm's internal operations alone.

The Impact of IT Commoditisation on the Purpose of IT Strategy

The purpose of IT strategy is impacted by IT commoditisation through changes influenced by new architecture prevailing amongst firms. This new architecture is structured according to the needs of the firm which in the past was addressed by merely relying on piecemeal technology purchases and which at present has changed to investing in massively complex enterprise-resource-planning (ERP) systems that offer interlinked applications drawing on unified databases. This IT strategy has certainly adopted the ERP system, albeit it may be described as being relatively inflexible and tends to confine the firm into rigid business processes. This has caused firms to leave the ERP application and install more integrated but nonetheless restructive enterprise unit silos. Other than adopting such integrated but restructive enterprise unit silos is taking on the web services architecture which is an open architecture as opposed to being a proprietary one; enabling firms to rent the functionality they need - an essence of IT commoditisation - rather than building and maintaining unique internal systems. Indeed, it may be posited that this transformation from relying solely or mostly on internal infrastrucure systems to renting or purchasing the needed functionality is an impact of IT commoditisation on the purpose of IT strategy. Apparently, IT strategy initially purported to provide architecture infrastructure to the firm to enable it to manage its own information systems thereby enabling itself to operate conveniently and viably. This reliance on internal capacities, which can hereto be claimed as a purpose of IT strategy, is modified to suit the overall intent of the firm towards competing in the larger global market and gaining competitive advantage. In this regard, not only has its IT infrastructure transformed from being an end to itself (a system where all other functionalities rely on, i.e. accounting systems, audit, etc.) into being a means to an end (usage of purchased or rented processing power, data storage, or specific applications). In this commoditisation, IT functionality is purchased from external service providers whereby the firm no longer bothers itself to allot much energy and resources on advanced IS inventions that can potentially give way to the much-sought-after competitive advantage. Rather, it only needs to commoditise its IT services through outsourcing or off-shoring techniques from firms offering such activities.

Moreover, the organisational IT needs which is met through outsourcing as a commoditsation thereof is now a globally growing practice.This form of commoditisation only began as a cost-reduction tool and later a vital component of the overall business strategy, including the IT process.

The prevalence of IT commoditisation is partnered with outsourcing management that contains two sides - the hard side (contract) and the soft side (trust), which are both key to success and can be used separately. An IT outsourcing operation characterising greater contractual hazards allows the preference for the soft side over the hard side.

The Impact of IT Commoditisation on the Value of IT Strategy

The commoditisation of IT affects the value of IT strategy in such manner as technology providers dwelling on massive investments help create the necessary infrastructure to enable the new IT approach work. As mentioned, steady stream of new internet-based services emerged as well as off-shoring and outsourcing IT services, providing the firm significant cost savings over traditional, internal systems and offering new opportunities for collaboration. These benefits on cost-savings and resource maximisation are aspects of the value of IT strategy that have been modified through IT commoditisation, i.e. offshoring IT facilities and processes.

The value of IT strategy is greatly impacted by IT commoditisation through increased reliance on the integration of external resources, which require deeper skills in managing and structuring collaborative relationships. This integration of external resources was missing in the former adoption of massively complex enterprise-resource-planning (ERP) systems. Moreover, there are more important advantages offered by the Web services architecture over its predecessor, such as a more efficient IT management system. The value of IT strategy is also changed by allowing firms to purchase only the functionality they need at the time they need it, leading to substantial reduction of investments in IT assets. Another is reducing the need to hire numerous IT specialists by shifting responsibility to maintain systems to external providers. The risk of using obsolete technologies that are often difficult to dispose as well as cost-inefficient is also being avoided by using Web services rather than facilitating these services in-house. It may hence be posited that the value of IT strategy is increased through IT commoditisation as being illustrated in a relevant and concrete example of sparing the firm from being stuck with outdated and mediocre applications and hardware. The current architecture thus complements with the commoditised IT through the standardised, plug-and-play feature that allows the firm to pursue easier outsourcing activities and processes. It may be inferred that the transformation of IT strategy from merely adopting inflexible systems that confine the firm into rigid business processes towards pursuing Web services architecture has enabled the firm to adopt more flexible collaboration within its own units and business partners.

The pursuit for IT commoditisation has changed the value of IT strategy for firms adopting it through reduced costs and leaner balance sheets whilst achieving greater flexibility and access to specialised expertise that people within their domains might not possess. The possession of this specialised expertise by external outsourcing firms is certain since these external firms are more able to specialise on one specific focus of expertise as a featured service, unlike the firms which can either perform well or bad on IT processes.

Gaining competitive advantage is an utmost goal of the firm for all its internal and external efforts, including its manner of adopting information and process technology. How it successfully arrives at this objective is facilitated by how it does its work in all aspects of the business, including but not limited to, human resources, accounting, auditing, and information technology. Commoditisation of firm services has in fact been existing prior to that of IT commoditisation, but recent realisations along the lines of cost-efficiency, capacity enhancement, resource maximisation, and core strength focus have paved way for information technology to be commoditised as well.

The outcomes of globalisation as both an economic and social order has led firms to find ways and solutions to persist in the competition of a globally expanding market. This has meant commoditising even its information technology processes through such means as outsourcing whereby the firm bestows the management and facilitation of these processes to an external source.


This paper discusses the impact of IT commoditisation on the content, purpose, and value of IT strategy. It sets the context of such commoditisation, which is globalisation, as an enabling factor for the occurrence of the concept. The firm is continuously engaged in the facilitation of business processes, consolidating its resources towards effective functionality. Commoditisation of information technology, i.e. offshoring, is only a part of its pursuit for such functionality.

Moreover, it may be posited that the commoditisation of IT is enabled by a business environment whose geographic and regional borders are now removed as an offshoot of globalisation. IT commoditisation complements the firm's pursuit for competitive advantage in this regard, alongside providing the firm ease and convenience with its business processes and implementation.

The purpose is thus to enable the IT strategy to keep pace with the needed modifications posed by the business environment alongside the purposes of cost-saving, process enhancement, and resource maximisation. These are seen to enable the firm to improve its functionality and operations rather than merely adopting in-house IT technologies that can become obsolete in due time and make internal people resource manage the IT domain.


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