| Robyn Fadden – host: | The rapid evolution of information technology, including new artificial intelligence tools, is helping organizations evolve and become more efficient. At the same time, that technology is disrupting business as usual, whether for businesses, governments, healthcare centres, or other organizations. While information technology is often implemented as part of cost reduction or a business agility strategy, its major strengths can be overlooked: IT can be part of a mindset shift, moving from exploitation of ideas to exploration of ideas. This opens up strategic and competitive avenues of innovation and employee creativity across departments, even in a more traditional company. |
| Robyn Fadden – host: | Welcome to the Delve podcast, the official thought leadership platform of McGill University’s Desautels Faculty of Management. I’m your host for this episode, Robyn Fadden. In this episode, I talk with Desautels Faculty of Management Professor Alain Pinsonneault, who specializes in Information Systems research. He points out that doing business in a digital world requires strategies that integrate information technology in a way that looks beyond the latest and greatest tech to what works best for the individual organization. That also means integrating the fact that information technology will continue to play a fundamental role in changing the organizational landscape for years to come. |
| Robyn Fadden – host: | Today, the overall mindset towards information technology and its value is changing, especially in times of broader turbulence like the Covid pandemic. Alain Pinsonneault’s research shows that information technology is really comprised of every aspect of technology—from computer hardware to all of its associated systems, including software, enterprise resource planning systems, supply chain management technology, and the information technology infrastructure that keeps organizations running. So it’s no surprise that IT is affecting all aspects of organizations and all types of organizations, including the most human-centred or creativity-minded ones, whether you’re an airline or Cirque du Soleil. |
| Robyn Fadden – host: | Welcome to the Delve podcast, Professor Pinsonneault. One of the areas your research has looked at is how important Information Technology is to increasing efficiency and creating slack resources. Could you briefly outline what slack resources are in relation to IT – and what innovative possibilities they open up for organizations? |
| Alain Pinsonneault: | It can be different things. It can be in time: you’re taking less time to do a certain job, therefore you have free time. It can be technological slack, also: you have more technology than you need. And because of that, you’re more innovative, you can explore different things. It can be financial slack, as well. Because you’re more efficient, then it doesn’t cost you as much to perform a certain job, therefore you have money that you can use. So it’s really a slack, it’s a surplus that’s created over and above what you need to do a certain task. |
| Alain Pinsonneault: | For example, if you’re a portfolio manager, and we used to take half an hour to do an analysis and ratios, and now you have an idea, and you can take 15 minutes, well, you have 15 minutes of, quote unquote, slack that’s created. And the question is, what do you do with that 15 minutes. And what we have shown in one study is, if the organization doesn’t manage that slack, it will disappear, it will get reabsorbed without any benefits. So it needs to be a conscious effort by managers to understand that and to reallocate that slack towards something that they think will be adding value. |
| Alain Pinsonneault: | The fundamental idea and the fundamental question organizations should ask, and researchers as well, because we haven’t solved that yet, is What should you do with the slack resources that you created with information technology? And that’s where it becomes really interesting. The first one is more of the exploitation part of IT: How can we reduce costs? The second one is more the exploration: What can we do with those slack resources, that can add value instead of trying to reduce costs, that we can use to compete and add value. |
| Robyn Fadden – host: | Could you give us a couple of examples of companies who have focused on innovation and adding value above reducing costs? |
| Alain Pinsonneault: | Canadian Tire, the well-known retail store, which is not typically known for its innovativeness, they’re facing challenges that all retailers are facing. But about five, six years ago, they decided that they will use technology information technology to innovate. And they invested a huge amount of money to build the infrastructure to allow them to do that. And they deployed information technology on all, all sectors with this effort of innovation. So they created a group that’s just focusing on how to use technology to innovate. When they implement technology in Canadian Tire, they’re asking employees to use technology to innovate. So the focus is really on innovation. It’s not on reducing costs. It’s not, because they know that competing on cost against for example, Amazon, it’s, they’re not going to win, right? So they’re focusing on innovation. It’s using IT to reduce costs, and then creating slack resources and then thinking about can we use that to add value and to gain a competitive edge. |
| Alain Pinsonneault: | Another interesting example of that is Cirque du Soleil, which, which is very interesting, because typically, companies are really good at doing one, exploitation or exploration. They’re really good at focusing on exploiting and we’re really good at efficiency. Or we’re really good at innovation and exploring new ideas, but we’re not really good at exploiting these ideas. So one tends to drive the other one away. Cirque du soleil was able to do both. Cirque du soleil is really about innovation, it’s about creativity. And when they thought of how to use information technology to help the company, they really separated the creative part and the logistical or operations part. And they used it to support all the operations part and make that really as efficient as possible. And really, it’s quite impressive to see how well the logistic part and the operations are run and how efficient they are. |
| Robyn Fadden – host: | Even though Cirque du Soleil has had its ups and downs, it has managed in the last several ew years to exploit its use of information technology without sacrificing creativity: they brought previously siloed information into shared databases, giving managers more access to touring and local show outcome data, as well as to customer and market feedback. As Professor Pinsonneault points out, they became an ambidextrous organization capable of both IT exploration and exploitation at the same time, using information and insights to bolster the product in innovative ways. As more companies shift their perspective on Information Technology, as Cirque du Soleil, Canadian Tire and others are doing, their entire structure and infrastructure shifts as well. In Information Systems terminology, how is the “ecology of organizations” affected by the rapid evolution of Information Technology? |
| Alain Pinsonneault: | Information technology, in my mind, is the single most important factor affecting the ecology of organization or the ecosystem of organization, of contemporary organization. What I mean by ecology of organization, I mean the ecosystem of organizations. So I really mean, the whole ecosystem, the firm, internally, but also its relationship with the environment, its immediate environment, but also its peripheral environment. And now what we see is that becomes even broader and broader and broader in terms of technology, basically facilitates new entrants coming from industries that are not so close to industries of one firm of a focal firm. So that’s one major change that’s happening, it’s really the ecology or the ecosystem of the firm is changing, because it makes boundaries of industries permeable, and much easier for new entrants to come in. And new entrants coming from far away, typically, from an industry. So it includes competitors, it includes collaborators as well. |
| Robyn Fadden – host: | So information technology in general is changing organizations’ ecosystems at a rapid pace, more rapidly than other technologies that have changed the world of work in the past. It’s changing everything. It’s changing products as the Internet of Things evolves to embed technology and computers in everything from elevators to fridges, let alone cars and industrial transport. It’s changing services, such as banking, which now features more services and associated products than ever thanks to having the computational capability to produce things like daily interest rates. And as Pinsonneault has alluded to, it’s also changing something even more fundamental: the way companies create value. |
| Alain Pinsonneault: | In the past, typically firms would try to embed and internalize the value creation process. So firms would try to build everything internally, and add value as they go to could – take a manufacturing firm, they would take raw material, transform them, adding value, and then selling them at a profit. That’s the essence of value creation. With digital technology and a digital world is this value creation is being externalized. And that’s really fascinating to see. |
| Robyn Fadden – host: | Recent and extremely successful examples of this are AirBnB and Uber. Airbnb does not want to internalize value creation; its value is created externally by people who want to rent their home, and by other people wanting to pay for it. AirBnB actually pushes value creation outside the firm. This kind of business model has changed the way customers place value on services and what they choose to purchase. Alain Pinsonneault adds that by necessity, as business models change, the role of managers is also changing from that of overseeing value creation to managing a value curation process where supply and demand make the best fit. As new technologies evolve, the changes only keep coming – it’s a lot to adjust to. In terms of the ecology of organizations and competitiveness, alongside changing business models, what’s the most impactful or drastic change you’ve seen? |
| Alain Pinsonneault: | It’s changing the clock speed of industries. Winners become winners much faster than past. Losers become losers much faster, and winners sometimes become losers much faster than the past. We can see that especially in the digital environment, the progression of these digital companies with digital business models, it’s amazingly fast. |
| Alain Pinsonneault: | And one of the reasons for that is because there’s almost zero marginal costs associated with adding something. For Airbnb adding a listing, there’s almost zero marginal cost to have 100,000 or 200,000, it doesn’t change much. For a typical hotel, doubling the size of its hotel has huge, huge marginal costs. So it makes it very easy to scale up in a digital world compared to a traditional one. |
| Alain Pinsonneault: | If you look at industries, for example, such as newspapers that have been dramatically affected by IT, and you look at the digital version, it’s the same thing, right? It’s much easier to have access to people and there’s zero marginal cost. So it’s much easier to scale up, so it’s easier and it’s much less costly. |
| Robyn Fadden – host: | These changes that new IT capabilities are creating go far beyond the idea of information technology as an efficiency tool and cost-saving mechanism. The value of IT has become much more complex and integrated into all aspects of an organization. Some firms are investing multi-millions of dollars in information technology, but what is the payback on that? |
| Alain Pinsonneault: | That’s one of the fundamental issues with information technology. What we see in research and what our research shows is that is not researched and studied. So it is often time the realized value of it is lower than the potential value. What I mean by that is, if you look at the project, if you look at the potential that this new IT project can bring to our nation, how it can add value, and then you look at once it’s implemented, and people start using it, the realized value is oftentimes much lower than its potential. |
| Robyn Fadden – host: | Your research shows that the reason for that realized value being low isn’t a technical reason – the technology itself may work, but a lack of understanding of how this value is created gets in the way. For an organization to be agile, to be flexible, and to create slack resources and increase value, is a major perspective shift needed in how IT is managed, including at the executive level? |
| Alain Pinsonneault: | What we’ve seen in in terms of value, when I say that the potential is not as high as the potential is higher than you realize. And we’ve seen it in several of our studies, where we look at, for example, the same technology implemented in one organization for people doing exactly the same work. And then we measured the impact on these individuals, how technology, how it affected their performance, individual performance. What was fascinating is to realize that they had, the impact value is vastly different from one individual to the other, sometimes twice as beneficial to one individual, then to the other. And we’ve seen that at the organization level. So we’ve studied in organizations, similar innovation, implementing the same technology having a huge impact in the organization not having impact. |
| Robyn Fadden – host: | As an example, Pinsonneault mentions the American airline Frontier Airlines, which created the first online reservation system, now called Sabre. But their original use for it was as an inventory management system for their airplane seats, so they would know when the airplane was about to leave how many seats were sold and what the revenue was. Frontier airlines used this system for a while before deciding that it didn’t bring them much value and was more costly to maintain than the benefits they were getting from it. They sold the system, exactly as it was, to American Airlines, who implemented it and asked a vital question: was this system capable of doing something more? They looked at the data they were gathering and realized they could use it for yield management: so if a plane that was close to its take-off date was half full, they could increase the revenue by selling unsold tickets at a lower price, which is much better than nothing. That’s the origin of us paying different prices for two airline seats that may be beside each other. American airlines then allowed travels agents to connect to their reservation system, adding more impact on revenue. |
| Alain Pinsonneault: | At a certain point American airline was making more money selling information from Sabre than actually moving people from A to B. And my point here is it’s exactly the same system. They didn’t do more, it’s just the perspective of looking at the technology and realizing its potential and acting upon that. |
| Robyn Fadden – host: | That dominant perspective on technology is about looking at Information Technology as a tool to reduce costs and increase efficiency, at least in the short term, by exploiting existing resources. You’ve said this is holding some organizations back. What are the problems that keep those organizations from changing their mindset on IT? |
| Alain Pinsonneault: | From a strategic perspective, what we have found in different studies, there’s this very short that in terms of the impact and the benefit, because it creates, basically, all other firms can replicate that. So one firm is implementing information technology uses it to reduce cost. Other firms can copy that very easily and reduce cost as well. So they’re competing on cost, but they’re not gaining anything, it becomes a strategic necessity. And they’re not gaining any strategic advantage with that. For example, if you know, banks are gaining strategic advantage with ATMs, it’s a strategic necessity to get market and to be in that industry, but you’re not gaining strategic methods. So if you limit yourself that to reducing costs, you do get some benefit, but it’s very short lived, and other companies can just replicated and if they wait enough to have a new version of information technology is probably going to be less costly to implement, more efficient, they can reduce cost more and then they can So it’s creating what we call consumer surplus. The benefit that you get from the technology in reducing costs because all firms are doing it, it’s passed to the customer, because what you do is you reduce your cost, and then you compete on price, right? So you reduce your price. The other firm comes in reduce its cost even more, and wants to compete on price. So they will reduce their price even more. So the net beneficiary of that is the customer. So that’s one problem. |
| Robyn Fadden – host: | That makes me think of a brand like Apple, and many other brands modelled after Apple, whose products are more expensive than others. We know they’re not competing on price – and they decided long ago that they’re not going to compete that way, they’re going to compete on several different levels that might have little to do with the product’s cost itself. |
| Alain Pinsonneault: | And that’s where it becomes really interesting. Because if you look at all the very successful cases of company, using technology for strategic advantage, or gaining a lot from it, it’s by looking at something else. Costs, yes. All technologies, all information technologies should increase efficiency, reduce costs. If you stop there, you’re shortchanging your potential, because the real value comes in the next step. |
| Robyn Fadden – host: | The next step goes back to creating slack resources and using them effectively. That strategy can be applied to all IT, including new Artificial Intelligence technologies. I’m curious if certain sectors or industries are implementing AI technologies at a higher rate than others? And is that implementation relegated to certain departments within organizations or it is looked at more holistically? |
| Alain Pinsonneault: | It’s yet another wave of AI, another wave of potentially hype around AI. I mean, we’ve seen waves and waves and waves in the past, starting in the 70s. This one might be different. Because of two things, because of the technology itself, the power of the technology is significantly higher than the last wave of AI. AI is kind of a self-sustaining technology, right? It learns. There are different types of AI, but the fundamental idea is it learns with data, it learns by experience, and adjusts. So it needs huge amount of data. And this is something that we have now that we didn’t have as much in the past. So, the ingredients seem to be there to make it really something substantial this time. It’s still relatively nascent, of the new wave that’s been there for maybe 5, 6, 7 years or so we’re still working on trying to understand it. |
| Robyn Fadden – host: | Just as with any technology, as we’ve discussed, applying AI to the world of work requires a shift in perspective too. A technological deterministic point of view that separates people and technology and compares who does which tasks seems rather outdated today. |
| Alain Pinsonneault: | We have to come back to creating slack resources. And then the key message is how you reorganize this. And in the case of AI what we know is AI and human working together – we’re coming back to the ecosystem – the team of AI and human performs better than AI alone or the human alone. So the fundamental question will be how Do you make that? How do you make the AI and human work together to achieve better performance? AI is being applied to lots of different sector from radiology. But that’s the fundamental question. The other fundamental issue, I think, with AI is because of its autonomous nature. And because it’s also quite closed, it’s very difficult to understand why AI arrives at one recommendation or the other. |
| Alain Pinsonneault: | What we’re seeing now, it’s something that we’ve been saying should not happen in management general, is we’re disassociating control and responsibility. Typically, in all management theory will tell us that that, you know, if someone is responsible, or accountable for something, that person needs to be in control of that, right? Otherwise, it doesn’t make sense. What AI is doing is actually it’s taking control of some of the paths. And it’s autonomous, as I said. but in the end, the individual is responsible for overall decision. So if you’re a radiologist, and you have AI, in the end, the diagnostic or the final decision, AI is not responsible for that decision. It’s the radiologists. |
| Robyn Fadden – host: | AI might be seen by some people as a way to dissociate control from accountability. Pinsonneault says that this is a fundamental issue that needs to be managed on all fronts, from management itself to ethics boards because AI is now touching on jobs that used to be isolated from information technology, such as more complicated and complex jobs like that of a radiologist, with many tasks and decision paths. How does the human maintain control? The potential for problems is high, Professor Pinsonneault says, so needs to be well managed before it even starts, if that’s possible. How can organizations navigate this new IT landscape, which might seem overwhelming especially to a more traditional organization, when so many IT and AI tools and business solutions are being offered today, with more to come? |
| Alain Pinsonneault: | We don’t have all the answers that makes also really interesting, because it keeps us going. I would say the first thing for management and for organizations to realize that it is not a solution. And as soon as we think it solution, I think we’re missing the boat, in the broad perspective of things, and we’re missing what it is, therefore, it’s not a solution. If we think if managers think it is a solution to something, then they don’t need to think about the change of perspective that we talked about, right? Because what they will do is they say, Well, here’s the solution, we implement the solution, and it’s going to solve our problem. And what we have seen with all the examples and what I talked about that’s a technological deterministic point of view of saying the technology will determine the outcome associated with using it. And we know that’s not the case, or it’s very so I think managers need to realize and researcher like that are looking at technology, that it’s a tool. And the solution comes from the manager. The example I gave this suit, the innovation part at Canadian Tire did not come from the technology itself, it came from management, thinking about thinking about the strategy to remain in business, and saying we’re going to innovate, and then you use the technology to support that. |
| Alain Pinsonneault: | And it’s the same thing with AI. It’s exactly the same thing with AI. You can have the most the best technology, the more sophisticated technology in the world. If you implemented like, production technology, in a deterministic view, or perspective, it will have marginal impact. The key is to ask, What can we do with that to really make a difference and really add value? And again, we’re still working on that. And we haven’t found exactly because it depends on the organization, it depends on strategy depends on the environment. But that’s, that’s the fundamental message, our research, at least points to. |
| Robyn Fadden – host: | Fundamental to implementing new information technologies is the agility and flexibility of an organization to manage change and shift perspective when needed, as Professor Alain Pinsonneault has said. The human side of information technology shouldn’t be occluded by new tech. In fact, in many organizational contexts, IT can shine a spotlight on what human roles might become, showing that higher efficiency and expanded value creation go hand in hand with a human drive for creativity and innovation. |
| Robyn Fadden – host: | You’ve been listening to the Delve podcast. Delve is the official thought leadership platform of McGill University’s Desautels Faculty of Management. I’m Robyn Fadden, your host for this episode. You can find out more about Delve at delve.mcgill.ca, and follow DelveMcGill on Facebook, Instagram, Twitter and LinkedIn. Subscribe to the Delve McGill podcast on Apple podcasts, Spotify and other podcasting apps. Thank you for listening. |
