Digital Convergence - Processing and Transferring Data

Introduction

Digital convergence (DC) is the proliferation of information in digitized form (bits) and the efficient flow of information in the digital network. Digital convergence is the various ways in which digitized data are processed and transferred [1]. The Knowledge economy is driven by DC where digital systems are embedded ubiquitously in the business processes that help the users to exchange information, store and access data, collaborate, communicate, learn and trade in real time. The digital information can also be accessed from and stored in a remote location which supports workers that are mobile and/or located in distant locations. DC is facilitated by internet, access networks (like 3G,4G, wireless LAN, wireless broadband) and high network connectivity ; leading a surge in virtualization of computing and storage functions of digitized data [2]. Easy communication, information exchange and collaboration made possible over the global digital network with the aid of Digital Convergence has caused a surge in Cloud Computing; which is where digitized data, computational platform and infrastructure to compute enabled by the digital platform is stored in the “cloud” – outside the walled premises of the organization on a sharable platform [2].

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Digital Convergence is the current trend in Pervasive Computing which follows the mantra of access to information anywhere, anytime. Gartner Research states that worldwide cloud services revenue enabled by digitized data is estimated to exceed $56.3 billion in 2009, which is a jump of 21.3 percent from the $46.4 billion spent on the cloud last year [3]. Furthermore, Gartner analyst predicts by the year 2013, the Cloud service revenue will reach $150.1 billion[4]. Hence, Digital convergence (DC) is an important paradigm in information technology. Theory of digital options suggests that IT indirectly supports agility by offering firms with digital options [5], which are described as a set of IT-enabled capabilities in the form of digitized work processes and knowledge systems. This theory emphasizes that IT enhances the reach and richness of a firm’s knowledge and it is processed to help the firm improve its agility i.e. its ability to sense and respond to environment change.

The term ‘digital options’ denote that a firm may apply its IT-enabled capabilities in the form of digitized work processes to emerging opportunities, or they may remain unused depending on the dynamic capabilities of a firm [6]. In a dynamic environment; competitive advantage is short lived; hence firms continuously generate competitive actions to achieve series of short term competitive advantage and firms with greater number and variety of competitive actions achieve competitive position [7-9]. Attempts have been made to identify the factors that lead to competitiveness but there are no formal empirical study so far that investigates the link between Digital Convergence and competitive advantage.

Research justification and research questions Dynamic capabilities of a firm are composed of Adaptive, Absorptive and Innovative capability[10]. Prior research has shown that Knowledge sharing and absorptive capability of the firm (ability and motivation of the firm’s employees to utilize knowledge) improves innovation capability of the firm[11]. Review of the previous IS research suggests that continuously generating competitive actions , Knowledge Management and Agility is important in achieving competitive position but there has been no formal empirical study that examines the role of innovation capability in improving firm’s business process agility and the role of Digital Convergence in leveraging innovation capability in competitive actions.

There have been several calls for research to examine relationship between Organizational capabilities, Agility, digital systems and competitive actions. The specific research problems include examining the relationship between digital systems and competitive actions and Firm and network capabilities for leveraging digital systems in competitive actions[12] and examining what IT capabilities are vital to business success in contemporary digital environment? [13].There has been call for research to study the next wave of nomadic computing including Digital Convergence that enables organizations to: mobilize information, share the information, develop new forms of organizational structure, capability, and agility [1]. In response to these calls this study proposes to study the following research questions and the research model is illustrated in Fig 1.

1. Does Innovation capability of the firm help in making a firm more Agile?
2. What role does digital convergence play in influencing the strength of the proposed relationship between Innovation capability and Agility?
3. Does Digital Convergence help in developing the digital collaboration (both external and internal)?
4. What role does location of the partner play in building the innovation alliance network or in other words Digital collaborators of a firm are more locally dispersed / more globally dispersed / are they somewhat equally dispersed between local and global locations? Digital Convergence inhibits or facilitates Digital collaboration between partners that are local and global?
5. Does Digital Collaboration (like between competitors) have any role in shaping business process agility?
6. Improving the business process agility of the firm makes the firm more competitive?
7. Which type of digital collaboration is perceived to be the most valuable for enterprise’s innovation activities?

Literature Review

Digital convergence

Prevalence of digitized data has resulted in Digital Convergence (DC) [14]. The Digital network today is connected with IP phone, IP camera, IP TV, Point of sale systems, digital learning devices, portable medical and other technologies that provide unified communication and collaboration tools even to those workers who are mobile. “When all media is digital…Bits co-mingle effortlessly. They start to get mixed up and can be used and re-used separately or together.”[15] or in other words DC makes use and reuse of information easier. The definition of digital convergence (DC) has evolved over time. The assimilation of concepts on Digital Convergence from the review of literature is outlined below. In the year 1977, Japan’s NEC Corporation first defined DC as communications merging with computers.

Digital convergence requires ubiquitous and powerful computers that can handle communications with digitized content[16, 17]. DC is the convergence of content ( character, sound, text, motion, picture into a bit stream ) and convergence of transmission ( bits can be managed and transmitted quickly and efficiently and in large volumes) enabled by distributed computing and internetworking [18]. DC can also be classified as Network convergence: Fixed to mobile convergence (FMC) is the seamless distribution of digitized content over mobile and fixed technologies enabling the collapse of boundary between fixed network operator and mobile network operators. It provides access to the digitized service irrespective of location and device.

FMC means that a single device can connect and be switched between wired and wireless networks. [19]. Digital convergence can also be viewed as Business Process convergence or integration: It is the ability to represent audio, video, text and other media in digital form, manage this rich digital content and tie it to transactional capability and interactive services [20].For e.g. In a doctor’s office the patient signature can be captured digitally, all the business transactions like patient scheduling, recording of the information about the procedure performed and the rate for the services performed, payment collection, processing for insurance claim, patient medical records can be managed digitally and later those records can be accessed by management to track the performance of the clinic efficiently.

Also the business process convergence can help business provide personalized interactive products for the consumers. DC is the ability to integrate and converge enterprise wide business process with single point of access to it, 24×7, where digitized data are stored in a shared repository and managed by enterprise wide software like the Enterprise resource planning (ERP) software. DC is Device convergence where same digital device can be used for multiple forms of digital content used for complementary services like mobile phone can be used as video player, music player, and sound recorder, GPS, email and web search[16]. It is defined as the convergence of computing, communication and consumer electronics [21] In the current scenario, future digital convergence means producing digital environments that are aware, receptive and adaptive to humans connected in a network. The interacting computational devices connected to such pervasive, human-centered computing network are able to communicate with each other [22]. Digital convergence can help working from home, conduct live meeting without travelling using video conferencing. Based on Past research, Digital convergence can be summarized as convergence of: a) digital content, b) network/transmission, c) business process/service, d) digital devices and e) infrastructure supporting pervasive computing.

Innovation Capability

Past research on Innovation capability of a firm has concluded that it includes the ability of the firm to have product innovation capability, process innovation capability and market innovation capability which are summarized below. The role of environmental innovation capability and organizational innovation capability in shaping firm agility has not been studied so far. Product Innovation capability: Innovation capability is the ability to develop new products or services [23-25], ability to be first mover in the market [26] and ability to introduce more new products than other firms [26]. Process Innovation capability: This is the ability of the firm to develop new methods of production [23-25], develop new organizational forms[23], seek new and novel solutions to problems[23] and to discover new methods and sources of supply[23]. Market Innovativeness: This is the ability to identify new markets[23]. Organisation for Economic Co-operation and Development (OECD) is headquartered in Paris and administers Community Innovation Survey (CIS). The Community Innovation Survey (CIS) was updated recently in the year 2008 and it lists Organizational Innovation Capability and Environment Innovation Capability as new measures for innovativeness [27]. Innovation surveys were first experimented with in several Western European countries but have since been conducted in many other countries including Canada, all EU countries, Switzerland, Russia, Turkey, Australia, New Zealand, South Korea, South Africa and most Latin American countries.

Organizational Innovation Capability

As per the CIS 2008 [27], organizational innovation capability is the ability of the firm to have new organizational method in the business practice. The new methods includes new business practices for organising work or procedures (i.e. supply chain management, business re-engineering, lean production, quality management, education/training systems, etc), new knowledge management systems to better use or exchange information, knowledge and skills within and outside the enterprise, New methods of workplace organisation for distributing responsibilities and decision making (i.e. first use of a new system of employee responsibilities, team work, decentralisation, integration or de-integration of departments, etc) and New methods of organising external relations with other firms or public institutions (i.e. first use of partnerships, outsourcing, alliances or sub-contracting, etc.) Environmental innovation capability: As per the CIS 2008 [27], this is the ability to produce new or significantly improved product (good or service), process, organizational method or marketing method that generates environmental advantage compared to alternatives. CIS 2008 also suggests that firm marketing innovation capability of a firm includes ability to make significant changes to product design or packaging, ability to develop new media or techniques for product promotion, develop new sales channel and develop new methods of pricing goods. Product Innovation capability also includes the ability of the firm to develop products adaptive to the needs of the customer. Process innovation capability includes ability to develop new or improved supporting activities for business processes and ability to provide new method of providing staff welfare (employees are provided incentives and encouraged to behave in novel and original ways) and key executives are encouraged to take new risks [27].

Competition:

Knowledge Management (KM) theory and the Science of competitiveness suggests that KM improves competitive position by improving productivity, agility, innovation and/or reputation – PAIR [28, 29]. In dynamic markets knowledge assets become critical as a source of competition [30]. Along with KM , greater Agility will breed superior organizational performance [31].Entrepreneurial agility (the ability to anticipate and proactively take competitive actions) and Adaptive agility (the ability to sense and react to change) are both significant predictors of sustainable competitive advantage[32]. There is also significant relationship between sustainable competitive advantage and profitability [32]. Dynamic capabilities: In fast evolving markets, competition is a moving target and firms should have dynamic capabilities to gain competitive advantage [6]. Drawing on previous research findings, Dynamic capability is composed of adaptive capability, absorptive capability and innovative capability[10]. Review of literature has defined Competitive action [and response] as “externally directed, specific, and observable competitive move initiated by a firm to enhance its relative competitive position”[33]. Previous research has concluded that Knowledge Assets, Agility, Dynamic capability are important for being competitive but the key question that this study investigates the relationship of digital convergence with Innovation capability, building innovation co-operation, Business Process agility and competitive advantage.

Agility

The different types of Agility identified in the literature are : Operational (internally focused initiative), Partnering (Supply chain initiative) and Customer (demand side initiative) [5], Entrepreneurial and Adaptive[32], Strategic[34], Business-Process [35]. Operational agility has been defined in the literature as the ability to sense and seize business opportunities quickly, accurately, and cost-efficiently. Customer agility is the ability to adapt to customers, identify new business opportunities and implement these opportunities with customers; and the role of IT in customer agility is to facilitate the development of virtual customer communities for designing new product, feedback and testing. Partnership agility: is the ability to leverage partner’s knowledge, competencies, and assets in order to identify and implement new business opportunities. Individual firms do not have all the resources required to effectively compete and value creation for the firm can be leveraged better through pooling of assets between partners. The role of IT in partnering agility is to support Inter organizational networks for collaboration, communication and integration of business processes.

Organizational agility is important for business success [36]. Agility of an organization is significantly determined by the operational ability of the organization. Greater agility is achieved when the Inter-organizational system used has a task and strategic fit, has been assimilated into the organization and the system is adopted network wide [31]. Organizations that are agile i.e. to be able to take competitive actions continuously perform better than organizations that don’t [37]. Business-processes agility can be classified as : process-level agility, which is how quickly an organization can add new capabilities into its standard processes (E.g. how quickly a company can acquire AJAX capability into its ordering process) ; and transaction-level agility, which measures the how good the organization is in customizing capabilities for individual customer transactions (For example, how well a company can customize AJAX ordering capability to include bar-code label on the box, an RFID tag on a certain type of container, and paper invoice with bulk billing based on the individual transaction with a customer)[38].

Theory and Propositions

Resource based view (RBV) of the firm [39, 40] suggests that valuable, rare, inimitable and non substitutable (VRIN) resources and capabilities as the source of competitive advantage. The extension to this is the theory of Dynamic capabilities. This theory emphasizes that development of organizational capabilities over the time and their constant renewal by management influences can be a source of competitive advantage. In contrast to the earlier view that IT infrastructure and IT investment provides the source of competitive advantage, dynamic capabilities theory emphasizes that consistent development of the capability to apply IT , allows firms to be flexible and innovate continuously, looking put for emerging opportunities, and countervailing threats from competitors to help shape a superior firm [41]. Theory of capability state competition lists Dynamic capabilities, core competencies and resources as a basis for superior performance of a firm [42] According to the Dynamic capabilities theory it is not just the availability of resources that matter, but also the high performance routines operating inside the firm and embedded in the firm’s processes that utilizes them [43].

The theory proposes that a firm’s IT application can be imitable across firms but the firm’s capability to apply IT strategically can be inimitable [44]. Based on this theory the innovation capability of a firm cannot be easily replicated by other firms and will help the firm achieve competitive advantage.
Innovation was described by Schumpeter (1934) as development of new products, new methods of production, new sources of supply, opening of new markets and new ways of organizing businesses. As per OECD’s CIS 2008 survey innovation ability is the ability to implement new or significantly improved product (good or service), or process, a new marketing method, or a new organisational method, or a new environmentally friendly product or process in business practices, workplace organisation or external relations. It has been suggested that firm’s radical or incremental innovation drives the firm to respond to market changes and opportunities[45]. This study investigates this empirically by proposing the following.

Proposition 1: Innovation capability will be related to Organizational Agility.

Digital systems are pervasive and can make knowledge accessible through intranets, digital knowledge repositories and databases and can make the knowledge richer by video conferencing and digital collaborative facilities. Digitization offers firms significant opportunities to achieve greater agility [46]. Digital convergence allows for transfer of digitized information in different ways. Information theory provides completely rational explanations for competitive action: those who have the information will be most aware, motivated and capable of responding. ICT use on Multifactor productivity (MFP growth) are typically linked to firms’ experience in innovation [47]. It has been suggested that several firm capabilities like the firm’s digital platform is an important enabler of agility [5]. Thus this study proposes that Innovation Capability will drive agility more for firms that have Digital convergence than for firms that do not.

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Proposition 2: Relationship between Innovation capability and organizational Agility will be moderated by digital convergence

Firms that have digitized their process have digital options that can help create new channels to access customers, build real-time integration within supply chain network , gain efficiencies in internal operations and offering new digital products or services [48]. This study proposes that firms that have digitized their processes will have digital convergence that can help digital collaboration with customers, other members in the supply chain network, other firms in the industry, competitors and other firms within the enterprise; both locally and globally.

Proposition 4: Digital convergence will promote both local and international innovation partnership.

It has been suggested that Digital collaborations will result in Co-evolution among businesses which implies flexibility in the asset mix , capabilities and knowledge resulting in Agility [49]. Knowledge management is related to organizational agility [50] and conducting knowledge management leads to five types of knowledge manipulation activities: knowledge acquisition, selection, generation, assimilation, and emission[28].

Proposition 5: Digital Collaboration for Innovation has a direct relationship with Agility.

Proposition 6: Organizational Agility will be related to a higher level of competitive position/competitive advantage.

Research Design

Data Sample

The proposed research model will be empirically tested using a data gathered from managers of companies. The target respondent list will be compiled from the Dun & Bradstreet database consisting of large organizations both public and private operating in North America that has a certain level of market uncertainty and competition. As per OECD’s definition there are two types of innovation intensive industries comprising of a) High tech industrial companies like Manufacturing and b) companies that provide knowledge intensive services like IT consultancy, Telecom services, Banking and Financial, Retail, Insurance, Health Care, Education etc . The diverse sample from both the public and the private sector will help increase the generalizability of the results from this study. The focus of this study is digital convergence. Although the surge in digital convergence with variable strength is seen across all industry sectors and all size firms; this study focuses on medium to large companies with large number of employees. The reason being, for large size companies the availability of finance makes it easier to invest in digital systems.

Methodology

A pilot study with IS academics and graduate students will be conducted for the preliminary assessment of the proposed scale for each construct and to identify ambiguous questions and instructions. Cronbach’s alpha (a) coefficient will be computed for each multi item scale to test for reliability. Alpha greater than 0.7 is generally considered to be acceptable reliability[51].
It is important to assess the biases that results from using a single method, a mail survey administered at a single point in time, to measure the constructs proposed in this study due to Common Method Variance (CMV). The Harmon’s one factor test will be used to assess CMV[52].

Measures are being taken to elicit information about all the variables that are being studied. Whatever possible existing scales will be used but new scale to measure digital convergence will be developed. A seven point likert scale (1= very Weak, 7=Very strong) was used to measure the constructs. This study adapts the previously validated scales used in the past to measure organizational innovation capability [25-27, 53]. The adapted scale in the study consists of : Product innovation which has 3 questions, Process Innovation has 4,organizational innovation has 4,Marketing innovation has 4 and Environmental innovation has 2 questions as shown in the Appendix.

Digital Collaboration for innovation is active participation with other enterprises or non-commercial institutions on innovation activities using a digital platform. This type of collaboration does not require for the collaborator to benefit commercially. Pure contracting out of work with no active co-operation is excluded in defining digital collaboration for innovation. The measure is adapted from the OECD community innovation survey, 2008. It consists of selecting the different types of collaborators and their location as shown in Appendix.

Eight measures of business process agility was used from a previously validated instrument [35] which was developed based on conceptual framework provided by prior research [5, 54]. These items measure how quickly and well the firms can undertake key business actions such as responding to changes in aggregate demand, customizing a product to a specific customer or market, reaction to new product or service launches by competitors, change prices or product mix, move into or retrench from markets, adopt new process and redesign the supply chain.

Little empirical work has been done on Digital Convergence and this proposal synthesizes concepts from the current IS literature on Digital Convergence to help develop the operationalization of the Digital convergence Construct.

This study proposes breaking down DC into 6 first order constructs consisting of content convergence, transmission convergence, Network convergence, Business Process convergence or integration, Device convergence and Pervasive digital environment; which will be easier to operationalize . The Next step will be operationalize these variables, transform the propositions into formal hypotheses for the purpose of empirical testing.

This study proposes to measure competitive position of a company based on performance of their company relative to their major competitors using a seven-point Likert scale( 1-significantly decreased, 7= significantly increased) in terms of : Market share, Sales volume and Customer Satisfaction. The results from the self reported will be validated by calculating correlation with the results from accounting related measures available from Financial Reports. Previous literature supports the use of accounting measures such as – Return on Sales (ROS), Return on Assets (ROA) often used as proxy for efficiency, operation income to measure a company’s position to compete

Data Analysis

This study proposes to use PLS to estimate the research model as it is common in behavioral literature to use multiple item measures for latent constructs. Path model using PLS will be used for interpreting the main results of this study because this study uses perceptual measures coming from one respondent for constructs that require multiple item indicators.

Significance of this research

Innovation and Agility are seen as being important across many industries, especially those operating in a dynamic and globally competitive environment. The impact of Digital Convergence upon a firm’s ability to compete in such an environment has important implications for managers. The relationship between Innovation capability and Business Process Agility has not been studied empirically in context with competitive advantage. The results from this proposed study can provide guidance to managers to answer questions like: Should managers develop environmental innovation capability, organizational and marketing innovation capability to gain more Agility?

Should Managers invest in digital convergence for building digital collaboration for innovation? Is there any gain in collaboration for innovation (even with competitors) in improving firm agility? Does business process agility provide competitive advantage for large companies? Will the benefit in developing innovation capability increase by investment in Digital Convergence?

This proposed study is important to researchers as it adds to the growing body of literature linking a Firm’s capability and Agility. It draws from resource-based view of the firm and dynamic capability theory to explain the relationship between firm’s innovation capability and its competitive performance. This study provides an empirical test of relationship between business process agility and competitiveness. The study also provides identification of Digital Convergence. Finally, the results of this proposed study is important to respondents as it answers if the leverage of innovation capability for competitive advantage is contingent on investment in Digital Convergence.