Theories and Models of Business Firms

A general understanding of business firms is required in order to be able to develop business and IT strategies. This chapter will present the resource-based theory of the firm, the activity-based theory of the firm, and the firm in terms of its value configuration, business model, and e-business models. These theories and models describe conceptually how the firm is constructed and resourced in delivering uniquely differentiated customer value in sustainable ways. It highlights the ways in which IT is used in the process of value and revenue creation for the firm using the chosen value configuration. It also classifies the ways in which Internet-based business strategy, known as e-strategy, may be represented as ebusiness models. The purpose of IT strategy, which is the core subject of this book, is about analyzing the business vision, mission, and strategy and defining the value configuration (business process or business model) and the attendant IT architectural model from which the requisite IT infrastructure to support or enable the firm’s business operating model is designed and implemented. It is hoped that by illustrating to the readers the varying contexts in which IT can add value to the business in each of the value configurations or e-business models, the integral nature of the ways that IT has embedded in our business today can be better appreciated. An understanding of firm theories and value configurations is important to later discussions of the topics in the book. The resource-based theory is applied to understand resources needed for e-business, sourcing, and governance. An important resource is knowledge in terms of know-what, know-how, and know-why. Knowledge management theory andprinciples and their relevance to business innovation will be discussed in Chapter XI of the book.