Why Does Transparency Strategy Matter?

Why Does Transparency Strategy Matter?

Why Does Transparency Strategy Matter?

In the past, legacy systems, industry norms, or firms with market power dictated the level of transparency that was present in a market, leading to the existence of stable trans-parency regimes (Granados et al. 2010). In the last few decades, the Internet and mobile technologies have disrupted these regimes, making some players better off and others worse off. For example, online travel agencies brought higher transparency of product offerings to travelers, which led to the disintermediation of traditional travel agencies. In financial markets, the transition from floor trading to electronic trading made stock trade history more transparent, which benefitted individual investors but threatened the viability of intermediaries (Clemons et al. 2002). In such turbulent environments, the effective use of IT becomes a strategic imperative for firms (El Sawy et al. 2010) as they develop dynamic capabilities to be alert, predict the future, and effectively compete (Sambamurthy et al. 2003). We argue that one set of capabilities that a firm must develop is to design policies for selective information disclosure and to deploy technologies that enable them. But competitors are bound to respond with their own innovations. This dynamic process will lead to new transparency regimes that differ across industries, depending on the nature of the product sold and on the industry’s competitive and regulatory forces (Granados et al. 2006). In the end, those who are able to foresee and adapt to the effects of technological breakthroughs on transparency will be better able to compete. However, the uncertainty associated with technological progress can blur the vision on how to develop these capabilities. We have observed two common myopic reactions (Granados 2008):
• Defensive denial. In increasingly transparent markets, some firms retrench to protect their turf, fighting against an inevitable trend. This reaction is partially motivated by the fear of losing information advantages. For example, widespread availability of information about prices in electronic markets can lead to more competition and lower market prices. So in the 1990s, faced with this threat, established firms across industries (e.g., music, travel, financial services) initially avoided Internet-based distribution.
• The passive reaction. Perhaps a better—yet not good enough—approach is when firms acknowledge the transformation, but they assume that there is not much that can be done to manage and control information. For example, with the proliferation of customer reviews and other third-party information in social networks, firms often fall short in developing effective social media strategies to protect and improve their reputation.
The consequence of these reactive approaches has been that existing competitors and new entrants find fertile ground to develop innovative business models and establish long-term competitive positions. For example, Blue Nile, an online jewelry store, was launched by an entrepreneur to educate consumers on how to discern quality and features of jewels, and today it is still one of the leading online jewelry stores. Not all winners are start-ups. In the 1990s, Microsoft launched Expedia, an online travel agency with a web-based, transparent interface to display to consumers the travel offerings from traditional reservation systems. To date, Expedia is the leader in online travel distribution. Progressive, an insurance company, has been successful with a transparency strategy to attract customers, by showing a comprehensive matrix of all competitive product offerings. Not all successful strategies are about higher transparency. Hotwire and Priceline.com emerged early on to become leaders in the market niche of opaque travel offers, which conceal travel itineraries and supplier identities prior to purchase. The interplay between strategy, IT, and the environment is complex, messy, and chaotic (El Sawy et al. 2010), which may derail business executives from developing a vision to strategize with information. But this is no excuse for complacency. Firms should be proactive and deliberate in understanding how IT impacts transparency in their respective industries, in order to develop sound transparency strategies. We next provide some preliminary foundations and guidelines.

From “TRANSPARENCY STRATEGY: COMPETING WITH INFORMATION IN A DIGITAL WORLD” by Nelson Granados and Alok Gupta

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