Information Technology Capability and Firm Performance - Chae Flashcards
Information Technology Capability and Firm Performance - Chae
Aim of paper
- in 1900s proprietary information systems prevailed, in 2000s more standardised & homogeneous systems prevail easier for firms to catch up as advanced IT capabilities more affordable
- aim of study: examine whether being an IT leader in 2000s is still significant factor in determining business performance as it was in 1990s – comparing findings with two studies out of 1990s
Information Technology Capability and Firm Performance - Chae
IT capability meaning?
encompasses IT infrastructure, human IT resources comprised of technical and managerial IT skills, IT-enabled intangibles such as knowledge assets, customer orientation, synergy
Information Technology Capability and Firm Performance - Chae
IT capability: How to IMPROVe BUSINESS PERFORMANCE BY LEVERAGIN IT CAPABILITY
1) IT capability can increase product differentiation resulting in higher revenues & profit using web + increasing revenue by obtaining valuable resources such as patents
2) superior IT capability is potentially an important source for reducing marketing cost by increasing switching costs and customer loyalty
3) superior IT capability can allow firm to gain exclusive access to customer info and preferences and reduce search costs for future business
Information Technology Capability and Firm Performance - Chae
SUSTAINABILITY OF IT CAPBILITY & BUSINESS PERFORMANCE?
- standardised IT makes it easier for firm to counter & outdo competitor’s IT capability making IT-based competitive advantage short-lived
- some believe: superior IT capability still brings sustainable benefits as learning curve is nontrivial and represents considerable time & effort that competitors must overcome + acquisition of valuable human IT resources and IT-enabled intangibles (knowledge assets) reinforces IT capabilities
Information Technology Capability and Firm Performance - Chae
FINANCIAL HALO EFFECT MEANING?
: impact of past financial performance on reputation survey
* additional tests are needed to control the impact of prior financial performance
ensure that IT capability is only factor that differentiates between IT leaders & control companies
Information Technology Capability and Firm Performance - Chae
Method?
- comparing levels of interest variables between two groups: treatment sample & control sample
Treatment sample: IT leaders with superior IT capability listed in Information Week 500
Control sample: firms matched to treatment sample based on similar size and industry (average sales level to that of the IT leaders
Information Technology Capability and Firm Performance - Chae
RESULTS and Hypothesis?
- IT leader group didn’t show better performance in terms of profit ratios but they showed lower COG/S later than the control group
Hypothesis 1 unsupported + Hypothesis 2 partially supported - IT leaders did not show any higher profit ratio/lower cost ratio than control firms Hypotheses 3 + 4 both unsupported
- as IT leaders nor had higher profit ratios or lower cost ratios, they did not perform better after adjusting for financial halo effect Hyporheses 5+6+7+8 unsupported
-> All hypothesis not supported only one partially supported
Information Technology Capability and Firm Performance - Chae
Conclusion?
- FINDINGS: IT leaders not associated with higher profit/lower cost ratios + no evidence for sustainability of IT capability from analysis
-> contradict findings of previous studies - two possible rationales for contradictions:
1) role & value of IT has changed over time, making IT weaker predictor for business performance
2) method of selecting firms with superior IT capabilities used in studies is flawed
Information Technology Capability and Firm Performance - Chae
How did IT value change over time?
- IT performance of both groups has converged a lot over years
->competitive advantage offered by superior IT was eroded by universalisation or commoditisation of IT (best example: ERP systems – have best practices of industry in their processes – everybody adopts but also means no competitive advantage possible whenever everyone follows same practices)
Information Technology Capability and Firm Performance - Chae
LIMITATIONS & FUTURE RESEARCH – ISSUES THAT NEED ADRESSING
1) validity of using the 500 directory in studies + finding alternative methods of selecting IT leaders
2) systematic and concerted effort to research link between IT capability & business performance over extended period of time
3) future studies that identify and incorporate other variables that affect relationship between IT capability & business performance + replicating this in organisations with different chracteristics
