SESSION 5 - IT capability and firm performance

Question 1

Whats the article about?

Answer 1

• 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

Question 2

What are the advantages of IT capability?

Answer 2

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

Question 3

Whats the financial HALO effect?

Answer 3

Financial halo effect: 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

Question 4

What were the findings of the study?

Answer 4

• 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