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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27761
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| Title: | IT Assets, Organizational Capabilities, and Firm Performance: How
Resource Allocations and Organizational Differences Explain Performance Variation |
| Authors: | Aral, Sinan
Weill, Peter |
| Keywords: | Business value of information technology
information technology assets
resource-based theory
complementarities
IT infrastructure
IT capabilities
IT practices
firm performance |
| Issue Date: | Sep-2007 |
| Publisher: | Organization Science |
| Citation: | Vol. 18, No. 5, September-October 2007, pp. 763-780 |
| Series/Report no.: | CeDER-PP-2007-12 |
| Abstract: | Despite evidence of a positive relationship between information
technology (IT) investments and firm performance, results still vary
across firms and performance measures. We explore two organizational
explanations for this variation: differences in firms’ IT
investment allocations and their IT capabilities. We develop a
theoretical model of IT resources, defined as the combination of
specific IT assets and organizational IT capabilities. We argue that
investments into different IT assets are guided by firms’
strategies (e.g., cost leadership or innovation) and deliver value along
performance dimensions consistent with their strategic purpose. We
hypothesize that firms derive additional value per IT dollar through a
mutually reinforcing system of organizational IT capabilities built on
complementary practices and competencies. Empirically, we test the
impact of IT assets, IT capabilities, and their combination on four
dimensions of firm performance: market valuation, profitability, cost,
and innovation. Our results—based on data on IT investment
allocations and IT capabilities in 147 U.S. firms from 1999 to
2002—demonstrate that IT investment allocations and organizational
IT capabilities drive differences in firm performance. Firms’
total IT investment is not associated with performance, but investments
in specific IT assets explain performance differences along dimensions
consistent with their strategic purpose. In addition, a system of
organizational IT capabilities strengthens the performance effects of IT
assets and broadens their impact beyond their intended purpose. The
results help explain variance in returns to IT capital across firms and
expand our understanding of alignment between IT and organizations. We
illustrate our findings with examples from a case study of 7-Eleven Japan |
| URI: | http://hdl.handle.net/2451/27761 |
| Appears in Collections: | CeDER Published Papers
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