How Does Strategic Alignment Affect Firm Performance? The Roles of Information Technology Investment and Environmental Uncertainty

Abstract

The alignment between a firm's business and information technology (IT) strategies continues to be important for research and practice. Prior research investigating the performance consequences of strategic IT alignment (SITA) has produced inconsistent results. This paper distinguishes between two roles of SITA: (1) as a state of congruence between business and IT, which is the primary focus of empirical studies, and (2) as reflecting a capability that may enable or inhibit the leveraging of IT investments, as has been discussed theoretically but not examined empirically. Based on the resource-based view (RBV), IT investment (ITI) is explicitly included as the resource that SITA as a capability can inherently help leverage. Also based on RBV, we argue that environmental uncertainty, which is examined in terms of dynamism, complexity, and munificence, moderates the effect of SITA on the relationship between ITI and firm performance. The research model is tested through panel-data analyses of data from 1999-2008, including 758 firm-year observations from 242 firms. This study is the first to find that SITA as a state directly improves firm performance even when considering ITI and its interaction with SITA. Moreover, the effect of the interaction between SITA and ITI on firm performance increases with an increase in environmental dynamism or complexity and with a decrease in environmental munificence. We also find that the effect of the interaction between SITA and ITI can be negative under some environments. Specifically, the results suggest that (1) in dynamic, complex, and hostile environments, SITA does reflect a capability that enhances the positive effect of ITI on firm performance, but (2) in stable, simple, and munificent environments, SITA reflects a rigidity that reduces the positive effect of ITI on firm performance. The results are robust under a variety of statistical specifications and estimations.

Does corporate environmental responsibility engagement affect firm value? The mediating role of corporate innovation

“…Here, DVER (dummy variable for CER) is considered as a dummy variable, so we gave 1 for firms with any level of CER and 0 for firms without CER. The findings of the study discover that firms with CER are conducive to enhance firm value measured by Tobin's Q, which are similar to previous research (Dixon‐Fowler et al, ; Lee et al, ; Sabherwal et al, ). Moreover, the results from Model 2 further divulge that the coefficient of corporate innovation measured by invention patents is positive and significant, which confirms that firms that are involve in CER are conducive to simulate corporate innovation.…”

“…Here, DVER (dummy variable for CER) is considered as a dummy variable, so we gave 1 for firms with any level of CER and 0 for firms without CER. The findings of the study discover that firms with CER are conducive to enhance firm value measured by Tobin's Q, which are similar to previous research (Dixon-Fowler et al, 2017;Lee et al, 2016;Sabherwal et al, 2019).…”

“…Furthermore, the resource-based view (RBV) and the economicsbased voluntary disclosure theory (VDT) argue that firms with superior CER result in a competitive advantage. Sabherwal, Sabherwal, Havakhor, and Steelman (2019) believes that firms implementing environmental strategies can improve firm performance. Hummel and Schlick (2016) reveal that superior sustainability performers choose high-quality sustainability disclosure to signal their superior performance to the market, which is consistent with VDT.…”

Information Technology Investment, Environmental Hostility, and Firm Performance: The Roles of Family Ownership in an Emerging Economy

“…Dynamic capability literature suggests that external environment traits such as environmental hostility have an effect on the relationship between IT and firm performance [7]. Recent IS literature also emphasizes the study of environmental factors on IT related decision made by managers and organizations [24,28,42,45].…”

“…From the resource-based view, IT investment is one type of resource used to achieve competitive advantage and improve firm performance. Studies on the direct effect of IT investment on firm performance suggest a positive relationship [42]. Other factors such IS strategic alignment can influence the positive direct effect of IT investment and firm performance.…”