IT Assets, Organizational Capabilities, and Firm Performance: How Resource Allocations and Organizational Differences Explain Performance Variation

Abstract

D espite 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.

Performance Perspectives for Small and Medium Enterprises in Cameroon: Innovation and ICTs

“…The link between ICT and the performance of SMEs is sometimes influenced by factors such as: the location of the ICTs concerned, their complexity, their number or the skills of the associated persons. According to Aral and Weill (2007), the ICT assets (equipment and investments) and the capacities in ICT (competences relating to ICT, practice of ICT) combine with innovations and material and human resources to improve the performanc e of SMEs.…”

“…Some studies (Taiwan, Huang & Liu, 2005;Dibrell et al, 2008) show an absence of a direct relationship between innovation and performance and highlight an indirect relationship via the importance given to ICT by the managers. On the other hand, other authors (d 'Aral & Weill, 2007;Kuusisto & Riepula, 2011;Tambe et al, 2012;Kmieciak et al, powerful company to result in a company innovating, efficient, reactivates and which evolves/moves surely and durably. To improve or control this performance, it is possible to act on 4 principal axes: to be to "horse" enters external space and intern to optimize the productivity, to install indicators of rigorous and specific performance, a collaborative management and to develop a creative know-how of performance.…”

“…Concerning the variables related to the use of ICT by SMEs, they are characterized according to two complementary dimensions following Aral and Weill (2007): the internal ICT assets and computing competences. The ICT assets correspond to the investment in equipments and software in the company.…”

“…This contradictory result is explained by the various measures used to determine the ICT capacity. Whereas Dibrell et al (2008) measure the capacity of ICT by the total budget allocated to ICT, we have, given the quality of data, used the approach of Aral and Weill (2007) and made the choice to consider on the one hand the resources of computerization and on the other hand the use of ICT tools in the practice of business. Thus, the activity of installation of innovating products can be based on specific investments in ICT, and can be also be based on the ICT tools already present in the company which will be mobilized in a more intense way.…”

L'innovation en PME et son accompagnement par les TIC : quels effets sur la performance ?

“…Ce phénomène a été popularisé par le paradoxe de productivité des TIC énoncé par Solow. De nombreux travaux, souvent de nature économétrique, ont permis d'obtenir des résultats plus probants, mais pas toujours généralisables, notamment du fait d'approches méthodologiques trop divergentes (Aral et Weill, 2007). De même, la nature des technologies considérées évolue au fur et à mesure des années, amenant des causalités antérieurement validées à ne plus être vérifiées du fait d'une disponibilité accrue et d'un coût réduit des technologies les plus récentes (Chae et al, 2014).…”