Professional Documents
Culture Documents
Tech On Performance
Tech On Performance
Tech On Performance
Business Value
Author(s): Nigel Melville, Kenneth Kraemer and Vijay Gurbaxani
Source: MIS Quarterly, Vol. 28, No. 2 (Jun., 2004), pp. 283-322
Published by: Management Information Systems Research Center, University of Minnesota
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Keywords: Business value, competitive advan In the network era, electronic linkages within and
tage, cost reduction, country characteristics, eco among organizations are proliferating, altering the
nomic impacts, efficiency, industry characteristics, ways inwhich firms acquire factor inputs, convert
information technology, ITbusiness value, ITpay them into products and services, and distribute the
off, macro environment, performance, productivity, result to their customers (Hammer 2001; Straub
resource-based view, trading partners, value and Watson 2001). This raises new questions
about how ITcan be applied to improve organi
zational performance. For example, how do elec
berg 1995; Mata et al. 1995). This approach is separate research conversations. The review is
consistent with computing paradigms that domi also unique in its extension of the locus of ITbusi
nated in pre-lnternet eras, typically defined by ness value to the external competitive and macro
mainframes, minicomputers, and personal com environment. Another distinction is the inclusion of
puters used primarily for storing and processing research studies
spanning range of
the entire
information within a single organization. To theoretical paradigms and research methods.
continue advancing knowledge, however, an
expanded conceptualization of ITbusiness value There is some ambiguity regarding what consti
is required. tutes ITbusiness value research, so we begin by
introducing terminology and delineating the scope thereby taking a first step toward unification of this
of the research stream. Next, we review theore vast and diverse body of accumulated knowledge.
tical paradigms and modeling approaches em
ployed in prior research. We then develop an
integrative model of ITbusiness value using the Information
Conceptualizing
resource-based view of the firm as a principal
Technology in ITBusiness
theory base. The model provides a basis for Value Research
structuring our review of accumulated knowledge,
for identifying gaps in knowledge, and for devel Information systems scholars have adopted
oping propositions to guide future research. We diverse conceptualizations of information techno
conclude by summarizing the findings and limita logy, extending beyond hardware and software to
tions of our analysis and by proposing an agenda include a range of contextual factors associated
for future research.2 with its application within organizations (Kling
1980; Markus and Robey 1988). As a precise
specification of what we mean by IT business
value is dependent upon what we mean by IT,we
Tool
IT is a tool intended to generate value, whether productivity enhancement, cost reduction, competi
tive advantage, improved supplier relationships, etc. Specific intention for IT is often unknown.
Studies of specific system and implementation contexts enable examination of tool view assump
tions.
Proxy
IT is operationalized via proxies such as capital stock denominated in dollars. Wide range of poten
tial proxies exists, but few have been adopted. Adoption of diverse proxies enables triangulation and
enhances accumulated knowledge.
Ensemble
Assessment of ITbusiness value generation in rich contexts, often using case or field studies.
Organizational structure and co-innovations such as workplace practices may be included as
moderators or mediators of value.
Nominal
IT is not conceptualized and appears in name but not in fact. Abstraction enables model precision
at the expense of generality.
*Adapted from Orlikowski and lacono (2001). Computational conceptualization is not applicable to IT business value
and technology in both the development and use Examining conceptualizations of ITby ITbusiness
of IT.Case studies examining ITbusiness value value researchers reveals that prevailing assump
within specific organizations often adopt the tions have delimited accumulated knowledge in
ensemble view (Kraemer et al. 2000; Williams and three principal respects. First, IT is frequently
Frolick 2001). Inaddition, as quantitative ITbusi operationalized using aggregate variables mea
ness value
research has evolved beyond sured indollars or counts of systems (proxy view),
examining the productivity paradox?low aggre limiting our understanding of the differential im
gate productivity growth during a period of high IT pacts of alternative types of ITas well as the role
spending?to explore how firms use ITto generate of usage (Devaraj and Kohli 2003). Furthermore,
value, researchers have begun to incorporate the software is often treated implicitly via assumptive
role of organizational co-innovations such as measures or sometimes omitted entirely from the
workplace practices (Brynjolfsson et al. 2002). As analysis. Given evidence of its association with
the emphasis of the fourth view is on algorithm firm performance (Hittet al. 2002), there is a need
and systems development and testing as well as to incorporate software when conceptualizing IT.
data modeling and simulation, it is less applicable Second, IT is frequently assumed to lead to an
to IT business value research. Finally, studies outcome intended by managers (tool view),
the nominal view invoke technology in limiting our understanding of unintended conse
adopting
name but not in fact. An example is the derivation quences (Markus and Robey 2004). Third, the
of a two-stage game analyzing the impact of IT treatment of the role of IT employees is unsys
application on total factor productivity in the tematic and often excluded from the analysis
context of oligopolistic competition, which intro (ensemble view), hindering our understanding of
duces IT solely via its posited impact on cost the role of ITmanagement and technical expertise
reduction and product differentiation (Belleflamme in generating ITbusiness value. When included,
IS employees have been incorporated in an
2001).
additive fashion with IT stock (Hitt and Bryn spective employing such metrics as cost reduction
jolfsson 1996), as a separate construct that is and productivity enhancement in the assessment
complementary to IT (Black and Lynch 2001; of a given business process, or "doing things right"
Brynjolfsson et al. 2002), or conceptualized as (Drucker 1966). In contrast, effectiveness de
being inextricably intertwined with ITwithin busi notes the achievement of organizational objec
ness processes (Kraemer et al. 2000). The tives in relation to a firm's external environment
problem is exacerbated by increasing adoption of and may be manifested in the attainment of
networked systems spanning multiple organiza competitive advantage, i.e., effecting a unique
tions?and hence multiple IS stakeholder groups. value-creating strategy with respect to competitors
(Barney 1991). To emphasize, ITmay enable a
To summarize, IT business value research is firm to improve efficiency regardless of whether
characterized by diverse treatment of the IT mimicked by competitors, or may yield perfor
construct, which has bounded and shaped mance impacts unique to a particular firm relative
accumulated knowledge. A systematic explication to its competitors, i.e., competitive impacts.
and definition based on theory is a necessary first Synthesizing these observations, we define IT
step toward knowledge advancement and model business value as the organizational performance
building (undertaken shortly). We now turn to the impacts of information technology at both the
second core construct of the research stream: IT intermediate process level and the organization
business value. wide level, and comprising both efficiency impacts
and competitive impacts.
1990; Dewan and Kraemer 2000; Siegel 1997). models and mathematical specifications. The
Combining these observations, we define IT theory of production has been particularly useful
business value research as any conceptual, theo in conceptualizing the process of production and
retical, analytic, or empirical study that examines providing empirical specifications enabling esti
the organizational performance impacts of IT. mation of the economic impact of IT (Brynjolfsson
and Hitt 1995; Dewan and Min 1997; Lichtenberg
Having demonstrated how prevailing assumptions have also employed growth
1995). Researchers
about the ITartifact in ITbusiness value studies
accounting (Brynjolfsson and Hitt 2003; Jorgenson
have delimited what we know and defined the
and Stiroh 1999), consumer theory (Brynjolfsson
research stream, we now turn to the derivation of
1996; Hitt and Brynjolfsson 1996), data envelop
our integrative model.
ment analysis (Lee and Barua 1999), and Tobin's
q (Bharadwaj et al. 1999; Brynjolfsson and Yang
1997). To account for the inherent risk and uncer
tainty of IT investments, option pricing models
Integrative Model of have been applied to the ITcontext. Conducting a
IT Business Value _-_______ ___ _
real-options analysis of point-of-sale (POS) debit
services by an electronic banking network,
The organizational application of information tech Benaroch and Kauffman (1999, p. 84) describe
nology may improve, reduce, or have no effect on "the logic of option pricing" as "how itcan handle
firm performance. Our objective is to develop a
getting the timing right, scaling up or even aban
descriptive model of the value generating process.
donment, as the organization learns about its
The primary theory base is the resource-based
business environment with the passage of time."
view (RBV) of the firm, which combines the
Although the assumptions of microeconomic
rationale of economics with a management per
theory must be carefully assessed within the spe
spective. As trading partners and the competitive
environment shape the degree to which ITmay cific research context, its application within IT
we business value research has enhanced our under
improve organizational performance, also
paradigms inexamining the organizational perfor flamme (2001) constructs a two-stage game of IT
mance impacts of IT, including microeconomics, investment and production choice under oligopo
industrial organization theory, and sociology and listic competition. Other researchers have drawn
socio-political paradigms. from agency theory and the incomplete contracts
literature (Bakos and Nault 1997; demons and
Intellectual Foundations
Theory Development
Bundling of resources
Distinction between resources and the capability to deploy groups of resources successfully
any current or potential competitors" and one that A limitation of the conventional resource-based
its rivals are unable to duplicate (Barney 1991, p. view is that itassumes that resources are always
102). Insummary, the four conditions necessary applied in their best uses, saying little about how
for a resource to confer a sustainable competitive this is done. Ineffect, the RBV provides a set of
are value, rareness, and conditions to the attainment of sustain
advantage inimitability, necessary
non-substitutability. We adopt Barney's formula able competitive advantage via a firm resource,
tion as it is readily applicable to analyzing the but does not specify the underlying mechanisms
fundamental questions of ITbusiness value.
by which this is accomplished. We, therefore, rely
on secondary theory bases such as micro
Production function and process-oriented models complementary firm resources typically do not
describe the relationship between IT investment incorporate the external environment of trading
and firm performance via an input-output per partners, industry characteristics, and country
spective that sometimes includes intermediate characteristics. Moreover, based on an analysis
factors such as managerial choices and organi of emergent research, there is no consensus
zational structure. However, the external environ regarding approaches to modeling such factors.
ment of trading partners, industry characteristics, For example, Mukhopadhyay et al. (1995) relate
and socio-political conditions isalso important, but EDI penetration, EDI program launching, and EDI
rarely incorporated (cf. Chatfield and Yetton 2000; penetration volume to inventory turnover, obsolete
Jarvenpaa and Leidner 1998). Moreover, produc inventory, and premium freight. Incontrast, Chat
tion function and process models typically treat field and Yetton (2000) extend the MIT 90s model
the ITartifact in a stylized fashion. (Scott Morton 1991) to explore the relationship
between EDI imitator and EDI adopter.
Other researchers have taken an alternative ap
proach inmodeling ITbusiness value by focusing In summary, analyzing prior IT business value
on the attributes of IT and other organizational models reveals that (1) IT impacts organizational
resources that together may confer a competitive
performance via intermediate business processes;
advantage. Bharadwaj (2000) models three key (2) other organizational resources such as work
IT resources and their relationship to a firm's
place practices interactwith IT,whether as media
capability to deploy ITfor improved performance: tor or moderator, in the attainment of organiza
IT infrastructure, human IT resources, and IT
tional performance impacts; (3) the external
enabled intangibles. Clemons and Row (1991b)
environment plays a role in IT business value
argue that IT iswidely available to all firms and
can only confer a sustainable competitive advan generation; and (4) it is important to disaggregate
the ITconstruct intomeaningful subcomponents.
tage ifapplied to leverage differences instrategic
resources. Mata et al. derive a resource The received wisdom of ITbusiness value models
(1995)
based conceptual framework mapping the attri can thus be summarized as follows: ifthe right IT
butes of IT to competitive advantage. According is applied within the right business process, im
to the framework, the extent to which IT is proved processes and organizational performance
valuable, heterogeneous, and imperfectly mobile result, conditional upon appropriate complemen
determines the level of competitive advantage. If tary investments in workplace practices and
IT is valuable in lowering costs or enhancing organizational structure and shaped by the
revenue for all firms, then competitive parity competitive environment. Although a compelling
results. If it is also heterogeneous, i.e., ifone firm narrative, as evidenced by the wide array of
possesses it and others do not, then the firm we lack a systematic
modeling approaches, ap
receives a temporary competitive advantage.
proach supported by theory for examining asso
Finally, if IT is also imperfectly mobile?firms ciated questions. What ismeant by IT?What is
without the resource face a cost disadvantage in
meant by business process? What is the right IT
acquiring it, the sources of which may include the
for the right business process? What is the role of
role of history, causal ambiguity, and social com
other firm resources, trading partners, and the
plexity?then ITconfers a sustained competitive
competitive environment? We develop a theore
advantage. Although Mata et al. conclude that
skills may lead to sustained tically based model of IT business value that
only ITmanagement
that systematizes and extends accumulated knowl
competitive advantage, they acknowledge
"there may be other attributes of ITwhose compe edge and addresses these questions.
titive implications have not been fully evaluated"
(p. 500). Model Derivation. Based on our analysis of how
other researchers have modeled IT business
As with production function and process-oriented value, we conclude that the locus of ITbusiness
models, models analyzing the attributes of ITand value generation is the organization that invests in
III.Macro Environment
Country
Characteristics
II.Competitive Environment \/
Industry
Characteristics
I. Focal Finn V
_,_..-.,
^^^H Technology
^^H
(TIR)
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^H
Human (HIR) __^__^__^^^^^^^^__^__^^^^^^^^^__^__^_^^^^^^^B
______L_______________J_______H _____H ^ ,1
______H
^^^ ^^^^^^ ^ __ Business ^^^*V
____________________________ H __ Process ^^"^
__l __ Organizational
H
^^^^^^^^^^^ ^ ^^^^B____l Processes hm-fl ^ , ^H^B^ Performance I
^ T , ~^^^^^^B ^^^^H Performance ^^^^^H
^^^H Complementary ^^^^^^^^^^^ ^'^^^^^^^ ^^^^^^^^^J
^^^H Resources
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^H
Trading Partner
Resources &
Business
Processes
ment; and (3) macro environment. Using the ultimately may impact organizational performance
resource-based view as a primary theoretical lens, (Brynjolfsson and Hitt 2000). The focal firm
the model describes how phenomena resident domain thus comprises the IT resource, comple
within each domain shape the relationship be mentary organizational resources, business pro
tween IT and organizational performance cesses, business process performance, and
Information Technology Resource. Based on different ways when making investment decisions
the analysis of how ITbusiness value researchers and setting performance expectations (Weill et al.
have treated the IT artifact, the predominant 2002).
approach has been either (1) to use aggregate
variables such as ITcapital or counts of systems The second resource is the firm's human capital,
in quantitative empirical studies, or (2) to take a which refers to expertise and knowledge (Barney
holistic in exploring the interdepen
approach 1991), and we thus call the second component of
dences ITand human resources in the
between the IT resource the human IT resource (HIR).
creation of business value within case and field Similar to prior characterizations (Bharadwaj
studies. Other researchers have attempted to 2000; Dehning and Richardson 2002; Ross et al.
develop a more generalized view of IT. For 1996), HIR denotes both technical and managerial
example, in their review and synthesis of quan knowledge. Examples of technical expertise
titative empirical IT business value research, include application development, integration of
Dehning and Richardson (2002) identify three multiple systems, and maintenance of existing
different formulations of IT: ITspending, ITstra systems; managerial skills include the ability to
tegy (type of IT), and ITmanagement/capability. identify appropriate projects, marshal adequate
Likewise, Bharadwaj (2000) derives IT infrastruc resources, and lead and motivate development
ture, human IT resources, and IT-enabled intan teams to complete projects according to
gibles such as customer orientation and knowl specification and within time and budgetary
edge as principal IT-based resources. Based on constraints. Although technical and managerial
a survey of top ITexecutives at 50 firms, Ross et expertise are often intertwined, they are none
al. (1996) identify three IT assets underlying a theless distinct concepts, and their conceptual
firm's IT capability: human, technology, and ization as such is necessary for precision in
relationship. describing IT investment impacts. Human IT
expertise may be associated with the entire
To operationalize the IT resource, we meld these technological infrastructure of the organization or
formulations with Barney's (1991) classification of may reside locally within business units and be
firm resources into physical capital, human associated with specific business applications.
capital, and organizational capital resources, the
includes both hardware and software (Table 3). Returning to Barney's (1991) classification of firm
The separation of TIR into infrastructure and resources, complementary organizational
re
business applications is consistent with how sources may include non-IT physical capital
companies view their physical IT assets, an resources, non-IT human capital resources, and
important consideration as firms view the two in organizational capital resources, e.g., formal
I. Focal Firm
ITResources
Technological IT Infrastructure: shared technology and technology services across
resources (TIR) the enterprise.
Business applications: utilize the infrastructure, e.g., purchasing,
sales, etc.
Performance
Industry Characteristics Industry factors shaping the way inwhich IT is applied within focal
firm to generate business value, including competitiveness,
regulation, clockspeed, etc.
Trading Partner Resources ITand non-IT resources and business processes of trading
and Business Processes partners such as buyers and suppliers.
reporting structures and informal relationships advantage. ITbusiness value researchers have
within and among firms.6 operationalized these measures via operations
measures (cost reduction, productivity enhance
Business Processes. According to Davenport ment, etc.) and market-based measures (stock
(1993, p. 5), a business process is "the specific market valuation, Tobin's q, etc.) (Dehning and
ordering of work activities across time and space, Richardson 2002). However, the range of potential
with a beginning, an end, and clearly identified measures is not limited to financial metrics, and
inputs and outputs." In essence, business pro may include perceptual measures, usage metrics,
cesses are the activities
residing in the black box and others (Tallon et al. 2000).
of microeconomic production theory that transform
a set of inputs into outputs. From the perspective Resource-based theory informs understanding of
of resource-based theory, business processes the linkage between the type of ITand the nature
provide a context within which to examine the of business process and organizational perfor
locus of direct resource exploitation. Examples of mance impacts. For example, upon its introduc
business processes include order taking, PC tion, the SABRE airline computerized reservation
assembly, and distribution. A single firm executes system was valuable and rare, thus conferring a
numerous business processes to achieve its temporary competitive advantage (Hopper 1990).
strategic objectives, thereby providing a range of However, imitation over time and diminished
opportunities for the application of information rareness weakened such advantages. Regarding
technology to improve processes and the conversion of business process performance
organizational performance (Porter and Millar impacts to improved organizational performance,
1985). In the net-enabled organization (Straub several factors are salient, including the scope of
and Watson 2001), IT not only may improve the business process, the extent towhich it is core
individual processes, but also may enable process to the organization, the rareness of the particular
synthesis and integration across disparate IT inquestion, as well as the competitive environ
physical and organizational boundaries (Basu and ment (Kohli 2003).
Blanning 2003).
include industry characteristics and trading part Watson 2001). As a result, trading partners
ners in the competitive environment domain. increasingly impact the generation of ITbusiness
value for the focal firm (Bakos and Nault 1997;
Industry Characteristics. The organization of Chatfield and Yetton 2000; demons and Row
industries?concentration, supply chain configura 1993). For example, inefficient business pro
tion, etc.?as well as their salient features cesses and antiquated technology within trading
technological change, regulation, IT standards, partner firms may inhibit the attainment of IT
etc.?can shape how IT is used within focal firm business value of an interorganizational system
business processes to create ITbusiness value. initiated by the focal firm. Insome cases, this may
For example, the competitive characteristics of give rise to incentives for the focal firm to team
strategic factor markets, including the ITresource, with the trading partner for joint improvement
affect the degree towhich a firm can enjoy above (Williams and Frolick 2001). We, therefore, adapt
normal returns (Barney 1986b). Another example our formulation of IT, business processes, and
is the high degree of unionization in such indus organizational complements to the focal firm's
tries as telecommunications and auto manu trading partners, which provides the conceptual
facturing that may hamper a firm's ability to substi foundation for understanding their impact on focal
tute IT for labor or to implement complementary firm ITbusiness value generation. For example,
work practices such as
cross-functional work the ability to partner with external ITunits indevel
teams. The resulting suboptimal application of IT opment and implementation would be included in
may limit ITbusiness value generation. Alterna the human IT resource of both the focal and
tively, in time-sensitive industries such as external organization. Another example is poor
personal computers and apparel, there is ample work practices within a supplier firm that inhibit its
opportunity to apply IT to reduce cycle times, full use of a procurement system introduced by
better manage inventory, and improve customer the focal buyer firm.
satisfaction (Ghemawat and Nueno 2003;
Kraemer et al. 2000). The findings of quantitative
Macro Environment
empirical studies that certain industries attain
higher IT productivity impacts and greater cost
reduction than others provide further support for The third and final layer in the integrative model is
the macro environment, and
the inclusion of industry characteristics in our denoting country-
model (Lewis et al. 2002; Morrison 1997). meta-country specific factors that shape ITappli
cation for the improvement of organizational
performance. Examples include government pro
Industry characteristics apply to all firms in an motion and regulation of technology development
industry. However, the response of industry
and information industries, IT talent, and infor
competitors vis-a-vis information technology is not mation infrastructure, as well as prevailing
necessarily uniform. It is thus necessary to
information and ITcultures. As an example, firms
account for heterogeneity across industries as
in developing countries face constraints in
well as alternative response strategies among
applying information technology in the areas of
industry competitors to the same set of industry
education, expertise, infrastructure, and culture
stimuli when examining the role of industry
(Jarvenpaa and Leidner 1998). Inclusion of
characteristics on ITbusiness value.
country factors inour model emphasizes their role
in shaping the attainment of IT business value,
Trading Partner Resources and Business
especially salient to public policy makers. Italso
Processes. Information technology increasingly
highlights the need to better understand the
permeates organizational boundaries, linking specific elements that apply in differing political,
multiple firms via electronic networks and software regulatory, educational, social, and cultural con
applications and melding their business processes texts(Dewan and Kraemer 2000; Jelassi and
(Basu and Blanning 2003; Hammer 2001; Figon 1994; Kumar et al. 1998; Lee et al. 2000;
Mukhopadhyay and Kekre 2002; Straub and Tarn 1998; Teo etal. 1997).
Question Domain
2. How does the IT resource generate operational efficiencies and competitive Focal firm
advantage?
4. What is the role of the resources and business processes of electronically Competitive
linked trading partners in impacting the value generated and captured by the environment
focal firm?
is the role of the resources and business pro structure of such results?the technological IT
cesses of electronically linked trading partners in resource confers economic value?is preserved
impacting the value generated and captured by when considering alternative econometric speci
the focal firm? Finally, studies in the third domain fications, assumptions, data sets, and timeframes
explore the cultural, economic, political, social, (Brynjolfsson and Hitt 1995, 2003; Dewan and
legal, technical, educational, and other charac Min 1997; Morrison 1997). Although fewer in
teristics associated with countries and how they number, some studies find mixed or inconclusive
shape the organizational application of IT for evidence concerning the relationship between the
performance improvement. Correspondingly, re technological IT resource and organizational
search question 5 is stated as: What is the role performance (Cron and Sobol 1983; Stiroh 1998).
of country characteristics in shaping IT business
value? Incontrast to studies aggregating diverse techno
logical IT resources into a single measure,
Two sets of propositions are developed (see researchers have also examined specific infor
Tables 5, 6, and 7). Assessment of what we know mation systems and types of IT. Evidence exists
within each research question leads to a set of for IT business value associated with compu
principal propositions summarizing knowledge terized reservation systems (Banker and Johnston
accumulation. Instantiation of principal propo 1995) and ATM networks (Banker and Kauffman
sitions leads to a second set of propositions illus 1988). Several studies find a positive impact on
trating how the model can be used to facilitate cost reduction, whether in the context of a produc
knowledge accumulation and providing guidance tion data management system in the clothing
for future research. industry (Tatsiopoulos et al. 2002), supply chain
management in the food industry (Hill and
Scudder 2002), or the jewelry appraisal process
Focal Firm (Newman and Kozar 1994). There is also evi
dence for the existence of ITbusiness value for
Research Question 1: Is the IT resource asso the application of innovative IT (Dos Santos et al.
ciated with improved operational efficiencies 1993) and transaction processing systems (Weill
or competitive advantage? 1992). Enterprise resource planning systems are
associatedwith higher financial market valuation,
Studies responding to this question focus on although short-term effectiveness is dampened
identifying, or the rela after implementation (Hitt et al. 2002).
measuring, estimating
tionship between IT and various measures of
organizational performance. We categorize and The human ITresource (HIR) has been posited to
review the findings of these articles according two confer not only operational performance improve
perspectives: (1) the ITresource and (2) the type ments such as productivity but also competitive
of performance impact. advantage (Mata et al. 1995). The conceptual
analysis by Mata et al. suggests that managerial
Many empirical studies using large-sample data ITskills, but not technical ITskills, are valuable
sets find support for a positive association and able to confer a sustainable competitive
between aggregate measures of the technological advantage. Empirically, Brynjolfsson and Hitt
IT resource and organizational performance (1996) include an IS labor term in a productivity
(Bharadwaj et al. 1999; Lehr and Lichtenberg regression and find that the output generated by
1997; Lichtenberg 1995; Siegel 1997). Ina study IS labor spending ismany times that generated by
of roughly 400 U.S. firms spanning the years 1987 non-IS labor spending and expenses, consistent
to 1991, Brynjolfsson and Hitt (1996) find that the with the findings of Lichtenberg (1995). Bharad
gross marginal product for computer capital is 81 waj (2000) includes human ITresources as one of
percent and the return on IT investment exceeds three IT-based resources, but does not examine
that on non-IT capital investment. The basic this dimension by itself. Rather, human IT re
1A The IT resource?including both technology and human expertise?creates economic value for
a focal firm by conferring operational efficiencies that vary inmagnitude and type depending
upon the organizational and technological context.
1B Human ITexpertise complementary to technological IT resources may create temporary com
petitive advantages that underlie performance differences among firms.
sources are implicitly linked to IT capabilities, Even if a firm is able to obtain financial perfor
which are found to be positively related to firm mance improvements from its operational
performance. The study by Santhanam and improvements, the question of competitive advan
Hartono (2003) replicates and extends these tage via IT remains. One approach to assessing
results using a similar data set and methodology. the implications for competitive advantage is to
Such results suggest a relationship between HIR identify information technology applied for strate
and operational efficiency. However, our knowl gic reasons and examine its impact on sustained
edge of which component of HIR?technical performance and competitive advantage. A study
versus managerial ITexpertise?may be driving of the valve manufacturing industry indicates a
such results and whether they may also underlie weakly negative association between strategic IT
a competitive advantage is slim. and performance (Weill 1992). In contrast, an
organization may not translate to financial ports the claim that in the aggregate, the tech
measures of performance (Barua et al. 1995; Hitt nological IT resource has economic value (Kohli
and Brynjolfsson 1996). One implication is that a and Devaraj 2003). Moreover, studies of specific
firm is not able to capture all of the value it systems support and extend these findings by
generates from IT. demonstrating the importance of organizational
and technological context. Evidence linking the Even application software, once largely custom
TIR to competitive advantage is less conclusive. developed, is increasingly sourced as a package
Although fewer studies have examined the human or service. However, customization of standard
IT resource (HIR), emerging research suggests software and hardware offerings and adaptation to
that the HIR enables operational efficiencies, the business processes of the focal firm is com
although it is not clear whether managerial or plex, often valuable, and difficult to imitate. Thus,
technical HIR may underlie such results. We when complementarities exist between TIR and
summarize these findings in the following: HIR, they are likely to lead to temporary compe
titive advantage.
type depending upon the organizational maturity and institutionalization of ITservice mar
and technological context. kets, even these managerial and technical skills
and capabilities can be sourced externally. Thus,
Studies the competitive advantage even ifcompetitive advantage is achieved, it is not
examining
implications of the technological IT resource are likely to be sustainable due to the possibility of
too few innumber to draw any robust conclusions, imitation.
Research Question 2: How does the IT dition, and culture. Francalanci and Galal (1998)
resource generate operational efficiencies and find that ITbusiness value, as measured by pro
competitive advantage? ductivity, differs according to employee category:
firms with higher IT investment that have also
Studies examining the deployment of ITresources decreased their clerical and professional ranks
within organizations to improve performance are have higher productivity. In the retail industry,
diverse in methodological and conceptual ap complementarities leading to sustainable perfor
proach, but generally fall within one of two mance advantages exist between ITand human
categories. The first assesses the degree to and business resources such as culture (Powell
which complementary organizational resources and Dent-Micallef 1997). Using the event study
moderate organizational performance impacts. methodology, Im et al. (2001) find a negative
These studies use quantitative empirical methods association between firm size and price reaction
applied to large samples of firms. Studies in the to IT investments, hypothesizing two possible
second strand use case and field studies to reasons: (1) greater predisclosure information in
analyze the highly contextual value generation smaller firms and (2) smaller firms are better
process. The two groups offer unique insights into positioned to reap decreasing price-performance
how IT generates operational efficiencies and ratios than are larger firms. Another event study
competitive advantage for organizations, and we finds that a firm's financial condition moderates
now review each in turn. the market's reaction to an IT investment
announcement (Oh and Kim 2001).
The resource-based view of the firm specifies that
resources are valuable firm-specific assets. Inthe The few empirical studies discussed above that
context of IT,firms must not only customize tech examine the impact of work practices and
nological systems and deploy and maintain them, organizational structure on the performance
but also must manage teams of IT and non-IT impacts of ITapplication indicate the potential for
resources that together generate greater value complementarities with certain factors. However,
than they do alone (Brynjolfsson and Hitt 2000). such studies say little about which factors are
The latter include organizational practices and important in which settings and the detailed
combine. We now
structures that complement the varied functions of mechanisms by which they
information systems. Empirically, decentralization review case and field studies, which are able to
of decision authority is found ingreater application provide a richer picture of the mechanisms by
in firms with higher levels of IT investment (Hitt which IT improves organizational performance.
and Brynjolfsson 1997). Moreover, firms with
greater use of IT and the use of teams, decen In an early case study of the order entry and
tralized decision making, and wider breadth of job distribution system Economost at McKesson Drug
responsibilities are found to have dispropor Co., demons and Row (1988, p. 40) document
tionately higher market valuations (Brynjolfsson et widespread IT-enabled efficiencies at McKesson
al. 2002). However, synergies between IT and and its customers, the latter benefitting sub
other organizational practices do not always exist. stantially from "rationalizing operations in
For example, ina study of the impact of the use of preparation for Economost," i.e., initiating com
synergies with the use of computers. sitating a new IT infrastructure based on a data
warehouse. The data warehousing application is
Another set of organizational resources that may examined through the lens of a shift in corporate
be complementary to ITare firm characteristics strategy and IT'S complementarity with radical
such as worker composition, size, financial con organizational transformation. The authors find
the processes by which ITgenerates operational plementary to one another, under what conditions,
efficiencies and competitive advantage examine and how are the attributes of complementary
the travel industry (demons and Row 1991a), the resources related to business process and
cotton industry (Lindsey etal. 1990), and package organizational performance impacts? We take a
delivery (Williams and Frolick 2001). step toward addressing this knowledge gap by
specializing Proposition 2A. Examining the nature
Despite management's best intentions, however, of ITand non-IT resources according to the RBV
the co-introduction of IT and complementary sheds light on which types of organizational
organizational changes may not result in imme practices and structural characteristics are more
diate success, due to adjustment costs (Chew likely, when complementary, to provide a com
1991), learning, and other factors. Ina study of petitive advantage.
the introduction of computer integrated manu
facturing at a medical products manufacturer, Certain organizational characteristics that may be
Brynjolfsson et al. (1997) find that despite complementary to IT, such as firm size and
management's introduction of an extensive set of culture, are fixed in the short run, or quasi-fixed.
organizational change initiatives,managerial goals For example, changes in culture and thinking
of improved flexibility and responsiveness are not complementary to the data warehouse imple
immediately attained. At the core of the problem mentation at First American Corporation took
lies difficulty in changing employees' behaviors several years to implement (Cooper et al. 2000).
when their tacit knowledge about what works Select manufacturing practices are also difficult to
accumulated over many years appears to change and require many stops and starts to
contradict new managerial edicts intended to evolve toward a successful system (Brynjolfsson
complement new information systems. et al. 1997). Moreover, complex business pro
cesses enabled by IT such as build-to-order at
Dell also take years to develop (Kraemer et al.
Synthesizing the findings of quantitative and 2000) and hence years to successfully imitate, if
qualitative empirical research, it is clear that imitation is indeed possible. In contrast, other
complementary organizational resources such as change initiatives are easier to implement, and
workplace practices, change initiatives, and hence to imitate.
culture all interact with IT in the process of value
generation. It is unclear, however, which organi Barney (1991) proposes three potential sources of
zational practices are most synergistic with which imperfect imitability: (1) firm-specific historical
types of information systems in specific organi conditions, i.e., a unique path through time;
zational contexts. We synthesize this finding in the (2) causal ambiguity pertaining to the association
following general proposition. between a firm's resource bundle and its sus
tained competitive advantage; and (3) socially
Proposition 2A: Certain organizational complex resources such as interfirm relationships.
resources are complementary to the IT In the case of IT, these factors may either hamper
resource in the generation of ITbusiness imitability, as is the case with quasi-fixed com
value for the focal firm; the existence plementary assets, or in the more extreme situa
tion, may prevent it entirely. For example, For example, in a design-driven industry such as
examining how Dell has been able to maintain apparel, it is critical for firms to rapidly shift with
competitive advantage over time suggests the changing consumer preferences instyles (Ghem
presence of both historical path dependencies as awat and Nueno 2003). The high-clockspeed
well as causal ambiguity in its application of IT fashion industry thus dictates the type of ITthat is
(Kraemer et al. 2000). In sum, analysis of the required, the way inwhich it is usefully applied,
extent to which complementary organizational the dimensions of value that may result, as well as
assets are imitable informs understanding of the the extent of value generated. More broadly,
degree to which the resulting synergies enable technological change in product and factor
sustained competitive advantage. markets, competitiveness, regulation, workforce
composition, and minimum efficient scale have
Formalizing our arguments, complementary been shown in other contexts to impact the
organizational assets are valuable and may be performance of firms (Clark 1984; Datta and
rare. When there are no strategic equivalents, Narayanan 1989; Edwards 1977; Primeaux1977).
i.e., no substitutes enabling the same strategies to We now assess what is known regarding the role
be implemented, sustained competitive advantage of industry characteristics in impacting the ability
rests on the extent to which such resources are of firms to create and capture ITbusiness value.
imitable. As argued above, IT application is
fraught with uncertainty and a lack of clarity with Empirical studies of IT business value typically
respect to the connection between its application include variables to control for industry effects,
and competitive advantage. We thus propose that whether an industry dummy variable (Lichtenberg
1995) or measures of industry structure such as
Proposition 2B: The greater the inimit competitiveness and regulation (Bharadwaj 2000).
ability of rare organizational resources By including such controls, researchers are able
that are complementary to ITand lacking to more accurately identify those impacts asso
substitutes, the greater the degree to ciated with IT versus those being driven by
which the focal firm can obtain a sus industry factors. However, the use of industry con
tained competitive advantage. trols does not address the issue of how industry
characteristics constrain or promote the ability of
3C The greater the degree of competition inan industry, the lower the extent to which firms are
able to capture the benefits of efficiency gains and achieve profitability gains via IT.
4A The ITand non-IT resources and the business processes of electronically connected trading
partners shape the focal firm's ability to generate and capture organizational performance
impacts via IT.
4B The greater the degree of focal firm power relative to its trading partners connected via inter
organizational information systems, the greater its share of net value from deployment of the
systems.
paradigm from the industrial organization litera ability to capture such value ismoderated by com
ture, an industry's structure directly impacts the petitive product markets. We synthesize these
performance of firms within that industry (Bain basic findings in the following:
1951; Mason 1939; Porter 1985).
Proposition 3A: Industry characteristics
Another strand of research explores how industry moderate the ability of firms to apply IT
competitiveness shapes ITvalue generation and for improved organizational performance
capture, specifically, the degree towhich the gains and to capture the resulting benefits.
due to ITapplication may be competed away and
passed on to business and end customers. Moving from the general to the specific, we know
Bresnahan (1986) finds spillovers in the capture of very little about particular industry characteristics
value by downstream industrial users of infor and their association with IT business value.
mation technology produced inupstream sectors. Moreover, our theoretical and conceptual under
. Estimation of consumer welfare gains arising from standing of why such differences exist is limited.
the use of ITsuggests that a substantial portion of We address this theoretical gap by deriving a
generated IT business value accrues to end con proposition relating industry competitiveness to IT
sumers via improved quality, product variety, etc. business value.
Although in highly competitive markets firms may arrangements with value-added networks (VANs).
apply ITmore efficiently, profitability may suffer as Even in basic implementations, electronic inte
gains to ITapplication are competed away. Con gration requires some investment by trading
versely, under less competitive regimes the firm partners (Unitt and Jones 1999; Williams and
may achieve profitability without productivity, the Frolick 2001).
former accruing due to monopoly rents. Our argu
ment refines existing empirical evidence sug In the context of electronic marketplaces linking
gesting that, ingeneral, there may be productivity many buyers and sellers, traditional micro
without profitability (Hitt and Brynjolfsson 1996). economics stresses the reduction of search costs
To emphasize, increased competitive pressure and enhancement of economies of scope and
has two effects: (1) itdrives ITuse for increased scale (Bakos 1991). Transaction-cost economics
efficiency and (2) it lowers the ability of firms to (TCE) informs understanding of how ITaffects the
capture rents due to competitive pressure. We firm-market boundaries by (1) reducing market
thus propose that coordination costs, including searching, con
tracting, scheduling, budgeting, etc.; (2) facilitating
Proposition 3B: The greater the degree the processing and communicating of complex
of competition in an industry, the greater product descriptions, thereby making them less
the extent to which firms achieve complex; and (3) making some asset-specific
efficiency gains via IT. components less specific (Gurbaxani and Whang
1991; Malone etal. 1987).
Proposition 3C: The greater the degree
of competition in an industry, the lower Regarding basic efficiencies accruing to the focal
the extent to which firms are able to firm by connecting to a trading partner, cost
capture the benefits of efficiency gains reduction is well documented in the literature.
and achieve profitability gains via IT. FedEx uses EDI for billing and invoices to lower
costs associated with specialized printing and
Research Question 4: What is the role of the mailing as well as for rapid matching of purchase
resources and business processes of elec orders, receipts, and invoices (Williams and
tronically linked trading partners in impacting Frolick 2001). Cost reduction results from the
the value generated and captured by the focal elimination of errors, reduction of inventory, and
specific assets; (2) knowledge sharing routines; to smaller firms within a network led by a large
(3) complementary resources; and (4) effective retailer, Subramani (1999) finds that IT may
governance. Although the resource-based view is provide operational and strategic benefits in the
conventionally limited to analyzing the attributes of presence of investment in relationship-specific
assets owned and controlled by a single firm, it investments.
human IT resource across organizations may tively greater power can utilize it to appropriate a
shape the degree of value generated and greater portion of the benefits, and hence
captured by the focal firm. Moreover, we do not reinforce their power.
understand the extent to which complementary
resources of trading partners, for example, Our argument that power is reinforced within
workplace practices and organizational structure, electronically mediated networks and used by the
impact focal firm benefits. Finally, value is not powerful partner to extract a disproportionate level
distributed equally, and may depend on a variety of benefits is related to the literature on modular
of factors including the role of the system initiator, networks.
production Sturgeon (2002) defines
the features of the system, and power. networks as hierarchical,
captive production
relying on powerful firms to organize multiple tiers
We build on existing literature to examine the
of smaller, less powerful suppliers. The power of
impact of a single trading partner resource?
lead firms in captive networks forces suppliers to
power?on the ability of the focal firm to generate
cut costs, change output, or make new invest
and capture benefits from an interorganizational
ments.
information system. Although power has many
conceptualizations, in the context of trading
As a logical extension, the power of lead firms in
partner relationships, we interpret power as equi
captive networks is also likely to lead to their
valent to market power based on the control of
orchestration of benefits resulting from the system
resources and information. As argued by Horton
to be skewed to their own interests. The root of
(2003), power is critical to strategy and infor
this ability lies in the bargaining power of the
mation systems.
powerful over the powerless. Bowman and
Ambrosini (2000) argue that value capture is a
Ina review of power and IT research, Jasperson
function of the perceived bargaining power of
et al. (2002) identify three conceptualizations of
trading partners. The bargaining power of the
power: technological imperative, organizational
focal firm customer is enhanced by its financial
imperative, and emergent perspective. Viewing
power through these alternative lenses, the position as well as the availability of substitutes
authors and low switching costs (Porter 1980, 1985).
develop metaconjectures relating power
and IT impacts. Jasperson et al. posit that "ITcan According to Jasperson et al. (p. 427), "the crea
moderate the relationship between external power tion and introduction of IT can be seen as a
process that involves interested parties inten
(power that derives from social structures outside
the immediate context of formal authority) and the tionally using their power to affect the nature of
internal exercise of power" (p. 417). We build on the systems that are put in place." ITmay not
this concept in the context of multiple organi only reinforce but strengthen power differentials.
zations. In a study of IT-based interorganizational rela
tionships in the consumer packaged goods
According to the reinforcement politics argument industry, demons and Row (1993) find that
retailers resist new ITand processes due to their
(Kraemer and Dutton 1979), computerization
reflects existing structures. IT is a malleable tech expectation of lower bargaining power and less
nology controlled by those in power to enhance sharing of economic benefits. We thus propose
their level of control. The initiators of interorgani that
zational information systems are often large
incumbents who are industry leaders, i.e., they Proposition 4B: The greater the degree
hold a great deal of power over their suppliers of focal firm power relative to its trading
(Unitt and Jones 1999; Williams and Frolick partners connected via interorganiza
2001). As power may involve "manipulation of tional information systems, the greater its
information that protagonists employ in the power share of net value from deployment of
game" (Fincham 1992, p. 743), those with rela the systems.
5A The macro environment shapes the degree towhich firms can apply ITfor organizational
improvement.
transactions, and tax subsidies may support and Researchers have applied the resource-based
promote the application of IT for operational view to assess why some firms "possess unique
efficiencies and competitive advantage. However, resources and competencies?relative to their
beyond casual observation we know very little competitors of other nationalities" (Dunning 1995,
about the association between macro charac p. 466). In the ITcontext, the extent to which IT
teristics and ITbusiness value. skills are widely available in a given country is a
determinant of their rareness and heterogeneity,
Two factors have inhibited knowledge accumu two attributes required for a sustained competitive
lation concerning macro characteristics and IT advantage (Barney 1991). This point is under
business value: (1) emphasis on U.S. firms and scored in the study by Jarvenpaa and Leidner
(2) lack of cross-country studies. IT business (1998), which emphasizes the salience of
value researchers have focused on U.S. firms. As investing in technology skills, hiring top IT talent
such, results are conditional on the characteristics often educated abroad, and forming exclusive
of the U.S. business environment, including arrangements with partners possessing comple
relatively liberal trade policies, an advanced infor mentary ITskills in gaining a competitive advan
mation infrastructure, a relatively well-educated tage via IT in a developing country. Moreover, if
workforce, and relatively competitive markets. complementary organizational innovations are
The second reason for a paucity of knowledge more widely available in one nation relative to
related to the international perspective of IT another, the former economy may benefit from
business value is that very few studies have productivity gains, while the lattermay not.
explored IT business value using cross-country
samples. Thus, although several studies have Inaddition to variation in the IT resource across
examined firms outside the U.S., including Brazil countries, exogenous factors may also affect the
degree to which IT can be used to improve according to the Hemisphere Wide Inter
organizational performance. Path dependencies University Scientific and Technological Information
may play a role indetermining the types of ITthat Network (2003), Internet host density (number of
are demanded, how they are used, and their hosts per 100 inhabitants) in Latin America as of
economic impact (Tigre and Botelho 2001). For January 2003 varies from a low of .002 in
Brousseau Honduras to a high of 2.3 in Uruguay?a
example, (2003) finds that the pre
difference of three orders of magnitude. Given
existing organization of distribution channels and
interfirm relationships is salient to adoption and such variation, researchers have explored how
assimilation of e-commerce in France. Differ heterogeneity in telecommunications infrastructure
ences may be associated with macro performance.
in the extent to which technological im
Roller and Waverman (2001) find empirically that
provements diffuse in the U.S. versus other
the extent of telecommunications infrastructure is
developed nations are suggested to play a role in
associated with economic growth. Other
observed differences in productivity growth (Gust
researchers have analyzed the potential impact of
and Marquez 2001). The confluence of EDI,
Internet diffusion on growth and productivity
organizational transformation, and public policy across countries (Varian 2002).
are illustrated ina study of Singapore's TradeNet
(Teo et al. 1997). EDI at TradeNet resulted in
According to Straub and Watson (2001, p. 338),
substantial gains in efficiency and effectiveness,
"The net-enabled organization (NEO) coordinates
illustrating the degree to which promotion of IT
its activities and interacts with its stakeholders
can provide benefits to both the private and public
through the exchange of messages over
sector.
electronic networks." Having squeezed most of
the efficiencies out of internal connectivity, organi
Insummary, the role of the macro environment in
zations are looking to their external environment
affecting the degree to which firms apply IT for
to coordinate the production and delivery of goods
organizational improvement is complex and not
and services, with the potential for orders of
systematically understood. However, research
and theory suggest thatmacro characteristics vary magnitude increases inefficiency (Hammer 2001).
by country, create country-specific sets of ITattri However, without a sufficient telecommunications
butes, and thereby impact firms' ITchoices and infrastructure, i.e., broad diffusion of high-speed
resultant organizational performance impacts. Internet connections throughout the economy, the
Additionally, other macro factors such as culture resulting network externalities and net-enabled
and education also impact the ability of organi efficiencies are limited. Emerging empirical evi
zations to apply ITsuccessfully. We summarize dence of differences in ITbusiness value across
this finding in the following: developed and developing countries may be a
manifestation of differences in Internet diffusion
Proposition 5A: The macro environment (Dewan and Kraemer 2000; Tarn 1998).
shapes the degree to which firms can
apply IT for organizational improvement. From the perspective of resource-based theory,
telecommunications infrastructure is not a re
The macro environment is dynamic and complex,
source in the conventional sense as it is not
and there is a paucity of IT business value
owned and operated by the focal firm. Rather, it
research in this area. However, examining the
can be conceptualized as a country-specific asset
range of macro factors that potentially shape IT
telecommunications available to all firms. As firms and their trading
business value generation,
partners adopt and co-specialize their own IT to
infrastructure, and, inparticular, Internet diffusion
would appear to be an important factor enabling the telecom infrastructure, the extent of generated
firms to apply ITfor improved performance. ITbusiness value is likely to increase. However,
the circumstances under which this occurs are
Telecommunications infrastructure varies widely unclear due to a lack of prior research. Thus, al
structure across countries enable varying oppor Examining prior reviews of the literature convinced
tunities of co-specialization with focal firm IT us that the integration of ideas across the various
resources, the nature of resulting benefits inspe strands of research via a common theoretical lens
cific contexts is uncertain. Due to a lack of empi was not only a unique approach, but also one that
rical evidence, therefore, we cannot say whether would likely yield the greatest contribution to
the role of telecommunications infrastructure in knowledge. Our approach was thus to integrate
shaping IT business value is of an efficiency or quantitative empirical research
addressing the
competitive nature. We thus propose that productivity paradox, conceptual and empirical
studies assessing the competitive advantage im
Proposition 5B: Telecommunications plications of IT,and qualitative empirical research
infrastructure?a complementary and assessing general performance impacts of IT
potentially co-specialized asset with the within a single conceptual framework of IT
IT resource?moderates the economic business value. Comparing and contrasting
value of an interorganizational informa articles across research strands led to the insight
tion system to the focal firm and its that although the focal firm bounds the locus of
trading partners; the extent of modera direct performance impacts, the external environ
tion varies depending on the organiza ment shapes them. Synthesizing the internal and
tional and technological context. external perspectives using resource-based
theory enabled us to identify what we know and
what we know and suggest
don't illustrative
propositions, the future assessment of which will,
Discussion 1 we hope, expedite knowledge advancement.
Several streams of research are concerned with We have learned that IT is valuable, offering an
assessing the organizational performance impli extensive menu of potential benefits ranging from
cations of information technology, each bringing
flexibility and quality improvement to cost reduc
its own theoretical and empirical toolkit to bear tion and productivity enhancement. Our analysis
upon similar research questions. Unfortunately, also suggests that the synergies resulting from
these approaches are divergent and the result has technical and human IT resources likely result in
been analogous to multiple but separate com short-lived competitive advantages. Regarding
munication channels traversing a single pipe of the mechanisms by which value is achieved, we
inquiry into the organizational performance im learned that the high degree of complexity leads
pacts of IT. The lack of integration has led to to a context-contingent set of synergistic combina
ambiguity and debate over basic principles, ex tions of IT and other organizational resources,
tending beyond the IS research community. The including workplace practices, change initiatives,
topic is vital to public policy makers, the IT organizational structure, and financial condition.
industry, and IS practitioners, as exemplified by Further examination of the attributes of such com
the recent debate over whether ITmatters initiated plementary resources led to the proposition that
in Harvard Business Review by Nicholas Carr under conditions of sufficient rarity and non
(2003) arguing that firms have overestimated the substitutability, the more difficult they are to
strategic value of IT and overspent on the imitate, the more likely is the attainment of a
commodity that is IT.Our analysis has illuminated sustained competitive advantage.
these issues through the lens of a robust theore
tical framework. Moving to the external environment, examination
of differential impacts across industries suggested
Although we could not have anticipated the that industry characteristics such as regulation
emergence of this new debate at the outset of our may constrain IT business value. In contrast,
research effort, our analysis of accumulated IT other facets of industry structure such as rapid
business value knowledge speaks directly to it. technological change may enable leaders to
constantly innovate and maintain their IT-based have been implicitly influenced by existing biases.
competitive advantages. Refinement of this argu Attention to the included articles in prior reviews
ment led to the proposition that the relationship of potentially mitigated this threat, as did the sug
IT-enabled profitability and productivity enhance gestions of outside reviewers. In summary,
ment (Hitt and Brynjolfsson 1996) may be despite its limitations, we are hopeful that our
moderated by the level of industry compe analysis not only sheds light on a difficult and
titiveness. We also found that trading partners complex subject, but also shines a ray, albeit
play a critical role in shaping the generation and modest, on the future.
determining the capture of focal firm ITbusiness
value when they are electronically linked. In The research agenda resulting from our analysis
particular, we posited that power is reinforced relates to each of the five research questions
within IOS, i.e., IT reinforces preexisting power identified herein. Although a great deal of re
imbalances, enabling lead firms to capture a search has examined the value of the technolo
disproportionate amount of value. Moving to the gical IT resource, several aspects of the first
final layer in our IT business value model, we research question remain relatively understudied.
found that a variety of public policy mechanisms For example, case and field studies of specific
as well as cultural and structural factors shape organizational contexts might shed light on the
organizational adoption of IT and the resulting different dimensions of organizational perfor
organizational performance impacts. Inparticular, mance resulting from different types of ITdeploy
telecommunications infrastructure is a comple ment, e.g., infrastructure versus business appli
mentary country-specific asset whose quality cations. Inaddition, quantitative empirical studies
shapes the extent to which firms can apply IT to of emergent forms of IT, including e-business and
improve organizational performance. Web services, might benefit from a growing range
of statistics collected by national governments, as
documented for the U.S. by Tehan (2003).
Moreover, quantitative and qualitative research
Limitations and Future examining the synergies between human IT
Research ^ i expertise (HIR) and technological IT resources
(TIR) would improve understanding of how they
Although we have endeavored to achieve the interact and inform implications for competitive
highest levels of objectivity, accuracy, and validity, advantage, as suggested by Proposition 1B.
our analysis is not without limitations. The
resource-based view of the firm has emerged as Moving to the second research question, much
the leading theory within strategy research work remains to uncover which resources are
(Barney 2001) and is used in various manage synergistic with which types of IT and in what
ment literatures including marketing (Fahy and contexts. In particular, empirical studies assessing
Smithee 1999) and international business (Peng the degree of imitability?perhaps using primary
2001). However, although there is growing con survey data as inPowell and Dent-Micallef (1997)
sensus that the RBV provides a robust framework and Tallon et al. (2000)?would improve our
for viewing the sources of competitive advantages understanding of the sustainability of competitive
within firms (Barney 2001; Peteraf and Barney advantage resulting from synergies between IT
2003), it is not without criticism (Priem and Butler and complementary resources. Combining
2001). Despite its synthesis of economics ration multiple levels from the integrative model within a
ale with a managerial perspective, RBV is some single analysis may also inform the question of
times criticized as drawing too heavily from complementarities. For example, is the use of
economics. The selection of articles followed a decentralized decision making combined with
carefully prescribed set of procedures and we greater information sharing dependent upon busi
endeavored to achieve complete objectivity and ness processes or industry characteristics? Case
comprehensiveness. However, selection may studies controlling for IT and non-IT resources
would inform understanding. Future research thank seminar participants at the University of
examining the ability of firms to apply ITsucces California, Irvine, and Boston College for their
sfully may build upon the capabilities perspective thoughtful insights and suggestions pertaining to
of the resource-based view (Grant 1991). early versions of this paper. We appreciate the
guidance and patience of Jane Webster and Rick
Our analysis also identifies several research Watson, the critical remarks of three anonymous
streams concerning the external environment. reviewers, and the many who generously gave of
We know very little about how industry charac their time to comment on drafts of the manuscript,
teristics moderate the degree of IT business including Cynthia Beath, Jason Dedrick, Rob
value. As data on such characteristics as unioni Fichman, John Gallaugher, Rajiv Kohli, and Lynne
zation and competitiveness are often collected by Markus. All errors are the sole responsibility of the
national governments, this represents a potentially authors.
fruitful area of future research. In addition, the
dynamic capabilities extension to the RBV may be
useful in understanding dynamic markets charac
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Appendix A
Our methodology for identifying ITbusiness value studies proceeded in three stages (Webster and Watson
2002). First, using key words from our definition of ITbusiness value we queried journal databases (no time
period constraint) and browsed the titles of articles in leading journals and conference proceedings (1990
through 2002). Journal databases included Business Source Premier and JSTOR. Browsed journals
included American Economic Review, Communications of the AIS, Communications of the ACM, Decision
Support Systems, Economics of Innovation and New Technology, Information Systems Research, Journal
of MIS, Management Science, MIS Quarterly, Organization Science, and Production and Operations
Management. Conferences included Americas Conference on Information Systems, Australasian
Conference on Information Systems, European Conference on Information Systems, and the International
Conference on Information Systems. Second, we used citations of identified articles as further sources.
Finally, we used the Social Sciences Citation Index and theWeb of Science to identify additional candidate
articles. This systematic and comprehensive search resulted in202 ITbusiness value articles, a complete
listing of which is available upon request from the authors. Note that this process excluded book chapters,
working papers, and other articles not subjected to the peer-review process. Inaddition to identifying IT
business value studies, we also identified prior reviews of the literature (Barua and Mukhopadhyay 2000;
Brynjolfsson 1993; Brynjolfsson and Hitt 2000; Brynjolfsson and Yang 1996; Chan 2000; Cronk and
Fitzgerald 1999; Dedrick et al. 2003; Dehning and Richardson 2002; Kauffman and Weill 1989; Soh and
Markus 1995; Triplett 1999; Wilson 1995). Regarding reliability of the final list of included articles, for
approximately 75 percent of the articles, there was agreement on the selection by all three reviewers. For
the remainder, there was agreement by at least two reviewers. Each of these articles was then discussed
until there was agreement that the article should be included or excluded from the final set.