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Article Excerpt
Annual spending on information technology capability--specifically on computer hardware, software, and related devices--will increase to $1.2 trillion by 2008, representing the single largest capital investment by businesses (International Data Corporation, 2005). Information technology (IT) capability is the ability of a computer system to store, process, and communicate information (Bakos and Treacy, 1986). The sizable and growing spending on IT capability has managers asking what contribution information systems make to business performance. One answer is not much. In an attention-grabbing Harvard Business Review article, Carr (2003) argues that computers confer no meaningful gains due to their ubiquity and commodity nature. Other experts disagree. Broadbent and her colleagues (2003) point out that IT systems enable firms to increase work efficiencies, exploit market opportunities, and strengthen the financial bottom-line. The debate reminds us that, despite the wide acceptance of computers, the contribution of IT capability to business performance--known as the IT business value issue--is not entirely settled. There are two emerging insights to help resolve this important managerial concern, insights that suggest a complex relationship.
The first insight is that IT capability contributes to business performance, but the path may be indirect rather than direct. Studies examining the direct path have yielded mixed results: some studies have found IT to have positive effects on performance, some have found negative effects, and others have found no effects (Brynjolfsson and Hitt, 2000; Dedrick et al., 2003). Consequently, the path has been proposed as indirect--IT capability perhaps facilitates critical organizational activities, which in turn augments business performance (Chan, 2000; Melville et al., 2004). A few empirical studies have been conducted on this alternate route, with promising findings. The positive influences of IT capability on business performance have been demonstrated as mediated by resource utilization and inventory turnover (Barua et al., 1995), loan origination and mortgage handling (Lee, 2001), supplier and customer side digitization (Barua et al., 2004), and cross-unit knowledge management (Tanriverdi, 2005).
The second insight is that the impact of IT capability may be socially contingent. Studies suggest that a strong IT capability is a necessary but insufficient condition for organizational effectiveness (Davenport, 1994; Orlikowski, 1992). A particular IT capability cannot on its own produce work efficiencies, cost savings, and sales growth because people in the organization ultimately determine the design and use of that system to achieve collective ends. When social factors such as human resources and organizational climate are favorable, the benefits of IT capability are recognized, supported, and sought in the organization; when unfavorable, the capability is apt to be ignored, underused, and even misused (Brown and Starkey, 1994). Following on these insights, we conduct a study aimed at examining a more complex set of relationships between IT capability and business performance.
Specifically, we propose studying one mediator and two moderators in the IT capability-business performance relationship. The mediator we consider is customer orientation, which is the firm-level ability to identify, analyze, understand, and meet customer needs (Deshpande et al., 1993; Gatignon and Xuereb, 1997). We focus on customer orientation because it has long been held to be a primary determinant of business performance (Day, 2003; Narver and Slater, 1990). Drucker (1954) espoused the view that knowing and satisfying customers is the surest route to market and financial success. Researchers in marketing have speculated that customer orientation is strengthened by IT capability. Computer technologies such as datamining software seem to assist in rapid, comprehensive, and accurate understanding of and reactions to changing buyer needs (Day, 1994; Shugan, 2004; Varadarajan and Yadav, 2002). As buyer needs are met, sales and other performance dimensions improve. Similarly, researchers in information systems have theorized that IT expedites critical processes such as customer servicing, which in turn elevates revenues and profits (Bharadwaj, 2000; Melville et al., 2004). Thus, we posit customer orientation as a mediator between IT capability and business performance.
The moderators we consider are information systems (IS) service quality and intra-organizational trust. The IS group is the human resources most closely associated with IT capability. Businesses today rely on computer programmers, engineers, and managers--referred to as IS specialists--to support IT infrastructures. Particularly important is the quality of services delivered by specialists. Information systems service quality is the degree to which these services exhibit desired properties, such as reliability and timeliness (Pitt et al., 1995). Studies indicate that high IS service quality is crucial for computer systems to fulfill intended applications (e.g., Broadbent and Weill, 1997). Intra-organizational trust is an organizational climate variable, and refers to positive expectations that workers across the organization have about one another's abilities, actions, and motives (Huff and Kelley, 2003). Trust has long been deemed essential for superior firm performance, since employees who trust one another experience significant work efficiencies (Kramer and Tyler, 1996). In relation to IT, researchers have proposed that a climate of trust fosters worker receptivity to and use of computer technologies, increasing the impact of these systems (Brynjolfsson and Hitt, 2000; Dedrick et al., 2003). We therefore posit that IS service quality and intra-organizational trust moderate the influence of IT capability on business performance.
In sum, our study examines the question of IT capability's contribution to business performance by determining: (1) if there is an indirect relationship through customer orientation, and (2) if IT capability has interactive relationships with IS service quality and intra-organizational trust. As best we know, none of these effects has been empirically investigated, although they have often been conjectured. We proceed by developing a model of these relationships and testing it through a survey of senior executives in a wide range of firms and industries. Our intended contribution is twofold. First, we advance knowledge on the IT business value issue by explaining how computer technologies affect business performance. We investigate a more complex relationship than previously studied, looking at both mediated and moderated influences. Second, as explained in the next section, we ground the model in the Socio-Technical View (Trist, 1990). Past IT business value research has been based largely on the Resource-Based View, with useful insights (Barney, 1991; Zhang, 2006). Ours may be one of the first to apply the Socio-Technical View, a relevant theory that considers the confluence and consequences of social and technological elements in organizations. We note that while the Socio-Technical View offers a different emphasis regarding how IT business value is generated, the theory is complementary to and extends the Resource-Based View.
CONCEPTUAL FRAMEWORK
Socio-Technical View
The Socio-Technical View (STV) is a theory that resulted from research conducted on the British coal mining industry at the end of World War II. The research intended to describe the potential and limits of technologies to achieve organizational objectives (Trist, 1990). In brief the theory posits that technologies rarely directly or on their own advance the overall performance of an organization; rather, any gains come from technologies improving processes, and--very importantly--improvements depend on internal social conditions. The theory's significance lies in its recognition of the interdependencies between technological and social factors as well as the sequential impacts of technologies. The STV is the basis for our conceptual framework because it speaks to our interest in computer technologies in tandem with social characteristics and their joint influences on organizational behaviors and outcomes.
The theory's core premise is that organizations are socio-technical systems rather than exclusively or predominantly social or technical. Another premise of the STV is that the two dimensions are independent yet correlative--independent in that they are discrete and distinct from one another, but correlative in that their combination enables inputs to be transformed into valued outputs. In more concrete terms, workers (a social input) use tools (a technological input) to make products (a task) that are profitably sold to buyers (valued outputs). This leads to the third premise of the theory: organizational activities and outcomes are optimal when both social and technical elements are strong (Trist, 1990).
Extending these three premises to the IT business value issue, we develop a conceptual framework in which IT capability is the technological input that interacts with the social inputs of IS service quality and intra-organizational trust, affecting customer orientation as a throughput and business performance as the final output. Note that our model is not intended to be a direct translation or test of the STV, but rather a reflection of its perspective. The model is also consistent with the social rule systems literature, which posits that IT capability is a key enabler of processes such as customer orientation, but does so when accompanied by trust or other positive social elements (Lee and Choi, 2003; Tillquist, 2000). Furthermore, the model, while rooted principally in the STV, complements and builds on the Resource-Based View. The latter argues that a firm's combination of technological and human inputs is socially complex; therefore, organizational routines...
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