IT Capabilities and Firm Performance: A Contingency Analysis of the Role of Industry and IT Capability Type

Abstract:     
Previous empirical studies examining the relationship between IT capability and accounting-based measures of firm performance report mixed results. We argue that extant research (1) has relied on aggregate overall measures of the firm's IT capability, ignoring the specific type and nature of IT capability; and (2) has not fully considered important contextual (environmental) conditions that influence the IT capability-firm performance relationship. Drawing on the resource-based view (RBV), we advance a contingency perspective and propose that IT capabilities' impact on firm resources is contingent on the "fit" between the type of IT capability/resource a firm possesses and the demands of the environment (industry) in which it competes. Specifically, using publicly available rankings as proxies for two types of IT capabilities (internally-focused and externally-focused capabilities), we empirically examines the degree to which three industry characteristics (dynamism, munificence, and complexity) influence the impact of each type of IT capability on measures of financial performance. After controlling for prior performance, the findings provide general support for the posited contingency model of IT impact. The implications of these findings on practice and research are discussed.

Keywords: Business value of IT, IT Capability, Resource-based Theory, Contingency Models

Accepted Paper Series