The Effect of Information Technology-Enabled Flexibility on Formation and Market Value of Alliances

Tafti, Ali, Sunil Mithas, and M.S. Krishnan, “The Effect of Information Technology-Enabled Flexibility on Formation and Market Value of Alliances,” Management Science (59:1) 2013

Posted: 6 Mar 2012 Last revised: 12 Jun 2014

See all articles by Ali R. Tafti

Ali R. Tafti

University of Illinois at Chicago

Sunil Mithas

University of Maryland - Robert H. Smith School of Business

Mayuram S. Krishnan

University of Michigan, Stephen M. Ross School of Business

Date Written: September 11, 2012

Abstract

This study investigates the effect of information technology (IT) architecture flexibility on strategic alliance formation and firm value. We first examine the effect of three dimensions of IT architecture flexibility (open communication standards, cross-functional transparency, and modularity) on formation of three types of alliances (arm's-length, collaborative, and joint-venture alliances, respectively). Then, we examine how capabilities in IT flexibility can enhance the value derived from alliances. Our sample includes data from 169 firms that are publicly listed in the United States and that span multiple industries. We find that adoption of open communication standards is associated with the formation of arm's-length alliances, and modularity of IT architecture is associated with the formation of joint ventures. We also find that IT architecture flexibility enhances the value of arm's-length, collaborative, and joint-venture alliances. The contribution of IT flexibility to value is greater in the case of collaborative alliances than in arm's-length alliances. Taken together, these findings suggest that appropriate investments in IT can help to facilitate reconfiguration of resources and modification of processes in collaboration-intensive alliances.

Keywords: Information Technology, Service-Oriented Architecture, Alliances, Tobin’s Q, Business Value of IT

JEL Classification: L10, L14, M10, M20, M21

Suggested Citation

Tafti, Ali R. and Mithas, Sunil and Krishnan, Mayuram S., The Effect of Information Technology-Enabled Flexibility on Formation and Market Value of Alliances (September 11, 2012). Tafti, Ali, Sunil Mithas, and M.S. Krishnan, “The Effect of Information Technology-Enabled Flexibility on Formation and Market Value of Alliances,” Management Science (59:1) 2013. Available at SSRN: https://ssrn.com/abstract=2016654

Ali R. Tafti (Contact Author)

University of Illinois at Chicago ( email )

601 S Morgan St, 2403 University Hall, MC 294
Chicago, IL 60607
United States

Sunil Mithas

University of Maryland - Robert H. Smith School of Business ( email )

​Van Munching Hall
7699 Mowatt Ln
College Park, MD 20742-1815
United States

HOME PAGE: http://sunilmithas.com/

Mayuram S. Krishnan

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-6749 (Phone)

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