Assessing the performance impacts of information systems from the resource-based perspective: an empirical test of the indirect effect of is.

Abstract

Research into the strategic impacts of information systems (IS) from the resource-based view of competitive advantage has increasingly embraced the indirect effect of IS on firm performance; that is, IS interact with other complementary organizational resources in influencing firm performance. Using both survey and archival data, this study set out to test the indirect effect of IS and determine the complementary organizational resources contributing to IS impacts on firm performance. The results provide additional evidence in support of the indirect performance effect of IS. Specifically, the study found that the performance impacts of IS arose from their interactions with firm-specific knowledge, information, vertical integration and related diversification that complemented IS.

Introduction

Over the past decade, the resource-based view of competitive advantage has emerged as a popular approach to examining the strategic roles of information systems (IS) (Mata et al., 1995; Powell & Dent-Micaleff, 1997; Lado & Zhang, 1998; Bharadwaj, 2000; Byrd, 2001; Kearns & Lederer, 2003; Wade & Hulland, 2004; Zhang, 2005). One critical issue in the resource-based inquiry of the strategic impacts of IS is whether IS alone can lead to competitive advantage or they must work in conjunction with other organizational resources in order to provide strategic benefits (Wade & Hulland, 2004). The former suggests a direct effect of IS on firm performance, whereas the latter implies an indirect effect of IS. While researchers have increasingly embraced the latter by arguing that IS complemented by certain organizational resources may lead to competitive advantage and superior performance (Feeny & Ives, 1990; Clemons & Row, 1991; Powell & Dent-Micaleff, 1997; Lado & Zhang, 1998; Bharadwaj, 2000), there has been relatively less empirical attention to testing the indirect effect of IS. Since the indirect effect of IS has become more and more influential in current thinking of how to evaluate and manage IS resources (Powell & Dent-Micaleff, 1997; Wade & Hulland, 2004), more empirical evidence is needed to ascertain this effect.

Furthermore, even though the indirect effect of IS generally exists, we still don't know enough about what specific organizational resources complement IS in influencing a firm's competitive position or performance (Wade & Hulland, 2004). While the normative literature proposes a number of potential organizational complements to IS (Feeny & Ives, 1990; Clemons & Row, 1991; Kettinger et al., 1994; Powell & Dent-Micaleff, 1997), the performance impacts of many of those complementary resources have not been assessed in prior empirical research (Kettinger et al., 1994; Powell & Dent-Micaleff, 1997). Discerning the influence of different IS complements on the IS-performance relationship would then increase our knowledge of what represents a relevant set of complementary resources that interact with IS in affecting firm performance (Wade & Hulland, 2004).

The purpose of this study was twofold. First, it provided another assessment of the indirect effect of IS on firm performance. Second, by testing the relationships between three sets of firm-specific complements to IS and firm performance, the study sought to empirically determine what organizational resources complement IS in influencing firm performance. The remainder of the paper is organized as follows. The next section reviews the indirect effect of IS within the resource-based research on IS impacts, as well as the existing empirical evidence. This is followed by an examination of the potential performance impacts of three types of organizational resources (unique organizational culture and structure, unique vertical integration and related diversification, and unique knowledge and information) that complement IS. The methodology section describes the empirical analysis, including the sample and data collection procedure, the measurement of the variables of interest, and the results. The discussion section presents the implications of the research findings, the limitations of the study, and some suggestions for future research and practice. The last section provides a summary and conclusions for the study.

Literature Review and Hypotheses

The Resource-based View of Competitive Advantage

As a popular theoretical perspective in the strategic management literature, the resource-based view of competitive advantage suggests that firms with unique and difficult to imitate or substitute resources and capabilities can gain sustainable competitive advantage and superior performance (Barney, 1991). Over the past decade, the resource-based research has placed increasing emphasis on bundling a firm's resources and capabilities in creating and maintaining competitive advantage (Eisenhardt & Martin, 2000; Denrell et al., 2003; Lippman & Rumelt, 2003). Lippman and Rumelt (2003), for example, have developed and used the notion of payments (costs to a resource) to show that superior organizational performance is achieved by finding the most valuable combination of a firm's resources and bargaining over the marginal contribution of combining the resources. Drawing upon the concept of resource complementarity (the presence of a resource enhances the strategic values of other resources it complements) (Teece, 1986), resource-based researchers further posit that firms exploiting the complementarity among their resources and capabilities can create complex resource /capability networks as barriers to imitation, thus enhancing the potential of achieving durable competitive advantage (Collis & Montgomery, 1998; Barney, 2002; Colbert, 2004). Recent empirical studies have shown that the combinative effects of complementary resources and capabilities influence the competitive performance of firms (Carmeli & Tishler, 2004; Song et al., 2005). Song et al. (2005), for instance, found a synergistic effect between two complementary organizational capabilities (marketing-related and technology-related) on firm performance in the high turbulence environment.

The Resource-based View of the Strategic Roles of IS

Since the early 90s, IS researchers have turned to the resource-based view in examining the strategic roles of IS and explaining the 'productivity paradox" regarding the strategic impacts of IS (Feeny & Ives, 1990; Clemons & Row; 1991; Mata et al., 1995; Powell & Dent-Micaleff, 1997; Lado & Zhang, 1998; Bharadwaj, 2000; Byrd, 2001). The early resource-based analyses viewed IS as commodity-like resources that are generally neither unique nor difficult to imitate, hence rarely resulting in sustainable competitive advantage (Clemons, 1986; Clemons & Row, 1991; Mata et al., 1995). In the literature, this perspective is known as the "strategic necessity hypothesis" (Clemons & Row, 1991).

While acknowledging that the direct effect of IS rarely exists, more recent resource-based inquiry has shown that IS may still have an indirect effect on a firm's competitive position or performance. That is, despite lacking the characteristics required for sustainable competitive advantage, IS may exert positive influence on firm performance through their relationships with other organizational resources. Following the logic of resource complementarity (Teece, 1986), IS and strategy researchers have argued that firms whose IS are complemented by other firm-specific and hard-to-copy organizational resources are in a better position to defend their IS-derived competitive advantage than those that lack such resources (Feeny & Ives, 1990; Clemons & Row, 1991; Powell & Dent-Micaleff, 1997; Bharadwaj, 2000; Tippins & Sohi, 2003). According to this line of reasoning, though the necessary software and hardware used by a firm's IS can be easily imitated, it is more difficult for its competitors to copy the unique and intangible resources the firm uses in implementing and exploiting its IS. Moreover, blending IS with other organizational resources may create a complex set of complementary resources that are not easily matched by competitors, thus sustaining IS-based advantage (Bharadwaj, 2000).

Despite gaining acceptance among researchers who analyze the strategic impacts of IS from the resource-based perspective, the indirect effect of IS has not been subject to close empirical scrutiny. Since it was first proposed in the early 90s, the indirect effect of IS has been tested in only two studies. In a longitudinal study of thirty IS considered as 'classic' cases of strategic use of information technology in the literature, Kettinger et al. (1994) explored the potential influence of a number of organizational factors on the sustainability of the IS-based competitive advantage. They found an established technological base and substantial capital availability as two main organizational resources that differentiated the IS producing sustained superior performance from the IS resulting in only temporary superior performance. These findings seem to provide initial evidence for the indirect effect of IS, although the effects of several resources (e.g., competitive scopes and information resources) that might potentially affect IS-derived advantage were not tested due to lack of data availability.