Like Chan et al. They measured performance by using a five-point Likert scale based on two dimensions: market growth gains related to competition in the last three years, and profitability. However, although they found negative associations between business strategy and business performance, a positive linkage was shown between strategic alignment and perceived business performance.
Competitive advantage was evaluated by using several perceived measures, such as the extent to which IS has been used to lower costs or create product differentiation, to leverage unique firm capabilities, to enable existing business strategies, and to create new business strategies. Cragg et al. This includes long-term profitability, availability of financial resources, sales growth, and image and client loyalty. By using mail questionnaire data from firms, the authors supported the proposition and indicated that small firms with a high level of alignment achieved better firm performance than firms with low alignment.
Kefi and Kalika considered alignment as a co-variation method between business strategy and IT strategy. They obtained a total of questionnaires from IT and business managers in various sectors such as manufacturing, telecommunication, and IT services. Their aim was to test the effect of strategic alignment on perceived business performance.
Performance was assessed by asking informants, on a five- point Likert scale, the degree to which their firms perform in terms of productivity, cost reduction, innovation capabilities, reactivity capabilities toward business opportunities, responsiveness to customer requirements, and collaborative relationship with business partners. In their study, the authors applied structural equation modelling technique and supported the path from strategic fit to firm performance.
In other words, the higher level of alignment leads to higher level of performance. In addition, by asking 84 pairs of IT managers and plant managers, Byrd et al. They also asked plant managers to estimate both revenues and profits before taxes per employee for the past year. The researchers found that strategic alignment directly influenced firm performance as a moderator between IT investment and performance. Furthermore, several studies that tested the relationship between IT-business strategic alignment and perceived firm performance were found to confirm mixed results e.
Tan, ; Bergeron et al. In Bergeron et al. They found that strategic alignment affected performance when they used mediation, covariation, gestalt, and profile deviation approaches; whereas no influence on performance occurred when matching and moderation methods were used. Business Transformation through Innovation and Knowledge Management: An Academic Perspective Sabherwal and Chan tested the effects of alignment between business and IS strategies on business performance by employing the well-known categorization of defender, analyser, and prospector business strategies, as proposed by Miles and Snow Also, organisational performance was measured in Chan et al.
They found that strategic alignment influenced perceived organisational performance for defenders, prospectors, and analysers in business firms, but not with defenders in academic institutions. In addition, Croteau and Bergeron examined the correlations among four strategic activities defenders, prospectors, analysers, and reactors with firm performance. They measured perceived performance in terms of sales growth and profitability.
Furthermore, they confirmed a positive association between strategic alignment and firm performance for firms that follow prospector or analyser strategies with IT, whereas defenders and reactors could not make effective use of IT. They emphasised that technology is helpful for analyser firms, which the latter could sustain the enhancement of IT by encouraging their employees to participate in professional workshops and learning more about new IT applications and new technologies.
Moreover, Bergeron et al. The researchers used a gestalt method of fit, conducted by aligning business strategy, IT strategy, business structure, and IT structure. They justify their usage of the above subjective measures to the size of the sampled firms. In other words, using subjective business performance is appropriate in small business firms, since financial data is either unavailable or unreliable. Bergeron et al. In addition, in order to get high performance from the coalignment elements i. Parthasarathy and Sethi examined the impact of flexible automation on performance, which was assessed by using growth in sales and return on investment ROI measures.
According to the authors, flexible automation appeared to engage the use of technology in product design e. By obtaining data from 87 flexible automation users in the USA and foreign Japanese and West German firms, they found that strategic alignment positively influenced sales growth, but was not associated with return on investment.
Their results showed that strategic alignment was correlated with return on assets and returns on sales only when a firm operates in a dynamic environment, and focuses on externally-orientated strategies. Palmer and Markus did not locate a positive connection between alignment and performance.
However, few studies examined the link between alignment and firm performance by using perceptual and objective measures of performance. Bergeron and Raymond conducted a key empirical study of business firms, to test if the fit between strategic IT management and business strategic orientation affects performance. In other words, a moderation perspective of fit was used to link business and IT strategies.
Business performance was assessed by using subjective measures i. Also, they developed an instrument of twenty items on a seven-point scale, ranging from 1 denotes major weakness to 7 denotes major strength , to measure strategic information technology management SITM , which consists of five factors: information systems positioning the role and contribution of IS to organizational objectives ; strategic use of IS applications to gain competitive advantage ; new IT applications adoption of new technologies like EDI ; architecture planning the existence of data, technology and systems architectures ; and data security data security, integrity and recovery.
Bergeron and Raymond confirmed that the moderating effect between business strategic orientation and strategic IT management has negative and positive impacts on performance. Strategic IT management had a negative effect on perceived growth and profitability, but showed a positive influence on ROA in firms that have strong business strategies. They referred the mixed results to the short- and long-term effects. In summary, several studies test the relationship between strategic alignment and subjective firm performance.
Some of the results were found to be positive e.
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Bergeron and Raymond, examined the link between alignment and firm performance by using perceptual and objective measures of performance. Conclusion The causal relationships between IT investments and firm performance were found to be elusive and mixed. The findings of those studies have shown contradicting results.
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Some studies showed no or negative correlation of investments in IT and organizational performance and productivity Cron and Sobol, ; Strassmann, , ; Harris and Katz, ; Weill, ; Brynjolfsson, ; Loverman, ; Berndt and Morrison, ; Landauer, In contrast studies on the productivity paradox have shown a positive relationship between IT investment and firm performance Lichtenberg, ; Brynjolfsson and Hitt, ; Rai, Patnayakuni and Patnayakuni, ; Brynjolfsson and Hitt, Therefore, although it is not easy to set up causality between IT investments and firm level output performance Im et al.
Operating performance was measured using profitability and productivity performance ratios. Market-based performance was measured using scales that assessed the success of the firm in entering new markets and in bringing new products and services to the market Ravichandran and Lertwongsatien, Nevertheless, most of the MIS research has identified IT-business strategic alignment as the missing link Henderson and Venkatraman, ; Sabherwal and Chan, , which has been an important concern to the business community and executives Luftman, ; Watson et al.
In addition, several studies test the relationship between strategic alignment and perceived firm performance. Some of the findings were found to be positive, while others showed mixed results. Furthermore, few studies investigated the connection between strategic alignment and objective firm performance. Furthermore, all of the results had negative linkage. Also, few studies examined the link between alignment and firm performance by using both measures of performance i. Based on the above discussion related to this paper, it seems that MIS researchers have offered a diverse range of perceived measures of organisational performance.
Also, subjective measures were preferred rather than objective measures, since subjective measures have been shown not only to capture a broad concept like business performance, but also link the firm strategy with its performance. For instance, Tanriverdi found that IT-relatedness improved firm-level KM capability, which itself enhanced corporate financial performance.
Further, Bharadwaj et al. Therefore, q is appropriate to capture the value of intangibles such as KM capability. Moreover, some researchers Bharadwaj et al. Also, if a firm has a Q ratio above 1, then it has an incentive to invest more than a firm with a Q ratio below 1. In other words, firms with high q ratios tend to be those firms with attractive investment opportunities, or a significant competitive advantage Buckley et al. Overall, although this paper investigated several studies on the impact of IT investments and IT-business partnership on performance, more generalizations on the application of theoretical premises should be developed, and building research models will be needed to enrich and build upon the alignment theory.
In summary, it is hoped that this study will provide a better understanding of how managers experience IT investments, strategic alignment, and in turn how they affects firm performance.
IT business value model for information intensive organizations
Therefore, based on the literature review findings, the current paper should be considered as a starting point for future research in identifying the best ways of realising strategic alignment, so that firms can maximise the benefit from it. IT business value model for information intensive organizations. E-mail address: acgmacada ea. Many studies have highlighted the capacity Information Technology IT has for generating value for organizations. Investments in IT made by organizations have increased each year.
The research method consisted of a survey that used and combined the models from Weill and Broadbent and Gregor, Martin, Fernandez, Stern and Vitale Data was gathered using an adapted instrument containing 5 dimensions Strategic, Informational, Transactional, Transformational and Infra-structure with 27 items. The instrument was refined by employing statistical techniques such as Exploratory and Confirmatory Factorial Analysis through Structural Equations first and second order Model Measurement.
The final model is composed of four factors related to IT Business Value: Strategic, Informational, Transactional and Transformational , arranged in 15 items. The dimension Infra-structure was excluded during the model refinement process because it was discovered during interviews that managers were unable to perceive it as a distinct dimension of IT Business Value. Key words : IT business value; IT investment; information intensive organizations. The value Information Technology IT has for organizations is one of the most frequent topics in literature on IT management.
Since the mids studies attempting to assess IT Business Value have intensified. It is now well understood that the utilization of traditional financial measures, such as return on investment ROI and return on assets ROA , is not always comprehensive enough to fully appreciate the results of IT acquisition and use. The value of the knowledge accumulated by the employees, the software, the data bases and the organizational and customer relationship capacities do not show up in traditional accounting reports. Instead, IT Business Value is better grasped by looking for its contributions towards the capacity people have for delivering value to the clients Strassmann, According to Hu and Quan , industries with intensive use of information, like banking, financial and insurance services, would benefit more from IT investments than those industries with low information intensity, such as energy, mining and construction.
For some industries, information is the main product moving through the primary value chain and the use of IT can result in significant improvements in operational efficiency. The pioneer work of McKenney and McFarlan studied IT intensive user firms, focusing on what they called informational islands that exists throughout different areas in a single organization. An IIO demands a high volume of IT investments, which generates the need to assess to what extent these investments are actually providing benefits and thus effectively adding value to the organization. Accordingly, the question that motivates this study arises: How to asses the value of IT for Information Intensive Organization?
We begin developing its theoretical framework, followed by a description of the methodology employed.