Fon Sundaravej
A Resource-Based Perspective on Information Technology Capability and Firm Performance: An Empirical
Investigation
By Anandhi S. Bharadwaj
This article employs the resource-based view to develop the theoretical links and to empirically examine the relationship
between IT capability and business performance. The resource-based theory refers to the assumptions that the resources
needed to create, choose, and implement strategies are diversely distributed across organizations and that these
organizations differences remain stable over time. IT capability is an ability of an organization to deploy IT-based resources
in combination with other resources. IT-based resources are classified as the tangible IT infrastructure, human IT resources
(technical IT skills and managerial IT skills), and intangible IT-enabled resources (customer orientation, knowledge assets,
and synergy – sharing of resources and capabilities across organizational divisions).
The literature review yields two hypotheses: superior IT capability will be associated with significantly higher profit ratios
and lower cost ratios. The matched sample comparison group methodology, which compares the levels of variables across
treatment (firms with high IT capability) and control (firm size and type) samples, is employed to empirically assess the
relationship between IT capability and organization performance. Samples of IT leaders are selected from IT public journals
in at least two of the four years from 1991 to 1994. The control samples are then matched as pairs from the same industry
and size. The t-test confirms the equality between the two groups. To eliminate the bias in selecting IT leaders by their
financial performance, the chi-square is measured and represents insignificant p values, indicating that the past financial
performance variables do not explain any significant difference between the two groups. Finally, Wilcoxon Rank Sum is
used to evaluate the differences in the levels of performance variables for the two groups of organizations.
The results of the study conclude that profit ratios are significantly higher for the IT leaders, while the cost ratios are
significantly lower. However, expenses to sale ratios are higher, but not significantly higher, for the IT leaders. With high
investments in IT, not all organizations are successful in creating an effective IT capability. Additionally, a qualitative
research method is also conducted to validate the samples and understand their IT capability. From the four case studies, it
can be concluded that every IT leader contains IT infrastructure resources, but include either human IT resources or ITenabled intangibles.
In summary, the article “Information Systems Success: The Quest for Dependent Variable” by DeLone and McLean (1992)
lights an interest on the IS success determination. From this article, we learn which factors are proved to predict a success of
IS projects. DeLone and McLean (1992) also encourage more attention on a measurement of the IS impact on
organizational performance from IS researchers. After almost a century, subsequent researchers response to such attention
by attempting to construct organizational strategies, using IT to obtain better business performance and maintenance of
competitiveness from other competitors (used as dependent variables), based on the factors they learn in the past.
Bharadwaj (2000) in the article “A Resource-Based Perspective on Information Technology Capability and Firm
Performance: An Empirical Investigation” starts paying attention on IT capabilities that bring a higher business
performance based on the IS resource-based theory, which composes of tangible, human, and intangible capabilities. Such
IT capabilities can be applied to subsequent articles pertaining to the IS success. For instance, Sambamurthy, Bharadwaj,
and Grover (2003) in the article “Shaping Agility through Digital Options: Reconceptualizing the Role of Information
Technology in Contemporary Firms” argue that agility, digital options, entrepreneurial alertness, capability-building,
entrepreneurial action, and co-evolutionary adaptation are significant factors leading to better business performance.
Obviously, Sambamurthy, Bharadwaj, and Grover (2003) put greater concern on human and intangible capabilities than
tangible capability to determine an IS success. Melville, Kraemer, and Gurbaxani (2004) in the article “Review: Information
Technology and Organizational Performance: An Integrative Model of IT Business Value” also confirm that IS resources,
especially tangible and intangible IT capabilities, are valuable and can bring a success to organizations. Lastly, Piccoli and
Ives (2005) in the article “Review: IT-Dependent Strategic Initiatives and Sustained Competitive Advantage: A Review and
Synthesis of the Literature” summarize that the use of IT can create business competitiveness and recommend four barriers,
which comprise of IT resources (all tangible, human, and intangible aspects), complementary resource, IT project, and
preemption (how to sustain competitiveness) barriers, to sustain the competitive advantage in IS use.
IS 7890: IS Research Seminar
Spring 2006