Theophanis C. Stratopoulos

Determinants of a Sustainable Competitive Advantage Due to an IT-Enabled Strategy

Information technology (IT) has been asserted to be a source of sustainable competitive advantage. Empirical evidence has shown that IT can improve a companys performance and competitive position. We examine the factors that are believed to lead to a sustainable competitive advantage due to an IT-enabled strategy, and test these factors empirically. Our findings show that managerial IT skills are positively related to sustainability, and competitors knowledge of competitive advantage is negatively related to sustainability. There was no support for technical IT skills or IT infrastructure as a source of sustainable competitive advantage.

Information technology investments and firm value

Our objective in this paper is to develop a firm value model to assist IT managers and researchers in understanding the multiple effects that IT investments have on firm value. This firm value approach adds to the process-oriented approach through simultaneous evaluation of all of the factors that affect firm value. It is crucial for IT professionals to recognize the complex and diverse implications of IT investments on firm value. The implications of the firm value approach include forcing IT managers to think in terms of both industry and company-specific effects of IT investments, to consider both the magnitude and duration of competitive advantage due to IT investments, and the implications of the effect that IT investments have on risk and its relation to firm value. We demonstrate an application of the firm value framework by evaluating a major stream of research in MIS--event studies of IT investment announcements. Appendices to this paper can be found at http://www.itandfirmvalue.com.

Dupont Analysis of an IT-Enabled Competitive Advantage

Recent research has shown that if used effectively, information technology (IT) can provide companies with superior performance relative to their direct competitors [MIS Q 24 (2000) 169; Inf Manage 38 (2000) 103]. The most common benefits from the successful use of IT are in increased profitability or efficiency. Return on assets (ROA) decomposition (DuPont analysis) allows financial statement users to examine where this IT-enabled competitive advantage shows up in accounting performance measures, whether in profitability, efficiency or both. Using a matched pair design, comparing companies with an IT-enabled competitive advantage to their direct competitors, we find that successful use of IT pays off in a combination of increased profitability and efficiency. This is different from a competitive advantage that is not IT-enabled, where the only performance advantage is in profitability. All data used in tests are available from public sources.

Role of IT executives in the firm's ability to achieve competitive advantage through IT capability

Contrary to prior studies that have tried to examine the role of IT capabilities (ITC) on firm performance in isolation from the role of senior IT executives, we propose that the two are linked. More specifically we argue that there is a positive relationship between the structural power of senior IT executives and the likelihood that the firm will develop superior ITC. Furthermore, the contribution of ITC to a firms competitive advantage is much stronger in firms with powerful senior IT executives as they are the driving force that may ensure the continuous renewal of ITC. We develop a two-stage econometric model designed to test this chain hypothesis that the structural power of senior IT executives will affect a firms ability to achieve superior ITC, in turn driving firm performance. Empirical evidence based on a sample of large US firms strongly supports both of our hypotheses.

Does the market recognize IT-enabled competitive advantage?

There is a belief that the payoffs from investments in information technology (IT) are difficult to recognize, and therefore a sustained competitive advantage from an IT-enabled strategy is difficult to distinguish from a temporary competitive advantage. We develop a model to test whether market participants are able to recognize a sustained competitive advantage due to an IT-enabled strategy, and test the model empirically. We find that a competitive advantage due to an IT-enabled strategy is discernable by market participants, and as apparent as a competitive advantage obtained through other means.

Sustainability of a Firm's Reputation for Information Technology Capability: The Role of Senior IT Executives

This study investigates the development and sustainability of a firms information technology (IT) capability reputation from an IT executives standpoint. Building on institutional theory, we argue that IT executives will try to achieve external legitimacy (i.e., project an image of superior IT capability to external stakeholders) in the hope that the top management team and board members will reciprocate by elevating the internal legitimacy of IT executives. Firms that develop such a culture of reciprocity with their IT executives are more likely to sustain their IT capability reputation. Econometric results based on panel data for 1,326 large U.S. firms from a wide spectrum of industries over a 13-year period (1997-2009) validate these predictions. More specifically, we find that IT executives with greater structural power (e.g., higher job titles) or IT-related expert power (e.g., IT-related education or experience) are more likely to attract public recognition for their firms IT capability. Firms that build such an IT capability reputation are more likely to promote their IT executives, and IT executives who are promoted are more likely to stay longer with their firms. This continuity in IT strategic leadership is positively associated with the firms ability to sustain its IT capability reputation. Our findings have important practical implications related to a firms IT reputation strategy as well as the motivation and career of IT executives. Firms wanting to develop and sustain their IT capability reputation would do well to foster the creation of a cycle of positive reciprocity with their IT executives. IT executives hoping to increase their power within their firms top management team and improve the legitimacy of the firms IT organization need to project an image of IT superiority to external stakeholders.

Information technology and organizational slack

A characteristic of the information age is the dramatic increase in expenditures by organizations on information technology (IT). As a result of these investments, managers generally anticipate productivity gains, which are commensurate with the costs of IT. However, several empirical studies in the 1980s and early 1990s found no statistical association between IT spending and financial performance (the productivity paradox, PP). One possible source of this paradox was proposed by Brynjolfsson [Commun. ACM (1993)]. He proposed that during the pre-1991 period, IT might have increased slack, but neither organizational output nor profits. We test whether the relation between investment and IT in the productivity paradox era was due to increased slack. We find that overall, IT investment led to an increase in slack in the period prior to 1991, but not after. Our results are primarily driven by manufacturing companies.

Reviewing event studies in MIS: an application of the firm value

Our objective in this paper is to show how the firm value framework can be used to examine IT investments and research on IT investment decisions. The firm value approach adds to the process-oriented approach through simultaneous evaluation of all of the factors that affect firm value. We demonstrate how to use the firm value framework in evaluating two streams of research in MIS, event studies of IT investment announcements and e-commerce initiatives.

The Financial Performance of Global Information and Communication Technology Companies

ABSTRACT : This study examines the cross-sectional financial performance among firms from the global information and communication technology (ICT) sector over the period 1998–2007. Using a pooled linear regression, the results show that U.S.-based ICT companies are on average underperforming the rest of the world after controlling for firm-specific variables known to affect firm financial performance. The results also show that characteristics of the firms host country explain a statistically significant portion of the variation in firm performance, incremental to firm-level characteristics. More specifically, firms located in countries with attractive tax environments and high-government subsidies outperform their competitors in countries with less attractive tax environments and subsidies. Firms in financial markets that provide ICT firms with relatively favorable cost of capital underperform those in markets with a cost of capital less conducive to business development, which may suggest the cost of ...

Incentive effects of enterprise systems on the magnitude and detectability of reporting manipulations

We consider how the information environment effects of enterprise system (ES) forecasting tools affect a given managers decision to manipulate reported performance. As ES forecasting accuracy increases, the manager is better able to determine whether anticipated performance is going to exceed the desired level of performance, and we propose that this may affect how the manager chooses to use the ES. To investigate this setting, we construct a model of manipulation behavior as a function of desired performance, uncertainty in forecasted performance and internal control strength. The implications of the model suggest that as a managers forecast of an impending shortfall in expected performance becomes more certain, the economically optimal decision is increasingly to manipulate reported performance and to use smaller magnitude adjustments. This result holds unless a significant countervailing investment in internal control strength accompanies the ES, which evidence suggests is not the norm in practice. This study furthers our understanding of the effects of ES adoption on managerial behavior and contributes to the burgeoning literature investigating the dual control and empowerment roles of technology. Opportunities for future research are discussed.