The Impact of Aligning IT Capability and Operations Strategy on Operational Performance
Abstract
This paper examines the relationship among IT capability, operations strategy decisions and operational performance. Using primary data from a sample of European firms, we test a model of fit between two specific IT capability-building decisions and three competitive priorities, and we analyze the impact of IT capability alignment on several dimensions of process performance. After uncovering three stylized configurations, we note that firms tend to adopt internally coherent IT capability-building decisions but we find only mixed evidence of alignment between IT capability-building decisions and competitive priorities. Interestingly, however, failing to achieve alignment has negative performance consequences but only for firms that develop limited IT capability. Our results suggests that IT plays a central role in the fulfillment of a firm’s operations strategy, not only for firms that pursue differentiation and are interested in improving the effectiveness of their customer-oriented functions, but also for firms seeking efficiency improvements in back-office operations. Although it is, a priori, more expensive, the development of advanced IT capability can support cost leadership strategies more effectively than a frugal approach, as long as IT projects are used to generate operational knowledge and thus improve process efficiency. At the same time, our results cast further doubt on the value of frugal IT capability, even for firms that strive to reduce cost.