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The Nexus between Information Technology and Competitive Strategy: AConceptual Framework and Its Hypotheses

Leelien Ken Huang, Y. J. Lin, T. T. LinFeng Chia University, Taichung, TaiwanCurtin University of Technology, Perth, AustraliaLingnan University, Tuen Mun, Hong KongCorresponding Author: leelien.huang@gmail.com

Abstract

This research is to empirically examine the strategic alignment between IT management strategyand business strategy (i.e., competitive strategy) inTaiwan organizations for achieving sustained competitive advantage. Three streams of theory:contingency theory, resource-based theory, and general strategic management theory are used toconstruct the research model to examine the causal relationships between variables affecting suchalignment, using a structural equation modeling approach. The objective is to establish theorganizational impact of strategic alignment, given theenvironmental uncertainty and the importance of IT tothe organization. This research would contribute byindicating some of the implications, for both decisionmakers and scholars, of an extended IT capabilities perspective on alignment mechanisms. This paper mainly presents conceptual part, the development of research constructs, research hypotheses, and datacollection status since empirical work is in progress.

1. Introduction

Today, concerns about the real business value of information technology (IT) still exist globally.Alignment between IT and business strategy is perennially at the top of top-ten lists of IT issues [13],[32]. Many organizations have invested heavily in IT inorder to improve their outcomes [20]. Yet, thisinvestment pays off for some organizations but notothers (e.g., the productivity paradox [31] or the IT payoff paradox [13]). The research question belowaddresses the strategic planning process that helps alignIT investment with business value in response to a particular environment.

How does strategic alignment between IT management strategy and business strategyaffect the use of IT to create competitiveadvantage, given environmental uncertaintyand the importance of IT to theorganization?

The research objective is to investigate the nexuses between factors influencing strategic alignment, and between strategic alignment and its impact onorganizational performance (e.g., the use of IT tosustain competitive advantage) and to validate themodel.Taiwan’s accession to the World TradeOrganization (WTO) in January 2002 has dramaticallyincreased competitive pressures on organizations as aresult of intense rivalry from global markets. Theaggressive nature of such competition has addedcomplexity to the business environment. The level of uncertainty in this turbulent environment has increased[3]; giving rise to the need for more and better information [12] to allow Taiwanese top managementto make the best decisions.The business value of more and better information provided by IT can be determined from the impact of decisions on an organization’s objectives [17]. In other words, IT plays a strategic role [37], [30] and isfundamental to the survival and growth of anorganization [31]. Wiseman and MacMillan [56]stressed that organizations can use IT to createcompetitive advantage by adding value to present products and services. Porter and Miller [41] and King[29] argued that IT is used to gain competitiveadvantage by integrating IT and organizationalstructure. Raghunathan and Raghunathan [43] further posited that IT alters the organization’s strategicdirection through information-based strategies.IT has become inextricably intertwined with business. Despite this, disputes regarding the effectiveapplication of IT are on-going [6], [54]. For example,from the practitioner’s perspective, IT exists to deliver business value to the organization. Yet, that value iselusive for decision makers because of issues such as

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the business value of IT,

and

the real effect of IT investment on the organization

. From the academic perspective, evidence in the literature shows that someorganizations using IT have seized competitiveadvantage [24], [45], while others have ended up playing this difficult and expensive game withoutderiving any benefits from IT [36]. Therefore, aligningIT investment strategies with business objectives becomes a key factor for sustaining competitiveadvantage. In addition, IT capabilities may play amoderating role that affects strategic alignment, and areviewed as organizational capabilities [6].

2. The Foundation

Although the literature on IT strategic planning processes has been growing, only few empirical studiesassociating strategic alignment with competitiveadvantage exist. Since available theories on which to base our research model are limited, the major theoretical perspectives selected are drawn fromcontingency theory, resource-based theory, andstrategic management theory.

2.1. Contingency Theory

Two current perspectives of contingency theory(CT), derived from Thompson's [51] concept of uncertainty are:

effectiveness

[53] and

resource-dependency

[40]. Organization e

ffectiveness

can beachieved in more than one way, and depends onappropriate matching (or fit) of contextual factors withinternal organizational designs [53].

Resourcedependency

further emphasizes environmentaladaptation in the face of dependency on externalorganizations [40]. It has been more explicit about amanager’s exercise of strategic choice within theseexternal constraints [25]. Within these two perspectives, four relevant CT–IT concepts are brieflysummarized as follows.

2.1.1. Strategy Formulation.

Strategy formulationreflects an organization’s response to its particular environment and mediates the effective organization-environment relationship [1]. Hence, CT helpsorganization strategy formulators (e.g., topmanagement) identify alternative strategic options tomatch various internal and external characteristics of the organization [10], [16], [26], [35]. Many scholarshave considered the IT–business alignment process asstrategy formulation [28].

2.1.2. Organizational Strategy.

Within CT,organizational strategy is a generic view that postulatesthe existence of commonalities among organizations byadapting to the environment and sustaining competitiveadvantage [41]. In many strategic option studies, thewell-known business-level strategy implicationframework of Miles and Snow [34] is used, because itfocuses on strategy formulation at the total system levelrather than at the subunit level. More importantly, it builds upon “

distinctive competenc

e” [17]. Each of Miles and Snow’s [34] four strategic types (e.g.,defender, prospector, analyser, and reactor) has its own particular configuration of technical and administrative processes consistent with each strategy. Empiricaltesting has shown their strong correlation with theextent of IT



business strategy alignment [17], [19],[52].

2.1.3. IT Management Strategy.

The extent to whichIT management strategy is pursued depends on the ITmanagement sophistication of an organization [17]. ITmanagement sophistication is defined as the progression towards increasingly formalizedmanagement of the Information Systems (IS) function[25]. A higher level of IT management sophisticationindicates a significant formalization of planning [42],control [8], organization [7], and integration [21] of ITactivities. In past IS studies, contextual factors such asthe IS function and IT investment are characterized byIT management sophistication in exploring the strategyformulation practices associated with strategic IT [5],[24], [26], [45]. IT management sophistication should be linked to business strategy [17].

2.1.4. Managerial Perceptions.

Although CTemphasizes how external environmental constraintsaffect internal organization dynamics, Reich [44]argues that the extent of mutual understanding betweenchief information officers (CIOs) and chief executiveofficers (CEOs) would affect the fit between businessand IT objectives [40]. In a sense, the perceivedexternal environmental uncertainty is a key determinantof the type of IT [12], and affects the strategicdeployment of IT [38]. To meet environmentaldemands, internal adjustment can be explained in termsof the perceived need to change strategic propertiessuch as distinctive competence, capabilities and other internal resources [1].

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2.2. Resource-based Theory

Embodying distinctive competence, heterogeneity,and internal resource constraint perspectives [4], [39],[55], the resource-based view (RBV) examinesdifferences in accumulation of assets and assetspecificity to determine why some organizations enjoylong-term success that cannot be attributed to externalcontextual factors (e.g., industry structure, entry barriers, powers of suppliers, and powers of buyers[41]. Further, success depends on an organization’s power to acquire and utilize resources, its capacity toinnovate, and the ability of management to deployresources effectively [47]. Two relevant RBV–ITconcepts are briefly summarized as follows.

2.2.1. Sustained Competitive Advantage.

For thesustained competitive advantage of an organization, itsresources must be valuable, rare, inimitable, non-substitutable [14], and not easily duplicated bycompeting rivals [4], according to assertions of heterogeneity and immobility underling RBV. Despitefew and immature empirical and theoretical studies onthe relation between IT and sustained competitiveadvantage [23], the use of the former is treated as a possible source of the latter [11]. This is because IT isdeeply embedded in formal and informal planning practices that may be rare, and which create sociallycomplex systems (e.g., highly experienced ITmanagement teams), which are costly to imitate [33],[4].

2.2.2. IT Capabilities.

Given that capabilities refer toan organization's ability to combine, integrate, anddeploy valued resources [50], IT capabilities indicatethe organization’s ability to mobilize and deploy IT- based resources through combination or co-presencewith other resources and capabilities [6]. Successful ITcapabilities are organization-specific. They createinvisible assets through causal ambiguity and theyleverage socially complex resources evolved over time[26]. Such invisible assets include IT management practices enabling the use of IT for sustainedcompetitive advantage through strategic alignment processes [4].

2.3. Strategic Management Theory

According to the literature on CT and RBV,strategic management theory (SMT) provides threeconditions essential to an organization's success:formulation and implementation of business goals,identification of internal strengths and weaknesses withexternal threats and opportunities, and creation andexploitation of unique organization capabilities [26]. Ina sense, SMT defines achievement of sustainedcompetitive advantage as the appropriate match of internal organizational capabilities and externalenvironmental uncertainty [2]. Two relevant SMT–ITconcepts are briefly summarized as follows.

2.3.1. Planning Process.

The planning process is acomplex activity periodically examining corporatevision/mission statements, strategies, and committedresources. Such a process needs the participation of allkey managers (e.g., CIOs and CEOs) [18]. Contextualfactors, such as internal organizational attributes, andexternal environmental uncertainty, are also examinedin the decision-making process and help advance ITdevelopment [26]. Therefore, IT research has relied oninsights from SMT into the influence of contextualfactors and opportunities exploited for competitiveadvantage [24].

2.3.2. Strategic Alignment.

The planning process mayinvolve perceived internal need for change [1],including strategic alignment. Despite many challengesto the direct relation between IT and organization performance, a particular relationship between IT and business strategy can be accurately described byalignment [19]. Researchers have argued that theinability to realize value from IT investment is, in part,due to mismatch between IT and business strategy [32].In this sense, properly exploiting IT as a st

rategicresource has been viewed as important for sustained competitive advantag

e [41].

3. The Conceptual Model and ResearchHypotheses

Many studies have recognized the influence of external environmental and internal organizationalattributes on alignment of IT–business strategy. Incontrast to Reich [44] and Jang’s [22] models, whichdo not include the relationship between strategicalignment and organizational impact, and Chan [9] andKearns’ [26] models, which do not include the role of IT capabilities and their importance to the organization,this research is based on the model below and on thehypotheses formulated to clarify the relationships between the components.

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