On the contingent value of IT-based capabilities for the competitive advantage of SMEs: Mechanisms and empirical evidence

Abstract This article assesses the value of the capabilities developed through the use of Information Technology (IT) in Small and Medium Enterprises (SMEs), by analysing whether these capabilities are a determinant of the intra-industry differential in their performance. Our work makes two principal contributions to the understanding of the value of IT. First, the article shows that externally oriented IT-based capabilities have a greater impact on the firm’s intra-industry differential in revenue growth and profitability than those capabilities focused on efficiency improvement, namely internally oriented IT-based capabilities. Essentially, this result is consistent with two facts: i) the greater importance that market and supply chain relationships have for firms with a limited scale compared to efficiency improvement, and ii) the greater social and organizational complexity captured by IT use in firm’s external relationships. Second, through a contingent perspective, our article shows that the returns of externally oriented IT-based capabilities are more likely to provide performance advantages to SMEs in contexts of low munificence and low dynamism. This evidence thus highlights that under these environmental conditions, IT is more likely to hinder than to facilitate SMEs’ ability to respond to market changes and new opportunities.