IT as a Resource for Competitive Agility: an Analysis of Firm Performance during Industry Turbulence

INTRODUCTION The contemporary business environment is marked by increasing intensity of competition and a fast pace of change in markets and customer expectations. It is therefore becoming increasingly crucial that firms obtain and exercise the ability to rapidly sense and respond to changes in their environment. This ability is known generally as agility (Dove, 2001) and has been referred to as "strategic agility" (Weill, Subramani, & Broadbent, 2002), "competitive agility" (Goldman, Nagel, & Preiss, 1995), "business agility" (Mathiassen & Pries-Heje, 2006), and "enterprise agility" (Overby, Bharadwaj, & Sambamurthy, 2006) over the course of much recent discussion about this key ingredient to success. We choose the term competitive agility since an agile business will gain a competitive advantage by quickly collecting information about and making sense of changes in its environment, and efficiently responding in kind. Competitive agility is particularly relevant when firms operate in complex and turbulent markets. More "agile" firms attempt to seize competitive advantage in a disruptive period through innovative products, services, and alliances. As part of the endeavor to understand how IT facilitates competitive advantage (Evans & Neu, 2008; Lea, 2005), researchers hypothesize that IT capability enables firms to gather and assimilate information more quickly and effectively and thereby improves their competitive agility in responding to market disruptions (Overby et al., 2006; Sambamurthy, Bharadwaj, & Grover, 2003). If so, IT is an enabler of agility and investment in IT will in turn impact the ultimate success of a firm. In fact, for many decades the relationship between investment in IT and firm performance has been tested to varying degrees of success. Researchers have cited conflicting anecdotal and case evidence with regard to the link between IT investment and firm performance. Several studies (Bharadwaj, 2000; Bharadwaj, Bharadwaj, & Konsynski, 1999; Brynjolfsson & Hitt, 1995, 1996, 2003; Dewan & Min, 1997; Melville, Kraemer, Gurbaxani, 2004) have found a positive relation between firm performance and IT expenditures. These studies measure performance in terms of firm productivity/output. A few studies with similar findings supporting the relationship between IT and firm performance have used financial measures of performance (Bharadwaj 2000; Bharadwaj et al., 1999; Kobelsky et al., 2008). Still, other studies failed to find conclusive evidence of the business value of IT (Cron & Sobol, 1983; Stiroh, 1998) and even found some cases of diminishing returns (Evans & Morton, 2004). Researchers refer to the surprising lack of empirical evidence that IT expenditures benefit firms as the "productivity paradox" which has even led to a fierce debate over whether or not IT "matters" (Carr, 2003a, 2003b). Data problems (Brynjolfsson & Hitt, 1996), sample size, data source, and industry (Kohli & Devaraj, 2003) have all been said to affect the findings in information technology payoff studies. Furthermore, even when correlations are detected, direction of causality is often in question. The analysis that follows uses a unique methodological approach to elucidate its IT payoff findings. In addition, there has been little research that examines the impact of industry conditions on the relationship between IT investment and firm performance. Therefore, the following research study identifies this relationship specifically in times of industry turbulence (downturn or growth). Study of the relationship between IT investment and firm performance in the context of industry turbulence will give us insight into the success of IT investments in their role of enhancing the agility of the firms they serve. RESEARCH QUESTION Thus, the goal of the current study is to explore whether IT enhances a firm's agility. To determine this, the following research question underlies our study. …