Information Technology and Firm Performance: The Role of Innovation

There is an essential quest in the literature to open up the “black box” of Information Technology (IT) by identifying and explaining how and why IT creates value for the firm. The present dissertation is an attempt to clarify the role of innovation in the process of value creation from IT investments. It belongs to the mainstream of “IT business value” research. After an introduction of the topic in the first chapter, the second chapter identifies the six primary roles of IT as a general purpose technology. These roles, in the order of strategic value for the firm, are: (1) Transformation, (2) Integration, (3) Coordination, (4) Automation, (5) Communication, and (6) Information. The proposed descriptive IT typology in this chapter is evaluated through two rounds of in-depth problem-centered, qualitative interviews with a panel of 54 senior IT managers and consultants. The third chapter studies one of the many ways through which IT improves the performance of product innovating firms. IT is found to be a significant determinant of the diversity of a firm’s R&D alliances. In return, partner diversity significantly contributes to innovation performance, yet through a sigmoid pattern. The chapter relies on a representative sample of 12,811 innovating firms in the Netherlands over the period 1994-2006 and concludes that stakeholder diversity of R&D partners is more important to radical innovations of the firm while the geographic diversity is mainly important to incremental innovations. The fourth chapter focuses on the performance effects of a specific class of IT assets, i.e. enterprise systems. Four aspects of firm performance are analyzed: (1) productivity, (2) turnover, (3) market share, and (4) profitability. Using a sample of 33,442 enterprises in 29 European countries in the period 2003-2007, the analysis of this chapter sheds light on the significant mediating role of product and process innovation in creating value from enterprise systems. The results also imply that less complex and more domain-specific systems are easier to understand, learn, adjust and use by employees and hence more likely to result in successful implementations. Chapter five studies complementarity effects and clustering patterns between IT and three dimensions of organizational innovation: (1) process changes, (2) structure changes, and (3) boundary changes. The findings, on the basis of a panel of 32,619 firms in the Netherland during 1994-2006, imply significant complementarities such that organizational change initiatives of the firm do not lead to productivity improvement or even result in productivity decline if they are not combined with appropriate levels of IT capital stocks. These clustering patters are found to be stronger in services than in manufacturing firms. The proposed method in this chapter is an attempt to mitigate endogeneity concerns that are dominant in IT business value research and allows us to conclude that a significant part of the productivity enhancements normally attributed to IT are rather contributions from the firm’s change initiatives that are initiated or provoked by IT. The dissertation concludes with managerial implications of the research and recommends several areas with promising potential for future research