INVESTIGATING THE INFLUENCE OF IT CAPABILITY ON SUSTAINABLE COMPETITIVE ADVANTAGE

Abstract

Investments in information technology (IT) form a substantial portion of capital expenditure of firms, and organizations are constantly looking for ways in which IT can be used to attain sustained profitability. However, there is scarcity of empirical studies that have examined whether IT can provide sustained competitive advantage to firms in major emerging economies such as India. The present study seeks to fill this gap by empirically testing the influence of IT capability on sustained competitive advantage in context of India. The empirical tests were conducted at two levels: (1) at aggregate level by using combined data from 15 different industries; and (2) at industry level by using data from the chemicals and chemical products industry. Yet another area that this research has examined is the impact of IT capability on firm risk. The value of a firm is assessed on the basis of returns as well as risk and, therefore, it is important to examine the impact of IT on firm risk as well. However, the influence of IT on firm risk has not got the research attention that it deserves, and is still an under-researched area. While advancements in IT have significantly improved productivity of firms, they have come with their own set of risks. Even minor errors in IT systems, whether technical or human, have the potential of causing significant damage to the firm. Therefore, it is important to examine the impact of IT capability on firm risk as well. Despite the fact that risk is an important component in evaluating the financial performance of a firm, very limited research has been done to investigate the impact of IT capability on firm risk. Furthermore, the few studies that have attempted to explore this area, have done so in context of developed economies. Whether the results obtained from these studies are applicable to emerging economies such as India, is a question that needs further investigation. The present study seeks to fill this gap by examining the impact of IT capability on firm risk for firms that operate in India (domestic firms as well as Indian subsidiaries of multinational corporations). The results at aggregate level demonstrate that superior IT capability is not associated either with higher profits or with lower overall costs or with higher sales growth. However, the analysis at industry level suggest that there is positive association between superior IT capability and return on sales, and that this superior performance in terms of better return on iii sales is sustainable over a period of time. The results also demonstrate that superior IT capability is associated with significant increase in firm risk at aggregate level as well as at industry level.