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Tit le :

A uth ors :

S ourc e:

D ocu m en t T y p e:

S ubje ct T e rm s:

A uth or-S upplie d K eyw ord s:

A bstr a ct:

A uth or A fﬁ lia tio ns:

F ull T e xt W ord C ount:

IS SN :

Accessio n N um ber:

D ata b ase:

S ectio n:

Record: 1

H O W IN FO RM AT IO N T E C HNO LO GY S TR AT E G Y A N D IN VESTM EN TS IN FLU EN CE F IR M

PER FO RM AN CE: C O NJE C TU RE A N D E M PIR IC AL E VID EN CE1.

M it h as, S unil s m it h as@ rh sm it h .u m d.e du

R ust, R ola nd T . r ru st@ rh sm it h .u m d.e du

M IS Q uarte rly . M ar2 016, V ol. 4 0 Is su e 1 , p 223-2 46. 2 4p. 7 C harts , 4 G ra phs.

A rtic le

* IN FO RM AT IO N te ch nolo gy

*F IN AN CE

*M AR KET v a lu e

*B U SIN ESS r e ve nue

*T O BIN 'S Q r a tio

* C O ST c o ntr o l

co st r e ductio n

dual e m phasis

ﬁ rm p erfo rm ance

In fo rm atio n te ch nolo gy s tr a te gic e m phasis

I T a m bid exte rit y

IT in ve stm ents

IT s tr a te gic a m bid exte rit y

p ro ﬁta bilit y

r e ve nue g ro w th

In th is p aper, w e d eve lo p c o nje ctu re s fo r u nders ta ndin g h ow in fo rm atio n te ch n olo gy ( IT ) s tr a te gy a nd IT

in ve stm ents jo in tly in ﬂu ence p ro ﬁta bilit y a nd th e m ark e t v a lu e o f th e ﬁ rm . W e v ie w IT s tr a te gy a s a n

exp re ssio n o f th e d om in ant s tr a te gic o bje ctiv e th at th e ﬁ rm c h o ose s to e m ph asiz e , w hic h c a n b e r e ve nue

exp ansio n, c o st r e ductio n, o r a d ual e m ph asis in w hic h b oth g oals a re p urs u e d. U sin g d ata fr o m m ore th an

300 ﬁ rm s in th e U nit e d S ta te s, w e ﬁ n d th at a t th e m ea n v a lu e o f IT in ve stm en ts , ﬁ rm s w it h a d ual IT s tr a te gic

e m phasis h ave a h ig her m ark e t v a lu e a s m ea su re d b y T o bin 's Q th an ﬁ rm s w it h a r e ve nue o r a c o st

e m phasis , b ut th ey h ave s im ila r le ve ls o f p ro ﬁta bilit y . O f g re ate r im po rta nce , IT s tr a te gic e m phasis p la ys a

s ig niﬁ ca nt r o le in m odera tin g th e r e la tio nsh ip b etw een IT in ve stm en ts a nd ﬁ rm p erfo rm ance . D ual- e m phasis

ﬁ rm s h ave a s tr o nger IT –To bin 's Q r e la tio nsh ip th an r e ve n ue-e m ph asis ﬁ rm s. D ual- e m phasis ﬁ rm s a ls o h ave

a s tr o nger IT – p ro ﬁta bilit y r e la tio nsh ip th a n e it h er r e ve n ue- o r c o st- e m ph asis ﬁ rm s. O ve ra ll, th ese ﬁ n din gs

im ply th at, a t lo w le ve ls o f IT in ve stm ent, th e ﬁ rm m ay n eed to c h o ose b etw een r e ve nue e xp ansio n a nd c o st

re ductio n, b ut a t h ig her le ve ls o f IT in ve stm en t, d ual- e m ph asis in IT s tr a te gy o r IT s tr a te gic a m bid exte rit y

in cre asin gly p ays o ff . [A BSTR AC T F R O M A U TH O R]

Copyrig ht o f M IS Q uarte rly is th e p ro perty o f M IS Q uarte rly a nd it s c o n te nt m ay n ot b e c o pie d o r e m aile d to

m ult ip le s it e s o r p oste d to a lis ts e rv w it h out th e c o p yrig ht h old er's e xp re ss w rit te n p erm is sio n. H ow eve r, u se rs

m ay p rin t, d ow nlo ad, o r e m ail a rtic le s fo r in div id ual u se . T his a bstr a ct m ay b e a brid ged. N o w arra nty is g iv e n

about th e a ccu ra cy o f th e c o py. U se rs s h ould r e fe r to th e o rig in al p ublis h e d v e rs io n o f th e m ate ria l fo r th e fu ll

a bstr a ct. ( C opyrig ht a pplie s to a ll A bstr a cts .)

P ro fe sso r, R obert H . S m it h S ch ool o f B usin ess, U niv e rs it y o f M ary la nd

V is it in g C hair , M ark e tin g R ese arc h , E ra sm us U niv e rs it y

1 5379

0276-7 783

11 2750564

A ca dem ic S earc h C om ple te

R ESEAR CH N O TE S

H O W IN FO RM ATIO N T E C HNO LO G Y S TR ATE G Y A ND IN VESTM EN TS IN FLU EN CE F IR M P ER FO RM ANCE: C O NJE C TU RE

A ND E M PIR IC AL E VID EN CE1

In th is p aper, w e d eve lo p c o nje ctu re s fo r u nders ta ndin g h ow in fo rm atio n te ch n olo gy ( IT ) s tr a te gy a nd IT in ve stm ents jo in tly in ﬂu ence p ro ﬁta bilit y a nd

th e m ark e t v a lu e o f th e ﬁ rm . W e v ie w IT s tr a te gy a s a n e xp re ssio n o f th e d om in ant s tr a te gic o bje ctiv e th at th e ﬁ rm c h oose s to e m phasiz e , w hic h c a n

be r e ve nue e xp ansio n, c o st r e ductio n, o r a d ual e m ph asis in w hic h b oth g oals a re p urs u ed. U sin g d ata fr o m m ore th an 3 00 ﬁ rm s in th e U nit e d

S ta te s, w e ﬁ n d th at a t th e m ean v a lu e o f IT in ve stm en ts , ﬁ rm s w it h a d ual IT s tr a te gic e m phasis h ave a h ig her m ark e t v a lu e a s m easu re d b y T o b in ’s

Q th an ﬁ rm s w it h a r e ve nue o r a c o st e m ph asis , b ut th ey h ave s im ila r le ve ls o f p ro ﬁta bilit y . O f g re ate r im porta nce , IT s tr a te gic e m phasis p la ys a

s ig niﬁ ca nt r o le in m odera tin g th e r e la tio nsh ip b etw een IT in ve stm en ts a nd ﬁ rm p erfo rm ance . D ual- e m phasis ﬁ rm s h ave a s tr o nger IT –To bin ’s Q

r e la tio nsh ip th an r e ve nue-e m phasis ﬁ rm s. D ual- e m ph asis ﬁ rm s a ls o h ave a s tr o nger IT – p ro ﬁta bilit y r e la tio nsh ip th an e it h er r e ve nue- o r c o st-

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em phasis ﬁ rm s. O ve ra ll, th ese ﬁ n din gs im ply th at, a t lo w le ve ls o f IT in ve stm en t, th e ﬁ rm m ay n eed to c h oose b etw een r e ve nue e xp ansio n a nd c o st

re ductio n, b ut a t h ig her le ve ls o f IT in ve stm en t, d ual- e m ph asis in IT s tr a te gy o r IT s tr a te gic a m bid exte rit y in cre asin gly p ays o ff .

K eyw ord s: IT a m bid exte rit y ; IT s tr a te gic a m bid exte rit y ; ﬁ rm p erfo rm an ce ; p ro ﬁta bilit y ; IT in ve stm ents ; r e ve nue g ro w th ; c o st r e ductio n; d ual

em phasis ; In fo rm atio n te ch nolo gy s tr a te g ic e m ph asis

I n tr o ductio n

Fir m s s p end s ig niﬁ ca nt s u m s o f m oney o n in fo rm atio n te ch n olo gy ( IT ) r e so u rc e s, y e t th ey a re o fte n c h alle nged in d eve lo pin g a ppro pria te s tr a te gie s

to d ir e ct th ese r e so urc e s to r e aliz e b usin ess v a lu e ( fo r a d is cu ssio n, s e e K ohli a nd D eva ra j 2 004). P re vio us r e se arc h h as s tu die d e it h er th e im pact

o f IT in ve stm ents o n ﬁ rm p erfo rm ance ( e .g ., B aru a a nd M ukh o padhya y 2 000; D edric k e t a l. 2 003; H oadle y a nd K ohli 2 014; K ohli a nd D eva ra j 2 003;

K ohli e t a l. 2 012) o r th e e ff e ct o f IT s tr a te g ic e m ph asis o n ﬁ rm p erfo rm an ce ( e .g ., L eid ner e t a l. 2 011 ; O h a nd P in so nneault 2 007; T a llo n 2 007; T a llo n

et a l. 2 000). H ow eve r, fe w s tu die s fo cu s o n th e e ff e ct o f IT in ve stm en ts a nd IT s tr a te gic e m phasis s im ult a neously . G iv e n th at p ro ﬁt is e qual to

r e ve nue m in us c o st, it is c le ar th at th ere a re th re e s tr a te gic p ath s fr o m IT to ﬁ rm p erfo rm ance : IT c a n b e u se d to ( 1) r e duce c o sts b y im pro vin g

pro ductiv it y a nd e fﬁ cie ncy; ( 2) in cre ase r e ve nues b y fu lly e xp lo it in g o p portu nit ie s th ro ugh e xis tin g c u sto m ers , c h annels , a nd p ro ducts / s e rv ic e s a nd

by ﬁ n din g o r c re atin g n ew c u sto m ers , c h a nnels , a nd p ro ducts /s e rv ic e s; o r ( 3) r e duce c o sts a nd in cre ase r e ve nues s im ult a neously . W hat is n ot c le ar

is th e r e la tiv e d egre e to w hic h th ese s tr a te gie s a nd IT in ve stm en ts jo in tly in ﬂu e nce ﬁ rm p erfo rm ance . In o th er w ord s, d esp it e s ig niﬁ ca nt p ro gre ss in

t h e lit e ra tu re w it h r e gard to u nders ta ndin g th e b usin ess v a lu e o f IT , lit tle is k n o w n a bout h ow IT s tr a te gy m odera te s th e r e la tio nsh ip b etw een IT

in ve stm ents a nd ﬁ rm p erfo rm ance .

T his s tu dy s e eks to a nsw er th e fo llo w in g r e se a rc h q uestio n: H ow d o IT s tr a te gic e m phasis a nd in ve stm ents in IT r e so urc e s a ff e ct ﬁ rm p erfo rm ance ?

To a nsw er th is q uestio n, w e p ro pose c o n je ctu re s th at lin k IT s tr a te gy a nd IT in ve stm ents w it h ﬁ rm p erfo rm ance . A lt h ough ﬁ rm p erfo rm ance is a

m ult id im ensio nal c o nce pt ( R ic h ard e t a l. 2 009), fo llo w in g r e ce n t w ork ( K ohli e t a l. O w 2 012), w e u se tw o c o m ple m enta ry m easu re s o f ﬁ rm

p erfo rm ance in th is s tu dy ( p ro ﬁta bilit y a nd m ark e t v a lu e) w hic h r e la te to b oth fu ndam enta ls a nd s to ck m ark e t a sse ssm ent ( fo r a d is cu ssio n, s e e

B la nch ard e t a l. 1 993; H enw ood 1 997). W e e m pir ic a lly te st th e c o n je ctu re s u sin g a rc h iv a l d ata fr o m m ore th an 3 00 U .S . ﬁ rm s.

O ur w ork is r e la te d to b ut d is tin ct fr o m p rio r r e se a rc h lin kin g IT in ve stm en ts w it h p ro ﬁta bilit y a nd T o b in ’s Q ( B hara dw aj e t a l. 1 999; K ohli e t a l. 2 012;

M it h as e t a l. 2 012; T a fti e t a l. 2 013) b eca use w e a ls o c o n sid er th e e ff e ct o f IT s tr a te gy, p erh aps fo r th e ﬁ rs t tim e u sin g a d ata s e t th at h as in fo rm atio n

on b oth IT in ve stm ents a nd IT s tr a te gy. O ur c o n tr ib utio n is to s h o w th at th e ﬁ rm ’s IT s tr a te gic e m phasis m odera te s th e r e la tio nsh ip b etw een IT

in ve stm ents a nd ﬁ rm p erfo rm ance ; ﬁ rm s w it h a d ual e m ph asis h ave h ig her p ro ﬁta bilit y a nd m ark e t v a lu e a t h ig her le ve ls o f IT in ve stm ents . In o th er

w ord s, s u cce ssfu l d ual IT e m phasis a ppea rs to r e quir e h ig her le ve ls o f IT in ve stm ents . A k e y in sig ht fr o m o ur r e su lt s is th at IT in ve stm ents a nd IT

s tr a te gy s h ould n ot b e v ie w ed s e para te ly fr o m e ach o th er a nd th at ﬁ rm s n eed to s yn ch ro niz e th eir IT in ve stm ent le ve ls a nd th eir IT s tr a te gie s fo r

im pro ve d p erfo rm ance . T he s tu dy h as im plic a tio ns fo r ﬁ rm s a s th ey c o n sid er a doptin g d ual s tr a te gie s in in cre asin gly tu rb ule nt m ark e ts . T hus, th is

s tu dy n ot o nly a nsw ers a n in te re stin g a nd m an ageria lly r e le va n t e m pir ic a l r e se a rc h q uestio n b ut a ls o p ro vid es d ir e ctio ns fo r m otiv a tin g a p ro gra m o f

re se arc h to c la rif y a nd e la bora te th e ﬁ n din gs th ro ugh fu rth er th eore tic a l o r e m pir ic a l w ork .

B ackg ro und a n d T heo ry

Background

O ur r e vie w o f p rio r lit e ra tu re s u ggests th at d esp it e m uch p ro gre ss in th e b usin ess v a lu e o f IT lit e ra tu re , tw o o pportu nit ie s fo r c o ntr ib utio ns r e m ain .

F ir s t, a lt h ough p rio r s tu die s h ave d is cu sse d th e r e la tio nsh ip b etw een IT s tr a te gy a nd p erfo rm ance , a nd IT in ve stm ents a nd p erfo rm ance , fe w

stu die s fo cu s o n h ow IT s tr a te gic e m pha sis a nd in ve stm en t le ve l jo in tly a ff e ct p erfo rm ance . W e d eﬁn e IT s tr a te gic e m phasis a s th e d om in ant

str a te gic o bje ctiv e th at th e ﬁ rm c h oose s to e m ph asiz e in it s IT s tr a te gy, w hic h c a n b e r e ve nue e xp ansio n, c o st r e ductio n, o r a d ual- e m phasis in

w hic h b oth g oals a re p urs u ed. O th er s tu die s h ave u se d o th er te rm s s u ch a s IT s tr a te gic o rie nta tio n a nd IT s tr a te gic fo cu s to r e fe r to s im ila r id eas.

A m ong p rio r in fo rm atio n s yste m s ( IS ) r e se arc h o n th e d ir e ct e ff e cts o f s tr a te gic e m phasis o n ﬁ rm p erfo rm ance , T a llo n e t a l. ( 2 000) ﬁ n d th at

exe cu tiv e s in ﬁ rm s w it h m ore fo cu se d IT g oals ( e .g ., o pera tio ns fo cu s, m ark e t fo cu s, d ual fo cu s) p erc e iv e g re ate r p ayo ff s fr o m IT a cro ss th e v a lu e

ch ain . S ubse quently , T a llo n ( 2 007) u se s T re acy a nd W ie rs e m a’s ( 1 993) ty p o lo gy ( o pera tio nal e xce lle nce , c u sto m er in tim acy, a nd p ro duct

le aders h ip ) a nd ﬁ n ds th at IT b usin ess v a lu e is th e h ig hest in ﬁ rm s w it h a m ult if o cu se d b usin ess s tr a te gy a nd lo w est in th ose w it h a s in gle fo cu s. O h

and P in so neault ( 2 007) s tu dy th e s tr a te gic v a lu e o f IT in te rm s o f th e d eplo ym ent o f IT a pplic a tio ns ( c o st r e ductio n, q ualit y im pro ve m ent, a nd

re ve nue g ro w th ) a nd ﬁ n d th at c o ntin gency a ppro ach e s b ette r e xp la in th e im pa ct o f c o st- re la te d a pplic a tio ns w hile a r e so urc e -c e nte re d p ers p ectiv e

b ette r p re dic ts th e im pact o f IT o n r e ve nu e a nd p erc e iv e d p ro ﬁta bilit y ; h ow eve r, th ey d o n ot s tu dy th e e ff e ct o f d ual o r m ix e d e m phase s. L eid ner e t

al. ’s ( 2 011 ) e xp lo ra to ry r e su lt s s u ggest th a t IS a m bid extr o us ﬁ rm s ( ﬁ rm s p urs u in g a n IS in nova to r a nd a n IS c o nse rv a tiv e s tr a te gy a t th e s a m e tim e)

had h ig her p erc e iv e d o rg aniz a tio nal p erfo rm an ce . N one o f th ese s tu die s in ve stig ate s h ow IT s tr a te gic fo cu s m odera te s th e r e la tio nsh ip b etw een IT

in ve stm ents a nd ﬁ rm p erfo rm ance , w hic h is th e fo cu s o f th e c u rre nt s tu dy.

S eco nd, a lt h ough p rio r r e se arc h in m ark e tin g p ro vid es u se fu l in sig hts fo r th e e ff e ct o f s tr a te gic e m phase s in te rm s o f q ualit y s tr a te gy o r c u sto m er

fo cu s o n ﬁ rm p erfo rm ance , th e e xte nt to w hic h th eir ﬁ n d in gs a pply to IT s tr a te gy is a n o pen e m pir ic a l q uestio n. F or e xa m ple , R ust e t a l. ( 2 002) s h ow

th at ﬁ rm s w it h a r e ve nue g ro w th e m phasis in th eir q ualit y s tr a te gy o utp erfo rm ﬁ rm s w it h a c o st r e ductio n e m phasis , a nd ﬁ rm s w it h a p rim ary

e m phasis o n e it h er r e ve nue g ro w th o r c o st r e ductio n o utp erfo rm ﬁ rm s th at a tte m pt a d ual e m phasis . F urth er r e se arc h ( R ust e t a l. 2 016) s h ow s th at

a r e ve nue e m phasis a nd c o st e m phasis a re c u lt iv a te d in d if f e re nt w ays, w it h a r e ve nue e m phasis p ro pagatin g “ b otto m u p” a nd a c o st e m phasis

p ro pagatin g “ to p d ow n.” T hese r e su lt s ill u str a te th e c o m ple xit ie s o f q ualit y m an agem ent, a nd a re g enera lly c o nsis te nt w it h th e n otio n o f tr a de-o ff s

a m ong d if f e re nt s tr a te gic e m phase s in t h e s tr a te gy lit e ra tu re ( P orte r 1 980). M it ta l e t a l. ( 2 005) s tu dy th e m odera tin g e ff e ct o f d ual e m phasis o n th e 7/30/2019 EBSCOhost

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asso cia tio n b etw een c u sto m er s a tis fa ctio n a nd lo ng-te rm p erfo rm an ce a nd r e port th at a sso cia tio n b etw een c u sto m er s a tis fa ctio n a nd T o b in ’s Q is

p osit iv e a nd r e la tiv e ly s tr o nger fo r ﬁ rm s th at s u cce ssfu lly a ch ie ve a d ual e m ph asis .

W it h th is b ackd ro p, o ur w ork s e eks to a dva n ce o ur u nders ta ndin g o f h ow IT s tr a te gic e m phasis a nd in ve stm ents in IT r e so urc e s a ff e ct ﬁ rm

p erfo rm ance . W e c o nce ptu aliz e IT s tr a te gy in te rm s o f r e ve n ue fo cu s a nd c o st fo cu s. O ur a ppro ach is c o nsis te nt w it h r e ce nt s tu die s th at h ave

a rtic u la te d s tr a te gic fo cu s in te rm s o f o bje ctiv e m etr ic s, s u ch a s r e ve n ues o r c o sts in a ﬁ rm ’s in co m e s ta te m ent, to m ore d ir e ctly a sse ss th e im pact

o f s u ch c o st- o r r e ve nue-fo cu se d s tr a te gie s o n ﬁ rm p erfo rm an ce ( K ohli 2 007; O h a nd P in so nneault 2 007; R ust e t a l. 2 002). C hie f in fo rm atio n

ofﬁ ce rs ( C IO s) a ls o ﬁ n d th is r e ve nue a nd c o st ty p o lo gy m ore u se fu l, a s r e ﬂe cte d in c o m ments b y A str a Z eneca ’s C IO ( H ic kin s 2 012):

T he k e y to w in nin g a ppro va l fr o m e xe cu tiv e m an agem en t a nd b oard s… is to ta lk a bout IT p ro je cts in te rm s o f th e b usin ess o pportu nit ie s th ey a ff o rd .

“A re y o u g oin g to g enera te a ddit io nal r e ve n ue o r a re y o u g oin g to r e duce th e c o st s tr u ctu re ” o f th e o rg aniz a tio n.

R ece nt IS r e se arc h h as a ckn ow le dged t h is n eed to u se b usin ess-o rie nte d m etr ic s a s IT in cre asin gly ta ke s o n a m ore s tr a te gic r o le in c o rp ora tio ns,

a nd r e se arc h s u ggests th at u se o f b usin e ss te rm s “ h elp s IT p ers o n nel fo cu s e ve n m ore c le arly o n b usin ess v a lu e” ( M it r a e t a l. 2 011 , p . 5 7).

B esid es, s u ch o bje ctiv e m etr ic s le nd th em se lv e s fo r b ette r ta rg et- s e ttin g a nd m on it o rin g o f p ro gre ss to e nable tim ely c o rre ctiv e a ctio ns th at a re

d ir e ctly tie d to ﬁ rm p erfo rm ance .

A lt h ough IT , b ein g a g enera l- p urp ose te ch nolo gy, c a n b e v ie w ed a s b ein g c a p able o f b oth in cre asin g r e ve nues a nd r e ducin g c o sts , d oes th is m ean

th at ﬁ rm s n o lo nger h ave to c h oose a s tr a te gic e m ph asis ? C hoosin g a p artic u la r s tr a te gy im plie s m akin g s o m e tr a de-o ff s ( H in do 2 007; S kin ner

1986)— th at is , c h oosin g s o m e g oals a nd fu nctio nalit ie s w hile fo rs a kin g o th ers in th e h ope th at th e o ve ra ll c o m bin atio n o f c h oic e s w ill e nsu re a

b ette r ﬁ t fo r o rg aniz a tio nal a ctiv it ie s in th e v a lu e c h a in a nd w ill m ake th at ﬁ t le ss r e plic a ble fo r c o m petit o rs ( P orte r 1 996). A cco rd in gly , ﬁ rm s o fte n

ch oose b etw een r e ve nue e xp ansio n o r c o st r e ductio n in th eir s tr a te gic IT e m ph asis . F or e xa m ple , th e C IO o f F edE x, R obert C arte r, c o ntr a sts

F edE x’s a ppro ach to IT w it h th at o f U PS in th e fo llo w in g w ay:

W e te nd to fo cu s s lig htly le ss o n o pera tio nal te ch n olo gy. W e fo cu s a lit tle m ore o n r e ve nue-g enera tin g, c u sto m er-s a tis fa ctio n-g enera tin g, s tr a te gic -

a dva nta ge te ch nolo gy. T he k e y fo cu s o f m y jo b is d riv in g te ch n olo gy th at in cre ase s th e to p lin e ( C olv in 2 006).

In o th er w ord s, in C arte r’s v ie w , F edE x h a s a r e ve n ue e m ph asis w hile U PS h as a c o st e m phasis . K ohli’s ( 2 007) w ork w it h U PS s u ggests th at th e

co m pany m ay b e u sin g IT fo r r e ve nue g ro w th a s w ell. H ow eve r, a t th e 2 014 F ro ntie rs in S erv ic e C onfe re nce , R om ain e S eguin , P re sid ent o f U PS

A m eric a s R egio n, in dic a te d in a q uestio n-a nd-a nsw er s e ssio n fo llo w in g h er k e yn ote p re se nta tio n th at th e F edE x ( re ve nue e m phasis ) v e rs u s U PS

(c o st e m phasis ) d is tin ctio n w as e sse ntia lly c o rre ct, le ndin g c re dence to C arte r’s v ie w . T here a re o th er ﬁ rm s, s u ch a s J o hnso n & J o hnso n ( M it h as

and A garw al 2 010) a nd C oca -C ola ( s e e L evin 2 013), in w hic h C IO s h ave tr ie d to e m phasiz e r e ve nue g ro w th in th eir IT s tr a te gy. A s w e h ave n ote d,

F edE x a nd U PS d o n ot h ave to r e str ic t th e m se lv e s to e it h er r e ve n ue g ro w th o r c o st r e ductio n; a lt e rn ativ e ly , th ey c a n a dopt a d ual e m phasis .

C onsid er s o m e e xa m ple s. W hile c u sto m er r e la tio nsh ip m an agem en t ( C RM ) s yste m s c a n e nable s o m e c o st s a vin gs if th ey h elp r e duce th e c o sts o f

m ain ta in in g c u sto m er r e la tio nsh ip s, th e p rim ary r e aso n fo r d eplo yin g th ese s yste m s is o fte n to in cre ase r e ve nues b y e it h er a ttr a ctin g n ew c u sto m ers

o r e nablin g c ro ss-s e llin g, u pse llin g, o r r e pe at s a le s fr o m e xis tin g c u sto m ers ( M it h as e t a l. 2 005, 2 016; S ald anha e t a l. 2 016). If ﬁ rm s u se C RM

syste m s to h elp w it h r e ve nue g ro w th a nd c o st r e ductio n in e qual m ea su re , th en s u ch a n a ppro ach c o uld b e c h ara cte riz e d a s a d ual- fo cu s

in ve stm ent. L ik e w is e , in a n a ca dem ic s e ttin g, s yste m s u se d to m ain ta in a lu m ni d eve lo pm ent a nd r e la tio nsh ip s m ay b e c h ara cte riz e d p rim arily a s

re ve nue e nhancin g, w hile s yste m s r e la te d to th e a uto m atio n o f c la ss s ch edulin g o r c o urs e b id din g s yste m s ( a s o ppose d to m anual p ro ce sse s) c a n

be v ie w ed a s c o st r e ducin g ( K ohli a nd M elv ille 2 009).

A m ong c o st- fo cu se d a pplic a tio ns, ﬁ rm s o fte n u se r e ve rs e a uctio ns a nd m an y o th er s u pply c h ain m anagem ent a pplic a tio ns p rim arily to r e duce th eir

p ro cu re m ent c o sts ( M it h as a nd J o nes 2 0 07). A s a noth er e xa m ple o f a c o st- fo cu se d p ro je ct, U PS lin ke d b ar-c o de d ata o n it s p acka ges ( c a lle d

P acka ge L eve l D eta il) b ut r e ta in ed th e c a pabilit y to p ro vid e s e a m le ss tr a ckin g in fo rm atio n to it s c u sto m ers w hile o uts o urc in g s o m e r u ra l d eliv e rie s to

t h e U .S . P osta l S erv ic e ( U SPS) to lo w er it s o ve ra ll c o sts ( K ohli 2 007). A s im ila r o pportu nit y fo r c o st r e ductio n w as p ro vid ed b y U PS’s G eogra phic a l

In fo rm atio n S yste m s, w hic h e nable d th e ﬁ rm to g et it s c u sto m ers to d o s o m e d ata e ntr y th em se lv e s, fu rth er r e ducin g U PS’s c o sts . U PS a ls o u se d

it s in te gra te d s u pply c h ain a sse ts to d o c u sto m ers ’ w ork fo r th em , w hic h h elp ed r e aliz e r e ve nue o pportu nit ie s; in th is c a se , w e c o uld c h ara cte riz e

th e in ve stm ent a s b ein g r e ve nue-fo cu se d ( K ohli 2 007). It is a ls o lik e ly th at s o m e s yste m s c a n in it ia lly b e d eplo ye d fo r th eir c o st- s a vin g p ote ntia l o r to

s tr e am lin e in te rn al p ro ce sse s, b ut la te r th ey m ay p ro vid e r e ve n ue b eneﬁts . F or e xa m ple , U PS’s D eliv e ry In te rc e pt S erv ic e , w hic h h as th e c a pabilit y

t o lo ca te a nd in te rc e pt a ny p acka ge w it h in 1 5 m in ute s, w as in it ia lly d eplo ye d to im pro ve U PS’s in te rn al p ro ce sse s th ro ugh th e u se o f X M L, b ut it

a ls o e nable d r e ve nue g ro w th o ve r tim e th ro ugh a ddit io nal fe e-b ase d s e rv ic e s ( K ohli 2 007).

W e a rg ue th at it is n ot s o m uch w hic h a pp lic a tio ns ﬁ rm s u se b ut r a th er w hat th eir s tr a te gic o bje ctiv e s a re fo r d eplo yin g th ose a pplic a tio ns, in th at

m anageria l b elie fs a nd s tr a te gic p ostu re s h a pe a n o rg aniz a tio n’s IT g ove rn ance a nd m anagem ent o f IT p ro je cts to c re ate b usin ess v a lu e. T his lo gic

a pplie s to IT a sse ts , w hic h a re m ostly g ene ra l in n atu re a nd, w it h s o m e c u sto m iz a tio n a nd a ppro pria te c h anges in b usin ess p ro ce sse s, tr a in in g, a nd

in ce ntiv e s tr u ctu re s, c a n b e ta rg ete d to a ch ie ve s tr a te gic o bje ctiv e s d eﬁn e d b y m anagers . T hese c h anges in b usin ess p ro ce sse s a nd r e engin eerin g

eff o rts a re o fte n s h aped b y th e ﬁ rm ’s o ve ra rc h in g IT s tr a te gic o bje ctiv e s ( B aru a e t a l. 1 996; C ederlu nd e t a l. 2 007; K ohli a nd G ro ve r 2 008; K ohli a nd

H oadle y 2 006; K ohli a nd J o hnso n 2 011 ). In o th er w ord s, w hile a ny in div id ual IT s yste m p re se nts p ote ntia l o pportu nit ie s to r e duce c o sts o r to

e nhance r e ve nue, o r b oth , w e a rg ue th at it is p erh aps m ore u se fu l to th in k o f th e p ortfo lio o f IT a pplic a tio ns th at ﬁ rm s w ant to c re ate to

o pera tio naliz e th eir s tr a te gic e m phasis b y in sta ntia tin g n ece ssa ry c o n ﬁg u ra tio ns o f in div id ual IT a pplic a tio ns.

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To u nders ta nd h ow IT s tr a te gic e m phasis a nd IT in ve stm en ts jo in tly in ﬂu e nce p ro ﬁta bilit y a nd m ark e t v a lu e, w e ﬁ rs t a rtic u la te w hy w e e xp ect a ﬁ rm ’s

I T s tr a te gic e m phasis to a ff e ct ﬁ rm p erfo rm an ce a t ty p ic a l le ve ls o f IT in ve stm en ts . A ﬁ rm ’s s tr a te gic e m phasis a ff e cts th e ﬁ rm ’s c h oic e s w it h r e sp ect

to th e ty p es o f te ch nolo gie s a nd a pplic a tio ns it a cq u ir e s a nd th e ty p e s o f g ove rn ance p ro ce sse s a nd ﬁ rm p erfo rm ance m etr ic s it u se s. T he c o m ment

of th e C IO o f F edE x, r e fe rre d to p re vio usly , p ro vid es s u p port fo r th is id ea ( s e e C olv in 2 006). W e r e co gniz e th at, u lt im ate ly , a ny s tr a te gy n eeds to b e

in sta ntia te d th ro ugh a ppro pria te c o m bin atio ns o f IT s yste m s to r e su lt in ﬁ rm p erfo rm ance . In o th er w ord s, s tr a te gy e xe cu tio n c a n b e v ie w ed a s th e

actu aliz a tio n o f a s p eciﬁ c c o nﬁg ura tio n o f s yste m s.

W e a rg ue th at a d ual e m phasis in IT s tr a te gy m ay le ad to b ette r ﬁ rm p erfo rm an ce th an a s in gle e m phasis in IT s tr a te gy, d esp it e s o m e r is ks in

e xe cu tin g a d ual- e m phasis s tr a te gy. W e d ra w o n p rio r th eorie s in th e IS lit e ra tu re s u ch a s th e r e so urc e -b ase d v ie w , th e a cco untin g lit e ra tu re

(D ehnin g e t a l. 2 006), a nd th e e m erg in g lit e ra tu re o n a m bid exte rit y w hic h e m ph a-s iz e s th e p ow er o f s tr e tc h ta rg ets ( B artle tt a nd G hosh al 1 995;

B ir k in sh aw a nd G ib so n 2 004; G ib so n a nd B ir k in sh a w 2 004; Im a nd R ai 2 008; M ark id es 2 013; R ais ch a nd B ir k in sh aw 2 008) to fr a m e o ur a rg um ents

( s e e T a ble 1 ). W e u se a b ro ader c o nce ptu aliz a tio n o f a m bid exte rit y h ere , s im ila r to s u ch u sa ge b y M ark id es ( 2 013) a nd K ude e t a l. ( 2 015), a s a w ay

to fr a m e th e s im ult a neous p urs u it o f tw o s e e m in gly o pposin g id eas.

F ir s t, fo llo w in g R BV ( B aru a e t a l. 1 996; B aru a a nd M ukh o -p adhya y 2 000; P ic co li a nd Iv e s 2 005), a d ual- e m phasis IT s tr a te gy ( c o m pare d w it h e it h er

a r e ve nue- o r a c o st- e m phasis IT s tr a te gy) is lik e ly to le ad to p ote ntia lly s u p erio r ﬁ rm p erfo rm ance d ue to ( 1) g re ate r s o cia l c o m ple xit y , ( 2) g re ate r

ca usa l a m big uit y , ( 2) g re ate r p ath d ependence , a nd ( 4) o rg ani- z a tio nal le arn in g. L et u s c o nsid er th ese fo ur m ech a nis m s ( s o cia l c o m ple xit y , c a usa l

am big uit y , p ath d ependence , a nd o rg an iz a tio nal le arn in g) b ase d o n R BV in tu rn .

S ocia l C om ple xit y : T he s o cia l c o m ple xit y o f a d ual- e m ph asis s tr a te gy c o m es fr o m it s r e la tiv e ly a m bit io us s co pe o f tr y in g to a ch ie ve tw o g oals a t

th e s a m e tim e. B eca use o f th e c o m ple xit y a nd b re adth o f a pplic a tio ns th at a d ual- e m phasis s tr a te gy r e quir e s, it is m uch m ore d if ﬁ cu lt fo r

co m petit o rs to r e plic a te th e s u cce ssfu l e xe cu tio n o f s u ch a s tr a te gy th an it is to r e plic a te a r e ve nue- o r a c o st- e m phasis s tr a te gy. P rio r r e se arc h in

t h e q ualit y m anagem ent lit e ra tu re p ro vid e s s u p port fo r th is id ea. A s F ly n n e t a l. ( 1 995, p . 6 66) n ote , “ s im ult a neous p urs u it ” o f s e ve ra l c o m petit iv e

a dva nta ges c a n le ad to a s tr o nger p erfo rm an ce b eca u se c o m pe tin g o n “ s e ve ra l fr o nts s im ult a neously ” m ake s it m ore d if ﬁ cu lt fo r c o m petit o rs to

r e plic a te s u ch c o nﬁg ura tio ns. In a ddit io n to th e b re adth a nd v a rie ty o f IT a pplic a tio ns n eeded in a d ual- e m phasis IT s tr a te gy, it a ls o r e quir e s m uch

m ore r e co nﬁg ura tio n o r r e str u ctu rin g o f b usin ess p ro ce sse s, th us c o n tr ib utin g to th e g re ate r s o cia l c o m ple xit y in here nt in s u ch a n e m phasis .

C ausa l A m big uit y : It m ay b e m ore d if ﬁ cu lt to d is e n ta ngle a nd a ttr ib ute th e a dva n ta ges r e su lt in g fr o m a d ual- e m phasis IT s tr a te gy fr o m p ublic ly

a va ila ble in fo rm atio n b eca use ﬁ rm s fo llo w in g a d ual- e m ph asis s tr a te gy d efy c o n ve ntio nal lo gic a nd th eir in it ia tiv e s a nd r e su lt in g c o m petit iv e

a dva nta ges a re h ard er to c la ssif y o r a re m ore a m big uous to d ecip her fo r c o m pe tit o rs .

P ath D ependence : A d ual s tr a te gic e m pha sis m ay h ave a n in here nt p ath d ependence th at is r e la tiv e ly m ore d if ﬁ cu lt to r e plic a te c o m pare d w it h

t h at in e it h er a r e ve nue o r a c o st e m phasis . F or e xa m ple , fo r a ﬁ rm e m plo yin g a d ual s tr a te gic e m phasis , c o st- re ductio n e ff o rts m ay p ro vid e

opportu nit ie s to ta rg et n ew m ark e t s e gm ents , s u ch a s th e b otto m o f th e p yra m id , w hic h in tu rn c o uld e nable th e ﬁ rm to r e aliz e h ig her r e ve nue

gro w th th an if it w ere to fo cu s o nly o n c o st r e ductio n w it h out a lin k to it s r e ve n ue g ro w th s tr a te gy o r o nly o n r e ve nue g ro w th b y fo cu sin g o n

pre m iu m m ark e t s e gm ents . T ig hte r c o uplin g b etw een s tr a te gic o ptio ns, s u ch a s r e ve nue g ro w th a nd c o st r e ductio n, is m uch le ss r e plic a ble b y

co m petit o rs th an o nly o ne s u ch o ptio n. L ik e w is e , ﬁ rm s w it h a d ual s tr a te gic e m ph asis c a n u se o uts o urc in g a nd o ff s h orin g fo r b oth c o st r e ductio n

(th ro ugh a rb it r a ge) a nd r e ve nue e xp ansio n ( th ro ugh s a le s in fo re ig n m ark e ts b y a daptin g o ff e rin gs in th ose m ark e ts ) ( G hem aw at 2 007).

O rg aniz a tio nal L earn in g: D ual e m phasis ﬁ rm s m ay h ave h ig her le ve ls o f o rg aniz a tio nal le arn in g b eca use le arn in g s p ans m any m ore in te rre la te d

busin ess p ro ce sse s, r o utin es, a nd IT s y ste m s th at a re m ore ta cit , c o m ple x, a nd n ove l th an th at fo r a s in gle -e m phasis s tr a te gy ( C ederlu nd e t a l.

2 007). T o geth er, th e g re ate r s o cia l c o m ple xit y , c a u sa l a m big uit y , p ath d ependence , a nd o rg aniz a tio nal le arn in g o f a d ual- e m phasis IT s tr a te gy

ca n p ro vid e e ff e ctiv e e x p ost lim it s to c o m pe tit io n a nd c a n p ro te ct a ﬁ rm a gain st r e so urc e im it a tio n, tr a nsfe r, a nd s u bstit u tio n ( B arn ey 1 991; W ade

and H ulla nd 2 004), th ere by m akin g ﬁ rm s w it h a d ual s tr a te gic e m ph asis m ore p ro ﬁta ble a nd m ore v a lu able .

Ta ble 1 . R is ks a nd R ew ard s o f a D ual IT S tr a te gic E m ph asis

K ey

M ech an is m s

Rew ard s o f a D ual IT S tr a te g ic E m phasis R is ks o f a D ual IT S tr a te g ic

E m phasis

R ele van t lit e ra tu re 7/30/2019 EBSCOhost

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Key

M ech an is m s

Rew ard s o f a D ual IT S tr a te g ic E m phasis R is ks o f a D ual IT S tr a te g ic

E m phasis

R ele van t lit e ra tu re

1 . R eso urc e -

base d v ie w

(R BV)

• S ocia l

Com ple xity

• B arrie rs to

th e E ro sio n o f

C om petit iv e

Adva nta ge

• P ath

D ependence

a nd/o r A sse t

S to ck

A ccu m ula tio n

•

Org aniz atio nal

Learn in g

M uch h ig her s o cia l co m ple xity o f IT b eca use o f it s r o le in e nhancin g th e b re adth a nd d epth

o f r e la tio nsh ip s. F or e xa m ple , ﬁ rm s w ill need to w ork o n b oth th e fr o nt e nd w ith c u sto m ers to

c re ate o ne-to -o ne c u sto m er r e la tio nsh ip s th ro ugh C RM a nd o n th e b ack e nd w ith s u pplie rs

to c re ate h ig hly r e sp onsiv e y e t lo wco st d eliv ery m ech anis m s.

T he s co pe o f a ctiv itie s s p annin g b usin ess p ro ce sse s th at to uch c u sto m ers a nd s u pplie rs

c re ate h ig her b arrie rs to e ro sio n a lo ng s e ve ra l d im ensio ns s im ulta neously d ue to th e c ro ss-

fu nctio nal n atu re o f IT in itia tiv es

M uch g re ate r p ath d ependence a nd/o r a sse t s to ck a ccu m ula tio n b eca use IT c a pabilit ies th at

evo lv e g ra dually th ro ugh in te gra tio n w ith m any b usin ess p ro ce sse s a re lik ely to b e m ore ta cit

a nd s u sta in able o ve r a lo nger tim e.

H ig her le ve ls o f o rg aniz atio nal le arn in g b eca use le arn in g s p ans m any m ore in te rr e la te d

busin ess p ro ce sse s, r o utin es, a nd IT s yste m s th at a re m ore ta cit, c o m ple x, a nd n ove l th an

th at fo r a s in gle -e m phasis s tr a te gy.

F irm s m ay n ot b e a ble to r e aliz e

co m ple x in te rre la tio nsh ip s a m ong IT

s yste m s.

C ro ss-fu nctio nal IT p ro je cts a re m ore

p ro ne to c o ord in atio n p ro ble m s.

F irm s m ay g et lo cke d in to p oor a nd

in co m patib le s yste m s d ue to in ertia .

The o rg aniz atio n m ay s u ff e r fr o m

in fo rm atio n o ve rlo ad, le adin g to

r e duce d le arn in g.

R eso urc e -b ase d v ie w

(R BV) ( B arn ey 1 991)

R BV ( C ederlu nd e t a l.

2007; G ro ve r e t a l.

2009; P ic co li and Iv e s

2005)

R BV ( E is enhard t a nd

M artin 2 000; T e ece e t

al. 1 997)

R BV ( B hara dw aj 2 000;

C ederlu nd e t a l. 2 007;

D ie ric kx a nd C ool

1989)

2. R educe d

D im inishin g

Retu rn s in

O pportu nity

S pace

P le ntif u l “lo w-h angin g fr u it” to in cre ase r e ve nues a nd r e duce c o sts . F irm s m ay lo se th e a bilit y to s p ot

fu ndam enta l tr a nsfo rm atio ns o r a vo id

re ach in g fo r “ h ig herh angin g fr u it” th at

m ay b e r e w ard in g in th e lo ng r u n.

A cco untin g lit era tu re

(D ehnin g e t a l. 2 006)

3. S tr e tc h

Ta rg ets

S tr e tc h ta rg ets c a n m otiv ate m anagers to w ard h ig h p erfo rm ance . To o m uch s tr e tc h c a n b e d ebilit atin g. A m bid exte rit y lit era tu re

(e .g ., B artle tt a nd

G hosh al 1 995; G ib so n

and B irkin sh aw 2 004)

S eco nd, a d ual e m phasis o pens u p m any m ore “ lo w -h angin g” p osit iv e -re tu rn in ve stm ent o pportu nit ie s th an e it h er s in gle e m phasis w ould , th ere by

cre atin g m ore o ptio ns fo r p ro ﬁta ble g ro w th ( s e e D ehnin g e t a l. 2 006). F ir m s w it h a d ual e m phasis a re lik e ly to h ave lo w er c ycle tim es in p ro duct

d eve lo pm ent, s u pply c h ain m anagem ent, a nd c u sto m er r e la tio nsh ip m an agem en t p ro ce sse s fo r r e aliz in g th eir r e ve nue a nd c o st ta rg ets a nd th ere by

have a cce le ra te d c a sh ﬂ o w s. F in ally , d u al- e m ph asis ﬁ rm s m ay h ave le ss v a ria bilit y in c a sh ﬂ o w s b eca use th eir IT -e nable d c a sh ﬂ o w s h ave tw o

so urc e s ( b oth r e ve nue g ro w th a nd c o st r e ductio n), w hile ﬁ rm s w it h a p rim ary e m phasis o n e it h er r e ve nue g ro w th o r c o st r e ductio n h ave o nly o ne

so urc e o f IT -e nable d c a sh ﬂ o w ( P orte r 1 9 85).

T hir d , a d ual s tr a te gic e m phasis , b ein g m ore a m bit io us in it s s co pe, m ig ht p ro vid e s tr e tc h ta rg ets to e m plo ye es a nd im ple m enta tio n p artn ers fo r

hig her r e ve nues a nd lo w er c o sts , th ere by im pro vin g th e c h a nce s o f g ettin g m ore fr o m th e s a m e le ve ls o f in ve stm ents ( G ib so n a nd B ir k in sh aw 2 004;

K apla n a nd N orto n 2 006). In tu rn , th at w ill le ad to h ig her le ve ls o f c a sh ﬂ o w s, p ro ﬁts , a nd m ark e t v a lu e.

T here a re , h ow eve r, p ote ntia l r is ks in here nt to a d ual s tr a te gic e m ph asis , a nd d esp it e th e p ote ntia l o f IT to e nable ﬁ rm s to a ch ie ve b oth r e ve nue

gro w th a nd c o st r e ductio n g oals , th ere a re r e aso n s ﬁ rm s m ay b e b ette r o ff fo cu sin g o n o nly o ne o f th ese o ve ra rc h in g g oals . C om pare d w it h r e ve nue

exp ansio n o r c o st r e ductio n s tr a te gic e m phase s, it m ay b e m ore d if ﬁ cu lt fo r ﬁ rm s to fo llo w a d ual s tr a te gic e m phasis b eca use th e la tte r e nta ils

g re ate r c o m ple xit y a nd r is k in e nsu rin g ﬁ t b etw een a ll o f th e IT -re la te d d ecis io ns th e ﬁ rm m ust m ake . F ir s t, fo cu sin g o n tw o g oals s im ult a neously c a n

be c o nfu sin g in te rm s o f ta rg et s e ttin g a n d p erfo rm an ce m etr ic s th at m an agers a cro ss b usin ess u nit s p urs u e. S eco nd, d ual- e m phasis ﬁ rm s m ay e nd

up h avin g a p ortfo lio o f IT s yste m s th at d o n ot a llo w s e a m le ss in te gra tio n o f d ata a nd in fo rm atio n ﬂ o w . O ne e xa m ple o f th is c o m es fr o m th e ﬁ n ancia l

se rv ic e s in dustr y : S om e o bse rv e rs a rg ue th at o ne r e aso n fo r th e c re dit c ris is m ay b e th at w hile ﬁ rm s w ere p urs u in g r e ve nue g ro w th fr o m a b usin ess

p ers p ectiv e a s r e ﬂe cte d in th eir q uest fo r a ddit io nal r e ve n ues, e ve n w it h s o m e d is re gard fo r p ru dent r is k m anagem ent, th ey w ere e m phasiz in g c o st

re ductio n in th e IT fu nctio n ( S vio kla a nd M cG illo w ay 2 008). F in ally , fo cu sin g o n tw o g oals s im ult a neously c a n m ake it d if ﬁ cu lt fo r m anagers to a gre e

on p rio rit iz in g IT p ro je cts ( R oss a nd B ea th 2 002).

U lt im ate ly , w heth er th e a dva nta ges o f a d ual s tr a te gic e m ph asis o utw eig h th e d is a dva nta ges a nd r is ks is la rg ely a n e m pir ic a l q uestio n; w e d o n ot

m ake a s p eciﬁ c p re dic tio n a t ty p ic a l le ve ls o f IT in ve stm en ts b eca u se w e a rg ue th at a m ore c o m ple te u nders ta ndin g o f th e e ff e ct o f IT s tr a te gic

e m phasis r e quir e s ta kin g in to c o nsid era tio n h ow a d ual s tr a te gic e m ph asis m od era te s th e r e la tio nsh ip b etw een IT in ve stm ents a nd ﬁ rm

p erfo rm ance .

W e ﬁ rs t c o nsid er p ro ﬁta bilit y . W hy w ill a ﬁ rm ’s s tr a te gic e m ph asis a ff e ct th e r e la tio nsh ip b etw een IT in ve stm ents a nd ﬁ rm p ro ﬁta bilit y ? A s w e n ote d

pre vio usly , a ﬁ rm ’s s tr a te gic e m phasis a ff e cts it s c h o ic e s w it h r e sp e ct to th e ty p e s o f te ch nolo gie s a nd a pplic a tio ns it a cq uir e s, it s IT g ove rn ance

m ech anis m s, a nd it s m etr ic s fo r ﬁ rm p erfo rm an ce . F ir m s w it h a d ual e m ph asis m ay h ave m ore d iv e rs e IT r e so urc e s fo r r e ve nue g ro w th a s w ell a s

co st r e ductio n. M anagin g th ese d iv e rs e r e so u rc e s r e quir e s h ir in g a la rg er n um be r o f IT e m plo ye es a nd h avin g g re ate r m anageria l e xp ertis e in

m anagin g d iv e rs e p ro je cts , w hic h in tu rn m ay r e quir e u sin g a m ore d iv e rs e n etw ork o f e xte rn al IT im ple m enta tio n p artn ers . T o g eth er, m anagin g

div e rs e IT in fr a str u ctu re e le m ents a nd IT h um an r e so u rc e s in d ual- e m ph asis ﬁ rm s w ill r e quir e a h ig her d egre e o f m anagem ent a tte ntio n, b andw id th ,

and fo cu s th an if th e ﬁ rm w ere to fo cu s o n o nly r e ve n ue g ro w th o r c o st r e ductio n. H ow eve r, d esp it e th ese c h alle nges a nd r is ks, ﬁ rm s a re lik e ly to

b eneﬁt m ore fr o m IT s p endin g if th ey a dop t a d ual s tr a te gic e m ph asis ( th an if th ey a dopt o nly a r e ve nue g ro w th o r a c o st r e ductio n e m phasis )

b eca use o f d if f e re nce s in e xp ecta tio ns a nd ta rg ets th at m an agers s e t fo r th eir IT im ple m enta tio ns.

N ext, w e c o nsid er th e m odera tin g e ff e ct o f a ﬁ rm ’s s tr a te gic e m ph asis o n th e r e la tio nsh ip b etw een IT in ve stm ents a nd m ark e t v a lu e ( m easu re d b y

To bin ’s Q ). T he s tr a te gic e m phasis o f a ﬁ rm c a n m od era te th e in ﬂu e nce o f IT in ve stm ents o n m ark e t v a lu e b eca use o f th e ty p es o f te ch nolo gie s a nd 7/30/2019 EBSCOhost

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ris ks a sso cia te d w it h e ach s tr a te gic e m ph asis . W e a rg ue th at ﬁ rm s w it h a d ual e m phasis a re lik e ly to h ave lo w er c ycle tim es in p ro duct

d eve lo pm ent, s u pply c h ain m anagem ent, a nd c u sto m er r e la tio nsh ip m an agem en t p ro ce sse s fo r r e aliz in g th eir r e ve nue a nd c o st ta rg ets a nd th ere by

have a cce le ra te d c a sh ﬂ o w s. D ual- e m pha sis ﬁ rm s m ay a ls o h ave h ig her le ve ls o f c a sh ﬂ o w s b eca use o f s im ult a neous ta rg ets fo r h ig her r e ve nues

and lo w er c o sts . F in ally , d ual- e m phasis ﬁ rm s m ay h ave le ss v a ria bilit y in c a sh ﬂ o w s b eca use th eir IT -e nable d c a sh ﬂ o w s h ave tw o s o urc e s ( b oth

r e ve nue g ro w th a nd c o st r e ductio n), w hile ﬁ rm s w it h a p rim ary e m ph asis o n e it h er r e ve nue g ro w th o r c o st r e ductio n h ave o nly o ne s o urc e o f IT -

enable d c a sh ﬂ o w ( P orte r 1 985). D ue to th e d iv e rs iﬁ ca tio n o f s o u rc e s o f c a sh ﬂ o w s, th e o ve ra ll v a ria bilit y o f c a sh ﬂ o w s is lik e ly to b e lo w er fo r d ual-

e m phasis ﬁ rm s.

O n th e b asis o f th e fo re goin g d is cu ssio n , w e o ff e r th e fo llo w in g fo rm al c o n je ctu re s: W e e xp ect th at ( 1) IT in ve stm ents w ill h ave a s tr o nger p osit iv e

a sso cia tio n w it h p ro ﬁta bilit y fo r ﬁ rm s w it h a d ual s tr a te gic e m ph asis th an fo r ﬁ rm s w it h a s in gle s tr a te gic e m phasis , a nd ( 2) IT in ve stm ents w ill h ave

a s tr o nger p osit iv e a sso cia tio n w it h T o bin ’s Q fo r ﬁ rm s w it h a d ual s tr a te gic e m ph asis th an fo r ﬁ rm s w it h a s in gle s tr a te gic e m phasis . A s a c o ro lla ry ,

w e a ls o e xp ect th ese e ff e cts to a pply w he n w e d is a g gre gate s in gle s tr a te gic e m phasis in to r e ve nue o r c o st e m phasis .

M eth od

Data

W e o bta in ed o ur in dependent a nd d epe ndent v a ria ble s fr o m s e p ara te s o u rc e s: a n In fo rm atio nW eek s u rv e y a nd C om pusta t. W e o bta in ed d ata

c o lle cte d b y In fo rm atio nW eek, a le adin g a nd w id ely c ir c u la te d IT p ublic a tio n in th e U nit e d S ta te s, fr o m th eir s u rv e y o f to p IT m anagers ( e .g ., v ic e

p re sid ents , C IO s, d ir e cto rs ) o f m ore th an 3 00 F ortu ne 5 00 ﬁ rm s in N orth A m eric a . In fo rm atio nW eek h as p ublis h ed r e ports o f it s a nnual s u rv e ys

s in ce 1 986. A lt h ough in th e in it ia l y e ars th ese r e ports p ro vid ed ﬁ rm -le ve l IT s p e ndin g d ata , s in ce 1 997, d ue to c o nﬁd entia lit y r e aso ns,

In fo rm atio nW eek p ublis h es o nly a ggre g ate d ata a t th e in dustr y le ve l. T he d ata u se d in th is s tu dy in clu de in fo rm atio n a bout ﬁ rm s’ IT s p endin g a nd IT

s tr a te gic e m phase s d urin g th e 2 003–200 4 p erio d. In fo rm atio n W eek is c o n sid ere d a r e lia ble s o urc e o f in fo rm atio n, a nd p rio r a ca dem ic s tu die s h ave

a ls o u se d d ata fr o m In fo rm atio nW eek s u rv e ys ( e .g ., B hara dw aj e t a l. 1 999; M it h as e t a l. 2 005; R ai e t a l. 1 997). W e c o m ple m ente d th e

In fo rm atio nW eek d ata w it h ﬁ rm p erfo rm ance ( T o bin ’s Q , p ro ﬁta bilit y ) a nd in dustr y d ata fr o m C om pusta t.

T a ble 2 p ro vid es th e d eﬁn it io ns, v a ria ble c o n str u ctio ns, a nd s o u rc e s fo r a ll o f th e v a ria ble s u se d in th is r e se arc h .

Ta ble 3 p ro vid es d escrip tiv e s ta tis tic s b y IT s tr a te gic e m ph asis . It s h o w s th at, o n a ve ra ge, ﬁ rm s s p end a ppro xim ate ly 4 .1 p erc e nt o f th eir r e ve nue o n

IT in ve stm ents a nd h ave a p ro ﬁta bilit y ( o p era tin g in co m e b efo re d epre cia tio n a s a p erc e nta ge o f s a le s r e ve nue) o f a ppro xim ate ly 1 7 p erc e nt a nd a

T o bin ’s Q o f 1 .4 d urin g th e s tu dy p erio d. In a ddit io n, a ppro xim ate ly 9 0 p erc e n t o f th e ﬁ rm s h ave e it h er a d ual e m phasis o r a c o st r e ductio n e m phasis

i n th eir IT s tr a te gy ( w it h a lm ost e qual d is tr ib utio n o f ﬁ rm s a m on g th ese e m ph ase s) w hile th e r e m ain in g ﬁ rm s h ave a r e ve nue-e nhancin g e m phasis .

O n a ve ra ge, ﬁ rm s w it h a r e ve nue o r d ua l e m ph asis h ave h ig her v a lu es o f T o bin ’s Q , p ro ﬁta bilit y , a nd IT e xp ense s ( a s a p erc e nta ge o f r e ve nue) th an

ﬁrm s w it h a c o st e m phasis .

T a ble 4 s h ow s c o rre la tio ns a m ong v a ria b le s. A s e xp e cte d, IT in ve stm en ts s h o w a p osit iv e c o rre la tio n w it h p ro ﬁts a nd T o b in ’s Q . W e a ls o o bse rv e

th at a d ual e m phasis h as a p osit iv e c o rre la tio n w it h T o bin ’s Q b ut a s ta tis tic a lly in sig niﬁ ca nt c o rre la tio n w it h p ro ﬁt.

E m pir ic al M odels a n d E co nom etr ic C onsid era tio ns

W e s p ecif y s ta ndard c ro ss-s e ctio nal m od els o f th e fo llo w in g fo rm :

Yi= X iβ + ε i ( 1)

w here Y r e pre se nts e ndogenous v a ria ble s s u ch a s T o bin ’s Q o r p ro ﬁta bilit y ; X r e pre se nts a v e cto r o f ﬁ rm c h ara cte ris tic s, s u ch a s IT s tr a te gic

e m phasis , IT in ve stm ents , a nd c o ntr o l v a ria ble s, β is a v e cto r o f th e p ara m ete rs to b e e stim ate d; a nd ε is th e e rro r te rm a sso cia te d w it h e ach

o bse rv a tio n i.

W e fo llo w r e le va nt p rio r lit e ra tu re s u bje ct to a va ila bilit y o f d ata a nd u se p ars im on io us m odels s im ila r to O h a nd P in so n-n eault ( 2 007), R ust e t a l.

( 2 002), T a llo n ( 2 007), a nd T a llo n e t a l. ( 2 0 00) to r e ta in c o m pa ra bilit y o f ﬁ n d in gs to th e e xte nt p ossib le a nd fo r c le ar in te rp re ta tio n o f r e su lt s . W e

acco unt fo r ﬁ rm -le ve l h ete ro geneit y b y in clu din g r e le va n t fa cto rs s u ch a s ﬁ rm s iz e , in dustr y s e cto r, in dustr y c o nce ntr a tio n, a nd tim e p erio d in o ur

m odels , a nd w e p ro vid e a n e xte nsiv e d is cu ssio n o f o th er r o bustn ess c h e cks to p ro vid e c o nﬁd ence in o ur ﬁ n din gs. W e im plic it ly c o ntr o l fo r ﬁ rm s iz e

in o ur m odels b eca use w e u se IT in ve stm ents n orm aliz e d b y s a le s r e ve n ues o f ﬁ rm s a s o ur m easu re o f IT In ve stm ents . W e c o ntr o l fo r s e cto r

dif f e re nce s ( m anufa ctu rin g v e rs u s s e rv ic e s) to a cco unt fo r s e cto ra l d if f e re nce s in IT in ve stm ents , IT s tr a te gie s, a nd ﬁ rm p erfo rm ance . W e a ls o

in clu de a d um my fo r th e y e ar 2 004 to a cc o u nt fo r a ny s yste m atic d if f e re nce a cro ss th e tw o y e ars s tu die d ( 2 003 a nd 2 004) in In fo rm atio nW eek

su rv e y d ata o r ﬁ rm p erfo rm ance . S ubse q uently , w e r e port r o bustn ess c h e cks w hen w e in clu de a ddit io nal a nd/o r a lt e rn ativ e c o ntr o l v a ria ble s in o ur

m odels s u ch a s r e se arc h -a nd-d eve lo pm ent ( R &D ) a nd a dve rtis in g in te nsit y ; n on-IT s a le s; s e llin g, g enera l, a nd a dm in is tr a tiv e ( S G &A) e xp endit u re s;

in dustr y c o nce ntr a tio n; a nd o ne-d ig it N orth A m eric a n In dustr y C la ssiﬁ ca tio n S yste m ( N AIC S) in dustr y d um mie s ( in ste ad o f a s e rv ic e -s e cto r d um m y

va ria ble ), w hic h in dir e ctly a cco unt fo r m any in dustr y -le ve l v a ria ble s, s u ch a s in dustr y c a pit a l in te nsit y , in dustr y c o nce ntr a tio n, a ve ra ge T o bin ’s Q , a nd

in dustr y r e gula tio n.

A cco rd in gly , w e s p ecif y o ur e m pir ic a l m odels fo r te stin g o ur c o n je ctu re s fo r a d ual v e rs u s s in gle s tr a te gic e m phasis a s fo llo w s:

Ta ble 2 . V aria ble D eﬁn it io ns a nd D ata S ourc e s 7/30/2019 EBSCOhost

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Varia b le

N am e

Varia b le C onstr u ctio n/ D eﬁ nit io n S ourc e V aria b le

N am e

Varia b le C onstr u ctio n/ D eﬁ nit io n S ourc e

To bin ’s Q R atio o f th e m ark e t v a lu e o f th e ﬁ rm d iv id ed b y th e r e p la ce m ent c o st o f a sse ts . W e c a lc ula te d th e m ark e t v a lu e o f a ﬁ rm b y a ddin g th e m ark e t

va lu e o f it s c o m mon e quity, th e liq uid ate d v a lu e o f p re fe re ntia l sto ck, a nd to ta l d ebt. W e u se d to ta l a sse ts a s a m easu re o f r e p la ce m ent c o st o f

asse ts .

C om pusta t

P ro ﬁt O pera tin g in co m e b efo re d epre cia tio n d iv id ed b y s a le s ( e xp re sse d in p erc e nta ge) C om pusta t

In ve stm ent

T he le ve l o f IT in ve stm ent a s a p erc e nta ge o f th e ﬁ rm ’s s a le s r e ve nue In fo rm atio nW eek

S tr a te gic

E m phasis

“H as y o ur o rg aniz atio n’s b usin ess-te ch nolo gy s tr a te gy in th e p ast 1 2 m onth s b een p rim arily fo cu se d o n g ene ra tin g n ew r e ve nue, o r o n c o st

cu ttin g a nd s tr e am lin ing o pera tio ns? ” ( c h oose o ne)

C ost e m phasis = 1 if th e ﬁ rm c h oose s “ c o st c u ttin g/s tr e am lin ing o pera tio ns” a nd z e ro o th erw ise.

R eve nue e m phasis = 1 if th e ﬁ rm c h oose s “ g enera tin g n ew r e ve nue” a nd z e ro o th erw ise.

D ual e m phasis = 1 if th e ﬁ rm c h oose s “ a bout th e s a m e e m phasis o n b oth ” a nd z e ro o th erw ise.

In fo rm atio nW eek

S erv ic e W heth er th e ﬁ rm b elo ngs to th e m anufa ctu rin g o r th e s e rv ic es s e cto r ( s e rv ic es = 1 , m anufa ctu rin g = 0 ). B ase d o n N AIC S

cla ssiﬁ ca tio n

Ta ble 3 . D escrip tiv e S ta tis tic s b y IT S tr a te gic E m ph asis

T o bin ’s Q P ro ﬁt IT In vestm en t S erv ic e

R eve nue E m phasis M ean 1.6 5 20.4 5 6.9 7 0.7 9

S D 0.8 6 19.3 9 15.0 6 0.4 1

N 43 61 61 61

C ost E m phasis M ean 1.1 8 15.5 3 3.2 5 0.4 8

S D 0.7 9 11 .7 5 5.3 1 0.5

N 1 88 210 210 210

D ual E m phasis M ean 1.5 3 17.9 7 4.0 9 0.6 5

S D 1.0 4 14.3 3 .8 6 0.4 8

N 185 240 240 240

To ta l M ean 1.3 8 17.2 6 4.0 9 0.6

S D 0.9 4 14.1 2 6.8 2 0.4 9

N 416 511 5 11 5 11

T a ble 4 . P air w is e C orre la tio ns A m ong V aria ble s

1 2 3 4 5 6

* S ig niﬁ ca nt a t th e 5 % le ve l.

1. P ro ﬁt 1 .0 0

2. To bin ’s Q 0 .4 2 * 1.0 0

3. D ual E m phasis 0 .0 0 0.1 4 * 1.0 0

4. IT In ve stm ents 0 .1 9 * 0.1 2 * -0 .0 1 1.0 0

5. S erv ic e 0.0 4 * -0 .0 8 0.0 8 * 0.1 3 * 1.0 0

6. Y ear D um my fo r 2 004 0.0 3 0.0 1 0.1 3 * 0.0 3 0.0 1 1.0 0

7. In dustr y C once ntr a tio n -0 .1 3 * 0.0 2 0.1 4 0.0 2 0.3 7 * -0 .0 1

W e d is a ggre gate th e s in gle IT s tr a te gic e m ph asis fu rth er in to r e ve n ue o r c o st s tr a te gic e m phasis to te st o ur c o nje ctu re s a t a m ore g ra nula r le ve l:

W e u se o rd in ary le ast s q uare s ( O LS ) to e stim ate E quatio ns 2 –5 b eca u se th e fo ca l e xp la nato ry v a ria ble s ( i. e ., IT s tr a te gic e m phasis a nd IT

in ve stm ents ) a re e xo genous in a n e co nom etr ic s e n se ( W oold rid ge 2 003b).

W e d o n ot a ssu m e th at IT s tr a te gic e m phasis a nd IT in ve stm en ts a re in dependent o f e ach o th er, a nd o ur m odels a cco unt fo r a ny p ote ntia l

co rre la tio n b etw een th ese v a ria ble s. T he se c o rre la tio ns a re r e la tiv e ly s m all in o ur s a m ple . T a b le 4 s h ow s th at th e c o rre la tio n b etw een a d ual-

e m phasis s tr a te gy a nd p ro ﬁta bilit y is z e ro a nd b etw een a d ual- e m ph asis s tr a te gy a nd T o b in ’s Q is 0 .1 4. S uch c o rre la tio ns d o n ot c re ate

e ndogeneit y , b eca use r e gre ssio n m odels a cco unt fo r c o rre la tio ns a m on g e xp la nato ry v a ria ble s ( in clu din g th e v a ria ble s in vo lv e d in in te ra ctio n

te rm s).

B eca use o f th e p re se nce o f in te ra ctio n te rm s in o ur m od els , w e m ea n-c e n te re d th e v a lu e o f IT in ve stm ents fo r e asie r in te rp re ta tio n o f r e su lt s . T o

e stim ate E quatio ns 4 a nd 5 , in ste ad o f o m it tin g o ne o f th e d um my v a ria ble s fo r a s tr a te gic e m phasis ( a s is c o m monly d one in e stim atin g r e gre ssio n

m odels w it h d um my v a ria ble s), w e r e ta in a ll th re e d um my v a ria ble s a nd th e in te ra ctio ns in vo lv in g IT in ve stm ents w it h th ese d um my v a ria ble s in

E quatio ns 4 a nd 5 , b ut w e s u ppre ss th e c o n sta nt te rm . T his e stim atio n s tr a te gy le nds it s e lf to a m ore d ir e ct in te rp re ta tio n o f r e su lt s w it h out a ff e ctin g

para m ete r e stim ate s o r th eir s ta tis tic a l s ig niﬁ ca nce ( fo r a s im ila r a ppro ach , s e e A nders o n e t a l. 2 006). N ote th at s u ppre ssio n o f c o nsta nt r e su lt s in

i n cre ase d R -s q uare d v a lu e fo r m odels in T a ble 5 b ut it d oes n ot a ff e ct h yp o th esis te sts fo r o ur k e y p ara m ete rs o f in te re st. 7/30/2019 EBSCOhost

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Ta ble 5 s h ow s th e r e su lt s o f o ur e stim atio n o f E quatio ns 2 a nd 3 , a nd T a ble 6 s h o w s th e r e su lt s o f o ur e stim atio n o f E quatio ns 4 a nd 5 . W e u se d

hete ro ske dastic it y -c o nsis te nt r o bust s ta nd ard e rro rs fo r s ta tis tic a l te sts ( F ro ot 1 989; R ogers 1 993; W illia m s 2 000; W oold rid ge 2 003a). U se o f th e

ro bust s ta ndard e rro rs , c o uple d w it h a la rg e s a m ple s iz e to ju stif y th e a ssu m ptio n o f a sym pto tic n orm alit y o f r e sid uals , is lik e ly to y ie ld c o nse rv a tiv e

te sts o f s ta tis tic a l s ig niﬁ ca nce . W e te ste d fo r m ult ic o llin earit y b y c o m pu tin g th e v a ria nce in ﬂa tio n fa cto rs a nd c o ndit io n in dic e s. T he h ig hest v a ria tio n

in ﬂa tio n fa cto r a nd c o ndit io n in dex in o u r m od els w ere le ss th an 2 .7 a nd 4 .3 , r e sp ectiv e ly , in dic a tin g th at m ult ic o llin earit y is n ot a s e rio us c o nce rn .

W e p erfo rm ed s e ve ra l d ia gnostic a nd r o bu stn ess c h e cks to a sce rta in th e s ta bilit y o f o ur r e su lt s . F ir s t, a lt h ough w e u se c o nse rv a tiv e

h ete ro ske dastic it y -c o nsis te nt r o bust s ta nd ard e rro rs fo r s ta tis tic a l te stin g, w e n eve rth ele ss e va lu ate d k e rn el d ensit y p lo ts o f r e sid uals , a nd w hile

t h ey s h ow p osit iv e s ke w ness a nd k u rto sis , th ey a ppear to b e a ppro xim ate ly n orm ally d is tr ib ute d.

S eco nd, w e e va lu ate d th e s ta bilit y o f o u r r e su lt s b y r e m ovin g a ppro xim ate ly 1 p erc e nt o f o bse rv a tio ns th at h ave IT in ve stm ents in e xce ss o f th re e

sta ndard d evia tio ns. W hile th is le ads to a lo ss in e fﬁ cie ncy o f e stim ate s a s o ne w ould e xp ect, th e r e su lt s r e m ain q ualit a tiv e ly s im ila r to th e o nes

re porte d p re vio usly . T hir d , w e in clu ded a s q u are d te rm fo r IT in ve stm en ts in o ur p ro ﬁta bilit y m odels to a vo id o m it te d v a ria ble b ia s d ue to e xclu sio n o f

hig her-o rd er te rm s o f in dependent v a ria ble s. B eca u se w e o bta in ed b ro adly s im ila r r e su lt s , a lb eit w it h h ig her s ta ndard e rro rs d ue to th e p re se nce o f

a q uadra tic te rm , w e r e port o ur m ain r e su lt s w it h out h ig her-o rd er te rm s fo r e asie r in te rp re ta tio n o f r e su lt s .

F ourth , w e a ls o a sse sse d th e s ta bilit y o f o ur r e su lt s b y e stim atin g th e m od els a fte r lo g-tr a nsfo rm in g th e d ependent v a ria ble s. B eca use th ese

e stim ate s y ie ld ed e sse ntia lly s im ila r r e su lt s , w e c o n tin ue w it h in te rp re tin g th e r e su lt s fr o m o rig in al n ontr a nsfo rm ed d ependent v a ria ble s fo r a s im ple r

and m ore m anageria lly r e le va nt in te rp re ta tio n. F in ally , b eca u se th e e rro r te rm s o f th e p ro ﬁta bilit y a nd T o b in ’s Q e quatio ns m ay b e c o rre la te d fo r th e

sa m e ﬁ rm , w e a llo w ed fo r th ese p ote ntia lly c o rre la te d e rro rs to o bta in c o n sis te nt a nd e fﬁ cie nt e stim ate s o f p ara m ete rs b y u sin g th e s e em in gly

u nre la te d r e gre ssio n ( S U R) e stim atio n te ch n iq ue ( Z elln er 1 962). N ote th at g ain s in e fﬁ cie ncy d o n ot a ccru e if e quatio ns in th e S U R m odel u se s a m e

re gre sso rs , a s is th e c a se h ere ( a s th e e stim ate d c o e fﬁ cie nts a re id entic a l to O LS ); th us, th e S U R e stim atio n te ch niq ue is u se d o nly a s a r o bustn ess

c h eck h ere . T hese S U R m odels u se o nly th ose o bse rv a tio ns fo r w hic h b oth p ro ﬁta bilit y a nd T o b in ’s Q m easu re s a re a va ila ble . A lt h ough th is c a use d

th e lo ss o f o bse rv a tio ns fo r w hic h w e h ad o nly th e p ro ﬁta bilit y m ea su re b ut n ot th e T o b in ’s Q m easu re , w e o bta in ed b ro adly s im ila r r e su lt s a s

re porte d p re vio usly . In s u m mary , w e u se d s e ve ra l te sts to a sse ss th e s ta bilit y o f o ur r e su lt s , a nd b ro adly s im ila r r e su lt s a cro ss o ur te sts p ro vid e

co nﬁd ence in th e r o bustn ess o f o ur r e su lt s .

T a ble 5 . H ow a D ual V ers u s S in gle S tr a te gic E m ph asis In ﬂu e nce s P ro ﬁts a nd T o b in ’s Q

(1 ) P ro ﬁt (2 ) T o bin ’s Q

R obust p -v a lu es a re in p are nth ese s.

*** p < 0 .0 1

** p < 0 .0 5

* p < 0 .1 ( o ne ta ile d te sts fo r IT in ve stm ents a nd IT s tr a te gy, a nd tw o-ta ile d te sts fo r o th er v a ria ble s).

D ual E m phasis 11 0 .7 62 2 1 0.3 08 *

(0 .2 63) (0 .0 01)

D ual E m phasis * M ean-C ente re d IT In ve stm ents t- 1 1 2 1.1 1 5 *** 2 2 0.0 432 **

(0 .0 06) (0 .0 47)

IT In ve stm ents t- 1 1 3 0.2 95 * 2 3 0.0 139 **

(0 .0 83) (0 .0 14)

S erv ic e 1 4 4 2 84 *** 2 4 -0 .2 14 *

(0 .0 03) (0 .0 74)

Y ear D um my fo r 2 004 1 5 0.6 60 2 5 -0 .0 270

(0 .3 15) (0 .6 42)

C onsta nt 1 0 12 8 4 *** 2 0 1.3 29 ***

(0 .0 00) (0 .0 00)

O bse rv a tio ns 511 4 16

R -s q uare d 0.1 26 0.0 56

T a ble 6 . H ow D ual, R eve nue, a nd C ost S tr a te gic E m ph asis In ﬂu e nce P ro ﬁts a nd T o b in ’s Q

(1 ) P ro ﬁt (2 ) T o bin ’s Q

R obust p -v a lu es a re in p are nth ese s.

*** p < 0 .0 1

** p < 0 .0 5

* p < 0 .1 ( o ne ta ile d te sts fo r IT in ve stm ents a nd IT s tr a te gy, a nd tw o-ta ile d te sts fo r o th er v a ria ble s).

D ual E m phasis 3 1 15.1 3 *** 4 1 1.7 38 ***

(0 .0 00) (0 .0 00)

R eve nue E m phasis 3 2 16.4 9 *** 4 2 1.8 57 ***

(0 .0 00) (0 .0 00) 7/30/2019 EBSCOhost

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(1 ) P ro ﬁt (2 ) T o bin ’s Q

R obust p -v a lu es a re in p are nth ese s.

*** p < 0 .0 1

** p < 0 .0 5

* p < 0 .1 ( o ne ta ile d te sts fo r IT in ve stm ents a nd IT s tr a te gy, a nd tw o-ta ile d te sts fo r o th er v a ria ble s).

C ost E m phasis 3 3 13.8 5 *** 4 3 1.3 69 ***

(0 .0 00) (0 .0 00)

D ual E m phasis * M ean-C ente re d IT In ve stm ents t- 1 3 4 1 4 17 *** 4 4 0.0 580 **

(0 .0 00) (0 .0 11 )

R eve nue E m phasis * M ean-C ente re d IT In ve stm ents t- 1 3 5 0.2 11 4 5 0.0 010

(0 .1 88) (0 .3 63)

C ost E m phasis * M ean-C ente re d IT In ve stm ents t- 1 3 6 0.4 26 ** 4 6 0.0 474 ***

(0 .0 29) (0 .0 03)

S erv ic e 3 7 3.9 38 *** 4 7 -0 .2 60 **

(0 .0 06) (0 .0 28)

Y ear D um my fo r 2 004 3 8 0.4 70 4 8 -0 .0 597

(0 .5 01) (0 .3 16)

O bse rv a tio ns 511 4 16

R -s q uare d 0.6 52 0.7 16

R esu lt s

B efo re p re se ntin g th e r e su lt s o f th e te sts o f o ur c o n je ctu re s, w e ﬁ rs t d is cu ss h ow IT s tr a te gic e m phasis a ff e cts ﬁ rm p erfo rm ance a t th e m ean le ve ls

o f IT in ve stm ents . W e ﬁ n d th at a t th e m ea n v a lu e o f IT in ve stm en ts , ﬁ rm s w it h a d ual e m phasis d o n ot h ave h ig her p ro ﬁta bilit y th an ﬁ rm s w it h a

r e ve nue o r c o st e m phasis ( s e e T a ble 5 ; β 11 = 0 .7 62, n .s .) . H ow eve r, w e ﬁ n d th at ﬁ rm s w it h a p rim ary e m phasis o n r e ve nue o r c o st w it h r e sp ect to

t h eir IT in ve stm ents w ill h ave lo w er m ark e t v a lu e th an ﬁ rm s w it h a d ual e m ph asis , a t th e m ean v a lu e o f IT in ve stm ents ( T a ble 5 ; β 21 = 0 .3 08, p <

0 .0 1). T he e ff e cts a re n ot o nly s ta tis tic a lly s ig niﬁ ca nt b ut a ls o a ppear to b e e co n om ic a lly s ig niﬁ ca nt b eca use d ual e m phasis ﬁ rm s h ave T o b in ’s Q

t h at is 0 .3 1 h ig her th an s in gle -e m phasis ﬁ rm s ( s e e T a ble 5 ), w hic h is a v e ry la rg e v a lu e c o nsid erin g th at it im plie s a bout o ne-th ir d in cre ase in m ark e t

va lu e o ve r th e r e pla ce m ent c o st o f a sse ts o f ﬁ rm s in o ur s a m ple ( th is m ag nit u de is a bout o ne-th ir d o f th e s ta ndard d evia tio n o f T o b in ’s Q in o ur

sa m ple ). T a ke n to geth er, th e m ark e t a pp ears to v a lu e d ual- e m ph asis ﬁ rm s h ig her th an r e ve nue- o r c o st- e m phasis ﬁ rm s, e ve n th ough th ese ﬁ rm s

have s im ila r p ro ﬁta bilit y a t th e m ean le ve ls o f IT in ve stm en ts .

W e n ow d escrib e th e r e su lt s o f th e te sts o f o ur c o n je ctu re s. W e ﬁ n d s u p port fo r th e ﬁ rs t c o nje ctu re , w hic h p re dic te d th at d ual- e m phasis ﬁ rm s w ill

h ave a s tr o nger p osit iv e a sso cia tio n b etw een IT in ve stm en ts a nd p ro ﬁta bilit y th an ﬁ rm s w it h e it h er a r e ve nue e m phasis o r a c o st e m phasis a lo ne.

In deed, w e ﬁ n d th at IT in ve stm ents h ave a p osit iv e a nd s ta tis tic a lly s ig niﬁ ca nt a sso cia tio n w it h p ro ﬁta bilit y fo r d ual- e m phasis ﬁ rm s ( re fe r to c o lu m n 1

o f T a ble 5 ; β 12 = 1 .1 1 5, p < 0 .0 1); th is r e su lt is h ig her th an th at fo r r e ve n ue- o r c o st- e m phasis ﬁ rm s.

W e a ls o ﬁ n d s u pport fo r th e s e co nd c o n je ctu re , w hic h p re dic te d th at d ual- e m ph asis ﬁ rm s w ill h ave a s tr o nger p osit iv e a sso cia tio n b etw een IT

in ve stm ents a nd T o bin ’s Q th an ﬁ rm s w it h e it h er a r e ve n ue e m ph asis o r a c o st e m phasis a lo ne. In deed, w e ﬁ n d th at IT in ve stm ents h ave a p osit iv e

a nd s ta tis tic a lly s ig niﬁ ca nt a sso cia tio n w it h T o bin ’s Q fo r d ual- e m ph asis ﬁ rm s ( T a b le 5 ; β 22 = 0 .0 43, p < 0 .0 5).

W e ﬁ n d s u pport fo r th e c o ro lla rie s b ase d o n th e r e su lt s o f o ur W ald te sts ( re fe r to T a b le 7 ). IT in ve stm ents h ave a p osit iv e a nd s ta tis tic a lly s ig niﬁ ca nt

asso cia tio n w it h p ro ﬁta bilit y fo r d ual- e m ph asis ﬁ rm s ( re fe r to c o lu m n 1 o f T a ble 6 ; β 34 = 1 .4 17, p < 0 .0 1), w hic h is h ig her th an th at fo r r e ve nue-

em phasis ﬁ rm s ( β 35 = .2 11 , n .s .) o r c o st- e m ph asis ﬁ rm s ( β 36 = .4 26, p < 0 .0 5). L ik e w is e , T a b le 7 s h ow s s u pport fo r o ur p re dic tio n th at IT

in ve stm ents h ave a g re ate r im pact o n m ark e t v a lu e ( a s m ea su re d b y T o bin ’s Q ) fo r d ual- e m phasis ﬁ rm s th an fo r c o st- e m phasis ﬁ rm s. IT

in ve stm ents h ave a p osit iv e a nd s ta tis tic a lly s ig niﬁ ca nt a sso cia tio n w it h T o bin ’s Q fo r d ual- e m phasis ﬁ rm s ( re fe r to c o lu m n 2 o f T a b le 6 ; β 44 = 0 .0 58,

p < 0 .0 5), a n onsig niﬁ ca nt a sso cia tio n w it h T o bin ’s Q fo r r e ve n ue-e m ph asis ﬁ rm s ( β 45 = 0 .0 01, n .s .) , a nd a p osit iv e a nd s ta tis tic a lly s ig niﬁ ca nt

asso cia tio n w it h T o bin ’s Q fo r c o st- e m ph asis ﬁ rm s ( β 46 = 0 .0 47, p < 0 .0 1). D ual- e m phasis ﬁ rm s h ave a s te eper a nd m ore s ta tis tic a lly s ig niﬁ ca nt IT –

To bin ’s Q r e la tio nsh ip th an r e ve nue-e m ph asis ﬁ rm s ( s e e T a ble 6 ). H ow eve r, w e d id n ot ﬁ n d s u pport fo r th e p re dic tio n th at IT in ve stm ents h ave a

g re ate r im pact o n m ark e t v a lu e ( a s m easu re d b y T o bin ’s Q ) fo r d ual- e m ph asis ﬁ rm s th an fo r c o st- e m phasis ﬁ rm s ( s e e T a b le 7 ).

W e p lo tte d th e r e su lt s in T a ble s 5 a nd 6 to s h o w h ow th e e ff e ct o f IT in ve stm en ts o n ﬁ rm p erfo rm ance v a rie s b y IT s tr a te gic e m phasis . F ig ure 1

s h ow s th at a t th e m ean v a lu e o f IT in ve stm en ts ( s h o w n b y a v e rtic a l lin e), d ual- e m phasis ﬁ rm s d o n ot h ave h ig her p ro ﬁta bilit y th an s in gle -e m phasis

ﬁ rm s ( i. e ., r e ve nue o r c o st) . T his ﬁ g ure s u ggests th at a lt h ough p ro ﬁta bilit y is a ppro xim ate ly th e s a m e a t th e m ean v a lu e o f IT in ve stm ents , th e

dif f e re nce s c a n b e m uch la rg er a t h ig her le ve ls o f IT in ve stm en t. In p artic u la r, a t h ig her le ve ls o f IT in ve stm ent, d ual- e m phasis ﬁ rm s c a n s ig niﬁ ca ntly 7/30/2019 EBSCOhost

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outp erfo rm s in gle -e m phasis ﬁ rm s ( i. e ., r e ve n ue o r c o st) . C onve rs e ly , a t lo w le ve ls o f IT in ve stm ents , s in gle -e m phasis ﬁ rm s ( i. e ., r e ve nue o r c o st)

m ay h ave h ig her p ro ﬁta bilit y th an d ual- e m ph asis ﬁ rm s.

F ig ure 2 s h ow s th at a t th e m ean v a lu e o f IT in ve stm en ts ( s h o w n b y a v e rtic a l lin e), d ual- e m phasis ﬁ rm s h ave a s ig niﬁ ca ntly h ig her m ark e t v a lu e

th an s in gle -e m phasis ﬁ rm s ( i. e ., r e ve nue o r c o st) . A s w it h p ro ﬁta bilit y , th e m ark e t v a lu es d ual- e m phasis ﬁ rm s e ve n h ig her th an s in gle -e m phasis

ﬁ rm s

(i. e ., r e ve nue o r c o st) w hen ﬁ rm s s p end s ig niﬁ ca ntly m ore th an th e m ea n le ve ls o f IT in ve stm ents . N ota bly , th e m ark e t v a lu es d ual- e m phasis ﬁ rm s

m ore th an s in gle -e m phasis ﬁ rm s e ve n a t lo w er le ve ls o f IT in ve stm en ts , d esp it e th e lo w er p ro ﬁta bilit y o f d ual- e m phasis ﬁ rm s.

W hile F ig ure s 1 a nd 2 s h ow h ow p ro ﬁta bilit y a nd m ark e t v a lu e v a ry fo r d ual- o r s in gle -e m phasis ﬁ rm s, F ig ure s 3 a nd 4 d is a ggre gate th e s in gle

s tr a te gic e m phasis in to it s c o nstit u ent e le m en ts ( i. e ., r e ve n ue a nd c o st) to g le an d eeper in sig hts . S peciﬁ ca lly , F ig ure 3 s h ow s th at a t th e m ean v a lu e

of IT in ve stm ents ( s h ow n b y a v e rtic a l lin e), r e ve n ue-e m ph asis ﬁ rm s a nd d ual- e m phasis ﬁ rm s h ave a ppro xim ate ly th e s a m e p ro ﬁta bilit y a s c o st-

e m phasis ﬁ rm s. A gain , a lt h ough p ro ﬁta b ilit y m ay b e a ppro xim ate ly th e s a m e a t th e m ean v a lu e o f IT in ve stm ents , th e d if f e re nce s c a n b e m uch

la rg er a t h ig her le ve ls o f IT in ve stm ent. In p artic u la r, a t h ig her le ve ls o f IT in ve stm ents , d ual- e m phasis ﬁ rm s c a n s ig niﬁ ca ntly o utp erfo rm r e ve nue-

and c o st- e m phasis ﬁ rm s. F ig ure 4 s h ow s th at a t th e m ea n v a lu e o f IT in ve stm en ts ( s h ow n b y a v e rtic a l lin e), r e ve nue-e m phasis ﬁ rm s a nd d ual-

e m phasis ﬁ rm s h ave a h ig her m ark e t v a lu e th an c o st- e m ph asis ﬁ rm s. F ro m th is ﬁ g ure , it a ppears th at th e m ark e t h as a g enera lly fa vo ra ble

a sse ssm ent o f d ual- a nd r e ve nue-e m ph asis ﬁ rm s o ve r a s ig niﬁ ca ntly la rg e r a nge o f IT in ve stm ents .

T a ble 7 . S um mary o f R esu lt s

C onje ctu re s a n d C oro lla rie s Te st S upporte d

n.s . = n ot s ta tis tic ally s ig niﬁ ca nt

*** p < 0 .0 1

** p < 0 .0 5

* p < 0 .1 ( a ll one-ta ile d te sts ).

C onje ctu re s: S in gle V ers u s D ual E m phasis

C onje ctu re 1 : IT in ve stm ents h ave a s tr o nger p ositiv e a sso cia tio n w ith p ro ﬁta bilit y fo r d ual-e m phasis ﬁ rm s th an fo r s in gle -e m phasis ﬁ rm s ( re ve nue

gro w th o r c o st r e ductio n).

1 2 = 0 Y es **

C onje ctu re 2 : IT in ve stm ents h ave a s tr o nger p ositiv e a sso cia tio n w ith T o b in ’s Q fo r d ual-e m phasis ﬁ rm s th a n fo r s in gle -e m phasis ﬁ rm s ( re ve nue

gro w th o r c o st r e ductio n).

2 2 = 0 Y es **

C oro lla rie s: D isaggre gatin g S in gle S tr a te gic E m phasis in to R eve nue o r C ost E m phasis

C oro lla ry 1 a: IT in ve stm ents h ave a g re ate r im pact o n p ro ﬁta bilit y fo r d ual-e m phasis ﬁ rm s th an fo r c o st- e m ph asis ﬁ rm s. 3 4-0 36 =

Y es **

C oro lla ry 1 b: IT in ve stm ents h ave a g re ate r im pact o n p ro ﬁta bilit y fo r d ual-e m phasis ﬁ rm s th an fo r r e ve nue-e m phasis ﬁ rm s. 3 4-0 35 =

Y es ***

C oro lla ry 2 a: IT in ve stm ents h ave a g re ate r im pact o n m ark e t v a lu e ( a s m easu re d b y T o b in ’s Q ) fo r d ual-e m phasis ﬁ rm s th an fo r c o st- e m phasis

ﬁrm s.

4 4-0 46 =

n .s .

C oro lla ry 2 b: IT in ve stm ents h ave a g re ate r im pact o n m ark e t v a lu e ( a s m easu re d b y T o b in ’s Q ) fo r d ual-e m phasis ﬁ rm s th an fo r r e ve nue-e m phasis

ﬁrm s.

4 4-0 45 =

Y es **

A m ong o th er r e su lt s fo r w hic h w e d id n o t p ose s p e ciﬁ c c o n je ctu re s, ﬁ rm s in th e s e rv ic e s e cto r a ppear to h ave h ig her p ro ﬁta bilit y b ut a lo w er T o b in ’s

Q c o m pare d w it h ﬁ rm s in th e m anufa ctu rin g s e cto r ( s e e T a ble s 5 a nd 6 ). A s th e c o efﬁ cie nt o f th e y e ar d um m y in dic a te s, w e fa il to o bse rv e a ny

sta tis tic a lly s ig niﬁ ca nt d if f e re nce s in ﬁ rm p erfo rm an ce in 2 004 c o m pa re d w it h 2 003.

W e c o nducte d a ddit io nal a naly se s fo r r o b ustn ess. F ir s t, w e in clu ded R &D a nd a dve rtis in g in ve stm ents ( a s p erc e nta ge o f s a le s) a s a ddit io nal c o ntr o l

va ria ble s in th e m odels . H ow eve r, b eca use m an y ﬁ rm s d o n ot r e port R &D a nd a dve rtis in g in ve stm ents , to a vo id d ata lo ss, w e u se d th e m ean v a lu e

of R &D a nd a dve rtis in g in te nsit y fo r m is sin g d ata . T hese m od els p ro vid e b ro adly s im ila r r e su lt s . S eco nd, b eca use S G &A e xp endit u re s m ay b e

co rre la te d w it h IT in ve stm ents a nd b eca u se th ey m ay a ls o a ff e ct o utc o m e v a ria ble s, w e in clu ded a v a ria ble w e r e fe r to a s n on-IT S G &A ( = S G &A –

I T ) in o ur m odels . B eca use o f m is sin g d ata fo r th e S G &A v a ria ble in C om pu sta t, th e s a m ple s iz e in th ese m odels is le ss th an th e s a m ple s iz e in th e

m odels w it h out th is c o ntr o l v a ria ble , th us a ff e ctin g th e s ta tis tic a l s ig niﬁ ca nce o f th e v a ria ble s. N oneth ele ss, o n th e w hole , th e r e su lt s a re b ro adly

s im ila r to th ose w e r e port in T a ble 6 , w it h s o m e m in or d if f e re nce s. In th ese m od els , th e s to ck m ark e t v a lu es d ual- a nd r e ve nue-e m phasis ﬁ rm s m ore

th an c o st- e m phasis ﬁ rm s a t th e m ean v a lu e o f IT in ve stm en ts , e ve n th ough th e d if f e re nce s in p ro ﬁta bilit y a re n ot s ig niﬁ ca nt a t th e m ean v a lu e o f IT

in ve stm ents . A gain , d ual- e m phasis ﬁ rm s h ave a s te eper IT – p ro ﬁta bilit y r e la tio nsh ip th an c o st- e m phasis ﬁ rm s.

T hir d , w e c o nducte d o ur a naly se s u sin g r a w ( i. e ., u ntr a nsfo rm ed ) a nd s ta ndard iz e d v a lu es o f IT in ve stm ents a nd o bta in ed q ualit a tiv e ly s im ila r

re su lt s . F ourth , w e c o ntr o lle d fo r in dustr y c o n ce n tr a tio n ( u sin g th e H erﬁ n d ahl In dex) in o ur m odels a nd o bta in ed b ro adly s im ila r r e su lt s . F in ally ,

in ste ad o f u sin g a s e rv ic e -s e cto r d um my v a ria ble , w e a ls o u se d o ne-d ig it N AIC S in dustr y d um mie s in th e m odels . U se o f th ese in dustr y d um mie s

acco unts fo r m any v a ria ble s th at a re c a lc u la te d a t th e in dustr y le ve l, s u ch a s in dustr y c a pit a l in te nsit y , in dustr y c o nce ntr a tio n, a ve ra ge T o bin ’s Q ,

and in dustr y r e gula tio n, a nd th ese m odels a ls o y ie ld ed b ro adly s im ila r r e su lt s , th us p ro vid in g c o nﬁd ence in th e r o bustn ess o f r e su lt s .

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Main Findings

O ur g oal in th is s tu dy w as to c o nce ptu ali z e w hy a r e ve n ue, c o st, o r d ual s tr a te gic e m phasis in IT s tr a te gy w ill a ff e ct ﬁ rm p erfo rm ance a nd m odera te

t h e r e tu rn s to IT in ve stm ents . W e te st th e r e su lt in g c o n je ctu re s u sin g a rc h iv a l d ata fr o m m ore th an 3 00 la rg e U .S . ﬁ rm s. W e fo und th at ﬁ rm s w it h a

d ual e m phasis in th eir IT s tr a te gy h ave a h ig her T o bin ’s Q th an ﬁ rm s w it h a r e ve n ue o r a c o st e m phasis a t th e m ean v a lu e o f IT in ve stm ents ; th ese

d if f e re nce s in m ark e t v a lu e a ris e d esp it e n o s ta tis tic a lly s ig niﬁ ca nt d if f e re nce s in p ro ﬁta bilit y .

W hy d oes th e m ark e t r e w ard d ual s tr a te g ie s o ve r s in gle fo cu s s tr a te gie s? W e b elie ve th at th e p ossib le r e aso ns m ay b e b eca use m ark e ts m ay

perc e iv e d ual s tr a te gie s to b e le ss r e plic a ble b eca u se o f ( 1) R BV m ech anis m s s u ch a s g re ate r s o cia l c o m ple xit y , c a u sa l a m big uit y , p ath

d ependence , a nd o rg aniz a tio nal le arn in g , ( 2) r e duce d d im in is h in g r e tu rn s a nd p le ntif u l lo w -h angin g fr u it s in o pportu nit y s p a ce , a nd ( 3) s tr e tc h

ta rg ets in tw o k e y a re as r e la te d to r e ve n ues a nd c o sts , a s w e a rg ued in th e “ B ackg ro und a nd T heory ”s e ctio n. T o g eth er th ese m ech anis m s m ay

allo w d ual e m phasis ﬁ rm s to h ave m ore s u sta in able , h ig her, a nd a cce le ra te d c a sh ﬂ o w s b eca use o f s im ult a neous ta rg ets fo r h ig her r e ve nues a nd

lo w er c o sts , w it h le ss v a ria bilit y in c a sh ﬂ o w s b eca u se c a sh ﬂ o w s h ave tw o s o u rc e s ( b oth r e ve nue g ro w th a nd c o st r e ductio n), w hile ﬁ rm s w it h a

p rim ary e m phasis o n e it h er r e ve nue g ro w th o r c o st r e ductio n h ave o nly o ne s o u rc e o f IT -e nable d c a sh ﬂ o w .

Ta ke n to geth er, th ese ﬁ n din gs fo re gro und th e im po rta nce o f IT s tr a te gic e m ph asis b eca use s u ch s tr a te gie s in ﬂu ence m ark e t v a lu atio ns e ve n if th ey

do n ot y ie ld m easu ra ble p ro ﬁta bilit y d if f e re nce s a t th e m ea n v a lu e o f IT in ve stm ents . O f g re ate r im porta nce , IT s tr a te gic e m phasis p la ys a s ig niﬁ ca nt

ro le in m odera tin g th e r e la tio nsh ip b etw ee n IT in ve stm en ts a nd ﬁ rm p erfo rm an ce . W e ﬁ n d th at d ual- e m phasis ﬁ rm s h ave a s tr o nger IT –pro ﬁta bilit y

r e la tio nsh ip th an s in gle -e m phasis ( re ve nu e o r c o st e m ph asis ) ﬁ rm s. D ual- e m ph asis ﬁ rm s a ls o h ave a s tr o nger IT –To bin ’s Q r e la tio nsh ip th an

re ve nue-e m phasis ﬁ rm s. In g enera l, o ur ﬁ n d in gs a nd p lo ts s h o w th at a d ual IT s tr a te gic e m phasis y ie ld s b ette r p ro ﬁta bilit y a nd m ark e t v a lu e

outc o m es w hen s u ch a s tr a te gic e m pha sis is c o m bin ed w it h h ig h le ve ls o f IT in ve stm ents . A t th e s a m e tim e, a d ual e m phasis c a n b ackﬁre if n ot

su pporte d b y a dequate le ve ls o f IT in ve stm en ts b eca u se a t lo w er le ve ls o f IT in ve stm ents , it is o utp erfo rm ed b y o th er s tr a te gic e m phase s. O ur

re su lt s a re c o nsis te nt w it h th e v ie w th at ﬁ rm s c a n r e aliz e s ig niﬁ ca nt p erfo rm an ce b eneﬁts w hen th ey c o m bin e h ig her le ve ls o f IT in ve stm ents w it h

t h e m ore s o phis tic a te d m anagem ent a nd g ove rn ance c a p abilit ie s th at ﬁ rm s m ay n eed to r e aliz e th e d ual s tr a te gic e m phasis o f b oth c o st r e ductio n

and r e ve nue e nhance m ent ( A ra l a nd W eill 2 007; W eill a nd R oss 2 009). T hese ﬁ n din gs e xte nd p rio r lit e ra tu re b y s h ow in g, fo r th e ﬁ rs t tim e, h ow IT

in ve stm ents a nd IT s tr a te gic e m phasis jo in tly in ﬂu e nce ﬁ rm p erfo rm an ce . T hey a ls o p ro vid e im porta nt im plic a tio ns fo r p ra ctic e , w hile s u ggestin g th e

need fo r d eve lo pin g s tr o nger th eory ( e .g ., in th e a re a o f IT s tr a te gic a m bid exte rit y ) a nd m ore p re cis e e m pir ic a l te sts in fu rth er w ork .

B efo re c o nsid erin g im plic a tio ns, h ow eve r, w e d is cu ss s o m e lim it a tio ns. F ir s t, o ur s tu dy u se s a c ro ss-s e ctio nal a naly sis a nd, a lt h ough w e p erfo rm ed

an e xte nsiv e s e t o f a naly se s, w e d o n ot c la im c a u sa lit y a nd tr e at o ur r e su lt s a s a sso cia tio nal; lo ngit u din al s tu die s w it h s e ve ra l y e ars o f p anel d ata

w ould h elp v a lid ate o ur ﬁ n din gs to in cre a se th eir g enera liz a b ilit y a nd to e nable s tr o nger c la im s r e la te d to c a usa lit y . L ongit u din al s tu die s c o uld a ls o

h elp s o rt o ut th e e xte nt to w hic h th e s to ck m ark e t is e fﬁ cie nt in r e co g niz in g th e im pro ve m ents in fu ndam enta ls d ue to m anageria l in te rv e ntio ns a nd

str a te gic c h oic e s. S eco nd, a lt h ough w e u se d a p erc e p tu al s in gle -it e m m ea su re fo r p rim ary e m phasis in IT s tr a te gy— whic h is n ot a m ajo r lim it a tio n

per s e , a s o th er s tu die s h ave a ls o u se d s im ila r m ea su re s ( R ust e t a l. 2 002; T a llo n 2 007, 2 008) a nd s u ch m easu re s c a n b e p re fe rre d in c e rta in

c o nte xts to e lic it a ppro pria te r e sp onse b e havio r a nd c le are r in te rp re ta tio n o f ﬁ n d in gs ( D ro le t a nd M orris o n 2 001; R ossit e r 2 002; W anous e t a l. 1 997)

— fu rth er s tu die s w it h a lt e rn ativ e o pera tio naliz a tio ns u sin g m ult i- it e m s ca le s m ig ht b e h elp fu l.

T hir d , w e u se d tw o o f m any p ossib le m easu re s o f o rg ani- z a tio nal p erfo rm an ce , fu tu re r e se arc h s h ould u se a m ore c o m pre hensiv e a ppro ach fo r

asse ssin g th e e ff e ct o f IT s tr a te gie s a nd IT in ve stm en ts o n p erfo rm an ce ( s e e R ic h ard e t a l. 2 009). In p artic u la r, a lt h ough s o m e m ay q uestio n

w heth er T o bin ’s Q , d eve lo ped in 1 969, is a r e le va n t m etr ic in to day’s d yn a m ic b usin ess e nvir o nm ent, to th e e xte nt th at a la rg e s h are o f to p

m anagers ’ c o m pensa tio n is tie d to s to ck p erfo rm an ce , fo cu sin g o n T o bin ’s Q is s till in fo rm ativ e a nd is in lin e w it h r e ce nt r e se arc h lin kin g IT w it h ﬁ rm

p erfo rm ance ( e .g ., T a fti e t a l. 2 013). F ourth , a lt h ough th is s tu dy p ro vid es u se fu l in sig hts b y le ve ra gin g d ata o n b oth IT in ve stm ents a nd IT s tr a te gic

e m phasis , r ic h er c o nce ptu aliz a tio ns a nd th eoriz in g a lo ng th e lin es in o th er s tu die s ( e .g ., O h a nd P in nso nneault 2 007; T a llo n 2 007) c a n b e

illu m in atin g. F if th , o ur ﬁ n din gs a re m ore lik e ly to a pply to s in gle -b usin ess ﬁ rm s o r s tr a te gic b usin ess u nit s w here a d om in ant IT s tr a te gic e m phasis

c a n b e c le arly id entiﬁ e d b eca use it m ay b e h ard er to id entif y a d om in ant IT s tr a te gic e m phasis in c o nglo m era te s o r m ult i- b usin ess ﬁ rm s th at a re

m uch m ore d om in ant in e m erg in g e co nom ie s b ut a re s o m etim es c o n sid ere d r e le va nt e ve n in th e W est a s r e ﬂe cte d in G oogle ’s r e org aniz a tio n in

2 015 ( T he E co nom is t 2 014, 2 015; M it h as 2 015). N eve rth ele ss, th e ﬁ n d in gs a re s till u se fu l fo r th e s tr a te gic b usin ess u nit s w it h in s u ch

c o nglo m era te s. F in ally , a nd p erh aps m ost im po rta ntly , a lt h ough w e p ro vid e p la usib le a rg um ents fo r th e lik e ly m ech anis m s th at d riv e o ur r e su lt s , w e

did n ot d ir e ctly te st th ose m ech anis m s; w e d is cu ss th is is su e in th e r e se a rc h im plic a tio ns s e ctio n to m otiv a te a p ro gra m o f r e se arc h .

Im plic atio ns f o r R esearc h

S eve ra l im porta nt c o nclu sio ns r e su lt fr o m th e c o n je ctu re s m otiv a te d b y T a ble 1 a nd te ste d in o ur e m pir ic a l a naly se s. T hese c o nclu sio ns g enera te

im plic a tio ns fo r d eve lo pin g a p ro gra m o f r e se a rc h th at e xp la in s, e xte nds, o r c la riﬁ e s o ur ﬁ n din gs. F ir s t, o ur ﬁ n din gs s u ggest th at th e o ve ra ll e ff e ct o f

IT s tr a te gic e m phasis o n ﬁ rm p erfo rm ance d epends o n th e ty p e o f s tr a te gic e m ph asis , le ve ls o f IT in ve stm ents , a nd s p eciﬁ c m easu re s o f ﬁ rm

p erfo rm ance . U nlik e R ust e t a l. ( 2 002), w ho r e port th e e ff e ct o f s tr a te gic q ualit y e m phasis o n p ro ﬁta bilit y , o ur ﬁ n din gs s h ow th at IT s tr a te gic

e m phasis d oes n ot in ﬂu ence p ro ﬁta bilit y a t th e m ea n le ve l o f IT in ve stm en ts , a nd n o o ne s tr a te gic e m phasis is u nco ndit io nally s u perio r in te rm s o f

pro ﬁta bilit y a t a ll le ve ls o f IT in ve stm ents . W hile R ust e t a l. d o n ot in ve stig ate th e e ff e ct o f q ualit y -b ase d s tr a te gic e m phasis o n T o b in ’s Q , w e ﬁ n d

th at ﬁ rm s w it h a r e ve nue o r d ual IT s tr a te gic e m ph asis h ave a h ig her T o bin ’s Q th an ﬁ rm s w it h a c o st e m phasis , a t th e m ean v a lu e o f IT

in ve stm ents . T hese d if f e re nce s in ﬁ n din g s a cro ss s tu die s in ve stig atin g a n e m ph asis o n q ualit y a nd IT s tr a te gy h ig hlig ht th e n eed fo r s im ila r

in ve stig atio ns o f e m phase s in o th er fu nctio nal s tr a te gie s o r g ove rn ance p ro ce sse s s u ch a s e xp lo it a tio n v e rs u s e xp lo ra tio n ( O ’R eilly a nd T ush m an

2004), p ro sp ecto r v e rs u s d efe nder ( M ile s e t a l. 1 978), a uto nom y v e rs u s c o n tr o l ( T a fti e t a l. 2 007), c e ntr a liz a tio n v e rs u s d ece ntr a liz a tio n ( X ue e t a l.

2 014), r e gula tio n- v e rs u s c o nse nsu s-b ase d g ove rn ance ( L azic e t a l. 2 014), s ta ndard iz a tio n v e rs u s in te gra tio n ( W eill a nd R oss 2 009), fo cu se d 7/30/2019 EBSCOhost

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ve rs u s b ro ad s e arc h ( L eip onen a nd H elf a t 2 010), ﬂ e xib ilit y v e rs u s e fﬁ cie ncy ( A dle r e t a l. 1 999) a nd th eir im plic a tio ns fo r ﬁ rm p erfo rm ance . W e

re co gniz e th at s o m e fu nctio nal s tr a te gie s m ay n ot h ave a d ual fo cu s in th e s e n se o f th e r e ve nue a nd c o st e m phase s u se d in th is p aper.

S eco nd, a lt h ough o ur fo cu s in th is s tu dy w as o n IT s tr a te gic e m ph asis , IT s tr a te gic e m phasis is n ot c o m ple te ly in dependent o f th e o ve ra ll s tr a te gy o f

a ﬁ rm a nd s tr a te gic e m phase s in o th er a re as ( e .g ., m ark e tin g, o pera tio ns, c a p it a l p ro je cts ). T here is a n eed fo r fu rth er r e se arc h to b ette r u nders ta nd

th e lin ka ges a nd in te ra ctio ns b etw een s tr a te gic e m ph ase s a cro ss fu nctio nal a re as, h ow th ey r e la te to IT s tr a te gy a nd th e o ve ra ll s tr a te gy o f ﬁ rm ,

and th e im plic a tio ns fo r ﬁ rm p erfo rm ance .

T hir d , a lt h ough w e ﬁ n d th at th e d ual s tr a te gic e m ph asis a lo ne is a sso cia te d w it h a h ig her T o bin ’s Q , a nd s tr o nger IT – T o bin ’s Q a nd IT –pro ﬁta bilit y

r e la tio nsh ip s, th ere r e m ain s th e n eed to q uantif y th e r is ks a sso cia te d w it h a doptin g d ual s tr a te gie s a nd h ig her IT in ve stm ents . T he c o m ple xit ie s a nd

path d ependence o f a d ual- e m phasis s tr a te gy c a n a ls o m ake ﬁ rm s m ore r ig id a nd r e duce th eir ﬂ e xib ilit y to c o m pete s u cce ssfu lly if th e e nvir o nm ent

ch anges s u ddenly .

F ourth , in te rm s o f im plic a tio ns fo r fu tu re th eore tic a l w ork , o ur s tu dy s u g gests a n eed fo r a naly tic a l w ork o n th e o ne h and a nd a d eeper u npackin g o f

th e n otio n o f IT a m bid exte rit y a nd it s im plic a tio ns o n th e o th er h and, b eyo n d s o m e n asce nt w ork in th e IS lit e ra tu re th at h as b egun to e xa m in e

va rio us n otio ns o f a m bid exte rit y a t m ult ip le le ve ls ( C ao e t a l. 2 013-1 4; G re gory e t a l. 2 015; Im a nd R ai 2 008; K huntia e t a l. 2 014; K ude e t a l. 2 015;

Lee e t a l. 2 015; S ch m id t e t a l. 2 014; T iw ana 2 010). In p artic u la r, th eoriz in g a nd te stin g h ow d iv e rs it y o f IT s yste m s, s tr e tc h ta rg ets , a nd s p eciﬁ c

c o m bin atio ns o r c o nﬁg ura tio ns o f s p eciﬁ c IT s yste m s a llo w ﬁ rm s to d eve lo p IT a m bid exte rit y is a n a ttr a ctiv e a re a o f in quir y . T here a re a ls o

o pportu nit ie s to s tu dy IT a m bid exte rit y a t th e p ro je ct o r a pplic a tio n le ve l, p erh aps u sin g a c a se s tu dy a ppro ach ( C ederlu nd e t a l. 2 007; K ohli a nd

H oadle y 2 006; R am asu bbu e t a l. 2 014). S uch c a se s tu die s m ig ht fa cilit a te b ette r o pportu nit ie s fo r th eory -b uild in g a nd fo r u nders ta ndin g th e

perfo rm ance im plic a tio ns o f ﬁ t b etw een s tr a te gic o bje ctiv e s o f th at p ro je ct a nd th e a pplic a tio n c a pabilit ie s. It is a ls o lik e ly th at s o m e p ro je cts th at

in it ia lly o ff e r c o st r e ductio n o pportu nit ie s m ig ht s u b se q uently p ro vid e r e ve n ue g ro w th o pportu nit ie s. F or e xa m ple , U PS in tr o duce d it s D eliv e ry

In te rc e pt S erv ic e b eca use it s e xis tin g IT in fr a str u ctu re e nable d th em to d o s o . W hile th e o rig in al s yste m fa cilit a te d c o st r e ductio n, th e s a m e

te ch nolo gy e nable d U PS to in cre ase r e ve n ue s u b se q uently . S uch o ptio ns ( p re vio usly u nkn ow n) p ro vid e o pportu nit ie s fr o m e xis tin g in fr a str u ctu re s

th at c a nnot b e e asily c la ssiﬁ e d in to a n arro w b ucke t. A lt h ough w e r e co g niz e th at th eory -b uild in g is a n im porta nt u nderta kin g in a nd o f it s e lf , w e c a ll

f o r a n e qually im porta nt c o nsid era tio n o f o pera tio nal is su es, s u ch a s h ow th eore tic a l c o nstr u cts w ill b e m easu re d in a p ra ctic a l a nd u nobtr u siv e

m anner to te st th eorie s a nd to g enera te in sig hts fo r p ra ctit io ners .

F in ally , w e c a ll fo r fu rth er r e se arc h to a rtic u la te th e b oundary c o n dit io ns o f w hen d ual- e m phasis is lik e ly to b e r e w ard in g a nd w hen it m ay b e

dele te rio us, in th e s p ir it o f “ p urs u in g fa ilu re ” to p ru ne th eorie s ( G ra y a nd C ooper 2 010). A lt h ough th e ju ry is s till o ut o n s o m e o f th e a rg um ents th at

G ra y a nd C ooper m ake a s th ey th em se lv e s a ckn ow le dge, w e c a n a dd th at s cie ntiﬁ c e nte rp ris e is ju st a s w ell s e rv e d b y c u rio sit y -a nd p ro ble m -d riv e n

re se arc h ( L aw re nce 1 992) in a c o nte xt w here o rg aniz a tio ns a re b est v ie w ed a s to ols in ste ad o f n atu ra l o bje cts th at a re s u sce ptib le to la w s,

e xp erim enta l c o ntr o ls a re la ckin g, a nd r e gula rit ie s a re o fte n c o n te xt a nd tim e-d ependent ( D avis 2 010). H ow m ig ht o ne g o a bout te stin g a s to w hic h

th eory o r m ech anis m ( o r a c o m bin atio n o f m ech a nis m s) a m on g th ose lis te d in T a b le 1 p ro vid es th e b est e xp la natio n fo r w hy d ual- e m phasis in IT

s tr a te gy a nd it s in te ra ctio n w it h IT in ve stm en ts is a sso cia te d w it h s u p erio r p erfo rm ance ? W e c a n e nvis io n a r e se arc h p ro gra m fo r o pera tio naliz in g

th e m ech anis m s, c o lle ctin g d ata o n th em fr o m s e co n dary o r p rim ary s o u rc e s a nd th en te stin g th eir r e la tiv e e xp la nato ry p ow er. W hile p rio r lit e ra tu re

o n R BV m ay p ro vid e g uid ance fo r o pera tio naliz in g s o m e o f th ese m ech a nis m s, s o m e n ew m easu re s m ay h ave to b e d eve lo ped fo r o pera -tio naliz in g

re duce d d im in is h in g r e tu rn s ( fo r e xa m ple , b y c o u ntin g to ta l n um be r a nd ty p e s o f r e ve nue e xp ansio n a nd c o st r e ductio n IT p ro je cts th at a re p art o f

an o rg aniz a tio n’s c o nsid era tio n s e t in a y e a r) a nd s tr e tc h ta rg ets a cro ss r e ve n ue a nd c o st d om ain s ( fo r e xa m ple , n um ber o f r e ve nue a nd c o st

m etr ic s u se d b y th e IT d epartm ent o f a n o rg aniz a tio n). A lt h ough c re atin g n ew s ca le s w ill b e u se fu l, in s o m e c a se s, r e se arc h ers m ay c o m e a cro ss

a rc h iv a l b ut u nobtr u siv e d ata th at m ay p ro xy fo r s o m e o f th e u nderly in g id eas in T a ble 1 fo r in it ia l te sts o f c o m petin g m ech anis m s. L ik e o th er te sts o f

org aniz a tio nal th eorie s ( fo r a d is cu ssio n , s e e D avis 2 010), it is u nlik e ly th at a ny o ne s tu dy o r m eth od o f e nquir y c a n p ro vid e a d eﬁn it iv e te st o f th e

co nje ctu re s o r im plic a tio ns a ris in g fr o m o ur r e se a rc h o r th e id eas lis te d in T a ble 1 . H ow eve r, w e h ope th at m ult ip le s tu die s a cro ss v a ry in g c o nte xts

w it h d if f e rin g a ppro ach es w ill g iv e u s a v a nta ge p oin t to m ake s e n se o f th e c o n to urs o f th e r ic h ness a nd c o m ple xit y o f o rg aniz a tio nal s tr a te gie s,

re so urc e s, a nd a sso cia te d p erfo rm ance o utc o m es to d eve lo p u se fu l in sig hts a nd g enera liz a tio ns.

Im plic atio ns f o r P ra ctic e

O ur m ost im porta nt m anageria l im plic a tio n is th at a d ual o r r e ve n ue e m ph asis in IT s tr a te gy p ays o ff in te rm s o f ﬁ rm v a lu atio n, a s m easu re d b y

To bin ’s Q , e ve n th ough p ro ﬁta bilit y is n o t im pro ve d a t th e m ea n le ve l o f IT in ve stm ents . W e a ls o ﬁ n d th at ﬁ rm s w it h a d ual e m phasis in IT s tr a te gy

are m ore p ro ﬁta ble a nd h ave a h ig her T o bin ’s Q w hen th ey in ve st m ore in IT . A t lo w er IT b udget le ve ls , it is b est fo r th e ﬁ rm to c h oose o ne s tr a te gy

or th e o th er— eit h er r e ve nue e xp ansio n o r c o st c u ttin g— as it s p rim ary IT e m ph asis . H ow w ould T o bin ’s Q v a ry if a d ual- e m phasis ﬁ rm d id n ot s p end

hig her a m ounts o n IT ? T he a nsw er to th is c o u nte rfa ctu al q uestio n w ould r e quir e a r a ndom iz e d ﬁ e ld tr ia l in vo lv in g th e a ssig nm ent o f lo w a nd h ig h IT

in ve stm ents to d ual- e m phasis ﬁ rm s. H ow eve r, in th e a bse n ce o f s u ch a ﬁ e ld tr ia l, o ur o bse rv a tio nal s tu dy le ve ra ges v a ria tio n in IT in ve stm ents

a cro ss d ual- e m phasis ﬁ rm s in o ur s a m ple to p ro vid e a p re lim in ary a nsw er. F ig ure s 1 –4 s h ow th at a t lo w er le ve ls o f IT in ve stm ents , d ual- e m phasis

ﬁ rm s d o a bout a s w ell a s s in gle -e m phasis ﬁ rm s in te rm s o f p ro ﬁta bilit y , a lt h ough th ey d o s lig htly b ette r th an s in gle -e m phasis a nd p artic u la rly c o st-

e m phasis ﬁ rm s in te rm s o f T o bin ’s Q ( s e e F ig ure 4 ).

In a b ro ader s e nse , o ur s tu dy p ro vid es a n a sse ssm en t o f th e im plic a tio ns o f IT s tr a te gic e m phasis fo r m ult ip le m easu re s o f ﬁ rm p erfo rm ance . O ur

re su lt s s u ggest th at IT s tr a te gic e m phase s h ave a s ig niﬁ ca nt im pa ct o n m ark e t v a lu e a t th e m ean v a lu e o f IT in ve stm ents , d esp it e n o d if f e re nce s in

p ro ﬁta bilit y a t th ose le ve ls o f IT in ve stm en ts . O ur r e su lt s a re n ot o nly s ta tis tic a lly b ut a ls o e co nom ic a lly o r p ra ctic a lly s ig niﬁ ca nt b eca use T o b in ’s Q

f o r d ual- e m phasis ﬁ rm s is 0 .3 1 h ig her ( b e ca u se th ese a re la rg e ﬁ rm s, a T o bin ’s Q o f 0 .3 1 m eans 3 1 p erc e nt o f r e pla ce m ent c o st o f a sse ts o f th e

la rg e ﬁ rm s in o ur s a m ple w hic h is a n e co nom ic a lly la rg e q uantit y ) a t th e m ea n le ve l o f IT in ve stm ents ( s e e A guin is e t a l. [2 010] fo r fu rth er d is cu ssio n 7/30/2019 EBSCOhost

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of s ta tis tic a l v e rs u s p ra ctic a l s ig niﬁ ca nce ; s e e a ls o F orn ell e t a l. [2 009]) . M an agers n eed to u nders ta nd th e tr a de-o ff s in vo lv e d in p urs u in g a

p artic u la r s tr a te gic e m phasis in a fu nctio nal a re a, a nd d ependin g o n th e s tr a te gic g oals , th ey c a n c h oose a p artic u la r IT s tr a te gic e m phasis th at

m eets th eir n eeds. In p artic u la r, b eca use a doptio n o f a p artic u la r s tr a te gic e m ph asis a ff e cts m ark e t v a lu e w it h out a ff e ctin g p ro ﬁta bilit y , m anagers

n eed to c o nsid er th e m ark e t v a lu e im plic a tio ns o f th eir a ctio ns a nd s tr a te gic c h o ic e s c a re fu lly e ve n if th ey d o n ot a ppear to a ff e ct p ro ﬁta bilit y ( K ohli

e t a l. [2 012] m ake s im ila r o bse rv a tio ns). It is a ls o p ossib le th at s tr a te gic e m ph ase s in d if f e re nt fu nctio nal a re as h ave d if f e re nt im plic a tio ns fo r

m anagin g p ro ﬁta bilit y a nd T o bin ’s Q , a nd b y c o m bin in g th e s tr a te gic c h o ic e s a cro ss v a rio us fu nctio nal a re as, m anagers m ay b e a ble to s e le ct a

p ortfo lio o f s tr a te gic o ptio ns to m eet th eir d esir e d p erfo rm an ce o bje ctiv e s.

A noth er m anageria l im plic a tio n o f o ur ﬁ n din gs p erta in s to ta ctic a l a ctio ns a nd in ve stm ents in d is cre tio nary e xp endit u re s s u ch a s a dve rtis in g, R &D ,

and IT in ve stm ents to o pera tio naliz e th e s tr a te gic e m ph asis in a fu nctio nal a re a. A lt h ough m anagers c a n v ie w IT in ve stm ents a s p ro vid in g th e ﬁ rm

w it h th e c a pabilit ie s to b eco m e a m bid extr o us a nd a gile fo r im pro ve d ﬁ rm p erfo rm ance , th is d oes n ot m ean th at a ll IT s yste m s a nd a pplic a tio ns c a n

help w it h r e ve nue g ro w th o r c o st r e ductio n. A s w e a rg ue in th e “ B ackg ro und” s e ctio n, it is n ot s o m uch w hic h a pplic a tio ns ﬁ rm s u se b ut r a th er w hat

th eir o ve ra ll s tr a te gic o bje ctiv e s a re fo r d e plo yin g th e a pplic a tio ns th at is m ore c rit ic a l, b eca use w e a rg ue th at m anageria l b elie fs , m enta l m odels ,

a nd s tr a te gic p ostu re s h ape a n o rg ani- z a tio n’s IT g ove rn ance a nd m an agem en t o f IT p ro je cts to c re ate b usin ess v a lu e ( M it h as e t a l. 2 013). T his

m eans th at m anagers c a n c h oose a s u it a ble p ortfo lio o r c o m bin atio ns o f a ppro pria te IT a pplic a tio ns ( e ach o f w hic h m ay o nly p ro vid e e it h er r e ve nue

gro w th o r c o st b eneﬁts to a g re ate r d egre e, w it h s o m e e xce ptio ns s u ch a s b usin ess a naly tic s s yste m s th at m ay p ro vid e d ual c a pabilit ie s) th at a re

c o nsis te nt w it h th eir s tr a te gic o bje ctiv e . F or e xa m ple , w hile C RM s yste m s m ay h elp ﬁ rm s im pro ve c u sto m er s a tis fa ctio n ( M it h as e t a l. 2 005, 2 016)

and, in tu rn , r e purc h ase in te ntio ns a nd s a le s ( L ariv ie re e t a l. 2 016); e P ro cu re m en t a nd R FID ( ra dio -fr e quency id entiﬁ ca tio n) s yste m s m ay h elp ﬁ rm s

re duce c o sts ( M it h as a nd J o nes 2 007; W hit a ke r e t a l. 2 007). T hus, m an agers n eed to s yn ch ro niz e th eir IT s tr a te gic e m phasis w it h r e la te d IT

a pplic a tio ns to a ch ie ve th eir s tr a te gic o bje ctiv e s.

C onclu sio n

To c o nclu de, th is r e se arc h e m pir ic a lly te ste d th e e ff e ct o f IT s tr a te gic e m ph ase s a nd IT in ve stm ents o n ﬁ rm p ro ﬁta bilit y a nd m ark e t v a lu e. U sin g

arc h iv a l d ata fr o m a b ro ad c ro ss-s e ctio n o f m ore th an 3 00 U .S . ﬁ rm s, w e ﬁ n d th at a t th e m ean v a lu e o f IT in ve stm ents , d ual- e m phasis ﬁ rm s h ave a

h ig her T o bin ’s Q th an ﬁ rm s w it h a r e ve nu e o r a c o st e m ph asis , w it h out a ny s ta tis tic a lly s ig niﬁ ca nt d if f e re nce s in p ro ﬁta bilit y d ue to s tr a te gic

e m phase s. O f g re ate r im porta nce , IT s tr a te gic e m ph asis p la ys a s ig niﬁ ca nt r o le in m odera tin g th e r e la tio nsh ip b etw een IT in ve stm ents a nd ﬁ rm

p erfo rm ance . D ual- e m phasis ﬁ rm s h ave a s tr o nger IT –pro ﬁta bilit y r e la tio nsh ip th an s in gle -e m phasis ﬁ rm s, a nd d ual- e m phasis ﬁ rm s h ave a s tr o nger

IT –To bin ’s Q r e la tio nsh ip th an r e ve nue-e m ph asis ﬁ rm s. O ve ra ll, w hile th is r e se a rc h p ro vid es u se fu l in sig hts in to th e e ff e cts o f IT -re la te d s tr a te gic

e m phasis o n ﬁ rm p erfo rm ance , th e ﬁ n din gs im ply th at th e e ff e cts o f s tr a te gic e m phasis ( re ve nue g ro w th , c o st r e ductio n, o r a d ual e m phasis ) o n ﬁ rm

p erfo rm ance c a n v a ry s ig niﬁ ca ntly a nd a re c o n dit io nal o n le ve ls o f IT in ve stm en ts . F or ty p ic a l le ve ls o f IT e xp endit u re , a d ual e m phasis in IT

s tr a te gy p ays o ff in te rm s o f a h ig her ﬁ rm v a lu atio n, a nd a h ig her le ve l o f IT in ve stm ents m ake s a d ual e m phasis in cre asin gly a ttr a ctiv e , w it h r e sp ect

to b oth p ro ﬁta bilit y a nd T o bin ’s Q . T hese ﬁ n d in gs s h o uld h elp m an agers c ra ft th eir IT s tr a te gie s a nd b ette r a llo ca te r e so urc e s fo r IT s yste m s to

a ch ie ve o r s u sta in c o m petit iv e a dva nta ge .

A ckn ow le d gm en ts

W e th ank R ajiv K ohli ( th e s e nio r e dit o r), A ndre w B urto n-J o n es ( th e a sso cia te e dit o r), th e th re e a nonym ous r e vie w ers o f M IS Q uarte rly , a nd s e m in ar

partic ip ants a t th e M ark e tin g S tr a te gy M ee ts W all S tr e et W ork sh op ( J a n uary 2 4-2 9, 2 009) a t G oiz u eta B usin ess S ch ool, E m ory U niv e rs it y , fo r

help fu l c o m ments to im pro ve th is w ork . W e a ls o a ckn ow le dge h elp fu l d is cu ssio ns w it h A ndre w B aer, fo rm er C IO o f C om ca st, to in fo rm o ur th in kin g

and a rg um ents .

F ootn ote s

1 R ajiv K ohli w as th e a cce ptin g s e nio r e dit o r fo r th is p aper. A ndre w B urto n-J o n es s e rv e d a s th e a sso cia te e dit o r.

2 A lt h ough th e la gged v a lu e o f a n e ndoge nous in dependent v a ria ble is n ot a p erfe ct in str u m ent, it is o fte n u se d in th e a bse nce o f b ette r in str u m ents

( K ennedy 1 994). P rio r s tu die s in th e b usin ess v a lu e o f IT lit e ra tu re h ave ju stiﬁ e d o r u se d s im ila r in str u m ents ( H an a nd M it h as 2 013; H it t a nd

B ry n jo lf s so n 1 996; K ohli, D eva ra j a nd O w 2 012; M it h as e t a l. 2 012).

3 O ve ra ll s tr a te gy o f a ﬁ rm m ay b e d ete rm in ed b y it s in dustr y , a nd w e a cco unt fo r th at c o rre la tio n to s o m e e xte nt b ut w e a ckn ow le dge th at fu tu re

re se arc h s h ould e xp lo re c o ntr o ls fo r a ﬁ rm ’s o ve ra ll s tr a te gy.

4 In a ddit io n to th e in str u m enta l v a ria ble a ppro ach , th ere a re o th er m eth ods th at c a n b e u se d to a sse ss th e c a usa l n atu re o f tr e atm ent e ff e cts a nd

se nsit iv it y o f p ara m ete r e stim ate s. T hese in clu de p ro pensit y s co re m atc h in g, im pact th re sh old fo r a c o nfo undin g v a ria ble , a nd r e gre ssio n

dis co ntin uit y a ppro ach es ( K im e t a l. 2 014 ; K ohli e t a l. 2 012; M it h as a nd K ris h n an 2 009), a m ong o th ers . H ow eve r, th e u se o f s u ch m eth ods is

c o nte xt d ependent o n th e ty p e o f r e se arc h q uestio ns a nd d ata to w hic h r e se a rc h ers h ave a cce ss.

5 P rio r s tu die s in th e b usin ess v a lu e o f IT lit e ra tu re h ave a ls o u se d s im ila r la gged v a lu es a s th e in str u m enta l v a ria ble , a lt h ough th e e xa ct

o pera tio naliz a tio n is a lw ays s u bje ct to d ata lim it a tio ns a nd s o m ew hat c o n te xt- s p e ciﬁ c. T here fo re , c o nce ptu ally a nd e m pir ic a lly o ur c h oic e o f

in str u m ent is c o nsis te nt w it h p rio r lit e ra tu re ( H an a nd M it h as 2 013; H it t a nd B ry n jo lf s so n 1 996; K ohli e t a l. 2 012; M it h as e t a l. 2 012).

6 S om etim es r e se arc h ers u se m ult ip le in str u m en ts a nd r e port s o m e s ta tis tic a l te sts to p ro vid e c o nﬁd ence in u sa ge o f s u ch m ult ip le in str u m ents .

S uch in str u m ents h ave o fte n b een c rit ic iz e d b eca u se th ey a ls o c o m e w it h u nexp la in ed o r n on-v e riﬁ a ble a ssu m ptio ns. 7/30/2019 EBSCOhost

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GRAPH : F ig ure 1 . IT –P ro ﬁta bilit y R ela tio nsh ip fo r D ual- V ers u s S in gle -E m ph asis F ir m s ( R eve nue o r C ost) ( o th er v a ria ble s a re a t th eir m ean v a lu e)

G RAPH : F ig ure 2 . IT –To bin ’s Q R ela tio nsh ip fo r D ual- V ers u s S in gle -E m ph asis F ir m s ( R eve nue o r C ost) ( o th er v a ria ble s a re a t th eir m ean v a lu e)

G RAPH : F ig ure 3 . IT –P ro ﬁta bilit y R ela tio nsh ip b y D ual, R eve n ue, a nd C ost IT S tr a te gic E m phasis ( o th er v a ria ble s a re a t th eir m ean v a lu e)

G RAPH : F ig ure 4 . IT –To bin ’s Q R ela tio nsh ip b y D ual, R eve n ue, a nd C ost IT S tr a te gic E m phasis ( o th er v a ria ble s a re a t th eir m ean v a lu e)

D IA G RAM : H O W IN FO RM AT IO N T E C HN O LO GY S TR AT E G Y A N D IN VESTM EN TS IN FLU EN CE F IR M P ER FO RM AN CE: C O NJE C TU RE A N D

EM PIR IC AL E VID EN CE1

D IA G RAM : H O W IN FO RM AT IO N T E C HN O LO GY S TR AT E G Y A N D IN VESTM EN TS IN FLU EN CE F IR M P ER FO RM AN CE: C O NJE C TU RE A N D

EM PIR IC AL E VID EN CE1

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D ece m ber 1 4-1 7.

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http ://c o nve rs a tio nsta rte r.h bsp .c o m /2 008 /0 1/h ow a 5f;te ch n olo gy& #x2 a 5f;a m pliﬁ e d& #x2 a5f;th e& #x2 a5f;m .h tm l ). 7/30/2019 EBSCOhost

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Ta fti, A ., M it h as, S ., a nd K ris h nan, M . S . 2 007. “ In fo rm atio n T e ch nolo gy a nd th e A uto nom y-C ontr o l D ualit y : T o w ard a T heory ,” In fo rm atio n

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A llia nce s,” M anagem ent S cie nce ( 5 9:1 ), p p. 2 07-2 25.

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S tr a te gic In fo rm atio n S yste m s ( 1 6), p p. 2 78-3 00.

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In fo rm atio n S yste m s ( 2 4:3 ), p p. 2 27-2 68.

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533.

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J o urn al o f M anagem ent In fo rm atio n S yste m s ( 2 7:2 ), p p. 8 7-1 26.

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P sych olo gy ( 8 2:2 ), p p. 2 47-2 52.

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P ro ce edin gs o f th e 3 4th In te rn atio nal C on fe re nce o n In fo rm atio n S yste m s, A uckla nd, N ew Z eala nd, D ece m ber 1 4-1 7.

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A m eric a n S ta tis tic a l A sso cia tio n ( 5 7), p p. 3 48-3 68.

A ppen dix

A ppendix

T his a ppendix p ro vid es fu rth er d is cu ssio n o n w hy e ndogeneit y is n ot a s ig niﬁ ca nt c o nce rn in o ur a naly se s. W e b egin b y n otin g th at e ndogeneit y

t y p ic a lly a ris e s w hen ( 1) b oth d ependent a nd in dependent v a ria b le s a re s im ult a neously d ete rm in ed, o r ( 2) w hen r e ve rs e c a usa lit y is s u sp ecte d

(i. e ., w hen th e d ependent v a ria ble c a use s in dependent v a ria ble s). F ir s t, r e gard in g th e s it u atio n in w hic h e ndogeneit y a ris e s fr o m th e s im ult a neit y o f

IT in ve stm ents a nd ﬁ rm p erfo rm ance , o ne w ay to r u le th is o ut is b y c o n ductin g a fo rm al te st fo r e ndogeneit y fo llo w in g a p ro ce dure s u ggeste d b y

W oold rid ge ( 2 003b, p . 5 06) a nd u se d in p rio r IS r e se a rc h ( s e e M it h as e t a l. 2 012). T he in tu it io n fo r th is p ro ce dure is th at in str u m enta l v a ria ble

a ppro ach es to d eal w it h e ndogeneit y a re le ss e fﬁ cie nt th an O LS w hen th e e xp la nato ry v a ria ble s a re e xo genous. T here fo re , W oold rid ge ( 2 003b, p .

506) s u ggests a te st to a sse ss w heth er a n e xp la nato ry v a ria ble is e ndogenous b efo re m akin g in dis crim in ate u se o f 2 S LS . T he te st is b ase d o n th e

id ea th at b oth O LS a nd 2 S LS a re c o nsis te nt if a ll v a ria ble s a re e xo g enous, b ut if 2 S LS a nd O LS e stim ate s d if f e r s ig niﬁ ca ntly th en w e m ay c o nclu de

th at th e e xp la nato ry v a ria ble m ay b e e ndo genous. In a cco rd ance w it h th is p ro ce d ure , w e r e gre sse d th e v a lu e o f IT in ve stm ents o n la gged v a lu es o f

IT in ve stm ent.[ 2] W e u se d th e p re dic te d v a lu e o f IT in ve stm en ts fr o m th is m od el to c o m pu te p re dic te d r e sid uals fo r IT in ve stm ents . W e th en

in clu ded th is p re dic te d r e sid ual in th e ﬁ rm p erfo rm an ce m od els in e quatio ns a lo ng w it h o th er v a ria ble s s p eciﬁ e d in ﬁ rm p erfo rm ance m odels a s

note d a bove . B eca use th is p re dic te d r e sid ual w as n ot s ta tis tic a lly s ig niﬁ ca nt in th e ﬁ rm p erfo rm ance m odels , th e r e su lt o f th is te st r e duce s c o nce rn s

about th e e ndogeneit y o f th e IT in ve stm ents v a ria ble . 7/30/2019 EBSCOhost

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Seco nd, r e gard in g th e s it u atio n in w hic h e ndogeneit y a ris e s fr o m r e ve rs e c a u sa lit y , b eca use in dependent v a ria ble s p re ce de o ur d ependent

va ria ble s b y a t le ast o ne y e ar, th is r e duce s ( a t le ast to s o m e d egre e) c o n ce rn s a bout r e ve rs e c a usa lit y a s a r e aso n fo r e ndogeneit y .

F ro m a n e co nom etr ic a nd th eore tic a l p ers p e ctiv e , th e u se o f o rd in ary le ast s q u are s ( O LS ) to e stim ate th e fo llo w in g e quatio ns is a ppro pria te fo r

te stin g o ur m ain c o nje ctu re s fo r a d ual v e rs u s s in gle s tr a te gic e m ph asis :

T his is b eca use th e fo ca l e xp la nato ry v a ria ble s ( i. e ., IT s tr a te gic e m ph asis a nd IT in ve stm ents ) a re e xo genous in a n e co nom etr ic s e nse ; th e te rm

e xo genous h ere is u se d in a te ch nic a l s e n se a s p re dete rm in ed o r o ccu rrin g b efo re ﬁ rm p erfo rm ance ( s e e K ennedy 1 998; W oold rid ge 2 003b), a nd

w e a ckn ow le dge th at IT in ve stm ents c a n b e d ete rm in ed b y a ﬁ rm ’s o ve ra ll s tr a te gy. F ro m a th eore tic a l p ers p ectiv e , o ne c a n ju stif y IT s tr a te gic

e m phasis a s e xo genous to ﬁ rm p erfo rm ance b ut d ete rm in ed b y a ﬁ rm ’s o ve ra ll s tr a te gy, w hic h is u su ally a ssu m ed to e ndure o ve r m any tim e

perio ds, th us a vo id in g a ny s im ult a neit y b etw een ﬁ rm p erfo rm an ce a nd c h o ic e o f IT s tr a te gic e m phasis .[ 3] L ik e w is e , th eore tic a lly , o ne w ay to

c o nce ptu aliz e e xo geneit y o f IT in ve stm en ts is th at s ig niﬁ ca nt u nce rta in tie s in v a lu e r e aliz a tio n fr o m IT in ve stm ents m ake it d if ﬁ cu lt fo r m anagers to

k n ow w heth er IT in ve stm ents w ill y ie ld th e d esir e d o utc o m es in th e c o n te xt o f th eir ﬁ rm a nd w hat le ve l o f IT in ve stm ent is c o nsis te nt w it h th eir IT

s tr a te gie s. T hese fa cto rs c a n c re ate e xo ge nous v a ria tio n in IT in ve stm en ts a cro ss ﬁ rm s th at is u nre la te d to s u bse quent p ro ﬁta bilit y ( p artic u la rly

b eca use IT in ve stm ent d ecis io ns a re lik e ly to p re ce d e th e r e aliz a tio n o f p ro ﬁts in a g iv e n y e ar). O ur m odels a lr e ady a llo w ﬁ rm s’ IT in ve stm ents to b e

driv e n b y th eir b usin ess s tr a te gie s.

N ote a ls o th at p rio r r e se arc h s u ggests th a t th e m ere p re se n ce o f e ndogeneit y d oes n ot a lw ays b ia s th e c o efﬁ cie nts o f in te re st. F or e xa m ple , T a m be

and H it t ( 2 012) u se d IT e m plo ym ent d ata a nd c o n clu ded th at “ e ff e cts o f e ndogeneit y o n IT p ro ductiv it y e stim ate s m ay b e r e la tiv e ly s m all” ( p . 5 99)

and th e b ia s m ay e ve n b e n eglig ib le fo r s tu die s th at u se IT s p e ndin g d ata w hic h in clu des IT h ard w are , s o ftw are , a nd s yste m s s p endin g a s is th e

ca se in o ur s e ttin g. T a m be a nd H it t u se d IT c a p it a l s to ck d ata fr o m C om pu te r In te llig ence a s a n in str u m ent fo r IT e m plo ym ent to g enera te s o m e o f

th eir ﬁ n din gs. T heir r e su lt s a re a r e m in de r th at p re se n ce o f e ndogeneit y d oes n ot a uto m atic a lly m ean b ad p ara m ete r e stim ate s.

A lt h ough T a m be a nd H it t’s ﬁ n din gs p ro vid e s o m e c o n ﬁd e nce th at e ndogeneit y is su es m ay n ot a lw ays b e s e ve re , r e se arc h ers o fte n a gre e th at th e

in str u m enta l v a ria ble a ppro ach c a n b e a p ote ntia l r e m ed y to a ddre ss o r m it ig ate c o nce rn s r e la te d to e ndogeneit y .[ 4] F or e xa m ple , K ohli e t a l.

( 2 012) r e port th at th eir e xp lo ra to ry r o bustn ess c h e cks w it h 2 S LS u sin g la gged v a lu e o f a ve ra ge p rio r p erio d IT in ve stm ents a s in str u m enta l v a ria ble

p ro vid ed r e su lt s s im ila r to th eir m ain e stim ate s. A lt h ough o ur te sts fo r e ndogeneit y d o n ot s u ggest th at th e u se o f th e in str u m enta l v a ria ble s

appro ach is w arra nte d, w e n oneth ele ss e stim ate d o ur m od els u sin g tw o-s ta ge le ast s q uare s ( 2 S LS ) a s a n e xp lo ra to ry r o bustn ess c h eck s im ila r to

K ohli e t a l. ( 2 012). W e o bta in ed b ro adly s im ila r r e su lt s a s th ose r e porte d in T a ble 5 , w it h p osit iv e a nd s ta tis tic a lly s ig niﬁ ca nt c o efﬁ cie nts fo r th e

in te ra ctio n te rm in vo lv in g IT in ve stm ents a nd a d ual e m ph asis b y u sin g a noth er la g o f IT in ve stm ents a s in str u m ent. T his a naly sis , o nce a gain ,

su ggests th at e ndogeneit y c o nce rn s a re n ot s e rio us in o ur s tu dy a nd d o n ot a ff e ct o ur m ain ﬁ n din gs. F or o ur IV a naly sis , w e u se d th e la gged v a lu es

of IT in ve stm ent a s th e in str u m enta l v a ria ble d ra w in g g uid ance fr o m p rio r w ork o n b usin ess v a lu e o f IT .[ 5] T his IV a ls o m eets th e r e le va nce

co ndit io n ( IV s h ould b e s tr o ngly c o rre la te d w it h th e fo ca l e xp la nato ry v a ria ble th at is s u sp ecte d to b e e ndogenous; in o ur c a se , it is th e IT

in ve stm ents v a ria ble ). O ur in str u m enta l v a ria ble a ls o a ppears to b e u nco rre la te d w it h th e e rro r te rm in th e p ro ﬁt a nd T o b in ’s Q e quatio n o n

co nce ptu al g ro unds b eca use , e sse ntia ll y , th e a rg um en t w ould b e th at th e IT in ve stm ents in p erio d t- 2 a re m ore lik e ly to a ff e ct IT in ve stm ents in

p erio d t- 1 , a nd o nce w e a cco unt fo r th is e ff e ct, th en w e w ould e xp e ct to r e co ve r a c o nsis te nt e stim ate o f th e e ff e ct o f IT in ve stm ents a t t- 1 o n ﬁ rm

p erfo rm ance ( p ro ﬁts a nd T o bin ’s q ). T his a ssu m ptio n is m ad e b y a lm ost a ll o th er s tu die s th at u se s u ch a la gged in str u m enta l v a ria ble ( H an a nd

M it h as 2 013; H it t a nd B ry n jo lf s so n 1 996 ; K ohli e t a l. 2 012; M it h as e t a l. 2 012), e ve n if it is n ot e xp lic it ly s ta te d. N ote th at th ere a re n o e m pir ic a l te sts

f o r v e rif y in g h ow g ood s u ch a n a ssu m ptio n is in a ju st- id entiﬁ e d c a se w hen o ne u se s o nly o ne in str u m enta l v a ria ble .[ 6]

I n s u m mary , g iv e n th e v a rio us s e nsit iv it y a naly se s th at w e h ave p erfo rm ed a nd r e porte d in th e p aper a nd th e a ddit io nal d is cu ssio n h ere , w e fe el th at

our e m pir ic a l c h oic e s a re r e aso nable , c o nsis te nt w it h p rio r w ork in th is a re a, a nd th at o ur c h ose n in str u m ent s a tis ﬁe s r e le va nce ( a s w e c o uld

e m pir ic a lly te st) a nd e xclu sio n r e str ic tio n ( a s c a n b e p la usib ly a rg ued b ase d o n g uid ance fr o m p rio r lit e ra tu re ). E arlie r in th e n ote , w e d is cu sse d a nd

exp lic it ly r u le d o ut tw o a lt e rn ativ e e xp la na tio ns o f o ur ﬁ n d in gs ( w hic h m ay s u g gest th at e it h er IT s tr a te gic e m phasis in ﬂu ence s IT in ve stm ents , o r IT

in ve stm ents d ete rm in e d ual e m phasis ; o ur d ata d o n ot s u p port e it h er). T hen, e ve n th ough w e s h ow th at th e IT in ve stm ents v a ria ble is n ot

endogenous, o ur IV r e su lt s a s a fu rth er r o bustn ess c h e ck, fo llo w in g th e a ppro ach u se d b y K ohli e t a l. ( 2 012), to r e duce c o nce rn s a bout e ndogeneit y

b eca use th ey p ro vid ed b ro adly s im ila r r e su lt s fo r o ur m ain ﬁ n d in gs. F in ally , w e r e co gniz e a s m any o th ers d o th at o ne c a n n eve r p ro ve c a usa lit y in

a n o bse rv a tio nal s tu dy, a nd th ere fo re w e in clu de a n e xp lic it lim it a tio n th at o ur s tu dy is a sso cia tio nal a nd w e d o n ot c la im c a usa lit y .

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B y S unil M it h as a nd R ola nd T . R ust

C opyrig ht o f M IS Q uarte rly is th e p ro perty o f M IS Q uarte rly a nd it s c o n te nt m ay n ot b e c o pie d o r e m aile d to m ult ip le s it e s o r p oste d to a lis ts e rv

w it h out th e c o pyrig ht h old er's e xp re ss w rit te n p erm is sio n. H ow eve r, u se rs m ay p rin t, d ow nlo ad, o r e m ail a rtic le s fo r in div id ual u se .