Management Information Systems - Effect of Information Technology Strategy and Investments on Firm's Performance - Essay Example

Management Information Systems Name Institution Question 1 The authors are conducting the study to find out whether companies with dual emphasis IT strategies have higher market value than those with a single emphasis IT strategy. The dual emphasis IT strategy is a combination of revenue expansion strategy and cost reduction strategy (Mithas & Rust, 2016). The study also purposes to find out if those firms applying a dual emphasis IT strategy achieve a stronger IT-Tobin’s Q relationship. Additionally, the study wants to find out if investments in IT have any effect on a firm’s profitability as well as performance. If in deed there are effects on those two aspects, the study tries to identify the levels of investments that are required in order to satisfy the dual emphasis IT strategy. Finally, the authors aim to know how an IT strategy can moderate the relation between the investments made in IT and the subsequent performance of the firm. Question 2 Dual emphasis IT strategy leads to a significant improvement of a firm’s performance due to factors that include social complexity, causal ambiguity, path dependence, and organizational learning. Social complexity is achieved by the way a firm applying dual emphasis strategy pursues two goals at the same time. To achieve revenue expansion while at the same time reducing costs leads to a complex mode of operation. It requires the use of applications that have a greater breadth and scope than those of firms that have a single emphasis IT strategy. Social complexity can be achieved through building customer relationships in the front end by employing a powerful Customer Relationship Management (CRM) application and at the same time building the relationship with suppliers on the backend (Mithas & Rust, 2016). This complexity leads to a model that competitors will have a hard time replicating. The flip side of this method is in the difficulty of managing and maintaining the coordination that is needed to chase both goals simultaneously. However, if successfully coordinated, a firm whose processes cannot be replicated gains exclusivity and uniqueness which translates to higher market value. Using a dual emphasis IT strategy breaks convention of business operations. This unconventional approach leads to a causal ambiguity in the sense that competitor firms do not have a way of comprehending the details of the strategy. When a strategy is indecipherable by external forces, ambiguity looms over the firm and its processes become harder to replicate. A firm that focuses on a dual strategy has a defined path that the whole organization is dependent on. This path of pursuing two goals leads to realizing new opportunities that could otherwise not have been discovered if the firm was set on only one individual goal. Some of the opportunities have an effect on both strategies for instance; a cost reducing effort may lead to exploration of new markets that will expand the revenue of the company (Mithas & Rust, 2016). Combining two strategies is harder for competitors to decipher and copy. However, organizations using this method should exercise caution since settling on a specific path without flexibility might lock them on a downward trend. Regular and frequent checkpoints should be used to determine if the prevailing path is beneficial or detrimental to the firm. Personnel involved in implementing the dual emphasis IT strategy are exposed to many tactics and processes that they have to learn and master in order to achieve superior business performance. This organizational learning makes the work force better equipped and knowledgeable than the staff working on a single emphasis strategy implementation. The knowledge gives a competitive edge to the firm hence increases their market value. In the same light, the combination of goals exposes the company to new investment opportunities that only require minimal input but have abundant rewards. Building supplier as well as customer relationship can lead to low product development cycles (Mithas & Rust, 2016). Finally, the dual emphasis strategy mandates a wider scope when making targets. The stretch targets are extended to both employees and partners. In the long run, these ambitious targets pay off in the sense that the same investments bare more fruit with time effectively increasing profitability. Question 3 The findings indicate that firms with dual emphasis IT strategies achieve a higher Tobin’s Q at the mean value of IT investments. However, interesting conclusions can be made from the graph of predicted Tobin’s Q value versus the IT investments. Firstly, if a firm has a low IT budget, then it is better of adopting a single emphasis strategy preferably the revenue growth strategy. The same trend is observed at the projected profitability versus the IT investments graph whereby low IT budget leads to lower profits than the alternative of choosing the single emphasis strategy. Despite the clear gains observed from higher IT investments, a company cannot solely depend on IT strategy to achieve profitability. IT strategy only works if the management complements it with high quality overall strategy in areas such as marketing and business operations (Mithas & Rust, 2016) . If other strategies applied by the firm are not adequate, gains realized from dual emphasis IT strategy will be overlapped by bad performances of the poor strategies. Due to this fact, managers should make sure that all strategies being implemented by their firm are of high quality to receive the superior benefits of the dual emphasis IT strategy. The findings also highlight that mere use of IT applications cannot guarantee high profitability. Each firm is different in their ways of operation as well as visions, due to this; an application suite that worked well for one organization may not necessarily replicate the same success elsewhere. The management needs to review a comprehensive portfolio of available application and only choose those ones that align with their goals and performance benchmarks. There are some applications that have benefits in revenue growth, while others in cost reduction, at the same time, there are those that are advantageous for both goals such as the business analytics systems (Mithas & Rust, 2016). To settle on the right applications and IT configurations, the management should consider various factors including the firms mental model, their beliefs, and style of governance. Some demerits were also noted in the findings. The authors caution that pursuing the dual emphasis IT strategy may be very beneficial if applied well but in case of sudden changes in the business environment, it may be a setback. This setback would be brought by the loss of flexibility the dual emphasis system subjects to a firm. The path dependence of the strategy makes it hard to have room for change. Moreover the complex nature of tackling two goals simultaneously also leaves the company plagued with inflexibility. The authors also caution that profit might not be realized in the short term but this should not discourage the management into adopting the dual emphasis strategy since market value gains are realized. A mean value of investments in IT might have no differences in profitability; however, it increases the market value of the company. If the company cannot raise the budget required for the mean value of investment, then they should opt for sticking on a single emphasis strategy model. In the cases where the profitability is not the main concern, the authors recommend that focusing on ways of acquiring revenue growth leads to higher Tobin’s Q than adopting a cost reduction strategy. A call for action is made by the authors for researchers to makes studies on other areas that this paper may not have covered such as emphasis in governance processes and how they affect a firm’s performance. Also, research is called for to investigate which conditions may lead to failure when a firm implements the dual emphasis strategy. The article mostly centers its study on whether the dual system can affect profitability and performance positively but it doesn’t cover which scenarios might be exceptions to these positive outcomes of the strategy. In conclusion, the study finds that the dual emphasis system indeed has a positive influence on an organization’s performance. It clearly states that the market rewards firms that implement the dual emphasis IT strategy (Mithas & Rust, 2016). The authors also verify that the rewards come mostly as a result of the exclusivity and uniqueness that the strategy affords a firm. Complexity and ambiguity are the two attributes that have been found to be the biggest contributors of this uniqueness. They are the reasons that other competitors have a hard time replicating the success of companies that use this strategy. Despite the enticing benefits of the strategy, the authors warn managers that only high levels of IT investment can realize the fruits of the strategy, also the IT applications put into use must align with the firms goals and be complimented by high quality overall firm strategies in other key functional areas. Ultimately, if the company is able to afford the required investment levels, the dual emphasis IT strategy has performance benefits that far outweigh the risks involved. References Mithas,S. & Rust, TR. (2016). How information technology strategy and investments influence firm performance: Conjecture and empirical evidence. MIS Quarterly, 40(1), 223-245. Read More