Information Technology Investments - Assignment Example

Management Information Systems (Name) (Instructor) (University Affiliation) (Date) Question 1 In their pilot study, Mithas and Rust (2016) gathered that a significant number of businesses often invest huge amounts of money on information technology-oriented resources; however, these firms hardly develop proper strategies that would utilise the IT resources for the firm to realise business value. Equally, Mithas and Rust, (2016) have discovered that few researchers have laid much emphasis on the impact of Information Technology investments and Information technology emphasis simultaneously. These authors also confirm that information technology can be employed for the purpose of reducing costs through increasing productivity as well as efficiency. They also confirm that information technology can be used to increase revenues by fully taking advantage of the existing opportunities. Third, Mithas and Rust, (2016) also affirm that information technology can be used to reduce costs as well as increase revenues simultaneously. However, according to them, one significant aspect has not been addressed: little has been done with regards to finding out the relative degree to which the three strategies delineated above and information technology investments mutually influence a business’s performance. To put it differently, little has been done to find out how information technology strategy regulates or balances the relationship between information technology investments and firm’s performance. For this reason, Mithas and Rust (2016) sought to fill in this literature gap. In other words, the authors are studying information technology strategy in order to find out how information technology strategic emphasis as well investments in information technology resources affect or impact firm performance. The authors resorted to studying information technology strategies since the previous studies have left many gaps with regard to the relationship between information technology strategy and firm performance as well as information technology investments and performance. An insignificant number of studies have bothered to focus on how information technology strategic emphasis, as well as the degree of investment jointly impacts the firm performance. Mithas and Rust (2016) chose to study information technology strategies because they believe that information technology emphasis is the fundamental strategy objective, which a firm must choose to emphasise in its information technology strategy. The authors have gone through a number of studies associating information technology investments with the company’s profitability as well as Tobin’s Q. In effect, they study IT strategy in order to contribute in terms of finding out the impact of information technology strategy using a data set that has information related to both information technology strategy and information technology investments. In other words, the authors found it compelling to study IT strategy in order to come up with a research study that profoundly shows that company’s information strategic emphasis in some way controls the association between information technology investment and firm performance. Mithas and Rust (2016) are studying information technology to prove that firms that have managed to dwell on the dual concept of information technology strategy and information technology investments have in turn benefited in terms of higher productivity as well as market value. Hence, it is important to note that Mithas and Rust’s (2016) study of information technology is important as they set to indicate that a successful emphasis on dual IT needs a higher degree of IT investments. Their study is important as it indicates that information technology investments as well as information technology strategy should not be viewed separately. Moreover, firms need to synchronise their information technology strategies and information technology investment level in order to get improved performance. Question 2 According to the authors, there are several reasons they believe that IT strategic emphasis moderates the relationship between IT investment and firm performance. Mithas and Rust’s (2016) believe that a dual emphasis in Information Technology strategy can significantly lead to an improved firm performance when compared to employing a single emphasis in IT strategy. To buttress their argument, the authors refer to various theories associated with Information Systems such as the ambidexterity concept (Markides 2013), the accounting literature as well as the resource-based approach (Dehning et al. 2006). Mithas and Rust’s (2016) posit that a twofold-emphasis IT strategy is often significant as far as the firm performance is concerned compared to a single-emphasis IT strategy such as the cost-emphasis IT strategy because of various reasons. The first reason is associated with greater social complexity. As the authors note, the social complexity of a twofold-emphasis IT strategy is closely associated with its character of being able to attain two goals at the same time. Mithas and Rust’s (2016) argue that the dual-emphasis IT strategy is difficult to imitate compared to single-emphasis IT strategy such as a cost-emphasis strategy. This view is also strongly buttressed by Kohli (2007) who points out that competing on several fronts simultaneously often makes it hard for close rivals to replicate the same or such configurations. Considering that various IT applications are often needed when dealing with a dual-emphasis IT strategy, much more restructuring of business processes is also required hence the concept social complexity. The other reason is associated with the aspect of causal ambiguity. According Mithas and Rust’s (2016) firms that employ a dual emphasis information technology strategy are advantaged because of the ambiguity related to this type of strategy. A competitor cannot easily disentangle the merits that are brought about by this strategy using publicly available information as the dual-emphasis IT strategy often defy the conventional logic formats. Dual-emphasis IT strategy, which incorporates the simultaneous employment of IT strategy and IT investment, positively impacts the firm performance as it has an inherent path dependence, which is often much more difficult to duplicate compared to other single-emphasis IT strategies such as a cost or revenue emphasis. To build more emphasis on this point, Mithas and Rust’s (2016) give a succinct example. They assert that, for instance, for a business using a dual strategic emphasis, cost-reduction initiatives may give the company an opportunity to target new market segment, which in the end would result in the business realising higher revenue growth. However, this would have been impossible if the firm would have concentrated solely on cost reduction without linking to its revenue growth strategy (Kude et l., 2012). Besides, according to the authors, intermingling in between strategic options such coupling revenue growth and cost reduction is unlikely to be replicated by rivals compared to if the company employed only a single-emphasis IT strategy. As Kohli, Devaraj and Ow (2012) posits, firms that employ dual-emphasis IT strategy often benefit from higher levels of organisational learning as learning spans a significant number of interrelated business process, information technology systems that are more tacit, novel as well as complex compared to that of a single-emphasis IT strategy. Therefore, altogether, the above-delineated aspects such the path dependence, organisational learning, social complexity and causal ambiguity, which are significantly associated with dual-emphasis information technology strategy, can help the business against resource imitation. Moreover, these elements can help the firm against resource transfer as well as substitution, which is advantageous to firms with dual-emphasis IT strategy with regard to profitability and improved firm value (Hoadley and Kohli, 2014). It is worth noting that a dual-emphasis IT strategy gives the firm what Dehning et al. (2006) refers to “low-hanging” positive-return investment opportunities hence creating more options as far as profitable growth is concerned. On the other hand, the single-emphasis IT strategy hardly offers this element. According to Grover et al. (2009) firms that have adopted dual-emphasis IT strategy tend to experience lower cycle times with respect to customer relationship processes, product development as well as supply chain management in realising their cost and revenue targets. In other words, this indicates that they have accelerated cash flows. Equally, businesses with dual-emphasis IT strategy often have less variability as far as cash flows are concerned simply because the firm’s IT enabled cash flows have sources, that is, cost reduction and revenue growth. Conversely, businesses that lay emphasis on primarily either cost reduction or revenue growth depend on one source of IT-enabled cash flow. Ultimately, as ascertained by Aral and Weill, (2007) a dual-emphasis IT strategy can offer stretch targets to its workers as well as implementation partners for burgeoned revenues and lower costs. This, in turn, helps the firm to achieve more while using the same levels of investments hence leading to higher levels of market value, cash flows as well as profits. Question 3 Upon conducting their study, Mithas and Rust’s (2016) came up with several findings and conclusions hence shading more light on the concept of dual IT strategic emphasis as well as how it affects firm performance as well as moderate the returns on investments. In effect, the study gathered that companies or businesses that have employed dual-emphasis IT strategy have a greater Tobin’s Q then businesses that depend on single-emphasis IT strategy such as cost reduction only. Further, the study also found out that the market often rewards firms that employ dual-emphasis information technology strategies because markets view dual strategies as less replicable given the fact that they possess four significant elements: path dependence, greater social complexity, organisational learning as well as causal ambiguity. Through these aspects, the dual-emphasis firms manage to have higher, accelerated as well as sustainable cash flows (Kohli, Devaraj and Ow, 2012). This is due to simultaneous targets for lower costs as well as higher revenues with limited variability with respect to cash flows since cash flows typically have two sources, that is, cost reduction as well as revenue growth. Looking at the above-delineated findings, one gets to understand the significance of information technology strategic emphasis since such strategies significantly impact the market valuations at any given time. They impact the market valuations even when they do not produce quantifiable profitability variances at the mean value of information technology investments. With the findings of Mithas and Rust’s (2016) study, one gets to understand that Information Technology plays an important role as far as moderating the relationship between information technology investments and company performance is concerned. In their study, Mithas and Rust (2016) found that firms that focus on dual-emphasis IT strategy often have a stronger information technology-profitability relationship when compared to businesses that dwell on single-emphasis IT strategy. Besides, the findings indicate that firms that employ dual-emphasis IT strategy have a greater IT-Tobin’s Q relationship when compared to businesses that dwell on single-emphasis IT strategy. In summation, Mithas and Rust’s (2016) study finds that a dual-emphasis IT strategy results in higher profitability as well as greater market value outcomes when combined with various levels of information technology investments. However, whereas dual-emphasis IT strategy has been found to be highly beneficial to firms the findings also show that this concept also has its drawbacks. To begin with, a dual emphasis can sometimes fail when the firm fails to support the strategy with sufficient levels of information technology investments. This is because when dual-emphasis strategy is employed in situations where the levels of information technology are lower, the dual emphasis is outperformed by other strategic emphases. As such, the authors’ findings coincide with the perception that businesses can realize considerable performance benefits when they couple up higher levels of information technology investments with more complex management as well as governance capabilities which businesses may require to realise the dual-emphasis IT strategy. With regards to the study’s implication on research, the author’s findings recommend that that the general impact of information technology strategic emphasis on the company performance depends on the specific measures of the firm performance, type of strategic emphasis as well as the levels of information technology investments. The author’s findings indicate that information technology strategic emphasis does not in any way influence affect the profitability at eh the mean level of information technology investments. Besides, they also find that there is no specific strategic emphasis that is unconditionally superior with regards to profitability in all levels of information technology investments. This is different from Rust et al. (2002) study which shade light on the impact of strategic quality on profitability. Therefore, the differences with respect to findings across various studies that seek to investigate about the emphasis on information technology strategy as well as quality, there is certainly need for analogous studies associated with other functional strategies to be carried out. References Aral, S., and Weill, P. (2007). “IT Assets, Organizational Capa-bilities, and Firm Performance: How Resource Allocations and Organizational Differences Explain Performance Variation,” Organization Science (18:5), pp. 763-780 Dehning, B., Pfeiffer, G. M., and Richardson, V. J. (2006). “Analysts’ Forecasts and Investments in Information Tech-nology,” International Journal of Accounting Information Systems (7), pp. 238-250. Grover, V., Gokhale, R. A., and Narayanswamy, R. S. (2009). “Resource-Based Framework for IS Research: Knowledge Firms and Sustainability in Knowledge Markets,” Journal of the Association for Information Systems (10:4), pp. 306-332. Hoadley, E., and Kohli, R. (2014). “Business Value of IS Invest-ments,” Chapter 71 in Computing Handbook, Third Edition: Information Systems and Information Technology, H. Topi and A. Tucker (eds.), Boca Raton, FL: CRC Press Kohli, R. (2007). “Innovating to Create IT-Based New Business Opportunities at United Parcel Service,” MIS Quarterly Executive (6:4), pp. 199-210. Kohli, R., Devaraj, S., and Ow, T. T. (2012). “Does Information Technology Investment Influence a Firm’s Market Value? A Case of Non-Publicly Traded Healthcare Firms,” MIS Quarterly (36:4), pp. 1145-1163. Kohli, R., Devaraj, S., and Ow, T. T. (2012). “Does Information Technology Investment Influence a Firm’s Market Value? A Case of Non-Publicly Traded Healthcare Firms,” MIS Quarterly (36:4), pp.1145-1163. Kude, T., Schmidt, C. T., Mithas, S., and Heinzl, A. 2015. “Disci-plined Autonomy and Innovation Effectiveness: The Role of Team Efficacy and Task Volatility,” Academy of Management Markides, C. C. (2013). “Business Model Innovation: What Can the Ambidexterity Literature Teach Us?,” Academy of Management Perspectives (27:4), pp. 313-323. Mithas, S., & Rust, R. T. (2016). How information technology strategy and investments influence firm performance: conjectures and empirical evidence. Mis Quarterly, 40(1), 223-245. Rust, R. T., Moorman, C., and Dickson, P. R. 2002. “Getting Return on Quality: Revenue Expansion, Cost Reduction, or Both?,” Journal of Marketing (66:4), pp. 7-24. Read More