Management of Information Systems - Relationship between IT Investments and Firm Performance - Assignment Example

NАGЕMЕNT INFОRMАTIОN SYSTЕMS (Author’s name) (Institutional Affiliation) Q1. Why are the authors studying information technology strategy and investments to influence firm’s performance? Studies have been done on the impacts of Information Technology (IT) investment and strategies that influence the firm performance of which only three strategic plans methods have been elaborated. The IT can either be used to decrease cost by enhancing and improving productivity and effectiveness or increase profits by utilizing maximally the available opportunities through the already existing customers, products and services and channels by establishing new channels, customers and products and services. The third IT strategic path is that it can reduce cost and increase revenue at the same time. What the authors want to discuss clearly is the relative degree to which the above mention strategies influence firm performance together. The authors use two complementary measures of firm performance which include both profitability and market value that relate to fundamentals and stock market assessment. The authors want to show and link the prior IT investment with profitability considering the effects of IT strategy using data which have both the IT strategies and IT investments. The authors want to put an emphasis on moderate relationships between firm performance and IT investments. Their deep discussion is to elaborate and shows that higher level of IT investments is required for a successful dual IT (Mithas & Rust, 2016,p.223-245). In addition, the authors provide a crucial insight that IT strategy and IT investment need to be viewed as one but not differently from each other and the companies should synchronize their IT strategies and IT investment levels so as to make sure there will be always an improved performance. In the study, the authors want to provide implications for business companies who are adopting dual strategies so as to increase their turbulent markets. Q2. Describe why the authors claim that IT Strategic Emphasis moderates the relationship between IT investments and firm performance. Regarding the type of firm governing process, type of technology firm uses, type of application the firm square and the type of performance metrics it uses, firm’s strategies emphasis always has an effect on firm’s choice. The authors recognize that for any strategy needs to be started and sustained by using appropriate IT systems combination so as to give a positive firm performance result. For a deeper understanding, this means that strategy execution should be viewed as the actualization of a specific configuration of systems(Mithas & Rust, 2016,p.223-245). The authors argue that for a better firm performance a dual IT emphasis is more preferred than a single emphasis despite various risk experienced in executing the dual emphasis. The argument is drawn basing on the IT literature such as the current literature on ambidexterity that gives an emphasis on power on stretch targets, the accounting literature, and as resource based. Basing on the authors’ arguments a dual emphasis IT strategy should lead to high firm performance due to various reasons which include greater casual ambiguity, greater social complexity, organization learning, and greater path dependence. To begin with social complexity of dual emphasis, it comes from its ambitious scope that tries to achieve two goals at the same time. The authors have explains that it is hard to for competitors to replicate the dual emphasis strategy than to replicate a cost or a revenue emphasize strategy since the dual emphasis strategy is more complex and have broad applications. In addition to that, a dual emphasis also requires a greater number of restructuring and reconfigurations of business processes. These requirements make a dual emphasis strategy to contribute to an excellent social complexity inherent. The authors argue that where different pursuits of a number of competitive advantage always lead to a better performance as competitors are unable or find it hard and difficult to copy the competitive advantage that is used on different fronts. Basing on casual ambiguity the authors argue that companies using a dual emphasis strategy always have conventional logics plus their initiatives results to competitive advantages that are hard to copy and apply for competitors since they are ambiguous (Mithas & Rust, 2016,p.223-245). For that reason, to display and attribute the advantages of dual emphasis strategy from publicity available data may be more difficult. On the matter of the path independence, the authors argue that it is more difficult to replicate an inherent path dependence of dual emphasis strategy than how it is on cost or revenue strategy. The authors explain giving an example that for a company using dual strategic emphasis, cost lowering efforts may give an opportunity to target new market areas like the bottom of a pyramid thus enabling the firm to have high revenue growth than it could have if it could have focused only on cost lowering without considering the other part of revenue growth by considering the premium high available markets areas (Mithas & Rust, 2016,p.223-245). Great and tightly coupled of different strategy options such as cost reduction and revenue growth make it more difficult for competitors to replicate than considering only one option. Similarly, a company using dual emphasis strategy through the use of arbitrage can have an offshoring and outsourcing for cost reduction and through sales in the foreign market and adapt the offers of those markets for revenue expansion. The authors further give explanations on the organizational learning on a dual emphasis strategy arguing that firms that may adopt this method always have higher levels of organizational learning since it may be more interrelated to business routines, processes and IT systems that are a bit more complex, novel and tacit than that of a cost or revenue single strategy. The other strategy the authors explain as used in dual IT strategy is the dual market which always motivate managers toward high performance. One of the risks of this method is too much stretch which can be debilitating (Mithas & Rust, 2016,p.223-245). The all above path dependence, social complexity, casual ambiguity and organizational learning as used in dual emphasis IT strategy can provide efficient export limits to competitions and may protect a company against transfer, substitution and resources limitations thus making business with the dual strategic emphasis more profitable and more valuable. In addition, when applying reduced diminishing returns in opportunity space the dual IT strategy uses as the authors say plentiful low hanging fruits to increase profits and reduce cost. The risk of using his method is that the firm may lose the ability to spot the crucial transformation and also may avoid reaching for higher revenues. Q3. Discuss the main findings of the study The goal aim of the study was to find out why cost revenue and dual strategic emphasis in It strategy have an effect on IT performance and balance the returns to IT investments. The authors found that the companies that exercise dual emphasis in their businesses IT strategy have a greater Tobin’s Q than organizations that have a cost or revenue emphasize strategies at a mean value of IT investments (Mithas & Rust, 2016,p.223-245). The differences in market increase even if there are no statistically significant differences in making of profits. The authors believe why markets may perceive dual emphasis replication difficult which include a mechanism such as reduced diminishing returns, stretch targets in major areas related to cost and revenues , greater social complexity, path dependence , causal ambiguity and reduced diminishing return. Because cash flow has two sources which include both revenue increment and cost production, this mechanism together can allow dual emphasis companies to have a higher sustainable profile with accelerated cash flows targeting lower cost and higher revenues. Taking all these factors into consideration even if the profitability is no accelerated, the authors found out those dual emphasis organizations have stronger IT profitability relationship than cost or revenues emphasis. In addition, dual emphasis strategies have a higher Tobin’s IQ than single emphasis which general means it yields more incomes and revenues. The results of the study are consistent with the views that companies can realize crucial performance importance’s when they bring together greater levels of IT investments and those more complicated managerial and governance strategies that a business may require to realize a dual strategic emphasis on cost reduction and profits enhancements (Mithas & Rust, 2016,p.223-245). These findings extend beyond normal literature by displaying how IT strategies and IT investments jointly influence the performance of a certain firm when properly applied. In addition, they provide important understanding of the practice while at the same time providing an urge to create a stronger theory. In the study, the authors found some of the limitation in performing the analysis. First, in the study the authors used a cross-sectional analysis of which they performed an extensive set of analysis they did not claim casualty but treated the result as associational. Secondly, the authors used a perceptual single item measure as a primary emphasis of IT strategy that is not a major limitation of other studies have used the same. In addition, the authors also used many possible measures of organizational performance instead of considering a more comprehensive approach for the assessment of the impacts of IT strategies and IT investment on firm’s performance. Finally , although the study had provided useful insights on both IT strategies and IT investments strategic emphasis, more theoretical and greater conceptualization in other studies can be illuminating. Reference 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. Read More