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How the Locus of Uncertainty Shapes the Influence of CEO Long-term Compensation on IT Capital Investments
Abstract
Firms need to allocate their resources effectively to cope with uncertainty, which can manifest as a disruption and an opportunity. Although Information Technology (IT) is a means to cope with uncertainty, Chief Executive Officers (CEOs) often may not support IT investments due to the risky nature of IT, especially when facing uncertain conditions. While prior research suggests that CEO long-term compensation positively incentivizes IT investments, little is known about how different loci of uncertainty impact this relationship. To address this research gap, this study examines how firm-specific uncertainty and competitive uncertainty shape the influence of CEO long-term compensation on a firm's IT capital investment. Drawing on agency theory and prospect theory, we develop two hypotheses. First, we hypothesize that firm-specific uncertainty and competitive uncertainty positively moderate the influence of CEO long-term compensation on firm IT capital investment. Second, we hypothesize that competitive uncertainty has a stronger positive moderating effect than firm-specific uncertainty on the influence of CEO long-term compensation on firm IT capital investment. Our analysis of secondary longitudinal data from 2000 to 2007 of 357 public firms in the United States supports our hypotheses. In an exploratory analysis, we find that CEO long-term compensation results in a higher risk-oriented dominant logic in the firm, particularly in conditions of firm-specific uncertainty and competitive uncertainty, with competitive uncertainty having a stronger positive moderating effect. These findings uncover risk-oriented dominant logic as a theoretical mechanism that explains how CEO long-term compensation positively influences firm IT capital investment in uncertain conditions. We also conduct an exploratory analysis using a different secondary dataset of 286 U.S. public firms from 2004 to 2019 to consider firm investments in transformative IT applications, and we find support for our theory. This finding helps triangulate our results across different time periods and across different types of IT investments. Overall, our findings contribute to theory and practice by providing a nuanced understanding of boundary conditions surrounding CEO long-term compensation and the decisions CEOs make vis-à-vis IT capital investments.
... The statistics results of all models show that the p-value is greater than 0.1, suggesting that no significant cross-sectional dependence problem. Second, previous studies suggest that the Driscoll-Kraay estimator is robust to general forms of spatial and temporal correlation (e.g., [55]). Thus we estimate Driscoll-Kraay standard errors and the outcomes are consistent with the results in Tables 3 and 4. Therefore, our results are still solid. ...
This article studies how managerial overconfidence shapes a firm’s digital transformation and unpacks the pathway and the boundary condition. Using a sample of Chinese listed firms between 2011 and 2022, we find that managerial overconfidence exhibits a positive relationship with corporate digital transformation and the relationship is mediated by R&D investment. In addition, we demonstrate that compared to state-owned companies, R&D investment has a more significant positive effect on digital transformation in non-state-owned companies. This study contributes novel insights about the consequences of cognitive biases of top managers and extends the studies for investigating top managers in the digital transformation age. The findings offer implications for top managers who have to fully recognize the impact of overconfidence on the development of the companies and the impact of overconfident executives on corporate digital transformation depending on R&D investment to create value. In addition, this study also reminds Chinese policymakers to improve the efficiency of converting R&D investment into digital transformation in state-owned enterprises.
... We have seen a high number of research articles that focus on the post-adoption research sub-theme. This sub-theme aligns with the larger stream of IT business value literature that continues to remain relevant and vibrant, with several recent exemplars of research that examine value-related questions in the context of IT [3,4,13,60,66,67,77,78,81,82,91]. ...
... They are also often less predictable, and offer limited and sometimes obscure options for mitigation (Hassan et al. 2019). However, extant information systems (IS) research has predominantly focused on non-political risks, either focusing on specific sources of risk such as information risk (Sambhara et al. 2022) or industry-related risk (Xue et al. 2011), or treating risk as a singular, aggregated construct without distinguishing between political and non-political components (e.g., (Choi et al. 2021;Saldanha et al. 2024;Xue et al. 2017). ...
Although achieving strategic distinctiveness is critical for firms in dynamic industries, where the competitive landscape and market conditions frequently change, there is a paucity of research on the impact of information technology (IT) on a firm’s strategic conformity (or distinctiveness). Motivated by the importance of strategic conformity and emergence of novel technologies, we draw on institutional theory and hypothesize that IT Novelty positively impacts strategic conformity. Second, drawing on resource-based view, we hypothesize that market dynamism and competitive dynamism negatively moderate the effect of IT Novelty on strategic conformity. Third, we hypothesize that the moderating impact is stronger for market dynamism than competitive dynamism. We find support for our hypotheses using a fifteen-year dataset from over 300 U.S. manufacturing firms. Our study contributes to theory and managerial practice by combining institutional and resource-based view perspectives to examine how IT Novelty shapes a firm’s strategic conformity, particularly in dynamic industry conditions.
... Hypothesis H1C posited that ITC has a stronger attenuating effect than ITO on the negative relationship between technological deficiency and the innovation output of SMEs. Consistent with prior literature (Saldanha et al., 2024), we conduct a Wald test of the significance of the difference between the interaction coefficients. Since the Wald test is significant (p < 0.01), hypothesis H1C is supported. ...
Innovation is vital for the growth of small and medium-sized enterprises (SMEs). However, SMEs face deficiencies that hinder their innovation output. This study examines how Information Technology (IT) helps SMEs address two salient deficiencies: technological deficiency (deficiency in internal technical knowledge and skills) and government support deficiency (deficiency in favorable government policies and incentives). Although IT can be used in a closed manner (within the firm’s boundary) or open manner (beyond the firm’s boundary) to enable innovation, the closed and open approaches to IT-enabled innovation pose advantages and challenges for SMEs, resulting in a tension regarding which approach better addresses these two deficiencies. In this study, we investigate how IT Use for Closed Innovation Activities (ITC) and IT Use for Open Innovation Activities (ITO) help SMEs overcome these two deficiencies to achieve innovation output. Drawing on the theoretical concepts of internal and external absorptive capacity metaroutines, we hypothesize that ITC and ITO reduce the harmful effects of technological deficiency and government support deficiency on innovation output. Further, we hypothesize that ITC is more effective than ITO in reducing the harmful effect of technological deficiency on innovation output. In contrast, we hypothesize that ITO is more effective than ITC in reducing the harmful effect of government support deficiency on innovation output. Our empirical analysis of a unique multi-year archival dataset of 319 manufacturing SMEs in Mexico broadly supports our hypotheses. We conduct further exploratory analysis that sheds light on several underlying mechanisms included in our theorization. Our main contributions lie in addressing the tension between ITC and ITO and highlighting that neither approach to IT-enabled innovation outperforms the other in combating technological deficiency and government support deficiency of SMEs. Rather, SMEs achieve greater innovation output by appropriately orienting their IT-enabled innovation efforts in a closed or open manner to address specific deficiencies.
The embeddedness of digital platforms in firms to improve industrial accident prevention performance remains a challenge for safety management. A pressing question exists regarding appropriate pathways to improve firm accident prevention performance by leveraging digital platforms. Prior research focuses on individual and organizational factors to prevent industrial accidents while ignoring information technology (IT) from a holistic perspective. Following a socio-technical lens, this study fills the research gap by proposing a new conceptualization of technical and institutional components and examining their combined effects in shaping individual and organizational accident prevention outcomes (i.e., employee accident prevention competence and firm accident prevention performance). Specifically, we introduce and conceptualize the concept of digital platform affordance to represent the technical component and theorize the external institutional force ( government pressure) and the internal human agency ( top management support) as the institutional components of digital platforms. By integrating the socio-technical lens, IT affordance theory, and institutional theory, we develop a theoretical model to examine the interaction effects between digital platform affordance, government pressure, and top management support on accident prevention performance. We conduct a multilevel modeling approach to test the proposed research model using a fine-grained matched-pair survey from multiple respondents (i.e., employees and safety executives) in 161 industrial firms in China. We find that digital platform affordance enhances firm accident prevention performance by improving employee accident prevention competence. The results also indicate that the magnitude of the moderating effect of government pressure is contingent upon top management support. This study conceptualizes and assesses the role of digital platforms in safety management and indicates that the amalgamation of their technical/institutional components is a promising means to prevent industrial accidents. We also provide a new perspective for Operations Management scholars to reinterpret the socio-technical lens in the emerging digitally enabled safety management subdiscipline.
Artificial intelligence (AI) is an important source of competitive advantage as it enables task augmentation and automation. However, while AI can create significant value, it is important to note that AI investments are fraught with risks and uncertainties. Thus, managers are likely to carefully evaluate potential AI investments before committing to investing. However, we know little about how managers' appraisal of AI influences their investment choices. Drawing upon theorization in the areas of business value of AI, agentic IS appraisal, and time-situated agency, we extend existing theory in two ways: (1) development of an AI classification (foundational typology) that proposes two dimensions (action autonomy and learning autonomy) for classifying AI by type and level of autonomy; and (2) development of propositions that leverage time-situated agency and the AI classification to explicate how managers' delegation preferences influence their AI investment appraisal. This paper contributes a foundational theoretical platform for furthering AI investment appraisal research. In addition, the paper sets an agenda for future research in this area.
This study explores the impact of a digital shift on the dual bottom-line performance objectives of rational social enterprises, focusing on a Microfinance Institution as an exemplar. We examine how the shift influences social and business outcomes and investigate the moderating effects of the presence of social and for-profit enterprises, along with surrounding economic opportunities. We construct a novel dataset from over 6000 loans. We augment this dataset with geospatial information on bank branch statistics. Our analysis involves a generalized difference-in-differences model. Our results reveal a negative impact of the digital shift on social outcomes but a positive effect on business outcomes. Social enterprises and for-profit enterprises moderate these effects and surrounding economic opportunities affect moderating relationships for business objectives but not for social objectives. The study contributes to understanding the nuanced relationship between digitalization, social impact, and financial sustainability in rational social enterprises, especially in developing country contexts.
Innovation is vital for the growth of small and medium-sized enterprises (SMEs). However, SMEs face deficiencies that hinder their innovation output. This study examines how information technology (IT) helps SMEs address two salient deficiencies: technological deficiency (deficiency in internal technical knowledge and skills) and government support deficiency (deficiency in favorable government policies and incentives). Our findings suggest that SME managers can achieve greater innovation output by orienting their IT-enabled innovation efforts in an open or closed manner to address specific deficiencies. They can address technological deficiency by focusing their IT efforts on promoting innovation within the firm, that is, using IT to support closed innovation. In contrast, SMEs that face government support deficiency should give preference to IT Use for Open Innovation Activities to collaborate with external constituents such as customers and suppliers. Furthermore, because of the emergence of digital platforms (e.g., crowdsourcing), managers may be overly biased toward the use of open innovation. Our results suggest that both open and closed IT-enabled innovation have value. We exhort SME managers not to disregard either form of IT-enabled innovation but rather to tailor their approach to suit their organizational context based on specific deficiencies that their firm faces.
Firms’ multilevel access to information plays a significant role in improving operating performance. Increasingly, firms are enhancing their operational integration through IT as they grapple with intense competition. Competition networks are an essential but often overlooked source of information that, if leveraged correctly, can provide firms with significant competitive and operational advantages. In this study, we develop a multilevel research model of operating performance (firm level) that simultaneously considers the effects of IT for operational integration (ITOI, firm level) and competitive brokerage (competition network level). We explicate how ITOI and competitive brokerage afford firms’ synergy through complementarities and relatedness of competitive actions, information, and resources to improve their operating performance. We assess the model using a 7-year longitudinal secondary dataset that includes firms from multiple industries and find support for our thesis that ITOI and competitive brokerage have a synergistic effect on operating performance. Our exploratory analysis uncovers innovation efficiency as a theoretical mechanism underlying the relationships between ITOI, competitive brokerage, and operating performance. Further exploratory analyses with disaggregated measures of ITOI highlight that synergies arise from IT-enabled coordination and integration across the supply chain and within functional areas of an organization. These findings are robust to concerns of endogeneity and alternative model specifications. We make three critical contributions to our collective understanding of the relationship between IT and operating performance — synergy as a means through which operating performance is realized, a multilevel model of relationships, and a nuanced understanding of the relationships between ITOI, competitive brokerage, and operating performance. Overall, we provide a summative view of the multilevel effects of IT on operating performance.
Innovation is vital for the growth of small and medium-sized enterprises (SMEs). However, SMEs face deficiencies that hinder their innovation output. This study examines how Information Technology (IT) helps SMEs address two salient deficiencies: technological deficiency (deficiency in internal technical knowledge and skills) and government support deficiency (deficiency in favorable government policies and incentives). Although IT can be used in a closed manner (within the firm’s boundary) or open manner (beyond the firm’s boundary) to enable innovation, the closed and open approaches to IT-enabled innovation pose advantages and challenges for SMEs, resulting in a tension regarding which approach better addresses these two deficiencies. In this study, we investigate how IT Use for Closed Innovation Activities (ITC) and IT Use for Open Innovation Activities (ITO) help SMEs overcome these two deficiencies to achieve innovation output. Drawing on the theoretical concepts of internal and external absorptive capacity metaroutines, we hypothesize that ITC and ITO reduce the harmful effects of technological deficiency and government support deficiency on innovation output. Further, we hypothesize that ITC is more effective than ITO in reducing the harmful effect of technological deficiency on innovation output. In contrast, we hypothesize that ITO is more effective than ITC in reducing the harmful effect of government support deficiency on innovation output. Our empirical analysis of a unique multi-year archival dataset of 319 manufacturing SMEs in Mexico broadly supports our hypotheses. We conduct further exploratory analysis that sheds light on several underlying mechanisms included in our theorization. Our main contributions lie in addressing the tension between ITC and ITO and highlighting that neither approach to IT-enabled innovation outperforms the other in combating technological deficiency and government support deficiency of SMEs. Rather, SMEs achieve greater innovation output by appropriately orienting their IT-enabled innovation efforts in a closed or open manner to address specific deficiencies.
IT-based information management and collaboration networks are both important sources of competitive information. Despite anecdotal evidence, limited research examines their contemporaneous impact on firms’ ability to compete effectively. We take an information asymmetry perspective to examine the mechanisms through which the firm’s information management capability and the structure of its collaboration network influence the structure of its competition network in product markets. We argue that taking a brokerage position in competition networks has a positive influence on a firm’s performance. We then explain how the firm’s information management capability and its position in collaboration networks each have a direct positive influence on its brokerage position in the competition network. Finally, we propose that information management capability and a central position in collaboration networks act as substitutes. We empirically test our model using a longitudinal competition network, a longitudinal collaboration network, and longitudinal secondary data about firms’ information management capability, drawn from 262 firms over a 15-year period. Our findings, robust to endogeneity concerns and alternative model specifications, reveal the direct and substitution effects of information management capability and collaboration networks on competition networks. This research contributes to the information systems and strategy literatures by offering insights into how IT enables firms to design competitive strategies by facilitating analyses of competitors’ information, and how the information gained by firms as they collaborate can enhance their ability to compete.
Rapid improvements in underlying technologies coupled with the diminution of contact-based interactions are resulting in commensurate increases in the supply of and demand for innovative electronic services over self-service technologies (SSTs). This situation raises critical questions regarding value creation as prior research suggests mixed effects of SSTs on customers and unclear implications of SSTs for firm customer growth. These implications are accentuated when firms offer innovative electronic services due to customers’ unfamiliarity with the services. In turn, this dynamic raises vital questions about a) how SSTs influence firm customer growth, particularly when the firm’s electronic services are more innovative, and b) what complementary investments help firms achieve customer growth from SSTs and innovative electronic services. In this study, we conceptualize the theoretical mechanisms underlying these relationships and empirically examine seven-year longitudinal secondary data of over 3800 credit unions in the United States to obtain three main findings. First, consistent with prior views of SSTs, we find no significant unconditional effect of SSTs on firm customer growth. Second, we find that the innovativeness of the firm’s electronic services (IES) negatively moderates the influence of SSTs on firm customer growth, suggesting that SSTs may positively influence growth when IES is low but may deter growth when IES is high. Third, marketing intensity and human capital intensity positively moderate the influence of IES on the effect of SSTs on customer growth. In supplementary analysis, we find similar results using cross-sectional primary data from a sample of 186 U.S. credit unions and their customers matched with secondary data. Our unique theoretical contribution lies in highlighting that innovative electronic services on SSTs aimed at bringing the enterprise to the customer may not be enough for firms to achieve customer growth unless those services are accompanied by complementary investments in marketing and human capital.
Although the ability to produce exploratory innovations is important for firm performance, firms face difficulties in producing exploratory innovations because knowledge is often distributed across cultures and geographies. In this study, we examine whether information technology (IT) helps firms to overcome the liabilities of global operations particularly when it comes to creation of exploratory innovations. We argue that information technologies that promote social integration facilitate more novel knowledge recombinations help to overcome the difficulties arising from global operations. We draw on the knowledge-based view of the firm and hypothesize that IT-enabled Social Integration Capacity influences exploratory innovation by leveraging global cultural diversity and global geographical dispersion. Our empirical analyses using archival panel data from 120 public U.S. manufacturing firms from 2003-2014 support these hypotheses. A key implication of our results is that IT helps firms to achieve greater exploratory innovation by turning the potential liabilities of cultural diversity and geographical dispersion associated with global operations into assets.
As new information technology (IT) platforms continue to emerge, the technical project risk associated with developing IT projects for these platforms is particularly challenging for organizations. We develop a nomological network of people, process, and technology to gain insight into how the effect of technical project risk can be mitigated at the IT project team level. Drawing on cultural contingency theory, the IT project risk framework, and the IT project management literature, we elaborate on the IT project team composition and team processes necessary to mitigate technical project risk. We tested the nomological network by conducting a field study of 325 IT project teams over a 3-year period at a large corporation in China. We found that project risk mitigation processes mediated the effect of IT project teams’ cultural composition on IT project performance, and the effect of these processes on IT project performance was stronger under high levels of technical project risk compared to low levels of such risk. By incorporating the cultural contingency theory into developing a nomological network of technical risk mitigation processes, this work not only contributes to the IT project management literature, but also provides suggestions for practitioners on how to better leverage people, process, and technology in mitigating IT project risks.
In this paper, we introduce a new framework for the analysis of employee stock options exercise decisions. We develop a distorted lattice model where the exercise decision obeys a policy that maximizes the expected value of the exercise outcomes under the Cumulative Prospect Theory. Using a large US dataset of exercise transactions, we show that our framework broadly outperforms the Expected Utility Theory framework in explaining empirical exercise decisions. Interestingly, our empirical estimates of probability weighting are consistent with those from the experimental literature. We argue that this analysis provides a unifying stream for thinking about issues related to the exercise and the valuation of stock options.
Research summary: We examine the interplay of behavioral and environmental uncertainty in shaping the effectiveness of two key governance mechanisms used by strategic alliances: contractual and trust-based governance. We develop and test hypotheses, using a meta-analytic dataset encompassing over 15,000 strategic alliances across 82 independent samples. We find that contractual governance works best under low to moderate levels of behavioral uncertainty and moderate to high levels of environmental uncertainty, while it is detrimental to alliance performance when both types of uncertainty are low or high. Trust-based governance is most effective at high levels of behavioral uncertainty and low levels of environmental uncertainty. It suffers a large loss of usefulness at high behavioral uncertainty as environmental uncertainty increases. Managerial summary: Strategic alliances allow firms to gain greater efficiency and create value. Yet, many such alliances fail because they are not able to deal with the twin challenges posed by behavioral and environmental uncertainty. Findings from our meta-analysis imply that under conditions of high behavioral uncertainty and low-to-moderate levels of environmental uncertainty, the use of trust-based governance alongside contractual governance might enhance the latter's effectiveness. The combined effectiveness of contractual and trust-based governance under high levels of both behavioral and environmental uncertainty is not obvious. When both behavioral and environmental uncertainty are high, contractual governance hurts alliance performance while trust-based governance does not function at its best either. Under these conditions, it might be better for firms to turn to hierarchy or vertical integration.
The globalization of work raises important questions related to the employment of workers across geographies and how the complementarity or substitution of workers across country borders influences firm profitability. In particular, tension often exists regarding the substitution or complementarity of workers located outside the U.S. or within the U.S. for American firms. We investigate this question in the context of information technology (IT) professionals and assess how domestic and foreign IT professionals contribute to firm profit by utilizing a rare firm-level dataset with information on the locational composition of IT professionals within and outside the U.S. Exploiting a labor market supply-side exogenous shock induced by the American Competitiveness in the Twenty-First Century Act (AC21), which increased the availability of H-1B visas in the U.S. in 2001, we find that foreign IT professionals located offshore and American IT professionals located onshore complement each other in generating profits. Our model and empirical findings are important both for informing firm choices and for shaping and creating public policies that so far appear to have been informed more by emotion than by data and science.
Extant literature on research collaboration between firms and government-sponsored institutions (GSIs) focuses predominantly on the formation of strategic alliances and its resulting economic performance. We take a new perspective and conceptualize the collaboration between small and medium enterprises (SMEs) and GSIs as social and economic pillars in emerging economies. We theorize how the collaborations with GSIs help SMEs increase their social and economic outputs and develop a sustainable ecosystem for business development through ongoing outward knowledge sharing. Our tests with data on Mexico’s industrial sectors evidence a greater positive effect of SME-GSI collaboration on social than economic output. R&D intensity mitigates more on SME-GSI collaboration’s impact on economic than that on social output. A decentralized management structure strengthens the effect of SME-GSI collaboration on only social output. Finally, a sustainable ecosystem is formed when SMEs engage in outward knowledge sharing as retribution to society. Social output exerts a stronger mediation for SME-GSI collaboration’s influence on outward knowledge sharing than economic output. Overall, our findings offer important insights into the theoretical, managerial, and policy implications of SME-GSI collaboration and business development ecosystems in emerging economies.
Despite the importance of information technology (IT) innovation in today’s digitalized world, little research attention has been paid to examining how firms can incentivize IT innovation. To fill this gap, the current study investigates the impact of managerial incentives provided to chief executive officers (CEOs) on IT innovation, measured by the number of IT patents. In particular, we examine the role of risk-taking incentives provided to CEOs, captured by the sensitivity of CEO wealth to stock return volatility (i.e., Vega). Vega can motivate CEOs to engage in risky IT innovation projects by aligning their wealth with firm-specific risk. In so doing, we focus on how CEOs’ IT-related human capital (i.e., IT education and IT experience) moderates the relationship between Vega and IT innovation. Our empirical analyses reveal that a higher Vega encourages CEOs to support more IT innovation; more importantly, the impact of Vega on the amount of IT patents is stronger for firms with CEOs who have higher levels of IT education and IT experience. Our study contributes to research and practice by conceptualizing a CEO’s IT-related human capital and validating its moderating role in the relationship between risk-taking incentives provided to the CEO and the amount of IT innovation.
In this study, we propose that research conducted in Western, educated, industrialized, rich, and democratic (WEIRD) domains does not necessarily generalize to the rest of the world. Growing, rural, eastern, aspirational, transitional (GREAT) domains now account for a significant proportion of world economic output and, thereby, warrant special attention. We submit that a tolerant stance under which scholars investigate GREAT domains with an open mind that allows for theoretical plurality will likely enrich IS theories. To exemplify this stance, we consider how online ratings affect ratee decisions to participate in financial transactions on a digital platform in a GREAT economy. The production and consumption of food affects every strata of society, and, thus, we choose to investigate our research question in the context of platform-enabled food delivery. We applied decision tree induction on a population-level dataset that included restaurants, their features, online ratings, and financial participation decisions from a major food discovery and delivery platform in India. Tree induction makes no distributional assumptions and makes no a priori assumptions on the combinations of factors, which allows one to put forth the most lenient test for uncovering any impact that online ratings have on the decisions that rates make tacitly. After conducting multiple computational experiments, we consistently found that online restaurant ratings did not have a significant bearing on their decision to participate on the food-delivery platform. Our counterintuitive finding serves as an example WEIRD domain logic that does not generalize to a GREAT domain and forms a credible basis for our call for additional research in GREAT domains.
A firm's investment in information technology (IT) has been widely considered as a key enabler of innovation. In this study, we intend to integrate prior findings for augmenting pathways (whereby IT investment supports innovation) with a new theory for suppressing pathways (whereby dynamic adjustment costs associated with IT investment can be detrimental to innovation) to propose an overall inverted U-shaped relationship between IT investment and commercialized innovation performance (CIP). To test our theory, we analyzed a unique panel dataset from the largest economy in Europe and discovered a curvilinear relationship between IT investment and CIP for firms across a broad spectrum of industries. Our research presents empirical evidence corroborating the augmenting and suppressing pathways linking IT investment and CIP. Our findings can serve as a cautionary signal to executives, discouraging overinvestment in IT.
A firm's use of boundary-spanning information systems (BSIS) can be beneficial for innovation by providing access to market-facing information. At the same time, BSIS use can give rise to information overload, making it difficult for firms to leverage the most pertinent information for innovation. Although there has been progress in developing our understanding of the role of IS in innovation, it is unclear what capabilities firms need to develop to facilitate innovation in the presence of information overload from BSIS use (IO-BSIS). We maintain that firms today are increasingly experiencing IO-BSIS and therefore a thorough investigation of firm-level capabilities to facilitate innovation while coping with IO-BSIS is needed. To address this key gap, we broaden the theory of problemistic search for innovation by proposing a digitally enabled collaborative problemistic search (CPS) capability. We propose that a cross-stream CPS effect-interaction of CPS with customers (CPS-C) and CPS with suppliers (CPS-S)-enables a firm to reinvigorate its internal knowledge for innovation by engaging customers and suppliers in filtering and interpreting market-facing information. Further, we theorize that the presence or absence of IO-BSIS is a contingency that affects whether the cross-stream CPS effect is likely to be beneficial or detrimental to innovation. Based on the analysis of data collected from 227 firms, we found that the cross-stream CPS effect is beneficial for innovation when firms face IO-BSIS and detrimental to innovation when firms do not experience IO-BSIS. We thus open the black box of the digitally enabled innovation activity by shedding light on specific collaborative activities that advance innovation by enabling firms to cope with information overload.
Advances in Information and Communication Technology (ICT) and the distributed nature of innovation in a culturally heterogeneous world raise an important question about how ICT and culture jointly influence innovation. We argue that ICT shapes the influence of cultural dimensions on national innovation in nuanced ways, depending on the nature of the dimensions. In particular, cultural dimensions that pertain to norms, formality, and structure (e.g., power distance and uncertainty avoidance) are often considered detrimental to innovation, whereas cultural dimensions that pertain to the pursuit of goals and achievement (e.g., individualism, masculinity, and long-term orientation) are often considered conducive for innovation. We hypothesize that ICT amplifies the positive effects of individualism, masculinity, and long-term orientation on national innovation—and, attenuates the negative effects of power distance and uncertainty avoidance on national innovation. Our analyses of data on 66 countries from 2007 to 2015 broadly support our hypotheses about ICT amplifying the positive effects of individualism and long-term orientation, as well as our hypotheses about ICT attenuating the negative effects of power distance and uncertainty avoidance on national innovation. The findings suggest that ICT amplifies the effects of cultural dimensions related to the pursuit of goals and helps overcome barriers to innovation that arise from a culture’s focus on norms, formality, and structure. In turn, these findings can help managers and policy makers to make judicious decisions regarding ICT investments to transcend or leverage the country’s cultural characteristics for innovation.
We use a social learning perspective to extend our understanding of information technology (IT) investment and return. Specifically, we investigate social learning in the context of interlocks between corporate boards, which allow firms to share knowledge and experiences with respect to their IT investments. Using a large data set of firm-years from 2001–2008, we find (a) a positive relationship exists between a focal firm’s IT investment and that of its interlocked firms; (b) this positive relationship is amplified by the interlocked firms’ IT capability but only if the focal firm has an active board, which devotes time to allow sufficient communication among directors; and (c) the component of the focal firm’s IT investment that is attributable to board interlock influence is positively related to the firm’s performance but only if the firm has an active board. Collectively, these findings support our central thesis: social learning through board interlocks can play a significant role in influencing a firm’s IT investments and enhancing their payoff. That said, attaining such benefits requires boards to incorporate those firms with high IT management capability and to strengthen board activity so interlocked members can substantively share their knowledge and experiences with IT investments.
This paper was accepted by Anandhi Bharadwaj, information systems.
Emerging economies present opportunities and challenges for foreign firms to achieve business success. As Information Technology (IT) is a critical lever for firms to compete globally, an important question is whether foreign firms are at a comparative disadvantage or advantage relative to local firms in leveraging IT. We explore this question by examining how foreign firms and local firms compare in leveraging synergies between IT-enabled flexibilities and firm capabilities. We focus on two kinds of IT-enabled flexibility: IT-enabled flexibility in customer services (ITCS), and IT-enabled flexibility in partner services (ITPS). We first develop hypotheses for complementary effects of ITCS with Marketing Capability, and of ITPS with Relational Capability to positively influence firm performance. We then draw on the theoretical foundation of firm-specific advantages (FSA) framework and its characterization of FSAs as location-bound versus nonlocation-bound. Specifically, we argue that because of the location-bound nature of ITCS and Marketing Capability, foreign firms face a comparative disadvantage relative to local firms in leveraging the synergy between ITCS and Marketing Capability. In contrast, we argue that because of the nonlocation-bound nature of ITPS and Relational Capability, foreign firms enjoy a comparative advantage relative to local firms in leveraging the synergy between ITPS and Relational Capability. Our empirical analysis using matched-pair survey and secondary data of 182 foreign and local firms in India supports our hypotheses. Our findings highlight important differences in how foreign and local firms benefit from IT, thus contributing towards a better understanding of IT implications in emerging economies.
Recent studies on the business impacts of information technology (IT) have examined these impacts in the context of either other organizational resources or contingency factors. In this study we integrate these perspectives to develop a contingent interaction model. This model examines how a firm’s IT investment interacts differently with resources focusing on creating value (i.e., R&D) and resources focusing on value appropriation (i.e., advertising), depending on the environmental turbulence in the firm’s industry. The results indicate that a firm’s IT interacts differently with other organizational resources depending on (a) the resource’s focus on value creation through innovation or value appropriation in the market; and (b) the extent of turbulence in the firm’s industry. Thus, managers should consider IT’s interactions with other resources while making IT investments. In turbulent and stable environments, managers should seek ways to use IT to complement R&D investments and advertising investments, respectively. Managers should also recognize that IT may erode some of the benefits of R&D and advertising investments in stable and turbulent environments, respectively. They should therefore exercise caution when making concurrent investments in IT and R&D in stable environments and exercise similar caution when making concurrent investments in IT and advertising in turbulent environments.
Senior executives seek investments in information technology (IT) initiatives that enhance the performance of their firms. They frequently must decide whether to emphasize the adoption of new IT (ENIT) or the maintenance and refinement of current IT (ECIT). This research examines how the combination of ENIT and ECIT with the firm's business strategy affects firm performance at varying levels of organizational commitment to IT (OCIT). Using the resource-based view, we argue that a firm can benefit from new IT or current IT to a greater extent when it possesses the resources needed for exploration (as is more likely for firms with a Prospector strategy) or exploitation (as is more likely for firms with a Defender strategy), respectively, with these effects increasing as the firm's OCIT increases. The results, based on an eight-year panel data set developed from multiple secondary sources, support our argument that firms are not homogeneous in the benefits they reap fromENIT and ECIT. Thus, a joint consideration of the core business strategy and OCIT in a firm provides insights intowhether the necessary organizational resources are available and leveraged to effectively reap benefits from ENIT or ECIT. For Defenders emphasizing new IT, the marginal benefit decreases with an increase in OCIT, but for Defenders emphasizing current IT, the marginal benefit increases with an increase in OCIT. By contrast, for Prospectors emphasizing new IT, the marginal benefit increases with an increase in OCIT, but for Prospectors emphasizing current IT, themarginal benefit decreases with an increase in OCIT. Theoretical and practical implications of these results are discussed.
We study the impact of electronic markets on small, boutique firms selling presence goods or services—goods or services that must be consumed at the selling firm’s location. These firms have recently begun to compete on electronic markets by selling goods and services through local daily deal sites, such as Groupon and LivingSocial. We extract publicly available activity and spatial information from Groupon, LivingSocial, Google Maps, and Flickr to construct a unique panel data set to study daily deals offered by restaurants and spa vendors in geographical clusters of concentration in 167 distinct cities. This data set allows us to examine the effect of location on the competition vendors face in electronic markets. We find that as vendors in a particular geographical cluster participate in electronic markets, local competition increases and other vendors in that cluster join the electronic market and deepen discounts in response. However, vendors in other clusters in the same city remain relatively unaffected. We further analyze vendor ratings from Yelp and other infomediaries, to show that lesser known and low-quality vendors utilize the advertising effect of electronic markets to increase their awareness among customers. We further test the moderating effect of horizontal and vertical differentiation among firms in geographical clusters on competition in electronic markets, using measures extracted from UrbanSpoon.com. We find that clusters having lower differentiation experience higher competitive effects of firms joining the electronic market. Our findings provide empirical validation of the analytical results in existing literature in an important and understudied context: competition among small businesses selling presence goods and services. Our results have implications for firms and electronic market platforms.
The online appendix is available at https://doi.org/10.1287/isre.2017.0754 .
How does competition impact firms’ incentive to innovate by investing in information technology (IT)? Prior literature suggests opposite predictions on the direction in which competition drives IT investment. This paper analyzes a game theoretic model of duopoly competition and shows that an important feature of IT sheds new light on firms’ investment decisions: IT implementation can fail. Without the possibility of implementation failure, the opportunity to invest in IT hurts firms’ profits because the productivity gains are competed away. Implementation failure creates a possibility of cost-based differentiation and mitigates competition, although these two effects can drive firms’ IT investment in opposite directions. Interestingly, a higher probability of implementation failure can lead to lower investment risks and higher expected profits. Firms in highly competitive markets are better able to recoup the returns to their IT investments and, therefore, more motivated to invest in risky IT than firms in less competitive markets.
The online appendix is available at https://doi.org/10.1287/mnsc.2017.3005 .
This paper was accepted by Chris Forman, information systems.
This study focuses on the multiplexity of firm R&D networks, and it investigates two types of boundary-spanning networks: the bipartite network between firms and government-sponsored institutions (GSIs), and the traditional firm–firm network. We apply a social network perspective to examine the effects that these kinds of networks have on firm innovativeness, in relation to the effects of the firm's internal R&D efforts. We define the firm-GSI network as bipartite, and we investigate how the structural characteristics of this network (cohesion and centrality) affect innovativeness. We then decompose the innovational effects of firm–firm networks into two categories (intra- and inter-sector) to distinguish the effects of these collaboration networks. Furthermore, we investigate how these various external collaborative networks interact with a firm's internal R&D efforts for driving innovativeness. Our empirical study of 420 manufacturing firms in Mexico evaluates evidence from surveys and secondary data. The findings indicate that the structural properties of both firm–GSI and firm–firm networks have positive effects on innovativeness, but firm–GSI network cohesion has a stronger negative interaction with R&D in influencing firm innovativeness. Moreover, intra-sector centrality in a firm–firm network has a stronger negative interaction with R&D than inter-sector centrality does in driving firm innovativeness. We contribute to the literature by integrating insights from the perspectives of network multiplexity, social embeddedness, and resource complementarity in regard to inter-organizational behavior. Our study also provides meaningful guidelines for both managers and policy makers. The study's findings are robust to concerns of common method bias and alternative model specifications.
Research summary
Innovation is the principle driver of firm and economic growth. Thus one disturbing trend that may explain stagnant growth is a 65% decline in firms’ R&D Productivity. We propose that the rise of outside CEOs may be partially responsible for the decline, because those CEOs are more likely to lack technological domain expertise necessary to manage R&D effectively. While this proposition was motivated by interviews with CTOs, we test it at large scale. We find that firm R&D productivity decays during the tenure of outside CEOs relative to that of inside CEOs. We further find this effect is more pronounced for firms with high R&D intensity, and for firms employing outside CEOs with more remote experience, lending circumstantial support for the underlying assumption regarding lack of expertise. Note, this is not a call for boards to avoid outside CEOs, rather it is recommendation to consider the implications for innovation.
Managerial summary
While outside CEOs offer advantages over internal candidates, we argue one unintended consequence is weaker innovation. This argument was prompted by two coincident trends: a 65% decline in companies’ R&D productivity, and a doubling of outside CEOs. The argument was reinforced by interviews with CTOs, who recounted shifts in orientation from R&D as an investment to R&D as an expense that occurred shortly in response to a new CEO. We felt this shift was more likely with outside CEOs because they may lack technological domain expertise necessary to effectively manage R&D. Our results are consistent with the argument—company R&D productivity decreases under outside CEOs. Note however, we don’t advocate avoiding outside CEOs, rather we recommend R&D firms consider technological domain expertise during CEO hiring.
This study addresses the economic impacts of information technology (IT) overinvestment and underinvestment decisions. Based on the view of Red Queen competition in conjunction with institutional theory, we hypothesize that overinvestment and underinvestment in IT have nonlinear performance impacts. Drawing on the idea of management control mechanisms, we further hypothesize that the performance impacts are conditional on ownership concentration. Using a sample of S&P 500 firms, we find that, on average, there is a positive relationship between a firm’s overinvestment in IT and Tobin’s q, although that relationship attenuates at higher levels of overinvestment. However, there is, on average, no relationship between a firm’s underinvestment in IT and its Tobin’s q. Importantly, the payoff for underinvestment becomes positive for companies with founding-family ownership. Implications for research and practice are discussed.
The online appendix is available at https://doi.org/10.1287/isre.2017.0710 .
Business digitalization is changing the competitive landscape in many industries. Digitally savvy customers are demanding more while threats of digital disruptions from new entrants are rising. This article describes how DBS, a large Asian bank, responded to digital threats and opportunities by adopting a digital business strategy. It identifies the capabilities needed and provides lessons for organizations aspiring to pursue a successful digital business strategy.
The “difference” and “system” generalized method of moments (GMM) estimators for dynamic panel models are growing steadily in popularity. The estimators are designed for panels with short time dimensions (T), and by default they generate instruments sets whose number grows quadratically in T. The dangers associated with having many instruments relative to observations are documented in the applied literature. The instruments can overfit endogenous variables, failing to expunge their endogenous components and biasing coefficient estimates. Meanwhile they can vitiate the Hansen J test for joint validity of those instruments, as well as the difference-in-Sargan/Hansen test for subsets of instruments. The weakness of these specification tests is a particular concern for system GMM, whose distinctive instruments are only valid under a non-trivial assumption. Judging by current practice, many researchers do not fully appreciate that popular implementations of these estimators can by default generate results that simultaneously are invalid yet appear valid. The potential for type I errors—false positives—is therefore substantial, especially after amplification by publication bias. This paper explains the risks and illustrates them with reference to two early applications of the estimators to economic growth, Forbes (2000) on income inequality and Levine, Loayza, and Beck (LLB, 2000) on financial sector development. Endogenous causation proves hard to rule out in both papers. Going forward, for results from these GMM estimators to be credible, researchers must report the instrument count and aggressively test estimates and specification test results for robustness to reductions in that count.
This study examines how managerial incentives may drive firms to adopt a proactive strategic posture to implement more information technology (IT) than competitors. We consider both performance incentives that motivate managers to enhance firm returns and risk incentives that motivate managers to take risks. Our empirical analysis shows that while the proactiveness in IT strategic posture leads to both firm returns and firm risk, risk incentives rather than performance incentives essentially drive the proactiveness in IT strategic posture. These findings highlight the issue of managerial risk aversion and the important role of risk incentives in strategic IT decisions. Our study also shows that in diversified firms, risk incentives have a stronger marginal impact on the proactiveness in IT strategic posture in secondary business areas than in primary business areas. Performance incentives, however, may even generate a negative marginal impact on the proactiveness in IT strategic posture in secondary business areas. These results generate important implications for corporate owners regarding how to use various managerial incentives to motivate strategic IT decisions.
The online appendix is available at https://doi.org/10.1287/isre.2016.0660 .
"Organizational agility" is often treated as an immutable quality, implying that firms need to be in a constant state of transformation. However, this ignores that such transformations, while often essential, come at a cost. They are not always necessary, and may not even be possible. This article explores agility at a more fundamental level and relates it more specifically to dynamic capabilities. It demonstrates that it is first essential to understand deep uncertainty, which is ubiquitous in the innovation economy. Uncertainty is very different from risk, which can be managed using traditional tools and approaches. Strong dynamic capabilities are necessary for fostering the organizational agility necessary to address deep uncertainty, such as that generated by innovation and the associated dynamic competition. This article explores the mechanisms by which managers may calibrate the required level of organizational agility, deliver it cost effectively, and relate it to strategy. © 2016 by The Regents of the University of California. All rights reserved.
Despite the importance of investing in information technology, research on business value of information technology (BVIT) shows contradictory results, raising questions about the reasons for divergence. Kohli and Devaraj (2003) provided valuable insights into this issue based on a meta-analysis of 66 BVIT studies. This paper extends Kohli and Devaraj by examining the influences on BVIT through a meta-analysis of 303 studies published between 1990 and 2013. We found that BVIT increases when the study does not consider IT investment, does not use profitability measure of value, and employs primary data sources, fewer IT-related antecedents, and larger sample size. Considerations of IT alignment, IT adoption and use, and interorganizational IT strengthen the relationship between IT investment on BVIT, whereas the focus on environmental theories dampens the same relationship. However, the use of productivity measures of value, the number of dependent variables, the economic region, the consideration of IT assets and IT infrastructure or capability, and the consideration of IT sophistication do not affect BVIT. Finally, BVIT increases over time with IT progress. Implications for future research and practice are discussed.
In this paper, we develop conjectures for understanding how information technology (IT) strategy and IT investments jointly influence profitability and the market value of the firm. We view IT strategy as an expression of the dominant strategic objective that the firm chooses to emphasize, which can be revenue expansion, cost reduction, or a dual emphasis in which both goals are pursued. Using data from more than 300 firms in the United States, we find that at the mean value of IT investments, firms with a dual IT strategic emphasis have a higher market value as measured by Tobin's Q than firms with a revenue or a cost emphasis, but they have similar levels of profitability. Of greater importance, IT strategic emphasis plays a significant role in moderating the relationship between IT investments and firm performance. Dual-emphasis firms have a stronger IT-Tobin's Q relationship than revenue-emphasis firms. Dual-emphasis firms also have a stronger IT-profitability relationship than either revenue- or cost-emphasis firms. Overall, these findings imply that, at low levels of IT investment, the firm may need to choose between revenue expansion and cost reduction, but at higher levels of IT investment, dual-emphasis in IT strategy or IT strategic ambidexterity increasingly pays off.
How do IT-enabled capabilities influence the ability of firms to leverage customer involvement to shape amount of innovation? This study argues and theorizes that effective processing and management of customer information flows requires that organizations possess what we call as relational information processing capability (RIPC) and analytical information processing capability (AIPC). Drawing on and extending the theories of absorptive capacity and complementarities in the context of innovation, we posit that RIPC and AIPC complement product-focused customer involvement and information-intensive customer involvement practices respectively to enhance the amount of firm innovation. To test our hypotheses, we collected archival data from more than 300 large U.S. manufacturing firms and map the relational and analytical information processing capabilities to specific IT applications.
Consistent with our theorizing, we find that RIPC positively moderates the relationship between product-focused customer involvement and amount of firm innovation; and AIPC positively moderates the relationship between information-intensive customer involvement and amount of firm innovation. In further exploratory analysis, we find a positive three-way interaction between AIPC, RIPC, and product-focused customer involvement. Taken together, our results suggest that configurations of IT-enabled capabilities alone are not enough for innovation; instead firms benefit more when specific configurations of IT-enabled capabilities are leveraged in unison with specific types of customer involvement. The study contributes to theory and practice by shedding light on important complementarities between specific types of customer involvement (product-focused customer involvement and information-intensive customer involvement) and specific IT-enabled capabilities (relational information processing capability and analytical information processing capability).
We explore how "Red Queen" competition is increasing the competitive premium on "evolvable" information systems (IS). Ephemeral market advantage coupled with relentless innovation spawning trends such as the Internet-of-Things and additive manufacturing are amplifying the importance of evolvable systems across all industries. We discuss uncharted theoretical and empirical territory for IS research on evolvable systems. The elusiveness of some of these phenomena to other disciplines offers a unique opportunity for IS scholars.
In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.
Interest in the problem of method biases has a long history in the behavioral sciences. Despite this, a comprehensive summary of the potential sources of method biases and how to control for them does not exist. Therefore, the purpose of this article is to examine the extent to which method biases influence behavioral research results, identify potential sources of method biases, discuss the cognitive processes through which method biases influence responses to measures, evaluate the many different procedural and statistical techniques that can be used to control method biases, and provide recommendations for how to select appropriate procedural and statistical remedies for different types of research settings.
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This study theoretically and empirically addresses the possible separation of substance and symbolism in CEO compensation contracts by examining political and institutional determinants of long-term incentive plan (LTIP) adoption and use among 570 of the largest U.S. corporations over two decades. We find that a substantial number of firms are likely to adopt but not actually use-or only limitedly use-LTIPs, suggesting a potential separation of substance and symbol in CEO compensation contracts. Analyses suggest that this decoupling of LTIP adoption and use is particularly prevalent in firms with powerful CEOs and firms with poor prior performance. Further analyses show that whereas early adopters are more likely to pursue alignment between CEO and shareholder interests substantively, later adopters may pursue legitimacy by symbolically controlling agency costs. More generally, the study highlights how decoupling in organizations can be understood in terms of both micro-political and macro-institutional forces.
We examine the interrelationships between information technology spending, CEO equity compensation incentives, and firm value. We present two related pieces of evidence. First, we find that CEO equity incentives are associated with IT spending, suggesting that CEOs with higher incentives are more likely to invest in a risky asset such as IT. Second, we find that the association between IT spending and business value is stronger for firms that grant CEOs higher equity incentives. Our study contributes to the CEO compensation and IT governance literatures.
Using the complementary lenses of information-processing and agency theories, this study tests the proposition that the complexity resulting from a firm's degree of Internationalization will be accommodated by its governance structure. Results from a sample of large U.S. firms support this perspective, suggesting that firms manage and cope with the information-processing demands and agency issues arising from internationalization through higher, longer-term CEO pay, larger top management teams, and the separation of chairperson and CEO positions.
The business case for investing in information technology (IT) has received increasing scrutiny in recent years. We propose that IT investments create additional business value through interactions with other business processes. In this paper, we formalize the interaction effect of IT by focusing on one core function, namely, research and development (R&D). We hypothesize that investments in IT can interact with and complement a firm's R&D investments, enhancing the firm's shareholder value creation potential. We test this by hypothesis by estimating the interaction impact of IT and R&D investments on Tobin's q, a forward-looking measure of firm performance using a recent multiyear, firm-level, archival data set. Our results suggest that the interaction effect of R&D and IT on Tobin's q is positive and significant after controlling for other firm- and industryspecific effects. Our findings provide rigorous empirical support for recent anecdotal evidence in the managerial literature with respect to the manner in which IT is enabling R&D-intensive innovation processes. Our analysis underscores the need for coordinated investments in IT and R&D, and permeating IT capabilities throughout other business processes such as R&D.