The Role of Shared IT Business Understanding

The Role of Shared IT Business Understanding - COMPETING...

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COMMUNICATIONS OF THE ACM December 2007/Vol. 50, No. 12 87 During the last two decades the levels of business spending on IT have surged. This growth in IT investments has catalyzed significant interest as to whether, and if so how, the anticipated eco- nomic benefits of investments in IT are being realized [4, 5, 7]. However, the disillusionment with IT following the failure of many dot-com ventures and the subsequent economic downturn has led many to question the strategic value of IT. In May 2003, for example, Harvard Business Review published an article by Carr [3] dramatically titled “IT Doesn’t Matter,” engendering a huge controversy about the strategic value of IT. Carr’s core premise is that IT is a commodity factor of produc- tion and therefore provides distinction to none. This article examines the question of IT business value and IT competitive advantage from the perspective of the resource-based view (RBV) and reports the results of an empiri- cal study that sheds light on the conditions that lead some firms to be more successful than others in using commonly accessible IT. We find that Shared IT-Business Understanding— the level of shared domain knowledge and common understanding between the IT and the line managers regarding how IT can be used to improve the performance of a specific By Gautam Ray, Waleed A. Muhanna, and Jay B. Barney Studying why some firms derive more competitive advantage and value than others using IT resources. C OMPETING WITH IT: T HE R OLE OF S HARED IT-B USINESS U NDERSTANDING
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88 December 2007/Vol. 50, No. 12 COMMUNICATIONS OF THE ACM process—is a key IT capability that affects perfor- mance. We also find that IT resources such as generic information technologies, technical skills of the IT labor, and IT spending, per se, are not likely to be sources of competitive advantage. However, we take issue with Carr’s conclusion that because core IT hardware and software components and some appli- cation software are neither scarce nor difficult to imi- tate, it follows that “IT doesn’t matter” strategically. We find that the effects of explicit IT resources such as technical skills of the IT work force, generic infor- mation technologies used, and IT spending are con- tingent on the level of the Shared IT-Business Understanding. In other words, in the right setting, technical skills of the IT labor, generic information technologies, and IT spending, do matter strategi- cally. We discuss the implications of our findings, and contrast them with Carr’s recommendations for IT management. C OMPETITIVE A DVANTAGE FROM IT In the resource-based view, competitive advantage depends on unique (firm-specific) resources. Resources that are valuable but common can only be
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The Role of Shared IT Business Understanding - COMPETING...

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