IT Support for Core Competencies: Development and Validation of a Research Instrument

This paper presents a validated construct that measures IT’s ability to support organisations’ core competencies. In doing so, it aims to address a call in IT literature to modify and validate a previously presented concept of IT support for core competencies. This research paper presents a rigorous instrument development process to modify the previously presented IT support for core competencies construct. Afterwards, this study utilises structural equation modelling (SEM) techniques and confirmatory factor analysis to validate the revised construct of IT support for core competencies. The result of this paper is a validated measurement model for IT support for core competencies that can be utilised in further research. INTRODUCTION Contemporary research on the impact of information technology (IT) on competitive advantage has been profoundly influenced by the resource based view (RBV) of the firm (Barney 1991; Wade & Hulland 2004). In this view, firms’ main source of value creation stems from rare, valuable, heterogeneous, and hard to imitate resources (Barney 1991). The RBV further distinguishes between input oriented resources, capabilities that combine resources (Amit & Schoemaker 1993) and (core) competencies (Prahalad & Hamel 1990). Even though several researchers have drawn from the RBV to examine the potential of IT to provide firms with competitive advantage (Wade & Hulland 2004), only few have investigated how IT can enable organisational core competencies (Ravichandran & Lertwongsatien 2005). This perspective allows researchers to investigate IT’s ability to provide competitive advantage by forming value-adding, heterogeneous and hard to imitate complementary relationships with organisational competencies. Despite its ability to offer valuable insights into the IT – competitive advantage relationship and previous attempts to establish a measurement construct for IT’s ability to support organisational competencies (Ravichandran & Lertwongsatien 2005), no validated construct exists to measure IT’s support for various functional competencies. In their study, Ravichandran and Lertwongsatien (2005) proposed a construct labelled IT support for core competencies. This construct consists of three variables: IT support for market-access competency, IT support for integrity-related competency and IT support for functionally-related competence. Using PLS to assess this measurement model, IT support for integrity-related competency failed the nomological network and calls have been made to provide further empirical evidence and theoretical support for such a construct (Ravichandran & Lertwongsatien 2005). This study aims to address this research gap and intends to add to the body of knowledge in several ways. Firstly, this paper seeks to answer Ravichandran and Lertwongsatien’s (2005) call to further determine if the IT support for integrity-related competency variable fits into the IT support for core competencies construct by presenting a validated measurement model that includes such a variable. Secondly, this paper extends previous research on IT and competitive advantage from the RBV by introducing a revised, extended and validated measurement model that measures how IT can support firms’ functional competencies (market-access, functionally-related, integrityrelated and network-related). Finally, this paper presents the results of an exploratory study that measures the extent of this IT support for core competency construct among Australian companies. The paper is organised as follows. Firstly, the theoretical background based on a review of previous research is presented. Secondly, a research model is presented and the methodology explained. Thirdly, the validation of the measurement model for the IT support for core competencies construct is discussed. Finally, conclusions are drawn and suggestions for future research presented. 20 Australasian Conference on Information Systems IT Support for Core Competencies 2-4 Dec 2009, Melbourne Paschke 416 THEORETICAL BACKGROUND AND FRAMEWORK The resource-based view (RBV) has been utilised to examine IT and competitive advantage and to explain the ‘productivity paradox’ regarding the strategic impacts of IT (Clemons & Row 1991; Feeny & Willcocks 1998; Ravichandran & Lertwongsatien 2005; Wade & Hulland 2004). It has been recognised as a cogent framework with which to evaluate the strategic value of IT (Santhanam & Hartono 2003). Furthermore, the RBV enables the investigation of the different impacts of IT resources, capabilities and competencies on competitive advantage (Wade & Hulland 2004). Three key concepts are used in the IT and competitive advantage literature that draw from the RBV: IT resources, IT capabilities and IT support for core competencies. However, the IT literature is not always consistent on what is regarded as an IT resource, IT capability or IT support for core competence. Classifications in IT research range from using simple terminology such as the terms IT resources / IT assets (e.g. Ross, Beath & Goodhue 1996) to describe all IT-related constructs, to more sophisticated classifications that differentiate between input-based resources, transformational and managerial capabilities and output-based competencies (e.g. Ravichandran & Lertwongsatien 2005; Wade & Hulland 2004). This is, indeed, similar to the use of concepts in the generic resource-based literature, in which the terms resources, capabilities and competencies are often used interchangeably. The precise definitions of IT resources, IT capabilities and IT support for core competencies vary throughout the IT literature. Overall, however, research on the RBV of IT and competitive advantage has explored two major themes: firstly, IT’s ability to produce complementarities with organisational resources as a source of competitive advantage; secondly, IT’s intangible aspects, such as managerial or personnel skills, and how they can leverage IT resources to create competitive advantage. What makes IT a source of sustained competitive advantage for firms is its ability to leverage differences in strategic resources (Clemons & Row 1991). Firms that manage to utilise IT to leverage structural differences, such as the quality and organisation of key resources or vertical integration and diversification, will be able to achieve competitive advantage from their IT (Clemons & Row 1991). In other words, IT by itself is necessary to compete in the business but does not provide competitive advantage. IT can be a source of competitive advantage if it leverages firms’ strategic resources through complementary relationships with other firm assets, business processes, capabilities or competencies. In their study, Powell and Dent-Micallef (1997) focused on the retail industry and IT’s ability to leverage other intangible, complementary human and business resources. The results were similar to the findings of Clemens and Row (1991) and supported the strategic necessity hypothesis of IT and the notion of the indirect effects of IT on competitive advantage through intangible, complementary human and business resources (Powell & Dent-Micallef 1997). This logic of resource complementarities has been adopted by many researchers and argues that organisations that complement IT with other organisational resources have a better chance of defending their IT-derived competitive advantage against competitors (Bharadwaj 2000; Clemons & Row 1991; Feeny & Willcocks 1998; Mata, Fuerst & Barney 1995; Tippins & Sohi 2003). IT alone does not impact firm performance, but a number of firms have been seen to gain competitive advantage when they used IT to leverage other organisational resources (Powell & Dent-Micallef 1997). Ray et al. (2005) empirically assessed the role of IT on the customer performance process and found that IT resources do not explain variations in process performance unless they are tacit, socially complex and firmspecific. In so far as organisational resources and processes are often unique, this further complicates imitation of the blending of IT with organisational resources (Bharadwaj 2000). This interaction is typically analysed in the IT research literature using multiplicative terms in statistical analyses to examine whether the presence of one resource enhances the value of another (Ravichandran & Lertwongsatien 2005). Powell and Dent-Micallef (1997), for example, measured the effect of complementarities between human resource practices and IT use on retail store performance with interaction terms. Another conceptual approach is the work of Ross, Beath and Goodhue (1996), who define three IT assets (human resources, technology and relationships) and argue that these IT assets, in combination with IT processes, could lead to sustained competitive advantage. The results of their study enhance the notion of its complementary impact on firm performance. Ross, Beath and Goodhue (1996) used the term IT assets to denote assets, personnel and relationship assets, and IT processes to refer to IT planning, delivery, and operations and support processes. They focused on how the interplay between IT assets and IT processes creates business value. Bharadwaj (2000) adopted a similar categorisation but included IT infrastructure (physical IT assets), IT human resources (technical and managerial skills) and IT-enabled intangibles (knowledge assets, customer orientation and synergy) as IT resources. This classification ignores the different levels of IT resources. Rather than being on the same level as IT infrastructure and IT human resource skills, IT-enabled intangible organisational resources are enabled through the former two resources (Bharadwaj 2000). Consistent with the findings of previous scholars (Clemons & Row 1991; Powell & Dent-Micallef 1997), IT is found to only affect firm performance if it is embedded, so that it can 20 Australasian Conference on Information Systems IT Support for Core Competencies