The provision of services has become an increasingly important component of the economy of industrialized countries and the revenue stream for many traditional product companies. This is especially true for companies that offer information technology (IT) products. This paper examines factors that are associated with the extent to which IT product companies are able to develop service revenue, which we refer to as service expansion of IT product companies. We identify the characteristics of the product portfolio-specifically, the composition and scope of firm offerings among hardware, application software, and infrastructure software-as key to successful service expansion. We also propose that this relationship is moderated by prior performance of the product business and industry characteristics such as concentration and maturity. Data from IT product vendors spanning five years are used to test the proposed relationships. Overall, this research provides a theoretical foundation for understanding service expansion and diversification in the IT industry as well as practical guidance for IT product companies considering expansion to services.
We theoretically and empirically investigate the relationship between information technology (IT) and firm innovation. Invoking absorptive capacity (ACAP) theory, we introduce and develop the concepts of three types of IT-enabled knowledge capabilities. Firm innovation is examined through two observable innovation outcomes: patents, and new product and service introductions. These innovation outcomes are often labeled as competitive actions aggressively undertaken by firms to gain market share or to achieve profitability. We use secondary data about IT-enabled knowledge capabilities and innovation outcomes of 110 firms. Our data results provide strong support for our main assertion that knowledge capabilities that are enhanced through the use of IT contribute to firm innovation. The study's findings suggest that the three types of IT-enabled knowledge capabilities have differential effects on firm innovation. This study substantially contributes to the information systems (IS) research, methodology, and practice in multiple ways.