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 <i>interact with and complement</i> 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 industry-specific 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.
Firms have been investing over $5 billion a year in recent years on new information technology and software in their manufacturing plants. In this study, we develop a conceptual model based on the theory of dynamic capabilities to study how manufacturing plants realize improvements in plant performance by leveraging plant information systems to enable implementation of advanced manufacturing capabilities. We develop hypotheses about relationships between information systems, their impact on manufacturing practices, and the overall impact on plant performance. Analysis of survey data from 1,077 U.S. manufacturing plants provides empirical support for the dynamic capabilities model and suggests that manufacturing capabilities mediate the impact of information systems on plant performance. Our results underscore the importance of manufacturing and organizational capabilities in studying the impact of IT on manufacturing plant productivity, and provide a sharper theoretical lens to evaluate their impact.