department of management science and information systems, red mccombs school of business, university of texas at austin, cba 5.202 b6500, austin,tx 78712,U.S.A.
This study develops and tests the idea that the cross-business information technology integration (CBITI) capability of an acquirer creates significant value for shareholders of the acquirer in mergers and acquisitions (M&A). In M&A, integrating the IT systems and IT management processes of acquirer and target could generate benefits such as (a) the consolidation of IT resources and the reduction of overall IT costs of the combined firm, (b) the development of an IT-based coordination mechanism and the realization of cross-firm business synergies, (c) the minimization of potential disruptions to business operations, and (d) greater ability to comply with relevant laws and regulations and the reduction of regulatory compliance costs. We test these ideas in a sample of 141 acquisitions conducted by 86 Fortune 1000 firms. In the short run, acquirers that have high levels of CBITI capabilities receive positive and significant cumulative abnormal returns to their M&A announcements. Announcement period returns indicate that the capital markets value CBITI similarly in sameindustry and different-industry acquisitions. In the long run, acquirers with high levels of CBITI capabilities obtain significantly higher abnormal operating performance. They create significantly greater value in complementary acquisitions from different industries than in related acquisitions from the same industry. The findings have important implications for M&A research and practice.
We review and reframe three main quests of research on information systems (IS) strategy: (1) the strategic alignment quest, (2) the integration quest, and (3) the sustained competitive advantage quest. The assumptions and logic of these quests have become less relevant in increasingly complex adaptive business systems (CABS), where the competitive performance landscapes of products and services are highly dynamic and co-evolve. We revise the strategic alignment quest to propose a co-evolution quest that addresses not only competitive strategy questions of a firm but also corporate strategy questions. The co-evolution quest seeks to increase a firm's agility and dynamism in repositioning itself, identifying profitable product-market positions as the evolving competitive landscape erodes the profitability of the firm's existing positions. To support the co-evolution quest, we revise the integration quest and propose a reconfiguration quest that encompasses not only business processes but also products and services, as well as the contracts, resources, and transactions associated with them. As the firm makes repositioning moves to co-evolve with the competitive landscape, the reconfiguration quest seeks to increase the firm's agility in disintegrating its existing nexus of contracts, resources, and transactions that support the old positions and in reconfiguring new ones that support the new positions. Finally, we revise the sustained competitive advantage quest to propose a renewal quest that recognizes the temporary nature of competitive advantage in CABS. The renewal quest seeks to destabilize the firm's old sources of competitive advantage when competitive dynamics erode their utility, rapidly create new sources of competitive advantage, and concatenate a series of temporary advantages over time. The three reframed quests provide the foundation for a research agenda on IS strategy in CABS.
There is unprecedented interest in digitally enabled extended enterprises that enable firms to gain access to specialized skills and capabilities globally Given this motivation, firms are unbundling their value chain processes and exploring new sourcing mechanisms. With the emergence of world-class skills and capabilities in offshore locations, new sourcing mechanisms have become available beyond traditional domestic insourcing and outsourcing. However, there is little systematic research examining how firms choose sourcing mechanisms for their business processes. This study views the digitally enabled extended enterprise as a complex system of business processes and examines how sourcing choices are made in such enterprises. It builds on the modular systems theory to posit that modularization of business processes and their underlying information technology (IT) support infrastructures are associated with the choice of sourcing mechanisms for the processes. The study tests this proposition in a sample of business process sourcing choices made by 93 medium and large U.S. firms. The results show that firms tend to choose domestic outsourcing for processes that are high in modularity and offshore outsourcing for processes that are low in modularity Further, when processes can be detached from a firm's IT infrastructure, firms tend to use offshore outsourcing. However, when processes are tightly coupled with underlying IT infrastructure, it may be infeasible to detach processes and execute them in remote locations. Implications for theory and practice are also discussed.
Unlike technologies that are applicable in a few specific industries, information technologies have a wide range of applicability across almost all industries. The fundamental principles of good IT management are also applicable in many industries. Thus, firms whose business units operate in different industries have an opportunity to exploit cross-unit IT synergies by applying their IT resources and management processes across multiple units. This study examines sources of cross-unit IT synergy and the conditions under which cross-unit IT synergies improve the performance of multibusiness firms. Building on the resource-based view of diversification and the economic theory of complementarities, the study identifies the relatedness and complementarity of IT resources as two major sources of cross-unit IT synergy. It argues that IT relatedness--the use of common IT infrastructure technologies and common IT management processes across business units--creates sub-additive cost synergies, whereas complementarities among IT infrastructure technologies and IT management processes create super-additive value synergies. In a sample of 356 multibusiness Fortune 1000 firms, the study finds that sub-additive cost synergies arising from the use of related IT resources or management processes do not have any effects on corporate performance, whereas the super-additive value synergies arising from the use of a complementary set of IT resources and management processes have significant effects on corporate performance. The diversification level of the firm moderates the relationship between IT synergies and corporate performance. As the diversification level increases, the performance effects of IT synergies remain positive, but they become weaker. The IT governance mode of the firm (centralized, decentralized, hybrid) does not make a difference in the performance effects of IT synergies.
Business value of information technology is an enduring research question. The elusive link between IT and financial firm performance calls for further research into intermediate organizational variables through which IT may influence firm performance. This study proposes that knowledge management (KM) is a critical organizational capability through which IT influences firm performance. In the context of multibusiness firms, the study examines how the IT resources of a firm should be organized and managed to enhance the firm's KM capability, and whether and how KM capability influences firm performance. The study develops two hypothesizes: (1) IT relatedness of the firm's business units enhances cross-unit KM capability: (2) KM capability, in turn, leads to superior firm performance. Data from 250 Fortune 1000 firms provide empirical support for these hypotheses. IT relatedness of business units enhances the cross-unit KM capability of the firm. The KM capability creates and exploits cross-unit synergies from the product, customer, and managerial knowledge resources of the firm. These synergies increase the financial performance of the firm. IT relatedness also has significant indirect effects on firm performance through the mediation of KM capability.