IS Support For Strategic Flexibility, Environmental Dynamism, And Firm Performance

Abstract

For the past decade, strategic flexibility has been increasingly viewed as a critical organizational competency that enables a firm to achieve and maintain competitive advantage and superior performance (Sanchez, 1995; Hitt et al., 1998). Correspondingly, there has been a growing research interest in the role of information systems (IS) in achieving strategic flexibility (Goldhar and Lei, 1995; Lei et al., 1996; Byrd, 2001). While numerous conceptual frameworks, case studies and anecdotes have been offered to show IS can be used to support the development of strategic flexibility to gain competitive advantage, it remains unclear whether IS support for strategic flexibility can actually improve a firm's bottom-line performance, due to little prior empirical work on this issue. Without empirical research assessing the financial performance impacts of IS support for strategic flexibility, firms and their managers who are interested in investing in IS for achieving strategic flexibility have little evidence on which to base their IS investments. In this article, I seek to address this imbalance in the extant literature by presenting the results from a study linking IS support for strategic flexibility to firm performance. In investigating the relationship between IS support for strategic flexibility and firm performance, I drew on the resource-based perspective of competitive advantage and argued that, to the extent that strategic flexibility represents a rent-yielding, firm-specific and hard-to-copy organizational capability, firms using IS to support the development of strategic flexibility may enjoy competitive advantage and superior economic returns. Moreover, using a recent resource-based argument that a firm's resource or capability offers different strategic values in different contexts (Miller and Shamsie, 1996), I explored an environmental context (environmental dynamism) in which the strength of the relationship between IS support for strategic flexibility and firm performance is likely to vary across firms. While the fast-changing nature of a firm's external environment drives the interest in strategic flexibility and, hence, IS support for strategic flexibility (Sanchez, 1995; Hitt et al., 1998), little research attention has been paid to whether such an external environment may affect the performance impacts of IS support for strategic flexibility. Given the potential high costs of using IS to achieve strategic flexibility (Upton, 1995; Aggarwal, 1997) and the growing skepticism towards the unconditional pursuit of strategic flexibility (Pine et al., 1993; Gerwin, 1993; Upton, 1995), discerning the moderating effects of external dynamism on the performance impacts of IS support for strategic flexibility would enhance our understanding of the conditions under which firms are more likely to reap the benefits from using IS to build strategic flexibility. The remainder of the article is structured as follows. The next section (1) offers a review of the concept of strategic flexibility and its competitive value, (2) discusses the linkages among IS, distinctive organizational competencies including strategic flexibility, and competitive advantage from the resource-based perspective, (3) elaborates on the IS role in building strategic flexibility, and (4) explores the moderating effects of environmental dynamism on the relationship between IS support for strategic flexibility and firm performance. Together, this discussion provides the conceptual foundation for the development of the research hypotheses. The following section presents the research methodology, including the sample and data collection procedure, the measurement of the variables of interest, and the results. The next section discusses the implications of the research findings, the limitations of the study, and some suggestions for future research and practice. The last section provides a summary and conclusions for the study. THEORETICAL BACKGROUND AND HYPOTHESIS Strategic Flexibility and Competitive Advantage The subject of flexibility has been dealt with extensively in several disciplines (e. …

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