Elsevier

Information & Management

Volume 55, Issue 1, January 2018, Pages 120-130
Information & Management

Evolution of the impact of e-business technology on operational competence and firm profitability: A panel data investigation

https://doi.org/10.1016/j.im.2017.08.002Get rights and content

Highlights

  • We examine the evolution of the impact of e-business technology capability on operational competence and firm profitability.

  • This is an empirical study with a three-year panel dataset of 154 large firms in Spain for the period 2008–2010.

  • E-business technology has a positive effect on operational competence that decreases over time.

  • Operational competence has a positive impact on firm profitability that becomes more substantial over time.

Abstract

This study examines the evolution of the impact of e-business technology on operational competence and profitability using a panel dataset of 154 Spanish firms. We find that (1) e-business technology has a positive effect on operational competence that decreases over time and (2) the firm’s proficiency in exploiting a portfolio of operational capabilities has a positive impact on profitability that becomes more substantial over time. The findings provide some insights on how the initial and subsequent IT investments affect operational competence and profitability over time. This study methodologically illustrates how to perform a partial least squares estimation using panel data.

Introduction

Firms invest millions of Euros in information technology (IT) to build process capabilities and increase their competitiveness [1], [2], [3], [4]. However, not all IT investments generate the expected results [5]. This situation demands managers to carefully (re)assess all their IT investments [6], [7].

The majority of past research focused on IT impact on the supply chain and manufacturing activities through a cross-sectional design [8], [9], [10], [11], [12], [13]. It remains unclear that whether and how IT investments impact a broader set of operational capabilities and performance over time. Considering that IT and operational capabilities along with their relationship and effect on firm performance can be dynamic, there seems to be a significant gap that needs to be filled in research in our field.

The present research focuses on e-business technology (one type of IT capability investment/resource allocation) and on whether, how, and under what conditions this capability creates business value. E-business technology can improve the firm’s operations management system by enabling the real-time interchange of information across the supply chain [9], [12]. However, e-business technology has become commoditized and can be affordable for most large firms, which can reduce its potential to create operational advantages over time [5]. This leads to our first research question: How does the time of investment in e-business technology affect the firm’s operations management system (specifically, operational competence comprising a portfolio of capabilities) over time? We believe that the Information Systems (IS) field needs to provide an answer to this critical research question. This is what we try to achieve in this research.

With regard to the firm’s operations management system, we focus on the firm’s operational competence, which refers to the firm’s proficiency in exploiting its portfolio of operational capabilities [12], [14]. This competence is related to the heart of the business model of a firm, which supposes a natural starting point in this research [15]. On the basis of the work of Tatikonda et al. [16], we focus on a portfolio of operational capabilities that determines operational competence: gross margin, employee productivity, operational talent management, and operational excellence. These operational capabilities are related to product margin control, productivity management, talent management, and manufacturing and service excellence; they are a good representation of the potential portfolio of operational capabilities that a contemporary firm may possess to be successful and survive in the long run [16].

The operational capabilities of the firm can be refined through time and experience. Early developers of operational capabilities through early investment in e-business technology can achieve greater competitiveness because of longer duration and experience in developing their operational capabilities. This leads to our second research question: Do initial and subsequent e-business technology investments result in differences in the operations management impact on the firm’s competitiveness over time? We address the above two questions in this study. Specifically, by drawing on the IT-enabled organizational capabilities perspective [1], [17], [18], [19], the operational capabilities-based theory [20]., [15], and the literature on the hierarchy of capabilities of the firm [8], the main goal of this study is to examine the evolution of the impact of e-business technology on operational competence and firm profitability over time. To achieve this goal, we use the structural equation modeling (SEM) technique with a panel dataset for the period 2008–2010 on a sample of 154 large firms in Spain. The empirical analysis suggests that the positive effect of e-business technology on operational competence decreases over time, while the positive effect of operational competence on firm profitability increases over time. The findings provide some insights on how the initial and subsequent IT investments affect operational competence and firm profitability over time. Early development of IT-enabled operational capabilities maximizes firm profitability because of the greater time and experience the firm has in developing its operational capabilities. Furthermore, this study methodologically illustrates how to perform a partial least squares (PLS) estimation using panel data.

Section snippets

Theoretical background

The IT-enabled organizational capabilities perspective has argued that one of the key mechanisms through which IT capability influences firm performance is by developing organizational/process capabilities, such as business flexibility, talent management, new product development, absorptive capability, and innovation capability [21], [22], [23], [24], [25]). This study builds on the IT-enabled organizational capabilities to conceptualize e-business technology and to theoretically link

Sample and data

The proposed model was tested with a secondary dataset collected from a sample of 154 large manufacturing and service firms in Spain for the period 2008–2010. A panel of data from three subsequent years was sufficient to investigate the evolution of effects that we pursued in this research [53]. Our sample was obtained from the Monitor Empresarial de Reputacion Corporativa (MERCO) database (http://www.merco.info/es/), which includes ranking and evaluation of corporate reputation and employer

Empirical analysis

We used the variance-based SEM technique and the PLS method of estimation to test the hypotheses and examine the indirect effects involved in the proposed model. We used the statistical software package Advanced Analysis for Composites (ADANCO) Professional (http://www.composite-modeling.com/) [64]. ADANCO is a modern statistical software package that enables the execution of a modern approach for variance-based SEM technique, including the PLS method of estimation. ADANCO is particularly

Main findings

Although IT capability investments can develop and improve the firm’s process capabilities and competitiveness [62], [25]), not all IT capability investments generate the expected results. This study focused on e-business technology and examined the evolution of the impact of e-business technology on operational competence and firm profitability by performing a panel data investigation on a sample of 154 large firms in Spain. We revealed that (1) e-business technology has a positive effect on

Concluding remarks

This study examined the evolution of the impact of e-business technology on operational competence and firm profitability by performing a panel data investigation on a sample of 154 large firms in Spain. We found that e-business technology has a positive effect on operational competence that decreases over time even becoming nonsignificant and that the firm’s proficiency in exploiting a portfolio of operational capabilities has a positive impact on profitability that becomes more substantial

Acknowledgments

This research was sponsored by the European Regional Development Fund (European Union) and the Government of Spain (ECO2013-47027-P), the Regional Government of Andalusia (Research Project P11-SEJ-7294), and the COVIRAN-Prodware Chair of Digital Human Resource Strategy at the School of Human Resource Management of the University of Granada. This manuscript has benefited from the comments of Andres Navarro and the overall support of Ana Castillo and Jessica Braojos.

Jose Benitez is a Full Professor of IS at Rennes School of Business, France. Jose is also Visiting Professor of IS at the University of Twente, Enschede, The Netherlands, and Instructor of PLS Path Modeling at the PLS School. His research interests cover the study of how the firm’s portfolio of IT capabilities affects organizational capabilities and firm performance, and the development of PLS path modeling in the field of IS. His research has been published in leading IS journals such as MIS

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  • Cited by (0)

    Jose Benitez is a Full Professor of IS at Rennes School of Business, France. Jose is also Visiting Professor of IS at the University of Twente, Enschede, The Netherlands, and Instructor of PLS Path Modeling at the PLS School. His research interests cover the study of how the firm’s portfolio of IT capabilities affects organizational capabilities and firm performance, and the development of PLS path modeling in the field of IS. His research has been published in leading IS journals such as MIS Quarterly, Information & Management, European Journal of Information Systems, Journal of Information Technology, and Journal of Business Research. He currently serves as Associate Editor for Information & Management, and European Journal of Information Systems, as Guest Editor of Decision Sciences, and as a Guest Associate Editor for Decision Support Systems. Jose got a Ph.D. in Business Administration (with concentration in IS) from University of Granada, Spain. Jose can be contacted at [email protected].

    Yang Chen is a Professor of IS in the School of Business Administration, Southwestern University of Finance and Economics, China. His research has been published in Information & Management, Journal of Information Technology, European Journal of Information Systems, Communications of the Association for Information Systems, Human Resource Management, International Journal of Human Resource Management, and Journal of Business Ethics.

    Thompson Teo is an Associate Professor in the School of Business and the School of Computing (by courtesy), National University of Singapore, Singapore. He has published more than 250 papers in leading journals and conferences. Thompson has served as Senior Associate Editor for the European Journal of Information Systems and is currently serving on the Editorial Boards of Information & Management, Communications of the Association for Information Systems, MIS Quarterly Executive, and Omega. He is also the Regional Editor (Pacific Asia) for the International Journal of Information Management. Thompson has co-edited four books on IS and is a four-time winner of the Society for Information Management Paper Competition.

    Aseel Ajamieh is an Assistant Professor of IS at the College of Business Administration, Princess Nourah bint Abdulrahman University, Saudi Arabia. She got a Ph.D. in Business Administration (with concentration in IS) from University of Granada, Spain. In her research, she examines the effects of IT on the development of operational capabilities to create business value. Her research has been published in the Journal of Business Research and presented in the Decision Sciences Institute Annual Meeting.

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