Improving Decision Making in Organisations Proceedings of the Eighth
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UNDERSTANDING THE LINK BETWEEN INFORMATION TECHNOLOGY CAPABILITY AND ORGANIZATIONAL AGILITY: AN EMPIRICAL EXAMINATION1 Ying Lu School of Business, Pfeiffer University, Misenheimer, NC 28109 U.S.A. {[email protected]}
K. (Ram) Ramamurthy Sheldon B. Lubar School of Business, University of Wisconsin–Milwaukee, Milwaukee, WI 54302 U.S.A. {[email protected]}
Information technology is generally considered an enabler of a firm’s agility. A typical premise is that greater IT investment enables a firm to be more agile. However, it is not uncommon that IT can also hinder and sometimes even impede organizational agility. We propose and theorize this frequently observed but understudied IT–agility contradiction by which IT may enable or impede agility. We develop the premise that organizations need to develop superior firm-wide IT capability to successfully manage their IT resources to realize agility. We refine the conceptualization and measurement of IT capability as a latent construct reflected in its three dimensions: IT infrastructure capability, IT business spanning capability, and IT proactive stance. We also conceptualize two types of organizational agility: market capitalizing agility and operational adjustment agility. We then conduct a matched-pair field survey of business and information systems executives in 128 organizations to empirically examine the link between a firm’s IT capability and agility. Business executives responded to measurement scales of the two types of agility and organizational context variables, and IS executives responded to measurement scales of IT capabilities and IS context variables. The results show a significant positive relationship between IT capability and the two types of organizational agility. We also find a significant positive joint effect of IT capability and IT spending on operational adjustment agility but not on market capitalizing agility. The findings suggest a possible resolution to the contradictory effect of IT on agility: while more IT spending does not lead to greater agility, spending it in such a way as to enhance and foster IT capabilities does. Our study provides initial empirical evidence to better understand essential IT capabilities and their relationship with organizational agility. Our findings provide a number of useful implications for research and managerial practices. Keywords: Organizational agility, IT–agility contradiction, information technology capability, second-order latent multidimensional construct, IT spending, theory development
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Dale Goodhue was the accepting senior editor for this paper. Michael Morris served as the associate editor.
MIS Quarterly Vol. 35 No. 4 pp. 931-954/December 2011
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Lu & Ramamurthy/The Link Between IT Capability & Organizational Agility
Introduction In today’s volatile business environments, firms must be agile and be able to handle extreme changes, survive unprecedented threats, and capitalize on emerging business opportunities (Prahalad 2009). Organizational agility is a firm’s ability to cope
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