A Theoretical And Empirical Study On IT Capability And It's Relationship With Firm Performance

With the rapid development of information technology(IT), the restriction of time and space for an enterprise to acquire, analyze and respond to economic information is greatly reduced, and now the organizational innovations and core business adjustments of a firm are affected by IT profoundly. From the seventies of 20 century, the scale of IT investment expanded increasingly all over the world. However, a large number of practical cases and research conclusions show that huge investments would not be always turned into enormous profits or super profit. Increasingly, the effects of IT investment on firm performance bring researchers' and managers' great attention.In view of whether IT investment act on firm performance, early studies based on average IT investment and average output didn't acquire the conclusions that productivity increased significantly. Though a large number of research work completed during the nineties of 20 century showed that IT indeed improved firm performance, gigantic discrepancy of profit rate among different enterprises pushes the research work forward to solve the problem that how to use IT effectively in order to get the competitive advantage. More and more researchers recognized that management can explain the difference of IT investment performance, they agreed that IT capability formed by IT infrastructure and other organizational resources is the source of firm competitive advantage. Yet few studies inquired into the deep theory that how an enterprise acquire it's sustained competitive advantage through IT capability.In fact, the variance of IT investment performance among different enterprises stems from the influence of intermediate variables. So, in order to answer the question of whether and how IT investment contributes to firm's sustained competitive advantage we should analyze and understand IT investment performance from a deeper level of firm's internal reason. From a strategic point of view of management and based on enterprise competence theory which pay close attention to firm's internal growth, this study starts pioneering work to solve the problem of the structure of firm IT capability and it's contribution to the achievement in the circumstances of Chinese specific situations.The research process of this study includes normative reasoning and empirical testing. The aim of the normative reasoning is to form the initial framework of the theory on the basis of large number of theoretical literature, while empirical testing aims to test against the previous theoretical framework through statistical analysis of effective data. To explore corporate IT capability in the circumstances of specific context, the paper advances a model of the concept of IT capability on the basis of enterprise competence theory with a large number of literature review. This model divides IT capacity into 4 progressive dimensions which are as follows: IT fundamental capability, IT task capability, IT coordination capability and IT development capability. Also the paper uses this model to analyze the structure mechanism of firm IT capability from the assets conversion process of IT investment, the effective use process of IT assets and the external environment impact processes of IT performance. Further, the paper constructs a measurement model for IT capability under the concept model of IT capability and uses the model to develop measurement item which is the basis of forming measurement scale. Later an empirical analysis is conducted to verify the credibility and stability of the measurement scale by using a questionnaire to collect data to test the reliability and validity of the measurement scale. To explore IT capability contributing to firm performance in the circumstances of specific context, this paper uses IT capability conceptual model to analyze the formation logic of IT investment performance and raises a research model of relationship between IT capability and business performance. In order to test this model, this study chooses a public report of the financial accounting data of listed companies as a source of samples and a matched-sample comparison group methodology is used to test the previous hypothesis. Through referring to large number of past use of performance measurement method of accounting literature this study constructs the proxy variables of IT investment performance. From the accounting earnings variables, accounting costs variables and enterprise operating efficiency variables based on the accounting data the paper inspects whether the IT investment contribute to the competitive performance of enterprises.Through strict normative reasoning and empirical research process, this study may draw the conclusions which have guiding significance to China's enterprises: IT investment can enhance the capacity of enterprises through special mechanism which is recognized as IT capability. IT capability reflects in four dimensions of capacity from junior to senior levels which are IT fundamental capability, IT task capability, IT coordination capability and IT development capability. And the lower level-ability play a support role to high-level ability, they jointly decided the establishment and nurture of IT capability. Corporate four-level IT capabilities are formatted gradually by the assets conversion process of IT investment, the effective use process of IT assets and the external environment impact processes of IT performance. Enterprises that have superior IT capabilities can get relatively higher income returns and lower cost of expenditure than other enterprises, that is, when corporate IT investment transferred into IT capability, there was a significant positive correlation between IT investment and firm performance . This shows that the transformation from IT investment to firm performance is a process of IT effectively supporting and matching other organizational resources and capability.