Academic journal article Academy of Entrepreneurship Journal

Impact of Information Technology Capabilities on Firm Performance: Understanding the Mediating Role of Corporate Entrepreneurship in Smes

Academic journal article Academy of Entrepreneurship Journal

Impact of Information Technology Capabilities on Firm Performance: Understanding the Mediating Role of Corporate Entrepreneurship in Smes

Article excerpt

INTRODUCTION

Information Technology (IT) capabilities play a significant role in increasing firm performance (Aydiner et al., 2017; Benitez et al., 2018; Oh et al., 2016). IT capabilities are the multifaceted bundles of IT resources which enable firms to coordinate business activities efficiently through the mobilization and deployment of these IT-based resources, hence improve various firm performance indicators (Bharadwaj, 2000; Nevo & Wade, 2010). Researchers have mostly focused on the role of IT capabilities in large-scale firms and relatively little attention has been given to SMEs (Ling, 2017). In this technological era, SMEs are inevitably crucial for economic development as SMEs tend to have a positive impact on overall economy like creation of job opportunities, improving living standards and elimination of inefficient income distribution which provides foundation for economic advantage to the whole nation (Aparicio et al., 2016; Ayandibu & Houghton, 2017; Deijl et at., 2013; Jardim-Goncalves et al., 2012; Love & Roper, 2015). Around the globe, the SMEs sector contributed 85 percent growth in employment during the years 2002 to 2010 (De Kok et al., 2011; Wang, 2016). ESpecially in developing nations like Pakistan, 96%-98% of business settings can be classified as SMEs that engage approximately 78% workforce, contribute over 30% of national GDP and add 35% value in manufacturing industries (SMEDA, 2007). Irrespective of the size and type of business, it is necessary to recognize the contribution of IT resources in the firm's growth and competitive advantage. In this regard, the SMEs sector of Pakistan is needed to be studied with respect to the utilization and development of IT resources (Munir, 2016).

The extant literature shows the significant positive relationship between IT capabilities and SMEs performance, however, this relationship has not been studied thoroughly (Karimi et al., 2007) and the underlying mechanism through which IT capabilities influences the performance of the firm is not yet clear. Our knowledge about those mechanisms will likely to be enhanced if such processes are examined by intervening mechanisms (Melville et al., 2004). By analyzing the intervening mechanisms we can better predict the circumstances under which IT capability indirectly affect SMEs performance.

The framework of this paper is supported by dynamic capability view which is an extension of the resource-based View (RBV). Although RBV helps to understand the relationship between IT capabilities and firm performance however researchers overlook the potential role of IT capabilities in the dynamic business environment (Rojas et al., 2017). Hence, by applying dynamic capabilities view, new insights can be analyzed regarding IT, beyond the traditional understandings of IT capabilities in relation to RBV (Wade & Hulland, 2004). In the field of management sciences and information technology, RBV has been criticized on the basis of its static nature, additionally, the dynamic capabilities are considered as an essential counterpart of RBV, which help to understand the relation between IT capabilities and firm performance in the dynamic business environment (Mithas et al., 2011). Dynamic capabilities allow firms to renew their current resources and capabilities when the opportunity or need arises (Pavlou & El Sawy, 2006). Hence, firms should possess dynamic capabilities in order to develop and renew its resources (Teece et al., 1997) which is particularly true for the firms competing in the dynamic business environment (Wheeler, 2002). Wheeler (2002); Zahra and George (2002b) hypothesized that the effective building, renewal, and exploitation of dynamic capabilities involves firms to embrace a strategic entrepreneurial context. Similarly, they argue that there exists a significant association between IT capabilities, and entrepreneurial activities which help firms to gain competitive advantage. …

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