Interfirm IT Capability Profiles and Communications for Cocreating Relational Value: Evidence from the Logistics Industry

Rai, Arun; Pavlou, Paul A.; Im, Ghiyoung; Du, Steve

doi:10.2307/41410416

Cited by 229 publications

(140 citation statements)

References 130 publications

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“…As noted above, IT capability is an important class of organizational capability for governing a business well and adding value to its assets (Bharadwaj, 2000;Chi et al, 2010;Pavlou & El Sawy, 2010;Rai & Tang, 2010;Lu & Ramamurthy, 2011;Tanriverdi & Uysal, 2011;Rai et al, 2012). The logic of the market for corporate control perspective suggests that the differences in IT capabilities between an acquirer and its target could drive M&A transactions over and beyond the effects of previously studied drivers of M&A activity and M&A performance (e.g., merger waves, deal, target, and acquirer characteristics).…”

Section: Theoretical Backgroundmentioning

confidence: 96%

“…IT capabilities are an important class of organizational capabilities. Business value of IT literature has shown that IT capabilities enable firms to integrate their internal business units, newly acquired businesses, and achieve cross-business synergies (Tanriverdi & Uysal, 2011); connect with external business partners, exchange physical goods, information, and finances with them and create business value in interorganizational relationships (Rai & Tang, 2010;Rai et al, 2012); increase organizational agility (Lu & Ramamurthy, 2011); proactively sense and respond to competitive dynamics (Chi et al, 2010); improvise in turbulent competitive environments and achieve competitive advantages (Pavlou & El Sawy, 2010). Thus, IT capability asymmetries between acquirer and target are likely to affect how the merger creates or destroys shareholder wealth.…”

Section: Introductionmentioning

confidence: 99%

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When IT capabilities are not scale-free in merger and acquisition integrations: how do capital markets react to IT capability asymmetries between acquirer and target?

Tanriverdi

Uysal

2015

European Journal of Information Systems

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In mergers and acquisitions (M&A), a primary objective of acquirer is to integrate IT resources of the target with its own. IT M&A integration is assumed to create synergies, which in turn increase shareholder wealth by making the value of the merged firm greater than the sum of the standalone values of the two firms. In this study, we challenge this assumption and argue that IT M&A integration does not always lead to greater value creation. Prior research on IT M&A integrations indicates that IT resources are often not scale-free in M&A: that is, they do not transfer easily and costlessly from an acquirer to its target or vice versa. In fact, IT M&A integration can destroy value rather than create it when IT resources are not scale-free. We theorize about the contingencies under which IT M&A integration can create value for shareholders of acquirers. We test our hypotheses in a sample of 549 M&A transactions between 1998 and 2007. We find that, on average, capital markets react negatively with M&A announcements of acquirers whose IT capabilities are superior relative to those of the targets. The superiority of the acquirer's IT capabilities signals that the acquirer is likely to rip and replace IT resources of the target. This IT M&A integration approach increases risks of disruption to target's operations and revenue growth. Capital markets take such risks into account and reduce the stock price of the acquirer. One contingency that reduces the negative reactions of capital markets is industry relatedness of target. In a same-industry acquisition, an acquirer and its target have similar operating models, competitive dynamics, and regulatory context. Thus, ripping and replacing weaker IT resources of the target with superior IT resources of the acquirer creates expectations of more efficient operation, engenders positive stock price reactions, and increases shareholder wealth. Another contingency that reduces the negative reactions of capital markets is the acquirer's track record in profitable growth. A profitably growing acquirer that has superior IT capabilities increases the confidence of capital markets that it can minimize potential disruption risks of IT integration, continue its profitable growth pattern with newly acquired target, engender positive stock price reactions, and create shareholder wealth. These findings indicate that IT M&A integration does not always lead to greater value creation in M&A. The study makes a contribution by identifying the contingencies under which IT M&A integration creates wealth for acquirer's shareholders.

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Section: Theoretical Backgroundmentioning

confidence: 96%

Section: Introductionmentioning

confidence: 99%

When IT capabilities are not scale-free in merger and acquisition integrations: how do capital markets react to IT capability asymmetries between acquirer and target?

Tanriverdi

Uysal

2015

European Journal of Information Systems

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“…This, in turn, may lead to a bias in assessment of value impacts inflating the value estimate of a firm's own ITs. Evidence of value creation by contemporary enterprise technologies, such as the RosettaNet's Partner Interface Processes (PIPs) and other ITs, is also of significance to research examining role of IT in contemporary supply chains Banker et al 2006;Rai et al 2012;Malhotra et al 2005). In the context of supply chains it is well known that competition is now between the network of partners, and not individual firms.…”

Section: Contributionsmentioning

confidence: 97%

“…requires that the firm uses its own IT systems in synch with complementary inputs from IT systems of partner organizations. As Rai et al (2012) show, even though large firms (such as, Hewlett Packard (HP) and United Parcel Service (UPS)) co-create value, value co-creation depends on complementary interfirm communications between a supplier and its buyer firms. In general, a firm with greater IT intensity relies more on digitized processes.…”

Section: Effects Of It Intensity On Value Co-creation and Appropriationmentioning

confidence: 99%

Business value of partner’s IT intensity: value co-creation and appropriation between customers and suppliers

2015

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There is a rapid increase in the use of enterprise technologies, such as enterprise portals, CRM, RFIDs, and partner interface systems. Often defined as Enterprise 2.0 technologies, social communication technologies, such as blogs and wikis are further increasing the range of ITs used by firms. Greater use of these Enterprise 2.0 technologies is changing the ways organizations transact with partners, as IT systems become predominant means to communicate, coordinate, analyse, conceptualize, and respond. As these technologies increase the information content of work, IT intensity of firms is becoming an increasingly important asset for doing business. To leverage enterprise technologies, firms are increasing IT intensity by making greater investments in more modular, user-friendly, integrated, and customized ITs. Greater IT intensity changes how a firm transacts business and inter-organizational relationships. However, the effects of increased IT intensity on inter-organizational relationships are not clear. In this study, we address this gap and assess how a firm's IT intensity influence inter-organizational value. Using the data from customer-supplier dyads, we examine partner-related value creation, co-creation, and appropriation of value between firms within customer-supplier relationships. Using the Compustat database as our source of financial information from publicly-traded firms, we identify 5868 unique dyadic pairs of customer-supplier over the period 1991 to 2005 and hypotheses are tested using a sample of 15,028 customer-supplier dyad-years. IT spending for each firm is based on data available from InformationWeek magazine. Our results indicate that a partner's IT usage co-creates value for both partners. We show a strong positive relation between customer and supplier IT spending intensity and corresponding profitability-measured as the firm's excess gross profit relative to industry levels -for both customer and supplier firms as well as the combined dyad. Also, contrary to views that larger customers exploit smaller suppliers, our study finds that an increased IT intensity enhances the probability of value being generated for both the partners in a dyad.

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“…Rai et al 2006;Devaraj, Krajewski, and Wei 2007;Sanders 2007;Sanders 2008;Rai et al 2012;Tenhiälä and Helkiö forthcoming). Scholars have investigated a mixture of applications supporting supply chain processes (Clark and Lee 2000;McAfee 2002;Kent and Mentzer 2003;Ranganathan, Dhaliwal, and Teo 2004;Jin 2006;Wu et al 2006), which might be categorised into internal, supply-side and customer-side applications (Barua et al 2004;Subramani 2004;Devaraj, Krajewski, and Wei 2007).…”

Section: Introductionmentioning

confidence: 99%

The impact of host country regulatory quality on the value creation process in e-business supply chains

Wiengarten

Bhakoo²,

Giménez

2015

International Journal of Production Research

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The use of e-business (EB) applications has reshaped an organisations' supply chain structure. EB applications have enabled supply chain organisations to integrate their upstream and downstream supply chain processes to reach higher performance outcomes. Employing the resource-based view and contingency perspective as theoretical anchors, we propose and test a model of the relationship between EB applications, supply chain integration and financial performance that is moderated by a country's regulatory quality. Cross-country data have been collected from 637 organisations through the International Manufacturing Strategy Survey research initiative. We hypothesise that the efficacy of the EB value creation process depends on the regulatory quality of the country that companies are located in. Results indicate that EB has a stronger impact on supply chain integration and supply chain integration has a stronger impact on financial performance, if the companies are situated in countries with high quality regulatory levels.

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Interfirm IT Capability Profiles and Communications for Cocreating Relational Value: Evidence from the Logistics Industry

Abstract: it-capability-profiles-and-communications-for-cocreating-relational-valueevidence-from-the-logistics-industry.html.

Cited by 229 publications

References 130 publications

When IT capabilities are not scale-free in merger and acquisition integrations: how do capital markets react to IT capability asymmetries between acquirer and target?

When IT capabilities are not scale-free in merger and acquisition integrations: how do capital markets react to IT capability asymmetries between acquirer and target?

Business value of partner’s IT intensity: value co-creation and appropriation between customers and suppliers

The impact of host country regulatory quality on the value creation process in e-business supply chains

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