Information technology matters to business success because it directly affects the mechanisms through which
they create and capture value to earn a profit: IT is thus integral to a firm’s business-level strategy. Much
of the extant research on the IT/strategy relationship, however, inaccurately frames IT as only a functionallevel
strategy. This widespread under-appreciation of the business-level role of Information technology indicates a need for substantial
retheorizing of its role in strategy and its complex and interdependent relationship with the mechanisms
through which firms generate profit. Using a comprehensive framework of potential profit mechanisms, we
argue that while IT activities remain integral to the functional-level strategies of the firm, they also play several
significant roles in business strategy, with substantial performance implications. IT affects industry structure
and the set of business-level strategic alternatives and value-creation opportunities that a firm may pursue.
Along with complementary organizational changes, IT both enhances the firm’s current (ordinary) capabilities
and enables new (dynamic) capabilities, including the flexibility to focus on rapidly changing opportunities or
to abandon losing initiatives while salvaging substantial asset value. Such digitally attributable capabilities
also determine how much of this value, once created, can be captured by the firm—and how much will be
dissipated through competition or through the power of value chain partners, the governance of which itself
depends on IT. We explore these business-level strategic roles of IT and discuss several provocative
implications and future research directions in the converging information systems and strategy domains.
Information technology matters to business success because it directly affects the mechanisms through which
they create and capture value to earn a profit: IT is thus integral to a firm’s business-level strategy. Much
of the extant research on the IT/strategy relationship, however, inaccurately frames IT as only a functionallevel
strategy. This widespread under-appreciation of the business-level role of Information technology indicates a need for substantial
retheorizing of its role in strategy and its complex and interdependent relationship with the mechanisms
through which firms generate profit. Using a comprehensive framework of potential profit mechanisms, we
argue that while IT activities remain integral to the functional-level strategies of the firm, they also play several
significant roles in business strategy, with substantial performance implications. IT affects industry structure
and the set of business-level strategic alternatives and value-creation opportunities that a firm may pursue.
Along with complementary organizational changes, IT both enhances the firm’s current (ordinary) capabilities
and enables new (dynamic) capabilities, including the flexibility to focus on rapidly changing opportunities or
to abandon losing initiatives while salvaging substantial asset value. Such digitally attributable capabilities
also determine how much of this value, once created, can be captured by the firm—and how much will be
dissipated through competition or through the power of value chain partners, the governance of which itself
depends on IT. We explore these business-level strategic roles of IT and discuss several provocative
implications and future research directions in the converging information systems and strategy domains.
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