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The Impact of Information Technology on Firm Performance: An Empirical Study on the Role of the Alignment of Information Technology with Business Strategy

The Impact of Information Technology on Firm Performance: An Empirical Study on the Role of the Alignment of Information Technology with Business Strategy
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Author(s): Namchul Shin (Pace University, USA)
Copyright: 2001
Pages: 4
Source title: Managing Information Technology in a Global Economy
Source Editor(s): Mehdi Khosrow-Pour (Information Resources Management Association, USA)
DOI: 10.4018/978-1-930708-07-5.ch033

Abstract

Information technology (IT) does not automatically improve firm performance. It is one essential tool that should be coupled with organizational factors such as business strategies. A firm can maximize the value from its IT investments by aligning them with business strategies because IT improves scope economies and coordination. In this paper, we examine empirically the contribution of IT to firm performance measured by net profit, focusing on the alignment of IT with business strategies such as vertical disintegration and product diversification. Empirical analysis shows that IT does not directly improve firm performance, but that IT improves firm performance in conjunction with vertical disintegration and product diversification. This research provides empirical evidence that alignment of IT with business strategies such as vertical disintegration and product diversification can improve firm performance.

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