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454 Estudios Gerenciales vol. 36, N° 157, 2020, 454-464

Research article

Corporate, operational, and information systems strategies: Alignment and firm performance Ricardo A. Santa* Profesor – Investigador, Departamento de Gestión Organizacional, Universidad Icesi, Cali, Colombia. [email protected]

Alejandro Acosta Profesor – Investigador, Departamento de Gestión Organizacional, Universidad Icesi, Cali, Colombia. [email protected]

Silvio Borrero Decano, Facultad de Ciencias Económicas y Administrativas, Pontificia Universidad Javeriana Seccional Cali, Cali, Colombia. [email protected]

Annibal Scavarda Associate Professor, Management Information Systems, Universidad Federal del Estado de Río de Janeiro, Rio de Janeiro, Brasil. [email protected]

Abstract This study investigates the effect of the alignment between corporate, operational, and information systems strategies and firm performance. Data were collected from the application of 138 questionnaires to large utility companies in the Australian electricity sector. In the analysis, modeling using structural equations was used to establish the dependency relationship between the variables. The results suggest that aligning operational and information systems strategies can improve firm performance. Likewise, no direct effect of corporate strategy on the firm performance was found.

Keywords: strategic alignment; information systems; technological innovation; operational effectiveness; firm performance.

Estrategias corporativas, operativas y de sistemas de información: alineación y rendimientos de la firma

Resumen Este estudio investiga el efecto de la alineación entre las estrategias corporativas, operativas y de sistemas de información y los rendimientos de la firma. Se recolectaron datos a partir de la aplicación de 138 cuestionarios a grandes empresas de servicios en el sector eléctrico australiano. En el análisis se utilizó la modelación mediante ecuaciones estructurales, con el fin de establecer la relación de dependencia entre las variables. Los resultados sugieren que alinear las estrategias operativas y de sistemas de información puede mejorar el rendimiento de la firma. Así mismo, no se encontró ningún efecto directo de la estrategia corporativa en el rendimiento de la firma.

Palabras clave: alineación estratégica; sistemas de información; innovación tecnológica; efectividad operativa; resultados de la firma.

Estratégias corporativas, operacionais e de sistemas de informação: alinhamento e desempenho da empresa

Resumo Este estudo investiga o efeito do alinhamento entre as estratégias corporativas, operacionais e de sistemas de informação e os retornos da empresa. Os dados foram coletados a partir da aplicação de 138 questionários a grandes empresas de serviços públicos do setor elétrico australiano. Na análise, foi utilizada uma modelagem por meio de equações estruturais para estabelecer a relação de dependência entre as variáveis. Os resultados sugerem que o alinhamento das estratégias operacionais e de sistemas de informação pode melhorar o desempenho da empresa. Da mesma forma, nenhum efeito direto da estratégia corporativa no desempenho da empresa foi encontrado.

Keywords: alinhamento estratégico, sistemas de informação; inovação tecnológica; eficácia operacional; resultados de assinatura.

* Corresponding author

JEL classification: L10; M11; M15.

How to cite: Santa, R.A., Acosta, A., Borrero, S. & Scavarda, A. (2020). Corporate, operational and information systems strategies: alignment and firm performance. Estudios Gerenciales, 36(157), 454-464. https://doi.org/10.18046/j.estger.2020.157.3749 DOI: https://doi.org/10.18046/j.estger.2020.157.3749 Received: 22-oct-2019 Accepted: 9-nov-2020 Available on line: 30-dec-2020

© 2020 Universidad ICESI. Published by Universidad Icesi, Colombia. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/)

Santa et al. / Estudios Gerenciales vol. 36, N° 157, 2020, 454-464 455

1. Introduction

Faced with competitive pressures to improve efficiency and productivity through technological innovation, many organizations invest substantial resources in Enterprise Information Systems (EIS) to manage and improve their innovation, products, and processes (Crumpton, 2013; Ifandoudas & Chapman, 2006; Tidd, Bessant, & Pavitt, 2001). There is an expectation that EIS implementation will reduce operational costs and increase flexibility, reliability, quality, productivity, and profitability. In general, there is a widespread assumption that implementing an EIS will contribute to a firm’s sustainability and enhance its competitive advantage (Masini, 2003). However, the evidence of the effect of such complex technological systems on firm performance is mixed (Mabert, Soni, & Venkataramanan, 2003). Many of these technological innovations fail to deliver the expected outcomes or even undermine performance (Cotteleer, 2001; Davenport, 2000; Jamieson & Hyland, 2004). Therefore, the extent to which these technological innovations assist organizations to improve operational performance has received little attention and is not well understood (Armbruster, Bikfalvi, Kinkel, & Lay, 2008).

Such failures are often the result of a gap between strategy formulation and strategy implementation (Cicchetti, 2003). Successful strategy implementation involves determining key performance indicators (KPI) and establishing benchmarks that foster continuous improvement processes and ensure added value to products and services. In many cases, benefits from the implementation of EIS are limited because of inappropriate performance measures (White, 1996). For a better understanding of EIS effectiveness, and to assess the gap between expected and actual results, an information systems (IS) perspective should be used to measure performance. Such a perspective allows organizations to adapt their technological strategies to market-driven dynamics and eventually develop IS-driven innovation capabilities (Neiroti, Cantamessa, & Paolucci, 2006). Per this view, successful IS-driven innovation is likely the result of a strategic triad that aligns the firm’s corporate, operational, and technology strategies (Pearlson, Saunders, & Galletta, 2019).

Previous studies on strategic management have indeed suggested that strategic alignment greatly deter- mines business performance (Cao & Hoffman, 2011; Cao & Schniederjans, 2004; Dawley, Hoffman, & Lamont, 2002; Joshi, Kathuria, & Porth, 2003; Lingle & Schiemann, 1996; Schniederjans & Cao, 2009). Aligning strategy and operations is assumed to be a key determinant of firm performance and competitive advantage (Balau, 2015; Scur & Heinz, 2016). More specifically, an effectively aligned IS strategy correlates positively to information technology (IT) infrastructure development, which in turn arguably shapes business models and impacts firm performance (Baker, Jones, Cao, & Song, 2011; Bharadwaj, El Sawy, Pavlou, & Venkatraman, 2013; Choe, 2016; Peppard, Galliers, & Thorogood, 2014).

However, we contend that the extant literature has not adequately addressed the effect of such alignment on firm performance. Empirical evidence linking strategic or operational effectiveness measures (e.g., cost, quality, flexibility, speed, or reliability) with IS effectiveness (e.g., system quality, information quality, service quality, or user satisfaction) is scarce. Similarly, we have not found evidence on the role of strategic alignment between IS effectiveness (ISE) and operational effectiveness (OE) in the extant strategy literature.

Building on previous research on systems effecti- veness, operations effectiveness, and strategy formu- lation, we intend to shed light on the determining effect that an IS-driven strategy alignment has on firm performance.

The rest of the paper is organized as follows. Section 2 provides a conceptual framework used for the formulation of hypotheses and the presentation of the conceptual model of the relationship between the proposed variables, while section 3 presents the methodology. The fourth section presents the most important results and findings. Finally, in the fifth section, the conclusions of the work, limitations, and future lines of research are discussed.

2. Theoretical framework

The dynamic nature of the business environment forces organizations to build innovation skills that facilitate their adaptation to a globalized marketplace (Balau, 2015; Ferrer & Santa, 2012; Masson, Jain, Ganesh, & George, 2016; Teece, Pisano, & Shuen, 1997). Such innovation skills require an effective combination of operational effectiveness and strategic flexibility (Boer, Kuhn, & Gertsen, 2002).

2.1 Operational effectiveness

Operational effectiveness refers to the ability to establish processes based on core capabilities within organizations that encourage them to exceed customers’ expectations (Santa, Hyland, & Ferrer, 2013). Both strategic management and operational effectiveness are essential to the performance of the firm, but they operate differently (Ţuţurea & Rotaru, 2012). However, for many managers this difference is unclear, so they often appeal to management methods and techniques aimed at improving operational effectiveness in place of actual strategy formulation and implementation (Adam & Ebert, 2002; Coulter & Coulter, 1998). Not surprisingly, sustained profitability tends to be elusive (Ţuţurea & Rotaru, 2012) and often unattainable through sheer operational effectiveness (Crumpton, 2013).

Whereas operational effectiveness can be defined as executing a firm’s activities better than the competition, strategic management—and the resulting competitiveness and strategic positioning—refers to performing completely different activities to the competition, or performing the same activities in a radically different manner (Porter, 2008). Operational effectiveness is key

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to achieving competitiveness (Namnai, Ussahawanitchakit, & Janjarasjit, 2015). To avoid wasting resources and— possibly—becoming uncompetitive (Ţuţurea & Rotaru, 2012), firms must effectively manage such competitive aspects as cost, quality, reliability, flexibility, and speed (Hill, 2005). This, however, is not enough to achieve a competitive advantage. A firm will only hold a strategic position and develop competitive advantage if it manages to be operationally effective better and faster than its competitors (Bigelow, 2002). Therefore, we propose the following hypothesis:

• H1: Operational effectiveness positively relates to firm performance.

When competitors opt for the easy imitation approach and copy each other’s quality systems, product cycle, and other operational tactics, this leads to strategic convergence and, in the long term, no firm wins (Balau, 2015). To gain an edge in the market, firms should not only be reasonably competitive in all of the industry’s key operational themes, but they should also excel in some specific aspects (Wheelwright & Bowen, 1996). For instance, a car manufacturer aiming at developing a new, differentiating, and potentially competitively advantageous new model will benefit from an expeditious, cost-effective research and development process, increased product reliability, product portfolio variety, lean management, and business strategy flexibility (Muffatto & Roveda, 2000).

To achieve operational effectiveness, organizations generally emphasize five dimensions: cost, quality, reliability, flexibility, and speed (Hill, 2005). A firm achieves a cost advantage when it performs activities more effectively than its competitors (Balau, 2015). Quality is achieved when products and services meet both customer demands, manufacturing specifications, and delivery conditions (Hill, 2005; Russell & Taylor, 2006). Reliability is achieved when products and services keep meeting the agreed conditions consistently over time (Corbett, 1992; Porter, 1996). Flexibility is achieved when the firm can adjust what it does, how it does it, and when it does it in response to customer demands (Slack, 1991). And speed is achieved when the firm operates on time (Russell & Taylor, 2006; Tidd et al., 2001), through shorter times between the customer’s request and product or service delivery (Hill, 2005). Likewise, strategies based on the integration of the supply chain between companies also help the organization to achieve operational effectiveness (Bernile & Lyandres, 2019). In view of the previous arguments, the following hypothesis is proposed:

• H2: Operational strategy positively relates to operational effectiveness.

2.2 Information systems effectiveness

By contributing to strategic decision making, planning, and implementation (Manchanda & Mukherjee, 2014;

Mirchandani & Lederer, 2014), an EIS can be instrumental in improving organizational outcomes, achieving strategic objectives (Delone & McLean, 2003; Winkler & Wulf, 2019), attaining competitive advantage (Doll & Torkzadeh, 1998), and generally ensuring long-term sustainability (Gatian, 1994; Gökşen, Damar, & Doğan, 2016; Karim, 2011; Yuthas & Eining, 1995). By supporting innovation adoption, an EIS can be key in maintaining or improving competitive performance (Hernández, Jiménez, & Martín, 2008; Herring & Roy, 2007; Ranjan, Jha, & Pal, 2016). An effective EIS facilitates information identification, classification, validation, evaluation, capture, and storage. Furthermore, an effective EIS allows information search, delivery, retrieval, and distribution to specific targets within the company (Andreu, Ricart, & Valor, 1996; Devece-Carañana, Peris-Ortiz, & Rueda-Armengot, 2015; Guimaraes, 1988; Kettinger & Marchand, 2011). Given the above, we suggest the following hypothesis:

• H3: IS strategy positively relates to firm performance.

In short, an effective EIS should be a key determinant of a firm’s competitiveness (Kraemer & King, 1986; Laudon & Turner, 1989; Porter & Millar, 1985; Wiseman, 1988). However, many EIS projects do not yield the expected results (Davenport, 2000; Dos Santos & Peffers, 1995; Jamieson & Hyland, 2004) or may result in negative outcomes (Hayes, Hunton, & Reck, 2001). All things considered, an EIS implementation’s return on growth or organizational development does not seem to be proportional to firms’ expectations (Kauffman & Weill, 1989; Weill, 1992).

Now, if an EIS implementation does not come paired with profound changes in organizational practices, financial benefits and improvements in productivity are unlikely (Devece-Carañana et al., 2015). Companies characterized as laggards in technology adoption, in particular, tend to assign responsibility for EIS development and implementation to their IT or IS departments. As a result, EIS implementation is often undervalued and perceived only as a focused, technological solution (Dubelaar, Sohal, & Savic, 2005). To yield a positive, measurable effect on business performance, firm managers should rather assume an EIS implementation as a firm-wide transformation intentionally aligned with the firm’s strategy (Armbruster et al., 2008; Woolthuis, Lankhuizen, & Gilsing, 2005). Based on the above, the following hypothesis is formulated:

• H4: Operational and IS strategies determine operational effectiveness.

The DeLone and McLean Model of Information Systems Success stands out among other approaches to assess EIS outcomes (Brown & Jayakody, 2008; Manchanda & Mukherjee, 2014; Özkan, 2006). This model has been tested and applied in various studies and sectors (Khayun, Ractham, & Firpo, 2012; Rai, Lang, & Welker, 2002; Ramdan,

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Azizan, & Saadan, 2014; Romi, 2013; Seddon, 1997; Seddon & Kiew, 1996). The updated DeLone and McLean model (Delone & McLean, 2003, 2004) measures the effect of IS—the independent variable (IV)—on firm success—the dependent variable (DV)—in six interrelated dimensions: quality of information, system quality, quality of service, use, user satisfaction, and impact on the organization.

Quality of information involves measuring an IS output in terms of content, integrity, ease of understanding, personalization, relevance, and safety; system quality refers to the desired system characteristics and performance, as measured by adaptability, availability, reliability, response time, and usability; quality of service corresponds to the support offered by the IS to its users, as measured by assurance, empathy, and responsiveness; use measures the users’ opinion on the extent to which their IS experience improves their job performance, controlling for type of IS use, search patterns, number of visits to the IS site, and number of operations performed; user satisfaction refers to the psychological state across the entire customer experience cycle, as measured by recurrence, repetition, and customer satisfaction surveys; and impact on the organization is the positive or negative effect on individual, group, and organizational behaviors, as indicated by expanded market share, sales growth, reduced search costs, and time savings.

In general, EIS are intended to provide relevant, timely, and precise information to support strategic, value- adding business decision making. However, EIS are often limited to measuring financial outcomes (Kueng, 2000), and many managers do not exploit their full potential (Gunasekaran, Williams, & McGaughey, 2005). Given the significant investment of time, financial capital, and human resources involved in implementing an EIS, as well as the organization-wide adaptation required to incorporate it into the organizational culture and routines, EIS returns should go much further than simply providing financial statements. An effective EIS should result in compre- hensive strategic decision-making that enhances indi – vidual and group performance and monitoring tools (Yoo, Goo, & Rao, 2020). Consequently, the effectiveness of an EIS needs to be accounted for in terms of the system’s contribution to the improvement of operational performance and the organization’s strategic outcomes. By virtue of this, the following hypotheses are proposed:

• H5: Operational strategy positively relates to IS effectiveness.

• H6: System effectiveness positively relates to operational effectiveness.

• H7: IS effectiveness positively relates to firm performance.

2.3 Strategic alignment

Since the early 1990s, much of the scholarly literature on strategy has debated “what strategy is”, resulting in multiple and sometimes conflicting views (Cummings & Daellenbach, 2009). Whereas some authors describe

strategy as a higher-order, broad definition of the firm’s long-term horizon, others conceive it as a more detailed specification of the means to progress towards such a horizon (Martin, 2014; Melre da Silva & Souza Neto, 2014; Peppard et al., 2014). Some of the literature on strategy contends that the former, the broader construct, is a real strategy, and the latter operative process is rather strategic planning.

We subscribe to an integrative view of strategy as a management system that does not exclude, per se, either of these approaches. A strategy is indeed a systemic approach to connect managerial decisions to the business context (Carter, Clegg, & Kornberger, 2008; Gunasekaran et al., 2005; Mintzberg, 2007), set long-term objectives, develop organizational capabilities (Chandler, 1962), and generally guide changes aimed at ensuring the firm’s growth and continuity (Abib & Hoppen, 2015). As such, a strategy is key to fostering technology development, organizational change, innovation, and performance (Cicchetti, 2003; Cummings & Daellenbach, 2009; Geisler, Krabbendam, & Schuring, 2003).

Within this strategic system, we distinguish between corporate strategy (CS), operational strategy (OS), and IS strategy (ISS). We are particularly interested in the roles these types of strategy play in improving firm performance through the implementation and management of technological innovations. More specifically, we set out to explore how the alignment of corporate, operational, and IS strategies impact firm performance (FP).

A corporate strategy sets the direction that the organization will follow (Wheelen & Hunger, 2007; Narayanan, Zane, & Kemmerer, 2011; Saloner, 1991; Thompson, Gamble, Peteraf, & Strickland III, 2015), setting long-term strategic objectives and allocating corporate resources to achieve such objectives (Antosz & Merchán, 2016). Likewise, an operational strategy establishes the firm’s desired strategic position relative to its market and competitors (Balau, 2015), defines strategic goals to generate competitive advantage through cost leadership or differentiation (Porter, 1980), and implements actions to attain these goals (Mintzberg, Lampel, Quinn, & Ghoshal, 2003). Consequently, the following hypotheses are presented:

• H8: Corporate strategy positively relates to firm performance.

• H9: Operational strategy positively relates to firm performance.

Operational strategy involves a combination of decisions and actions (Barnes, 2002) based on competitive priorities (Scur & Heinz, 2016) and aimed at creating an effective and efficient organizational system capable of implementing corporate strategy (Maia, Cerra, & Alves Filho, 2005; Vörös, 2010). When intentionally aligned with corporate and operational strategies, an IS strategy can be a source of competitive advantage (Delery & Doty, 1996; Tallon & Pinsonneault, 2011). Strategic IS is the ability to identify

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and evaluate the implications of IT-based opportunities as an integral part of corporate and operations strategy formulation and define the role of IS/IT in the organization (Peppard & Ward, 2004). In addition, it is necessary for the success of communication, culture, and performance, as they are part of strategic alignment (Smeureanu & Diab, 2019). Consequently, the following hypotheses are formulated:

• H10: Corporate strategy positively relates to operational strategy.

• H11: Corporate, operational, and IS strategies determine firm performance.

• H12: Corporate strategy positively relates to IS strategy. • H13: IS strategy positively relates to operational

effectiveness.

The three-prong alignment between corporate, operations, and IS strategies has been referred to in previous research as the “strategic triangle”. In the absence of an effective strategic triangle, the true value of an EIS implementation may not be secured or even realized (Henderson & Venkatraman, 1993). Lack of alignment between IS investments such as EIS, process automation, and other technology investments adversely affects the adoption and construction of IT infrastructure (Byrd, Lewis, & Bryan, 2006; Newkirk & Lederer, 2006), generates unnecessary expenses (Belalcázar Villamar & Díaz, 2016), and limits the firm’s capacity to focus and emphasize its key strategic priorities (Dubelaar et al., 2005). No single EIS application can deliver a sustained competitive advantage; rather, an advantage is obtained through the capacity of an organization to exploit an EIS functionality continuously.

Strategic alignment is a dynamic process of continuous adaptation and change (Henderson & Venkatraman, 1993; Pearlson, Saunders, & Galletta, 2019). Coherent alignment of two or more organizational dimensions requires that strategies must be synchronized to maintain the stated alignment in an ever-changing environment (Sabherwal, Hirschheim, & Goles, 2001). Organizations that manage such synchronous alignment between their corporate, operations, and IS strategies develop a dynamic, IS-driven innovation capability that can generate compe- titive advantage (Neiroti et al., 2006; Smeureanu & Diab, 2019). Thus, the following hypotheses are formulated:

• H14: Operational and IS strategies determine IS effectiveness.

• H15: Corporate, operational, and IS strategies are positively related.

The absence or deficiency in IS strategy could explain the pervasive gap between strategy formulation and strategy implementation, a notorious pitfall in many strategic management processes (Cicchetti, 2003). An IS strategy alignment ensures that IS development plans are integrated with organizational and functional strategic plans (Peppard & Ward, 2004). Similarly, IS strategy plans

deploy, use, and manage a firm’s IS capabilities (Chen, Mocker, Preston, & Teubner, 2010). Based on this, the following hypothesis is formulated:

• H16: IS strategy positively relates to IS effectiveness.

Based on the previous discussion, it is hypothesized that the strategic alignment constructs between corporate strategy (CS), operational strategy (OS) and IS strategy (ISS); and between operational effectiveness (OE) and IS effectiveness (ISE), will have a positive impact on the performance of the company (FP) (Figure 1).

Figure 1. Conceptual model Source: own elaboration.

3. Methodology

We used a multiphase approach to assess the pro – posed relationships. First, we conducted unstructured interviews to build an initial basis of inquiry to identify preliminary issues and variables that needed detailed investigation. Second, we conducted a more detailed analysis using semi-structured interviews. Third, we analyzed companies’ reports related to the firms’ IS strategies, implementation, and post-implementation. We then used this interview–documentary triangulation, together with a literature review, to develop a survey instrument to collect quantitative data through a self- administered questionnaire.

The literature on qualitative research has stressed the importance of triangulation to analyze the subject under study from multiple perspectives and thus increase the

Corporate strategy

(CS)

IS strategy (ISS)

Operational strategy

(OS)

Operational effectiveness

(OE)

Firm performance

(FP)

IS effectiveness (ISE)

H12

H1

H9

H16H2

H8

H6

H5

H3

H10

H13

H7

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validity of the constructs and results (Breitmayer, Ayres, & Knafl, 1993; Denzin & Lincoln, 1994; Hussein, 2015; Jick, 1979; Pettigrew, 1990; Stake, 1995). Triangulation implies looking at the same phenomenon from different angles, through the use of different data collection strategies and

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