The effects of IT capabilities on firm performance – evidence from the healthcare industry

The Productivity Paradox initiated a heated debate in the IS scientific community in the early 1980s. Many theories followed to address the paradox. Resource-Based Theory (RBT), drawn from the strategy field, provided the foundations for a stream of scientific papers that elucidated the contributions of IT to firms’ performance. However, the primary focus of RBT in explaining the relationship between IT and firm performance was found to be static. Therefore, RBT was unable to provide convincing arguments to explain the IT-firm performance linkage in turbulent environments. The Dynamic Capabilities (DC) perspective extended RBT. Scholars in the DC tradition stated that continuously refreshing its bundle of resources, any firm could produce synergetic effects. These synergetic effects enabled the firm to create and sustain competitive advantage. Another element highlighted by the DC perspective is the need to account for the web of intermediate processes where the first order effects of IT are created. Despite extensive Information Systems (IS) literature drawing on the RBT and DC frameworks to explain the business value of IT, there are still gaps to be addressed. Most of the IS literature does not account for the aggregated effect of IT at the business process level. Rather, most research has examined the direct effects of IT. Much of the IS research has also limited the definition of firm performance to consider only a firm's financial performance. Hence, the aggregated effect of IT at the organisational level is not well understood. This research seeks to address these knowledge gaps. This research is based on the argument that examining the direct and indirect effects of IT, and thereby accounting for the collective effects of IT at both the process level and the organisational level, informs a deeper understanding of the contribution of IT to a firm’s performance. In considering this argument, this research draws heavily on prior work about RBT, DC and the process-oriented approach. The key research questions addressed in this research project are: (1) Do capabilities of IT influence organisational performance? (2) Do capabilities of IT affect performance at the business process level? and (3) Does performance at the business process level affect organisational performance?.