IT Application Maturity, Management Institutional Capability and Process Management Capability

IT Application Maturity, Management Institutional Capability and Process Management Capability

Jianping Peng (Sun Yat-sen Business School, Sun Yat-sen University, Guangzhou, China), Jing Quan (Salisbury University, Salisbury, USA) and Le Peng (Krannert School of Management, Purdue University, West Lafayette, USA)
Copyright: © 2019 |Pages: 25
DOI: 10.4018/JOEUC.2019010104

Abstract

This article studies the influence of enterprise core competence on IT application maturity (ITAM) from the perspectives of management institutional and process management capabilities. The roles of firm ownership and international organization of standard (ISO) certifications are also studied. Based on reliable and valid measurements of IT applications maturity, management institutional capability, and process management capability, the authors collect corresponding data from 123 companies in China. They find a positive relationship between capabilities and ITAM. Management institutional capability has a stronger relationship with ITAM in Chinese state-owned enterprises or public companies; while multinational companies or joint ventures witness a stronger relationship with process management capability. ISO helps companies with low management institutional capability to improve ITAM. However, for companies with higher management institutional capability, ISO mitigates the relationship and poses a shift of the importance to process management capability in improving ITAM.
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1. Introduction

The extensive application of information technology (IT) has dramatically changed traditional business modes of production, service, and operations management. With continuous growth of IT investments, lots of organizations have experienced improved performance from efficient utilization of IT applications. However, it is also observed that, some organizations could not fully utilize IT applications, or even had failed IT projects, resulting in a low return of IT investment. For example, in the past 20 years, the companies in China have extensively adopted IT applications to facilitate business operations. A huge amount of investments has been spent in advanced hardware and software technologies by many state-owned enterprises. However, comparing to multinational companies, the utilization of IT applications is less efficient, the response to market is slower, and the cost of management is higher. In this study, we intend to reveal the mechanisms of how management capabilities influence the utilization of IT application, and consequently, provide guidelines for businesses to achieve higher return on investment and maintain competitive advantages.

The concept of IT application maturity (ITAM) stems from that of software capability maturity model (CMM) (Humphrey, 1988). In fact, IT application can often be viewed as a process of utilization of information technology, and thus ITAM can be defined as the maturity level of such process. According to Xiao and Xie (2007), ITAM can be categorized into five levels, which are, from low to high, basic level, partial integration level, complete integration level, enhanced coordination level, and strategy driving level. An appropriate level of ITAM based on enterprise’ resources and management capabilities can enable business to utilize IT applications efficiently, reduce production cost, streamlining operation processes, and eventually yield a high return on investment. Different organizations, even within the same industry, might have different levels of IT application maturity. It is thus critical for business to identify the main management capabilities influencing the level of IT application maturity.

The essence of enterprise competence theory includes the explanation of how to gain, maintain, and enhance enterprise competitive advantages. From enterprise’s capability perspective, Yu (2004) concludes from 161 related papers that there are eight types of enterprise core capabilities. Among them, there are two types of capabilities gaining a wide range of research and industry attention as the critical factors. They are management institutional capability and process management capability. First, management institutional capability has been widely studied under institutional theory which plays a very important role in economics research and consequently, in business strategy and management research. Second, based on Porter’s value chain model, business process is an important source of generating values for enterprises. Information technology serves as a tool to facilitate business process, and it can create more value for enterprises by streamlining and optimizing business processes. Therefore, the two capabilities – management institutional capability and process management capability – are the core capabilities for enterprises, and they should directly influence enterprise’ choices of IT application maturity.

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