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Agility is one of the key strategies that organisations deploy to cope with highly volatile external and internal changes (Dove, 1999; Dove, 2001; Haeckel, 1999; Kassim et al., 2004; Kidd, 1995; Mathiassen et al., 2006; Sambamurthy et al., 2003; Sharifi et al., 1999; Sharifi et al., 2001). Agility refers to a firm’s ability to respond to unpredictable changes in its environment and, even more importantly, to take advantage of these changes (Dove, 1999; Dove, 2001; Kassim et al., 2004; Kidd, 1995; Sharifi et al., 1999). An agile firm is better positioned to sustain a competitive advantage during times of uncertainty and turbulence in the business environment (Mathiassen et al., 2006; Sharifi et al., 2001).
Recently, the enabling role of information technology (IT) in shaping organisational agility has been gaining popularity (Lee, Sambamurthy, Lim & Wei, 2008; Mathiassen et al., 2006; Tallon, 2008). Overby et al. (2006) propose that IT enables both the sensory and response components of agility by enhancing the reach and richness of a firm’s knowledge base and processes. This is similar to the concept of digital options (Sambamurthy et al., 2003) that describes the flexibility that firms may have to either apply IT-related capabilities to emerging opportunities or remain on the side-lines, depending on the environment and the firm’s strategy (Fichman, 2004). Using survey data from 241 firms, Tallon (2008) finds that technical IT capabilities and managerial capabilities affect a firm’s agility. Furthermore, in a dynamic setting, managerial capabilities are more important than IT capabilities, whereas in a stable setting, IT capabilities are more important. Lee et al. (2008) submit that IT explorative capabilities (ITERC) and IT exploitative capabilities (ITEIC) have a positive effect on both entrepreneurial agility and adaptive agility.
Although the existing research represents great progress in the enhancement of our understanding of IT-enabled agility, there is still more to explore. First, in the theory area, the resource-based view and dynamic capability perspective are the predominant basis for the current literature (Bharadwaj, 2000; Bradley & Nolan, 1998; Weill & Broadbent, 1998; Sambamurthy et al., 2003; Karimi et al., 2007). Both rely on the heterogeneity of firms in their resources and capabilities to explain the sources of competitive advantages. Despite their popularities, an understanding of the source of heterogeneity in resources and capabilities is largely absent (Helfat & Peteraf, 2003). In this research, we introduce a three-stage process of capability evolution based on the concept of the capability lifecycle (CLC) (Helfat & Peteraf, 2003). Specifically, firms first select the appropriate IT resources, then work on turning them into IT capabilities and finally create IT-enabled dynamic capabilities. This framework helps explain the source of heterogeneity due to the differentiation in a firm’s choice of a course of actions in each of the stages.