THE IMPACT OF INVESTMENT IN TECHNOLOGY AND HUMAN CAPITAL ON THE FIRM's FINANCIAL PERFORMANCE: AN EMPIRICAL STUDY.

• Author: Okere, Harold C.
• Position: Abstract

INTRODUCTION

In the past twenty years, technology has been the principal driver of globalization. Subsequently, the advances in information technology (IT) has drastically transformed globalization: The process of interaction and integration among people, companies, and governments of different nations. IT has allowed individual economic actors--consumers, investors, businesses--valuable new tools for identifying and pursuing economic opportunities, including faster and more informed analyses of economic trends around the world. As globalization integrates all regions of the planet information technology becomes more and more ubiquitous. Competitiveness of firms becomes dependent on information systems management/ human capital management (ISM, HCM). The necessity to put the enterprise into the enterprise system becomes paramount (Davenport, 1998). Hence, the acquisition of IT does not necessarily solve the technical challenges facing the enterprise systems also commonly referred to as enterprise resource planning (ERP). One of the business problems is the firm's failure to reconcile the technological imperatives of the enterprise system with the business needs of the firm itself (Davenport, 1998).

Recent interest in the field of technology has been to delineate the impact of IT and ISM on competitive advantage of firms. According to Porter (1985), competitive advantage stems from the discrete activities that a firm has, such as designing, producing, marketing, delivering, and supporting its product. Furthermore, these activities can contribute to the firm's relative cost position and also create a basis for differentiation. Competitive advantage leads to two basic types of competitiveness: Cost advantage which stems from leadership--where a firm gains cost advantage; and differentiation--where a firm differentiates itself from a segment of the market. By having the lowest costs associated with providing the products or services, the business is placed in the unique position of being able to best serve its customers (p. 3). Further analysis of IT also indicates that achieving cost advantage and differentiation does not come from just the acquisition of technology (Chesbrough, 2007).

This study investigates the impact of investment in technology and information systems management/human capital management (ISM, HCM) on a firm's competitive advantage by 1) analyzing the field of information technology and information systems management, 2) analyzing background information on current relevant theories and areas of debate related to technologies that impact competitive advantage; and 3) future directions of the field of IT and ISM/HCM in contributing to competitive advantage and priorities. The impact of ISM/HCM on a firm's competitive advantage, performance, and sustainability will be based on a firm's investment in human capital (Baporikar, 2014; Bustinza et al., 2015).

Firms around the globe especially in developing nations (such as Nigeria) are faced with a multitude of information systems management challenges: Innovation, flexibility, and integrating global business strategy with IT strategy. The rationale for integration is rooted in the contingency-based concept of fit, suggesting that a global strategy has to be appropriately aligned in order to gain and sustain competitive advantage (Ramarapu & Lado, 1995).

This study establishes a plan to align change management strategy with business results. In between these two extremes of 'change management strategy' and 'business results' are change management activities and change management outcomes. The evaluation and analysis of the alignment plan will indicate whether information technology and systems management fit into an organization's competitive advantage strategy. Lastly, the implications of IT and ISM on technology management toward achieving global change is evaluated through change management theories such as ADKAR Model (Prosci ADKAR Model, n.d).

Definitions

Investment in Technology in this study is referred to as acquisition of technologies that enable production and delivery of value to customers and shareholders. Investment in Systems Management/Human capital are used here interchangeably. It consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel (Porter, 1985, p.42). Competitive Advantage stems from many discrete proprietary activities a firm performs in designing, producing, marketing, delivering, and supporting its production. In other words, it is something that a company does better than its competitors (Porter, 1985, p.33). Financial Performance in this study is measured by firm's profitability, specifically its net income.

The objective of this study is to investigate the impact of the alignment of investment in technology and information systems management (human capital) on firm's strategies in achieving competitive advantage. To achieve this objective, the rest of this paper proceeds as follows: Literature review section will include previous and current studies relevant to this study and conducted in three phases. 1) How information technology and information systems management fit into an organization's competitive advantage strategy. 2) The theoretical constructs or framework available to practitioners of IT for competitive advantage. 3) The implications of information technology and information systems management in contemporary IT management toward achieving global change.

LITERATURE REVIEW

This literature review forms the basis for analysis of this study and is conducted in the three phases: 1) How information technology and information systems management fit into an organization's competitive advantage strategy, 2) The theoretical constructs or framework available to practitioners of information systems management for competitive advantage, and 3) The implications of information technology and information systems management in contemporary IT management toward achieving global change.

Investment in Technology and Systems Management fit into Organization's Strategy

The analysis of the state of the field of IT for competitive advantage and priorities show that IT has fueled the activities involved in delivering value to customers. The servitization strategies must be tailored to the specific context of the value chain in which firms operate. In this context, competitive advantage can arise from knowing the particular customer requirements arising from the regulatory regime and customizing solutions to help customers address those challenges (Bustinza et al, 2015). Competitive advantage of firms must embrace competitive priorities.

According to Jitpaiboon (2014), the concept of competitive priorities is very important to organizations because it helps set up goals when implementing corporate plans into operational plans. There are five groups of competitive priorities namely cost, quality, time, flexibility and innovation. The value chain has to incorporate service strategy outcome such as competitive differentiation and customer satisfaction, and critical factors in service strategy outcome (organizational structures, and value chain positioning) (Bustinza, Bigdeli, Baines, & Elliot, 2015, p. 55). This argument is in line with Byrd, Lewis, and Bryan (2006) that IT strategy and business strategy have to be in strategical alignment in order to justify IT investment and business performance. The important current issues affecting IT for a competitive advantage includes information technology and information processing theory (IPT) (Busse, Meinlschmidt, & Foesrstl, 2017). IPT, which encompasses the wider study of the interrelationships between information, people and knowledge, information systems management (ISM), disruptive innovation, alignment between IT infrastructure and processes, organizational infrastructure and processes, and IT strategy and business strategy (Luftman, & Brier, 1999). Lastly, the firm's maximization of the chances for precedent-breaking management innovation is a problem that is consequential and inspiring, essential and laudable (Hamel, 2007).

Management literature defined flexibility, one of the five groups of competitive priorities, as the degree to which an organization possesses a variety of actual and potential procedures, and the rapidity by which it can implement the procedures to increase the control capability of the management and improve the controllability of the organization over its environment (Volberda, 1996). The flexibility of IT for competitive advantage requires the evaluation of its infrastructure, in order to recognize, manage, and sustain a competitive advantage (Luftman, & Brier, 1999, p. 115). IT infrastructure supports business competitive advantage by investigating the nexus between IT capabilities, IT resources, IT competitive advantage, and Financial performance of an organization. According to Jitpaiboon (2014), the flexibility of information technology when properly utilized, renders buying and supplying more cost effective, more efficient, more agile, more responsive to market changes, and more innovative. Consequently, IT is changing the way organizations operate.

Ciutiene and Thattakath (2014), stated that dynamic capabilities as a business strategy enables an organization to develop new capabilities better fitted to the changing environment, hence furthering competitive advantage. Most of the literature on information technological innovation points to established companies as victims of disruptive innovation. Most influential streams in the strategy literature today have developed the idea of dynamic capabilities which enables established companies to thrive.

Dynamic capabilities...