Week4_Tafti et al. 2013_Aaron

Extant IS studies have focused on the effects of IT in reducing transaction and coordination costs in inter-organization relationships, there has been little understanding regarding the role of flexible IT architecture as an enabler of interfirm collaboration.

Ali Tafti et al. (2013) fill this academic vacuum by investigating the effects of information technology architecture flexibility on strategic alliance formation and firm value. Specifically, they first examine the effect of three dimensions of IT architecture flexibility (open communication standard, cross-functional transparency, and modularity) on formation of three types of alliances (arm’s-length, collaborative, and joint-venture alliances, respectively.) Second, they study how capability in IT flexibility moderate the value derived from alliances.

To establish the relationship between IT architecture flexibility, strategic alliances and firm value, they utilize a data set from 169 firms that are publicly listed in the US and that span multiple industries. Through panel random-effects models along with several techniques to address potential effects of endogeneity and simultaneity, they found that adoption of open communication standards is associated with the formation of arm’s-length alliances, and modularity of IT architecture is associated with the formation of joint ventures. They also found that the value of alliances is enhanced by overall IT architecture flexibility, implying that all three dimensions of flexibility are important in the value derived from arm’s-length, collaborative and joint-venture alliances.

This study suggests a need for greater consideration of the role of flexibility in IT-driven business process to understand the underpinnings of IT business value in inter-organizational context.