Week 6_Banker et al. (2011)_Jung Kwan Kim

Banker, Hu, Pavlou, and Luftman (2011) examine the CIO reporting structure and its impact on performance contingent on the alignment with strategic positioning. The prior studies in the information system literature have not identified the ideal CIO reporting structure. The authors argue that the ideal reporting structure should not be blindly established simply based on the strategic role of IT in a firm; the fit between a firm’s strategic positioning and its CIO reporting structure should be considered to secure higher performance, the authors contend.

To support the main argument, Banker, Hu, Pavlou, and Luftman (2011) posit the following hypotheses:

1. H1: Differentiators are more likely to have their CIO report to the CEO.
2. H2: Cost leaders are more likely to have their CIO report to the CFO.

Those hypotheses are theoretically and empirically well supported in that a direct access to a CEO may be helpful to convince the needs of risky IT initiatives to create differentiated customer value while a reporting to CFO may better promote the operational efficiency by lowering costs.

Now, the discussion of H1 and H2 naturally leads to the argument on the match between the strategic positioning and the reporting structure.

1. H3: Alignment between strategic positioning (differentiation and cost leadership) and CIO reporting structure (CEO and CFO) is associated with a higher firm performance.

The long standing resource based view (RBV) buttresses the hypothesis in that complementary resources of a firm can be combined to produce higher performance.

In conclusion, the CIO reporting structure largely depends on the firm’s strategic positioning. Indeed, the reporting structure does influence significantly on the firm’s performance. However, the effect of the reporting structure can be materialized only conditional on the fit with the strategic positioning.