The Effect of Information Technology--Enabled Flexibility on Formation and Market Value of Alliances

  • Authors:

  • Ali Tafti;Sunil Mithas;M. S. Krishnan

  • Affiliations:

  • College of Business, University of Illinois at Urbana--Champaign, Champaign, Illinois 61820;Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742;Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109

  • Venue:
  • Management Science
  • Year:
  • 2013

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Abstract

This study investigates the effect of information technology IT architecture flexibility on strategic alliance formation and firm value. We first examine the effect of three dimensions of IT architecture flexibility open communication standards, cross-functional transparency, and modularity on formation of three types of alliances arm's-length, collaborative, and joint-venture alliances, respectively. Then, we examine how capabilities in IT flexibility can enhance the value derived from alliances. Our sample includes data from 169 firms that are publicly listed in the United States and that span multiple industries. We find 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. We also find that IT architecture flexibility enhances the value of arm's-length, collaborative, and joint-venture alliances. The contribution of IT flexibility to value is greater in the case of collaborative alliances than in arm's-length alliances. Taken together, these findings suggest that appropriate investments in IT can help to facilitate reconfiguration of resources and modification of processes in collaboration-intensive alliances. This paper was accepted by Ramayya Krishnan, information systems.