Competitive advantage from mandatory investments: An empirical study of Australian firms

Abstract

Mandatory information system (IS) investments occur when government regulations require firms to alter their IS. These investments are additional expenditures added onto the initial expenditures of non-mandatory IS investments. Managers are concerned about associated costs and in an attempt to reduce the expenditures, most firms refrain from formal planning methods when mandatory investments are imposed upon them. Drawing on Henderson’s and Sifonis’ (1988) IS Planning and Investment Model as our theoretical lens, this paper argues that firms should re-consider this practice. It is hypothesised that formal planning methods are beneficial because they enable firms to combine mandatory and non-mandatory investments in such a way that competitive advantage can be achieved. We use a secondary dataset provided by the Australian government to test the hypotheses. Results show that only two out of three investigated formal planning methods are positively associated with competitive advantage. We conclude that in the special case of mandatory investments, formal methods are only beneficial if they incorporate information from the entire firm, rather than information from particular departments only.