Digital Strategy and Discretionary Expenditures: Novel Insights From a Configurational Approach

Abstract

How do IT investment and IT alignment with respect to overall strategy and a functional strategy influence firm profitability? This study investigates the joint effects of IT investment and strategic IT alignment on firm profitability by using a configurational perspective and fuzzy-set qualitative comparative analysis (fsQCA) method that allow us to account for complex and hitherto unexplored interactions among multiple alignment types and investments in IT, R&D, and advertisement. To draw insights on these complex interactions, we use a rare archival and survey data from firms and business units belonging to a leading conglomerate in India. Our fsQCA results reveal multiple equifinal configurations to achieve high firm performance, and asymmetrical causal structure between high-performing and low-performing configurations. Thus, we show that the effects of IT investment and strategic IT alignment with respect to overall business strategy and functional quality strategy are much more complicated than previously thought. This study contributes to theory and practice by providing a few viable configurational solutions that explain multiple causal recipes to configure IT investments with other types of investments for different types of alignments to produce high firm profitability for large and small firms . We discuss implications for research and practice.