How Information Management Capability Influences Firm Performance

Abstract

How do information technology capabilities contribute to firm performance? This study develops a conceptual model linking IT-enabled information management capability with three important organizational capabilities (customer management capability, process management capability, and performance management capability). We argue that these three capabilities mediate the relationship between information management capability and firm performance. We use a rare archival data set from a conglomerate business group that had adopted a model of performance excellence for organizational transformation based on the Baldrige criteria. This data set contains actual scores from high quality assessments of firms and intraorganizational units of the conglomerate, and hence provides unobtrusive measures of the key constructs to validate our conceptual model. We find that information management capability plays an important role in developing other firm capabilities for customer management, process management, and performance management. In turn, these capabilities favorably influence customer, financial, human resources, and organizational effectiveness measures of firm performance. Among key managerial implications, senior leaders must focus on creating necessary conditions for developing IT infrastructure and information management capability because they play a foundational role in building other capabilities for improved firm performance. The Baldrige model also needs some changes to more explicitly acknowledge the role and importance of information management capability so that senior leaders know where to begin in their journey toward business excellence.