e-Business strategy and firm performance: a latent class assessment of the drivers and impediments to success

Among many leading organizations, in all sectors of industry, commerce and government, there is considerable evidence of e-business being deployed to achieve strategic goals. Where this deployment has been most successful, there is a strong case that the organization has taken an integrated approach that both builds on the organization’s strengths and pays careful attention to the process of change within the organization. However, in the literature most empirical work has either studied e-business strategy and performance from the perspective of strategy content – which highlights positioning and/or unique bundles of resources – or from the perspective of strategy process – which captures human influence and e-business implementation.

Despite the dot.com collapse, there remains a strong belief that e-business – with its resurgent potential for creating new transactional opportunities between firms, suppliers, complementary product/service providers and customers – will ultimately contribute significantly to the future performance of many established firms. A number of impressive examples come to mind: Tesco in the UK, Otto Versand in Germany, and Dell Computers and Cisco Systems in the US.

The complex nature of e-business also has implications for how we might develop empirically testable models that identify the underlying drivers of performance. For example, Hatten et al. (1978) have demonstrated that indiscriminant data pooling of firms and industries can mask the very essence of strategy and the key contributors that make a difference to performance. The implication of this insight is that studies based on aggregated data and looking for singular models that explain performance must be viewed cautiously, both for theoretical and statistical reasons. What is needed is a more sophisticated approach that moves beyond data pooling and aggregation techniques, towards approaches that enable us to capture the heterogeneity that actually exists in modern business. This paper utilizes such an approach based on latent class modeling.

Most organizations, in all sectors of industry, commerce and government, are fundamentally dependent upon information systems (IS). Consequently, organizations have assumed that advances in IT infrastructure and e-business systems will not only provide economic returns, but are an important element of business definition and competitive strategy (Johnston and Carrico, 1988; Bharadwaj, 2000; Santhanam and Hartono, 2003). However, two decades of IT performance research has shown that the link between IT investment and improved organizational performance is still elusive.

Additionally, there is some evidence to suggest that the fragmented and inconsistent observations reported in the literature can be attributed to two problems that reflect the focus of this research. The first is that simple prescriptions are of limited value because they fail to capture the reality that e-business performance depends upon the confluence of strategic and tactical contingency factors. This requires scholars to consider managerially relevant models of the firm that cut across traditional boundaries to bridge the divide between what e-business strategy should be developed – that is, strategy content – and the challenges regarding how e-business strategy is implemented – that is, strategy process. The second is that we require empirically testable frameworks and techniques that accurately reflect the considerable heterogeneity in modern business. Whether as a direct, mediator or moderator, there are many complementary organizational resources such as workplace practices, skills and structures that interact with IT in the attainment of organizational performance.