Information Technology and Firm Innovations - SSRN papers

International Journal of Innovation in the Digital Economy, 2(4), 45-63, October-December 2011 45

Information Technology and Firm Innovations:

A Review and Extension Explicating the Role of Networks, Capabilities, and Commercialization of Innovation Avimanyu Datta, Illinois State University, USA

Abstract This paper provides a framework comprising of research agenda explicating the relations between IT Capability and Firm Innovation. Firm innovation is conceptualized as a combination of three constructs: networks, capabilities (absorptive capacity), and commercialization of innovations (CI). These three constructs have received a very lukewarm response from the IS research community. Inclusion of these three constructs, and examining how IT- capability affects the relationships between these constructs, is essential to examining the role of IT in innovation at the firm-level. Five research agendas are identified. Keywords:

Absorptive Capacity, Capabilities, Firm Innovation, Information Technology, Networks

INTRODUCTION In order to extract strategic value from IT firms have to apply IT capabilities to harness and exploit their knowledge capabilities to continually innovate their business products, services, and processes. The current information systems literature shows mixed results in establishing a relationship between IT investment on firm performance, which has been attributed to factors such as sample size, data sources, and industry type (Devaraj & Kohli, 2003; Kohli & Devaraj, 2003). However, we argue that central problem is that the relationship has not been conceptualDOI: 10.4018/jide.2011100104

ized through the lens of three aspects of firm innovations: networks, knowledge capabilities and commercialization of innovations. Although the existing IS literature that has modeled the relationship between IT capabilities and firms performance has acknowledged the role of knowledge capabilities and innovation (Bharadwaj, 2000; Mata et al., 1995; Ray et al., 2005; Wade & Hulland, 2004; Bhatt & Grover, 2005), its treatment for the most part is implicit and indirect. We extend existing literature by explicating the role of networks, knowledge capabilities and commercialization of innovations in evaluating the relationship between IT capability (ITC) and firm innovation. The paper does three things: (a) establish gaps in the cur-

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46 International Journal of Innovation in the Digital Economy, 2(4), 45-63, October-December 2011

rent literature IT capabilities, firm performance and innovation (2) posit relationships among constructs of firm innovations: networks and absorptive capacity, and commercialization of Innovations, and (c) positing research agenda on the impact of IT capability on the strengths on relationships between the innovation variables. The rest of the paper proceeds as follows. First, the research methodology for the paper is discussed. Second, we discuss the four key observations that were revealed during the literature review process. Third, we present the framework: comprising of a definition, discussions, and relationships among the constructs: networks, knowledge capabilities and commercialization of innovation and the corresponding propositions. While the relationships between constructs are proposed, we also recommend the research agenda on IT capability can be studies in light of those posited relationships. The paper concludes with a discussion, implications and future directions.

search resulted in 91 articles. We reviewed all 91 papers to examine the role of ITC on firm innovation. Our total search revealed a total of 49 relevant articles. 3. An analysis scheme outlining the documentation and review of included various studies: We reviewed the articles to uncover the characterization of ITC, knowledge networks, knowledge capabilities, and innovation. Each article was reviewed to determine whether or not a study explicated the role ITC in enabling organizational knowledge networks and capabilities to create firm innovation. A summary of this review is presented in Table 1 and used to make observations about the perceived gaps in IT capability literature to address the role of IT in firm innovation. Second, each study was evaluated and used as a foundation for developing the research framework posited in this study.

LITERATURE REVIEW

Employing the resource Based View (RBV) concept, the IS researchers argued that IT capability is a resource that a firm can use to create value. The review of the literature highlights and supports the argument that IT acts as an enabler of knowledge resources that can create strategic value for a firm. Such knowledge resources are IT-enabled intangibles, Human IT resources (Bharadwaj, 2000; Melville et al., 2004; Santhanam & Hartono, 2003), IS Managerial skills (Mata et al., 1995; Wade & Hulland, 2004), shared knowledge (Ray et al., 2005), IT relationship Management process (Tanriverdi, 2005), Cross Unit capability, IS Business partnerships (Tanriverdi, 2006), IS planning and change (Wade & Hulland, 2004). In contrast proponents of the knowledgebased view argue that the resource-based perspective does not go far enough (Tanriverdi, 2005, 2006). The models developed using RBV treats knowledge as a generic resource, rather than having distinct characteristics. However, most IS studies using the knowledge based view have treated knowledge as an instantiation of

The literature review process followed three steps (1) the development of criteria for the types of studies, (2) a literature search strategy, and (3) an analysis scheme outlining the documentation and coding of various studies (Leidner & Kayworth, 2006). 1. Criteria for the types of studies: We searched for conceptual and/or empirical papers that looked at the impact of IT capability on firm innovation. 2. A literature search strategy: The EBSCOhost, ABI Informs, JStor Databases were used to search articles. We searched articles using the key word IT capability and then narrowed the search using several combinations of key phrases such as knowledge management, knowledge activities, knowledge capability, and innovation. The articles that focused on the association between IT capability, knowledge assets, and/or firm innovation were included. Our

ITC as a Firm Resource


Electronic copy available at: http://ssrn.com/abstract=1949948


Table 1. Literature review on IT capability and innovations Citation

IT Capability

Author, year

Outlet

(Alavi and Leidner, 2001)

MISQ

(Bharadwaj et al., 1999)

Management Science

(Bharadwaj et al., 1999)

ICIS, 1999

X

Knowledge Networks

X

Knowledge Capability

Commercialization of Innovation

X

X

(Bharadwaj, 2000)

MISQ

X

(Clemons and Row, 1991)

MISQ

X

(Dehning and Stratopoulos, 2003)

JSIS

X

(Dehning et al., 2003)

MISQ

X

(Gold et al., 2001)

JMIS

X

(Gregor et al., 2006)

JSIS

X

(Holsapple and Wu, 2008)

41st Hawaii International Conference on System Sciences

X

(Johnston and Vitale, 1988)

MISQ

X

(Kane and Alavi, 2007)

Organization Science

X

(Kearns and Sabherwal, 2006)

JMIS

X

(Kwon and Watts, 2006)

JSIS

X

X

X

X

(Malhotra et al., 2005)

MISQ

X

X

X

X

(Mata et al., 1995)

MISQ

X

X

(Melville et al., 2004)

MISQ

X

(Pavlou et al., 2005)

JAIS

X

(Powell and Dent Micaleff, 1997)

SMJ

(Ravichandran and Lertwongsatien, 2005)

JMIS

X

X

X

X

X

X X

X

X

(Ray et al., 2005)

MISQ

X

X

X

(Sabherwal and Sabherwal, 2005)

Decision Sciences

X

X

X

(Sambamurthy et al., 2003)

MISQ

X continued on following page



Table 1. continued (Santhanam and Hartono, 2003)

MISQ

X

(Tanriverdi, 2005)

MISQ

X

(Tanriverdi, 2006)

MISQ

X

(Tarafdar and Gordon, 2007)

JSIS

X

(Wade and Hulland, 2004)

MISQ

X

(Di Benedetto et al., 2008)

IEEE Transactions on Engineering Management

X

(Duliba et al., 2001)


X

(Ja-Shen et al., 2009)

Journal of Service Research

X

(Parkinson, 1987)

Journal of general management

X

(Patrakosol and Lee, 2009)

Industrial Management & Data Systems

X

(Swanson and Ramiller, 2004)

MISQ

X

(Ebers and Lieb, 1989)

International Journal of Operations & Production Management

X

(Aral and Weill, 2007)


X

(Boynton and Victor, 1991)

California Management review

X

(Boynton et al., 1994)

MISQ

X

(Corso et al., 2003)

Small Business Economics

X

(Banerjee, 2003)

International Journal of Information Management

X

(Harter et al., 2000)

Management science

X

X

X

X

X

X

X

X

X

(Kocas, 2002)

JMIS

X

(Rothman and Kraft, 2006)

Journal of Commercial Biotechnology

X

(Macpherson et al., 2005)

International Journal of technology management

X

(Cegielski, 2004)

Communications of the ACM

X

(Hsiu-Fen, 2007)

International Journal of Manpower

X

X

X

(Huang et al., 2009)

Information research

X

X

X

X



resource. We argue that such a reductionist perspective of the knowledge based view of firm fails to recognize that a positive link between IT capabilities and innovation is an artifact of the outcomes achieved through knowledge networks and knowledge capabilities, and thus should be conceptualized as distinct from IT capabilities.

Sources of Knowledge Assets Knowledge Networks as Organizational Knowledge Structure: Organizations are differentiated and recognized by network characteristics of social relations within and between organizations (Gulati et al., 2000; Nohria, 1992; Nohria & Eccles, 1992) . We refer to these networks as knowledge networks. In this paper we argue that the network of knowledge structures are enabled and sustained by means of IT capabilities (Wheeler, 2002). The networks created within the organizational boundaries are referred to as internal networks and the ones built outside of the organizational boundaries are referred to as external networks. Knowledge Capability as an Organizational Competency: A firm’s innovativeness is driven by its knowledge capabilities (Hoegl & Schulze, 2005). A firm is able to extend its cognitive limits of information because of the collective knowledge capability of its human knowledge specialists (Grant, 1996). We expand on Grant’s argument by asserting that absorptive capacity is salient to knowledge capability. The innovation literature has widely conceptualized knowledge capabilities using the notion of absorptive capacity. Absorptive Capacity is defined as firm’s abilities to process knowledge resources to produce dynamic capabilities such as innovativeness (Zahra & George, 2002). In this paper we argue that ITC can play an important role in building a firm’s absorptive capacity.

FRAMEWORK Here we advance a model that how IT capabilities affect the pathway from knowledge networks to commercialization of innovation (Figure 1). The core of that in order to gain strategic value from IT capabilities, firms have to create, cultivate and nurture its knowledge capabilities to continually innovate their business practices through IT enabled knowledge networks. The model posits that knowledge networks help cultivate knowledge capabilities which are critical for a firm’s ability to commercialize innovation and ITC plays a moderating effect. The theoretical relationship is established in Figure 1 and the definitions of each of the constructs are shown in Table 2. The propositions arising from the discussions and the corresponding research questions towards future agenda is explained in Table 3

IT-Capability (ITC) IT capability encompass IT infrastructure, human IT skills, and IT-enabled intangibles (Bharadwaj, 2000). IT infrastructure provides hardware and software necessary for creating networks that enables firm innovation. The unique characteristics of ITC have enabled firms to implement the right applications at the right time and broadened avenues for technological innovation (Sambamurthy et al., 2003). ITC enables firms to (1) identify and develop key application rapidly, (2) share information across products, services, and locations (3) implement common transaction processing and supply chain management across business processes, and (4) exploit opportunities for synergy across business units. Moreover, ITC enables a firm to be able to innovate valuable new product features before competitors and achieve intangible benefits such as customer satisfaction (Bharadwaj, 2000).

Firm-Innovation Firm innovation is a process and is defined as the combined activities leading to new, market-



Figure 1. Framework and research agenda

able products and services and /or new product delivery systems (Burgelman et al., 2006). In this study, we consider three dimensions of firm innovations: Commercialization of innovations (CI) and Networks and Knowledge Capabilities. While networks are external and internal to the firm, capabilities mainly concern with absorptive capacity and CI is the ability of firm to convert the inputs from network to capabilities into products. In the next sections we will discuss the relationship between all the aspects of firm innovation and how research on IT-capability should focus on.

Commercialization of Innovations Commercialization of innovation has been defined as the act or activities required for introducing an innovation to market (Narayanan et al., 2000; Kelm et al., 1995; Nambisan & Sawhney, 2007; Andrew & Sirkin, 2003; Kwak, 2002; Nerkar & Shane, 2007). It has been opera-

tionalized as the first sale of the target product or service (Nerkar & Shane, 2007). Converting technical innovations to products and services entails the development of manufacturing and marketing capabilities, and assets such as manufacturing facilities and service and distribution networks (Ahuja, 2000; Mitchell, 1989; Teece, 1986; Teece et al., 1997). Our definition of commercialization of innovations has three aspects – (a) recognizes a market for an innovation (b) develops and manufacture it into a product and (c) sell/distribute the product through distribution channels. Of these, while the last two can be outsourced, the first one is of fundamental importance. Thus, the ability to commercialize innovations primarily lies in an organization’s ability to recognize current and emerging markets for technological innovations and secondarily on its ability to manufacture and sell the product either buy itself or by subcontracting.



Table 2. Construct definitions Construct Name

Definition

IT Capability

IT capability encompass IT infrastructure, human IT skills, and IT-enabled intangibles

Ability to Commercialize Innovations

The ability to commercialize innovations primarily lies in an organization’s ability to recognize current and emerging markets for current technological innovations and secondarily it depends on the firm’s ability to manufacture and sell the product either buy itself of by subcontracting.

Knowledge Networks

The collective of structures, collaboration, within and between organizations, and between organizations and innovation engines. From an external network standpoint this includes social networks, business clusters, partnerships, business ecosystems, and relationships with innovation engines. From the standpoint of intraorganizational or internal networks, it includes organizational structure, behavioral context, and top management teams. These networks themselves become a valuable resource, enabling organizational flexibility and leading to self-renewal.

Absorptive Capacity

The limit to the rate at which a firm can absorb scientific or technological information and/or a limit to the quantity of such information that can be absorbed

Table 3. Posited relations and research agendas Posited Propositions

Antecedent

Consequent

Research Agenda with IT-Capability

Centrality, multiplexity, and broker relationships of external networks, and supportive structural and leadership factors of internal networks positively affect a firm’s ability to commercialize innovations.

Networks

CI

1a: How does IT capability create and strengthen organizational and interorganizational networks? 1b: How does IT Capability affect the relationship between networks and CI?

Absorptive capacity is positively related to a firm’s internal and external networks—as the number of networks, and the quality of linkages (number, type, tightness) increase, so too does absorptive capacity

Networks

Absorptive Capacity

2a. How IT Capability affects the strength of the relationship between networks and absorptive capacity?

Higher absorptive capacity increases a firm’s ability to commercialize innovations.

Absorptive Capacity

CI

2b:How IT Capability affect the relationship between absorptive capacity and commercialization of innovations?

Knowledge Networks Organizations enter alliances with each other to access critical resources (Gulati & Gargiulo, 1999). While networks are formed to access and share resources (Dyer & Singh, 1998; Gnyawali et al., 2006; Gulati, 1998; Gulati & Kletter, 2005; Gulati et al., 2000; Klein et al., 2007b; Pfeffer & Salancik, 1978), these networks themselves become valuable resources

(Barney, 1991; Porter, 1980; Ray et al., 2005; Mata et al., 1995; Melville et al., 2004). Social, external and internal are considered as three different, types of networks focusing on different levels of analysis, using different theoretical constructs, and explain different outcomes of networks (Van Wijk, 2003). For the purpose of this paper we will only concentrate on external and internal networks, leaving out social networks. External network



research focuses on networks as a governance mode intermediating markets and hierarchies - e.g., joint-ventures and strategic alliances. It highlights the competitive dimension of networks and therefore, focuses in particular on performance issues (Dyer & Singh, 1998). Internal network literature investigates intraorganizational structure and processes and management roles required for knowledge creation and sharing, maintaining flexibility, and enabling self-renewal (Volberda & Lewin, 2003; Volberda, 1996). While there is a clear distinction between internal and external networks, their outcomes can be overlapping. For instance, internal networks enable organizational self renewal (Volberda & Lewin, 2003), but it is not clear whether the influence of other networks were isolated while studying self-renewal. The term interorganizational network is used interchangeably with external networks, strategic alliances, coalitions, and cooperative arrangements (Provan et al., 2007), and has been tied to resource dependence theory (Pfeffer & Salancik, 1978) transaction cost economics (Williamson, 1991), and interorganizational contracts (Ariño & Reuer, 2006). Despite these differences, all definitions of external networks refer to common themes including social interaction, relationships, connectedness, collaboration, collective action, trust, and cooperation (Provan et al., 2007). Specifying the importance of networks in a multilevel approach, it has been argued that an organization’s climate of innovation emerges from the shared perception of members of the organization on the degree to which organizational policies, resources, procedures and practices support and encourage innovation (Gupta et al., 2007). The characteristics of an organization’s network of social relations are relevant to a firm’s ability to commercialize innovations (Nohria, 1992; Nohria & Eccles, 1992). Synthesizing the above, we therefore define networks as the collective of structures, and collaboration, within and between organizations, and between organizations and innovation engines. From an external network standpoint

this includes networks between firms and with firms and innovation engines. From the standpoint of intraorganizational or internal networks, it includes organizational structure, top management teams, and behavioral context comprising performance management and social support. These networks themselves become a valuable resource, enabling organizational flexibility and leading to self-renewal.

Relationship Between Networks and CI To investigate the relation between networks and CI we will concentrate on two aspects: centrality and multiplexity. Centrality determines the relative importance of an entity or a node within a network. While some organizations will struggle to reach the central position on any network to maintain competitive advantage and control key resources and capabilities, others may attempt to link themselves to the central node (Dyer & Singh, 1998; Gnyawali et al., 2006; Gulati, 1995, 1998; Gulati & Gargiulo, 1999; Gulati & Kletter, 2005; Gulati et al., 2000; Klein et al., 2007a). Being in a central position or having a direct link to the central node within an external network, firms are better able to access resources and capabilities, such as finance, manufacturing facilities, distribution channels that help in commercialization of innovations (Gnyawali et al., 2006; Klein et al., 2007a). Multiplexity deals with the strength of the relationship an organization maintains with network partners, and is based on the number of types of links (e.g., research ties, joint programs, referrals, and shared personnel) that connects them (Provan et al., 2007). Multiplexity also is referred to as heterogeneity of networks (Newman, 2005). Multiplex ties are indicator of the strength and durability of an organization’s links. It also includes external links external networks also can include ties with universities, research laboratories and institutes that conduct basic research, regarded as engines of innovation (Agarwal, 2006; Chataway & Wield, 2000; Colyvas et al., 2002; Numprasertchai & Igel, 2005; Henderson et al., 1998). Firms



communicate with these innovation engines via formal and informal scientific meetings, licenses, joint ventures, research contracts, consulting, personal networks, research grants, recruitment of students, email, shared databases, workshops, and communities of practice (Cohen et al., 1998, 2002; Oliver, 2004; Hoegl & Schulze, 2005; Salman & Saives, 2005; Rothaermel & Thursby, 2005). Such relationships help shorten the innovation cycle and promote faster commercialization. Past research also has contributed to our understanding of effects of internal networks on a firm’s ability to innovate and commercialize. The antecedents that have been studied have included structural factors in organizations (Nerkar et al., 1996; Scott & Bruce, 1994) and leadership (Bantel & Jackson, 1989; Ellis, 2003; Howell & Higgins, 1990; Nevens et al., 1990). For instance, Ellis (2003) noted that in response to technological innovation and extremely volatile environmental conditions, competitive organizations increasingly are becoming horizontal in their reporting structure and have reduced the levels of management between the CEO and the lowest levels by 25%. In differentiating between high- and low-performance firms, in terms of innovations and commercializations, Nevens et al. (1990) posited that, in high-performance companies, top management maintains a visible presence to reinforce innovation and commercialization. They found that even in extremely decentralized and divisionlized firms, like Hewlett Packard and 3M, top management will involve themselves in details seen as crucial to the commercialization process (Nevens et al., 1990). Further, the authors posited that in highperformance firms top-management teams act as tie breakers in disputes at the project level by giving precedence to commercialization of related activities over others, by ensuring a deadline is met, by clearing calendars of key employees of other work, speeding decision making, and making sure that the right people come together. Bantel and Jackson (1989), in their assessment of the effect top-management teams have on innovations in banking found that more innovative banks were managed by

more educated teams that are diverse in their functional areas of expertise. These relationships remain significant when organizational size, team size, and location are controlled for (Bantel & Jackson, 1989). Synthesizing the above, we posit that networks not only will help in opportunity recognition for innovation but also in the remainder of the commercialization process. Networks thus help in moving innovations to markets, networks with financial agencies help raise funds for manufacturing, through networks firms can know if manufacturing can be outsourced to another entity or not, and they help in identifying the distribution channels for selling the products. This leads us to propose that knowledge networks (within and external to firm) positively affects firm a firm’s ability to commercialize innovation.

Research Agenda: IT Capability, Networks and CI Most of the studies that linked ITC with firm performance have incorporated the notion of knowledge networks have done so by fusing ITC and networks together. Some of the prominent dimensions include: (a) notion of external knowledge networks by acknowledging the role IT plays in coordination and sharing of resources across organizational divisions (Bharadwaj et al., 1999), (b) embedding the notion of internal networks (learning synergies across different groups and divisions within a company and coordination of organizational skill and expertise) as a part of IT value practice (Kwon & Watts, 2006), (c) networks as a technology component of knowledge Infrastructure capability (Gold et al., 2001), (d) role of IT in building Inter Organizational Systems to gain competitive advantage (Johnston & Vitale, 1988), (e) listing collaboration as a dimension of IS competency (Tarafdar & Gordon, 2007), (f) acknowledgment of technologies that help link supply chain partners (Malhotra et al., 2005) and (g) representing knowledge networks under business resources that may create interorganizational efficiencies (Powell & Dent Micaleff, 1997). The concept



of external knowledge network is implicitly captured in the notion of customer knowledge capabilities (Tanriverdi, 2005). This is the only study that conceptualized knowledge construct as distinct from IT capability construct (which is defined as IT relatedness). The impact of IT on firms performance are usually implicit (e.g., improved product design, better customer satisfaction, increased market responsiveness) and are achieved by building synergistic relationships across organizational units and with suppliers and customers (Brynjolfsson & Hitt, 1996). While, IT can bring into existence of such relationships, it also moderates the existing ones (Brynjolfsson & Hitt, 1996). Bharadwaj (2000) conceptualized a relationship between IT capability through IT intangibles, such as IT enabled customer relationship management, development of knowledge assets, and synergies created by IT enabled collaboration among organizational units, are the source of firm performance (Bharadwaj, 2000). Kwon and Watts (2006), in evaluating the performance based impacts of two types of IT value practices: traditional efficiency based and knowledge based had two items (KM1: “has increased learning synergies across different groups and divisions in your company” and KM3: “has enhanced your company’s ability to coordinate the different skills and expertise of your employees” p. 351) in their questionnaire that measured how IT capability has enhanced internal knowledge networks (Kwon & Watts, 2006). The treatment however remained implicit. Firms are entities within the greater ecosystem, where the capabilities of IT resources span across firm boundaries and thus IT values can be best harnessed by means of inter-organizational alliances and collaborations among the entities that exist within a business ecosystem (Bhatt & Grover, 2005). Thus, not only IT can help manage existing networks and resources but also create new ones. The IT capabilities enables effective execution of intra-organizational networked business processes because IT has put information on

everyone’s figure tips equipping lower level management teams to handle decisions more effectively (Ellis, 2003). Gold, Malhotra, and Segars (2001) in measuring the impact of technology infrastructure organizational effectiveness used two items, which can be used to measure IT enables internal and external knowledge network. The items were (a) employee to collaborate with members within organization and (b) and employee to collaborate with members outside the organization (Gold et al., 2001). Thus, IT capability helps support the creation and maintenance of networks that are developed through strategic alliances and collaborations among the entities within and between firms. Specific research should be performed to see the impact of IT-Capability on intra and interorganizational networks. While, several firms may possess the same information technology capabilities, only the ones that possess the ability to create a network of knowledge processes within and outside of its organizational boundaries will be successful at expanding and exploiting the values of IT capabilities to create innovation and subsequently commercializing them. There have been specific instances where IT moderated the relationship between networks and commercialization. For instance Internet based virtual communities had a moderating effect on the relationship between social networks and social entrepreneurship (Datta & Jessup, 2009a, 2009b). While it can be argued that Internet based virtual networks, social networks and social entrepreneurship are close approximations or instantiations of IT-capability, networks and CI, yet generalizing from those is not always advisable (Lee & Baskerville, 2003). Combining the aforesaid findings we identify two research agenda for future. Research Agenda1a: How does IT capability create and strengthen organizational and interorganizational networks? Research Agenda 1b: How does IT Capability affect the relationship between networks and CI?



Knowledge Capability Instantiated Through Absorptive Capacity Knowledge capability (KC) of a firm is characterized by its competence in manipulating, balancing, and managing organizational knowledge resources. A firm’s innovativeness is driven by its knowledge capabilities (Hoegl & Schulze, 2005). The papers that included the concept of knowledge capabilities can be discussed using the notion of organizational absorptive capacity. Absorptive Capacity (ACAP) is defined as firm’s knowledge capabilities by which it acquires, assimilates, transforms, and exploits knowledge resources to produce dynamic capabilities such as innovativeness (Zahra & George, 2002). Papers included in our review directly or indirectly conceptualized knowledge capability as firm’s absorptive capacity in terms knowledge activities. The activities of knowledge acquisition, assimilation, exploitation, and transformation was used to represent absorptive capacity and a means to organizational knowledge capability (Malhotra et al., 2005). Other dimensions included: (a) knowledge process capabilities as knowledge acquisition, conversion, application, and protection (Gold et al., 2001), (b) knowledge richness and knowledge reach (Sambamurthy et al., 2003), (c) IT based knowledge creation, sharing and utilization (Sabherwal & Sabherwal, 2005), and (d) four knowledge actives including creation, transfer, storage/retrieval, and application of knowledge (Alavi & Leidner, 2001). Tanriverdi (2005) captured KC through product, customer, and managerial capability, which are developed by creating, transferring, integrating, and leveraging domain specific knowledge (Tanriverdi, 2005). Alavi and Leidner (2001) conceptualized the KC by focusing on four knowledge activities: creation, transfer, storage/retrieval, and application of knowledge. Only Tanriverdi (2005), Sambamurty, Grover, and Bharadwaj (2003), and Kane and Alavi (2006) conceptualize the role of KC and IT as two distinct concepts, all others blend these two concepts together by characterizing it as IT enabled knowledge capabilities.

Absorptive Capacity: Absorptive capacity is the limit to the rate at which a firm can absorb scientific or technological information and/or a limit to the quantity of such information that can be absorbed (Cohen & Levinthal, 1990; Jansen et al., 2005). It underlies a firm’s knowledge capabilities by which the firm acquires, assimilates, transforms, and exploits knowledge resources to produce dynamic capabilities such as innovativeness (Zahra & George, 2002). It is critical to developing competitive advantage and often leads to significant innovations (Powell et al., 1996). The theory was extended by specifying four distinct dimensions to absorptive capacity: acquisition, assimilation, transformation and exploitation (Zahra & George, 2002). The primary precursors to absorptive capacity are structure of communication between the organization and entities within its external environment (termed outward absorptive capacity), structure of communication within subunits in the organization (termed inward absorptive capacity), and structure of communication between subunits in the organization (termed cross functional absorptive capacity) (Cohen & Levinthal, 1990). Antecedents to Absorptive Capacity: Examples of outward absorptive capacity are the strategic partnership between Intel and Microsoft (Grove, 1996), the business ecosystem that Walmart created with its suppliers (Burgelman et al., 2006; Moore, 1993) and the relationship that Nokia has with academic and research institutions. In each case the experiences or knowledge of one firm or entity increases the limit of absorption of the other entity over the network. An example of cross functional absorptive capacity is the tight linkages between design and manufacturing sub-units that has enabled Japanese manufacturing firms to move products rapidly from design through production, marketing, sales, and into the market (Cohen & Levinthal, 1990). The concept shows on how overlapping



product development cycles facilitated collaboration and coordination across subunits within a firm (Clark & Fujimoto, 1987).

processes (Jansen et al., 2005). Overlapping interfaces between design, manufacturing, sales and marketing in Japanese firms led to increased absorptive capacity leading to movement of the product from design, sales to market (Cohen & Levinthal, 1990; Clark & Fujimoto, 1987). In sense of outward absorptive capacity, networks between firms and innovation engines, increase the ability to commercialize, as innovators can view their innovations as finished products and firms can sense business value of fundamental research. Nokia has done exactly that with its networks with the academia (Birkinshaw & Gibson, 2004).

Further, the relationships between firms and between firms and innovation engines affect a firm’s absorptive capacity (Cohen et al., 1998, 2002; Cohen & Levinthal, 1990). Publications, conferences, informal and personal exchanges of information, and consulting contracts appear to be the four primary channels for knowledge exchange between firms and innovation engines (Cohen et al., 1998, 2002). From these works, it appears that networks between academia and industry can benefit participating firms in that there is a useful flow of knowledge either in the sharing of research findings, or through the guidance of the scientist or in some case through transfer of intellectual property. Thus, as Cohen and Levinthal (1990) concluded, these types of networks between firms and innovation engines expand an organization’s absorptive capacity. From the discussions above we posit that firms with networks with other firms and with innovations engines will have greater absorptive capacity than those without. We therefore posited that absorptive capacity is positively related to a firm’s internal and external networks—as the number of networks, and the quality of linkages (number, type, tightness) increase, so too does absorptive capacity.

In our definition of ability to commercialization of innovations, we included organization’s ability to recognize current and emerging markets as a fundamental component. Absorptive capacity is the limit to the rate at which a firm can absorb scientific or technological information. Without being cognizant on absorbing scientific of technological innovations, it is impossible to visualize a market for such innovations. Thus, without absorptive capacity the fundamental requirement to commercialize innovation will not be reached. This leads us to propose that higher absorptive capacity increases a firm’s ability to commercialize innovations.

Consequences of Absorptive Capacity: Absorptive capacity enables firms to predict more accurately commercial potential of technological advances (Cohen & Levinthal, 1990). In other words, a higher absorptive capacity and/or efforts to increase absorptive capacity can both promote innovation within a firm as well as a firm’s ability to manage innovation effectively. Absorptive capacity converts knowledge into products, services, and technologies (Jansen et al., 2005), increases the distinctiveness of firm’s innovations (Yli-Renko et al., 2001) and are able to develop new innovations that differ substantially from existing products, services, and

Research Agenda: IT Cap, Absorptive Capacity and CI: There are two types of information systems that can augment absorptive capacity: one that enhances the ability of a firm to absorb (through capture and retention such as organizational memory systems, databases, knowledge repositories) and another that enables a firm to digest (through processing) information received from supply chain partners to create new knowledge (such as interpretation systems, data/text mining tools) (Malhotra et al., 2005). Such systems compare incoming information with existing insights, and help in the generation of new insights by integrating or synthesizing information



(Scott, 2000; Alavi & Leidner, 2001). These are often collaborative systems that help creating intra and interorganizational boundaries and help stakeholders collaborate on ideas, which enhances absorptive capacity. Therefore, IT can help enhance a firm’s absorptive capacity not only by lowering the barriers of bounded rationality, but also by facilitating organizational learning of both tacit and explicit knowledge. By applying the arguments developed earlier, we therefore propose IT capability help moderate the relationship between knowledge networks and absorptive capacity. IT can play an important role in building a firm’s absorptive capacity by providing skills and processing abilities that can support acquisition, assimilation, transformation, and exploitation of knowledge to create innovation (Alavi & Leidner, 2001; Holsapple & Joshi, 2000, 2002; Dehning et al., 2003; Dehning & Stratopoulos, 2003). Absorptive capacity can also be measured with (a) managerial IT knowledge of business process, and value of IT, (b) Managerial IT process effectiveness. Now managerial IT knowledge and IT process effectiveness are both functions of IT capabilities (Dehning et al., 2003). Thus, the link between IT capability and absorptive capacity has received some attention in the IS literature. We believe in the context of firm innovation especially in terms of commercialization of innovations, the link between IT capability and absorptive capacity should be tested along two lines of investigation. Firstly how the presence of IT capability affects the relationship between networks & absorptive capacity, and how does it affect the relationship between absorptive capacity and CI. Thus, research agenda 2a. How IT Capability affects the strength of the relationship between networks and absorptive capacity? Research agenda 2b: How IT Capability affects the relationship between absorptive capacity and commercialization of innovations?

Discussion: Contributions and Future Research This work has the potential to make a significant contribution to literature on IT and strategy. It extends the theory and our understanding of the relationship between IT investment and firm performance by highlighting the important role of knowledge networks, knowledge capabilities and commercialization of innovation that has been overlooked in the existing literature. The knowledge-based integrative perspective used in this study is much needed in today’s environment where competition becomes a learning race while knowledge base is increasingly complex and wide-spanning across many organizations in the industry. Our model will not only provide a more nuanced understanding of the role IT plays in impacting firm performance, but it might also provide a better explanation for the mixed results regarding the aforementioned relationship between IT investment and firm performance. From the standpoint of the industry this paper compels to ask key questions. First, organizations must ask whether their IT resources can create an environment that foster knowledge sharing. Second, firms must translate IT capabilities in forging alliances with suppliers and business partners to help create knowledge network which would built its knowledge capabilities. Both these activities will lead to its ability to increase its absorptive capacity and ability to explore new areas and exploit current opportunities, which in turn affects the ability to commercialize on innovations. Thirdly, no matter how integrated IT resources are, the impact of absorptive capacity on commercializing innovations is moderated. Before these or any other lessons can be acted on with confidence, much research remains and we hope that this paper sets forth a useful path for research in this area. We hope that from the academic standpoint this paper sets a path for research in this area. Each of the proposition posited in this paper is would open doors for future research. This paper opens opportunity for research in both posi-



tivist and interpretivist paradigms. Surveys or secondary data could be used to do positivist research, while detailed case studies may aid in attaining interpretevist style of research. Future research must break the constructs into more testable variables and breaking the proposition into hypotheses and test them. Detailed studies could be made in studying specific relations between constructs and brief snapshots on the entirety of the theory. Attempt should be made to integrate all the studies and see how it fits within the bigger picture.

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Avimanyu Datta is an Assistant Professor in the College of Busienss, Illinois State University. He received his PhD in Business Administration from Washington State University in 2011. His interest revolves around strategic management and commercialization of technology & innovation, and entrepreneurship. He has presented his work in Academy of Management (AOM), Americas Conference of Information Systems (AMCIS), Atlanta Competitive Advantage Conference (ACAC), Strategic Management Conference, and Southern Management Association (SMA). He has published in Technology and Investments, International Journal of Strategic Information technology Applications (IJSITA), Journal of Management & Strategy, Information Systems Research (ISR), Communications of Associations of Information Systems (CAIS), International Journal of Virtual Communities and Social Networks (IJVCSN), Journal of Cases on Information Technology (JCIT), ICFAI Journal of Management Research (India), ICFAI Journal of Knowledge Management (India). He is also involved in a long term project in tracking the innovation chain of Top 500 Global companies based on their R&D investments, patents, and commercialization of innovations.
