A SYSTEMATIC
LITERATURE REVIEW INFORMATION TECHNOLOGY SOPHISTICATION: CAPITAL AND
PERFORMANCE
Ady Putra Sinambela*, Sambas Ade Kesuma, Iskandar Muda
Universitas Sumatera Utara,
North Sumatera, Indonesia
Email:
[email protected]*
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Article
Information |
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ABSTRACT |
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Received:
January 20, 2023 Revised:
January 30, 2023 Approved: February 21, 2023 Online: February 24, 2023 |
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This study aims to conduct a
literature review in the field of technological sophistication with data from
all international research publications in the field of accounting
information systems. The relevant data in this review were obtained from 50
articles from 1994 to 2022 globally. The results of research in many articles
that discuss the relationship of information technology in improving company
performance, various results methods describe the relationship between
Information Technology business and strategic alignment. So that in this
alignment strategy emerges important attention to the views by business and
IT (Information Technology) executives around the world (Raymond and Coretau,
2009, Johnson and Lederer, 2010). The purpose of this article is to add a detailed
literature review so that it can be used by academics and practitioners in
understanding the resources needed to maximize technological sophistication.
This can be obtained by exposing information technology literature related to
company performance. It is hoped that this article will be useful for ongoing
discussions regarding sophistication of technology in companies. |
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Keywords |
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Information Technology Sophistication; Performance; Evaluation; Capital; Company |
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INTRODUCTION
At this time
business companies prefer to invest in Information Technology such as hardware
and software, network, data integration to be able to improve company
performance (Velcu, 2010). But from the research
results there is a mixed relationship between Information Technology and
Company Performance, several studies show IT alignment as a construction that
improves company performance (Croteau & Bergeron, 2001; Kearns & Lederer,
2001; Luftman, 2004; Sabherwal & Chan, 2001). There are only a few
research results that link strategic alignment with the results of Information
Technology sophistication. Researchers show strategic alignment has a strong
relationship with firm performance (Sabherwal & Chan, 2001), competitive advantage (Kearns & Lederer, 2001). From the results of
research in general it is found that strategic alignment affects the
sophistication of information technology so that Information Technology can
mediate the relationship between strategic alignment and organizational
performance. This article extensively reviews whether there is a relationship
between information technology and the contribution of company performance or
the need for other organizational factors such as the use of investment with
the company's business strategy so that this article can explain the extent to
which information technology sophistication improves company performance.
The productivity paradox is a strong
relationship between investment in information technology sophistication and
performance. Researchers in this field have tried to examine the effect of
investing in information technology sophistication and organizational
performance in the economic (Al-Eqab & Adel, 2013; Santhanam & Hartono,
2003). The researchers
explained that investment in information technology sophistication includes
hardware, software, telecommunications and networks (Dedrick et al., 2003). Here Dedrick et al. (2003) also stated that
economic performance at the economic level refers to economic growth, labour
productivity and social welfare. Economic growth in a country is calculated
from the rate of change in real and gross GDP (Gross Domestic Product).
Evaluation of this growth on labour productivity and other resources
efficiently to create added value. So that it can be stated that social welfare
is achieved when the market provides goods and services at a lower cost than
the income of the people in that country.
Matrix of
economic performance in industrial sectors such as financial measures, labour
productivity and profitability. The issue in this article is related to the
business value and organizational impact of investing in information technology
sophistication. This literature study uses two approaches, the first contains
literature that studies the direct relationship between investment in
information technology sophistication and company performance such as Bakos and
Treacy (1986) at the economic,
industrial and organizational levels. And the second approach includes
empirical studies that examine the indirect relationship between information
technology sophistication and company performance.
Current
macroeconomic research shows that company investment in information technology
sophistication has an impact on increasing labour productivity and boosting the
economy. As stated by Roach (1987) that there is an impact of information
technology sophistication on increasing the productivity of information and
production workers in the computerized field and less on economic performance.
Baily and Chakrabarti (1988) found that there was no
correlation between investment in information technology sophistication and
productivity. They explain this occurs when the production of dense information
results in a fall in the price of information technology where this is a
decrease in performance.
Likewise Loverman (1988) in the study period
1987 to 1984 stated that several manufacturing sectors did not experience an
increase in performance towards investment in information technology
sophistication. In addition, Starssmann (1990) found no relationship between
investment in information technology sophistication and increased performance
productivity. However, Dedrick (2003) found that there is a
positive relationship between investment in information technology
sophistication on Gross Domestic Product (GDP) and increased productivity. A
difference in that as many as forty-three samples stated that investment in
information technology sophistication did not significantly increase the
presentation of Gross Domestic Product (GDP) or productivity growth (Dedrick et al., 2003).
Meanwhile,
Litan and Rivlin (2001) found that information technology sophistication
contributed to increased productivity. From their test, there were eight
industrial sectors that contributed 70% to the increase in the country's Gross
Domestic Product (GDP). They also found that the impact of information
technology sophistication for five years could increase productivity growth
from 0.2% to 0.4%. In the study of Navarrette and Pick (2002) with a time
series of eleven years tested the effect of technological sophistication investment
on three dimensions of performance measurement, namely net income, return on
assets (ROA) and return on equity (ROE). They found that there was a positive
relationship between investment in information technology sophistication on
industry net profit and return on assets (ROA).
At the company
level, research by Shannak (2010) found that investing in
information technology sophistication in small-categorized banks was more
successful in improving financial performance compared to large-categorized
banks. At that time they thought it happened because small banks were lagging
behind in information technology. Research on spending accumulation for 4
(four) years, they found that banks that are large for information technology
sophistication correlate with greater profitability than smaller banks. better
service and competitive prices increase company performance towards information
technology sophistication, but not linearly towards increased profitability (Eliyana & Agustina, 2021). They argue this is
because consumers lower costs for purchasing low-cost products and services and
consumers prefer new suppliers. Thus lower prices paid by consumers for lower
cost products and services can reduce profitability.
Based on the
results of this study, it can be seen that investment in information technology
sophistication has a positive correlation with business performance, especially
in the return on asset (ROA) parameter. So the findings in this study can be
interpreted that financial performance can be significantly influenced by
variations in the relationship between information technology, business
strategy and other competitive metrics throughout the company. The study also
emphasizes that the integration of these contingencies can explain the
correlation between investment in information technology sophistication and
financial performance. At the company level, it can be seen that investment in
information technology sophistication is influenced by organizational
structure, business strategy and implementation of company practices. Mohamad (2017) states that investing in
information technology sophistication has better management quality to improve
firm performance. Tallon et al. (Tallon et al., 2000) alignment of information
technology sophistication with business strategy can increase the investment
value of information technology sophistication itself.
In simple
terms, it can be seen that previous research was not able to capture the
positive effects provided by investment in information technology
sophistication, while recent research has shown more positive results. The
researchers also noticed that yields were higher in manufacturing companies
than in the service sector. According to Brynjolfsson and Hitt (2000) that previous research
did not have sufficient data for investment in information technology
sophistication and the sample size was relatively small. Brynjofsson (2013) provides 4 (four)
reasons for investing in information technology sophistication in improving
organizational performance including: there are errors in the measurement of
input and output variables in different studies; there is an effect of lagging
behind information technology due to the process of adjustment and learning;
there is a loss of profits and returns on the distribution of profits and
mismanagement of information technology sophistication and management errors
imitating other company investment decisions without paying attention to
important information such as the negative effects of adoption which can affect
the organizational structure. Then Cidik (2019) also suggest further
research on how investing in information technology sophistication can be more
effective and efficient which can identify independent variables such as growth
and innovation as well as organizational structure and business processes.
Many
researchers conducted research on the relationship between strategic alignment
and company performance, finding that there is a positive relationship between
strategic alignment and organizational performance (Antoni et al., 2020; Dong et al., 2008; Ellitan,
2017; Sabherwal et al., 2019; Wu et al., 2015). Al-Busaidi (2010) tested a survey method
of 244 academic institutions in the USA to test whether company performance was
influenced by alignment between organizational strategy and information
technology sophistication and found a positive relationship between alignment
and performance.
There is a positive relationship between the level of strategic
alignment and performance and business strategy and Information System (IS)
strategy have a positive impact on performance (Chao & Chandra, 2012).
They also found that Information System (IS) strategic alignment, business and
Information System (IS) effectiveness had a positive relationship to
performance. However, their research did not clearly show profit and loss
statements, so their research used subjective business performance data. Dong et al. (2008)
examined the relationship between business strategy, Information System (IS)
strategy, strategic Information System (IS) alignment and performance. The
research method was conducted using a five-point Likert scale based on two
perspectives, namely market growth related to competition in the last three
years and profitability. The results show that there is a negative relationship
between business strategy and business performance but there is a positive
relationship between alignment strategy and performance.
In this article there are 2 (two) questions that need to be discussed,
namely whether the alignment of Information System (IS) plans with business
plans is correlated with information technology sophistication for competitive
advantage by Information Technology (IT) executive staff and other senior
executives and secondly whether business plans in line with the Information
System (IS) plan regarding the use of information technology sophistication for
competitive advantage by Information Technology (IT) executive staff as well as
by other senior executives. Evaluation of competitive advantage, such as how
far the benefits of the Information System (IS) are for creating cost
efficiency and product differentiation, for making available business
strategies effective and for creating new business strategies.
Tayeh (2015)
found that small companies that align strategy with performance will be more
successful. The company performance measured here against managers' ratings in
relation to competitors, including long-term profitability, financial
resources, sales growth (sales growth), corporate image and customer loyalty.
Using questionnaire data from 250 companies, the authors find that small
companies with a high level of alignment achieve better company performance.
Yayla (2012)
found alignment as a cooperative method between business strategy and
information technology strategy. In their research with a total of 505
questionnaires from the field of Information Technology (IT) and business
managers in the manufacturing, telecommunications and information services
sectors. The aim of this research is to examine the effect of alignment
strategy on business performance. Performance measurement is assessed using a
five-point Likert scale questionnaire, looking at how far the company's
performance is in productivity, cost efficiency, innovation capability,
reactivity to business, responsiveness to customer needs and relationships with
business partners. From their research it was found that a higher level of
alignment results in higher performance.
Likewise with Sabherwal (2019)
conducted research on 84 Information Technology (IT) managers empirically in
testing strategic alignment on the relationship between investment in
information technology sophistication and firm performance. Performance
indicators are assessed subjectively by observing the Information Technology
(IT) Manager's estimate of IT spending over the last 3 years against annual
spending on personnel, hardware and software costs. As well as the Manager was
asked to estimate the income before tax and profit per employee for the past
year. In this study it was found that strategic alignment directly affects
company performance as well as a moderating (strengthening) variable between
investment in information technology sophistication and performance.
The results also vary in research on the relationship between strategic
alignment of Information Technology Sophistication (information technology
sophistication) and company performance (Croteau & Bergeron, 2001; Sabherwal
& Chan, 2001).
The authors found that aligning company strategy with the use of information
technology sophistication had a very high effect on performance levels. The
authors also found that companies in the mining sector were more dominant in
using information technology sophistication to expand product innovation and
market opportunities Research Croteau and Bergeron (2001)
observed a subjective measure of organizational performance by asking
respondents how the company's performance compared to other companies in the
same market over the past 5 years related to profitability, sales growth,
liquidity and capabilities, investment.
The researchers also found that strategic alignment affected
performance when they used the gestalt, covariance, mediation and deviation
approaches. However, no effect was found when done with the moderation method.
There is research showing that strategic alignment and accounting performance
in accounting firms have a negative relationship (Evans et al., 2019; Li & Ye, 1999;
Palmer & Markus, 2000).
Flexible automation involves more use of technology in product design
and manufacturing activities (Kotha & Swamidass, 2000).
Researchers used data from 87 flexible automation users in the US and Japanese
and German companies, found that strategy alignment had a positive effect on
sales growth but had no effect on the return on investment. Li and Ye (199)
examined another hypothesis variable, namely whether information technology
sophistication that is increasingly integrated with strategic management will
improve company performance. They use indicators Return on Assets (ROA), Return
on Sales (ROS) as a measure of company performance. Thus, the study aims to conduct a literature review in
the field of technological sophistication with data from all international
research publications in the field of accounting information systems
METHODS
This article uses literature studies from various papers in the Scopus
journal with the PRISMA (Preferred Reporting Items for Systematic Reviews and
Meta-Analyses) rules which can be seen in the flowchart of Figure 1.
Figure 1. Flow
chart of article writing literature with the PRISMA rules
Figure 1 shows the mechanism and search protocol for indexing journals
such as Scopus. Then a search was carried out in the database using the keyword
Information Technology Sophistication and the results were 736 articles. Then
added the syntax title-abs-key (Capital IT) to obtain 526 articles, the next
step is to add performance IT to obtain 126 articles and add the syntax
(limit-to (doctype, “ar”)) to obtain 46 articles. Then added the syntax
title-abs-key (information and technology and sophistication and capital) and
and (IT business) and (Performance) and (limit-to (doctype, “ar”)) to get 50
articles.
RESULTS
In the collected research, it was found that strategic alignment
correlated with profit on assets and profit on sales. This occurs when
controlling a dynamic organizational environment. Palmer and Markus (2000)
conducted a survey of 80 professionals to observe the effect of strategic
alignment as a moderating variable that strengthens the relationship between
corporate business and information technology strategy on organizational
performance. Performance is assessed using operating ratios such as
profitability, sales growth, sales per employee (to measure the effectiveness
of employees/ sales staff), sales per square meter (to measure intensity
towards a particular store) and stock returns (to measure the amount of
inventory sold). In their research found no positive relationship between
alignment and performance. The author finds that a negative relationship states
that retail sector companies do not require strategic alignment, only low-level
alignment can focus on internal business and information technology
sophistication only for company business transactions.
Business performance is assessed by subjective measures such as growth
and profitability and objective measures, namely return on assets. Business strategy
is measured by Venkatraman's typology (1989), namely aggressiveness, analysis,
defense, future, proactive and risk. The researcher also developed a
twenty-item instrument on a seven-point scale, ranging from 1 (major weakness)
to 7 (major strength), to measure information management technology (SITM),
which consists of five factors: the position of the information system (the
role and contribution of IS to organization goals); strategic use of IS
(application to gain competitive advantage); new IT applications (adoption of
new technology); architectural planning (data, technology and system
architecture); and data security (data security,
Business strategy and information technology sophistication management
have negative and positive impacts on performance (Smith et al., 2013).
Management of strategic information technology sophistication has a negative
effect on growth and profitability, but shows a positive effect on ROA in
companies that have a strong business strategy. Researchers point to mixed
results for short and long term effects. This means that information technology
sophistication management shows a faster effect in increasing ROA and long-term
business strategy can increase company sales and profitability. It can be
concluded temporarily that several studies examine the relationship between
strategic alignment and subjective performance of the company.
Research results that state a positive relationship such as (Dong et al., 2008; Kearns &
Lederer, 2001; Sabherwal et al., 2019).
In addition, several studies have investigated the relationship between
strategic alignment and objective accounting/office market performance (Brettel et al., 2016; Li & Ye,
1999; Palmer & Markus, 2000).
whereas some studies (Bergeron et al., 2013)
investigated the relationship between alignment and firm performance using
perceptual and objective performance measures. The causal relationship between
investment in information technology sophistication and company performance is
difficult to apply and is still mixed up. The mixed
results demand further examination of the factors influencing company
performance. When compared in the field of Information Technology Management
Systems, company performance is measured using two dimensions: (1) operating
performance, and (2) market-based performance. Where operational performance
uses the ratio of profitability and productivity performance. Market-based
performance is measured using a rating scale that rates companies in new markets
and bringing new products and services to the market (Ravichandran et al., 2005)
So that for future research should investigate the problem of operating
performance and market-based performance by examining other key ratios
taking into account using Tobin's Q. For example, Tanriverdi (2005) finds that information
technology sophistication is related to increasing firm capability, which in
turn improves firm financial performance. In Tanriverdi (2005), measuring financial
performance uses accounting-based objective measures Return on Assets (ROA) and
market-based performance (Tobin's Q) as well. In addition, some researchers use
the Tobin's Q ratio as a measure of market performance. The Q ratio was
introduced by James Tobin in 1969 as a predictor of a company's future
investment (Mithas & Rust, 2016). The Q ratio is the
ratio of the market value of a company's debt and equity to the replacement
cost of current assets. Furthermore, Bharadwaj et al. (1999) argue that the Tobin's Q
ratio, which is seen as a measure of the future that reflects the performance
effect of investments in information technology sophistication, may reflect the
evolution of intangible firms, such as product and quality improvements.
In other words, companies with a high Q-ratio tend to be companies with
attractive investment opportunities, or significant competitive advantages.
This paper presents several studies on the impact of investment in information
technology sophistication and business information technology partnerships on
performance. Thus, it is hoped that this paper can produce research that can
provide a better understanding of how managers manage investments in information
technology sophistication, strategic alignment that can affect company
performance.
Findings in the field of Accounting Information Systems such as Abd
Mansor (2016)
on state-owned banking respondents in Indonesia found that information
technology sophistication had a significant effect on improving the company's
financial performance. Many countries have streamlined aspects of Information
Technology (IT), namely the use of IT and IT management in the smooth operation
of Goods and Services Tax (GST). Likewise,
Ali (2017)
found that the sophistication of the marketing Information System (IS) has
proven to have a positive impact on the bank's core competencies. Salleh (2010)
found that IS sophistication has a significant effect on all three dimensions
of performance measures. However, more impact was seen for finance-based
actions and innovation-based actions than for customer-employee based actions.
Previously
de Búrca (2006)
found that IT sophistication moderates the performance service practice
relationship. From a number of articles presented in this paper, several
relevant articles are reviewed to find out the development of information
technology sophistication research on investment costs and improving company
performance as can be seen in Table 1.
Table 1.
Reviewed Articles
|
No. |
Researcher,
year |
Country |
Title |
method |
Results |
|
1 |
Canada |
Matching information technology and
organizational structure: an empirical study with implications for
performance |
Questionnaire |
-The
more sophisticated the organizational structure, the greater the impact of IT
sophistication on performance. |
|
|
2 |
Mark
Colgate (Mark, 2000) |
English |
Marketing and Marketing Information System
Sophistication In Retail Banking |
Questionnaire |
IT
is increasingly being used by banks in an effort to gain sustainable profits.
The IT that supports the marketing function is becoming increasingly
important as most of the other IT applications that emerge through the
marketing function develop quickly and are easy to replicate. |
|
3 |
Guy Pare, Claude Sicotte (Paré &
Sicotte, 2001) |
Canada |
Information technology sophistication in health
care: an instrument validation study among Canadian hospitals |
Combination
of questionnaires and interviews |
No
relationship was found between the level of sophistication and the perceived
usefulness of administrative applications in Quebec. |
|
4 |
Louis
Raymond and Jose´e St-Pierre (2005) |
Canada |
Antecedents and
performance outcomes of advanced manufacturing systems sophistication in SMEs |
SME
producer data survey which is then analyzed by structured equation modeling. |
Information
technology in more advanced manufacturing is only present in one-fifth or
less of the sample companies, indicating that information technology
sophistication has not yet achieved wide expansion in manufacturing SMEs. |
|
5 |
Seán
de Brca Brian Fynes Teresa Brannick (2006) |
Ireland |
The moderating effects of information technology
sophistication on service practice and performance |
Questionnaire
survey with variable measurement using a five-point Likert Scale |
IT
sophistication moderates relationship performance service practices. Obtained
a positive relationship between service practices and service performance |
|
6 |
Noor
Azizi Ismail (2009) |
Malaysia |
Factors Influencing
AIS Effectiveness Among Manufacturing SMES: Evidence From Malaysia |
The
distributed questionnaires were refined in three stages to SME managers |
The
sophistication of Accounting Information Systems (AIS), the participation of
managers in the implementation of AIS, the knowledge of AIS managers, the
effectiveness of consultants, and the effectiveness of government agencies
appear insignificant. |
|
7 |
Noor Akma Mohd Salleh Ruzita Jusoh Che Ruhana
Isa (2010) |
Malaysia |
Relationship
between information systems sophistication and performance measurement |
Self-administered
questionnaire survey with Scale Likert |
IS
sophistication has a significant effect on all three dimensions of
performance measures. However, more impact was seen for finance-based actions
and innovation-based actions than for customer-employee based actions. |
|
8 |
Louis
Raymond, Anne-Marie Croteau, François Bergeron (2011) |
Canada |
The Strategic Role of IT: An Empirical Study of its Impact on IT
Performance in Manufacturing SMEs |
Distribution
of questionnaires about strategic orientation |
The
strategic role of IT has no direct effect on the sophistication of IT use;
but has an indirect effect through the sophistication of IT management |
|
9 |
Maziyar
Ghasemi, Vahid Shafeiepour, Mohammad Aslani, Elham Barvayeh (2011) |
Iran |
The impact of Information Technology (IT) on
modern accounting systems |
Questionnaire
survey |
The
use of information technology to perform accounting functions brings
opportunities for companies to move towards paperless activities. Electronic
data exchange and electronic fund transfers can provide opportunities for
companies to implement production systems more effectively and save money. |
|
10 |
Gregory
L. Alexander, Linsey M. Steege, Kalyan S. Pasupathy (2015) |
USA |
Case studies of IT sophistication in nursing
homes: A mixed method approach to examine communication strategies
about pressure ulcers |
Observations
collected during interactions between nursing staff. |
Communication
systems in high IT sophistication facilities have created backup systems such
as electronic status boards where interventions occur observable
by everyone at any time during the shift. |
|
11 |
Mahmoud
Al-Eqab, Kingdom of Saudi Arabia Dalia Adel (2013) |
Saudi
Arabia |
The Impact of IT Sophistications on the Perceived
Usefulness of Accounting Information Characteristics among Jordanian Listed Companies |
Questionnaire
distribution |
There
is a significant and positive relationship between the four dimensions of IT
sophistication and accounting information characteristics, also the findings
from this study indicate that managerial, informational, and functional IT
sophistication is more important than technological aspects in influencing
the perceived usefulness of accounting information characteristics. |
|
12 |
Valeria
Hart (2013) |
USA |
Hospital IT Sophistication Profiles and Patient
Safety Outcomes: A Comparison of Three States |
Questionnaire
distribution |
A
positive relationship was obtained between hospital IT sophistication and
patient care outcomes using the AHRQ safety indicator |
|
13 |
Sambas
Ade Kesuma, Siti Zabedah Saidin, Aidi Ahmi (2016) |
Indonesia |
IT Sophistication: Implementation on State Owned
Banks in Indonesia |
Questionnaire
distribution |
In
relation to the level of participation in Information Systems development,
the results show 53.6% (moderate), 33.9% in (high
participation) in planning information systems. As much as 43.2% (high
participation) and 42.6% (moderate) in terms of participation in developing
applications. As much as 47% high participation and 42.1% moderate
participation in the elaboration of the development schedule. In the
elaboration of the development budget, around 44.3% of respondents indicated
high participation and 42.6% moderate. |
|
14 |
Nor
Hafizah Abd Mansora, Intan Salwani Mohameda, Lai Ming Linga, Nawal Kasima (2016) |
Malaysia |
Information Technology Sophistication and Goods
and Services Tax in Malaysia |
A
combination of information obtained from interviews and information available
from various sources. |
The
application of the Goods and Services Tax (GST) or Value Added Tax/VAT in one
country to another varies greatly. However, almost all countries have
streamlined aspects of Information Technology (IT), namely the use of IT and
the management of IT in
the smooth operation of GST. |
|
15 |
Mohamed Salih Yousif Ali (Ali, 2017) |
Australia |
Moderating effect of support service quality on
marketing is sophistication and bank's core competencies |
Questionnaire
with Likert Scale |
marketing
information system (IS) sophistication has proven to have a positive impact
on bank core competencies with a low to moderate marketing IS sophistication
range. |
|
16 |
Murtaza
Masood Mustafa, KK
Goyal (2020) |
India |
Diversity of Information Technology Management Sophistication in Financial Service Industry |
Technology
Management Literature Study |
The
most important contribution that influences IT Management Sophistication is
identified in the financial services industry, namely IT planning, IT
organization, IT control, and IT leadership. Most of these main findings
confirm with the findings of past research. For example IT planning, IT
organizing & IT control have been identified as the three main dimensions
that define IT management |
CONCLUSION
As an
implication for its application, it is necessary to identify the main themes in
the areas of capital and Information Technology Performance that lead to an
understanding of the development of studies to better understand the topic and
general context, as well as research gaps. Furthermore, new studies can be
directed to overcome the lack of previous research and advance knowledge in the
field of information technology sophistication. The results of the literature
review in this paper also strengthen the results of previous research, where
information technology sophistication plays a role in strengthening its
relationship with company performance. This means that increasing the ability
of Information Technology Sophistication will increase the ability of
organizational learning that affects company performance.
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