IT investment differentiation, strategic distinctiveness, and firm performance

This study explores the strategic implications of differentiating IT investment from industry peers. Specifically, we examine how firms’ differentiated IT investment influences their strategic distinctiveness and market performance. Conventionally, IS scholars suggest that the deviation of a firm’s IT investment from the industry average enhances firm performance, but they focus on a single dimension of IT investment and test the direct effect of IT on firm performance without considering strategic distinctiveness, the extent to which a firm takes distinctive strategic actions relative to industry peers. This study extends prior research by examining a specific way in which firms differentiate their IT investment by considering multiple dimensions. To this end, we introduce a novel concept, IT investment differentiation, which captures how a firm differentiates its IT investment from its peers, focusing on two dimensions: IT investment magnitude and the configuration of enterprise applications. Using a sample of 1,898 firm-year observations from the United States, we find that the two dimensions of IT investment differentiation, excess IT investment and enterprise application differentiation, lead to distinctive strategic actions. Further, we investigate the moderation effect of IT investment differentiation on the relationship between strategic distinctiveness and firm performance. Overall, our research model and findings imply that differentiated IT investment is integral to enabling and supporting strategic actions, thereby creating competitive advantages for firms.