Impact of Information Technology on innovation in determining firm performance.

Abstract

The aim of this study was to investigate if IT Capability played a moderating role on the relationship between Innovation Capability and the Firm Performance. The study used resource-based theory to test if IT was a competitive resource, by examining the role it played between the constructs of innovation capability and firm performance. A cross-sectional study was conducted amongst two hundred and ninety two (292) employees at the Hillside Aluminium Smelter in Richards Bay, South Africa. The results showed a strong, positive and statistically significant relationship between innovation and firm performance (r-value of 0.616, p-value <0.01, and R2 value of 0.375). The results also support the model in showing a moderate and statistically significant relationship between IT Capability and Innovation Capability (r-value of 0.563, p-value <0.01, and R2 value of 0.32). The conceptual model tested the moderation role of IT Capability between Innovation Capability and Firm Performance. These results showed a favorable result for the moderator variable (p-value <0.01), however the Innovation Capability as the independent variable showed an unfavorable results (p-value=0.579 > 0.05), albeit with a good R2 value of 0.45. Consequently, a multiple regression analysis was conducted using IT Capability and Innovation Capability as independent variables. This model proved to be statistically significant with both p-values of <0.01 and a R2 value of 0.4573. This result fitted well with the research analysis. For practice, the drive for innovation as a key determinant of future firm competitive advantage must factor in the technological capability, specifically information technology. Through the careful selection of IT resources and skills, IT capabilities the are valuable, rare, imperfectly imitable, and non-substitutable can be achieved, resulting in IT as a strategic resource.