Information & Management 52 (2015) 643–657

IT capabilities and product innovation performance: The rolesof corporate entrepreneurship and competitive intensity

Yang Chen a,1, Yi Wang b,*, Saggi Nevo c, Jose Benitez-Amado d, Gang Kou a

a School of Business Administration, Southwestern University of Finance and Economics, Chengdu, Sichuan Province, PR Chinab Business School, Shantou University, 243 Daxue Road, Shantou 515063, Guangdong Province, PR Chinac Information Technology Management, School of Business, University at Albany, 1400 Washington Avenue, Albany, NY 12222, USAd Department of Management, School of Human Resources and Labor Relations, School of Business and Economics, University of Granada, Granada, Spain

A R T I C L E I N F O

Article history:

Received 6 April 2014

Received in revised form 11 May 2015

Accepted 15 May 2015

Available online 12 June 2015

Keywords:

IT capabilities

Corporate entrepreneurship

IT business value

Competitive intensity

Product innovation performance

Matched survey sample

A B S T R A C T

Despite a plethora of studies that demonstrate the positive impacts of information technology (IT)

capabilities on innovation performance, our knowledge of the processes through which such gains are

achieved and their susceptibility to environmental factors remains limited. This paper fills these gaps by

examining the roles of corporate entrepreneurship (CE) and competitive intensity at the firm level,

thereby contributing to research on IT business value. Using data from manufacturing firms in China, we

find that CE fully mediates the effect of IT capabilities on product innovation performance and that

competitive intensity moderates the proposed relationships.

� 2015 Elsevier B.V. All rights reserved.

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1. Introduction

Product innovation, defined as new products and/or services that

are introduced to meet the needs of external users or market needs

[16], is key to a firm’s competitiveness, especially in a dynamicbusiness environment that is characterized by rapid technologicalchange, shortened product life cycles, and globalization [16]. It isapparent that to survive, compete, and grow, firms that operate insuch competitively intense environments need to be moreinnovative in their product introduction. As an example, Procter& Gamble considers serving the needs of a very diverse consumerpopulation both quickly and cost effectively to be one of its mostcritical challenges. The company regards its ability to deliver ahigher frequency of new products across multiple markets as keyto its competitiveness in the industry [19,63]. Given its importancefor firms’ competitive success, product innovation is often viewedas a critical performance factor that can provide avenues forexpansion into new markets and opportunities to earn greater

* Corresponding author. Tel.: +86 186 8802 0045; fax: +86 754 8290 3443.

E-mail addresses: chenyang@swufe.edu.cn, francisnju@gmail.com (Y. Chen),

ywang63@stu.edu.cn (Y. Wang), snevo@uamail.albany.edu (S. Nevo),

joseba@ugr.es (J. Benitez-Amado), kougang@yahoo.com (G. Kou).1 Tel.: +86 188 2804 1300; fax: +86 028 8709 2768.

http://dx.doi.org/10.1016/j.im.2015.05.003

0378-7206/� 2015 Elsevier B.V. All rights reserved.

profits. Product innovation performance, which is the extent to

which the firm has achieved its profitability, sales volume and revenue

objectives for newly introduced products and/or services [2], is thusan important indicator of the return on product innovation.

The existing literature provides evidence that IT capabilities canhave a significant impact on product innovation performance (e.g.,[7]). The construct of IT capabilities is a firm-level construct thatsums the abilities of a firm to mobilize and deploy IT-basedresources and to leverage the value of other resources to improvevarious firm performance indicators [7,52]. Despite the breadth ofresearch on IT capabilities and product innovation, the mecha-nisms through which IT capabilities influence product innovationperformance are not well understood. The extant research suggeststhat our knowledge of those mechanisms will likely be enhanced ifwe examine the processes by which firms apply IT capabilities toimprove their product innovation performance in dynamicbusiness environments (e.g., [48]).

Recent studies posit that the impact of IT capabilities on firm-level outcomes should be examined by taking into account otherorganizational resources as intermediaries and the businessenvironments as moderators (e.g., [48,51]). Accordingly, we drawon the corporate entrepreneurship (CE) literature to examine themechanism that links IT capabilities and product innovationperformance. Related to but distinct from the notion of entre-preneurship, which focuses on individuals’ behaviors, CE reflects a

Y. Chen et al. / Information & Management 52 (2015) 643–657644

firm’s overall efforts toward venturing, innovation, and renewaldirected at advancing new opportunities to use or expand itsresources [67]. CE activities are conceptualized to be directlyrelated to important organizational outcomes such as growth andprofitability [68]. In addition, a firm’s CE activities are susceptibleto the influence of external factors such as environmentaldynamism [68].

The CE framework is appropriate for this study because itenables the integration of various aspects that are related toinformation and processes that are critical for a richer under-standing of IT-enabled innovation. IT-enabled innovation isattributed to both a firm’s internal activities and processes andexternal environment influences. We examine the role of CE in IT-enabled innovation to gain a better understanding of the IT–innovation relationship by considering the influencing role ofcompetitive intensity, which is a critical indicator of the externalbusiness environment. Furthermore, anecdotal evidence suggeststhat effective CE depends on the availability of relevant and timelyinformation and of reliable communication channels, which arethe hallmark of IT (e.g., [7]). Indeed, it was recently argued that ‘‘ITis the magic ingredient that inspires and most often enablescontemporary entrepreneurial endeavors’’ [20, p. iii]. Thus, the CEframework appears to be capable of offering a conceptual bridgebetween IT capabilities and a firm’s product innovation perfor-mance while also taking the firm’s external business environmentinto account.

This paper offers the following three contributions to researchand practice. First, it contributes to the business value of the ITliterature by developing a theoretically grounded model that tracesthe path from IT capabilities to a firm’s product innovationperformance through the mediating role of CE. Second, itcontributes to the foundational literature of CE by (a) extendingour understanding of how IT enables CE activities and (b) sheddinglight on the moderating role of the external business environment(i.e., competitive intensity). Finally, the paper contributes topractice by helping managers better identify the businessenvironment where their investments in IT capabilities are mostlikely to be observable, thereby informing their decisions regardingIT implementation and use.

The remainder of this paper is organized as follows. In thefollowing section, we briefly discuss the CE literature to provide aconceptual framework and clear theoretical boundaries at the firmlevel. We then discuss the anticipated relationship between ITcapabilities and CE and follow up with a discussion on the expectedimpact of the environment’s competitive intensity. Next, wedescribe the methodology of the study and present the empiricalresults. We conclude the paper with a discussion of our findingsand their limitations and offer several avenues for future research.

2. Corporate entrepreneurship (CE)

Entrepreneurship is ‘‘the process by which individuals – eitheron their own or inside organizations – pursue opportunitieswithout regard to resources they currently control’’ [59, pp.23]. Focusing on organizational behaviors, CE is defined as ‘‘avision-directed, organization-wide reliance on entrepreneurialbehavior that purposefully and continuously rejuvenates theorganization and shapes the scope of its operations through therecognition and exploitation of entrepreneurial opportunity’’ [31,pp. 21]. Given its clear importance to a firm’s growth, performanceand survival, CE has attracted much attention from strategyscholars (e.g., [58]). CE is a process through which a firm seeks toinnovate, creates new businesses and transforms itself by changingthe business domain or key strategic processes to influence thefirm’s various performance outcomes [58]. Although CE encom-passes a variety of activities, there is a common core that is

comprised of three fundamental activities: business venturing,new product development and self-renewal [58]. Businessventuring reflects an emphasis on the creation of a new businessunit or acquisition of a new business; new product developmentinvolves the transformation of new ideas to value-addedproducts, services or organizational changes; and self-renewalreflects domain redefinition and business model reconstruction[28].

CE offers a promising lens for examining the path from ITcapabilities to firm-level outcomes. Specifically, firms with highlevels of CE activities tend to invest more in product developmentand improvement, new business domain exploration, and processredefinition, all of which can enhance firms’ product innovationperformance. Such high levels of CE activities may be achievedwhen firms successfully leverage their information technologies[20], suggesting that the impact of a firm’s IT capabilities onproduct innovation performance may be influenced by theintermediary role of CE activities. CE is a useful theoreticalframework for this study because it explicitly takes the firm’sexternal business environment into account [68], thereby permit-ting us to examine the path from IT capabilities to productinnovation performance under varying environmental conditions.Specifically, the framework conceptualizes the moderating effectof competitive intensity on the relationship between IT capabili-ties, CE and product innovation performance, whereby moredynamic environments are viewed not only as uncertain and harshbut also as representing the opening and closing of a myriad ofwindows of opportunities for entrepreneurial activities.

Firms that are involved in entrepreneurial activities must haverelevant and timely information. For example, referring to thefamous aphorism of performance measurement—‘‘what getsmeasured, gets done’’ [5], Stopford and Baden-Fuller [61] reportedthat in the organizations that they studied, existing IT focused onthe old strategy and excluded new information. Thus, what wasknown was measured and used to inform future decisions, andwhat was unknown, and could have potentially informed newstrategies, was ignored. According to Stopford and Baden-Fuller[61], organizations that sought to engage in and leverageentrepreneurial activities discontinued IT that provided ambigu-ous and misleading information and obtained new IT that providedmeans for testing initial hunches. They also noted that the firmsthat they studied made substantial investments to enhance theirlearning by obtaining data that would help them to receive andevaluate feedback on new initiatives.

Effective CE activities also require those who are involved tohave access to reliable means of communication and an integratedview of the organization. These requirements stem from the notionthat CE is a firm-level activity, and successful CE initiatives areoften the outcome of coordinated interactions among individualsand groups that occupy different hierarchical positions within thefirm and are located at various geographical locations. Withoutappropriate communication channels and an integrated perspec-tive that includes collaborating, sharing information and incorpo-rating related activities, it would be difficult to conceive of andexecute entrepreneurial plans [68].

In sum, the above requirements for effective CE – namely, theneed for (1) relevant and timely information, (2) an integratedview of the organization, and (3) effective communication – appearto be closely aligned with the main attributes of IT—i.e., enablingthe efficient collection and dissemination of information across theorganization, helping to electronically integrate disparate businessactivities and providing access to multiple communication media.This apparent alignment suggests that IT capabilities can play animportant enabling role for CE activities within firms and helpfirms achieve sustained competitive advantage and superiorperformance.

Y. Chen et al. / Information & Management 52 (2015) 643–657 645

In the next section, we elaborate on the nature of the ITcapabilities construct and then put forward hypotheses regardingthe relationships between IT capabilities and CE.

3. Hypothesis development

In this section, we derive five hypotheses and develop atheoretical model that builds on the foundations of the CEframework and extends it to the context of IT. The main constructsand the hypothesized relationships among them are depicted inFig. 1.

3.1. IT capabilities

IT capabilities refer to a firm’s ‘‘abilities to mobilize and deployIT-based resources in combination or co-presence with otherresources and capabilities’’ [7, pp. 171]. They have the potential tohelp firms outperform their rivals in terms of cost reduction, profitincreasing and other performance measures [32]. Because theconstruct of IT capabilities refers to a broad range of commoninformation and communication tools and related services, pastpublications argued that it is more accurate and useful to view theconstruct of IT capabilities broadly and conceptualize it as aformative second-order construct (e.g., [6,7]). In this study, weadopt this view and treat IT capabilities as a second-orderconstruct that consists of four dimensions: IT infrastructureflexibility, IT integration, IT business alignment, and IT manage-ment [73]. IT infrastructure flexibility refers to the extent to whicha firm’s IT infrastructure is scalable, modular, compatible withlegacy systems and able to address multiple business applications[10]. IT integration refers to the extent to which a firm links its IT tothose of business partners, helping the partners to exchangeinformation, communicate, and establish collaborative relation-ships [54]. IT management refers to the firm’s ability to effectivelyimplement IT-related activities such as IT project management,system development and IT evaluation and control [71]. ITbusiness alignment refers to the extent to which IT and businessoperations share congruent goals and maintain a harmoniousrelationship [46]. Although other conceptualizations and measure-ments of IT capabilities exist in the literature (e.g., [7]), we expectthat those that are used in this study are more likely to covary withCE and innovation-related activities and thus better explainvariability in key outcome variables. Specifically, a flexible ITinfrastructure can provide firms with the ability to innovate by

IT infrastructureflexibility

IT integration

IT business ali gnment

IT manag ement

IT capabili ties H1, H3

H5

Fig. 1. Researc

facilitating information sharing across different functions andimplementing extensive changes in business processes [10]. ITintegration can improve a firm’s ability to sense and respond toopportunities in the market and to integrate business processes[54]. IT management is considered central to the success of productdevelopment efforts [71]. IT business alignment focuses onmaintaining an IT strategy that is consistent with a firm’s businessstrategy to support the formulation and realization of the firm’sinnovation goals [46].

Conceptualizing the construct of IT capabilities as a second-order construct is further important for the present study becauseCE activities often span many business units and differentorganizational functions, suggesting that a perspective thatfocuses on a single component of IT capabilities can be construedtoo narrowly to provide a comprehensive understanding of therelationship between IT capabilities and CE activities. Therelationship between IT and firm innovation has drawn muchattention from academics and practitioners. The extant researchoften examines the various innovation-enabling effects of specificIT capabilities in isolation—e.g., IT infrastructure and IT-leveragingcapabilities [52]. Yet, product innovation is a cumulative, firm-wide process that involves various functional units and activities[53], and a systemic approach is required to examine IT-enabledinnovation at the firm level. Therefore, in this study, we examinethe impacts of overall IT capabilities on product innovation byapplying a comprehensive conceptualization of IT capabilities.

Referring to the abovementioned apparent link between therequirements for effective CE and the main attributes of IT, wepropose IT capabilities as an important antecedent of CE activities.To substantiate this proposition, we discuss how IT capabilities caninfluence CE in three main ways, i.e., helping to create and sharerelevant information, facilitating communication, and enabling therefinement and reconstruction of business systems and theirintegration into a cohesive whole. These IT capabilities correspondto three activities that are viewed as integral to successful CE. Toreiterate, for CE to be effective, firms should collect, analyze andinterpret data about the firm’s competitors, industry changes andtrends; these data can help to launch new ventures [68]. Inaddition, the initiation and implementation of CE depends on thequality and amount of communication among the employees andbusiness units that are involved in CE activities across the firm[68]. Furthermore, CE appears to be most effective when differentbusiness units can be adapted and integrated to support newinitiatives. Table 1 provides a summary of the attributes of IT

Competitive intens ity

Control variablesFirm sizeFirm age

Ownership structureIndustry type

Past perfo rmance

Corporat e entre pre neursh ip

Product innovation per formance

H2, H3

H4

h model.

Table 1Summary of IT attributes and their impacts on CE.

Main attributes of IT capabilities IT support for effective CE

Information creation and sharing IT capabilities provide entrepreneurially relevant information and build a supporting technological

environment within a firm

Communication facilitation IT capabilities facilitate communication and interactions within and across a firm’s boundary to improve

innovation more effectively

Business system refinement

and reconstruction

IT capabilities increase both the speed and effectiveness of internal changes and transformation within firms

Y. Chen et al. / Information & Management 52 (2015) 643–657646

capabilities and their impacts on CE. Below, we provide a detailedexplanation of how IT capabilities can help to support theeffectiveness of CE.

First, IT capabilities can enable CE by offering information thatis required for relevant CE activities and building a supportingtechnological environment within a firm. For example, strategicutilization of IT can promote a firm’s entrepreneurial alertness, i.e.,proactive attentiveness to information that is relevant toentrepreneurial activities [58]. The ability to quickly scan dataand sense information about market trends is critical to a firm’swillingness and capacity to engage in CE activities. Firms use IT tocollect data from multiple channels and elicit information aboutcustomers’ demands and preferences to increase the success ofnew product development. For example, GM uses a Web-enabledtool to collect data on customer preferences to better design newproducts [56]. Data regarding external entities, including compe-titors, partners, and other stakeholders, can be collected andprocessed using IT-based tools to identify market opportunities.Quick access to real-time environmental data is critical for a firm’sability to proactively identify and respond to opportunities andmake decisions about entrepreneurial initiatives. A flexible ITinfrastructure enables a firm to collect and analyze data aboutproducts and customer demands and preferences and thendistribute the data among various business processes, includingR&D, manufacturing and procurement; therefore, it can promoteefficiency and effectiveness in new product development. Forexample, as a collection of decision support technologies for firms,business intelligence software could effectively shorten the timelag between data acquisition and decision making, thus convertingcustomers’ demands into new products [12]. A firm with strong ITmanagement capability and sophistication is characterized by theability to manage IT resources to address key aspects of businessstrategy. With the support of a high level of IT managementcapability, a firm can better leverage data collection and processingcapacity to address business purposes. For example, IT manage-ment is important for identifying, collecting and interpretingrelevant data and information to support business processes [7]. Insum, with the help of strong IT capabilities, data and informationcan be collected, processed, used and shared among variousfunctional departments to identify business opportunities andmake decisions in response to market changes.

Second, IT capabilities can support CE by facilitating communi-cation and interactions within and across a firm’s boundary and,thus, bringing together different groups of relevant stakeholders. Afirm’s entrepreneurial activities often require contributions frommany participants and sponsors in different business units,suggesting that a large number of available communicationchannels is critical for the success of entrepreneurial endeavors.The presence of strong IT capabilities in a firm can promote andsupport communication and information sharing among individualemployees, functional departments and units as well as betweenthe firm and its business partners. IT-enabled communicationcapability helps to support collaboration efforts among variousfunctional units that are targeted at addressing customer demands,new product design and engineering [52]. Interorganizational

communication and collaboration enabled by IT plays a significantrole in accelerating product development and delivery to the market.For example, Oracle leverages the Oracle PartnerNetwork (OPN) tomanage partners of varying sizes and business models to support itsnew market expansion strategies [14]. Accordingly, a firm withstrong IT infrastructure and IT business alignment could benefitfrom better communication and collaboration among its variousfunctional departments and with its partners, thereby helping R&D,manufacturing, and other functional departments to innovate moreeffectively—i.e., design, build and develop new products and servicesthat customers want.

Third, IT capabilities play an important role in supporting CEactivities by enabling the refining and reconstructing of founda-tional business systems and their integration. The success of CEactivities depends on whether a firm can rapidly and efficientlyrefine and adapt its business activities, processes and structures. ITcapabilities can contribute to a firm’s CE by increasing both thespeed and effectiveness of these internal changes and transforma-tions. Specifically, modularization of a flexible IT infrastructureenables firms to integrate disparate systems and thus efficientlyadopt, implement, and upgrade new systems in response toevolving business needs [8]. A firm with a flexible IT infrastructurecan reduce the time to market for new products due to its readinessto implement new applications, easy access to the relevant data,and networking abilities. For example, several US airlines havedeveloped airline reservation systems that offer new services, suchas ‘‘frequent flyer’’ programs, and have created joint incentiveprograms with hotels and car rental agencies, which largely rely onthe airlines’ IT-enabled flexibility and integration [37]. In addition,by making it easier to identify available resources and providingthe visibility of processes and activities across the organization, ITcapabilities can enhance a firm’s ability to quickly and accuratelyallocate resources to new initiatives and tasks, such as cycle timeimprovement, cross-functional processes, and collaborative prod-uct development.

To summarize, IT capabilities are expected to form a firm-widetechnological foundation that can facilitate flexible processes andoperations and are necessary for launching and implementing newventures, developing new products, and renewing businessprocesses and business models. Consequently, we anticipate thatIT capabilities enable and enhance CE. Hence,

H1. IT capabilities are positively related to CE.

3.2. Product innovation performance

Innovation is the successful implementation of creative ideaswithin a firm [26]. It is generated from raw ideas that are createdwithin the firm or derived from the adaptation of new knowledgethat is found outside of the firm. Innovation is generally regardedas a key ingredient in a firm’s competitiveness and its ability tosurvive in a dynamic business environment [26]. Prior studies haveargued that innovation can be the most important determinant of afirm’s performance, and evidence has been found that newproducts account for up to one-third of firms’ financial growth

Y. Chen et al. / Information & Management 52 (2015) 643–657 647

(e.g., [49]). As a key aspect of overall innovation, productinnovation plays a critical role by enabling firms to earn abnormalprofits and providing a channel for the firms to enter new marketsand industries [50]. Given the interdisciplinary nature of productinnovation, studies have examined the antecedents of productinnovation and its performance from different perspectives (e.g.,[50]). For instance, from a marketing perspective, Luca andAtuahene-Gima [45] argued that market knowledge serves as amediator between cross-functional collaboration and productinnovation performance. Tang et al. [62] focused on the role of afirm’s strategic human resource management in the relationshipbetween entrepreneurial orientation and product innovation.

Prior research argued that the observed variation of firmperformance could be explained by various levels of CE (e.g., [69]).For instance, established firms with strong CE could effectivelyleverage financial resources and managerial expertise to success-fully introduce new products or services [69]. Because CE isconceptualized as being comprised of three dimensions – i.e.,business venturing, new product development and self-renewal –the present study aims to elaborate on the impact of CE on productinnovation performance in terms of these dimensions. First, firmswith high levels of entrepreneurial ventures tend to assume aproactive stance in monitoring the environment and activelyleverage the insights about the market and competition to helpmake better decisions about new product development [21]. Sec-ond, by focusing their efforts and resources on activities that arerelated to new product development, firms that have a high level ofCE more effectively search for new ideas, engage in innovativethinking, and refine operational processes that can lead to thegeneration of new insights and technologies [42], which arefundamental for eliciting high returns from product innovationefforts. Third, firms with high self-renewal abilities often embraceand try new resource combinations, which can improve productinnovation processes and enhance product innovation outcomes.

It is important to note that CE and product innovationperformance are conceptually and empirically different conceptsdespite their apparent similarity in terms of the dimension of newproduct development [15,49]. New product development is aprocess by which attempts are made to transform inventions intomarketable and value-adding products, processes, services, ororganizational changes [28]. It encompasses the R&D activities thata firm undertakes for the purpose of improving innovationperformance. By contrast, product innovation performance assessesthe contribution of product innovation to firm performance [15].

Based on the preceding discussion, we expect a positive linkbetween a firm’s CE activities and its performance in terms ofproduct innovation. Therefore, we propose the following hypoth-esis:

H2. CE is positively related to product innovation performance.

Combining H1 and H2, it can be inferred that CE operates as anintermediary in the relationship between IT capabilities andproduct innovation performance. High levels of CE, as a capability,may be achieved when firms successfully leverage their informa-tion technologies. The combination of these arguments suggeststhat CE mediates the relationship between a firm’s IT capabilitiesand product innovation performance. Firms with high levels of ITcapabilities could engage in CE in a manner that develops newproducts, ventures in new business, and renews the existingoperation with efficiency and effectiveness. High levels of CEprovide opportunities for firms to achieve high product innovationperformance.

We conceptualize CE as a full mediator of the path from ITcapabilities to product innovation performance. In other words, wehypothesize that IT capabilities influence product innovationperformance only through CE. This conceptualization is motivated

by the lack of an observable direct impact of IT capabilities on firm-level outcomes and by the expected direct link between CE andsuch outcomes. It is further motivated by the hypothesized linkbetween IT capabilities and CE activities.

H3. CE fully mediates the relationship between IT capabilities andproduct innovation performance.

3.3. Competitive intensity

The CE literature conceptualizes a firm’s external businessenvironment as important. Some scholars argue that in contrast tocertain aspects of an organization’s life (e.g., hiring, turnoverintentions), CE seems to flourish under conditions of greaterenvironmental dynamism and is often viewed as a usefulmechanism for responding to new competitive forces [68]. Specifi-cally, firms that operate in dynamic environments are likely to bemore innovative, less risk-averse, and more proactive than thosefacing less uncertainty and fewer external pressures [67]. Environ-mental dynamism captures the perceived instability of the firm’smarket due to ongoing changes, and for some firms, suchdynamism brings new business opportunities [68]. Specifically,changes in the business environment can open many windows ofopportunity, thereby prompting a spur of entrepreneurial activitythat aims to capitalize on such opportunities [68]. For instance,firms that face dynamic external business and market conditionsmay consider novel business ideas to supplant or supplement theircore business activities via internal development or diversifyinginto new markets [68].

As an important indicator of environmental dynamism,competitive intensity reflects the degree to which firms facecompetition within their industries [25]. Intense competition isoften associated with fierce price wars, heavy advertising andmany competing product offerings. For example, firms in moretechnology-intensive industries, such as the electronic productindustry, experience more rapid changes in technology develop-ment and face more uncertainty and more intense competition[66]. A firm’s external business environment can influence internalprocesses by creating or obstructing strategic matches, whichcould interfere with internal processes that are designed to helpthe firm attain better performance. Aragon-Correa and Sharma’s[1] work suggested that environmental factors can moderate therelationship between the deployment of various organizationalcapabilities and environmental strategy. Although the strategyliterature foresees both positive and negative outcomes ofoperating within an intensely competitive business environment,the CE literature mainly expects a spur of entrepreneurial activity.

Specifically, when competition is intensive, firms need toengage in risk-taking and entrepreneurial activities that requireboth learning and exploration to break out of price wars [70]. Suchactivities include innovating new products, exploring newmarkets, seeking novel ways to compete, and examining how toachieve differentiation [70]. In conditions of highly intensivecompetition, firms tend to pay more attention to their competitors.To differentiate themselves from their competitors, firms like touse their resources to invest in R&D and product innovation. In thissituation, firms increasingly depend on CE activities to achievehigher product innovation performance. Accordingly, we proposethe following hypothesis:

H4. Competitive intensity positively moderates the relationshipbetween CE and product innovation performance.

Extending the CE framework to the context of IT, we foreseeanother role of competitive intensity. Various scholars argue thatthe role of IT in firm-level outcomes can depend on differences inexogenous variables (e.g., [60]). Some have argued that a proper fit

Y. Chen et al. / Information & Management 52 (2015) 643–657648

between internal organizational mechanisms and exogenous vari-ables is necessary for achieving superior firm performance (e.g., [9]).Recent studies note that the effects of IT capabilities on firmperformance may be contingent on external business environmentalfactors, such as environmental dynamism (e.g., [18]). For example,Nevo and Wade [51] proposed that certain IT-enabled resources maybecome less or more strategic in the presence of greater uncertaintyin a firm’s business environment. Furthermore, Stoel and Muhanna[60] found that the returns on IT capabilities vary according todifferent levels of environmental factors. Consistent with thetheoretical framework guiding this study and with the above-mentioned literature, we examine how competitive intensitymoderates the relationship between IT capabilities and CE.

Organizational capabilities and resources can play differentroles in highly competitive environments and in less intenselycompetitive environments. In an environment that is characterizedby intense competition, top managers often face the imperative todifferentiate their products or services and have a greater need forinformation and information processing capacity [17]. In suchenvironments, firms that face changing external conditions areoften required to quickly and effectively address environmentalpressures. Thus IT capabilities, which enable firms to effectivelymobilize various IT assets and resources, are expected to becomemore valuable. In support of this argument, Dong et al. [22]reported that a digitally enabled capability of efficient coordina-tion becomes more valuable as competition intensifies. Similarly,Nevo and Wade [51] found that IT capabilities (such as ITintegration effort and compatibility) become more strategic in theface of heightened environmental turbulence.

In a competitive environment, it can be particularly difficult tosustain the competitive edge that may have been created becausethe rapidly changing environment can neutralize previouslygenerated benefits or render them obsolete. Such an environmentraises the need for firms to engage in CE activities, constantlysearch for new opportunities as they unfold, or renew themselvesto improve operational efficiency and effectiveness. These activi-ties can include continuously scanning and sensing the market andseeking relevant information and then communicating it torelevant organizational members. Such conditions imply an evengreater importance of the availability of a flexible IT infrastructure;the collection and analysis of information about customers,suppliers and competitors; relevant technical and managerial ITskills; and the rapid communication of real-time information withinternal departments and business partners. Thus, businessenvironments with intensive competition are expected to makeCE activities even more dependent on relevant and timelyinformation, reliable real-time communication channels, andeffective organization-wide integration of business units com-pared with less competitive business environments. In otherwords, greater competitive intensity is likely to amplify theenabling role of IT capabilities in supporting CE activities and theefficient implementation of a firm’s entrepreneurial strategy.

In light of this anticipated heightened importance of ITcapabilities for enabling CE under conditions of greater competi-tive intensity in a firm’s business environment, we put forward thefollowing hypothesis:

H5. Competitive intensity positively moderates the relationshipbetween IT capabilities and CE.

4. Research methodology and analysis

4.1. Data collection

We collected data from manufacturing firms in one province inNorthern China for two reasons. First, this region has the largest

concentration of manufacturing firms worldwide [43]. Due in partto ongoing economic and political reforms that produce differentownership structures, such as state-owned and the emergingprivate and foreign-owned companies, at least some of the firmsexperience heightened competitive intensity, thereby helping us totest H4 and H5. Second, although IT deployment has increasedgreatly in China, the leveraging of IT to create business valueremains a new discipline, and empirical studies on IT issues inChina are sparse [13]. We gathered data through a field study thatobtained responses from (1) senior IS leaders, such as ChiefInformation Officers (CIOs), IT directors, and IT managers and (2)business leaders, i.e., CEOs. Separate questionnaires were devel-oped for an IS leader and a CEO in each firm. Because they are wellversed in the organizational capabilities pertaining to IT and theinnovative management of their organizations, IS leaders and CEOswere considered appropriate participants for our study. Such amultiple-source design could also reduce systematic measurementerrors, such as the common method variance.

Direct data collection from firms is difficult to execute in Chinadue to a weak cooperation culture between academia and industry[17]. Following Davies and Walters’s advice, we sought assistancefrom local government agencies that were in a position to requestdata from firms in their authority area. This approach was expectedto facilitate data collection and high-quality responses becauseChinese firms often depend on those government agencies forsupport and are thus more likely to acquiesce to the agencies’requests. Using the list of manufacturing firms under thejurisdiction of those agencies, we adopted a probability samplingapproach to obtain a sample that is representative of localconditions [17]. The target population is manufacturing firms thatare localized in this region, which are predominantly small tomedium-sized and state-owned firms. Additionally, most of thesefirms produce products such as energy, machinery, and pharmacy.With the help of local government agencies, we identified 212 firmsthat seemed to be representative of the target population based ontheir age, size, ownership structure and industry affiliation. All212 firms agreed to participate in our study.

To minimize the potential for common methods bias and tobetter infer the causal relationships in our model, we collected datain two waves, with the second wave taking place one and a halfyears after the first wave. In the survey of the first wave (T1), theCEOs provided information on CE, competitive intensity, pastperformance, and firms’ demographic information (size, age,ownership structure, industry type); the IS leaders providedinformation on IT capabilities. During the second wave (T2), weasked CEOs to provide information on product innovationperformance. To gather valid information in the Chinese context,we recruited trained assistants to conduct onsite data collection onrespondents’ companies. We informed participants of the goal ofthe survey, assured them of the confidentiality of their answers,and offered a cash remuneration that is equivalent to an averageemployee’s half-day salary. We employed these efforts to improveresponse rates without degrading the accuracy of the information.Participants completed the questionnaires during their work hoursand returned the completed surveys to the research assistants,who then combined the questionnaires that were answered byrespondents from the same firm, thus creating a matched surveysample [64].

During the first wave (T1), we received responses from 198 CEOsand 212 IS leaders. After removing unmatched and/or missingcases, the sample in the first wave consisted of 151 matchedquestionnaires with complete information. In the second wave(T2), we received 138 completed questionnaires from CEOs, whichall had complete information on product innovation performance.Therefore, the final matched survey sample consisted of 138 firms,resulting in a final response rate of 65.1% (=138/212). Table 2

Table 2Sample characteristics (N = 138).

Frequency Percent. (%)

Firm size (no. of employees)

Less than 100 58 42.0

100–1000 61 44.2

More than 1000 19 13.8

Ownership structure

State owned 92 66.7

Non-state owned 46 33.3

Industry type

Basic metal 35 25.4

Non-metallic mineral 32 23.2

Fabricated metal 7 5.1

Machinery equipment 16 11.6

Thermal power 14 10.1

Chemicals 6 4.3

Energy 14 10.1

Mining 8 5.8

Building materials 6 4.3

Firm age (in years)

Less than or equal to 5 54 39.1

6–10 52 37.7

More than 10 32 23.2

Respondents (matched surveys)

IS leader survey

IT director 51 37.0

Chief information officer 46 33.3

IT manager 37 26.8

Other IT leaders 4 2.9

Business leader survey

CEO 138 100

Y. Chen et al. / Information & Management 52 (2015) 643–657 649

presents a summary of our sample. We assessed the possibility ofnon-response bias by following De Luca and Atuahene-Gima[45]. Specifically, we compared a sample of 50 matched firms witha sample of unmatched firms for which we had data on firm ageand number of employees. Analyses of variance indicated nosignificant differences between the two groups in terms of firm age(F = .50) and the number of employees (F = .42).

4.2. Measurement items

We adopted measures from prior studies and modified them tofit the context of our study (see Appendix A). All multi-itemmeasures were based on five-point Likert scales. While thequestionnaires were originally developed in English, they weresubsequently translated into Chinese to facilitate respondents’understanding. The back-translation technique was used to ensurethe linguistic equivalence of the two versions. A bilingualresearcher translated the questions back into the originallanguage. The back-translation was then compared with theoriginal questionnaire to examine any discrepancies between thetwo questionnaires. Two faculty members and two doctoralstudents reviewed the initial version of the questionnaires andprovided their feedback on the content validity and the clarity ofthe instructions. Their feedback led to minor changes in thewording of the items, resulting in the final version.

4.2.1. IT capabilities

Past studies posited that IT capabilities could not be directlymeasured because of their complex facets (e.g., [6]). Therefore, inthe current study, we conceptualized the construct of ITcapabilities as a formative second-order construct that iscomposed of IT infrastructure flexibility, IT integration, IT businessalignment, and IT management. Specifically, measurements of ITinfrastructure flexibility are from Bhatt et al. [8]; measurements ofIT integration are from Rai and Tang [55]; measurements of ITbusiness alignment are from Kearns and Lederer [38]; and

measurements of IT management are from Bharadwaj et al.[6]. A five-point Likert-type scale, ranging from 1 (stronglydisagree) to 5 (strongly agree), was used.

4.2.2. Competitive intensity

Because it is undergoing reform and marketization, China hasbeen facing a series of institutional changes in aspects such aspolitical, economic, and enterprise ownership structures, whichare attracting an increasing number of firms to this emergingeconomy [43]. Thus, market competition has intensified as privateenterprises proliferate and the number of enterprises drasticallyincreases. For the reflective construct of competitive intensity, weadopted measurements from Jaworski and Kohli [33]. We askedthe CEOs to evaluate the extent to which they agreed or disagreedthat their firms faced a business environment with intensecompetition. A five-point Likert-type scale, ranging from 1(strongly disagree) to 5 (strongly agree), was used.

4.2.3. Corporate entrepreneurship (CE)

We followed Heavey et al. [29] by treating CE as a latent second-order construct with three first-order dimensions: businessventuring, new product development and self-renewal. Thisspecification helps to capture the common variances or covar-iances shared by the first-order factors [44]. The reflective second-order factor of CE represents a covariation model and captures thecommonality shared across these three dimensions [44]. CEOsresponded using a five-point Likert-type scale that ranged from 1(strongly disagree) to 5 (strongly agree).

4.2.4. Product innovation performance

Prior research found that subjective measures of productinnovation performance are highly correlated with objectivemeasures or information on product innovation released by firmsor governments (e.g., [65]). Prior research conducted in Chinasuggests that subjective measures of product innovation perfor-mance should be adopted due to the lack of systematic and reliableobjective data on innovation performance (e.g., [47]). It is worthmentioning that a large number of our respondents were fromsmall-to-medium-sized firms that were not listed on publicexchanges (see Table 2), thus objective data (e.g., financial reports)were not readily available. Consequently, we adopted reflectivemeasurements from De Luca and Atuahene-Gima [45] to evaluatethe firms’ performance on new product development. CEOsresponded using a five-point Likert-type scale that ranged from1 (strongly disagree) to 5 (strongly agree).

To validate the measurement of product innovation perfor-mance, another set of performance data was collected fromexternal stakeholders during the second wave (T2). Specifically, foreach firm, we approached representatives of one group ofstakeholders, such as the firm’s customers, shareholders, or localgovernment officials who are familiar with or tasked withmonitoring the firm. We asked them to complete a shortquestionnaire based on their knowledge of the firm. Thequestionnaire contained two sections. The first section measuredthe extent to which the respondent is familiar with the firm (from1, ‘‘not familiar at all,’’ to 5, ‘‘very familiar’’). The second sectionasked respondents to evaluate the firm’s product innovationperformance using the same scale that was employed in the CEOs’questionnaire. The responses to the first section indicatedmoderate to high, and thus acceptable, familiarity with the firmin question. We then correlated the stakeholder’s and the CEO’sevaluations of product innovation performance and found thatthey are correlated to a small-to-medium extent (r = .19, p � .05).Given that the correlation is positive and significant, we consideredthe CEOs’ evaluations to be credible measures of their respectivefirms’ product innovation performance.

Table 3Results of confirmatory factor analysis.

Measures Items Composite

reliability

Average

variance

extracted

IT infrastructure flexibility 4 .90 .69

IT integration 3 .88 .70

IT business alignment 6 .86 .51

IT management 6 .90 .60

New product development 5 .93 .73

Business venturing 4 .84 .57

Self-renewal 4 .86 .61

Competitive intensity 3 .92 .79

Product innovation performance 5 .93 .73

1 Table 5 showed that the correlation between new product development and

product innovation performance was .31. Thus, the test of discriminant validity

empirically confirmed the distinction between these two constructs.2 After observing that some constructs have high correlations (�.5), we

performed an additional test to confirm discriminant validity. Based on the work

of Chang and King [11], we tested the significance of the chi-square differences

between the original model (i.e., the model with the correlation between the two

factors free of control) and the constrained model, in which the two factors were

united as one construct (i.e., the correlation between the two factors was set as 1).

All the chi-square differences were significant: IT infrastructure flexibility and IT

management (Dx2/Dd.f. = 100.81, p � .05), IT business alignment and IT manage-

ment (Dx2/Dd.f. = 86.87, p � .05), IT business alignment and IT integration (Dx2/

Dd.f. = 30.35, p � .05), innovation and venturing (Dx2/Dd.f. = 33.08, p � .05),

innovation and renewal (Dx2/Dd.f. = 88.17, p � .05), and venturing and renewal

(Dx2/Dd.f. = 2.75, p � .10). Considering the three methods above, we concluded

that all constructs displayed adequate discriminant validity.

Y. Chen et al. / Information & Management 52 (2015) 643–657650

4.2.5. Control variables

We controlled for firm age, firm size, ownership structure,industry type, and past performance because of their potentialeffects on CE and product innovation performance. We includedfirm age as a control variable because older firms can enjoy anexperience-based advantage that enables them to sustain growthbetter than younger firms. We measured firm age using thenumber of years the firm existed. We included firm size becauselarger firms may have more resources than smaller firms, whichmay affect the relationship between CE and product innovationperformance. We utilized a categorical description of the firm sizefollowing Judge and Elenkov [34]. Specifically, we classified firmswith less than 100 employees as ‘‘small,’’ firms with more than100 employees but less than 1000 employees as ‘‘medium,’’ andfirms with more than 1000 employees as ‘‘large.’’ We includedownership structure as a binary control variable because in China,state-owned enterprises are generally less willing to take risks andless proactive than non-state-owned enterprises [72]. We con-trolled for industry sub-types because they can capture differentenvironmental dimensions, which can impact firms’ performance.We included past performance as a control because it can influencethe strategic goals set by the top management team, thusinfluencing product innovation performance. We adopted fourmeasurement items from Judge and Douglas [35]. CEOs respondedto this measure. A five-point Likert-type scale, ranging from 1 (far

below the average) to 5 (far above the average), was used.Cronbach’s alpha for this measure was .73, which is above thethreshold level [27]. To confirm the validity of the pastperformance measure, we asked a second set of externalstakeholders, who were different from the set that evaluatedproduct innovation performance, to answer the same questions onpast performance that were posed in wave one (T1). The correlationbetween stakeholders’ evaluations and CEOs’ evaluations ispositive and significant (r = .41, p � .01), supporting the validityof the respondents’ evaluation.

4.3. Data analysis and results

We used the partial least squares (PLS) method to test ourresearch model because it allowed latent variables to be modeledas formative or reflective constructs and it can accommodate non-normality with small to medium sample sizes. In this study, theconstruct of IT capabilities was a formative second-order construct,CE was a reflective second-order construct, and competitiveintensity and product innovation performance were both reflectivefirst-order constructs. SmartPLS 2.0 was used to analyze theresearch model.

4.3.1. The measurement model

We assessed construct reliability with PLS’s internal consisten-cy measure. Table 3 shows that all values were above .70,indicating acceptable reliability. We also tested convergentvalidity by examining the average variance extracted (AVE) fromthe measures. Table 3 shows that the values of the AVEs rangedfrom .51 to .79 and, thus, are all above the threshold value of .5. Inaddition, we used confirmatory factor analysis to test the measuresof our research model. Table 4 shows the test’s weights andloadings. All the measures displayed significant loadings, indicat-ing acceptable convergent validity. Finally, we tested thediscriminant validity of the measures. We adopted the guidelinessuggested by Kline [40] to examine factor correlations and thosesuggested by Gefen et al. [24] to test whether the square root of theAVE for each construct was larger than its correlation with otherfactors. The test did not detect any anomalies. Table 5 summarizesthe major descriptive statistics and the correlations derived fromthe sample. As shown in Table 5, all construct correlations were

less than .8 and the square root of the AVE for each construct washigher than the correlation between any pair of factors, confirmingthe discriminant validity of the scale1. To conclude, all constructsdisplayed adequate discriminant validity2.

4.3.2. The structural model

With a psychometrically acceptable measurement model, weproceeded to test the proposed hypotheses using SmartPLS 2.0. Theresults of the analysis are depicted in Fig. 2.

H1 was supported (path coefficient was .32 at p � .01),demonstrating that IT capabilities improved a firm’s CE, whichincluded aspects such as business venturing, new productdevelopment, and self-renewal. H2 was also supported (pathcoefficient was .27 at p � .01), demonstrating that CE enabled firmsto leverage business venturing, new product development, andself-renewal to enhance product innovation performance.

Consistent with our conceptualization of the intermediary roleof CE, we employed the procedures recommended by Baron andKenny [3] to examine H3, i.e., whether CE mediated the effect of ITcapabilities on product innovation performance. Recent studies invarious research fields (e.g., [41]) argued that condition 1 of theclassic mediation analysis (i.e., IT capabilities and productinnovation performance) can be relaxed without hampering thevalidity of the mediation analysis. Therefore, we followed thissuggestion by testing the mediation role of CE. Full mediation ispresent when the following conditions are met: a path from theindependent variable (i.e., IT capabilities in our study) to thedependent variable (i.e., product innovation performance) is notsignificant, while paths from the independent variable to themediator (i.e., CE) and from the mediator to the dependent variableare both significant. Partial mediation is present when all threepaths are significant. After linking IT capabilities with productinnovation performance based on Fig. 2, the path from ITcapabilities to product innovation performance was not significant(path coefficient was .06 at p > .05), and the other two paths were

Table 4Factor loadings, weights, and t-values.

Model construct Measures Factor

loading

Weights

of the

measures

t-Value

IT infrastructure

flexibility

ITIF 1 .80 .28 20.83

ITIF 2 .89 .33 43.90

ITIF 3 .79 .29 19.71

ITIF 4 .84 .31 27.61

IT integration ITI 1 .84 .41 28.84

ITI 2 .85 .38 25.70

ITI 3 .82 .41 22.40

IT business

alignment

ITBA 1 .73 .25 14.21

ITBA 2 .72 .24 11.41

ITBA 3 .68 .22 10.15

ITBA 4 .68 .22 9.78

ITBA 5 .72 .23 11.75

ITBA 6 .74 .24 13.52

IT management ITM 1 .73 .20 13.71

ITM 2 .74 .20 14.15

ITM 3 .75 .21 17.32

ITM 4 .79 .21 20.91

ITM 5 .81 .23 21.70

ITM 6 .81 .24 24.02

New product

development

NPD 1 .79 .24 16.34

NPD 2 .89 .24 43.57

NPD 3 .85 .22 32.50

NPD 4 .89 .23 36.50

NPD 5 .84 .24 26.36

Business

venturing

BV 1 .72 .33 14.63

BV 2 .80 .35 18.87

BV 3 .79 .34 18.38

BV 4 .70 .31 8.85

Self-renewal SR 1 .75 .28 11.72

SR 2 .77 .29 15.56

SR 3 .80 .35 22.61

SR 4 .81 .35 29.70

Competitive

intensity

CI 1 .88 .33 22.15

CI 2 .89 .39 28.20

CI 3 .90 .41 31.20

Product innovation

performance

PIP 1 .83 .20 23.16

PIP 2 .78 .17 18.28

PIP 3 .91 .27 52.04

PIP 4 .86 .23 30.37

PIP 5 .88 .29 41.39

Y. Chen et al. / Information & Management 52 (2015) 643–657 651

significant (path coefficient were .32 at p � .01 and .25 at p � .05,respectively). We thus concluded that H3 was supported andconsistent with our theorization that CE fully mediated the effectof IT capabilities on product innovation performance.

H4 predicted a positive moderating effect of competitiveintensity on the relationship between CE and product innovationperformance. H5 postulated a positive moderating effect ofcompetitive intensity on the relationship between IT capabilitiesand CE. H4 was not supported (path coefficient was �.14, p > .05),which suggested that competitive intensity did not significantlymoderate the CE–product innovation performance relationship forthe firms in our sample. Because the moderating effect wassignificant (path coefficient was .23 at p � .01), we concluded thatH5 was supported and that competitive intensity positivelymoderated the IT capabilities–CE relationship. Fig. 3 presentsthe moderation results3.

3 As additional robustness checks, we retested the model using formative

specifications of CE. By using PLS software, the result shows that the relationship

between IT capabilities and product innovation performance became nonsignifi-

cant (path coefficient is .07, p > .05) when CE was added. The moderating effect of

competitive intensity on the IT capabilities-CE linkage was also significant (path

coefficient is .19, p � .05) while that on CE-product innovation performance

remained nonsignificant (path coefficient is �.09, p > .05). This test yielded

patterns of relationships that are consistent with our reflective specification of the

construct of CE.

To confirm the moderating role of competitive intensity on theIT capabilities–CE relationship, we further tested mediatedmoderation using PLS’s structural model. In mediated moderation,the interaction between the independent variable and themoderator influences the dependent variable through a mediator[23]. To this end, we tested whether the relationship between ITcapabilities (the independent variable) and CE (the mediator) wasmoderated by competitive intensity (the moderator) and whetherCE, in turn, influenced product innovation performance (thedependent variable). Thus, mediated moderation required amultistep procedure [23] that tested whether the following resultswere observed: (1) CE significantly impacted product innovationperformance, (2) the effect of IT capabilities on CE was significantlymoderated by competitive intensity, (3) the effect of thismoderating term on product innovation performance wassignificantly mediated by CE, and (4) the direct effect of CEdecreased in magnitude in the presence of the interaction term.The analysis showed that steps 1 and 2 received empirical support.Next, a mediation test (Sobel test statistic 2.06 at p � .05)confirmed that CE significantly mediated the effect of theinteraction term on product innovation performance. The interac-tion of IT capabilities and competitive intensity had no significantdirect impact on product innovation performance. Finally, addingthe interaction term decreased the magnitude of the direct effect ofcompetitive intensity on CE (path coefficient decreased from .18 to.16, both at p � .01) after controlling for the interaction between CEand competitive intensity. We noted that adding the moderatorincreased the R2 for CE from 41% to 46% (DF = 8.11 at p � .01),suggesting that it provided explanatory power to the model. Thus,all the conditions for mediated moderation were met.

Finally, we examined the influence of the control variables. Theresults showed that the effect of ownership structure was negativeand significant (path coefficient was �.13 at p � .05), suggestingthat state-owned firms tended to engage in fewer CE activities.They also demonstrated that past performance was positively andsignificantly related to CE (path coefficient was .33 at p � .01). Thisresult suggested that past successful innovation tended to spurcurrent and future entrepreneurial activities. The remainingcontrol variables did not have a coefficient that significantlydiffered from zero.

5. Discussion

Prior research regarding IT business value has largely focusedon the role of IT in generating tangible outcomes for firms, such asenhanced output productivity, reduced labor costs and increasedfinancial or market performance (e.g., [8]). More recently,practitioners have considered IT to play an important role incorporations’ innovation (e.g., [73]). According to a recent GartnerCIO Agenda survey4, creating new products and services (innova-tion) has been ranked No. 4 among CIOs’ top business priorities,which has significantly risen from its No. 10 ranking five yearsearlier5. With the emergence of new IT, such as mobiletechnologies, cloud computing and data, analytics and theirvarious applications in business, CIOs and IS leaders increasinglyconcentrate on the role of IT as a critical enabler of firm innovation.However, the relationship between IT and organizational innova-tion, especially the role of IT in product innovation, is not wellunderstood. The current study was motivated by the desire to shedlight on this hitherto elusive role. The key findings from this studycontribute to the IT business value literature by explaining how IT

4 Source: http://www.gartner.com/newsroom/id/1897514, retrieved on Dec

29th, 2014.5 Source: http://www.gartner.com/newsroom/id/501189, retrieved on Dec 29th,

2014.

Table 5Correlation between constructs.

1 2 3 4 5 6 7 8 9 10 11 12 13

1. IT infrastructure flexibility (T1) .832. IT integration (T1) .40 .843. IT business alignment (T1) .47 .58 .714. IT management (T1) .57 .39 .53 .785. New product development (T1) .24 .37 .36 .28 .856. Business venturing (T1) .31 .23 .33 .31 .64 .757. Self-renewal (T1) .38 .29 .33 .35 .51 .71 .788. Competitive intensity (T1) .11 .01 .10 .10 .19 .30 .39 .899. Product innovation performance (T2) .27 .11 .22 .23 .31 .31 .36 .19 .8510. Past performance (T1) .28 .23 .26 .32 .26 .46 .59 .28 .31 .7611. Firm sizea .09 .07 .08 .18 .02 .08 .06 �.04 .19 .09 –

12. Firm age .01 .03 .03 .01 �.11 �.11 �.04 �.02 .04 .02 .03 –

13. Ownership structureb .06 .01 .03 .06 �.11 �.18 �.08 �.03 .06 �.05 .13 .27 –

Mean 3.79 3.68 3.64 3.52 3.35 3.76 3.77 4.06 3.72 3.82 1.72 8.48 .67

S.D. .64 .71 .63 .61 .83 .65 .67 .80 .73 .63 .69 5.04 .47

Note: The values above .17 are significant at p � .05. The shaded numbers in the diagonal row are square roots of the average variance extracted.a Coding: ‘small-sized’ = 1; ‘medium-sized’ = 2; ‘large-sized’ = 3.b Coding: ‘state owned’ = 1; ‘non-state owned’ = 0.

Y. Chen et al. / Information & Management 52 (2015) 643–657652

capabilities contribute to product innovation. Specifically, thestudy shows that IT capabilities enable CE, which is critical toenhanced product innovation performance. The study furthershows that this important enabling role is amplified underconditions of intense competition in the firm’s external businessenvironment.

5.1. Implications for research

With this study’s main purpose of addressing the relationshipbetween IT and innovation, a CE framework has been applied toinvestigate how IT contributes to firms’ product innovation. Byproposing and verifying the mediating role of CE in IT-enabledinnovation, this study enhances our understanding about IT andthe business value of IT. Based on a matched survey sample from

n = 13 8; ** p ≤ .01; * p ≤ .0

0.29**

0.35**

0.20**

H1: 0.32**

IT infrastructure flexibility

IT integration

IT business ali gnment

IT manag ementNew product development

0.41**

0.87**

IT capabili ties

Fig. 2. Results of PLS analysis w

138 manufacturing firms in Northern China, we find evidence thatsupports our hypotheses that CE fully mediates the relationshipbetween IT capabilities and product innovation performance andthat competitive intensity positively moderates the relationshipbetween IT capabilities and CE; that is, under conditions ofintensively competitive environments, firms tend to rely more onIT capabilities to support their CE activities. These findingscontribute to the literature on business value of IT and thefoundational literature of CE. Below, we elaborate on theimplications of these findings.

This study is one of the first academic efforts to address IT-enabled innovation, and it contributes to the relevant literature bybuilding a model of the IT–innovation relationship. Althoughspecific information technologies and applications have beenfound to play a significant role in supporting product innovation in

Control variablesFirm size (-0.03, 0.16 )Firm age (-0.08, 0.04 )Ownership structure (-0.08, 0.08)Past performance (0.30**, 0.13 )Dummy1-Basic metal (0.22, -0.09)Dummy2-Non-metallic mineral (0.12, -0.22 )Dummy3-Fabricated metal (0.14, -0.07)Dummy4-Thermal power (0.15, -0.16 )Dummy5-Chemicals (0.03, 0.03 )Dummy6-Energy (0.10, -0.11 )Dummy7-Mining (0.13, 0.03)Dummy8-Buil ding materials (0.17*, 0.01 )

5 (two-tail ed) .

H2: 0.27**

R2 = 0.39 R2 = 0.22

Business venturing

Self-renewal

0.89** 0.83**

Corporat e entre pre neursh ip

Product inn ova tion performance

ithout moderating effects.

Control variablesFirm size (0.01, 0.12)Firm age (-0.08, 0.05 )Ownership structure (-0.13*, 0.07 )Past performance (0.33**, 0.14 )Dummy1-Basic metal (0.21, -0.09)Dummy2-Non-metallic mineral (0.10, -0.22 )Dummy3-Fabricated metal (0.10, -0.07)Dummy4-Thermal power (0.10, -0.16 )Dummy5-Chemicals (-0.15, 0.03 )Dummy6-Energy (0.06, -0.11 )Dummy7-Mining (0.08, 0.03)Dummy8-Buil ding materials (0.15*, 0.01 )

n = 13 8; Soli d li nes are significant paths, dott ed li nes are non-significa nt paths** p ≤ .01 ; * p ≤ .05 ; ns, non-significa nt (two-tail ed)

0.29**

H5: 0.23**

0.29**

0.35**

0.20**

0.28**

R2 = 0.46 R2 = 0.23

IT infrastructure flexibility

IT integration

IT business ali gnment

IT manag ementNew product development

Business venturing

Self-renewal

0.41**

0.87** 0.89** 0.83**

IT capabili ties Corporat e entre pre neursh ip

Product inn ova tion performance

Competitive intens ity

H4: -0.14ns

Fig. 3. Results of PLS analysis with moderation effects.

Y. Chen et al. / Information & Management 52 (2015) 643–657 653

different ways, our understanding of the mechanism throughwhich IT contributes to innovation remains fragmented; thus, thismechanism requires further investigation. Our work contributes tothe IT–innovation literature by adopting a perspective on IT thatfocuses on the combination of hardware, software, technicalhuman resources, and applications. Furthermore, this studycontributes by focusing on the interaction between IT resourcesand other organizational resources and introducing the concept ofIT capabilities to the investigation of IT-enabled innovation.

This integrated perspective on IT helps us examine the roles offirm-level IT competence in generating product innovation ratherthan isolating the impacts of IT. This is aligned with the emergingfacts that information technologies and applications are closelyembedded in enterprise-wide business activities, processes androutines within contemporary firms. Furthermore, althoughspecific IT resources are implemented and developed in an isolatedform, they interact with each other and support business activitiesjointly. Thus, a broader view on the impacts of IT is needed. Thefinding thus extends the IT–innovation relationship literature byviewing IT capabilities in an integrated way, allowing for theholistic consideration of the impacts of IT infrastructure flexibility,IT integration, IT business alignment, and IT management.

In addition to taking an integrated approach to examining theimpacts of IT capabilities as a whole on CE and product innovation,this study found that IT management has the greatest weightamong the four dimensions of IT capabilities in the proposedmodel. This result implies that IT management could likely play amore significant role in IT-enabled innovation compared to otherIT capabilities dimensions. With advanced information technol-ogies and various applications implemented to support a varietyof business activities, IT management capability becomesincreasingly critical for the success of IT strategy. When a firm

implements more heterogeneous systems, applications andfunctions to support business innovation, it is critical for thefirm to possess sophisticated IT management capability tointegrate and coordinate various IT resources and maintain thealignment between IT and business demands.

Furthermore, this study addresses the unsolved question of howIT, which was traditionally considered a fungible tool for reducinglabor costs and increasing efficiency by automating and standardiz-ing human activities and routines, can also enable responsiveness,flexibility, agility, and innovation performance. The findings of thisstudy help to address this question by highlighting two theoreticalinsights. First, CE fully mediates the impacts of IT capabilities on afirm’s product innovation. Both IT capabilities and CE, as firm-widecapabilities, reside or are embedded in various business routines,activities and processes across different functional departments andunits. In particular, CE is considered the aggregated enterprise-wideeffort dedicated to recognizing and exploiting new opportunities.Second, a firm’s IT capabilities significantly influence CE within thefirm. CE reflects a firm’s ability to identify and respond toopportunities using resources. As elaborated in the previous section,effective CE activities significantly rely on the availability of relevantand timely information, firm-wide integration, and effectivecommunication, which is closely aligned with IT’s main attributes.This alignment underlying IT and entrepreneurial activities providesstrong rationale for linking IT with CE. The finding of the relationshipbetween IT capabilities and CE in this study contributes to theliterature by addressing the aforementioned question of the IT–innovation relationship with a solid theoretical foundation andempirical support.

Recent studies emphasize the business value of IT emergingthrough its complementarity and integration with businessstrategies, organizational structures, and competencies (e.g., [4]).

Y. Chen et al. / Information & Management 52 (2015) 643–657654

Following this emergent perspective on IT value, our study proposesthat a CE framework is appropriate for investigating the impacts of ITon firm product innovation. Findings from this work furtherdemonstrate that IT capabilities exert a positive and significantimpact on product innovation performance, albeit indirectly, via CE.This result suggests that encouraging and supporting CE activities isan important mechanism through which firms can leverage ITcapabilities to enhance product innovation performance. Thisfinding also reaffirms the notion that IT capabilities do not directlydetermine firm-level outcomes [4]. Rather, intermediaries such asCE are needed for the realization of the strategic potential of ITcapabilities, translating infrastructure flexibility, information col-lecting and sharing capacities, communication channels, andintegration abilities into business outcomes.

Moreover, this paper theorizes a contingent relationshipbetween IT capabilities and CE activities. Specifically, the studyfinds that competitive intensity augments the positive influenceof IT capabilities on CE. This result suggests that IT-enabled CEactivities are contingent upon the competitive conditions of themarket. In other words, while effective CE activities generallydepend on strong IT capabilities, such dependence becomes moreacute when the firm operates under conditions of heightenedcompetition. In such an environment, access to relevant andtimely information, the ability to share information across theorganization and with business partners, the capacity tocommunicate in real time and over multiple channels, and theability to transform and integrate disparate business units thatare needed to conceive and execute innovative ideas are evenmore important. Surprisingly, the proposed moderating role ofcompetitive intensity on the CE–product innovation performancerelationship is not supported by the data of this study. Thisoutcome may stem from the fact that in competition-intensiveenvironments, frequent changes of internal business practicesare required, which tend to limit the return on CE activities[30]. In particular, an intensively competitive environment canspur entrepreneurial activity but also reduce the likelihood thatfirms realize benefits from entrepreneurship and innovation. Theinability to generate novel ideas and translate them into financialsuccess might counterbalance the positive increase in entrepre-neurial activity, thus making the overall moderating effectnonsignificant.

5.2. Implications for practice

This study also has a number of important implications formanagement. First, our results demonstrate that IT capabilitiescontribute to the product innovation performance of a firm, albeitin a circuitous way. Executives who perceive the return on IT to bevague and inconsistent would likely see a more consistent path byfocusing on IT’s role in supporting entrepreneurial and innovationactivities. Rather than seeking to link IT directly to firm-levelfinancial outcomes, senior management should shift theirattention to the salient role of IT in enabling intermediaryfactors. Such a shift in perspective would be helpful for makinginformed IT investment decisions. The elaborated role of IT inenabling firm innovation found in our study is also consistentwith the findings of the Society for Information Management’s(SIM) 2014 IT Trends Study, which identified that the IT prioritiesamong IT managers have been shifted from IT impacts inincreasing efficiency and reducing cost to more strategic andorganizational issues such as innovation [36]. Recognizing therole of IT in enabling innovation, senior managers shouldreconsider the value of IT and prioritize IT investments withthe potential to enable organizational innovation. In particular,more attention needs to be paid to IT resources and applicationsthat would help to (1) collect and analyze information on the

market and customers, (2) share real-time information with theirbusiness partners, (3) reshape and integrate disparate businessactivities, and (4) utilize the information to support innovation-related strategic choices. Considered as evidence, more contem-porary companies leverage mobile applications, web-basedapplications to collect data and information about customerdemands and preferences and use business intelligence oranalytics technologies to interpret these data to improve productinnovation.

Second, our results suggest that the value of IT largelydepends on its ability to enable and improve CE activities. Withenhanced IT-enabled CE, firms can benefit from improved newproduct development processes and more effective businessventuring and self-renewal efforts, which in turn improveproduct innovation performance. In light of these results,managers should strive to channel IT capabilities towardimportant entrepreneurial activities. To achieve this objective,IS leaders should interact closely with business executives whooversee and sponsor CE activities to achieve close alignmentbetween IT and their firm’s business strategy. More efforts needto be paid to form a shared deep understanding among bothbusiness and IT departments about the promise of IT insupporting corporate entrepreneurial activities, such as thedevelopment of new products, new ventures, and new marketsor channels. Furthermore, senior management needs to explorenovel information technologies and develop IT strategies thatcan support the firm’s entrepreneurial abilities. IT capabilities,including flexible IT infrastructure, IT integration, IT businessalignment and strong IT management skills, should be developedto enhance the collection and sharing of customer informationand preferences, communication and collaboration within andacross companies’ boundaries, and exploitation of marketintelligence to maintain firms’ environmental alertness andagility. With more advanced consumer-oriented technologiesand leading web-based systems in firms, it is important to ensurestrong IT management skills to facilitate interaction withcustomers in innovation processes. In addition, firms needstrong IT management skills to control security and privacyissues when web-based applications and cloud computingtechnologies are increasingly implemented in the firms andincrease the firms’ exposure to risk while potentially reducingtheir control over certain IT resources.

Finally, the findings reveal that competitive intensity strength-ens the positive influence of IT capabilities on CE activities. Inparticular, the results suggest that firms that operate under highlycompetitive conditions should focus their efforts on the develop-ment and maintenance of their IT capabilities to maximize theentrepreneurial return on IT investment. For example, if a firm’sindustry is highly competitive (e.g., characterized by intensepromotion wars), the firm could leverage its IT capabilities tointroduce a large number of differentiated new products to themarket to set itself apart from the competition by means otherthan costs. Managers should carefully assess the external businessenvironment’s competitive intensity to manage their IT-relatedactivities more effectively.

5.3. Limitations and future research

Although the study reported in this paper is theoreticallygrounded and the results are based on a matched survey sample ofrepresentative firms, it has several limitations that should beacknowledged. First, the data for the current research wereobtained from manufacturing firms in Northern China, raising thepossibility that the results may not be directly applicable to certainWestern countries. Despite this caveat, with the exception of thevariable ‘‘ownership structure,’’ which may be unique to China,

Y. Chen et al. / Information & Management 52 (2015) 643–657 655

there appears to be no reason why the model could not beapplicable to other contexts. Furthermore, our model could berelevant to firms in other emerging markets (e.g., Brazil and India).Moreover, as more non-Chinese firms shift some of theiroperations to China or collaborate with Chinese business partners,the findings of this study could be of importance to many firmsirrespective of the physical locations of the headquarters or theexchanges on which they are listed. Second, our data sources weredrawn from manufacturing firms and the possibility of contextualdifferences suggests that the role of IT capabilities in supporting CEactivities and product innovation should be examined in otherindustries. Third, in this study, we took a matched survey sampleapproach by asking single key informants (per occupationalposition) to provide data for the main constructs in our model.According to established guidelines, our informants were deemedto be capable of providing useful responses. Nevertheless, futurestudies could consider using multi-informant designs to re-examine our model. Fourth, we adopted existing scales to measureIT capabilities as a formative second-order construct with fourfirst-order factors. Although these four dimensions of IT capabili-ties were previously used successfully and are likely to explainvariability in CE activities (e.g., [39,57]), future research mayextend the portfolio of IT capabilities covered in this study byincorporating other IT capabilities. Finally, although our studycollected data about product innovation performance one yearafter the collection of the antecedent constructs, we cannotconclude causal relationships with absolute certainty. Moreevidence based on longitudinal research is needed to furtherdetermine causation.

6. Conclusion

This paper finds that IT capabilities positively influence a firm’sCE and, in turn, lead to improved product innovation performance. Itthus sheds light on the value of IT capabilities for CE activities andproduct innovation performance. The PLS structural equationmodeling approach used in this study further suggests thatcompetitive intensity positively moderates the relationship be-tween IT capabilities and CE. Overall, this paper contributes to thedevelopment of more robust entrepreneurship and IT-focusedtheories and to our understanding of the business value of IT.

Acknowledgements

This project was sponsored by the National Natural ScienceFoundation of China (no. 71273160), the Shantou UniversityCultivation Fund for National Programs, the European RegionalDevelopment Fund (European Union) (ECO2010-15885 andECO2013-47027-P) and the Government of Spain (ResearchProjects ECO2010-15885 and ECO2013-47027-P), the RegionalGovernment of Andalusia (Research Project P11-SEJ-7294), theCampus of International Excellence BioTic of the University ofGranada (Research Project CEI2014-MPTIC1), and the School ofHuman Resources and Labor Relations of the University of Granada(Research Project SHRLR2015-11).

Appendix A

Senior IT executives and CEO questionnaires.

enior IT executive questionnaire

IT capabilities To what extent do you agree with the following

statements (1 = ‘‘Strongly disagree’’ to

5 = ‘‘Strongly agree’’)?

Appendix A (Continued )

enior IT executive questionnaire

IT infrastructure

flexibility Bhatt

et al. [8]

ITF 1: our information systems are scalable

ITF 2: our information systems are compatible

ITF 3: our information systems are adopted to

share information

ITF 4: our information systems are modular

IT integration

Rai and Tang

[55]

ITI 1: our firm transfers data with our suppliers

ITI 2: our firm connects our systems with our

suppliers’ systems, which allows for the

sharing of real-time information with our

suppliers

ITI 3: our firm combines information across

different suppliers to support decision making

IT business

alignment

Kearns and

Lederer [38]

ITA 1: IS plans reflect the business plan goals

ITA 2: IS plans support the business strategies

ITA 3: IS plans recognize external business

environment forces

ITA 4: business plans refer to IS Plans

ITA 5: business plans refer to specific information

technologies

ITA 6: business plans have reasonable

expectations of IS

IT management

Bharadwaj

et al. [6]

ITM 1: effectiveness of IT planning in our firm is

better than that of other firms in our industry

ITM 2: IT project management practices in our

firm are better than that in other firms in our

industry

ITM 3: planning for security control, standard

compliance, and disaster recovery in our firm is

better than that in other firms in our industry

ITM 4: system development practices in our firm

are better than those in other firms in our

industry

ITM 5: consistency of IT policies throughout the

enterprise in our firm is better than that in other

firms in our industry

ITM 6: IT evaluation and control systems in our

firm are better than those in other firms in our

industry

CEO questionnaire

Corporate

entrepreneurship

Heavey et al. [29]

To what extent do you agree with the following

statements (1 = ‘‘Strongly disagree’’ to

5 = ‘‘Strongly agree’’)?

New product

development

CE1: our firm is spending heavily (well above the

industry average) on product development

CE2: our firm is introducing a large number of

new products to the market

CE3: our firm is acquiring significantly more

patents than its major competitors

CE4: our firm is pioneering the development of

breakthrough innovations in its industry

CE5: our firm is spending on new product

development initiatives

Business venturing CE6: our firm is entering new markets

CE7: our firm is establishing or sponsoring new

ventures

CE8: our firm is finding new niches in current

markets

CE9: our firm is changing its competitive

approach (strategy) for each business unit

Self-renewal CE10: our firm is reorganizing operations, units,

and divisions to ensure increased coordination

and communication among business units

CE11: our firm is redefining the industries in

which it competes

CE12: our firm is introducing innovative human

resource programs

CE13: our firm is the first in the industry to

introduce new business concepts and practices

Competitive

intensity

Jaworski and

Kohli [33]

To what extent do you agree with the following

statements (1 = ‘‘Strongly disagree’’ to

5 = ‘‘Strongly agree’’)?

CI1: there are many ‘‘promotion wars’’ in our

industry

CI2: any product that a company can offer, others

can easily match

CI3: price competition is a hallmark of our

industry

Y. Chen et al. / Information & Management 52 (2015) 643–657656

Appendix A (Continued )

enior IT executive questionnaire

Product innovation

performance De

Luca and

Atuahene-Gima

[45]

To what extent do you agree with the following

statements (1 = ‘‘Strongly disagree’’ to

5 = ‘‘Strongly agree’’)?

PIP1: product and service development in our

firm has achieved market share relative to the

firm’s stated objectives

PIP2: product and service development in our

firm has achieved sales relative to stated

objectives

PIP3: product and service development in our

firm has achieved return on assets relative to

stated objectives

PIP4: product and service development in our

firm has achieved return on investment related to

stated objectives

PIP5: product and service development in our

firm has achieved profitability relative to stated

objectives

Past performance

Judge and

Douglas [35]

How does your firm’s performance during the last

two or three years compare to that of all other

competitors (1 = ‘‘Far below the average’’ to

5 = ‘‘Far above the average’’)?

PP 1: profitability

PP 2: return on investment

PP 3: market share

PP 4: sales growth

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Dr. Yang Chen is a full professor in School of BusinessAdministration, Southwestern University of Financeand Economics in China. He has published researchpapers in Journal of Business Ethics, Human ResourceManagement, European Journal of Information Systems,Communication of the AIS, and Journal of ComputerInformation Systems. His current research interestsinclude corporate sustainable development, IT businessvalues, human resource management, and so on.

Dr. Yi Wang is a full professor in Business School,Shantou University in China. She has publishedresearch papers in European Journal of InformationSystems, Communication of the AIS, and InternationalJournal of Information Management. Her current re-search interests include IT business value, mobiletechnology applications and etc.

Dr. Saggi Nevo is an associate professor in theInformation Technology Management Department atthe University at Albany. His work has been accepted orpublished in journals such as MIS Quarterly, The DATABASE for Advances in IS, Communications of the AIS,International Journal of Electronic Commerce, and Journalof Strategic Information Systems. His current researchinterests include open source software, social comput-ing, and virtual worlds.

Dr. Jose Benitez-Amado is an associate professor in theSchool of Human Resources and Labor Relations, andthe School of Business and Economics, University ofGranada, Spain. Jose is also the Associate Dean ofUndergraduate Programs for the School of HumanResources and Labor Relations. He has published hisresearch in the European Journal of Information Systems,Information Technology & Management, and Internation-al Journal of Information Management. He currentlyserves as Associate Editor for the European Journal ofInformation Systems, and Information Technology &Management.

Dr. Gang Kou is a full professor in School of BusinessAdministration, Southwestern University of Financeand Economics in China. He has published researchpapers in Information Sciences, Decision Support Systems,and International Journal of Information Technology &Decision Making. His current research interests includebig data and service innovation.

agement 52 (2015) 643–657 657