Abstract
Information technology capability (ITC) enhances firm performance, reflecting the constructs’ positive relation. Namely ICT enables continual improvements in uncertain environments, despite its extant shortcomings. This article assesses the role that ITC plays in firm performance, mediated by capital availability and sustainable competitive position (SCP). Research hypotheses are tested through structural equation modeling, using the analysis moments of structure (AMOS) statistical software, applied on the data collected from 316 small and medium enterprises (SMEs) in Pakistan, through a structured questionnaire. The results show that ITC might significantly contribute to SCP and firm performance, wherein capital availability and SCP play their mediating roles, strengthening the positive relation between ITC and SCP. These relations’ unconcealment suggests that owners, managers and partners of SMEs and other policymakers must promote ITC’s self-development, in order to effectively enhance financial capital productivity and to achieve superior performance in turbulent markets. The results generalizability is restricted to SMEs in Pakistan, yet it would be challenging to explore this study’s relations in other emerging economies. Most encouraged are researchers willing to test the study’s model in other industries, especially in non-profit organizations in developed and emerging economies, in order to expedite ITC’s potential contribution to firm performance.
Introduction
Traditionally, it was believed that a firm performance can be improved through mass production, individual employees and labor force [1, 2]. However, internationalization and the dynamic markets are opposed the notion of portraying the afore-mentioned traditional concepts and claimed that certain factors do not necessarily improve the performance of the business or societal human organizations. Living in the current era of internationalization, researchers have been introduced many new factors among which ITC could be considered as a prominent one in combination with SCP to achieve high performances [3, 4]. A plethora of research has confirmed the significant influence of ITC on firm performance [5, 6] as well as considerable studies have also tested the influence of ITC on competitive advantage [7]. However, many of these studies have been conducted in European and developed economies while rare studies can be found in the emerging market. Additionally, Benitez et al., [5] claimed that a majority of the studies associated to ITC have focused on supply chain processes. However, it is still unclear how ITC influenced firm operational competencies and profitability in a long run. Conversely, studies were confirmed the direct influence of ITC on firm performance [5, 8–10] and also showed an indirect impact of ITC on firm performance [11, 12]. We aim to test the indirect influence of ITC on firm performance through SCP. In 1980, Porter suggested two major competitive strategies; cost leadership and differentiation that enable a firm to gain superior performance. However, later, Porter adamantly cleared that competitive position or posture at time t is always the end result, i.e., a kind of performance metric, of the combined effects, co-produced by both changes in a firm’s environment and changes in the firm’s strategy, at time t-1. We test our model to test either SCP facilitate a firm in the long run or not. The most important contribution of this research is to examine the moderating role of financial availability between ITC and SCP by exploiting the improvements in the existing work that have shown lack insights [13, 14]. In addition, the existing studies were biased and argued that many small firms do not start risky and innovative (e.g. IT based) projects due to lack of financial capital. However, a firm does not only need ITC to configure its performance but also needs enough financial resources to utilize the resources efficiently to gain a SCP and high profitability. Similarly, dynamic capabilities describe the ability of a firm to reconfigure different resources such as capital availability, complementary capability, research and development capability, marketing capability, information technology capability institutional assets and structural assets to achieve congruence with the changing business environment [15].
Testing the role that ITC plays is very important in the current competitive intensity, such as, for example, the one seen in Pakistan (an emerging market locates in the best trade route) [16]. However, firm’s survival is attributed to the appearance of the dominant design, which amends the opportunities for competitive advantage competing with different technologies [17]. But mere ITC do not facilitate the smooth running of the business as financial resources are necessary [14]. Moreover, it is also argued that firms must have enough finance to save themselves from the unexpected shocks and external pressures [18]. We believe and give more emphasis to the pecking order theory of finance that enables a firm to use its internal funds over external debt and provide new equity to finance innovation investments [19]. Therefore, the present study is an attempt to answer the questions “Do ITC directly influence and SCP and firm performance?” Further, Does SCP mediate the relation between ITC and firm performance, wherein, the financial availability moderates the relation between ICT and SCP? We test this model in the context of the resource-based view (RBV) theory, which describes SCP of a firm achieved through unique resources and capabilities. As adamantly cleared by Porter in (1980), that competitive position or posture at time “t” is always the end result, i.e., a kind of performance metric, of the combined effects, co-produced by both changes in a firm’s environment and changes in the firm’s strategy, at time t-1. Though our research is running against Porter’s competitive position or posture notion and claimed that SCP can spur firm performance in the long run. Our research concluded that ITC and financial availability are considered useful resources to obtain SCP and superior performance in emerging economies. The findings of the present study help owners and managers of emerging and developed SMEs to impart strong emphasize to their financial capital to initiate successful efforts. In addition, this research model is beneficial for policymakers indulged in the development of SMEs sectors to boost economic growth. Typically, SMEs are not able to perform progressively over other stable firms due to lack of resources. Since findings of underlying research study give exploitation for enterprises to manage the capital efficiently and to configure their survival in the long run by employing ITC. Thereby, all business enterprises and other societal organizations could facilitate their employees, customers and self-development partners leveraging improved financial performance inferring direct or indirect adoption of IT.
The purpose of our research model is to evolve the ITC to boost the firm performance and their relation by mediating and moderating aspects such as SCP and capital availability. The contributions based on our research model are as follows: ITC evolved direct influence on SCP and financial availability to stabilize and enhanced firms in the dynamic market. Superior performance and competitive advantage could be achieved through unique resources and capabilities using RBV theory. SCP could stipulate firm performance in emerging economies such as Pakistan and configure a firm performance in turbulent markets. Financial availability significantly moderates the relation between ITC and SCP reflecting positive relation significantly.
The rest of the article is organized as follows: Section 2, describes existing literature and several hypotheses contributed to the study. Section 3, elaborates the data sample and measurement variables used in the the model. Section 4, presents data analysis of SCP and financial availability used structure model. Section 5, draws the concluding remarks in comparison to existing work. Section 6, presents the implementation of the research. In the final section, future work and limitations of the model are explained.
Literature review
ITC and firm performance
In a turbulent market, those firms considered as leaders and enjoy high profit possessing high technological capabilities for the product development and customer relationship [10]. According to RBV theory, a firm with unique, valuable and rare resources, and capabilities could receive a superior position in the market as compared to other firms [20]. Considering the ITC in the RBV theory context, a firm with advance IT can outperform over its competitors and industry rivals [5]. ITC encompass several advanced technological abilities and big data capabilities of a firm that help in the restructuring of the internal process to obtain high profit. Similarly, authors [6] argued about big data capabilities that significantly influenced organizations performance. Investment in IT could spur operational competencies and firm profitably in the long run [5]. ITC also called E-business technology that can stimulate the development of operational competencies by smoothing the improvement of employees’ productivity, gross margin, operational excellence and operational talent management. ITC has come with expediencies by reflecting a firm to manage the product margins proficiently [9, 21]. Although, ITC showed sufficient improvements to implement scheduling and workplace flexibility activities for the organization and retained to provide reliable information on performance appraisal, career planning and goal completion in operational and management talent [22].
H1. ITC significantly contributes to firm performance
ITC and SCP
ITC brought dynamic capabilities that a firm stimulates managers to restructure the internal processes to gain high competitive advantage. In other words, ITC facilitated SCP in the turbulent and less stable markets [23]. The market conditions in emerging economies are often viewed as unstable. In such environments, ITC can enable firms to respond to the external changes effectively to acquire competitive advantage [24, 25]. ITC play a significant role in the survival of many firms of not being able to boost ahead due to the external changes and pressure [17]. IT-oriented firms (such as web-based structured) enabled the employees to acquire and share valuable information related to the manufacturing process, product development and the markets trend to perform multiple tasks useful for firm productivity and competitive advantage [26, 27]. IT enables a firm to observe and maintain real-time, accurate, timely information on demand and product cost for downstream customers or upstream suppliers rendering a firm to manage the product merging in a better way [9, 21]. Precisely, IT-based applications such as enterprise resource planning configured execution of ability and operational routines in products and manufacturing process in markets to stabilize and enhance the operation success and excellence [28, 29].
H2. ITC significantly contributes to SCP
SCP and firm performance
Two main competitive strategies were suggested in [30]; cost leadership strategy and differentiation strategy. In addition, these strategies demonstrate a firm competitive advantage in a market. Scholars have used different words for these strategies such as sustainable competitive advantage [31], competitive strategy [32] and SCP [33]. Competitive advantage that hereby is referred to SCP, which demonstrates the ability where a firm produces project at a lower cost and unique as compared to competitors and industry rivals [30]. This aptitude (such as SCP) in turn providing high profit to a firm [34]. In a turbulent market and high competitive intensity, competitive advantage could yield a firm performance [35]. However, many studies have claimed the competitive advantage as a mediator between firms’ resources and performance [31, 36]. There are still ample evidence confirming the direct influence of the competitive advantage on firm performance [24, 37].
H3. SCP significantly contributes to firm performance.
Mediating role of SCA between ITC and firm performance
The relation between ITC and firm performance is not always direct due to some international factors associating firm capabilities mediate the association and configure the indirect influence of ITC on firm performance. For instance, authors [38] scrutinized that the link between ITC and firm performance is yielded by a firm internal process (such as supply chain) rather a significant direct influence of ITC on firm performance. In the similar background, indirect impact of ITC on competitive performance is confirmed by [39] and indicating ITC first redesign organizational internal resources manipulated in sequence influence performance. A firm’s operational process, productivity, product design and relevant costs are aligned with ITC. Therefore, high ITC enable a firm to efficiently utilize the resources to impart sustainable competitive advantage rendering high performances and success [7]. A firm required an effective supply chain process to adjust itself with the changing market evolving an excellent strategy to enhance the supply chain process effectively as encouraged a firm to gain competitive advantage in a sequence smooth performance [40]. Furthermore, technological based innovation bring solutions to a variety of problems faced by a firm in the context of achievement to its competitive advantage and achieved monopoly profit for business [41]. We then posit a firm to implement ITC that could reduce various costs associated with manufacturing, supplies, advertising and production and developing unique products by using the new technology. The advantages (cost reduction and unique products) significantly spur a firm performance.
H4. SCP significantly mediates the relation between ITC and firm performance.
Mediating role of financial availability between ITC and SCP
ITC can significantly contribute to a firm performance [8]. However, ITC could not be retained to sufficient cause to facilitate a firm in competitive markets. A firm must have enough capital in a way that the resources could be utilized efficiently to achieve high performances. For instance, authors reported in [14] claimed that emerging economies such as in China, firms must have enough financial capital utilizing the available resources (non-financial resources) efficiently to gain sustainable and competitive advantage. On the contrary, it is staaateeed that the dynamic capabilities are needed in a turbulent market so that a firm configured with various capabilities and resources such as financial, physical, structural assets, institutional assets and informational technology achieving congruence with the changing business environment [15]. Further, financial availability improves resource allocation and help towards competitive products design rendering marginal source for sustainable competitive advantage [42, 43]. Similarly, financial resources significantly moderate the relation between organizations life cycle and corporate social responsibly activities [44]. In addition, a firm with greater access towards finance could lead better circumstances over those firms [45], which especially involve small businesses and significantly growing finance. Although, authors reported in [46], financial resources work complementary with other factors (such as ITC). For instance, authors indicated and claimed that many innovative (technological based) projects are failed due to financial constraints [47]. Hence, it can be argued that financial capital is necessary for IT in order to enhance firm profitability. In similar context, authors [13] argued that IT based and innovative projects laid on soft edges are risky than physical investment projects pertaining a firm that must have sufficient financial capital and risk taking propensity to facilitate the innovative projects (such as IT based projects) for enhancing competitive position.
H5. Financial availability significantly strengthens the relation between ITC and SCP.
The study’s research model is depicted on Fig. 1.
Research model.
Data sample
A structured questionnaire is used to collect data from Pakistani SMEs. We used a hard copy approach for data collection because in the emerging economy Pakistan, an email survey gives a lower response rate as compared to a hard copy approach [34]. It was ensured in the questionnaire that data of the survey are used only for research purpose rather to be disclosed publicly. We distributed 600 questionnaires among the firms and of them 316 responded questionnaires were received back, wherein, response rate was 52.67%. Top managers and owners were requested to participate in the survey as they are well aware of business profit and resources [48]. The firms who participated in the survey are shown in Table 1.
Profile of the businesses
Profile of the businesses
ITC in existing literature has conceived the measurement with various dimensions. However, we relied on 6 items as suggested in [7] to achieve more comprehensive insights, thereby, a sample item is “Increased efficiency of administrative activities”. Financial availability indicating the financial strength, financial resources and financial capacities of a firm. In other words, we used the internal financial resources to articulate the results in a better way and explored towards internal finance of a firm showing the impact of SCP in the presence of ITC. We adopted 3 items as recommended in [49], thereby, a sample item is “Our managers are satisfied with the financial capital available to them for operational activities”. However, items were slightly modified in accordance with sample requirement. SCP is also known as sustainable competitive advantage, which is the status and position of a firm could not be easily achieved by competitors. We adopted eight items (four items for differentiation and remaining from cost leadership base competitive position) to measure SCP that are used by [33]. A sample item is “Compared to competing products, our products offered superior benefits to customers”. Firm performance can be measured with self-reported data and secondary data. In case of SMEs, self-reported measures were taken as same as recommended in [24] because they don’t publish their financial information to the general public. We used six items to measure firm performance and these items are adopted as prescribed in [34]. Owners and top managers were accounted on the estimation that firm performance is based on return on equity, return on assets and return on investment in comparison to their major competitors and industry rivals.
Control variables
Authors in [48] suggested to control the nature of industry, age of firm and size of firms while testing SMEs performance. Hence, we controlled the aforementioned factors to test our model. IN perspective of nature of industry, we created separate groups such as manufacturing (group 1), trading (group2) and service (group 3) in AMOS. The results of these three groups were compared and no significant difference was reported. Thus, we dropped the nature of the industry to its less significant role in the model. Size and age of the firms were insignificantly related to firm performance in our study model.
Data analysis
We tested the model in AMOS by using confirmatory factor analysis and structural model. However, we applied SPSS for descriptive statistics to testify screening tests such as mean, standard deviation (S.D.) and normality. The results of the descriptive statistics are shown in Table 2, indicating highest mean value attributed to financial availability and SCP towards lowest mean. The highest S.D. accounted for financial availability and lowest is provoked for performance. Our data are normal due to all factors include their Skewness and kurtosis values in the acceptable range +–2 [50].
Descriptive statistics
Descriptive statistics
CFA was applied to confirm the standardized factor loading, validity and reliability of the data set. First, we tested the measurement model shown on Fig. 2. The model (measurement model) provided acceptable model fits CMIN/df = 1.897, GFI = 0.90, AGFI = 0.88, TLI = 0.94, NFI = 0.91, RMR = 0.013 and RMSEA = 0.053 as recommended in the prior studies [51, 52]. All the standardized loading are significantly aligned toward their respective items (p < 0.001) shown in Table 3.
Measurement model.
Standardized factor loading
Convergent validity is checked shown in Table 4. Convergent validity is also called Average Variance Extracted (AVE). The value greater than 0.50 indicates an acceptable convergent validity [51, 52]. Our sample confirmed the AVE (see Table 4). Discriminant validity (calculated by taking the square root of AVE such as √AVE) of the sample is provided as acceptable as recommended by Hair et al., [51], which is the value greater than 0.70. Finally, Composite Reliability (C.R.) is calculated to confirm the internal consistency of the factors. The value higher than 0.70 presents acceptable reliability [53]. We achieved this criterion as shown in Table 4.
Correlation, validity and reliability
**Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed).
CMB is estimated using Harman’s One Factor test in SPSS. Results indicated that four factors that have eigenvalue greater than 1. The first factor only explained 30.065% variance, which is less than that of 50% confirming the absence of CMB [54] in the sample.
Correlation
Pearson correlation was executed to test the relation between/among the variables (see Table 4). The results show that ITC are significantly related to firm performance (r = 0.628, p < 0.01) and also significantly related to SCP (r = 0.191, p < 0.01). Therefore, SCP has a significant relation with firm performance (r = 0.305, p < 0.05). Moreover, financial availability has a significant relation with SCP (r = 0.209, p < 0.01) and dignify a significant relations with firm performance (r = 0.383, p < 0.01).
Structural model
Structural model was applied to test the hypotheses of the underlying research model. We tested the structural model 1 by separating mediating role into two ways. First, structural model 1 is tested to verify the mediating role of SCP between ITC and firm performance. Second, model 1 is checked to confirm the moderating role of financial availability between ITC and SCP.
Structural model 1 (see Fig. 3) depicted the mediating role of SCP. We first confirmed the values of the model fits such as CMIN/df = 2.239, GFI = 0.89, AGFI = 0.86, TLI = 0.0.93, NFI = 0.89, RMR = 0.027 and RMSEA = 0.063 and they were found in the acceptable range as suggested in the prior studies [51, 52].
Structural model 1. (Mediation).
Moreover, results (see Table 5) transpiring that ITC have a significant influence on firm performance (β= 0.425, p < 0.05) and on SCP (β= 0.174, p < 0.05) and thus, are supporting H1 and H2, respectively. SCP have a significant impact on firm performance (β= 0.157, p < 0.05) and thus, is supporting H3. From the mediator perspective, the direct influence of ITC on firm performance is remained significant, whereas, indirect influence of ITC on firm performance is also significant (β= 0.027, p < 0.05) and thus, is partially supporting H3. R square shows 41% variance, which indicates the involvement of ITC in firm performance in the presence of SCP.
Hypotheses testing (Mediation)
Structural model 2 (see Fig. 4) was applied to test the moderating role of financial availability between ITC and SCP. The results (see Table 6) transpired that financial availability significantly moderates the relation between ITC and SCP (β= 0.036, p < 0.05) and thus, is supporting H4. R square shows 8% variance, which indicates the involvement of SCP when moderating role played by financial availability.
Structural model 4 (Moderation).
Hypothesis testing (Moderation)
The purpose of this research is to discover either ITC directly influence firm performance or the factors such as SCP and financial availability mediate and moderate the relation. We tested the model based on the empirical data collected from Pakistani SMEs. However, existing studies have explored beneficial insights for practitioners and policymakers such as several shortcomings were reported primarily in emerging markets. This research is an attempt to contribute to the existing literature of IT, firm performance and financial capital using mediating and moderating concepts. This research contributes to the RBV theory, which describes a firm superior performance and competitive advantage could be acquired through unique resources and capabilities [20]. We consider ITC as a significant resource through which a firm can enhance its SCP and performance in a turbulent market. Moreover, we deemed a resource to our study as financial availability, which is determined very crucial for the achievement of SCP in the emerging market of Pakistan. Hence, findings of the research strongly favor RBV theory by confirming specific resources are very important for high performances and success towards SMEs in emerging markets. Though Porter [30] has claimed that competitive advantage significantly improves firm performance in time “t” but often end results. Our findings are running again Porter and show that SCP configure high performance in emerging markets. We hereby confirm that a firm with SCP can enjoy high profit in emerging markets. We also argue that the implementation of SCP could not imposed directly instead it requires ITC and enough capital resources.
Our findings also show that ITC is significantly related to firm performance supportH1 of this research. In accordance with authors reported elsewhere [25], who believed that ITC is a significant predictor of high performance in emerging markets. Moreover, authors indulged in the study [17] also confirmed the considerable influence of ITC on firm performance in developed economies. We also found that ITC has a substantial impact on SCP that supported H2 of the present study. The findings are consistent with those mentioned in [29], who scrutinized that ITC can help firms to make a SCP in the dynamic market that cannot be acquired by the competitors. In addition, our present study is retained and indicated ITC facilitate firms to gain SCP easily [28]. Our study model confirmed that SCP significantly contributes to firm performance that gives support to H3. Similarly, results were derived in accordance with [33], and shown SCP could spur firm performance in emerging economies such as Pakistan. Moreover, existing studies as mentioned in [31] also argued that SCP configures a firm performance in turbulent markets.
Our study model determines that SCP partially mediates the relation between ITC and firm performance and thus is partially supporting H4. Unlike, ITC first build SCP and in turn stimulate high-performance activities as mentioned in [7]. We concluded that ITC directly and significantly related to firm performance and SCP plays a partial mediating role between ITC and performance. Furthermore, financial availability significantly moderates the relation between ITC and SCP that support H5. The results acknowledged in accordance to existing research [14], claiming that resources and capabilities do not improve firm performance solely in emerging markets such as China considering that firms must have enough finance to stimulate their operation. We confirmed financial availability strengthened the positive relation significantly between ITC and SCP.
Implications for practice
Our research model concluded a significant role of ITC in SCP and firm performance by imparting strong emphasis on investment in IT-producing high performance and success. Conclusively, practicing managers and practitioners are intended to promote IT adoption for high performance and competitive advantage instead relying on traditional practices that may not work effectively in the turbulent market. Whereas, emerging economies and firms spend enough money on different resources with different aspects to configure their performance. The present research shows the involvement of ITC as a significant factor and conceived SCP and performance as well. In addition, managers and owners of SMEs tended to confine SCP in the market that in turn produce high profit and long-term survival. Further, we argued that financial availability is critical for firms to stipulate their performance by employing ITC and facilitating firms resulted high performance and SCP. However, financial capital with sufficient amount could devote expediencies in order to stimulate the IT in a better manner. Thus, we strongly recommend managers and owners to arrange and utilize the fund in an effective way to enhance their firm performance. Further, all business enterprises and other societal organizations facilitating their employee, customer and partner self-development in order to bring up modern IT practices and boost their financial performance. The findings of this research model are not restricted for SMEs instead large firms operating in turbulent markets could achieve equal advantages. It can be inferred and recommend for policymakers and practitioners to encourage IT adoption in SMEs sector as it could stimulate significant results by leveraging firms profitability in the predominant aspect.
Limitations and future research
The research model evaluated several implications for practitioners, owners and managers regarding firms, though, there are some restrictions needed to focus in future studies. We tested our underlying research model in the perspective of emerging economy like Pakistan that could offer a complete picture of all the emerging economies. Although, research in different emerging economies is suggested to test the model. We collected and focused on data taken from SMEs, whereby, large firms could provide better insights in this perspective. Moreover, ITC toward SCP and firm performance along with different dimensions of ITC such as IT applications, process and mechanisms were assessed to hound different ITC aspects important for emerging firms. In addition, longitudinal data could be evolved to test the model instead of biased data in present study such as SMEs and hence researchers from developed economies are encouraged to expand and apply the model in various industries. Our findings are running again Porter and confirmed that SCP can give high performance in the long run. Future researchers can test the other strategies such as focus to gain more useful insights and may favor Porter insights. We verified the moderating role of financial availability validating the researchers to test different possible moderators that could significantly facilitate ITC contributing to SCP.