1 THE LINK BETWEEN INFORMATION TECHNOLOGY ALIGNMENT AND FIRMS FINANCIAL AND MARKETING PERFORMANCE: A QUESTIONNAIRE SURVEY IN IRAN S MANUFACTURING COMPANIES ABSTRACT SEYED MEHDI MOUSAVI DAVOUDI*; HAMED CHERATI** *Student of Executive MBA, Faculty of Management and Economics, Semnan University, Semnan, Iran. **Student of MBA, Faculty of executive management, Mazandaran University of Science & Technology, Mazandaran, Babol, Iran. The present study was conducted in Mazandaran, a province in north of Iran and aimed to analyze the effect of IT alignment on firm s financial and marketing performance companies have been selected as the survey population. Referring to the Krejcie and Morgan (1970) table, the minimum number of sample size was determined which was about 322 companies.a total of 380 questionnaires were distributed among the respondents and 329 usable questionnaires were returned. The factor analysis and the findings show that IT alignment has a significant positive influence on firms financial and marketing performance. The findings of this paper suggest that managers of organizations should align their IT with that of their partners which contributes to organizational superior performance. Pinnacle Research Journals 88 KEYWORDS: IT Alignment, Financial performance, Marketing performance, Iran. INTRODUCTION All firms who want to be in a good level in comparison with their competitors should align themselves with their partners. As a result, by aligning their IT with that of their partners they will reach their main goals which are efficiency, effectiveness, market share and survival in today s competitive environment. Today s organizations are increasingly depending on the Information Technology applications in enhancing their performance. Information Technology and its use have gained an incredible attention recently in business world (Maleki et al., 2011). But, the question is whether investment in IT per se will yield to any positive results over the organizations performance or organizations should have other traits to be successful after implementing information technology.moreover, we observe continuous investment on Information Technology, so that it has become the largest item of capital expenditure in the most organization. All of these are due to the fact that business organizations are facing a more complex and competitive environment
2 than ever before (Chen & Lin, 2009; Ellram, 1991) and their success is no longer a matter of analyzing only the individual firm, but rather the chain of delivering and supplying organizations, because the individual firm is only a single part of the supply chain (Maleki et al., 2011). Thus, firm s IT should be compatible with that of its channel partners.it alignment is among the important factors that lead to the effectiveness of organizations. It seems that IT alignment gets crucial importance in today s business. The businesses should follow the new changes in their sector and adapt themselves to the environmental improvements in order to survive in the market; and IT alignment is the key concept that helps organizations to do so. There is little attention given to the research on the relationship between IT alignment and firm s financial and marketing performance. Thus, this paper attempts to propose a framework on the mentioned topic among manufacturing companies in Iran. IT ALIGNMENT Today s organizations try to integrate their internal activities, systems and technology with one another. In addition to internal integration, organizations should align themselves with their supply chain partners. When a firm s IT is compatible with that of its channel partners, we can claim there is IT alignment(maleki et al., 2011). IT alignment is the extent of embeddedness of IT across the supply chain, requiring channel partners to coordinate and align their business processes with each other to achieve efficiency (Powell, 1992). Pinnacle Research Journals 89 Since many SCM software packages are developed by different vendors, built using a wide range of technologies (Philip & Booth, 2001), the integration between trading partners has become one of the biggest challenges (Frohlich, 2002; Taylor, 2003), leading to a situation where failure to achieve system integration across the transaction between partners becoming one of major growing problems in today s organizations. Channel partners can achieve higher system compatibility and integration by investing in advanced IT (Philip & Booth, 2001). Moreover, firms partners share the costs and responsibilities in adopting of a new technology due to the need for IT alignment (Bowersox et al., 1999; Taylor, 2003). The pressures from the entire transaction network and the potential synergistic benefits through an integrated system will be as an impetus for the adoption of advanced technologies to enhance IT alignment for those firms having yet to adopt a new system (Maleki et al., 2011). FIRM PERFORMANCE A variety of measures of organizational performance have been offered by different researchers. In this study we follow Wu et al., (2006) and Maleki et al., (2011) by considering financial performance and marketing performance for measuring firm performance. In those mentioned studies, researchers measures firm profitability, ROI and cash flow for determining financial performance of firms. In addition, sales growth, market share, market development and product development were used to determine marketing performance of firms. RESEARCH PROPOSED MODEL Taking into account the above literature, the following figure(figure 1) shows the conceptual
3 framework which involved the relationship between IT alignment as independent variableand marketing performance and financial performance of organization as dependent variables. FIGURE 1. RESEARCH PROPOSED MODEL According to the above-mentioned figure research hypotheses are: H1: IT alignment has a significant positive influence on financial performance. H2: IT alignment has a significant positive influence on marketing performance. Pinnacle Research Journals 90 RESEARCH METHOD The research method used for this article is descriptive-correlation. This study used secondary data sources (library and other recorded observations) and case study. First the literature of IT alignment and organizational performance was studied. Following the literature review, criteria were extracted, the questionnaires were distributed among the respondents and a total of 329 filled questionnaires were gathered. Finally the analysis was carried out utilizing Structural Equation Modeling (SEM) methodology by Lisrel 8.5 software and the analysis output was published. STATISTICAL POPULATION According to the Registrar Office of Industrial Township in Mazandaran Province, which provided us with the database of member companies, 2500 companies have been introduced in a list as active firms. We excluded consultants, freight forwarders, and third-party logistics companies, and 2000 companies have been selected as the survey population. Supply chain managers, logistics managers, procurement/purchasing managers and senior managers
4 considered as appropriate respondents for this study. Referring to the Krejcie and Morgan (1970) table, the minimum number of sample size was determined which was about 322 companies and the authors used random sampling for this research. After the distribution of 380 questionnaires, 329 filled questionnaires were gathered from the firms and the rest of them were not usable due to incompleteness and other factors. Table 1shows the Descriptive statistics of the respondents. TABLE1. DESCRIPTION OF THE RESPONDENTS Item Description Frequency Percentage Gender Male Female % 0% Below % % Age % Above % Diploma 18 5% Education STP Bachelor % 63% Master & PhD 49 15% Pinnacle Research Journals 91 Number of employees INSTRUMENT Below Above % 51% 27% In order to collect the necessary data, a questionnaire was used to test the hypotheses of the study. To design the questionnaire for measuring research variables and scale development, we used Churchill (1979) scale development method. First, we defined the domain of each construct, deciding what would be included and excluded. Then, an extensive review of literature has been done in order to identify questions measuring each variable and relevant scale. To that end, it has been tried to adopt or adapt the most repetitive questions in the literature for increasing the questionnaire validity.
5 We used five-point Likert type scale for all the items. Response categories range from 1 (strongly disagree) to 5 (strongly agree). After finalizing the questionnaire, 25 of them have been sent to respondents, resulted in changing and in some cases, eliminating some of the questions; this last version of the questionnaire has been used for data collection. The questionnaire consists of two parts; first part consisted of four questions which related to demographic information of the respondents and number of firm s employees. And the second part consisted of 5 questions for measuring IT alignment, 3 questions for measuring financial performance and 4 questions for measuring marketing performance. RELIABILITY AND VALIDITY The summary statistics of formal survey are shown in Table 2. For reliability evaluation we utilized Cronbach's alpha. The Cronbach's alpha reliability of all variables are more than 0.7 (α>0.7), which indicates all scales demonstrate good reliability. TABLE 2. THE SUMMARY STATISTICS OF FORMAL SURVEY Instrument N α IT alignment Financial performance Marketing performance N = Number of questions (items), α= Cronbach's alpha coefficient. Pinnacle Research Journals 92 In addition, for evaluating the validity of the questionnaires, we used content validity and construct validity.content validity deals with how representative and comprehensive the items were in creating the scale. It is assessed by examining the process by which scale items are generated (Moon & Kim, 2001). Content validity assured us that all aspects and parameters that impact on main content were evaluated. In order to test the content validity after devising a framework for the questionnaire, we asked 12 experts to modify it if needed. These experts evaluated all the implemented criteria in the questionnaire and modified it. Construct validity determines the extent to which a scale measures a variable of interest (Moon & Kim, 2001). In this research we used factor analysis for considering the structure of research. Confirmatory factor analysis was used to investigate the construction of the questionnaire. Factor analysis depicted that all the mentioned criteria are measured in these questionnaires. MEASUREMENT MODEL OF IT ALIGNMENT In the initial step, we adopted confirmatory factor analysis for IT alignment and eventually conducted path diagram of X model as per Figure 2. We have tested Relationship between IT alignment and its indicators. Fitness's indices in Table 3 show good fitness of our Y model. Based on Joreskong & Sorbom (1989), Chi-Square/df 3, RMSEA 0.10, GFI and AGFI > 0.9, show that the measurement model provides a reasonable fit to the data.
6 TABLE 3. IT ALIGNMENT MODEL FITNESS INDICES fitness indices Chi-Square/df P-value RMSEA GFI AGFI Measure of Index FIGURE 2.STANDARDIZED SOLUTIONS MODEL FOR IT ALIGNMENT Pinnacle Research Journals 93 MEASUREMENT MODEL OF FINANCIAL PERFORMANCE In next step, we adopted confirmatory factor analysis for financial performance and eventually conducted path diagram of Y model as per Figure 3. We have tested Relationship between
7 financial performance and its indicators. Fitness's indices in Table 4 show good fitness of our Y model. TABLE 4. FINANCIAL PERFORMANCE MODEL FITNESS INDICES fitness indices Chi-Square/df P-value RMSEA GFI AGFI Measure of Index FIGURE 3. STANDARDIZED SOLUTIONS MODEL FOR FINANCIAL PERFORMANCE Pinnacle Research Journals 94 MEASUREMENT MODEL OF MARKETING PERFORMANCE At the end, we adopted confirmatory factor analysis for marketing performance and eventually conducted path diagram of Y model as per Figure 4. We have tested Relationship between marketing performance and its indicators. Fitness's indices in Table 5 show good fitness of our Y model.
8 TABLE 5. MARKETING PERFORMANCE MODEL FITNESS INDICES fitness indices Chi-Square/df P-value RMSEA GFI AGFI Measure of Index FIGURE 4. STANDARDIZED SOLUTIONS MODEL FOR MARKETING PERFORMANCE Pinnacle Research Journals 95 RESULTS This study tends to investigate the relationship between IT alignment and firm s financial performance and marketing performance. The influences of IT alignment on financial performance and marketing performance were tested using the SEM technique that is explained below. Figure 5 shows the results of the SEM analysis. Fitness's indices in Table 6 also show good fitness of the Structural model.
9 FIGURE 5. STRUCTURAL EQUATION MODEL FOR CORE COMPETENCIES Figure 5 shows the direct relationship of IT alignment to marketing performance and IT alignment to financial performance.based on the results of SEM analysis, Hypotheses 1, 2 are supported. Pinnacle Research Journals 96 TABLE 6. THE STRUCTURAL MODEL FITNESS INDICES Fitness indices Measure of Index χ 2 /df P-value Root mean square error of approximation [RMSEA] Goodness of fit index [GFI] 0.92 Adjusted goodness of fit index [AGFI] 0.90 Comparative fit index [CFI] 0.91 Incremental fit index [IFI] 0.94
10 Table 7 summarizes the hypothesis test results in terms of path coefficients (standardized) and t - value in significance level TABLE 7. THE RESULTS OF THE HYPOTHESIS TEST No Hypotheses Path coefficients t -value Results H1 IT alignment financial performance * Accept H2 IT alignment marketing performance * Accept * P < 0.05 DISCUSSION AND CONCLUSION This paper focused on IT alignment in small firms. Importantly, the findings illustrated that a large proportion of our sample of small manufacturers had achieved a high degree of alignment between their firms IT and that of their partners. Furthermore, the study identified a positive association between IT alignment and organizational performance (financial performance and marketing performance). While causal links cannot be deduced from this study, the results show that IT alignment is related to financial performance and marketing performance which confirms the findings of the previous studies carried out in larger organizations (E.g. Chan et al., 1993; Burn, 1996). The findings suggest that the positive relationship applies to small business as well as large business. This evidence implies that IT alignment influences organizational performance. Moreover, this paper suggests that small firms can benefit from IT alignment. Thus, managers of small firms should give high priority to IT projects that support their business strategy. Pinnacle Research Journals 97 This suggests that firms should aim to support their major strategies with IT. For example, if quality and customer service are significant strategies, then managers should make sure that their IT is highly aligned to quality and customer service. This finding probably requires the ownermanager or senior managers to take an active role in seeking IT alignment with their partners in their supply chain which contributes to organizational superior performance. Further, present study was based on a survey, showing some shortcomings as it captures a situation or an event at a point in time. For example, the impact of IT alignment on firm performance may not have been fully measured unless the IT had been implemented well before the study. Future research could employ a more qualitative approach, such as longitudinal study. Another limitation of our study is about cause and effect relationship between IT alignment and firms financial performance and marketing performance. There are potentially other factors that could influence organizational performance. A cross- sectional study such as this cannot prove cause and effect relationships. Future researchers may choose different approaches to examine the cause and effect relationship between research variables.
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