The Contribution of Business Intelligence Use and Business Intelligence System Infrastructure Flexibility to Organizational Dynamic Capability.

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1 The Contribution of Business Intelligence Use and Business Intelligence 1 Sergey Kokin, 2 Denis Pedyash, 3 Alexey V. Belov, 4 Tienan Wang, 5 Chunsheng Shi 1 First Author, Corresponding Author School of Management, Harbin Institute of Technology, Harbin, China, sergkokin@gmail.com 2 School of Management, Harbin Institute of Technology, Harbin, China, dennauka@yahoo.com 3 Engineering School, Far Eastern Federal University, Vladivostok, Russia, poraen@mail.ru 4 School of Management, Harbin Institute of Technology, Harbin, China, wtn@hit.edu.cn 5 School of Management, Harbin Institute of Technology, Harbin, China, hitscs@hit.edu.cn Abstract There is growing use of business intelligence (BI) for better decision-making in many organizations. However, there is a lack of empirical studies on BI in academic research. This research investigates BI from an organizational dynamic capability perspective. Organizational dynamic capability is the ability to sense and respond to market opportunities and threats with speed, and BI can be of great use in that sensing role of organizational dynamic capability. Drawing on the dynamic capabilities framework, and literature business intelligence, and IS infrastructure flexibility, we hypothesize that BI use and IS (BIS for the purposes of this paper) infrastructure flexibility are major sources of organizational dynamic capability. A research model was developed to define the relationship of BI and BIS infrastructure flexibility with organizational dynamic capability. Survey data were collected and used to assess the model. The hypotheseses that BI and BIS infrastructure flexibility are significant sources of organizational dynamic capability are supported by the results. This research also empirically examines the weight and significance of BI in the business context of an organization. The results of the research also demonstrate that information technology and systems are of have strategic value for organizations, as they are significant sources of organizational dynamic capabilities and competitive advantages. 1. Introduction Keywords: Business Intelligence, Organizational Dynamic, Resource-Based View Informational Technology There is more need for high-quality management decisions along with the use of business intelligence (BI) tools. In the last decade BI has become a hot topic to be discussed in practice and academics BI as the top organizational priority [1], BI as a technological cutting-edge [2]. However, empirical studies on BI in academic research are rare and not sufficient. There is an inconsistency in results of BI contribution to organizational performance [3][4]. There is need for more research studies to prove the significance of BI impact on organizational performance from the perspective of organizational dynamic capability. Organizational dynamic capability is the ability to sense and respond to market opportunities and threats with speed, and BI can help in the sensing role of organizational dynamic capability. Drawing on the dynamic capabilities framework, and literature business intelligence, and IS infrastructure flexibility, we hypothesize that BI use and IS (BIS for the purposes of this paper) infrastructure flexibility are major sources of organizational dynamic capability. We developed a research model to examine the effects of BI and BIS infrastructure flexibility on organizational dynamic capability. This research aims to theoretically evaluate the significance of BI and empirically tested its importance in creating business values. It aims to build a theoretical model that is based on IS theories Journal of Convergence Information Technology(JCIT) Volume8, Number6,Mar 2013 doi: /jcit.vol8.issue6.8

2 and strategic management fields to examine the relationships between business intelligence, BIS infrastructure flexibility, and organizational dynamic capability. 2. Theoretical background and hypotheses In the recent decade the use of business intelligence (BI) with the purpose of making management decisions of higher quality has become more widely spread. The definition of BI is as follows the technologies, applications, and processes for gathering, storing, accessing, and analyzing data to help users make better decisions [5]. Since the late 2000s BI has become a hot topic and a kind of fashion in the IS field. However, the result of investing in BI is not always the same some companies get increased revenue and cost savings [4], some not [6]. According to Jourdan et al. BI literature review [7] the majority of the BI research papers are exploratory, that means BI research field is still at an early stage. A BI-based organization framework was proposed by some researchers [8][5], but there is still little research to support the framework and explain how internal resources and capabilities should interact with each other and BI to make a return on investment at least. This research is an attempt to answer why BI is important to business and in what way it interacts with other business resources in the process of creating strategic organizational values. We need a framework to evaluate the relationship between BI use and business competitive advantages after implementing BI. Having reviewed the IS and strategic management literature, we found that organizational dynamic capability is a promising mediator between BI use and business competitive advantages [9]. In the IS literature the term organizational agility is more widely used instead of organizational dynamic capability, but in the present study we adopt the latter term because we believe it s more appropriate for this research because it more concerns the issues of strategic values and management. Dynamic capability is an organizational trait [10]. Organizational dynamic capability is an organization s ability to sense and respond to market opportunities and threats in a timely manner [11][12]. Organizational dynamic capability has been extensively studied in the IS discipline [13][14]. There is established positive relationship between organizational dynamic capability and enterprise performance in the academic literature [15][16]. The resource-based view (RBV) of the firm was developed to define firm-level specific capabilities and assets (resources) [17]. These resources are characterized as valuable, rare, inimitable, and no substitutable (VRIN), to be regarded as sources of a firm s competitive advantages. RBV has static nature itself, later the dynamic capability framework was developed to explain how competitive advantages are gained and held for the long term [18]. According to existing literature, business intelligence (BI) can be of great use when defining opportunities and threats of external environment [19], and flexible BIS infrastructure can help respond to opportunities and threats of external environment by means of integration and reconfiguration of firm s resources [20]. By using BI tools the awareness of the trends of products and customer changes can be raised. Providing timely information to define trends changes can contribute to organizational dynamic capability [ 21 ]. According to literature review there is a positive relationship between organizational dynamic capability and competitive advantage. Based on the BI s ability to contribute to organizational dynamic capability, we can argue that BI is crucial to organization s competitive advantage. In our opinion, BIS infrastructure flexibility is another component contributing to organizational dynamic capability. Organizational dynamic capability characterizes an organization s ability to integrate and reconfigure internal and external resources to respond to threats and opportunities of the external environment. Prior studies [ 22 ], [ 23 ], [ 24 ] have shown that BIS infrastructure flexibility is a key factor for organizational dynamic capability and firm performance. A flexible BIS infrastructure is crucial for timely integration and reconfiguration. Thus, BIS infrastructure flexibility can be an important contributor to organizational dynamic capability. BI is a BIS-enabled system that is based on an organization s BIS infrastructure. By providing more accurate and timely data and information with easily integrated data sources a flexible BIS infrastructure can improve BI performance in an organization. Therefore, this study also investigated the relationship between BIS

3 infrastructure flexibility and BI Use. In summary, this study uses organizational dynamic capability as a theoretical perspective to view the importance of BI use and BIS infrastructure for strategic firm performance. Therefore, business intelligence and BIS infrastructure flexibility are enabling source components that can help improve organizational dynamic capability. Based on the abovementioned theoretical background we put forward the following hypotheses: H1. There is positive relationship between BI use and Organizational Dynamic Capability. H2. There is positive relationship between BI Infrastructure Flexibility and Organizational Dynamic Capability. H3. There is positive relationship between BI Infrastructure Flexibility and BI Use. 3. Methodology Figure 1. Research model of the study For this study a survey was employed to obtain data containing measured perceptions of BI use, BIS Flexibility and Organizational Dynamic Capability. To ensure content validity the questionnaire was developed based on the previous theoretical basis. Then pre-testing procedure was undertaken using focus group that consisted of academics from the field and semi-structured with the selected firms. A structured questionnaire with a combination of 5-point Likert scales was used. In order to assess BIS Flexibility use the previously researched and validated indicators were adopted from [25], [26]. For assessing Organizational Dynamic Capability and BI use constructs the previously researched and validated indicators were used provided by [8].

4 Table 1. Indicators for constructs used in the study Construct Label Indicator (description) (1=Strongly Disagree 5=Strongly Agree BI Use BIU1 My organization uses BI to extract values of key performance indicators (KPI) BIU2 My organization uses BI to get strategic reporting BIU3 My organization uses BI to compare and contrast different aspects of the data BIU4 My organization uses BI to share insights based on data within the Organizational Dynamic Capability BIS Infrastructure Flexibility organization ODC1 My organization can easily and quickly respond to changes in aggregate consumer demand ODC2 My organization can easily and quickly expand into new markets ODC3 My organization can easily and quickly adopt new technologies to produce better, faster and cheaper products and services ODC4 My organization can easily and quickly change (i.e., expand or reduce) the variety of products/services available for sale ODC5 My organization can easily and quickly react to new products or services launched by competitors FLEX2 My organization has a high degree of information systems interconnectivity FLEX3 Information systems in my organization are sufficiently flexible to incorporate electronic connections to external parties FLEX8 FLEX4 Data is captured and made available to everyone in my organization in real time using information systems FLEX5 My organization offers multiple information systems interfaces or entry points (e.g., web access) to external users FLEX7 The inter-dependencies of software/hardware components are wellunderstood in my organization Information technology standards are well established and implemented at the enterprise wide level in my organization This study s target population were Chinese medium and large size firms from the financial and insurance industries of the Heilongjiang province as they were listed in the registry of People s Republic of China Agency of Public Records and Related Services at the time of data gathering. Empirical data were collected by means of paper and Web-based survey. Questionnaires were addressed to CIOs and senior managers estimated as having adequate and appropriate knowledge about the BI Use, BIS Flexibility and Organizational Dynamic Capability. There were two waves of questionnaires, so the final response rate was near 14%. 4. Results The gathered data were analyzed using a form of structural equation modelling ( SEM). To estimate the model SEM-PLS (Structural Equation Models by Partial Least Squares) was used (Ringle, Wende - 58).

5 Figure 2. The Confirmatory Factor Analysis model First, the reliability and validity measures for the constructs in the model were examined. In the initial model not all the reliability and convergent validity measures were satisfactory, those that did not appear to be satisfactory were removed. Then the model was rerun. The figure 2 presents the results of the final run. In the final model all the Cronbach s Alphas exceed the 0.70 thresholds and were above to Table 2. Reliability and validity measure of the research model Constructs Indicators Final model Estimates (final model) Loadings T- values Cronbach s Alpha Composite Reliability Average Variance Extracted BIS Flexibility Flex Flex Flex Flex Flex Flex Organizational Dynamic Capability ODC ODC ODC ODC ODC BI Use BIU BIU BIU BIU Latent variable composite reliabilities are higher than 0.80, that means that there s a high level of internal consistency between indicators measuring each construct and that construct reliability is confirmed. The average variance extracted (AVE) is higher 0.50, indicating variance taken by each latent variable exceeds the measurement error variance, so the construct s convergent validity is confirmed. Calculating standardized loadings and bootstrapping t-statistics also supported reliability and convergent validity of the model. All standardized loadings exceeded or were marginally close to 0.70 threshold and were found, without exception, significant at 0.1% significance level, so the high level of convergent validity of the measurement model was confirmed.

6 A procedure of comparison of item cross loadings to construct correlations and procedure of determining whether each latent variable shares more variance with its own measurement variables were implemented to assess discriminant validity. All the item loadings met the requirements of the first procedure in the discriminant validity assessment. During the second procedure the square root of the AVE for each construct was compared with all the constructs in the model. All the constructs showed acceptable validity. To test the hypothesized relationships between the constructs a bootstrapping with 1000 samples was conducted. As Figure 2 shows, the standardized path coefficients range from to while R2 is moderate. We can see that about 29.4% of the variance in BI us is explained by the influence of BIS Infrastructure Flexibility, while about 40.5 % variance in Organizational Dynamic Capability is explained both by BI Use and BIS Infrastructure Flexibility. As indicated by the path loadings, BI use and BIS Infrastructure Flexibility has significant direct and positive impact for Organizational Dynamic Capability, BIS Infrastructure Flexibility has significant direct and positive impact for BI use. The t-statistic for the difference of the two impacts is with p = These results confirm our theoretical expectation and provide support for H1, H2 and H3. 5. Conclusions and Future Work The research model of this study is conceptual and is not intended for a specific business activity. However, future research can apply the model to specific business contexts. The study uses the framework of organizational dynamic capability to argue that BI and BIS Infrastructure help to increase strategic value of the organization. By developing organizational dynamic capabilities firm can more easily and quickly respond to changes in customer demand or expand into new markets. In this study a theoretical foundation is provided to explain the importance of business intelligence. BU tools are used for strategic reporting, evaluating key performance indicators, sharing, comparing different aspects of data and information. Another valuable contribution is that BIS or IT infrastructure is not only a technological platform but also a source of possible competitive advantage for a firm. Attention should be paid to the BIS Infrastructure Flexibility as a special area responsible for enhancing organizational dynamic capability. As for the future work the model can be extended by including the factor of external environment to make the model s nature more dynamic according to applied theoretical framework of organizational dynamic capability. We also believe that future research should also examine the relationship between BI, BIS, dynamic capabilities and organizational competitive advantages and organizational performance of the enterprises. The most important limitation of the present study is that all the measures were borrowed from one source, the authors intend to diversify the measures and develop some of their own. 6. Reference [1] LaValle, S., Lesser, E., Shockley, R., Hopkins, M.S., and Kruschwitz, N., Big Data, Analytics and the Path from Insights to Value, MIT Sloan Management Review (52:2), pp , [2] Luftman, J. and Ben-Zvi, T., Key Issues for IT Executives 2009: Difficult Economy s Impact on IT, MIS Quarterly Executive (9:1), pp , [3] Gessner, G. H. and Volonino, L., Quick Response Improves Return on Business Intelligence Investments, Information Systems Management (22:3), pp , [4] Watson, H.J., Tutorial: Business Intelligence - Past, Present, and Future, Communications of the Association for Information Systems (25), Article 39, pp , [5] Wixom, B. and Watson, H.J., The BI-Based Organization, International Journal of Business Intelligence Research (1:1), pp , [6] Watson, H. J., Goodhue, D. L., and Wixom, B. H., The Benefits of Data Warehousing: Why Some Organizations Realize Exceptional Payoffs, Information & Management (39:6), pp , 2002.

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