The Effect of Information Technology–Enabled Flexibility on Formation and Market Value of Alliances

Abstract

This study investigates the effect of information technology (IT) architecture flexibility on strategic alliance formation and firm value. We first examine the effect of three dimensions of IT architecture flexibility (open communication standards, cross-functional transparency, and modularity) on formation of three types of alliances (arm's-length, collaborative, and joint-venture alliances, respectively). Then, we examine how capabilities in IT flexibility can enhance the value derived from alliances. Our sample includes data from 169 firms that are publicly listed in the United States and that span multiple industries. We find that adoption of open communication standards is associated with the formation of arm's-length alliances, and modularity of IT architecture is associated with the formation of joint ventures. We also find that IT architecture flexibility enhances the value of arm's-length, collaborative, and joint-venture alliances. The contribution of IT flexibility to value is greater in the case of collaborative alliances than in arm's-length alliances. Taken together, these findings suggest that appropriate investments in IT can help to facilitate reconfiguration of resources and modification of processes in collaboration-intensive alliances. This paper was accepted by Ramayya Krishnan, information systems.