Enhancing Strategic Flexibility and Performance through Risk Management: the Enabling Role of It Integration

Preliminary Draft Please do not quote without permission. of Central Florida for their valuable feedback on earlier versions of this manuscript. We also thank Randy Kuhn for his research assistance. Abstract Since the passage of the Sarbanes-Oxley Act in the U.S., the business press has consistently reported on companies' and business consortiums' proclamations of the negative effect of new internal control requirements on supply chain performance. Early studies on organizations' experience with SOX control compliance efforts have been contradictory; some organizations have experienced significant deleterious effects while other organizations have continued to prosper. In this study, theory on capability-building for entrepreneurial action (Sambamurthy et al. 2003) is used as a basis for understanding the observed phenomenon. In our research model, which operationalizes the theory, enterprise risk management (ERM) forms the primary organizational driver for enhanced IT integration, maintaining organizational strategic flexibility, and facilitating supply chain performance. Based on responses from 155 Chief Audit Executives, the results provide strong support for both the underlying theory and its applicability to understanding the varied effects of SOX 404 compliance on organizations. The results indicate that ERM leads to higher levels of IT integration across two dimensions: IT compatibility and IT connectivity. The results also highlight the fundamental importance of high levels of IT integration to strategic opportunities within the firm as it is shown that IT integration fully mediates the relationship between ERM and strategic flexibility and partially mediates the relationship between ERM and supply chain performance. Additionally, the previously reported relationship between IT integration and supply chain performance is partially mediated by the level of organizational strategic flexibility. Overall, there is strong support for the theory and additional clarity is provided to the practice environment on the effective implementation of ERM processes and its use for facilitating competitive action.