Effect of IT Capability on the Alignment between Business and Service Innovation Strategies

Information Technology (IT) capability is believed to encourage and facilitate service innovation. In addition, since effective competitive strategy is particularly important for service firms, it is imperative to align their service innovation strategy with their business strategy to achieve better firm performance. Many service innovation studies have been performed on the influence of IT capability and the strategic alignment separately in the past, but this study combines them by investigating the moderating effect of IT capability on the alignment between business and service innovation strategies. Based on empirical data collected from 183 service firms in Korea, this study aims first to explore whether a certain service innovation strategy is more effective with a particular business strategy for better firm performance. We then investigate the moderating effect of IT capability on the relationship between the strategic alignments and firm performance. The empirical evidence indicates that there is a synergistic effect between strategic alignment and IT capability on firm performance. Firms that have aligned service innovation strategy with business strategy need to consider the improvement of organizational IT capability with an assurance that they will be leveraged substantially. Lastly, we discuss our study’s implications for further research and practice.