Information technology (IT) investment has become critical for companies in today’s digital economy. Effective IT investments can significantly boost a firm’s capabilities, processes and overall performance. However, making the right strategic decisions on IT spending also involves complexity and risk. Key factors impacting successful IT investments include elements like the company’s overall IT capabilities, active involvement from leadership, and the ability to learn from other companies’ experiences. Recent research has revealed ‘social learning’ via board interlocks as an emerging factor that shapes firms’ IT investments. When companies have directors that sit on multiple boards, this facilitates knowledge sharing that can enhance their IT decision-making. Yet simply having connections is not enough – aspects like communication flows and enabling contexts determine whether such learning impacts materialize fully.
IT Investment Success Hinges on Internal Capability
A firm’s own IT capabilities and resources play a major role IT investment outcomes, as per the study’s findings. Companies make more similar IT investments to interlocked firms when those firms have superior capabilities in managing and leveraging IT. Yet to actually benefit from such mimicry, a focal firm still requires foundational competence in areas like IT infrastructure, development and governance. Additionally, aspects like leadership engagement on digital technology issues and internal dissemination of IT knowledge also shape how much value the firm derives from any external learning. Management awareness, project governance procedures and post-implementation reviews should supplement social learning.
Board Connectivity Enables Social Learning, Under Right Conditions
The analysis discovered clear evidence that board member overlaps, called ‘interlocks’, enable a type of IT investment knowledge transfer labeled social learning. Specifically, a positive relationship exists where companies make more comparable IT investments to other firms their directors also serve on boards of. However, further analysis identified this mainly occurs when the board itself is actively engaged – through devoted time and communication flows. Hence organizations cannot passively rely on board interlocks for social learning benefits; their board should have robust processes and norms enabling substantive experience sharing between interlocked members.
Translating Social Learning into Performance Gains
While social learning vis-a-vis board connections steers IT investment decision-making, the research also examined if this actually translates into bottom-line gains. Indeed, findings reveal that the higher similarity in IT spending emerging from interlock effects correlates with superior firm performance. Yet, as before, merely having board ties does not guarantee this performance boost; rather, companies must have actively engaged boards allowing comprehensive exchange of insights between interlocked directors. Only then can mimicry of other sophisticated firms’ IT choices via board overlaps enhance the returns of those investments.
In summary, board connectivity can significantly shape companies’ IT investment behavior due to social learning. However, fully benefiting depends on requisite IT capabilities, plus board engagement enabling knowledge flows between directors.