Information Technology in Innovation activity of the Firm: Theory and Synthesis

Authors: John Qi Dong, Arun Rai, Sean Xin Xu, Prasanna P. Karhade

Abstract

In light of information technology (IT) increasingly leading to enterprise transformation in contemporary firms, we aim to build a theory of IT-enabled capabilities in innovation activity of the firm. For so doing, we extensively review almost five hundred innovation studies in organization and IS literature and conduct a thematic analysis to identify theoretical underpinnings of innovation research. Based on a solid understanding of the literature, we then derive a typology of different perspectives on innovation activity to categorize the themes (theoretical underpinnings). From an angle of enterprise transformation, we view innovation as a form of organizational change aiming to improve certain organizational outcomes. Accordingly, innovation activity is characterized based on the theoretical underpinnings taking different perspectives about organizational change processes, such as resource lifecycle process, teleological search process, evolutionary adaptation process, and dialectical synthesis process. Corresponding to these perspectives, four IT-enabled capabilities are theorized: IT-enabled resource operation capability, IT-enabled objective management capability, IT-enabled knowledge absorption capability, and IT-enabled information transparency capability. We develop a theoretical framework with several propositions explaining how these IT-enabled capabilities facilitate innovation activity in different perspectives, and the mechanisms leading to certain organizational outcomes. Directions for future research are discussed.

Keywords: IT-enabled enterprise transformation, IT-enabled organizational change, IT-enabled capabilities, IT innovation, resource-based theory, behavioral theory of the firm, evolutionary theory, property rights theory, agency theory, transaction costs theory.