Why are some firms---often irrespective of their relative level of IT spending---able to outperform others using IT in an environment where most information technologies are readily available to all competing firms? For sometime now, IS researchers have (at the conceptual level) emphasized the centrality of the quality of the relationship between business and information systems (IS) units. Recent studies have shown that superior relative process performance from IT rests less on the level of IT spending or on the technical skills of the IT staff and more on the degree of shared business-IT understanding--- the level common understanding between the IT and the line manager regarding how IT can be used to improve the performance of a specific process.;This considerable evidence regarding the role of shared business-IT understanding as a key capability and performance differentiator, gives rise to another important research question, namely, why are some firms able to develop this important tacit and socially complex capability? What are the organizational factors, resources and capabilities that foster the development and nurturing of shared business-IT understanding? Drawing on the knowledge management and organizational learning literature, we develop and test a theoretical model designed to address this question. We argue that shared understanding is best conceptualized at two distinct levels---operational and strategic---and that the factors that foster the development of shared understanding differ across the two levels. Hypotheses are them developed regarding the impact of various cognitive and institutional factors on both operational and strategic shared understanding. These hypotheses are tested in the context of the manufacturing industry, in which IT is widely perceived as being strategically important.;We find that the strategic component of shared understanding explain variation in manufacturing performance; whereas, the operational component explains variation in IS unit performance and perceived IT impact on manufacturing. We also find that the primary antecedents for shared strategic understanding are a result of the organizational environment and include executive support for IS, a strong organizational learning culture, and mutual trust; whereas, the primary antecedents for shared operational understanding are focused on the specific units and include joint manufacturing and IS management of IS resources, overlapping domain knowledge between IS and manufacturing personnel and mutual trust. These results appear consistent with our assertion that knowledge type impacts which antecedents will be critical in the knowledge sharing process.
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