The link between information technology (IT) and competitive advantage has been the preoccupation of many IT researchers. IT plays a key role as a necessary, but not sufficient, source of value. Prior research has in most cases investigated the direct link between IT and competitive advantage. Other researchers have examined the effect of IT on mediating factors (such as firm strategy) or applied higher order IT support for core competences in their research constructs. Only a few have recognised the potential of IT in enabling dynamic capabilities. This thesis argues that the dynamic capability perspective of strategic management provides a better insight into how IT, beyond its traditional role, needs to be converted into a higher order resource to deliver competitive advantage. The objectives of the study are therefore: (1) to apply the concept of the dynamic capability perspective to the IT-competitive advantage research in order to explicate the strategic role of IT in attaining competitive advantage; and (2) to examine the antecedent capabilities and competences that may lead towards developing adaptive IT capability. This study proposes and empirically tests a dynamic capability-based model of IT and competitive advantage. The proposed model posits adaptive IT capability as a mediating higher order resource that relies on IT capabilities (infrastructure, personnel and management) and IT support for core competences (operational and market) to influence a firm's competitive position (competitive edge in market and financial performance). The model also hypothesises that IT support for core competences can lead to competitive advantages. To test the model, data were collected from a cross- sectional sample of 203 medium- and large-sized Australian organisations. Descriptive and analytical (structural equation modelling) tools were employed to test both the measurement and structural models. The findings reveal that the developed model explained 28% of the variance in competitive advantage, 72% for adaptive IT capability, 51% for IT support for operational and market competence, demonstrating the strategic role of adaptive IT capabilities as sources of competitive advantage. This indicates that those firms that deploy IT for creating operational and market competences require a further capacity to rebuild and reconfigure their resources to improve market and financial performance. Thus, it appears that the impact of IT support for core competences on competitive advantage is not direct, but indirect through adaptive IT capability. Several IT capabilities and competences were identified as antecedents for building adaptive IT capabilities. This PhD study's main contribution lies in bridging a research gap by developing and empirically testing a model of adaptive IT capability that measures how IT can enable firms' dynamic capabilities. The model includes both the antecedent factors that build the higher order resource of adaptive IT capability (upstream factors) as well as the effect on competitive advantage (downstream factors). Practitioners can benefit from the results of this study in terms of the ramifications for investment decisions as well as to benchmark where they stand with their IT in terms of potential for value creation and business support.
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