Understanding the dynamics between organizational IT investment strategy and market performance: A system dynamics approach

• Neither an early IT entrant strategy nor a follower strategy is better than the other in terms of gaining a sustainable competitive advantage.
• If the amount of IT investment is the same, early entrants will experience increased competitive advantages as compared to followers.
• If early entrant costs do not exceed follower costs by more than six times, the former can still enjoy a higher competitive advantage over the long term.
• If followers increase investment in human resources and process improvements, they can surpass early entrants’ advantages over the long term.

In recent years, information technology (IT) companies have faced fierce competition across dynamic environments; as such, ways of enhancing organizational performance and obtaining competitive advantage through IT investment have become important issues for academia and businesses. Further, time delays between IT investment transfers and actual market performance make measuring the impact of IT investment on market performance more complex. Based on the perspective of long-term, non-linear, closed-loop causality, this study develops a computerized system dynamics model to analyze the dynamic relationships between organizational IT investment strategy and market performance within information-intensive service industries. The results of this study provide several important implications for IT investment management research and practice. The proposed system dynamics model also provides IT managers with a useful decision support tool for evaluating different IT investment strategies.