The Value of the Structural Power of the Chief Information Officer in Enhancing Forward-Looking Firm Performance*

ABSTRACT

Drawing on the resource-based view (RBV) of the firm and the top management team (TMT) structural power framework, we investigate the relationship between Chief Information Officer (CIO) structural power and forward-looking firm performance. In addition, we examine the contingency roles of market turbulence, industry IT intensity, and operating efficiency in shaping the above relationship. Using a sample of 7,185 firm-year observations and a panel fixed-effects model, we find that CIO structural power is positively associated with forward-looking firm performance (proxied by Tobin’s q). Further, our results suggest that the benefits of CIO structural power are higher under greater market turbulence, higher industry IT intensity, and greater operating efficiency. Our empirical results imply that the board of directors should consider endowing CIOs with a higher structural power, especially when an organization faces greater volatility in industry sales, competes in a more IT-intensive industry, and operates at a more efficient level. This research contributes to the RBV literature and integrates RBV and structural power frameworks to offer newer insights into the contemporary role of an important TMT member, the CIO.

KEYWORDS:

• chief information officer
• structural power
• firm performance
• market turbulence
• industry IT intensity
• operating efficiency
• resource-based view

Supplementary material

Supplemental data for this article can be accessed on the publisher’s website.

Notes

¹ Karahanna and Preston [83] hypothesize that IS strategic alignment mediates the relationship between CIO structural power and firm financial performance. However, their empirical results do not lend support to their hypothesis.

² Summaries of our literature review are presented in Online Appendix Tables A1 and A2, which will be discussed in more detail in the next section.

³ Functional TMT members refer to non-CEO executives within the TMT who are responsible for one or more functional areas [98].

⁴ Banker et al. [9] find that the alignment between CIO reporting structure (one dimension of CIO structural power) and the strategic positioning of a firm is associated with two measures of firm performance (i.e., abnormal stock returns and cash flows). However, they do not assess the direct relationship between CIO structural power and firm performance.

⁵ We thank an anonymous reviewer for suggesting this theoretical argument.

⁶ According to Smaltz et al. [130], the roles of CIOs include strategist, relationship architect, integrator, educator, utilities provider, and information steward.

⁷ According to Brzenk et al. [25], the S&P 1500 represents over 90% of the U.S. equity market.

⁸ We acknowledge that using secondary databases (such as Execucomp) to measure executive presence is likely to be conservative because some firms may list no more than 5 executives in their DEF 14A forms which are the main data source used by Execucomp to compile executive compensation . However, the executives listed on Execucomp are likely to be deemed as the most important executives by a public firm and thus with far more power than unlisted executives.

⁹ Using industry mean/median values as instruments is common practice in IS [14], marketing [64], and management [128].

¹⁰ According to the data vendor, “[c]ompanies with comprehensive privacy policies and data security management systems and companies whose business models are not reliant on trafficking in personal data score higher” [102, page 33].

¹¹ Note that from an empirical standpoint, the inclusion of industry-by-year fixed effects makes the year fixed effects redundant. However, we include them in our empirical model for expositional clarity.

¹² For instance, the customer relationship system used by the marketing department requires routine maintenance such as bug fixes and new feature integration provided by the IT department, and not vice versa. Therefore, market participants will more favorably respond to an increase in CIO structural power (resulting in a relatively higher Tobin’s q). However, we believe that more research is needed to provide a more definite answer.

Additional information

Notes on contributors

Cong Feng

Cong Feng is an Assistant Professor of Marketing at University of Mississippi. He received his Ph.D. in Marketing from Syracuse University. His research has been published in Journal of the Academy of Marketing Science, Journal of Retailing, Journal of Public Policy & Marketing, Journal of Business Research, and other journals. He is the recipient of the 2020 Outstanding Junior Researcher Award from the School of Business Administration at the University of Mississippi and other awards.

Pankaj C. Patel

Pankaj C. Patel is the Frank J. and Jane E. Ryan Endowed Chair in Strategy and Innovation and Professor of Management at Villanova University. He received his Ph.D. from the University of Louisville. Dr. Patel’s research interests are at the intersection of technology and governance.

Scott Fay

Scott Fay is a Professor of Marketing in the Whitman School of Management, Syracuse University. He received his Ph.D. in Economics from the University of Michigan in 2001. Dr. Fay’s research has been published in such journals as Marketing Science, Management Science, American Economic Review, and Journal of Retailing. He serves on the editorial board of Marketing Science, Journal of Retailing, and Journal of Interactive Marketing. He has received both Management Science’s Distinguished Service Award and its Meritorious Service Award four times.