Performance Effects of Information Technology Synergies in Multibusiness Firms1

Unlike technologies that are applicable in a few specific industries, information technologies have a wide range of applicability across almost all industries. The fundamental principles of good IT management are also applicable in many industries. Thus, firms whose business units operate in different industries have an opportunity to exploit cross-unit IT synergies by applying their IT resources and management processes across multiple units. This study examines sources of cross-unit IT synergy and the conditions under which cross-unit IT synergies improve the performance of multibusiness firms. Building on the resource-based view of diversification and the economic theory of complementarities, the study identifies the relatedness and complementarity of IT resources as two major sources of cross-unit IT synergy. It argues that IT relatedness—the use of common IT infrastructure technologies and common IT management processes across business units—creates sub-additive cost synergies, whereas complementarities among IT infrastructure technologies and IT management processes create super-additive value synergies. In a sample of 356 multibusiness Fortune 1000 firms, the study finds that sub-additive cost synergies arising from the use of related IT resources or management processes do not have any effects on corporate performance, whereas the super-additive value synergies arising from the use of a complementary set of IT resources and management processes have significant effects on corporate performance. The diversification level of the firm moderates the relationship between IT synergies and corporate performance. As the diversification level increases, the performance effects of IT synergies remain positive, but they become weaker. The IT governance mode of the firm (centralized, decentralized, hybrid) does not make a difference in the performance effects of IT synergies.