Business Analytics Governance, External Uncertainty, and Firm Performance

Abstract

Constantly evolving business environment and technological innovations, such as business analytics and artificial intelligence, press firms to rethink their information technology governance approaches in order to secure business value extracted from these technologies. Business analytics governance comprises several key mechanisms, among which is business analytics organizing, which guides the firm’s business analytics activities, related decision-making authority, and location of business analytics function within the organization. The pros and cons of different approaches to business analytics organizing have been discussed in the existing business analytics literature, but there is only scant empirical evidence on how they help firms extract business value of their business analytics capability investments. Further, current literature posits that the level of uncertainty of the external business environment has a strong influence over which information technology governance approach a firm adopts, but the links between the external uncertainty, business analytics organizing, and firm performance are unestablished. Our study seeks to contribute to the contemporary business analytics literature by developing and testing a research model that comprises a firm’s business analytics capability, firm’s operational performance, and the moderating impact of business analytics organizing and uncertainty of the firm’s external environment. In more detail, we propose that business analytics capability is positively associated with the firm’s operational performance, and that business analytics organizing, ranging from centralized to decentralized, moderates this relationship. That is, centralized business analytics organizing characterized by concentrated expertise and standardization of analytics services helps firms achieve operational efficiency gains, while more de-centralized organizing approach burdened with a lack of control and possible agency issues weakens the association. Further, we also propose that the uncertainty of the external environment further moderates the other moderation effect, i.e., the centralized business analytics organizing approach works better in low uncertainty environments, while a decentralized organizing approach characterized by wider spread business analytics expertise and agile decision-making outperforms the centralized organizing approach in more uncertain circumstances. Our paired-response survey data collected from Finnish firms provide support for our hypotheses.