Managerial Incentives and IT Strategic Posture

This study examines how managerial incentives may drive firms to adopt a proactive strategic posture to implement more information technology (IT) than competitors. We consider both performance incentives that motivate managers to enhance firm returns and risk incentives that motivate managers to take risks. Our empirical analysis shows that while the proactiveness in IT strategic posture leads to both firm returns and firm risk, risk incentives rather than performance incentives essentially drive the proactiveness in IT strategic posture. These findings highlight the issue of managerial risk aversion and the important role of risk incentives in strategic IT decisions. Our study also shows that in diversified firms, risk incentives have a stronger marginal impact on the proactiveness in IT strategic posture in secondary business areas than in primary business areas. Performance incentives, however, may even generate a negative marginal impact on the proactiveness in IT strategic posture in secondary business areas. These results generate important implications for corporate owners regarding how to use various managerial incentives to motivate strategic IT decisions.