Towards an IT production function : Understanding routines as fundamental for IT value creation

Purpose – The goal of this paper is to identify core IT value drivers in firms and to model them as an IT production function to help disclose and measure the IT value creation process and to guide managers in seeking adequate ways of employing the IT resource. Design/methodology/approach – Based on a critical review of the literature on the resource‐based view, an IT value framework based on the constructs IT capability, resource, and routine is developed and then formalized as an IT production function. Findings – Organizational routines are decisive for turning firm resources into an IT capability and in turn into better business process performance. Shows how the IT value creation process in general and routines in particular can be measured and formalized. Practical implications – As the interaction between IT and business units is crucial for IT value generation, organizational routines provide for important knowledge flows that turn firm resources into value generating capabilities. Proposes a concrete method to measure and evaluate these routines and thereby contribute to making the IT resource controllable. Originality/value – The main contribution is the identification and analytical formalization of the role of routines for IT value creation. Shows how insights from the resource‐based view, microeconomic theory (Cobb‐Douglas/CES production function), and Granovetter's strength of ties argument can be used to describe, measure, and guide IT value creation and to develop an IT production function.