Effect of IT Capabilities and Business-IT Strategic Alignment on Business Agility

Due to the recent crisis market situation in many regions around the worlds, the firms must improve themselves to increase their business agilities to respond to unprecedented changes under the volatile business environment. The management teams in the firm need to find out the efficient way on how to utilize IT to improve the business agility. Their questions are to increase the IT capabilities or encourage the participations of IT and business managements to improve business-IT strategic alignment so as to increase the business agility of the firm. So, the purpose of this study is to identify the effect of IT capabilities and business-IT strategic alignment on business agility. This study referred to the knowledge based theory of the firm. It would give more understanding on how knowledge managements are related to the participation level between IT and business management is.Structural Equation Model (SEM) statistics technique was used to find out the answer of the objectives in this study. 432 employees answered the questionnaires and responded back. The goodness of fit statistics revealed the fit of the model. The chi-square value was 9.27 with the degree of freedom of 8 (p=0.31982). Goodness of Fit Index (GFI) was equal to 0.99 and Adjusted Goodness of Fit Index (AGFI) was equal to 0.98 which support the model was fit. While the error indexes, Root Mean Square Residual (RMR) and Root Mean Square Error of Approximation (RMSEA) were 0.0028 and 0.019 accordingly which were low and approached to zero.The result of SEM analysis exposed that IT’s participation on the business planning had the positive effect on business-IT strategic alignment (β = 0.52; t-value = 15.95; p = 0.001) and business’s participation on the IT planning had the positive effect on business-IT strategic alignment (β = 0.72; t-value = 15.95; p = 0.001). It also revealed that business-IT strategic alignment had the positive effect on the business agility (β = 0.60; t-value = 2.29; p = 0.05). Also, IT capabilities had the positive effect on the business agility (β = 0.25; t-value = 5.35; p = 0.001). However, the magnitude on the effect of business-IT strategic alignment on business agility (β = 0.60) was much more than the magnitude on the effect of IT capabilities on business agility (β = 0.25).The implication of the study revealed that how the management teams are able to utilize IT resources in order to increase the business agility. The management team can consider on IT capabilities to increase the business agility. However, they should take the consideration on how to increase the participation level of IT and business managements as the priority. This would improve IT-business strategic alignment which would positively effect to the business agility.