Effect of the fit between information processing requirements and capacity on organizational performance

The information processing (IP) view of an organization has been considered one of the most influential contributions to the contingency literature. But the fit between a firm's IP capacity and IP requirements and the implications of such a fit for performance still lack research exploration. In this study, a firm's IP capacity was construed as the consistency among its centralization, formalization, and the role information systems (IS) plays in the firm. Based on data collected in Taiwan, the result shows that a firm can achieve greater performance when its IP capacity fits its IP requirements. This study demonstrates that a firm's degrees of centralization and formalization tend to be associated positively with each other and with the importance of its IS. Such associations both affect the firm's performance positively and are positively affected by its IP requirements. Although centralization and formalization are usually characterized as rigid, hierarchical organizational structures that can inhibit performance, this study shows otherwise. This study suggests that the rigid organization structures traditionally defined in the organization literature may in fact be performance-enhancing, at least when they are maintained consistently with the role IS plays in the firm.