Mediation effect of business process and supply chain management capabilities on the impact of IT on firm performance: Evidence from Chinese firms

•Motivated by the seeming presence of the productivity paradox in China, this research revisits the question of how information technology (IT) affects firm performance in China.•It aims to find the mediation factors for the relationship between IT capabilities and performance.•We find that a firm’s management capabilities to manage both its internal and external processes fully mediate the impact of IT on firm performance.•The research advances our understanding of the IT-firm performance nexus in China as well as in other developing countries. It provides an avenue for exploring other mediating variables.•Our findings suggest that firms should avoid the fallacy that IT investments are directly responsible for enhancing firm performance. Motivated by the seeming presence of the productivity paradox in China, this research revisits the question of how information technology (IT) affects firm performance. Leveraging the process-based view of IT, we establish a theoretical framework for the mediation factors for the relationship between IT capabilities and performance. Based on a survey of 127 companies in China, we find that a firm's management capabilities to manage both its internal and external business processes fully mediate the impact of IT on firm performance. The two management capabilities in this study are business-process management capability and supply-chain management capability. Our results show that only the coherent integration of IT capability with firm’s ability to optimize business processes and to improve management of supply chains can enhance firm performance. Firms should avoid the fallacy that IT investments are solely responsible for better firm performance. Based on our findings, we discuss the implications for research and practice.