Abstract Background: Companies can improve their business performance, increase revenues and reduce costs by enhancing their information technology (IT) capability. On the other side, there is an increasing importance of human resource management (HRM) practices related to IT utilization, which are important for the business performance of a company in the rapidly changing knowledge-based economy. Objectives: The objective of this paper is to analyze the relations among IT capability, HRM capability and the firm’s performance outcomes. Methods/Approach: The paper uses survey data and Structural Equation Modeling to analyze the relationships among IT capability, HRM capability and firms’ performance. Results: This paper reveals that IT capability to some extent determines firms’ business performance but it plays more important role in enhancing HRM capability. In addition, HRM capability significantly impacts business performance. Conclusions: The findings indicate that managers should not focus on allocating resources only for IT investments. In order to achieve better business performances, these technologies need to be used to support all business processes including HRM activities.

According to the resource-based view, sources of competitive advantage begin with the notion that differences in performance are fundamentally due to the distinctive resources and capabilities that are valuable, rare, inimitable and nonsubstitutable (Barney, 2007; Wu et al., 2006). Information technology (IT) as a resource of the company has the increasing importance for the researches and managers. Research on the IT value within organizations and firms' IT capabilities have expanded over the past decade (Perez-Lopez et. al., 2012). Tippins and Sohi (2003) in their study defined IT capability as the existence of IT infrastructure, IT knowledge and IT operations within company. The purpose of this paper is to analyze the impact of IT capability on firms' innovativeness and the relationship among IT capability, firms' innovativeness and business performance. The study uses survey data from managers and structural equation modelling to assess the relationships between IT capability, firms' innovativeness and business performance. This study finds that both IT capability and innovation capability play important role in achieving greater business performance. The findings indicate that managers should focus on development of the IT function within company, taking into account importance of IT investment as well as IT knowledge, and promotion of innovativeness.