The widespread adoption of information technologies (IT) characterising the recent competitive advantage scenario has been of great interest to researchers and practitioners. An important management question today is whether the anticipated economic benefits of information technology are being realised. There have been contradictory findings in the literature regarding its impact on firms'productivity. While the debate known as the “IT productivity” paradox still endures, empirical studies have not shown consistent results to clarify how IT offers benefits to the owning firms. The primary research questions are whether and how IT capabilities can create competitive advantage and enhance firm performance through supply chain relationships (channel capabilities). A quantitative approach for data collection and analysis is used. Drawing on the resource based theory of the firm and transaction cost economic theory, this study developed and tested a model that proposes supply chain channel capabilities (information sharing, supply chain coordination and supply chain responsiveness) as higher organisational capabilities which mediate the effects of a firm's IT capabilities on its market and financial performances.