The "productivity paradox" of information systems IS is that, despite enormous improvements in the underlying technology, the benefits of IS spending have not been found in aggregate output statistics. One explanation is that IS spending may lead to increases in product quality or variety which tend to be overlooked in the aggregate statistics, even if they increase output at the firm-level. Furthermore, the restructuring and cost-cutting that are often necessary to realize the potential benefits of IS have only recently been undertaken in many firms.

Our study uses new firm-level data on several components of IS spending for 1987-1991. The dataset includes 367 large firms which generated approximately 1.8 trillion dollars in output in 1991. We supplemented the IS data with data on other inputs, output, and price deflators from other sources. As a result, we could assess several econometric models of the contribution of IS to firm-level productivity.

Our results indicate that IS spending has made a substantial and statistically significant contribution to firm output. We find that the gross marginal product MP for computer capital averaged 81% for the firms in our sample. We find that the MP for computer capital is at least as large as the marginal product of other types of capital investment and that, dollar for dollar, IS labor spending generates at least as much output as spending on non-IS labor and expenses. Because the models we applied were similar to those that have been previously used to assess the contribution of IS and other factors of production, we attribute the different results to the fact that our data set is more current and larger than others explored. We conclude that the productivity paradox disappeared by 1991, at least in our sample of firms.

/pdf/paradox-lost-firm-level-evidence-on-the-returns-to-23bx7pcv4x.pdf

Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending

Large amounts of resources have been and continue to be invested in information technology (IT). Much of this investment is made on the basis of faith that returns will occur. This study presents the results of an empirical test of the performance effects of IT investment in the manufacturing sector. Six years of historical data on IT investment and performance were collected for 33 valve manufacturing firms from the CEO, the controller and the production manager in each firm. Investment was perceptually categorized by management objective (i.e., strategic, informational and transactional) and tested against four measures of performance (sales growth, return on assets, and two measures of labor productivity). Heavy use of transactional IT investment was found to be significantly and consistently associated with strong firm performance over the six years studied. Heavy use of strategic IT was found to be neutral in the long term and associated only with relatively poorly performing firms in the short term....

/pdf/the-relationship-between-investment-in-information-4qir921goi.pdf

The Relationship Between Investment in Information Technology and Firm Performance: A Study of the Valve Manufacturing Sector

/pdf/technology-and-firm-performance-a-study-of-the-valve-3tw0wc8su1.pdf

Technology and firm performance: a study of the valve manufacturing sector

While businesses are investing enormous resources in information technology (IT), there little evidence linking IT investment to organizational performance. The purpose of this article, therefore, is to increase understanding of the basis for IT investment in firms. Six mini case studies of companies in five different industries address questions of how they define IT for the purpose of determining the level of investment, how they track IT investments, and what other factors influence IT investment decisions. Each organization uses a different definition of IT, but there appears to be an overall trend to broaden the definition. Although companies track IT investment with varying degrees of rigor, they appear to be generally moving toward centralized tracking of all IT investment. Political considerations are important and significantly impact investment decisions. In all cases, the effectiveness with which IT investment is converted to useful output is acknowledged to be affected by the implementation process, the culture of the organization, and the skill of management. Three ma/or implications for practi~bners responsible for IT investment are: the need to adopt a broad definition of IT and track it over time against a convenient base; the need to separate different types of investment and match them to appropriate organizational performance measures; and the need to take into account factors such as management commitment and previous experience with IT. The latter impacts the effectiveness with which the firm converts it investment into. useful outputs.

Managing investment in information technology; mini case examples and implications

In this paper, we consider whether there existed a significant and systematic relationship between firm performance and information technology investment intensity in the home office operation of 40 systems technology leaders in the life insurance industry, 1983-1986. It is hypothesized that in top performance insurance firms 1 information technology costs as a proportion of total operating costs were higher, and 2 information technology costs as a proportion of premium income were lower, than in weak performance firms. Evidence is presented that indicates that firm performance was linked to the level of information technology investment intensity.

Organizational Performance and Information Technology Investment Intensity in the Insurance Industry

The relationship between profitability and information technology expenditures is studied in forty insurance companies that are considered systems technology leaders. The results show that the most profitable firms are more likely to spend a significantly higher proportion of their noninterest operating expense on information technology than the least profitable firms. The odds are found to be very high, at least 97%, that the most profitable firms will not rank in the lowest quartile in terms of information technology capital intensity. >

/pdf/profitability-and-information-technology-capital-intensity-28kg1qsh65.pdf

S.E. Harris

Papers

Profitability and information technology capital intensity in the insurance industry