An Empirical Investigation of Information Technology Returns: The Role of IT and Market Structure as Determinants of Efficiency

The impact of information technology on productivity has been debated for two decades. While some studies in the1980s found no contribution of IT to output, more recent studies have found a positive return to IT investment in several industries. However, we have a limited understanding of industry differences in these returns, in particular as to why productivity enhancements in the trade and service sectors, which are IT- intensive, have been low. A few previous studies have reported the different impacts of IT on productivity across industries. This paper aims at developing an in-depth understanding of why we witness different IT returns across industries. In our analysis, we find that while the trade sector is more efficient than other industries, the direct impact of IT is masked by the impact of competition on efficiency. This finding provides us with insight not just into why we did not observe productivity gains in the service and trade sectors, but also provides justification for the large IT investment in this sector. We take several different paths to study the impacts of IT. First, we employ the concept of efficiency as an alternative to productivity to capture the impact of IT. This approach allows us to examine the relative contribution of IT and market structure to firms’ efficiency levels. Second, we explicitly incorporate market structure under the behavioral assumptions of imperfect competition and profit maximization to characterize IT returns. We find that a firm’s efficiency is negatively associated with market power while IT is seen to be an enabler of efficiency gains as expected. Interestingly, firms tend to deploy more IT and utilize it better when the market is more competitive. Taken together, our results suggest that market structure as well as IT are strong determinants of efficiency gain. It also explains why IT has different observed impact across industries

Panel 2 Best Practices in Information Systems Sourcing

When Eastman Kodak announced that it was outsourcing its information systems (IS) function in 1989 to IBM, DEC and Businessland (now Entex Information Services), it created quite a stir in the IT industry. Never before had such a well known organization, where IS was considered to be a strategic asset, turned it over to third party providers. Since then, both large and small companies have found it acceptable, indeed fashionable, to transfer their IS assets, leases and staff to outsourcing vendors. Kodak appears to have legitimized outsourcing, leading to what some have called “the Kodak effect.” Senior executives at some of the most well known companies in the U.S., such as General Motors, Halliburton, Hughes Aircraft, Scott Paper, American Express, Bethlehem Steel, Continental Bank, Amtrak, Enron, National Car Rental, and Delta Airlines, have followed Kodak’s example and signed long term contracts worth hundreds of millions of dollars with outsourcing “partners.” Recently, a number of high-profile multi-billion dollar “mega-deals” have been signed by J P Morgan, Xerox, General Dynamics, and McDonnell Douglas. Nor is this trend only fashionable in the United States. Lufthansa in Germany; KF Group in Sweden; British Petroleum, Guiness, Inland Revenue and British Aerospace in the U.K.; Canada Post in Canada; Swiss Bank in Switzerland; and Lend Lease and the South Australian government in Australia have all signed significant contracts with outsourcing vendors such as IBM, EDS, CSC, SHL Systemhouse, AT&T Solutions, Andersen Consulting, and Perot Systems. Such deals signal a rise of outsourcing globally. Some outsourcing deals go so far as to involve the formation of new jointly held companies between the outsourcer and client, e.g., TransQuest (Delta Airlines and AT&T Solutions), Technology Service Solutions (Kodak and IBM), and Systor AG (Swiss Bank and Perot Systems)

A Process Oriented Framework for Assessing the Business Value of Information Technology

In the current competitive environment, the need for better management of all organizational resources, and specifically IT, requires comprehensive assessment of their contribution to firm performance. However, there is little empirical evidence that IT is capable of creating nor has a comprehensive framework of business value emerged. ManyoftheavailablestudiesoflTproductivityandbusinessvaluewereconductedusingfirmleveloutput measures of value. The focus on finn level output variables, while important, provides only limited understanding of how value is created using IT. This paper develops a conceptual framework of the business value outcomes of IT by synthesizing the extant literature on IT business value and IT supported organization and process design. The frameworkprovides a basis for process oriented studies of IT business value and enhances our understanding of the links between information technology and firm performance

SOCIAL NETWORKS AND CONTRACT ENFORCEMENT IN IT OUTSOURCING

Most prior research on Information Technology Outsourcing(ITO) has characterized the dominant governance modes as either ‘Formal’ or ‘Relational,’ which rely on stringent assumptions of perfect foresight or about the extent to which one party can punish unilateral deviations by the other. We propose a third alternative in addition to dyadic measures of inter-firm reputation. The reputation of an actor may be associated with how the firm is positioned in a network, which in turn influences how information about a particular actor flows within the network. Such aspects of structural embeddedness suggest a role in predicting characteristics of inter-firm exchange. The network capital offers a measure to mitigate the uncertainty associated the nature of service outsourced and the service provider. The network of trading partners enables a community enforcement of contracting terms by providing safeguards that may not be offered by traditional measures of formal or relational governance. Based on a large dataset of publicly announced ITO arrangements, we examine the role that structural embeddedness can play in predicting contract duration. Our preliminary results are very encouraging. We find evidence suggesting that network position does matter in predicting contract structure over and above the traditional economic variables

Should the Core Information Systems Curriculum be Structured Around a Fundamental Question?

This panel will discuss and debate whether the core Information Systems course in a business school should be structured around one central, fundamental question, and if so, what are the competing alternatives for this question. A recent Assocation to Advance Collegiate Schools of Business (AACSB) report strongly recommends including IT as part of the MBA core education. But there is little consensus at the current time on whether this core education should address a fundamental question, and if so, what the question should be. Moreover, a substantial fraction of leading MBA programs do not have an IS core course. The current situation is especially striking for the following reasons: • Information technology continues to be both a major factor in productivity as well as the major driver of changes in industry structure and business models • There is evidence of significant variance in the performance of companies based on how they use information technology • Knowledge about how systems work and how they enable commerce is becoming increasingly important for people in their careers • Using and managing systems as an executive requires a clear understanding of the possibilities that are enabled by information technologies in markets and organizations, as well as an appreciation of the risks and time scales associated with management of technology projects and personne

Information Systems Economics

This tutorial presents a broad overview of the research agenda in the sub-discipline of Information Systems Economics. This area of research is defined by its use of economics as the reference discipline to study consequential research questions in information systems management. While there are many possible categorizations of the research in this arena, it is reasonable to say that the major categories include: i)governance and management of information systems, ii) the economic and organizational impacts of IT, and iii) digital business and markets. The research encompasses both theoretical and empirical approaches. In The tutorial includes a brief overview of the economics paradigm and a programmatic perspective of the key research questions

Gearing Up For Successful Digital Transformation

Digital technology platforms have become the foundation for an increasing share of economic activity resulting in a changing business environment. Digital transformation—the reinvention of a company’s vision and strategy, organizational structure, processes, capabilities, and culture to match the evolving digital business context—is not only changing companies but also redefining markets and industries. Executives require frameworks to guide their transformations and assess their digital journeys over time. Six dimensions of digital transformation at the enterprise level emerged from our research as those that position a company for a successful competitive stance due to digital transformation. They are: a company’s strategic vision, alignment of the vision and its investments in digital transformation, the suitability of the culture for innovation, possession of sufficient intellectual property assets and know-how, strength of its digital capabilities, and its use of digital technologies. The six-dimension framework facilitates benchmarking one’s company with others—either within a sector or against companies that are in the same state of progress towards digital transformation