literature review - enterprise value of information...

Electronic copy available at: http://ssrn.com/abstract=991170

(Bray), p. 1; Literature Review - Enterprise Value of Information Systems

Literature Review - Enterprise Value of Information Systems David A. Bray

Goizueta Business School

Emory University

In this paper, I suggest and review four perspectives within the information systems (IS)

literature exploring the enterprise value of information systems from the perspective of

traditional and transactional cost economics (TCE), agency theory and concerns surrounding a

“productivity paradox”, the resource-based view (RBV) of the firm, and a general category of IS-

influenced “organizational enablers”.

From the perspective of traditional and transaction cost economics (TCE):

Carr (2003) challenged IS research to demonstrate the enterprise value of the very systems they

were studying. From my own perspective, Carr raises several valid points, including the

argument that the way professionals approach information technology (IT) investment and

management will need to change dramatically if IT is to maintain a strategic importance in the

enterprise. That said, Carr’s observation regarding the vanishing advantage of IT (through easy

replication) represents a valid point only if one considers pure technology artifacts at the

expense of ignoring other less easily replicated elements of information systems: namely, the

skills of personnel, their organizational routines and habits, and the knowledge contained within

their minds. Carr’s article serves to challenge IS researchers to consider how IS provides

enterprise value.

Thus, I now consider six articles from the perspective of traditional and transaction cost

economics, as these represent perhaps the “first wave” of articles in IS attempting to show how

IS provides (and possibly transforms) enterprise value.

First, Weill (1992) seeks to perform an empirical test of the performance effects of IT investment

in the manufacturing sector; specifically to answer:

Electronic copy available at: http://ssrn.com/abstract=991170


(1) What is the measurable effect on firm performance of IT investment with different

management objectives?

(2) What firm characteristics are associated with stronger positive relationships

between IT investment and firm performance?

Weill defines transactional IT as processes that support the transactions of the firm (usually

helping to cut costs by substituting capital for labor), strategic IT as technology employed to

gain a competitive advantage and increase market share via sales growth, and informational IT

as infrastructure employed to manage the firm for other objectives. Weill's definition of

conversion effectiveness includes:

(1) Top management commitment to IT

(2) Previous firm experience with IT

(3) User satisfaction with systems

(4) The turbulence of the political environment in firm

Within his study, Weill finds no association between previous years’ total investment in IT and

the firm’s incremental performance. When considering the three types of IT investment

individually, transactional IT presents a significant association with performance; however,

when aggregating the three types of IT, any significant effect disappears. In general, the

interaction between strategic and transformational IT (but not informational IT) and conversion

effectiveness explains relatively large amounts of variance in the collected data.

Second, Dewan and Kraemer (2000) seek to answer at an international level:

(1) What is the international experience with returns from IT investments?

(2) How do returns from IT capital investments differ from those from non-IT capital

investments?

(3) Are there systematic differences between developed and developing economies with

respect to the structure of their returns from capital investments?

The authors apply the Cobb-Douglas production function to an inter-country production

function as a linear approximation of the actual underlying production function of different


countries. Econometric tests reveal the appropriateness of a random effects model for the study,

and the researchers employ secondary survey to include:

(1) Revenue paid to vendors (hardware, communications, software, and services) for

50 countries

(2) Gross Domestic Production (GDP) and stock data, obtained from the Penn World

Tables

(3) Labor input, measured in billions of worker hours, using number of workers from

the World Bank and other databases

Dewan and Kraemer find that new IT capital investments account for 53% of the annual GDP

growth of developed nations, whereas non-IT capital investments accounts for just 15% growth

of developed nations. In contrast, non-IT capital investments account for 49% of the annual

GDP growth of developing nations, while the contributions of IT capital investments do not

reveal statistical significance. The authors conclude that the data provides evidence that IT

investments have started to become productive for developing countries.

Third, Menon et al. (2000) also consider the economic value of IS by dividing capital

investments into three components: medical IT capital, medical capital, and IT capital. The

researchers also classify labor into two components: medical labor and IT labor, employing data

from the Washington State Department of Health for years 1976 to 1994, resulting in 1064

observations.

Menon et al. conclude that IT contributes positively to the production of services in the

healthcare industry, with a high productivity impact for medical IT capital and a low average

productivity impact for IT capital. IT labor and capital exhibit a positive influence on the

production of output, with medical labor the highest positive impact (as predicted), whereas

medical capital, in contrast, shows a negative impact on output productivity.

Fourth, Malone et al.'s (1987) article represents a seminal research piece explicitly employing

transaction cost economics to consider the transformative nature of IS on enterprise value and

organizational design. Malone et al. postulate that IT investments increasingly will allow a

reduction in the “unit costs” of inter-organizational coordination, making electronic markets (vs.

hierarchies) more attractive. Additionally, IT investments will reduce the “switch-over costs” for


alternating tooled production lines for different, small-order goods, also encouraging a switch

from hierarchies to markets. Further, as electronic standards are developed, sellers will be able

to reduce the complexity of their product description.

The researchers also suggest that for the instances where electronic hierarchies remain there

will be a progression from separate databases and processes to shared databases and processes.

Additionally, for electronic markets, there will be a shift away from biased markets (which will

not be sustainable, due to competition) and ultimately a shift toward unbiased and personalized

markets for buyers. For a research piece published in 1987, Malone et al.’s article has since

revealed itself as relatively prophetic; moreover, the arguments presented illustrate a logic that

IS provides enterprise value not only by influencing productivity or by profits, but also by

expanding organizational design possibilities and structural transformations.

Fifth, Malone's (1987) separate, single-author article extends some of his arguments regarding

electronic hierarchies and markets to consider efficiency and adaptability of IS-enabled

organizations. While Malone does not perform an empirical “test” of his proposed taxonomy (of

product vs. function hierarchies and centralized vs. decentralized markets), he does base his

arguments on historical trends, past literature, and closed-form calculations in the appendix,

suggesting organizations will choose organizational forms as influenced by how IT reduces

production, coordination, and vulnerability costs.

Sixth, Mukhopadhyay et al. (1995) employ cross-sectional and time-series data to assess the

impacts of electronic data interchange (EDI) systems at nine Chrysler assembly plants over a

period of 1981 through 1990. The researchers perform model estimation to fit the historical data

in an attempt to estimate the dollar benefit of improved information exchanges between

Chrysler and its suppliers. Within their model, EDI implementation included launch

(PROGRAM) and level of EDI penetration (EDIP), and controls present include production

volume (VOLUME) and unique production parts (PARTS), as well as minor model changes

between 5-15% new parts (MINOR) vs. major model changes >15% new parts (MAJOR). The

researchers find:

(1) H1 is supported, EDI launch and penetration both improve inventory turnover and

thus reduce inventory handling cost (results are both statistically significant and in the

correct direction)


(2) H2 is supported, EDI launch and penetration both reduce material write-offs, thus

reducing obsolete inventory cost.

(3) H4 is supported, EDI launch and penetration both reduced premium freight costs.

(4) Lastly, for H3, transportation costs, some additional discussing is provided, though

the net change in unit transportation costs is negative per vehicle, more trucks (vs.

trains) were used, ultimately increasing transportation costs; however the authors

argue that EDI implementation still led to a decrease in road transportation costs.

Mukhopadhyay et al. conclude that EDI saved Chrysler an estimated $62.26 per vehicle, or a

total of $100.89 per vehicle for 200,000 vehicles per year, resulting in a total $220m per year

saved for the firm, without counting electronic document preparation and transmission.

From the perspective of agency theory and concerns surrounding a “productivity

paradox”:

I now shift from a more traditional view of the enterprise value of IS to consider agency theory

and concerns within the IS community surrounding a “productivity paradox” within the

research literature. Agency theory first appeared in the literature with Alchian and Demsetz

(1972), with later expansions by Jensen and Meckling (1976) and Eisenhardt (1989). In brief,

agency theory posits that:

(1) The desires or goals of a principal and agents may conflict

(2) For the principal, it is difficult to verify what the agent actually does on behalf of the

principle; that is, the principal cannot verify (without significant expense) whether

agents have behaved appropriately

As a result, agency theory argues that organizations should structure themselves so as best to

keep in check the individual goals of the agents comprising the organization, specifically such

that the agents comprising the organization strive to align their goals with those desired by the

principle stakeholder. Researchers supporting agency theory base this premise on economics,

suggesting the benefits associated with forming a firm and associated firm relationships

outweigh the costs of such an activity when compared with a true “market” state that includes

both risk and volatility in obtaining work or services.


One of the lasting insights from agency theory includes the argument that most organizations

are simply legal fictions that serve as a nexus for a set of contracting relationships among

individuals, to include non-profits, mutual organizations, hospitals, and even governmental

bodies. Moreover, while academic researchers seldom fall into the trap of characterizing the

stock market as possessing an individual mind or intention, they may make the mistake of

considering organizations as if they possessed single motivations or intentions. Agency theory

offers an alternative view, specifically that organizations comprise a multitude of motivations

and intensions, sometimes at odds or experiencing tension with each other.

I now consider six articles incorporating these perspectives, as I believe they represent the

“second wave” of articles exploring how IS transforms enterprise value.

First, Huber (1990) argues that technology-prompted changes in organizational design will

affect the quality and timeliness of aggregate organizational intelligence and decision-making.

Huber presents several propositions, however the larger (and longer-lasting) value of his paper

includes the argument that “advanced information technologies” will produce increased

information accessibility, which will produce changes in organizational design, which ultimately

will influence effectiveness of aggregate organizational intelligence and decision-making.

Second, Gurbaxani and Whang (1991) assume that a firm includes agency costs, transaction

costs, and operations costs – thus incorporating both transaction cost economics and agency

theory in their conceptual theory piece. The authors propose that IT can have a direct impact on

optimal firm size by changing its underlying cost model. Firms determine size and the allocation

of decision-making by minimizing external coordination costs, internal coordination costs, and

operational costs.

Moreover, Gurbaxani and Whang argue that IT can reduce external coordination costs, resulting

in a firm’s increased use of markets for its value-chains. In addition, IT can reduce internal

coordination costs, resulting in a firm’s ability to manage a large organization more effectively,

ultimately resulting in increased firm size. In their article, the authors define vertical size as the

range of the value chain that the firm spans using its own hierarchy, with optimal vertical size

determined as the minimization point of market transaction costs (comprising both internal

coordination costs and operation costs). Additionally, the authors define horizontal size as the

number and corresponding share of a market in which the firm sells its final goods and services,


also determined by the tradeoff between operation costs, external coordination costs, and

internal coordination costs. IT investments will influence these costs, thereby influencing

organizational form choices and organizational efficiencies, with the potential to increase overall

profits.

Third, Brynjolfsson (1993) performs a computerized literature search of 30 leading IS and

economics journals and argues that economy-wide productivity actually has declined with the

rapid rise in the use of IT. When published, this article ignited intense discussion within the IS

research community (in several ways similar to Carr’s piece approximately ten years later).

Brynjolfsson suggests four reasons for the reported subpar influences of IT, to include:

(1) Traditional measurements of productivity may not account for non-traditional

sources of value and quality produced by IT investments

(2) The presence of time lags due to learning and adjustment to IT investments

(3) A redistribution and dissipation of profits; those investing in IT benefit at the

expense of others, thereby resulting in no net gain

(4) A mismatch of IT investments, specifically that there is something in the nature of

IT that leads firms to invest in IT when they should not, perhaps either creation of slack

resources instead of productivity or misalignment of technology with existing processes

Fourth, Brynjolfsson and Hitt (1996) employ new firm-level data on several components of IS

spending for 1987-1991, to test for the presence (or not) of the “productivity paradox” in the

collected data. The researchers obtained a dataset from the International Data Group (IDG) of

367 large firms for the years 1987-1991, with the total cumulative firm output at $1.8 trillion U.S.

dollars in 1991. Since the names of the firms were known and most publicly traded, IS spending

information could be matched with data from the S&P Compustat II data to obtain measures of

firm-specific output, capital investment, expenses, number of employees, and industry

classification. The researchers then combined their data with price deflators for output, capital,

employment costs, expenses, and IT capital. Brynjolfsson and Hitt find:

(1) H1 is supported, there is a positive marginal product for computer capital, IS staff,

and a simultaneous test for both (at a p-value < 0.01)


(2) H2 is also supported, there is a positive net marginal product for computer capital

and IS staff and – most intriguingly, the net marginal product for IS staff exceeds the

marginal product of other labor and expense

(3) Curiously, Brynjolfsson and Hitt also find that the marginal product of computer

capital does change across time (seeing some decrease for 1990-1991, p-value < 0.05)

and that marginal product varies by mainframes vs. personal computers, as a

percentage of total computer capital

Fifth, Brynjolfsson and Hitt (1998) revisit the issue of a “productivity paradox” in IT yet again,

specifically to explore whether computers increase firm output and pull their weight (specifically

do computers provide returns that outweigh the associated expenses). Though the article never

specifically states the intended theory base, the research piece probably employs the resourced-

based view (RBV) of the firm, where investment in IT in addition to organizational changes

represent a cumulative “strategic advantage” for a firm. As such, this article represents inclusion

of a productivity construct intended to capture more than just cost reductions per transaction

cost economics.

The collected data show computers historically and currently do “pull their weight” with greater

returns vs. expenditures, however the data also show large variation in productivity and IT

investment across firms. In addition, the researchers indicate that their data show

organizational changes that restructure how a firm operates (in addition to investment in IT

alone) equally seem to increase productivity; specifically, with high decentralization and high IT

investment, firms recognize the greatest gains in productivity.

Sixth, Kulp et al. (2004) consider the influence of supply chain management and information

integration on productivity. Their article attempts to develop an economic understanding of how

a vendor-managed inventory (VMI) system influences inter-organizational relations, ultimately

allowing higher profit margins. Kulp et al. find:

(1) Retailer stockouts are significantly related to both distribution costs and

collaboration over new products, but in opposite directions; higher distribution costs

are associated with higher ordering or holding costs for the retailer while collaboration

on new products and services is negatively associated with retailer stockouts


(2) Retailer and manufacturer stockouts are significantly and positively associated

with one another

(3) End-consumer price is positively associated with the wholesale price

(4) Manufacturer stockouts and wholesale price and both significantly associated with

product margins.

From the perspective of the resource-based view (RBV) of the firm

I now shift to consider the resource-based view (RBV) of the firm, which first appeared in the

literature with Penrose (1959) and Barney (1986; 1991). In brief, RBV posits that:

(1) Firms possess resources, a subset of which enables achievement of a competitive

advantage for a firm

(2) A further subset of these resources (leading to competitive advantage) lead to

superior long-term performance for the firm

(3) Resources that are valuable and rare can lead to the creation of competitive

advantage

(4) Such an advantage is sustainable to the extent that the firm is able to protect

against resource imitation, substitution, or transfer.

I now consider six articles incorporating the RBV, as I believe these articles represent the “third

wave” of research exploring how IS transforms enterprise value.

First, Kettinger et al. (1994) consider the factors leading to long-term, sustainable performance

improvements for organizations investing in IS. The three objectives of their article include:

(1) Conceptualization of what factors contribute to a sustainable information

technology-derived competitive advantage

(2) Analysis of the “classic cases” of strategic IT to determine which firms did in fact

sustain competitive benefits

(3) Formal determination of factors that may be antecedents to a sustainable IT-

derived competitive advantage


Of note, the researchers find only eight of the thirty reviewed cases show a clear long-term,

sustainable performance, per their definition of such a metric.

Second, Mata et al. (1995) explicitly link the RBV as a means of analyzing sustainability and

developing a model founded view. The researchers propose that sources of IT sustained

competitive advantages include capital requirements, proprietary technology, technical skills,

and managerial IT skills. Of note, Mata et al. argue that reducing costs or increasing revenues do

not represent the same phenomenon as IT serving as a source of sustained competitive

advantage for the firm, making their perspective distinct from transaction cost economics.

Third, Bharadwaj (2000) employs a matched sample comparison to empirically assess the

relationship between superior IT capability and firm performance. The author compares a

sample of firms with high IT capability to a selected control sample of firms matched to the

treatment sample by size and type. The performance of the matched control sample of firms

serves as a benchmark, removing the confounding effects of extraneous variables and market

forces that could influence firm performance.

Bharadwaj employs profit and cost measures to compare the financial performance of the two

groups. The author employs a sample of 56 firms from 1991-1994, based on data collected from

InformationWeek. From the set of potential control firms, the authors chose matching control

firms (from the Compustat database) that reported a five-year average sales level closest to the

level reported by the leader firm. Bharadwaj then performs a series of robustness checks to

assure the quality of the data, including a possible financial performance halo.

In her study, Bharadwaj finds that superior IT capability leads to both higher profit ratios and

lower cost ratios, specifically:

(1) All of the profit ratios in each of the four years were significantly higher for the IT

leaders when compared to the control sample of firms (as hypothesized)

(3) For cost ratios, total-operating expenses to sales was significantly lower for the IT

leaders sample in all four years

(3) The cost-of-goods to sales ratios were also lower for the IT leaders sample in all

four years with significance (at the 10% level) reported in two of the four years


However, Bharadwaj also finds that the selling and administrative expenses to sales ratio

(SGA/S) turned out to be higher for the IT leaders than for the control sample, though it did not

attain significance in any of the years. Although contrary to the hypothesis, the results for selling

and administrative expenses ratio align with the results reported in a recent study which found

that high IT spenders typically incurred higher overhead costs per unit of output and, therefore,

had higher than average SGA expenses.

Fourth, Christiaanse and Venkatraman (2002) introduce and test data on 117 travel agencies

that use American Airlines Sabre system and SMARTS, exploring both the RBV and marketing

channel theory. Of note, their study finds that for electronic channels, proprietary systems no

longer represent a sole source of advantage. From their results, Christiaanse and Venkatraman

conclude that with increasing frequency, knowledge-based expertise exploitation in inter-firm

settings will become a crucial competitive factor for many industries.

Fifth, Melville et al. (2004) seek to develop a model of IT business value based on the RBV that

integrates the various strands of research into a single framework. Their article serves as a

literature review article, highlighting known research regarding IT and business value,

developing propositions, and suggesting a future research agenda. Of note, the authors consider

the focal firm, competitive environment, and microenvironment when formulating several of

their propositions leveraging different conceptualizations of the IT artifact.

Sixth, Tanriverdi (2005) finds that IT relatedness of business units enhances the cross-unit

knowledge management (KM) capability of the firm, which then has a direct impact on

corporate performance. Tanriverdi’s model theorizes that KM capability creates and exploits

cross-unit synergies from the product, customer, and managerial knowledge resources of the

firm. These synergies increase the financial performance of the firm. IT relatedness also

indirectly influences corporate performance through the mediation of KM capability.

Of note, Tanriverdi’s article links research into the enterprise value of IS with research involving

KM at the organizational level.

From the perspective of IS-influenced “organizational enablers”:


Having considered the resource-based view (RBV) of the firm, I believe it worthwhile to

consider Priem and Butler’s (2001) critique of research perspective. In brief, they suggest that

the RBV represents a helpful framework but not yet a true theory. Priem and Butler raise a valid

concern with researchers labeling a construct valuable, rare, difficult to imitate, and non-

substitutable if it provides a long-term, sustainable advantage – since this represents a tautology

for the RBV. That is, by definition, researchers would never expect something valuable, rare,

difficult to imitate, and non-substitutable not to lead to a long-term, sustainable advantage,

prompting problems with the utility of the RBV framework. In addition, Priem and Butler raise

another concern about the ability to test the premises of RBV from an empirical perspective, in

addition to their concerns regarding falsifiability. I highlight these concerns to illustrate the

challenges of developing any theory to explain how IS contributes to enterprise value.

I now highlight six research articles each representing a possible new direction the IS research

field may take to investigate the enterprise value of IS. I believe that all these articles perceive IS

to represent some form of organizational enablers, influencing outcomes internal or external to

a firm. One (or more) of these articles may influence a “fourth wave” of research in the field.

First, Dos Santos et al. (1993) analyze the impact of IT investment announcement on the

common stock prices of publicly traded firms. The researchers employ an event-time

methodology from accounting and finance. If the market responds by re-valuing the firm’s

shares to reflect the information in an investment announcement, the researchers can conclude

that the announcement of an IT investment affects the market value of the firm.

Dos Santos et al. propose that they can measure the market’s assessment of the expected impact

of IT investments on total firm value by examining stock price reactions around announcements

of IT investments. The researchers analyze a sample of 97 investments from 1981-1988, having

first searched two databases over the eight-year time period to identify 4,500 possible IT

investment announcements. The researchers then reduce this large number to 487 titles for

firms trading on three major stock exchanges, further reduced through qualified full-text

searching and to firms with daily common stock return tapes (from the Center for Research in

Security Practices), resulting in the ultimate 97 IT investments studied. The researchers

differentiate between innovative vs. non-innovative vs. unclassified IT investments.


Dos Santos et al. find no excess returns either for the full sample or for any one of the industry

subsamples. However, cross-sectional analysis reveals that the market reacts differently to

announcements of innovative IT investments compared to follow-up or non-innovative

investments in IT. The researchers conclude innovative IT investments increase firm value,

while non-innovative investments do not. Furthermore, the researchers conclude that the

market's reaction to announcements of innovative and non-innovative IT investments

represents phenomena independent of industry classification.

Of note, the researchers conclude that on average, IT investments represent zero net present

value investments; they are worth as much as they cost, whereas innovative IT investments do

increase the value of the firm. Later articles employing a similar market-based event

methodology frequently cite Dos Santos’s et al. original article.

Second, Barua et al. (1995) seek to test a new process-oriented methodology auditing IT impacts

on a strategic business unit performance. The researchers find their hypothesis one supported,

with hypotheses two and three marginally supported, specifically:

(1) H1: IT capital and IT services purchased have a positive association with capacity

utilization

(2) H2: IT capital, production IT, and marketing IT purchases have a positive

association with inventory turnover

(3) H3: IT capital, production IT purchases, and innovation IT purchases have a

negative association with relatively inferior quality

Third, Bharadwaj et al. (1999) examine the association between IT investments and the Tobin’s

q of firms, controlling for a variety of industry and firm-specific variables. The researchers seek

to demonstrate that IT contributes to a firm’s future performance potential (with Tobin’s q, from

financial literature, being better able to capture this intangible value). The authors go beyond

accounting-based measures of IT impact on firm productivity, arguing for a forward-looking

notation that IT contributes to a firm's future performance potential.

For Bharadwaj et al.’s study, including an IT expenditure variable in their model increases the

variance explained with Tobin’s q significantly. For all five years, controlling for industry and


firm-specific variables, expenditures in IT had a statistically significant positive association with

Tobin’s q.

Fourth, Wheeler (2002) seeks to propose the Net-Enabled Business Innovation Cycle (NEBIC)

as an applied dynamic capabilities theory for measuring, predicting, and understanding a firm’s

ability to create customer value through use of digital networks. The author proposes that the

sequence of “Choosing New IT”, “Matching Economic Opportunities with Technology”,

“Executing Business Innovation for Growth”, and “Assessing Customer Value” represent an

interrelated cycle for firms. Firms must continually build, adapt, and reconfigure internal and

external competences to achieve congruence with a changing business environment when:

(1) Time-to-market and product timing are critical

(2) The rate of technological change is rapid

(3) The nature of future competition is difficult to determine

Fifth, Devaraj and Kohli (2003) examine the structural variables that affect IT payoff through a

meta-analysis of 66 firm-level empirical studies from 1990 to 2000. Having collected papers and

coded the study design and findings of each of the studies, the authors then employ logistic

regression and discriminant analysis to search for statistical evidence of the characteristics that

discriminate between IT payoff studies that observed a positive effect and those that did not. In

addition, the authors perform a regression on a continuous measure of IT payoff to examine the

influence of structural variables on the result of IT payoff studies. Of note, their study attempts

to investigate actual use of IT, rather than economic proxies of IT use employed by most

economic studies.

Sixth, Sambramurthy et al. (2003) suggest that IT competence influences a co-evolutionary

adaptation process between capability-building process and entrepreneurial action process

(involving digital options, agility, and entrepreneurial alertness). Resulting from this co-

evolutionary adaptation process, the competitive actions of a firm are either broadened or

reduced, ultimately influencing financial performance. Of note, this research article represents

positive steps towards a theory of IS-enabled organizational agility.


Research Questions worth considering:

Having reviewed the literature above, I now suggest ten research questions:

(1) Following the dot-com "bust", do IT investments provide value for firms any

differently than before; that is, do we expect the enterprise value of IS to remain

constant or change as markets and world environments change?

(2) Following the dot-com "bust", do IT investments provide value differently for

developed vs. developing economies with respect to the structure of their returns from

capital investments?

(3) What alignment of IT investments and organizational structure best provide value

for firms?

(4) How else, besides productivity, do IT investments provide enterprise value; to

include increases organizational agility, responsiveness, or stability?

(5) How do IT investments provide value for organizations other than for-profit firms

(i.e., outside of increased efficiencies or revenues)?

(6) For a firm, what organizational and technological contexts best maximize

organizational efficiencies produced by IT investments?

(7) What industry characteristics influence or limit the ability of firms to apply IT for

improved organizational performance?

(8) What national or legal characteristics influence (or limit) the ability of firms to

apply IT for improved organizational performance?

(9) How do different forms of organizational governance influence the ability for firms

to apply IT for improved organizational performance?

(10) How do turbulent environments influence the ability of firms to apply IT for

improved organizational performance?


Nomological Net from Literature Review

AUTHOR(S) AND YEAR

DEPENDENT VARIABLE(S)

INDEPENDENT VARIABLE(S)

THEORETICAL PROPOSITIONS

ADDITIONAL NOTES

Carr, 2003 Relevance of IT Commoditization of IT

Valid only if one considers pure technology artifacts at the expense of ignoring other less easily replicated elements of information systems: namely, the skills of personnel, their organizational routines and habits, and the knowledge contained within their minds

Serves to challenge IS researchers to consider how IS provides enterprise value

Weill, 1992 Firm Performance

IT Investment, Conversion Effectiveness

Proposed role of Conversion Effectiveness

Published in 1992, making it one of the unique papers to begin to recognize that IT is not a homogenous entity, but instead can be divided into different objectives

Dewan and Kraemer, 2000

Annual GDP IT Capital Stock Economics, use of the Cobb-Douglas function

Robust statistics, innovative use of secondary data, one of the first to look across countries vs. just one country or just the top-performing firms in a country

Menon, Lee, and Eldenburg, 2000

Hospital Performance

Medical IT Capital, IT Capital Stock, and IT labor

Economics, use of the Cobb-Douglas function

Unlike earlier papers, industry and labor is not treated as a homogenous entity, but split into individual components

Malone, Yates, and Benjamin, 1987

Organization Form Preferred

Coordination Costs

Transaction Cost Economics (TCE)

Published in 1987, many of these predictions have proven to be true. Outsourcing has happened for several firms and several firms (Cisco for example) have embraces the market-based approach

Malone, 1987 Organization Form Preferred

Coordination, Production, and Vulnerability Costs

Transaction Cost Economics (TCE)

A forerunner in attempting to formalize these ideas


Mukhopadhyay, Kekre, and Kalathur, 1995

Total Reduction in Costs

EDI Implementation and Level of EDI Penetration

While no specific theory base is cited, seems to flow from transaction cost economics

Published in 1995, one of the first articles to try and link a tangible dollar amount return for investment in an information system; raises the point that it’s hard for managers to know whether to invest in technology if they cannot adequately assess the current saving benefits from existing technologies they have

Alchian and Demsetz 1972; Jensen and Meckling, 1976; Eisenhardt, 1989


Agent Goals, Principle Goals, Costs Associated With Monitoring Agents

Agency Theory (1) The desires or goals of a principal and agents may conflict

(2) For the principal, it is difficult to verify what the agent actually does on behalf of the principle; that is, the principal cannot verify (without significant expense) whether agents have behaved appropriately

Huber, 1990 Dimensions Related to Decision-Aiding Technologies, Organizational Design, Intelligence, and Decision-Making

Not Explicitly Given

Thought piece, several propositions are offered based on logical arguments about how “advanced information technologies” will affect organizations at the subunit and organizational levels, as well as organizational memory and performance

Paper focused on the quality and timeliness of intelligence/decision-making, as contrasted with those that affect production of goods and services

Gurbaxani and Whang, 1991


Coordination Costs

Agency-Theory and Transaction Cost Economics (TCE)

Published in 1991, many of these predictions have proven to be true. Goes a bit further than the Malone et al. 1987 article in describing the mechanics of whether firms will choose hierarchies or markets.

Brynjolfsson, 1993

Productivity Across Industries

IT Investment Based on repeated empirical findings, economy-wide productivity has actually declined with the rapid rise in the use of IT

Suggests four reasons why the current data do not show a productivity increase


Brynjolfsson and Hitt, 1996

Firm Output Computing capital and IS Staff

Though the Cobb-Douglas function is employed (indicating economic theory), this probably is a precursor to the Resource Based View of the Firm where investment in IT plus Organizational Change represent a cumulative “strategic advantage”

Paper has access to a large dataset and does handle the data well with checks for statistical robustness, etc.; seems to be a strong answer that investments in IT does provide value and increases firm productivity

Brynjolfsson and Hitt, 1998

Contribution to Productivity

IT investment plus Organizational Change

Though it’s never specifically cited, probably Resource Based View of the Firm where investment in IT plus Organizational Change represent a cumulative “strategic advantage”

Second part of the paper is the most interesting, that it’s not just about acquiring IT, but about restructuringyour processes (i.e., how your firm operates) to best use IT in producing productive outcomes

Kulp, Lee, and Ofek, 2004

Profit Margins Information Integration (to include "Information Sharing" and "Collaboration")

While no specific theory base is cited, seems to flow from transactioncost economics + the tension between manufacturers and suppliers associated with agency theory

Attempts to quantitatively look at a vendor managed inventory (VMI), however more discussion of the artifact and perhaps more precise definitions of the constructs would be desirable

Penrose, 1959; Barney, 1986; Barney, 1991

A Strategic Advantage for a Firm

Attributes of a Resource (Valuable, Rare, Can It Be Imitated, Can It Be Substituted?)

Resource-Based View (RBV) of the Firm

(1) Firms possess resources, a subset of which enables achievement of a competitive advantage for a firm

(2) A further subset of these resources (leading to competitive advantage) lead to superior long-term performance for the firm

(3) Resources that are valuable and rare can lead to the creation of competitive advantage

(4) Such an advantage is sustainable to the extent that the firm is able to protect against resource imitation, substitution, or transfer


Kettinger, Grover, Guha, and Segars, 1994


Implementation of an IT system

Though not specifically stated, probably Resource-Based View (RBV) of the Firm

Excellent attempt at a robust review of whether or not IT leads to a strategic advantage by examining multiple studies, not just one instance

Mata, Fuerst, and Barney, 1995


Capital Requirements, Proprietary Technology, Technical Skills, Managerial IT Skills

Resource-Based View of the Firm

Discusses sources of IT sustained competitive advantages

Bharadwaj, 2000

Organizational Performance and a Strategic Advantage for Firms

Superior IT Capability


The paper develops its thesis through first through a thought argument, then through quantitative testing, finally a scan of available qualitative material for supporting evidence

Christiaanse and Venkatraman, 2002


Electronic Integration

Resource-Based View of the Firm and Marketing Channel Theory, how “knowledge assets” that can be leveraged to achieve the competitive advantage

Finds that in electronic channels, proprietary systems are no longer a sole source of advantage

Melville, Kraemer, Gurbaxani, 2004

Organizational Performance and a Strategic Advantage for Firms

IT Resources (Technology and Human)


Comprehensive review of the literature and a good attempt to synthesize what is known and still needs to be tested/validated

Tanriverdi, 2005

Corporate Performance

IT Relatedness and KM Capability

IT relatedness of business units enhances the cross-unit KM capability of the firm. The KM capability creates and exploits cross-unit synergies from the product, customer, and managerial knowledge resources of the firm. These synergies increase the financial performance of the firm

IT relatedness also has significant indirect effects on firm performance through the mediation of KM capability


Priem and Butler, 2001

Whether RBV Represents a True Theory Yet

Not Explicitly Given

Critique of the Resource-Based View of the Firm

Concerned that RBV in its current state represents a tautology, needs to be refined

Dos Santos, Peffers, and Mauer, 1993

Calculate daily common stock returns using the capital asset pricing model (CAPM)

Researchers differentiate between innovative vs. non-innovative vs. unclassified IT investments

Financial theory, net present value (NPV)

Finds no excess returns for either the full sample or for any one of the industry subsamples; however, cross-sectional analysis reveals that the market reacts differently to announcements of innovative IT investments than to followup, or non-innovative investments in IT

Barua, Kriebel, and Mukhopadhyay, 1995

Organizational Performance

IT capital and IT purchases

Classical economics, to include relating input resources with output products or services + concepts of marginal product of an input and marginal revenue product; “value chain” analysis

Hones focus to be strategic business units (SBU’s) and argues for a process-oriented model of the enterprise and the idea that success/failure with IT is application specific

Bharadwaj, Bharadwaj, and Konsynski, 1999

Tobin's q IT intensity for a firm

Authors go beyond accounting-based measures of IT impact on firm productivity, arguing for a forward-looking notation that IT contributes to a firm's future performance potential.

Provides a new way to look at how IT assets contribute to firm performance and future growth potential, while also reconciling the equivocal evidence from empirical results using accounting firm performance results

Wheeler, 2002 Organizational Performance

New IT, Matching Economic Opportunities with technology, Executing Business Innovation for Growth, and Assessing Customer Value

Dynamic Capabilities Perspective (DCP), referring to the ability of a firm to achieve new forms of competitive advantage by renewing competences (organizational resources) to achieve congruence with the changing business environment

Brings discussion of dynamic capabilities to the IS literature and how net-enabled organizations can bring value through their adaptability


Devaraj and Kohli, 2003


Technology Usage (Reports, CPU Time, Number of Seconds Accessed)

None specifically cited, draws from the Usage-Performance Link framework from DSS research

Posits “actual usage” may be a key variable in explaining the impact of technology on performance suggests that omission of this variable may be a missing link in IT payoff analyses

Sambamurthy, Bharadwaj, and Grover, 2003


IT Competence Extends Resource-Based View of the Firm to consider firm “agility”

IT competence influences a co-evolutionary adaptation process between capability-building process and entrepreneurial action process (involving digital options, agility, and entrepreneurial alertness)


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