Vijay Gurbaxani

The impact of information systems on organizations and markets

The adoption of information technology (IT) in organizations has been growing at a rapid pace. The use of the technology has evolved from the automation of structured processes to systems that are truly revolutionary in that they introduce change into fundamental business procedures. Indeed, it is believed that “More than being helped by computers, companies will live by them, shaping strategy and structure to fit new information technology [25].” While the importance of the relationship between information technology and organizational change is evidenced by the considerable literature on the subject,1 there is a lack of comprehensive analysis of these issues from the economic perspective. The aim of this article is to develop an economic understanding of how information systems affect some key measures of organization structure.

Institutional Factors in Information Technology Innovation

Innovation in information technology is well established in developed nations; newly industrializing and developing nations have been creating governmental interventions to accelerate IT innovation within their borders. The lack of coherent policy advice for creating government policy for IT innovation signals a shortfall in research understanding of the role of government institutions, and institutions more broadly, in IT innovation. This paper makes three points. First, long-established intellectual perspectives on innovation from neoclassical economics and organization theory are inadequate to explain the dynamics of actual innovative change in the IT domain. A broader view adopted from economic history and the new institutionalism in sociology provides a stronger base for understanding the role of institutions in IT innovation. Second, institutional intervention in IT innovation can be constructed at the intersection of the influence and regulatory powers of institutions and the ideologies of supply-push and demand-pull models of innovation. Examples of such analysis are provided. Third, institutional policy formation regarding IT innovation is facilitated by an understanding of the multifaceted role of institutions in the innovative process, and on the contingencies governing any given institution/innovation mix.

Does information technology lead to smaller firms

Many changes in the organization of work in the United States since 1975 have been attributed to the increased capabilities and use of information technology IT in business. However, few studies have attempted to empirically examine these relationships. The primary goal of this paper is to assess the hypothesis that investments in information technology are at least partially responsible for the important organizational change, the shift of economic activity to smaller firms. We examine this hypothesis using industry-level data on IT capital and four measures of firm size, including employees and sales per firm. We find broad evidence that investment in IT is significantly associated with subsequent decreases in the average size of firms. We also find that these decreases in firm size are most pronounced two to three years after the IT investment is made.

Migration to open-standard interorganizational systems: network effects, switching costs, and path dependency

Migration to Open-Standard Interorganizational Systems: Network Effects, Switching Costs and Path Dependency RESEARCH PROJECT REPORT June 2005 KEVIN ZHU The Paul Merage School of Business, and CRITO University of California, Irvine 949.824.2619 Tel. kzhu@uci.edu KENNETH L. KRAEMER The Center for Research on Information Technology and Organizations (CRITO) The Paul Merage School of Business University of California, Irvine 949.824.5246 Tel. kkraemer@uci.edu VIJAY GURBAXANI The CRITO Consortium The Paul Merage School of Business University of California, Irvine 949.824.5215 Tel. vgurbaxa@uci.edu SEAN XU The Paul Merage School of Business, and CRITO University of California, Irvine sxu00@uci.edu This research has been supported by grants from the CISE/IIS/CSS Division of the U.S. National Science Foundation and the NSF Industry/University Cooperative Research Center (CISE/EEC) to the Center for Research on Information Technology and Organizations (CRITO) at the University of California, Irvine. Industry sponsors include: The Boeing Company, IBM, IDC, Intel, Microsoft, and the U.S. Department of Defense. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the National Science Foundation.

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 value, nor has a comprehensive framework of business value emerged. Many of the available studies of IT productivity and business value were conducted using firm level output measures of value. The focus on firm 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 framework provides a basis for process oriented studies of IT business value, and enhances our understanding of the links between information technology and firm performance.

Executives' perceptions of the business value of information technology: a process-oriented approach

Abstract: Despite significant progress in evaluating the productivity payoffs from information technology (IT), the inability of traditional firm-level economic analysis to account fully for the intangible impacts of IT has led to calls for a more inclusive and comprehensive approach to measuring IT business value. In response to this call, we develop a process-oriented model to assess the impacts of IT on critical business activities within the value chain. Our model incorporates corporate goals for IT and management practices as key determinants of realized IT payoffs. Using survey data from 304 business executives worldwide, we found that corporate goals for IT can be classified into one of four types: unfocused, operations focus, market focus, and dual focus. Our analysis confirms that these goals are useful indicators of payoffs from IT in that executives in firms with more focused goals for IT perceive greater payoffs from IT across the value chain. In addition, we found that management practices such as strategic alignment and IT investment evaluation contribute to higher perceived levels of IT business value.

Investigating the Risk--Return Relationship of Information Technology Investment: Firm-Level Empirical Analysis

This paper develops empirical proxy measures of information technology (IT) risk and incorporates them into the usual empirical models for analyzing IT returns: production function and market value specifications. The results suggest that IT capital investments make a substantially larger contribution to overall firm risk than non-IT capital investments. Further, firms with higher IT risk have a higher marginal product of IT relative to firms with low IT risk. In the market value specification, the impact of IT risk is positive and significant, and inclusion of the IT risk term substantially reduces the coefficient on IT capital. We estimate that about 30% of the gross return on IT investment corresponds to the risk premium associated with IT risk. Taken together, our results show that IT risk provides part of the explanation for the unusually high valuations of IT capital investment in recent research.

Diffusion in computing networks: the case of BITNET

Using BITNET as a model, the author examines the adoption pattern of computing networks from the perspectives of innovation diffusion theory and economics.

The productivity impact of information technology across competitive regimes: The role of industry concentration and dynamism

Empirical research has revealed differences in the economic impact of information technology (IT) across industries. However, the source of these differences is unclear. In this study we analyze the role of the competitive environment in moderating the productive impact of information technology and regular capital. We focus on two important features of an industrys competitive environment: industry concentration and industry dynamism. Industry concentration is the degree to which the output of an entire industry is produced by a few firms and is considered an inverse proxy for industry competitiveness. Industry dynamism denotes change that is difficult to predict, measured as the deviation of industry sales from a trend line. We analyze the moderating impact of concentration and dynamism on the output elasticity of information technology and regular capital by estimating a production function using 5211 firm-year observations spanning the years 1987 to 1994. We find that the marginal product of IT is lower in more concentrated industries, while the opposite is true for regular capital. There is limited evidence that the marginal product of IT is higher in more dynamic industries, and strong evidence that the marginal product of regular capital is lower in more dynamic industries. Taken together, our results suggest that IT provides enhanced productivity impacts to firms in more competitive industries without any productivity loss in dynamic industries, in contrast to regular capital. The findings underscore the salience of inclusion of the competitive environment in studies of the productive impacts of information technology.

An Integrative Model of Information Systems Spending Growth

This paper develops a model of the growth of information systems expenditures in the United States. The model incorporates two major factors that influence the rate and pattern of spending growth—the diffusion of technological innovation and the effect of price on the demand for computing. Traditional studies have focused on the role of innovation while ignoring the effects of price on the growth process. We show that while information systems expenses initially grew following an S-curve, more recent growth has converged to an exponential pattern. These patterns are consistent with our integrative price-adjusted S-curve growth model.