Information Systems & Organizations

Introduction

During the last decade organizations are investing more and more in IT applications. This growth has led the academia in numerous studies that question and try to find the relation between the investment in technology and what actually the organizations take in return. The purpose of this assignment is to present and analyze the results of research so far and try to explain what is the role and impact of Information technology upon the organizations.

Productivity Paradox

"You can see the computer age everywhere but in the productivity statistics."

Robert Salow 1987.

The major discussion started after the research of Brynjolfsson(1993) in its paper called "The Productivity Paradox of Information Technology: Review and Assessment". The paper discussed the relationship between information technology and productivity and argued that even there is an enormous advancement of technology and its application in organizations the growth of the overall productivity was relatively low.

This research exploded a huge discussion that continues until today with many explanations and much more refutes given. In his original article, Brynjolfsson (1993) identified four possible explanations:

* Mismeasurement: the gains are real, but our current metrics hide them;

* Redistribution: there are private gains, but they come at the expense of other firms and individuals, leaving little net gain;

* Time lags: the gains take time to show up;

* Mismanagement: there are no gains because of the difficulties in managing IT and information itself.

As far as the industry is concerned, the results here are also contradictory with some studies indicating a positive impact of technology in the organizations and others showing not at all significant results. The following table (Devaraj & Kohli, 2003) provides a summary of significant research in the field of the IT impact in organizations.

Study Variables Used Key findings

Diewert and Smith

(1994) Inventory holding costs, growth rate, purchases,sales, inventory levels IT led to large productivity gains

Barua, Kriebel, and

Mukhopadhyay

(1995) Capacity utilization, inventory turnover, quality,

relative price, and new product introduction IT was positively related to some

intermediate measures of profitability,

but that the effect was generally too

small to measurably affect final output

Hitt and Brynjolfsson

(1995) Value added, IT stock, noncomputer capital, ROA,

labor expense, ROE, shareholder return, IT stock/employee, capital investment, sales growth, market share, debt, R&D stock firm IT leads to increased productivity and

consumer surplus, but not higher

profitability

Prasad and Harker

(1997) IT capital, non-IT capital, IS labor expense, non-IS labor expense Additional capital investment in IT may not have real benefits

Dewan and Min (1997) IT capital, non-IT capital, labor expense, value added, sales, number of employees IT capital is a net substitute for ordinary capital and labor; i.e., IT investment leads to higher returns

Mukhopadhyay, Rajiv,

and Srinivasan (1997) Total output, on-time output, labor hours, machine hours, level of automation, absenteeism rate,

degree of supervision IT investment leads to higher productivity and quality

Prattipati and Mensah

(1997) Number of years CIO in the position, proportion of

software resources spent on client server applications, percentage of software budget spent on new development Highly productive firms spent more on

client-server and less on in-house application development

Francalanci and Galal

(1998) IT investments; clerical, managerial, and professional composition; income per employee; total operating expense Increases in IT expenses are associated with productivity benefits when accompanied by changes in worker composition

Devaraj and Kohli (2000) Revenue, number of BPR initiatives, quality

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