Information Technology Value through Different Normative Lenses

Abstract:

The influence of IT investments on organizational performance is revisited. Bounded rationality, organizational controls, and political forces may constrain optimal selection of inputs and appropriate substitution between inputs. For example, firms may not be able to attain an optimal level of IT by substituting IT for labor (for reasons such as pressure from the labor union). Besides estimating a link between IT investments and firm output, this paper presents a study of the link between IT investment levels and the efficiency of processes.

Nonparametric and parametric techniques were applied to financial data on hospitals collected over a period of eighteen years. We found that cost and technical and allocative efficiencies are statistically significant in the production framework. We also found that hospitals that were characterized by high technical efficiency also used a greater amount of IT capital than firms that exhibited low technical efficiency. A group of hospitals exhibiting high technical efficiency also exhibited low allocative efficiency, indicating that, while processes may have been efficient, resource allocation and budgeting between various categories of capital and labor have not been efficient. Our results also differ from previously published results because we find that IT labor had a negative contribution to productivity and that non-IT capital had a greater contribution to productivity than IT capital.

Key Words and Phrases:

• allocative efficiency
• information technology performance
• process efficiency
• technical efficiency

Additional information

Notes on contributors

Byungtae Lee

Byungtae Lee is an Associate Professor of Information Systems at the College of Business Administration, University of Illinois at Chicago. He also taught as an Assistant Professor at the University of Arizona. He received his Ph.D. in information systems from the University of Texas at Austin. His research interests include IT productivity measurement, strategic IT investments, electronic commerce, electronic auction markets, IT applications for the health industry, and the economics of information systems. Several of Dr. Lee’s papers have appeared (or are scheduled to appear) in journals and conference proceedings, including Information Systems Research, MIS Quarterly, Journal of Productivity Analysis, International Journal of Flexible Manufacturing Systems, Decision Support Systems, Journal of Organizational Computing and Electronic Commerce, and Proceedings of the International Conference on Information Systems.

Nirup M. Menon

Nirup M. Menon is an Assistant Professor of Information Systems at the College of Business, Texas Tech University. He completed his doctoral work at the Department of MIS at the University of Arizona. His research interests include the economics of information systems, information technology impacts, and electronic commerce. Dr. Menon’s work has appeared or been accepted for publication in such journals as Information Systems Research, Communications of the ACM, Electronic Markets, and Decision Support Systems.