| Numerous empirical studies have investigated the economic impact of information technology (IT) investment. Spurred by the productivity paradox—increased investment in IT concurrent with diminished productivity growth—both economists and management researchers have used a variety of methods to determine the business value of IT. Taken as a whole, business unit, firm, industry, and aggregate economy studies have begun to exhibit some consistency in results vis-à-vis positive impacts. However, many gaps in our knowledge remain.; Some researchers have turned their attention toward the examination of complementary factors which may improve the return on IT investment. A few early studies focus on managerial practices, arguing that such practices as decentralized decision making and the use of teams best leverage informational assets and the associated underlying technologies. In addition, researchers have recently suggested that empirical investigations of the return to IT investment must control for factors which lower production efficiency.; In this vein, we advance the research stream by focusing on factors which moderate the investment impact of IT, as well as examining the relationship between IT returns and growth. We examine how the absence of competitive pressures in highly concentrated industries lowers the return on IT investment. Firms in such industries capture rents, but without the imposition of market pressures to innovate with IT. Our results indicate that firms in more highly competitive industries do indeed exhibit lower returns on their IT investment, bearing out our hypotheses. In addition, we highlight the difficulty in optimizing efficiency in an environment characterized by high union involvement. In such cases, the firm is not able to operate at the point of tangency where the isoquant meets the profit line, due to constraints on substitution toward cheaper IT for expensive labor. Our results indicate that in the case of highly unionized firms, IT returns are lower. Interestingly, low and moderate degrees of unionization show equally positive returns to IT investment. Finally, we find a significant and positive relation between growing industries and IT investment impact, which is consistent with the notion that efficient use of IT does indeed spur growth. |
