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Although we observe a general optimism concerning IT’s potential for creating suitable competitive advantages, there exists a lack of empirical support for the positive economic impact of IT on businesses. This is denoted as the productivity paradox of IT. We argue that in situations of hypercompetition, using conventional productivity measures as the only performance indicator would be inadequate when studying the impact IT has. Furthermore, investing in IT does not ensure its proper implementation. Consequently there is a need to consider what companies are using IT for and its consequences for innovation and a variety of performance measures. In a study of 200 firms within the Norwegian IT sector, we found that focusing on the use of IT might be a promising route for studying the relationship between IT and successful innovations, and between IT and performance. We also found a number of trade‐offs between the various performance measures and between successful innovations and performance. Although we were able to find positive effects of IT we argue in favour of developing an information and a knowledge strategy prior to developing an IT strategy