Research Note—Investments in Information Technology: Indirect Effects and Information Technology Intensity

Abstract

Many studies measure the value of information technology (IT) by focusing on how much value is added rather than on the mechanisms that drive value addition. We argue that value from IT arises not only directly through changes in the factor input mix but also indirectly through IT-enabled augmentation of non-IT inputs and changes in the underlying production technology. We develop an augmented form of the Cobb-Douglas production function to separate and measure different productivity-enhancing effects of IT. Using industry-level data from the manufacturing sector, we find evidence that both direct and indirect effects of IT are significant. Partitioning industries into IT-intensive and non-IT-intensive, we find that the indirect effects of IT predominate in the IT-intensive sector. In contrast, the direct effects of IT predominate in the non-IT intensive sector. These results indicate structural differences in the role of IT in production between industries that are IT-intensive and those that are not. The implication for decision-makers is that for IT-intensive industries the gains from IT come primarily through indirect effects such as the augmentation of non-IT capital and labor.

Research Note—Business Value of Information Technology: Testing the Interaction Effect of IT and R&D on Tobin's Q

“…We measure IT intensity as the ratio of IT spending to firm output (sales). Our split sample analysis is similar to the approach described in Dewan and Min (1997), Mittal andNault (2009), andHan et al (2011), who use IT intensity to differentiate between IT-intensive and non-IT intensive industries. Figure 2 represents a two-dimensional plot of the differential effect of the impact of IT and R&D on TOBINQ.…”

The productivity paradox: A meta-analysis

“…Evidence about indirect effects provided e.g. Mittal andNault (2009) or Han, Chang, andHahn (2011), but in our analysis we focus on direct effects which are important for decision making of individual firms.…”

Preserving Knowledge on IS Business Value

“…A simple and often applied classification distinguishes between process performance and firm performance, which subsumes market performance and accounting performance (Barua et al 1995;Dehning and Richardson 2002;Melville et al 2004). It is widely agreed that the impact of IS investments on firm performance is intermediated by process performance (Barua et al 1995;Soh and Markus 1995;Dehning and Richardson 2002;Kim et al 2006;Mittal and Nault 2009).…”