Beyond Computation: Information Technology, Organizational Transformation and Business Performance

Abstract

To understand the economic value of computers, one must broaden the traditional definition of both the technology and its effects. Case studies and firm-level econometric evidence suggest that: 1) organizational "investments" have a large influence on the value of IT investments; and 2) the benefits of IT investment are often intangible and disproportionately difficult to measure. Our analysis suggests that the link between IT and increased productivity emerged well before the recent surge in the aggregate productivity statistics and that the current macroeconomic productivity 2 Computers and Economic GrowthHow do computers contribute to business performance and economic growth?Even today, most people who are asked to identify the strengths of computers tend to think of computational tasks like rapidly multiplying large numbers.Computers have excelled at computation since the Mark I (1939), the first modern computer, and the ENIAC (1943), the first electronic computer without moving parts. During World War II, the U.S. government generously funded research into tools for calculating the trajectories of artillery shells. The result was the development of some of the first digital computers with remarkable capabilities for calculation --the dawn of the computer age.However, computers are not fundamentally number crunchers. They are symbol processors. The same basic technologies can be used to store, retrieve, organize, transmit, and algorithmically transform any type of information that can be digitized --numbers, text, video, music, speech, programs, and engineering drawings, to name a few. This is fortunate because most problems are not numerical problems. Ballistics, code breaking, parts of accounting, and bits and pieces of other tasks involve lots of calculation.But the everyday activities of most managers, professionals, and information workers involves other types of thinking. As computers become cheaper and more powerful, the business value of computers is limited less by computational capability, and more by the ability of managers to invent new processes, procedures and organizational structures that leverage this capability. As this form of innovation continues to develop, the applications of computers are expected to expand well beyond computation for the 3 foreseeable future.The fundamental economic role of computers becomes clearer if one thinks about organizations and markets as information processors (Galbraith, 1977;Simon, 1976; Hayek, 1945). Most of our economic institutions and intuitions emerged in an era of relatively high communications costs, limited computational capability, and related constraints. Information technology (IT), defined as computers as well as related digital communication technology, has the broad power to reduce the costs of coordination, communications, and information processing. Thus, it is not surprising that the massive reduction in computing and communications costs has engendered a substantial restructuring of the economy.The majority of modern industries a...

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