Does Information Technology Lead to Smaller Firms?

Brynjolfsson, Erik; Malone, Thomas W.; Gurbaxani, Vijay; Kambil, Ajit

doi:10.1287/mnsc.40.12.1628

Cited by 483 publications

(279 citation statements)

References 20 publications

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“…For example, Brynjolfsson et al (1994) support the hypothesis that increased levels of IT lead to smaller firms, suggesting the emergence of markets to replace hierarchies. Hitt (1999) confirms this pattern by showing that the overall decline of internal and external coordination costs leads to more diversification and decreased vertical integration.…”

Section: Figure 3 Relationships Investigated In Ios and Governancesupporting

confidence: 53%

Theoretical Foundations of Empirical Research on Interorganizational Systems: Assessing Past Contributions and Guiding Future Directions

Robey¹,

Im²,

Wareham³

2008

JAIS

170

196

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This paper guides the theoretical development of future research on interorganizational systems (IOS). We first assess past IOS research by reviewing and summarizing the findings of 51 empirical studies of IOS published in 11 IS journals between 1990 and 2003. This literature addresses three primary issues: (1) factors influencing organizational decisions to adopt IOS; (2) the impact of IOS on governance over economic transactions; and (3) the organizational consequences of IOS adoption. From our assessment of the findings and theoretical approaches taken in past research, we offer three recommendations for future research. First, the theoretical foundations of IOS research during this period are diverse, representing 17 different yet complementary theories. We recommend that researchers continue to diversify their theoretical approaches in order to address new research challenges. Second, we recommend that IOS researchers move beyond mere descriptions of IOS artifacts by engaging with IOS artifacts on theoretical grounds. Third, we identify and describe new theoretical directions for future IOS research in each of the main issue areas.

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Section: Figure 3 Relationships Investigated In Ios and Governancesupporting

confidence: 53%

Theoretical Foundations of Empirical Research on Interorganizational Systems: Assessing Past Contributions and Guiding Future Directions

Robey¹,

Im²,

Wareham³

2008

JAIS

170

196

View full text Add to dashboard Cite

show abstract

“…More digital transactions with suppliers can also reduce coordination costs (Malone 1987), transaction costs (Williamson 1975), and agency costs by increasing transparency and mutual monitoring (Jensen and Meckling 1976). Today, firms with more IT capital are smaller (Brynjolfsson et al 1994) and less vertically integrated (Hitt 1999), indicating that process digitization in the supply chain is enabling increased performance by pushing key functions outside the firm boundary. IT also has the potential to transform relationships with customers.…”

Section: Practices Routinesmentioning

confidence: 99%

IT Assets, Organizational Capabilities, and Firm Performance: How Resource Allocations and Organizational Differences Explain Performance Variation

Aral

Weill²

2007

Organization Science

682

496

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D espite evidence of a positive relationship between information technology (IT) investments and firm performance, results still vary across firms and performance measures. We explore two organizational explanations for this variation: differences in firms' IT investment allocations and their IT capabilities. We develop a theoretical model of IT resources, defined as the combination of specific IT assets and organizational IT capabilities. We argue that investments into different IT assets are guided by firms' strategies (e.g., cost leadership or innovation) and deliver value along performance dimensions consistent with their strategic purpose. We hypothesize that firms derive additional value per IT dollar through a mutually reinforcing system of organizational IT capabilities built on complementary practices and competencies. Empirically, we test the impact of IT assets, IT capabilities, and their combination on four dimensions of firm performance: market valuation, profitability, cost, and innovation. Our results-based on data on IT investment allocations and IT capabilities in 147 U.S. firms from 1999 to 2002-demonstrate that IT investment allocations and organizational IT capabilities drive differences in firm performance. Firms' total IT investment is not associated with performance, but investments in specific IT assets explain performance differences along dimensions consistent with their strategic purpose. In addition, a system of organizational IT capabilities strengthens the performance effects of IT assets and broadens their impact beyond their intended purpose. The results help explain variance in returns to IT capital across firms and expand our understanding of alignment between IT and organizations. We illustrate our findings with examples from a case study of 7-Eleven Japan.

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“…Brynjolfsson et al (1994) measure the impact of information technology (IT) on firm size and find that it is linked to smaller firm size. Heuristically, if we claim that firm size is limited in part by managerial delay, then improvements in IT should instead lead to larger firm size (although we do not perform such a comparative statics exercise).…”

Section: Summary Of Resultsmentioning

confidence: 99%

Real-time decentralized information processing and returns to scale

Zandt¹,

Radner²

2001

Econ Theory

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Summary. We use a model of real-time decentralized information processing to understand how constraints on human information processing affect the returns to scale of organizations. We identify three informational (dis)economies of scale: diversification of heterogeneous risks (positive), sharing of information and of costs (positive), and crowding out of recent information due to information processing delay (negative). Because decision rules are endogenous, delay does not inexorably lead to decreasing returns to scale. However, returns are more likely to be decreasing when computation constraints, rather than sampling costs, limit the information upon which decisions are conditioned. The results illustrate how information processing constraints together with the requirement of informational integration cause a breakdown of the replication arguments that have been used to establish nondecreasing technological returns to scale.

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Does Information Technology Lead to Smaller Firms?

Cited by 483 publications

References 20 publications

Theoretical Foundations of Empirical Research on Interorganizational Systems: Assessing Past Contributions and Guiding Future Directions

Theoretical Foundations of Empirical Research on Interorganizational Systems: Assessing Past Contributions and Guiding Future Directions

IT Assets, Organizational Capabilities, and Firm Performance: How Resource Allocations and Organizational Differences Explain Performance Variation

Real-time decentralized information processing and returns to scale

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