Information Technology and the Volatility of Firm Performance

Abstract

This study investigates the impact of IT investments and several contextual variables on the volatility of future earnings. We find evidence that IT investments strongly increases the volatility of future earnings and that four contextual factors-industry concentration, sales growth, diversification, and leveragestrongly moderate IT's effect on earnings volatility. It is notable that while the main effect of IT spending on earnings volatility is strongly positive, not all of the moderators are. This suggests that there are conditions under which the positive risk-return relation can be either offset or even reversed. Taken together, these results suggest an explanation for what has recently been termed the "new productivity paradox", i.e. the apparent under-investment in information technology despite evidence of highly positive returns for doing so.

Why build a customer relationship management capability?

“…During this time various models of IT performance have been developed to show that IT: impacts organizational performance via intermediate business processes (Davenport, 1993;Barua et al, 1995); requires complementary organizational resources such as workplace practices and structures (Powell & Dent-Medcalfe, 1997;Ray et al, 2005); is influenced by the external environment (Hunter, et al, 2003); and as a construct, should be disaggregated into meaningful components (Sethi & Carraher, 1992). The received wisdom from this extensive body of work indicates that organizations in all sectors of industry, commerce and government can generate business value when appropriate IT is applied in the right way (Melville et al, 2004).…”