Journal of Management Information Systems 2000
A Framework for Assessing the Relationship between Information Technology Investments and Firm Performance
Abstract
There have been several attempts in the past to assess the impact of information technology on firm performance that have yielded conflicting results. Researchers have been unable to conclude that IT spending by an organization results in increases in key performance indicators. Two major recent studies have attempted to address the issue by putting greater emphasis on the theoretical underpinnings of the solution to the problem, although they chose different theoretical frameworks. The present study extends that work to yield a framework that shows the relationship between firm performance and both IT and corporate investments. The data used to validate the framework exceeds that used in previous analyses in both quality and quantity, thereby permitting appropriate statistical analyses. A large database consisting of over 2,000 observations of 624 firms was constructed, using data provided by the International Data Corporation, Standard & Poor's Compustat, and Moody's. This allowed us to pose the following research questions: (a) Can the relationship between sets of investment measures and firm performance be demonstrated (as opposed to individual measures)? (b) How are IT investments related to a firm's market value, market share, sales, and assets? and (c) Is there a difference in the effect of computer capital and noncomputer capital?Seven measures of firm performance were initially incorporated as outputs in the framework, related to sales, assets, and market value. Similarly, seven input measures of IT and corporate investments were initially included. Two output measures and one input were eventually eliminated to formulate a refined framework with strong explanatory power. After careful editing, canonical analyses were performed, resulting in several important findings. Both IT and corporate investments have a strong positive relationship with sales, assets, and equity, but not with net income. Spending on IS staff and staff training is positively correlated with firm performance, even more so than computer capital.Key Words and Phrases: information technology payoffinformation technology investmentorganizational performance Additional informationNotes on contributorsSumit SircarSumit Sircar is Professor and Chairman of the Information Systems and Management Sciences Department in the College of Business Administration at the University of Texas at Arlington and Director of the Center for Information Technologies Management. His doctoral degree was earned at the Harvard Business School and he is also a Certified Computing Professional and a Disaster Recovery Planner. Dr. Sircar has published numerous articles in the area of information resource management in a large number of journals, including the Journal of Management Information Systems, Communications of the ACM, Information & Management, and Journal of Database Management.Joe L. TurnbowJoe L. Turnbow retired from the Air Force in 1990 after twenty-two years of service. While in the Air Force, he participated in several major feasibility studies and in the planning and implementation of two major computer systems. He was also responsible for evaluating productivity before and after installation of these systems. After retiring, he completed a B.S. in computer science and a B.B.A. in accounting at the University of Alaska, Anchorage, and an M.S. in information systems at the University of Texas at Arlington. He is currently a consultant in the Oil and Gas Division of Computer Task Group Inc. in Anchorage, Alaska.Bijoy BordoloiBijoy Bordoloi is a Visiting Associate Professor in the Kelley School of Business at Indiana University, Bloomington, where he also received his Ph.D. in MIS. His current research interests include data modeling, data administration, distributed data base systems, and software project management. His publications have appeared in several journals, including Journal of Management Information Systems, Journal of Information Science and Technology, Journal of Microcomputer Systems Management, International Journal of Information Resource Management, and International Journal of Production and Operations Management.
- DOI
- 10.1080/07421222.2000.11518266
- Sources
- openalex