IFSM 300 Week 1-Information Systems in Organizations

Does IT Matter?

Introduction

For over 50 years, computing technology has been a part of business.

Organizations have spent trillions of dollars on information technologies.

But has all this investment in IT made a difference? Have we seen

increases in productivity? Are companies that invest in IT more

competitive? In this reading, we will look at the value IT can bring to an

organization and try to answer these questions. We will begin by

highlighting two important works from the past two decades.

The Productivity Paradox

In 1991, Erik Brynjolfsson wrote an article, published in the

Communications of the ACM, entitled “The Productivity Paradox of

Information Technology: Review and Assessment.” By reviewing studies

about the impact of IT investment on productivity, Brynjolfsson was able

to conclude that the addition of information technology to business had

not improved productivity at all—the “productivity paradox.” From the

article, he does not draw any specific conclusions from this finding and

provides the following analysis (Brynjolfsson, 1991):

Although it is too early to conclude that IT’s productivity contribution has

been subpar, a paradox remains in our inability to unequivocally

Learning Resource

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document any contribution after so much effort. The various explanations

that have been proposed can be grouped into four categories:

1. Mismeasurement of outputs and inputs,

2. Lags due to learning and adjustment,

3. Redistribution and dissipation of profits, and

4. Mismanagement of information and technology.

In 1998, Brynjolfsson and Lorin Hitt published a follow‐up paper entitled

“Beyond the Productivity Paradox” (Brynjolfsson & Hitt, 1998). In this

paper, the authors utilized new data that had been collected and found

that IT did, indeed, provide a positive result for businesses. Further, they

found that sometimes the true advantages in using technology were not

directly relatable to higher productivity, but to “softer” measures, such as

the impact on organizational structure. They also found that the impact of

information technology can vary widely between companies.

IT Doesn’t Matter

Just as a consensus was forming about the value of IT, the internet stock

market bubble burst. Just two years later, in 2003, Harvard professor

Nicholas Carr wrote his article “IT Doesn’t Matter” in the Harvard

Business Review. In this article, Carr asserts that as information

technology has become more ubiquitous, it has also become less of a

differentiator. In other words, because information technology is so

readily available and the software used so easily copied, businesses

cannot hope to implement these tools to provide any sort of competitive

advantage. Carr goes on to suggest that since IT is essentially a

commodity, it should be managed like one: low cost, low risk. Using the

analogy of electricity, Carr describes how a firm should never be the first

to try a new technology, thereby letting others take the risks. IT

management should see themselves as a utility within the company and

work to keep costs down. For IT, providing the best service with minimal

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downtime is the goal.

As you can imagine, this article caused quite an uproar, especially from IT

companies. Many articles were written in defense of IT; many others in

support of Carr. Carr released a book based on the article in 2004,

entitled “Does IT Matter?”

Probably the best thing to come out of the article and subsequent book

was that it opened up discussion on the place of IT in a business strategy,

and exactly what role IT could play in competitive advantage, which is

addressed in this reading.

Competitive Advantage

What does it mean when a company has a competitive advantage? What

are the factors that play into it? While there are entire courses and many

different opinions on this topic, let’s go with one of the most accepted

definitions, developed by Michael Porter (2001) in his book Competitive

Advantage: Creating and Sustaining Superior Performance. A company is

said to have a competitive advantage over its rivals when it is able to

sustain profits that exceed average for the industry. According to Porter,

there are two primary methods for obtaining competitive advantage: cost

advantage and differentiation advantage. So the question becomes: how

can information technology be a factor in one or both of these methods?

In the sections below, we will explore this question using two of Porter’s

analysis tools: the value chain and the five forces model. We will also use

Porter’s analysis in his 2001 article “Strategy and the Internet,” which

examines the impact of the internet on business strategy and competitive

advantage, to shed further light on the role of information technology in

competitive advantage.

The Value Chain

In his book, Porter describes exactly how a company can create value

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