RESPNSE 3

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 1/13

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 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.

Learning Resource

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 2/13

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 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

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 3/13

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 (and therefore,

profit). Value is built through the value chain: a series of activities undertaken by the

company to produce a product or service. Each step in the value chain contributes to the

overall value of a product or service. While the value chain may not be a perfect model for

every type of company, it does provide a way to analyze just how a company is producing

value. The value chain is made up of two sets of activities: primary activities and support

activities. We will briefly examine these activities and discuss how information technology

can play a role in creating value by contributing to cost advantage, differentiation

advantage, or both.

Porter’s Value Chain

Series of activities that contribute to the overall value of a product or service

The primary activities are the functions that directly impact the creation of a product or

service. The goal of the primary activities is to add more value than they cost. The primary

activities are:

Inbound logistics: These are the functions performed to bring in raw materials and

other needed inputs. Information technology can be used here to make these

processes more efficient, such as with supply-chain management systems, which

allow the suppliers to manage their own inventory.

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 4/13

Operations: Any part of a business that is involved in converting the raw materials

into the final products or services is part of operations. From manufacturing to

business process management (covered in Business Processes), information

technology can be used to provide more efficient processes and increase innovation

through flows of information.

Outbound logistics: These are the functions required to get the product out to the

customer. As with inbound logistics, IT can be used here to improve processes, such

as allowing for real-time inventory checks. IT can also be a delivery mechanism itself.

Sales/Marketing: The functions that will entice buyers to purchase the products are

part of sales and marketing. Information technology is used in almost all aspects of

this activity. From online advertising to online surveys, IT can be used to innovate

product design and reach customers like never before. The company website can be

a sales channel itself.

Service: The functions a business performs after the product has been purchased to

maintain and enhance the product’s value are part of the service activity. Service can

be enhanced via technology as well, including support services through websites and

knowledge bases.

The support activities are the functions in an organization that support, and cut across, all

of the primary activities. The support activities are:

Firm infrastructure: This includes organizational functions such as finance,

accounting, and quality control, all of which depend on information technology; the

use of enterprise resource planning (ERP) systems (to be covered in The People in

Information Systems) is a good example of the impact that IT can have on these

functions.

Human resource management: This activity consists of recruiting, hiring, and other

services needed to attract and retain employees. Using the internet, HR

departments can increase their reach when looking for candidates. There is also the

possibility of allowing employees to use technology for a more flexible work

environment.

Technology development: Here we have the technological advances and innovations

that support the primary activities. These advances are then integrated across the

firm or within one of the primary activities to add value. Information technology

would fall specifically under this activity.

Procurement: The activities involved in acquiring the raw materials used in the

creation of products and services are called procurement. Business-to-business e-

commerce can be used to improve the acquisition of materials.

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 5/13

This analysis of the value chain provides some insight into how information technology

can lead to competitive advantage. Let’s now look at another tool that Porter developed—

the “five forces” model.

Porter’s Five Forces

Porter developed the “five forces” model as a framework for industry analysis. This model

can be used to help understand just how competitive an industry is and to analyze its

strengths and weaknesses. The model consists of five elements, each of which plays a role

in determining the average profitability of an industry. In 2001, Porter wrote an article

entitled ”Strategy and the Internet,” in which he takes this model and looks at how the

internet impacts the profitability of an industry. Below is a quick summary of each of the

five forces and the impact of the internet.

Porter’s Five Forces Model

Five elements that determine an industry’s competitiveness and average profitability

Threat of substitute products or services: How easily can a product or service be

replaced with something else? The more types of products or services there are that

can meet a particular need, the less profitability there will be in an industry. For

example, the advent of the mobile phone has replaced the need for pagers. The

internet has made people more aware of substitute products, driving down industry

profits in those industries being substituted.

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 6/13

Bargaining power of suppliers: When a company has several suppliers to choose

from, it can demand a lower price. When a sole supplier exists, then the company is

at the mercy of the supplier. For example, if only one company makes the controller

chip for a car engine, that company can control the price, at least to some extent.

The internet has given companies access to more suppliers, driving down prices. On

the other hand, suppliers now also have the ability to sell directly to customers.

Bargaining power of customers: A company that is the sole provider of a unique

product has the ability to control pricing. But the internet has given customers many

more options to choose from.

Barriers to entry: The easier it is to enter an industry, the tougher it will be to make

a profit in that industry. The internet has an overall effect of making it easier to

enter industries. It is also very easy to copy technology, so new innovations will not

last that long.

Rivalry among existing competitors: The more competitors there are in an industry,

the bigger a factor price becomes. The advent of the internet has increased

competition by widening the geographic market and lowering the costs of doing

business. For example, a manufacturer in Southern California may now have to

compete against a manufacturer in the South, where wages are lower.

Porter’s five forces are used to analyze an industry to determine the average profitability

of a company within that industry. Adding in Porter’s analysis of the internet, we can see

that the internet (and by extension, information technology in general) has the effect of

lowering overall profitability (Porter, 2001). While the internet has certainly produced

many companies that are big winners, the overall winners have been the consumers, who

have been given an ever-increasing market of products and services and lower prices.

Using Information Systems for Competitive Advantage

Now that we have an understanding of competitive advantage and some of the ways that

IT may be used to help organizations gain it, we will turn our attention to some specific

examples. A strategic information system is an information system that is designed

specifically to implement an organizational strategy meant to provide a competitive

advantage. These sorts of systems began popping up in the 1980s, as noted in a paper by

Charles Wiseman entitled “Creating Competitive Weapons From Information Systems”

(Wiseman & MacMillan, 1984).

Specifically, a strategic information system is one that attempts to do one or more of the

following:

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 7/13

deliver a product or a service at a lower cost;

deliver a product or service that is differentiated;

help an organization focus on a specific market segment; or

enable innovation.

Following are some examples of information systems that fall into this category.

Business Process Management Systems

In their 2003 book, IT Doesn’t Matter—Business Processes Do, Smith and Fingar argued

that it is the integration of information systems with business processes that leads to

competitive advantage. They then go on to state that Carr’s article is dangerous because it

gave CEOs and IT managers the green light to start cutting their technology budgets,

putting their companies in peril. They go on to state that true competitive advantage can

be found with information systems that support business processes. In the reading,

Business Processes, we will focus on the use of business processes for competitive

advantage.

Electronic Data Interchange

One of the ways that information systems have participated in competitive advantage is

through integrating the supply chain electronically. This is primarily done through a

process called electronic data interchange, or EDI. EDI can be thought of as the

computer-to-computer exchange of business documents in a standard electronic format

between business partners. By integrating suppliers and distributors via EDI, a company

can vastly reduce the resources required to manage the relevant information. Instead of

manually ordering supplies, the company can simply place an order via the computer and

the next time the order process runs, it is ordered.

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 8/13

Manual Order Process

Graphic comparison of the manual order process

Order Process with EDI

Graphic comparison of the order process with electronic data exchange (EDI)

Collaborative Systems

As organizations began to implement networking technologies, information systems

emerged that allowed employees to begin collaborating in different ways. These systems

allowed users to brainstorm ideas together without the necessity of physical, face-to-face

meetings. Utilizing tools such as discussion boards, document sharing, and video, these

systems made it possible for ideas to be shared in new ways and the thought processes

behind these ideas to be documented.

Broadly speaking, any software that allows multiple users to interact on a document or

topic could be considered collaborative. Electronic mail, a shared Word document, social

networks, and discussion boards would fall into this broad definition. However, many

software tools have been created that are designed specifically for collaborative purposes.

These tools offer a broad spectrum of collaborative functions. Here is just a short list of

some collaborative tools available for businesses today:

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 9/13

Google Drive. Google Drive offers a suite of office applications (such as a word

processor, spreadsheet, drawing, presentation) that can be shared between

individuals. Multiple users can edit the documents at the same time and threaded

comments are available.

Microsoft SharePoint. SharePoint integrates with Microsoft Office and allows for

collaboration using tools most office workers are familiar with. SharePoint is covered

in more detail in the reading, Networking and Communication.

Cisco WebEx. WebEx is a business communications platform that combines video

and audio communications and allows participants to interact with each other’s

computer desktops. WebEx also provides a shared whiteboard and the capability for

text-based chat to be going on during the sessions, along with many other features.

Mobile editions of WebEx allow for full participation using smartphones and tablets.

Atlassian Confluence. Confluence provides an all-in-one project-management

application that allows users to collaborate on documents and communicate

progress. The mobile edition of Confluence allows the project members to stay

connected throughout the project.

IBM Lotus Notes/Domino. One of the first true “groupware” collaboration tools,

Lotus Notes (and its web-based cousin, Domino) provides a full suite of collaboration

software, including integrated email.

Decision Support Systems

A decision support system (DSS) is an information system built to help an organization

make a specific decision or set of decisions. DSSs can exist at different levels of decision-

making with the organization, from the CEO to the first-level managers. These systems

are designed to take inputs regarding a known (or partially known) decision-making

process and provide the information necessary to make a decision. DSSs generally assist a

management-level person in the decision-making process, though some can be designed

to automate decision making.

An organization has a wide variety of decisions to make, ranging from highly structured

decisions to unstructured decisions. A structured decision is usually one that is made

quite often, and one in which the decision is based directly on the inputs. With structured

decisions, you know the decision that needs to be made once you know the necessary

information. For example, inventory reorder levels can be structured decisions: Once our

inventory of widgets gets below a specific threshold, automatically reorder 10 more.

Structured decisions are good candidates for automation, but we don’t necessarily build

decision support systems for them.

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 10/13

An unstructured decision involves a lot of unknowns. Many times, unstructured decisions

are decisions being made for the first time. An information system can support these

types of decisions by providing decision-makers with information-gathering tools and

collaborative capabilities. An example of an unstructured decision might be dealing with a

labor issue or setting policy for a new technology.

Decision support systems work best when decision-makers are making semi-structured

decisions. A semi-structured decision is one in which most of the factors needed for

making the decision are known, but human experience and other outside factors may still

play a role. A good example of an semi-structured decision would be diagnosing a medical

condition (see sidebar).

As with collaborative systems, DSSs can come in many different formats. A nicely

designed spreadsheet that allows for input of specific variables and then calculates

required outputs could be considered a DSS. Another DSS might be one that assists in

determining which products a company should develop. Input into the system could

include market research on the product, competitor information, and product

development costs. The system would then analyze these inputs based on the specific

rules and concepts programmed into it. Finally, the system would report its results, with

recommendations and/or key indicators to be used in making a decision. A DSS can be

looked at as a tool for competitive advantage in that it can give an organization a

mechanism to make wise decisions about products and innovations.

Isabel—A Health Care DSS

DSSs are best applied to semi-structured decisions, in which most of the needed

inputs are known, but human experience and environmental factors also play a role.

A good example that is in use today is Isabel, a health-care DSS. The creators of

Isabel explain how it works:

Isabel uses the information routinely captured during your workup, whether

free text or structured data, and instantaneously provides a diagnosis checklist

for review. The checklist contains a list of possible diagnoses with critical

“Don’t Miss Diagnoses” flagged. When integrated into your EMR system,

Isabel can provide “one click” seamless diagnosis support with no additional

data entry (http://www.isabelhealthcare.com/home/ourmission).

Investing in IT for Competitive Advantage

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 11/13

In 2008, Brynjolfsson and McAfee published a study in the Harvard Business Review on

the role of IT in competitive advantage, entitled “Investing in the IT That Makes a

Competitive Difference.” Their study confirmed that IT can play a role in competitive

advantage, if deployed wisely. In their study, they draw three conclusions (McAfee &

Brynjolfsson, 2008):

First, the data show that IT has sharpened differences among companies instead of

reducing them. This reflects the fact that while companies have always varied widely

in their ability to select, adopt, and exploit innovations, technology has accelerated

and amplified these differences.

Second, good management matters. Highly qualified vendors, consultants, and IT

departments might be necessary for the successful implementation of enterprise

technologies themselves, but the real value comes from the process innovations that

can now be delivered on those platforms. Fostering the right innovations and

propagating them widely are both executive responsibilities that can’t be delegated.

Finally, the competitive shakeup brought on by IT is not nearly complete, even in the

IT-intensive US economy. We expect to see these altered competitive dynamics in

other countries, as their IT investments grow.

Information systems can be used for competitive advantage, but they must be used

strategically. Organizations must understand how they want to differentiate

themselves and then use all the elements of information systems (hardware,

software, data, people, and process) to accomplish that differentiation.

Summary

Information systems are integrated into all components of business today, but can they

bring competitive advantage? Over the years, there have been many answers to this

question. Early research could not draw any connections between IT and profitability, but

later research has shown that the impact can be positive. IT is not a panacea; just

purchasing and installing the latest technology will not, by itself, make a company more

successful. Instead, the combination of the right technologies and good management,

together, will give a company the best chance of a positive result.

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 12/13

Study Questions

1. What is the productivity paradox?

2. Summarize Carr’s argument in “Does IT Matter?”

3. How is the 2008 study by Brynjolfsson and McAfee different from previous

studies? How is it the same?

4. What does it mean for a business to have a competitive advantage?

5. What are the primary activities and support activities of the value chain?

6. What has been the overall impact of the internet on industry profitability?

Who has been the true winner?

7. How does EDI work?

8. Give an example of a semi-structured decision and explain what inputs would

be necessary to provide assistance in making the decision.

9. What does a collaborative information system do?

10. How can IT play a role in competitive advantage, according to the 2008 article

by Brynjolfsson and McAfee?

References

Brynjolfsson, E. (1991). The productivity paradox of information technology: review and

assessment. Communications of the ACM, 36(12), 66-77.

Brynjolfsson, E., & Hitt, L. (1998). Beyond the productivity paradox. Communications of

the ACM, 41(8), 49–55.

McAfee, A., & Brynjolfsson, E. (2008, July - August). Investing in the IT that makes a

competitive difference. Harvard Business Review. Retrieved from

https://hbr.org/2008/07/investing-in-the-it-that-makes-a-competitive-difference

Porter, M. (2001). Strategy and the internet. Harvard Business Review, 79(3), Retrieved

from http://hbswk.hbs.edu/item/2165.html

Smith, H. & Fingar, P. (2003). IT doesn’t matter—Business processes do. Tampa, FL:

Meghan-Kiffer Press.

1/13/22, 2:35 PM Does IT Matter?

https://learn.umgc.edu/d2l/le/content/622997/viewContent/25150593/View 13/13

Wiseman, C., & MacMillan, I. C. (1984). Creating competitive weapons from information

systems. Journal of Business Strategy, 5(2), 42.

Licenses and Attributions

Chapter 7: Does IT Matter?

(https://www.saylor.org/site/textbooks/Information%20Systems%20for%20Business%20

and%20Beyond.pdf) from Information Systems for Business and Beyond by David T.

Bourgeois is available under a Creative Commons Attribution 3.0 Unported

(https://creativecommons.org/licenses/by/3.0/) license. © 2014, David T. Bourgeois.

UMGC has modified this work and it is available under the original license.

© 2022 University of Maryland Global Campus

All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity

of information located at external sites.