In this article, we assess the value of information technology related intangible assets and then use data on business practices and management capabilities to understand how this value is distributed across firms. Using a panel of 127 firms over the period 2003Ð2006, we replicate and extend the finding from Brynjolfsson, Hitt, and Yang (2002) that $1 of computer hardware is correlated with more than $10 of market value. We account for the Òmissing $9Ó by broadening the definition of IT to include capitalized software, and then include all purchased and internally developed software, other internal IT services, IT consulting, and IT-related training (whether or not it is capitalized by the firm). In addition, we use data on IT-related business practices in order to analyze the distribution of IT-related intangibles within the sample. Our results suggest that the ÒinvisibleÓ IT not accounted for on balance sheets is being priced into the market value of firms. We also estimate that there is a 45% to 76% premium in market value for the firms with the highest organizational IT capabilities (based on separate measures of human resource practices, management practices, internal IT use, external IT use, and Internet capabilities), as compared to those with the lowest organizational IT capabilities. Our results thus suggest that contributions of IT to value depend heavily on other factors, and are not a rising tide that lifts all boats.
We econometrically evaluate information worker productivity at a midsize executive recruiting firm and assess whether the knowledge that workers accessed through their electronic communication networks enabled them to multitask more productively. We estimate dynamic panel data models of multitasking, knowledge networks, and productivity using several types of micro-level data: (a) direct observation of more than 125,000 email messages over a period of 10 months; (b) detailed accounting data on individuals' project output and team membership for more than 1,300 projects spanning five years; and (c) survey and interview data about the same workers' IT skills, IT use, and information sharing. We find that (1) more multitasking is associated with more project output, but diminishing marginal returns, and (2) recruiters whose network contacts have heterogeneous knowledge-an even distribution of expertise over many project types-are less productive on average but more productive when juggling diverse multitasking portfolios. These results show how multitasking affects productivity and how knowledge networks, enabled by IT, can improve worker performance. The methods developed can be replicated in other settings, opening new frontiers for research on social networks and IT value.
The Internet and related information technologies are transforming the distribution of product sales across products, and these effects are likely to grow in coming years. Both the Long Tail and the Superstar effect are manifestations of these changes, yet researchers lack consistent metrics or models for integrating and extending their insights and predictions. In this paper, we begin with a taxonomy of the technological and nontechnological drivers of both Long Tails and Superstars and then define and compare the key metrics for analyzing these phenomena. The core of the paper describes a large and promising set of questions forming a research agenda. Important opportunities exist for understanding future changes in sales concentration patterns; the impact on supply chains (including cross-channel competition, competition within the Internet channel, implications for the growth of firms, and the balance of power within the supply chain); implications for pricing, promotion, and product design; and, ultimately, the potential effects on society in general. Our approach provides an introduction to some of the relevant research findings and allows us to identify opportunities for cross-pollination of methods and insights from related research topics.
This paper examines the relationship between information technology (IT) and the organizational architecture of firms. Firms that are extensive users of information technology tend to adopt a complementary set of organizational practices that include: decentralization of decision authority, emphasis on subjective incentives, and a greater reliance on skills and human capital. We explore these relationships using detailed data on work systems and information technology spending for 273 large firms. Overall, we find that increased investment in IT is linked to a system of decentralized authority and related practices. Our findings may help resolve some of the questions about the relationships of information technology to internal organization and provide insight into the optimal organization of knowledge work.
Over the past two decades, American businesses have invested heavily in information technology (IT) hardware. Managers often buy IT to enhance customer value in ways that are poorly measured by conventional output statistics. Furthermore, because of competition, firms may be unable to capture the full benefits of the value they create. This undermines researchers' attempts to determine IT value by estimating its contribution to industry productivity or to company profits and revenues. An alternative approach estimates the consumers' surplus from IT investments by integrating the area under the demand curve for if. This methodology does not directly address the question of whether managers and consumers are purchasing the op- timal quantity of if, but rather assumes their revealed willingness-to-pay for IT accurately reflects their valuations. Using data from the U.S. Bureau of Economic Analysis, we estimate four measures of consumers' surplus, including Marshallian surplus, Exact surplus based on compensated (Hicksian) demand curves, a "nonparametric" estimate, and a value based on the theory of index numbers. Interestingly, all four estimates indicate that in our base year of 1987, IT spending generated approximately $50 billion to $70 billion in net value in the United States and increased economic growth by about 0.3% per year. According to our estimates, which are likely to be conservative, 11' investments generate approximately three times their cost in value for consumers.
The business value of information technology (IT) has been debated for a number of years. While some authors have attributed large productivity improvements and substantial consumer or benefits to IT, others report that IT has not had any bottom line impact on business profitability. This paper focuses on the fact that while productivity, consumer value, and business profitability are related, they are ultimately separate questions. Accordingly, the empirical results on IT value depend heavily on which question is being addressed and what data are being used. Applying methods based on economic theory we are able to define and examine the relevant hypotheses for each of these three questions, using recent firm-level data on IT spending by 370 large firms. Our findings indicate that IT has increased productivity and created substantial value for consumers. However, we do not find evidence that these benefits have resulted in supranormal business profitability. We conclude that while modeling techniques need to be Improved, these results are collectively consistent with economic theory. Thus, there is no inherent contra diction between increased productivity, increased consumer value, and unchanged business profitability.
Buyers are transforming their relationships with suppliers. For example, instead of playing off dozens or even hundreds of competing suppliers against one another, many firms are finding it more profitable to work closely with only a small number of "partners." In this paper we explore some causes and consequences of this transformation. We apply the economic theory of incomplete contracts to determine the optimal strategy for a buyer. We find that the buyer firm will often maximize profits by limiting its options and reducing its own bargaining power. This may seem paradoxical in an age of cheap communications costs and aggressive competition. However, unlike earlier models that focused on coordination costs, we focus on the critical importance of providing incentives for suppliers. Our results spring from the need to make it worthwhile for suppliers to invest in "noncontractibles" such as innovation, responsiveness, and information sharing. Such incentives will often be stronger when the number of competing suppliers is small. The findings of the theoretical models appear to be consistent with observations from empirical research which highlight the key role of information technology in enabling this transformation.