The 50-year march of Moore’s Law has led to the creation of a relatively cheap and increasingly easy-to-use world-wide digital infrastructure of computers, mobile devices, broadband network connections, and advanced application platforms. This digital infrastructure has, in turn, accelerated the emergence of new technologies that enable transformations in how we live and work, how companies organize, and the structure of entire industries.
Today, few firms could survive for very long without their computer systems. IT has permeated every corner of firms. Firms have reached the current state in their use of IT because IT has provided myriad opportunities for firms to improve performance and, firms have availed themselves of these opportunities. Some have argued, however, that the opportunities for firms to improve their performance through new uses of IT have been declining. Are the opportunities to use IT to improve firm performance diminishing? We sought to answer this question. In this study, we develop a theory and explain the logic behind our empirical analysis; an analysis that employs a different type of event study. Using the volatility of firms' stock prices to news signaling a change in economic conditions, we compare the stock price behavior of firms in the IT industry to firms in the utility and transportation and freight industries. Our analysis of the IT industry as a whole indicates that the opportunities for firms to use IT to improve their performance are not diminishing. However, there are sectors within the IT industry that no longer provide value-enhancing opportunities for firms. We also find that IT products that provided opportunities for firms to create value at one point in time, later become necessities for staying in business. Our results support the key assumption in our work.
Dealing with technological advances has been and continues to be a key facet of an information systems (IS) manager's job as new information technologies continue to be introduced at a rapid rate. Among the many problems that new technologies present, one of the first and an extremely important problem that an IS manager must deal with is an economic one: should the firm invest in a project involving the new technology? Traditional capital budgeting approaches do not adequately answer this question. Consequently, they are seldom used. Instead, investments in new IT projects are based upon "gut feel" or "intuition," rather than hard evidence. A major portion of the value of new IT projects accrues from future projects that use the technology. Few benefits are obtained from the initial project. Problems in trying to capture these benefits using traditional capital budgeting approaches are discussed here and an alternative approach to valuing new IT investments is present. This approach is based upon the assertion that future investment in projects that use the new IT are optional. Treating future investments as optional can greatly increase the pre-investment estimated value of a new IT project. In addition, the effects of technological characteristics and business and environmental conditions on the value of new IT investments are discussed.