Firm Characteristics and Investments in Information Technology: Scale and Scope Effects.

Author List: Dewan, Sanjeev; Michael, Steven C.; Min, Chung-ki;
Information Systems Research, 1998, Volume 9, Issue 3, Page 219-232.
This paper conducts an empirical analysis of the link between the scale and scope of the firm and information technology (IT) investments, emphasizing the role of IT in coordination and control. We extend the economic production function framework to include variables related to the boundaries of the firm, including related and unrelated diversification, vertical integration and growth options, and we estimate the resulting model on a data set based on annual surveys of IT spending by large U.S. firms, conducted by Computerworld during the period 1988-1992. Our results suggest that the level of IT investment is positively related to the degree of firm diversification, perhaps reflecting the greater need for coordination of assets within diversified firms. We further find that related diversification demands greater IT investment than unrelated diversification. Firms that are less vertically integrated have a higher level of IT investment. Finally, firms with fewer growth options in their investment opportunity set tend to have a higher IT investment, consistent with an agency perspective which predicts excessive IT investment by managers with "free" cash flow. Put together, these empirical relations between IT investments and firm characteristics help us better understand the role of IT in coordination and control and the choices firms make in information systems and strategy.
Keywords: Information Technology Investment;Information Systems Strategy;Scale and Scope;Coordination;Diversification
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#271 0.400 technology investments investment information firm firms profitability value performance impact data higher evidence diversification industry payoff return findings decisions greater
#162 0.097 structural modeling scale equation implications economies large future framework perspective propose broad scope resulting identified leading analyzed second interviews analysis
#168 0.093 firms firm financial services firm's size examine new based result level including results industry important account does suggests characterize limited
#173 0.077 effect impact affect results positive effects direct findings influence important positively model data suggest test factors negative affects significant relationship
#10 0.069 strategies strategy based effort paper different findings approach suggest useful choice specific attributes explain effective affect employ particular online control
#256 0.060 coordination mechanisms work contingencies boundaries temporal coordinating vertical associated activities different coordinate suggests dispersed coordinated horizontal relative demand spatial hours
#182 0.053 percent sales average economic growth increasing total using number million percentage evidence analyze approximately does business flow annual book daily