Do Large Firms Become Smaller by Using Information Technology?

Author List: Im, Kun Shin; Grover, Varun; Teng, James T. C.;

Information Systems Research, 2013, Volume 24, Issue 2, Page 470-491.

The relationship between information technology (IT) and a key organizational design variable, firm size, is an important area of study, particularly given the ongoing transition to an information-based economy. To better understand the more nuanced aspects of the relationship, we formulated a bidirectional and time-lagged model that incorporates different perspectives from organizational theories and transaction cost economics. Our two models—the bidirectional and one-year lagged model and the bidirectional and two-year lagged model-were tested using nine-year panel data on IT spending, IT stock, coordination costs, firm size, and relevant control variables for 277 manufacturing firms. We found a sequential interaction between IT and firm size in both of the two models: as a firm grows in size, its coordination activities increase; the firm then uses more IT to handle the increased activities of coordination; this increased use of IT, in turn, decreases coordination costs, and eventually, the size of the firm decreases. It was also found that the presence of coordination costs is necessary for the sequential interaction between IT and firm size, indicating coordination between and within firms is a major reason for firms to invest in IT and for IT effect to take place on firm size. This study has taken an initial step by attempting to empirically examine dual causality and longitudinal effects between IT and firm size, and to reconcile different theoretical perspectives on the relationship between them. We hope this work can act as a catalyst for developing a better understanding of the complex relationship between IT and organizations, with the ultimate goal of offering robust prescriptions for successful structural change.

Keywords: bidirectional model; coordination costs; coordination theory; firm size; information processing perspective; information systems and organizational change; longitudinal research; production theory; structuration theory; time-lagged model; transaction cost economics

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#168	0.175	firms firm financial services firm's size examine new based result level including results industry important account does suggests characterize limited
#151	0.123	costs cost switching reduce transaction increase benefits time economic production transactions savings reduction impact services reduced affect expected optimal associated
#209	0.107	results study research information studies relationship size variables previous variable examining dependent increases empirical variance accounting independent demonstrate important addition
#140	0.100	model use theory technology intention information attitude acceptance behavioral behavior intentions research understanding systems continuance models planned percent attitudes predict
#40	0.098	increased increase number response emergency monitoring warning study reduce messages using reduced decreased reduction decrease act sessions cost good key
#256	0.087	coordination mechanisms work contingencies boundaries temporal coordinating vertical associated activities different coordinate suggests dispersed coordinated horizontal relative demand spatial hours
#185	0.063	change organizational implementation case study changes management organizations technology organization analysis successful success equilibrium radical efforts initiatives managing resistance individuals