Despite the importance to researchers, managers, and policy makers of how information technology (IT) contributes to organizational performance, there is uncertainty and debate about what we know and don’t know. A review of the literature reveals that studies examining the association between information technology and organizational performance are divergent in how they conceptualize key constructs and their interrelationships. We develop a model of IT business value based on the resource-based view of the firm that integrates the various strands of research into a single framework. We apply the integrative model to synthesize what is known about IT business value and guide future research by developing propositions and suggesting a research agenda. A principal finding is that IT is valuable, but the extent and dimensions are dependent upon internal and external factors, including complementary organizational resources of the firm and its trading partners, as well as the competitive and macro environment. Our analysis provides a blueprint to guide future research and facilitate knowledge accumulation and creation concerning the organizational performance impacts of information technology.

Notes: Center Discussion Papers are preliminary materials circulated to stimulate discussions and critical comments. We thank seminar participants at Yale University and Joe Altonji, Eileen Brooks, and Valery Lazarev for helpful comments and suggestions. Fairlie was partially funded by the William T. Grant Foundation. The views contained herein are solely those of the authors, and do not necessarily represent those of the institutions with which the authors are associated. Menzie D.

We survey the literature on the adoption and diffusion of information and communication technologies (ICT) in businesses. We identify two key dimensions that have been the focus of most of the literature. First, research can be categorized as focusing on ICT adoption costs or ICT adoption benefits. Second, research can be categorized as focusing on the internal organization of the firm or on the external environment. Major themes are highlighted as are opportunities for future research. * Respectively at Carnegie Mellon University and the University of Toronto. We thank Shane Greenstein for comments and advice, and Kristina Steffenson for outstanding research assistance. All opinions and errors are ours alone. 1

Despite the large body of firm-level analyses devoted to the impact of technological capital on productivity, a robust evidence for countries other than US is still needed. Early studies focused on R&D, while most recently technological capital has been measured also by means of ICT-related variables. In this paper, starting from a traditional production function framework, we examine the technological capitalproductivity relationship using both R&D and ICT intensity measures. By employing the Capitalia survey’s data for a longitudinal sample of 1119 Italian and a larger sample of 3918 manufacturing firms, firm-level regressions are carried out for the TFP growth over the period 1998-2000. Controlling for industry effects, firm size and other variables, we found that both R&D and ICT intensities on value added exert a positive impact on TFP changes. However, the intensity of ICT is significant only when inserted with a lag; in this case, moreover, the estimated rate of return is higher than that of R&D. Thus, concerning ICT investment, the results are consistent with the “delay hypothesis”, calling for the need of further and complementary outlays in intangible assets and organisational changes. Our findings legitimate a moderate optimism. Since both R&D and ICT investments are found rewarding at the micro level, there is room for policy interventions aimed at increasing the technological capital of Italian firms which is still behind that recorded in other developed economies. Keywords: R&D; ICT; productivity growth.

How can an organization establish an efficient IS resource? Over the years, the resource-based view (RBV) has provided important insights into the value creation by IT. Unfortunately, large parts of the literature suffer from broad and ambiguous constructs that are problematic to validate and difficult to concretely apply. Furthermore, the transmission from IT resources on one side to competitive advantage on the other is not yet sufficiently understood. Goal of this paper is to clarify some of the often used constructs and build a framework for the transmission from the endowment with resources to the achievement of competitive advantage. In this paper, we aim to contribute to this research strand in two ways. First, a model incorporating many isolated findings from the RBV is developed. Reflecting the need for a process view as proposed by large parts of the alignment and strategic management literature, this is integrated into a single process framework of analysis. Second, by augmenting a microeconomic production function incorporating organizational routines the transmission from IT resource to better business process performance is explicated, allowing simultaneous parameter sensitivity analysis and contributing to making the RBV applicable and open for empirical research.

We survey the micro and macro literature on the impact of Information and Communication Technologies (ICTs) on productivity. The “Solow Paradox ” of the absence of an impact of ICT on productivity no longer holds, if it ever did. Both growth accounting and econometric evidence suggest an important role for ICTs in accounting for productivity. In fact, the empirical estimates suggest a much larger impact of ICT on productivity than would be expected from the standard neoclassical model that we focus on. We discuss the various explanations for these results, including the popular notion of complementary organizational capital. Finally, we offer suggestions for where the literature needs to go.

This paper argues that the gains from ICT at the individual business level depend upon the implementation of a range of complementary ‘investments’ and organisational changes appropriate to the competitive and institutional context of particular sectors. To support our proposition we provide a brief overview of a recently emerging but compelling body of large sample microeconometric research. We focus in depth, however on a single case study of ICT related organisational transformation in the transportation sector. This case builds upon the conceptual framework developed in the MIT interesting organisations project (Scott Morton (2003)). Taken as a whole we believe there is clear evidence of the conditions that seem to be required before the payoff from ICT can be realised by an organisation and hence diffuse through the economy. Effective use of ICT requires a holistic solution which recognises that there is no single factor, or even just a few, which leads to successful exploitation. Rather success comes from the artful crafting of a series of interrelated and mutually interdependent driving forces. The paradoxical ‘gap’ between investment in computers and realised performance can be closed if this lesson is absorbed.

How does a major financial network innovation influence firm performance? Despite much speculation we have little hard quantitative evidence about the impact of technology diffusion in financial services. In this paper we use the entire adoption history for SWIFT (the Society for Worldwide Interbank Financial Telecommunication- standards provider and messaging carrier) matched to bank-level panel data for the US, Canada and 27 European countries. Our dataset covers almost 7,000 banks (including 1,689 SWIFT adopters) between 1998 and 2005. We find that adoption appears to have large effects on profitability, but it takes several years before any positive return is discernible, consistent with the idea of significant complementarities between new technologies and firm organization. The profitability effect operates by both raising sales and decreasing operating costs and is greater for smaller firms than larger firms. Although the long-run effects are similar, US and UK banks appear to reap the benefits from adoption more quickly than their Continental European counterparts. This is consistent with the idea that the impact of information and communication technologies is stronger in the US than Europe due to lower adjustment costs.

To what extent are the productivity spillovers of information technology related to R&D activity? Do these factors distinctly affect economic growth, or does the IT impact merely reflect the embodiment of R&D-driven technical progress? Based on country-level data, this work shows that both forms of technicallyadvanced capital (R&D and IT) matter for long-run productivity growth. We control for either the domestic specialization in digital productions or import penetration of high-tech goods. In any case, the national endowment of IT assets emerges as a robust source of spillovers. It is also shown that the R&D base of the domestic producers of IT goods is a fundamental driver of productivity for the industrialized countries. In terms of TFP gains, a low degree of industry specialization in information technology can hardly be compensated by a country’s trade openness, i.e. importing R&D-intensive (IT) goods from abroad. This contrasts to what occurs for less advanced productions.

How did the diffusion of the Internet influence research collaborations within firms? We examine the relationship between business use of basic Internet technology and the size and geographic composition of industrial research teams between 1992 and 1998. We find robust empirical evidence that basic Internet adoption is associated with increased growth of citation-weighted co-invented patents in geographically dispersed teams. On the contrary, we find no evidence of such a link between Internet adoption and within-location collaborative patents, nor do we find any evidence of a relationship between basic Internet and single-inventor patents. We interpret these results as evidence that adoption of basic Internet significantly reduced the coordination costs of research teams, but find little evidence that a drop in the costs of shared resource access significantly improved research productivity. Keywords: R&D organization, geography of innovation, internet adoption, IT investments