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Oligopolistic competition, IT use for product differentiation and the productivity paradox

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Abstract

Empirical studies suggest that the huge investment in information technologies (IT) of the past two decades has led to no significant increase in productivity; this phenomenon is known as the ‘productivity paradox’. It has been argued that the paradox might result from oligopolistic competition: because of strategic interaction, each individual firm might find it profitable to invest in cost-reducing IT, but total investment might then be excessive from the industry’s point of view. I confirm this view and strengthen it by allowing IT investment to be also devoted to product differentiation which makes the productivity paradox more likely. The emergence of Web-based electronic commerce provides an illustration of the forces identified in the model.

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... The phenomenal growth in labor productivity in the U.S. since the mid-1990's till around 2010 was a crucial factor in sustaining and restoring U.S. economic growth from economic downturns. 1 The previous dot.com collapse that began in 2000 and the following recession in 2001 could have created more severe consequences if not for the continuing strong growth in labor productivity in the nation during that time. ...
... With the fast-growing popularity and use of web-browsers and the Internet technology across industries, households, as well as individuals since the late 1990's and after, the economic effects of the Internet and its usage have gradually gained attention. Some studies in the literature investigated the microeconomic effects of the Internet on market structure, market behavior, and performance of firms [1,3,7,10]. Others related the Internet to economic growth, foreign direct investment (FDI), inflation rate, and trade. 2 In relation to labor productivity growth specifically, Blinder [2], using U.S. productivity data from 1959 to 1999, proposed that the Internet is a possible cause of labor productivity acceleration in the latter part of the 1990's. ...
... Litan and Rivlin [17] pointed out that the Internet could potentially increase productivity growth by reducing transaction costs, increasing managerial efficiency, and increasing market competition. Their 1 Calculations from the data published by the U.S. Bureau of Labor Statistics show that, starting from 1970, the 10-year average non-farm labor productivity (output per hour) growth rates are 1.79% (1971)(1972)(1973)(1974)(1975)(1976)(1977)(1978)(1979)(1980) 2 See the literature review in Najarzadeh, Rahimzadeh, and Reed [19]. results identified that the Internet contributed 0.2 to 0.4% to the growth of U.S. labor productivity. ...
Article
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This study provides evidence on the nature and extent of the effect of Internet usage or penetration on labor productivity growth, while focusing on the recent experience in OECD countries. The basic model modifies the traditional labor-augmented production function approach by integrating Internet usage as a factor that improves labor quality. Variables on output, capital, and labor are extracted from official OECD publications, and data on the penetration ratio, a proxy for Internet usage, is obtained from an online source. The result is a panel that covers 28 OECD countries, including the U.S., over the time period from 2001 through 2016. Parameter estimates for Internet usage across the models are found to be positive, albeit with low statistical support. Based on a unique historical survey data set for the U.S. that separates Internet use at home from the use at work, a descriptive analysis for the U.S. suggests that growth of Internet use at work lowers productivity growth.
... In particular, effectively obtaining customers' changeable requirements through IT can facilitate firms to develop new products continually (Armstrong et al., 1999;[45]). As such, IT in the informate industry can not only improve the internal production process to reduce costs, but also help firms differentiate their products to their competitors [48,49]. A cost leadership strategy pays attention to reduce cost and improve operational efficiencies internally while a differentiation strategy focuses on differentiating products to satisfy customers, and the two kinds of strategies do not match the function of IT in the informate industry (Li et al., 2008a;[50]). ...
... In addition, the role of IT in the transform industry can help firms continually better develop various new products/services that can evenly exceed the customers' expectations. A growing slice of expenditure in IT is devoted to product development rather than making existing production more efficient in the transform industry [49]. The purposes of cost leadership and dual strategy is not aligned with the prevalent IT in transform industry. ...
... Another example is the music and media industry, which has become more and more digitalized to differentiate products/service rather than reducing costs. Providing diversified products/service online is at the heart of firms in this industry to improve customer experience and command premium prices [49]. ...
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While researchers have increasingly recognized the importance of information technology (IT) in leveraging a firm's competitive strategy for achieving superior firm performance, our understanding of the nature of how a firm's competitive strategy aligns with its industry IT strategic role and how such alignment influences firm performance remains limited. Drawing upon strategic alignment perspective, this study aims to theorize and empirically test how the firm's competitive strategy (i.e., cost leadership, differentiation, and dual strategy) aligns with its industry IT strategic role to improve firm performance. Based on the data of Chinese publicly listed firms during 2009-2015, our results indicate that different competitive strategy aligns with different industry IT strategic roles for achieving superior performance. Specifically, cost leadership strategy aligns with automate IT strategic role, dual strategy aligns with informate IT strategic role, and differentiation strategy aligns with transform IT strategic role in generating superior firm performance. We also discuss the theoretical and practical implications of the current study.
... Lastly, studies adopting the nominal view invoke technology in name but not in fact. An example is the derivation of a two-stage game analyzing the impact of IT application on total factor productivity in the context of oligopolistic competition, which introduces IT solely via its posited impact on cost reduction and product differentiation (Belleflamme 2001). Examining conceptualizations of IT by IT business value researchers reveals that prevailing assumptions have delimited accumulated knowledge in three principal respects. ...
... Conceptual and theoretical studies apply theory and grounded observation to explicate IT business value (Mata et al. 1995; Porter 2001; Soh and Markus 1995). Analytic studies utilize game theoretic and other modeling techniques to develop models of IT business value whose solutions inform our understanding of the organizational performance implications of alternative IT investment and ownership regimes as well as the role of the competitive environment (Bakos and Nault 1997; Belleflamme 2001; Clemons and Kleindorfer 1992). Finally, empirical studies include qualitative research – case studies and field studies (Clemons and Row 1988; Cooper et al. 2000) – and quantitative studies estimating IT business value at the process, business unit, firm, industry, and country levels of analysis (Alpar and Kim 1990; Dewan and Kraemer 2000; Siegel 1997). ...
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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 in 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.
... Melville et al. complement this general definition with an indication of the level and also the type of impacts: "at both the intermediate process level and the organization-wide level, and comprising both efficiency impacts and competitive impacts" (Melville et al., 2004). While efficiency refers to internal impacts such as productivity enhancement (Tallon and Kraemer, 2003), product quality (Barua et al., 1995), profitability improvements (Melville et al., 2004) or cost reduction (Tallon and Kraemer, 2003), competitive refers to external impacts such as competitive advantage (Parsons, 1983), product differentiation (Belleflamme, 2001) or market expansion (Tallon and Kraemer, 2003). Although there is a general agreement about what an IT business value can be and the topic has been discussed for many years, "the relation between IT investments and firm performance remain elusive" (Masli et al., 2011). ...
Conference Paper
The business value of IT in companies is a highly discussed topic in information systems research. While the IT business value is an agreed upon term, its decomposition and assessment on a more detailed level is ambiguous in literature and practice. However, assessing the IT business value is pivotal for goal-oriented IT management. Therefore, we suggest a hierarchical decomposition of the IT business value along aggregated impacts and atomic impacts. We introduce a taxonomy to gain a better understanding of what types of atomic impacts may be caused by IT investments. With the help of the taxonomy, we classify a total of 957 values from existing value catalogs and derive 29 archetypal IT impacts grouped by a company’s business units. Bundling this grouping with exemplary impacts for the IT value assessment, we finally propose an IT value meta-framework for the structured business value assessment.
... Käsitteellä tuottavuusparadoksi tarkoitetaan tilannetta, jossa IT-investoinneilla ja informaatioteknologialla yleisesti ei voida empiirisesti havaita olevan selvää positiivista taloudellista vaikutusta (Barua & Lee, 1997). Belleflamme (2001) määrittelee tuottavuusparadoksin empiiristen tutkimusten avulla todetuksi ilmiöksi, jossa informaatioteknologiaan tehdyt suuret investoinnit eivät ole johtaneet merkittävään tuottavuuden kasvuun. Yleisesti ottaen käsitteellä tuottavuusparadoksi tarkoitetaan siis tilannetta, jossa yrityksen IT-resursseihin tekemät taloudelliset investoinnit eivät johda odotetun suuruisiin tuloksiin kasvattaen yrityksen tuottavuutta vain marginaalisesti. ...
... However, they produced many important factors that should be taken into account in the future, and discussed in details before evaluating IS and performance or analyzing IS impacts on the performance. This study conducted an extensive review of the literature investigating the business impact of IS using a wide variety of methodologies and different levels of analysis [9], [23], [61]. It has been found that many of the previous studies were conducted on the relevance between IS and organizational efficiency or firm performance. ...
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This study provides an overview of the theories and research on information systems and performance, and explains in details a literature review of information systems and their impacts on an organization performance. The literature review includes contributions from several academic disciplines in addition to information systems, including economics, strategy, accounting, and operations research. Thus, the main purposes of this study are first to attain an in depth understanding of the relationship between information systems and performance at both organizational and individual levels and to evaluate the significant value of information systems in order to understand the determinants their value to organizations, helping them to better manage information systems resources and enhance performance. Yes Yes
... Despite the organizational focus, mixed evidence of the business value of IT was reported. Issues came into play that impacted the value that organizations' derived (or didn't derive) from their IT spending, for example the competitive environment in which these organizations operate; alignment between business and IT strategy, and IT strategies [2,3,4,7,18,25]. Melville and Kraemar (2004) in their review of IT business value literature, define IT business value as the impact IT has on the organizational processes on an intermediate and organizational wide level as well as the efficiency and competitive impacts of IT. ...
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Interest in mobile computing applications has been increasing over the past few years. The Healthcare sector has recognized the potential for providing at "point-of-care" access to applications through mobile devices. The business value of the implementation of information technology (IT) has been studied from various perspectives. This paper explores the value of the implementation of mobile computing on the efficiency and effectiveness of an Emergency Medical Services organization in Australia. The research question that is addressed in this paper is: In what way do mobile systems deliver internal value in emergency healthcare organizations? The paper evaluates the responses by various stakeholders in an Australian Emergency Service organization. The paper makes the following three contributions. First, the case study indicates that the introduction of mobile systems can support ambulance services in providing more efficient and effective information that could potentially impact on their performance evaluation. Second. a number of advantages of the mobile system for emergency services are highlighted. Third, a delicate balance between internal data capture requirements versus external requirements of readability of the final electronic Patient Care Record is highlighted.
... As a result, many qualitative benefits are being realised, and typically include improved customer support and greater product flexibility. However, these may be impossible to assess and quantify, with many companies even possibly having to accept short-term losses, in order to reap long-term benefits (Hochstrasser, 1992; Wilner, Kock, & Klammer, 1992; Belleflamme, 2001; Kulatilaka, 1984; Lefley & Sarkis, 1997; Meredith & Suresh, 1986). Irani et al. (1999), Farbey et al. (1993, Ward, Taylor, and Bond (1996), and Maskell (1991) suggest that traditional appraisal techniques are often unable to capture many of the qualitative benefits that IT brings. ...
Article
To remain competitive and ever increasingly sophisticated in the marketplace, businesses must invest in Information Technology (IT) if they are to survive in the long-term. Advances in IT have enabled new competitors to enter existing markets more readily, which has stimulated and strengthened the paradigm of global competitiveness. At the same time, increasing economic pressures are forcing businesses to re-evaluate their IT operations. In response to the changing business environment and to remain competitive and improve organisational performance some businesses have strategically made considerable investments in IT, yet their benefits are difficult to quantify. With this in mind, this paper aims to study the justification for investment in IT projects, by examining tangible and intangible benefits such as competitive advantage and securing future business by facilitating appropriate management change. A model to determine whether or not to invest in IT for any given company is presented. The developed model is then applied to a case study to analyse the implications of implementing IT and its impact on organisations.
... This theory has been used to examine in which circumstances firms prefer to invest in product differentiating rather than in cost reducing technologies (Belleflamme, 2001). ...
Chapter
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Managing Information Technology (IT) investments continues to be a challenge for firms due to the difficulty associated with demonstrating IT ­contributions to organisational performance. Many IT contributions are not accounted for because they cannot be easily quantified. Linking IT to organisational performance is a complex problem that is informed by insights from ­multiple theoretical paradigms. The aim of this chapter is to comprehensively review work done by both academic and practitioners, and to explore why new approaches to managing IT investments are needed. To achieve this aim, we will start by defining IT assets and business value and exploring the different dimensions used to measure the business value of IT. Then, we will look at the early research on IT business value and the emergence of the Productivity Paradox. After that, we will delve into the three current theoretical paradigms: economics, management and sociology. The theoretical lenses and models used in these paradigms will also be discussed. Finally, future research directions are suggested. KeywordsBusiness value-Information technology-IT business value-Performance
... It is important to stress at the outset that our approach is a bit different from the current literature on software piracy. To put our analysis into context, we follow the very recent comprehensive and influential survey of digital piracy by Belleflamme and Peitz, 2010 (see also Peitz and Waelbroeck, 2006). According to this, our approach belongs to the i) end-user piracy models that ii) includes the competitive effects meaning that there are two producers of substitutable and piratable digital products that directly compete with each other (see Belleflamme and Peitz, 2011, p. 20). ...
Article
We study the economic impacts of the interaction between a regulator's Intellectual Property Rights (IPR) protection policy against software piracy on the one side and the forms of IPR protection that software producers may themselves undertake to protect their intellectual property on the other side. Two developers, each offering a variety of different quality, compete for heterogeneous users who choose among purchasing a legal version, using an illegal copy, and not using a product at all. Using an illegal version violates IPR and is thus punishable when disclosed. If a developer considers the level of piracy as high, he can either introduce a form of physical protection for his product or introduce a protection in the form of restricting support and other services to illegal users. The quality of each developer's product is exogenously given, and the developers compete in prices. We examine the above issues within the framework of Bertrand and Stackelberg competition while the monopoly set-up serves as a point of reference.
... IS is regarded as a tool that can enhance business performance and to make this as efficient as possible, an IS manager is needed, whose primary task it to coordinate all the organisations IS activities. This can be reinforced as argued by Ward and Peppard (2002) by devoting a department solely to IS. Organisations that become increasingly efficient are usually associated with larger turnovers per employees, so organisations of different size can be compared (Belleflamme, 2001). By determining whether SMEs in Egypt recognise the importance of ISSP and whether they continually seek to improve will provide relevant information to analyse this hypothesis. ...
Article
This paper provides an investigation into the information system (IS) strategy of SMEs in Egypt using questionnaires and case studies to explore if a trans-national global IS can be applied to SMEs in Egypt. Generally, most Egyptian SMEs lack the structure needed to successfully plan an ISS. However, it was evidenced that top management involvement is present at the decisionmaking stages and throughout implementation and IS planning is undertaken in some way by Egyptian SMEs. The case studies revealed that SMEs operating with a structured hierarchy proved to be far more advanced with regard to information system strategy planning (ISSP). The results of the OLS regression analysis indicated that the higher the involvement of top management in IS decision-making in Egyptian SMEs the more advanced the organisation regarding ISS; organisations that have an IS department and a specific IS budget are more successful in planning and implementing IS strategy; there is a lack of expertise to adequately implement ISS in new companies and in companies from the public sector and finally, the greater the IS budget the greater the outsourcing activities of a firm. A theory of trans-national global IS can therefore be applied to Egyptian SMEs with some modifications due to differing cultures.
... Obviously, one could consider more stages, but the two-stages synthesis has gained wide acceptance. 2 Obviously, many other contributions allow for a dichotomous choice between various commitment strategies, see for exampleBelleflamme (2001) and establish the conditions under which one tool dominates the other. However these tools cannot be combined. ...
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We consider a stage-game where the entrant may simultaneously commit to its product's quality and the level of its production capacity before price competition takes place. We show that capacity limitation is more effective than quality reduction as a way to induce entry accomodation: the entrant tends to rely exclusively on capacity limitation in a subgame perfect equilibrium. This is so because capacity limitation drastically changes the nature of price competition by introducing local strategic substitutability whereas quality differentiation only alters the intensity of price competition.
... In the field of microeconomics, the theory of production (Brynjolfsson, 1993;Brynjolfsson & Hitt, 1995;Lichtenberg, 1995;Brynjolfsson & Yang, 1996;Dewan & Min, 1997;Dedrick et al, 2003), growth accounting (Jorgenson & Stiroh, 1999;Brynjolfsson & Hitt, 2003), consumer theory (Brynjolfsson, 1996;Hitt & Brynjolfsson, 1996) and option pricing theory (Benaroch & Kauffman, 1999) have been employed. Industrial organisation theory has been adopted by researchers who have applied game theory (Belleflamme, 2001), agency theory and contract theory (Clemons & Kleindorfer, 1992;Bakos & Nault, 1997), and transaction cost theory (Clemons & Row, 1991;Gurbaxani & Whang, 1991). Researchers have used socio-political paradigms by applying the theory of embeddedness (Chatfield & Yetton, 2000). ...
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The business value of investments in Information Systems (IS) has been, and is predicted to remain, one of the major research topics for IS researchers. While the vast majority of research papers on IS business value find empirical evidence in favour of both the operational and strategic relevance of IS, the fundamental question of the causal relationship between IS investments and business value remains partly unexplained. Three research tasks are essential requisites on the path towards addressing this epistemological question: the synthesis of existing knowledge, the identification of a lack of knowledge and the proposition of paths for closing the knowledge gaps. This paper considers each of these tasks. Research findings include that correlations between IS investments and productivity vary widely among companies and that the mismeasurement of IS investment impact may be rooted in delayed effects. Key limitations of current research are based on the ambiguity and fuzziness of IS business value, the neglected disaggregation of IS investments, and the unexplained process of creating internal and competitive value. Addressing the limitations we suggest research paths, such as the identification of synergy opportunities of IS assets, and the explanation of relationships between IS innovation and change in IS capabilities.
... Despite the organizational focus, mixed evidence of the business value of IT was reported. Issues came into play that impacted the value that organizations' derived (or didn't derive) from their IT spending, for example the competitive environment in which these organizations operate; alignment between business and IT strategy, and IT strategies (Barua et al., 1991;Barua & Lee, 1997;Belleflamme, 2001;Brown, Gatian, & Hicks, 1995;Hitt & Brynjolfsson, 1996;Melville & Kraemer, 2004). ...
Article
Interest in mobile computing applications has been increasing over the past few years. The Healthcare sector has begun recognizing the potential for providing at "point-of-care" access to applications through mobile devices. This paper explores the impact of mobile computing in the evaluation of the performance of an Emergency Medical Services organization in Australia. The paper concludes that the use of a mobile system enables an emergency service organization to speed up data capture and more efficiently provide data that can be used to the advantage of paramedics and the organization. It also has the potential to enable the organization to more effectively manage various aspects of the organization.
... out the rational explanations for these mixed empirical findings. Belleflamme (2001) pointed out that the productivity paradox might result from oligopolistic competition and product differentiation, but not from pursuing efficiency. Thatcher and Oliver (2001) suggested that these mixed empirical findings might result from incorrect methodology, data error, but not reflect the real IT contribution, especially from the ability of IT to improve product quality as indicated by Brynjolfsson and Hitt (1996), Barua and Lee (1997), and Lehr and Lichtenberg (1998). ...
Article
Full-text available
This paper explores the issue of whether information technology (IT) investment brings about the Solow productivity paradox. In order to take the improvement of product quality caused by IT investment into account, a proper hedonic price index is used to deflate the IT variable. Besides the general specification of Cobb-Douglas production function, this paper considers the impact of augment labor productivity through IT by applying a semi-parametric smooth coefficient model. We employ the manufacturing firm-level data of Taiwan in 1991, and empirical results show that IT investment provides a significant contribution to productivity. Besides, the "share" of IT in production is not constant and the IT has non-neutral impact on the productivity of labor. We also find that when IT reaches a certain threshold, it starts to have a spillover impact on the productivity of labor. In fact, the spillover impact "takes over" the direct impact of IT on output. That is, the direct impact of IT on output is decreasing when spillover impact on the productivity of labor is increasing.
... Tackling from another point of view, organization theory has been used to examine how firms interact in IT investment decisions and how the resulting benefits are divided [23]. It uses various methods and models such as game theory [56], agency theory and incomplete contracts [57], [58], and transaction cost theory [29]. ...
... In the field of microeconomics, the theory of production (Brynjolfsson, 1993;Brynjolfsson & Hitt, 1995;Lichtenberg, 1995;Brynjolfsson & Yang, 1996;Dewan & Min, 1997;Dedrick et al, 2003), growth accounting (Jorgenson & Stiroh, 1999;Brynjolfsson & Hitt, 2003), consumer theory (Brynjolfsson, 1996;Hitt & Brynjolfsson, 1996) and option pricing theory (Benaroch & Kauffman, 1999) have been employed. Industrial organisation theory has been adopted by researchers who have applied game theory (Belleflamme, 2001), agency theory and contract theory (Clemons & Kleindorfer, 1992;Bakos & Nault, 1997), and transaction cost theory (Clemons & Row, 1991;Gurbaxani & Whang, 1991). Researchers have used socio-political paradigms by applying the theory of embeddedness (Chatfield & Yetton, 2000). ...
Article
[Comment of the author: This article was re-published in the 25th Anniversary Issue of the European Journal of Information Systems. The original publication can be found here: Schryen, G. (2013). Revisiting IS business value research: what we already know, what we still need to know, and how we can get there. European Journal of Information Systems, 22(2), 139-169.] The business value of investments in Information Systems (IS) has been, and is predicted to remain, one of the major research topics for IS researchers. While the vast majority of research papers on IS business value find empirical evidence in favour of both the operational and strategic relevance of IS, the fundamental question of the causal relationship between IS investments and business value remains partly unexplained. Three research tasks are essential requisites on the path towards addressing this epistemological question: the synthesis of existing knowledge, the identification of a lack of knowledge and the proposition of paths for closing the knowledge gaps. This paper considers each of these tasks. Research findings include that correlations between IS investments and productivity vary widely among companies and that the mismeasurement of IS investment impact may be rooted in delayed effects. Key limitations of current research are based on the ambiguity and fuzziness of IS business value, the neglected disaggregation of IS investments, and the unexplained process of creating internal and competitive value. Addressing the limitations we suggest research paths, such as the identification of synergy opportunities of IS assets, and the explanation of relationships between IS innovation and change in IS capabilities.
... There is a widespread recognition in the literature on the role of IT as a means for cost-cutting in business (Kauffman & Kriebel 1988;Mukhopadhyay et al., 1995;Hitt & Brynjolfsson, 1996;Mahadevan, 2000;Belleflamme, 2001;Devaraj & Kohli 2003) however, very little literature available on cost-cutting in IT itself and most of them are from IT outsourcing literature. Cost-cutting it, IT has been rarely on the focus of researchers and need more attention. ...
Article
Full-text available
The increasing dependency of many businesses with information technology (IT) and the high percentage of the IT investment in all invested capital in business environment ask for more attention to this important driver of business. The limitation of capital budget forces the managers to look for more wise investment in IT. There are many cost-cutting techniques in the literature and each of them has a different impact on the organization. This study is one of the first steps in providing more insight on this issue via proposing a conceptual framework for strategic cost-cutting in IT. The literature review revealed that the strategic role of IT in organizations, IT costs structure, firm's IT structure, senior management support and organizational learning are the important factors that affect the cost-cutting technique selection in IT. The proposed framework focuses on the strategic role of IT in business to suggest which cost-cutting techniques are the best to be applied in an organization in order to save costs while ensuring high-quality service and support for business growth and maximizing business value from IT spending.
... al. (2001) pointed out that there is a growing desire and appreciation in managers now to consider the wider strategic implications of an IT infrastructure, and making investments to help revamp their business processes. Because of this, many qualitative benefits are being appreciated, and usually include improved customer support and greater product flexibility, of which most of them may be difficult to evaluate and quantify, and which usually forces entities to even probably having to accept short-term losses, in order to reap long-term benefits ( Hochstrasser, 1992;Wilner, Kock, & Klammer, 1992;Belleflamme, 2001;Kulatilaka, 1984;Lefley & Sarkis, 1997;Meredith & Suresh, 1986), Farbey et al. (1993, Ward, Taylor, and Bond (1996), and Maskell (1991) therefore suggests that traditional quantitative techniques are unable to bring out the qualitative benefits of IT investments. The question then is how to differentiate between corporate investments whose benefits are largely measurable or quantifiable with strategic IT investments which delivers a wide range of intangibles. ...
Article
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The productivity and profitability paradox in IT investments literature have made the work of IT managers very difficult in justifying for IT investments. Another difficult issue to grapple with by IT managers is how to measure or evaluate intangible benefits. These problems have led to the proposition of many IT evaluation frameworks/models and methods by researchers. This works aims to review a number of these frameworks/models and methods to see the way forward in this business of IT investments justification. About 40 categories/sets of research outputs or articles out of more than 50 articles reviewed were used for this work. The results showed that tangible benefits are not enough to justify for IT investments as they mostly point to corporate benefits which are short term, and that the justification of intangible benefits which are more strategic, must be included to make the justification process complete no matter how difficult it is. Again, no evaluation framework/model with its associated methods of evaluation is a panacea to the evaluation problem; evaluation depends on so many factors, and so is contextual. Also, the firm must factor into the evaluation process its corporate and strategic objectives. Lastly, in most cases, IT evaluation is seen as a must do, and therefore does not require that justification is done.
... This may be caused by measurement errors (for instance caused by different accounting principles or different accounting options taken by firms) or by the fact that the payoffs of IT might take some time until they are fully realized. Finally, and most importantly, possible comparative advantages through IT-investments made by one company may be canceled out by other investments [10]. ...
Conference Paper
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Enterprise Systems play a key role in securities trading. Exchange operators spend great effort in overhauling their IT-infrastructure to satisfy the needs of market participants who require faster and more resilient order management cycles. Previous studies have disregarded the question whether such specific IT-investments lead to competitive advantages. Against this background, we empirically analyze the impact of exchange system upgrades on the market share of the respective exchange. Using a benchmarking approach against the closest competitor, we find that exchange system overhauls significantly increase the attracted trading volume. We conclude that investments in enterprise systems provide benefits and lead to competitive advantages for the upgrading firm.
... Two-stage models of R&D competition are familiar in both the trade and the industrial organization literature. On the trade side the pioneering work is Spencer and Brander (1983); the industrial organization side includes Brander and Spencer (1983), Leahy and Neary (1997), Belleflamme (2001), and the huge literature on R&D spillovers initiated by d' Aspremont and Jacquemin (1988). ...
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The Internet and e-mail have become common in today's working environment. Although such technology arguably has made employees more efficient and has improved communication, it also has surfaced new areas of concerns. Many employers have started monitoring their workers' abuse of the Internet. In fact, many companies are implementing monitoring software solutions that can record every digital move made by a worker. The monitoring of employees for their Internet abuse has resulted in lawsuits between employers and employees. Obviously, this has created a tension between employers and employees. How does Internet make any impact on workers' productivity? Has it made any difference in employers' and employees' relationship at the workplace? What could be done to reduce Internet abuse and improve workers' productivity? These are the kinds of questions that are addressed in this paper.
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This paper considers a theoretical model of n asymmetric firms that reduce their initial unit costs by spending on R&D activities. In accordance with the Schumpeterian hypotheses, more efficient (bigger) firms spend more on R&D and this leads to a more concentrated market structure. This calls for an industrial policy. A double channel of intervention with measures directed towards production together with others towards innovation is considered. We show that a corrective tax to curtail strategic incentives to over-invest in R&D, together with a production subsidy, reduce market concentration. When the policy is firm specific, the government taxes the more efficient firms less, basically because the policy could be used as an instrument to divert production to the more efficient firms.
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During the last three decades, much study has been conducted on the impact of Information Technology (IT) on productivity at various levels. With a careful scan of the published work at corporate level productivity, we shows that, researchers have developed 3 different approaches in assessing the correlation between IT implementation and productivity measures. Broadly speaking, the first two approaches focus on the effects of IT investment on direct and intermediary, financial and non-financial, measures of productivity. None of these two approaches could positively prove either a direct correlation or lack of such a relation. The third approach, `complementary` approach, considers the IT implementation but emphasizes the role of complementary investments that enhance and complement the IT implementation. In this article, an effort has been made to provide satisfactory evidences to show that IT implementation, when rationally backed up by suitable complementary investment, will lead to a considerable increase in productivity at corporate level.
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Information security technologists and business scholars are motivated by a desire to understand how and to what extent the application of IT within enterprise systems leads to improved and secured organizational performance. An effective relationship between business and IT professionals is a primary determinant of success in gaining business advantage through the enterprise system. As business innovation has relied increasingly on partnerships between business and IT professional, a different perspective of how IT professionals view their organizational contributions was needed for organizations to remain competitive. Business knowledge is essential if IT professionals are to create linkages with other organizational units and have a wider perspective about business objectives, thus achieving fit between IT and organizational strategies. Organizations have started responding to this challenge by demanding more business acumen in their IT staff. The focus of this study is on the knowledge that is beyond that of independent business and IT only domain knowledge of information security. Therefore, technical areas of knowledge, such as hardware and software, all of which are closely associated with IT skills, are not discussed in this thesis. This is not to declare that such knowledge is not important. Clearly technical knowledge is part of the IT professional's overall information security technology expertise, but this study is about the organization proficiency of business and the IT professional, and is therefore interested in what enables business and IT professionals to apply their business domain and technical knowledge in ways that are beneficial to the organization and to act cooperatively with their customers and business partners. The purpose of this study is to employ the triangulation method to identify the theoretical links and empirically examine the association between business and IT perspective of information security. An important contribution of this study is the identification of business and IT perspectives on information security technology. By establishing the link between business and IT, the study focuses and evaluates Virtual Private Network (VPN) as an information security technology to find out if VPN can secure and gain competitive advantage by partisan business process and organization performance. This study articulates distinctive characteristics of Virtual Private Network and management processes that extend the range of applicability across diverse business segments. It distinguishes between business and IT and explains why the exploitation of a complementary set of related information security entities (such as VPN) across multiple functions create competitive vi advantages even across a diverse set of businesses that have limited opportunity to exploit business process and organization performance. The most important direct predictor of this study is a high level of communication between business and IT. However, one cannot mandate meaningful communication between individuals. IT people have to earn the right to play a meaningful role in management forums. Based on the findings from this study, one important way for an IT person to be heard is for him/her to devote the time necessary to create competitive advantage and develop shared domain knowledge, the most influential construct in the research model. An IT person needs to understand the leverage points of the industry, the history and current issues of the business units, and to learn to apply business oriented objectives in the application of technology to business problems. This change in view would help focus their attention on security technology and ideas that could produce the most benefit and create competitive advantage, rather than those that offer the most technical promise.
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I.V.I.E (Instituto Valenciano de Investigaciones Económicas); Ministerio de Ciencia y Tecnología (BEC2001-0535); European Commission (RTN programme); Center for Financial Studies (Frankfurt); Universidad de Alicante
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Chapter
Egypt’s diversified economy has historically performed below its potential; however the Egyptian government is recognizing the importance of small to medium enterprises (SMEs). SMEs face many constraints including weak supply of skilled labor, limited access to capital and poor access to IT. This chapter provides an investigation into the Information System (IS) strategy of SMEs in Egypt using questionnaires and case studies to explore whether SMEs in Egypt follow a comprehensive IS strategy or whether IS is not viewed as an important factor in organisational success. It was evidenced that most Egyptian SMEs lack the structure needed to successfully plan an IS strategy. However it was discovered from three case studies that organisations operating with a structured hierarchy proved to be far more advanced with regard to IS strategy planning. In addition, communication between levels was more efficient; therefore alignment of IS strategy with business strategy was inevitable. It was also evidenced that top management involvement is present at the decision making stages and through implementation, and IS planning is undertaken in some way by Egyptian SMEs. However they face many problems with lack of resources and lack of expertise. This is mainly due to management not understanding the need to recruit experienced individuals.
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Do firms have proper incentives to invest in transport cost reduction? We discuss this question in a duopoly with a local firm and a distant competitor that may invest in a reduction of marginal transportation costs. In a two-stage game with investment in the first and duopoly competition in the second stage, we compare profit-maximizing investment with (constrained) welfare maximization by a social planer. Intuitively, a firm will overinvest if the negative impact on its competitor exceeds the gain in consumer surplus. We analyze how the relative strength of these two effects depends on market demand, firm conduct and investment costs. Applying our results to electronic commerce, we argue that for physical goods either overinvestment or the efficient decision not to invest is the most likely outcome while the specific characteristics of digital products yield either underinvestment or an efficient investment level that reduces transportation costs to zero.
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Payoffs from information technology (IT) continue to generate interest and debate both among academicians and practitioners. The extant literature cites inadequate sample size, lack of process orientation, and analysis methods among the reasons some studies have shown mixed results in establishing a relationship between IT investment and firm performance.In this paper we examine the structural variables that affect IT payoff through a meta analysis of 66 firm-level empirical studies between 1990 and 2000. Employing logistic regression and discriminant analyses, we present statistical evidence of the characteristics that discriminate between IT payoff studies that observed a positive effect and those that did not. In addition, we conduct ordinary least squares (OLS) regression on a continuous measure of IT payoff to examine the influence of structural variables on the result of IT payoff studies.The results indicate that the sample size, data source (firm-level or secondary), and industry in which the study is conducted influence the likelihood of the study finding greater improvements on firm performance. The choice of the dependent variable(s) also appears to influence the outcome (although we did not find support for process-oriented measurement), the type of statistical analysis conducted, and whether the study adopted a cross-sectional or longitudinal design. Finally, we present implications of the findings and recommendations for future research.
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Informations- und Kommunikationstechnologien (IKT) sind der Antrieb des modernen Innovationsprozesses. Für besseres Verständnis dieser Dynamik, analysiert diese Dissertation die Wechselwirkungen zwischen Innovation und Wettbewerb. Die Arbeit umfasst zwei Teile: Erstens wird die Frage behandelt, wie die Märkte organisiert werden können, um das optimale Marktergebnis zu erreichen. Zweitens werden die Rückwirkungen der innovativen Tätigkeit auf Wettbewerb und auf Organisation der wirtschaftlichen Tätigkeit analysiert. Betrachtet man den Einfluss von Wettbewerb auf Innovation, zeigt eine empirische Analyse, dass IKT-getriebene Innovationen in konzentrierten Industrien vorherrschen. Im Gegensatz dazu gedeihen Innovationen, die auf anderen Technologien basieren, in eher vollkommenen Märkten. Der Vergleich suggeriert, dass die IKT-getriebene Innovationen andere Charakteristika aufweisen als Innovationen, die auf anderen Technologien basieren. Betrachtet man die Rückwirkung von Innovation auf Wettbewerb, sind zwei Ergebnisse wert genannt zu werden. Erstens, obwohl profitabel von der Perspektive einzelner Unternehmen aus, sinkt der Industrieprofit, wenn eine produktvielfalt-steigernde Technologie durch alle Firmen übernommen wird. Des Weiteren sind die Entscheidungen der Unternehmen in Bezug auf die Technologieadoption nicht immer optimal aus Sicht der sozialen Wohlstandsmaximierung. Zweitens in Bezug auf Organisation der wirtschaftlichen Tätigkeit wird gezeigt, dass IKT sowohl zu mehr Wettbewerb als auch zu der Entstehung von hybriden Organisationsformen führen kann, was von den jeweiligen Charakteristika der Unternehmen abhängt. Obwohl diese Dissertation nur ein kleines Stück der Komplexität analysiert, wirft sie ein neues Licht auf die Zusammenhänge von Marktesstruktur und Innovation und ihre gegenseitigen Rückwirkungen. Interessanterweise sind die Ergebnisse weit entfernt von gewohnten Sichtweisen und in vielen Fällen entgegen der intuitiven Ausgangserwartung.
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The authors seek to expand the scope of theoretical approaches and organizational factors that are used in concert to examine the effect of organizational factors on IT business value in the present study. They explore the relationships among IT infrastructure capability, a set of five organizational factors, and IT business value using three dominant approaches in organizational research: the universalistic, contingency, and configurational approaches. The ensuing predictions are empirically tested through interviews with senior executives in 57 organizations.
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Contrary to theoretical arguments that suggest a positive association between investment in IT and improved financial performance, some empirical evidences suggested that no statistical association between IT spending and financial performance. This phenomenon is known as the "IT productivity paradox" Dos Santos et al. [21] argued that non-innovative technologies are not likely to improve a firm's market value or financial performance. Automatic teller machines (ATMs) are one of the well-known and non-innovative representatives of IT investment. By examining the relationship between ATMs investment and financial measures, we find that ATMs investments improve financial performance and lower cost rates, but no consistent conclusion on the measures of growth. Contrary to Dos Santos et al. [21] which argued that non-innovative technologies are not likely to improve a firm's market value or financial performance. The empirical results show that the phenomenon of "IT productivity paradox" does not come out in this case. The non-innovative technologies do not always result in productivity paradox.
Conference Paper
The importance of strategic information systems (SIS) in the financial industry is documented in many studies. But still there is a virulent lack of frameworks to explain the profit impact of IT in general and to guide firms in exploiting the IT resource as a source of competitive advantage. By incorporating findings from the resource based view (RBV) and strategic alignment literature we elaborate key concepts potentially leading to a sustained competitive advantage (SCA). Supported by four case studies from the financial services industry, our findings suggest that the exploitation of SIS for achieving SCA requires IT business alignment based on organizational routines of cross-departmental interaction. These concepts are explicitly modeled and integrated into a formal model using microeconomic theory. Especially interactions between the IT and business domain are found to be a key success driver.
Conference Paper
This research proposes and empirically tests a model of post adoption process improvements realized through use of partners’ Internet-based e-business applications. We identify constructs proposed within adoption and post-adoption use theoretical models as well as presented in existing inter-organizational systems research. Our analysis reveals purely organization-based factors; namely, information systems/technology infrastructure and propensity for like innovations; shape perceptions of process improvement, while technology, or innovation, based and external factors, i.e., ease of use and facilitating conditions respectively, serve as moderators of the relationships between predictors and process improvement.
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Information Communication Technology is key to creating a paradigm shift in Bangladesh. Bangladesh, despite a diversified economy, however, is performing below its potential. The fact that the Bangladesh Government now recognizes the importance of small to medium enterprises (SMEs) for greater economic growth is a positive development. SMEs encounter many challenges, including a shortage of skilled labor, limited access to capital, and poor access to IT. We report our investigation into the Information Communication Technology (ICT) strategy of SMEs in Bangladesh based on the administration of questionnaires and case studies to determine whether ICT strategy is used in SMEs in Bangladesh, as well as the current scenario of SMEs in Bangladesh, the impact of ICT in SME in Bangladesh, and measures of SME growth in Bangladesh. The findings indicated that most Bangladeshi SMEs do not have the structure required to effectively formulate an ICT strategy. Three case studies, however, revealed that organizations operating with a structured hierarchy exhibited far more advanced ICT strategy planning. In addition, the efficiency of communication between levels depended on the alignment of ICT strategy with business strategy. Further, in these organizations, top management influences both decision-making and implementation, and ICT planning is incorporated in some way by Bangladesh SMEs.
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The present study draws on the information technology (IT), marketing, purchasing, and organization literatures to develop an integrated model of the antecedents and outcomes of IT investments in the context of organizational purchasing. We examine the role that IT investments play in enacting collaborative communications strategies, fostering improvements in interfirm relationships, and enhancing purchasing performance. Together, these factors comprise elements of our conceptual model that depicts the motivations for investing in IT and the underlying process by which IT influences purchasing performance. Our model draws on and extends the marketing communications literature to integrate two complementary views of how IT may influence performance. The first reflects the prevailing perspective from the IT literature, which views this technology as the locomotive that drives performance and productivity. The second, emerging view suggests that this technology can also be used to foster improved interfirm relationships. We present the results of an empirical analysis that tested our conceptual framework and found that IT indirectly effects performance, i.e., its effect is fully mediated by relationship quality.
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Electronic coordination links markets that have initially been separated by transport costs, which in turn raises competitive pressure and affects incentives to differentiate products. We analyze private and social incentives to invest in a repositioning of products in a heterogeneous goods duopoly with two spatially separated markets. We consider both price and quantity competition to be able to distinguish between digital and physical products, respectively. For low transport costs, firms want to enhance product differentiation as expected. However, if transport costs remain close to prohibitive levels, they have an incentive to reduce heterogeneity. KeywordsElectronic commerce–Trade with imperfect competition–Strategic investments
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Purpose The purpose of this paper is to seek effective measurement methods that reflect the real value of process capital. Design/methodology/approach From a system model perspective, the authors refined the existing knowledge of process measurement by distinguishing three kinds of indicator for the value of process capital: input, output, and the capability to manage process capital. The design of this study, therefore, incorporates a longitudinal analysis of the content of process capital and traces its evolution by attaching a monetary value to activities and assets. Findings The tested results reveal that the input measure is a less effective measure for process capital, while the output measure is a valid one for measuring operational and managerial performance of process capital. The capability to manage process capital can predict all dimensions of process capital in both the short‐ and long‐term periods. Practical implications A practical view of process capital enhances the current understanding of process capital by highlighting the sustainability of process value and the validity of measuring output and management capability of the process capital. Second, the study results also explain the productivity paradox because of the complexity of the hidden cost of process input and the distinctive capability of organizations in managing technology and complementary resources. Finally, the system view of process capital, from input through process to output of the process capital, with operationalized measures, provides a useful reference for examining intellectual capital. Originality/value The findings offer a more robust definition of process capital as a firm's established capability to exploit the knowledge of business processes and organize resources in designing and managing business activities for sustained value.
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Given multiple R&D programs with different degrees of risk but an identical expected outcome, this paper demonstrates that for risk-neutral firms the lowest-risk R&D program is dominant when the market profit is concave in R&D variable whereas the highest-risk R&D program is dominant when this profit is convex.
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This paper employs the manufacturing sampling survey data from the industry, commerce, and service census of Taiwan in 1991 to explore the issue of whether IT investment brings about the productivity paradox. In order to take the improvement of product quality caused by IT investment into account, a proper computer price index is used to deflate the IT variable. This paper applies the Translog production function to construct an empirical framework. We use the Translog production function to jointly estimate marginal product, output, and substitution elasticities. Empirical results show that IT investment provides a significant contribution to productivity as indicated in the study of both full sample and subsamples, suggesting that there is no productivity paradox. We also find that IT capital is a net substitute for non-IT capital, implying that when IT prices change, the flow of the input to substitute for the others will occur.
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The relationship between the use of information technology (IT) and firm performance has been widely researched over recent years. However, there has been no well-founded empirical research on the role of intervening variables on such a relationship. The current paper aims to present an instrument to be used in such research and to study the role of two intervening variables including organizational infrastructures and business processes reengineering in such a relationship. Data from 200 car part manufacturers were gathered in a field survey. The empirical work indicated that constructed measures demonstrate the key psychometric properties including reliability and validity. The findings also demonstrate moderating effects of organizational infrastructures and mediating role of business processes reengineering on the relationship between the use of information technology and firm performance.
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The market development of cryptocurrencies illustrates an institutional change how payments can be released and received without the need of any intermediary or trusted central party to clear virtual transactions. As academia focuses mostly on Bitcoin, the increased money demand within cryptocurrencies, its linkages, the wide range of possible channels to release and receive executed payments (payment patterns) and the wide range of different underlying motivations why cryptocurrencies are demanded to release payments (payment behavior) is still uncovered. One might assume that payment patterns and payment behavior converges in the future as soon as the experimenting phase would have cooled down. However we observe that Bitcoin shows a strong, Litecoin a weak and Namecoin no weekday seasonality. By analyzing observed number of payments directly (between these cryptocurrencies) and indirectly (via the Bitcoin exchange-rate) we find no relationship. We conclude on these findings that payment patterns and payment behaviors on the basis of cryptocurrencies Bitcoin, Litecoin and Namecoin continue to diverge.
Purpose The purpose of this paper is to measure the business value of IT (BVIT) and illustrate the relationship between IT practices and BVIT. Design/methodology/approach The paper uses a case study approach to collect the subject firm data over a period of one year. The data are about various IT systems used in the firm and their associated capital and operational cost components. The derived data are then compared with industry benchmarks. Findings The IT practices employed by the firm enable it to achieve a BVIT which is higher than the industry norm, from both strategic and operational perspectives. Research limitations/implications In this study, a year’s worth of data from a single firm is considered. The temporal frame of the research data limits the generalization of the results. To improve the generalizability, data from many years and across many firms may be used. Practical implications The paper provides insights to managers to identify the measures of BVIT. Further, managers can make necessary interventions based on IT practices to derive IT capabilities which, in turn, impact the firm’s performance. Originality/value The contribution of the work is manifold: illustration of the relationship between IT practices and BVIT; illustration of a methodology to evaluate firm-level BVIT; and an approach to collect IT expenses – both capital and operational level.
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The "productivity paradox" of information systems (IS) is that, despite enormous improvements in the underlying technology, the benefits of IS spending have not been found in aggregate output statistics. One explanation is that IS spending may lead to increases in product quality or variety which tend to be overlooked in the aggregate statistics, even if they increase output at the firm-level. Furthermore, the restructuring and cost-cutting that are often necessary to realize the potential benefits of IS have only recently been undertaken in many firms. Our study uses new firm-level data on several components of IS spending for 1987--1991. The dataset includes 367 large firms which generated approximately 1.8 trillion dollars in output in 1991. We supplemented the IS data with data on other inputs, output, and price deflators from other sources. As a result, we could assess several econometric models of the contribution of IS to firm-level productivity. Our results indicate that IS spending has made a substantial and statistically significant contribution to firm output. We find that the gross marginal product (MP) for computer capital averaged 81% for the firms in our sample. We find that the MP for computer capital is at least as large as the marginal product of other types of capital investment and that, dollar for dollar, IS labor spending generates at least as much output as spending on non-IS labor and expenses. Because the models we applied were similar to those that have been previously used to assess the contribution of IS and other factors of production, we attribute the different results to the fact that our data set is more current and larger than others explored. We conclude that the productivity paradox disappeared by 1991, at least in our sample of firms.
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In the article, its authors say that Web platform has transformed itself in past few years from a mere marketing presence to a platform that can support all facets of organizational work. As a result, important information systems efforts are geared increasingly toward exploiting the benefits of this platform, leading to the development of information systems based on Web technology, which people call as Web-based information systems (WISs). There is a clear difference between a set of Web pages and a WIS. The latter supports work, and is usually tightly integrated with other non WISs such as databases and transaction processing systems. Electronic commerce is one of the most visible business uses of the Web. WISs are systems that organizations and their clients use to conduct electronic commerce. WISs can integrate processes or systems within a single interface, and allow access over a local intranet or global Internet network. An overview of special section of the journal "Communications of the ACM," on the topic of WIS is also presented.
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Exxon Mobil and ConocoPhillips stock price has been predicted using the difference between core and headline CPI in the United States. Linear trends in the CPI difference allow accurate prediction of the prices at a five to ten-year horizon.
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The rapid growth of wide area networks in recent years has opened up a new avenue for companies to market products and services and disseminate information about them to potential customers. Two hundred and twelve companies that conduct business in such a way on an electronic shopping mall responded to an e-mail survey about the anticipated benefits that prompted them to do so. The survey also asked about three potential strategies that they may have been following for achieving business objectives: cost leadership, focus, and differentiation. Six benefits factors emerged from this study: information, cost savings, competitiveness, productivity, planning and control, and new applications. Competitiveness was the most important benefit, and it predicted a differentiation and focus strategy. Productivity and new applications also predicted a differentiation strategy. Cost savings predicted a cost leadership strategy. However, organizations followed differentiation and focus strategies significantly more than cost leadership. This assessment thus sheds light on the link between information strategy and electronic commerce.
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The purpose of this paper is to describe the impact of investment in computers on the growth of the U.S. economy. The economic literature on computers is relatively rich in information on the decline in computer prices and the growth of computer investment. Constant quality price indices for computers have been included in the U.S. National Income and Product Accounts (NIPA) since 1986. These indices employ state of the art methodology to capture the rapid evolution of computer technology. While the annual inflation rate for overall investment has been 3.66 percent for the period 1958 to 1992, computer prices have declined by 19.13 percent per year! Similarly, overall investment grew at 3.82 percent, while investment in computers increased at an astounding 44.34 percent! These familiar facts describe growth in the output of computers. The objective of this paper is to complete the picture by analyzing the growth of computer services as inputs. In a pioneering paper Bresnahan (1986) has focused on pecuniary externalities arising from the rapid decline in computer prices. Griliches (1992, 1994) has emphasized the distinction between pecuniary and nonpecuniary externalities in the impact of computer investment on growth. This paper is limited to pecuniary externalities or the impact of reductions in computer prices on the substitution of computer services for other inputs. As Griliches (1992) points out, this is an essential first step in identifying nonpecuniary externalities or ‘spill-overs’ through the impact of a decline in computer prices on productivity growth.In two important papers Stephen D. Oliner (1993, 1994) has introduced a model of computer technology that greatly facilitates the measurement of computer services as inputs. In this paper we estimate computer stocks and flows of computer services for all forms of computer investment included in NIPA. We construct estimates of computer services parallel to NIPA data on computer investment by combining these data with information on computer inventories. For example, the International Data Corporation (IDC) Census of Computer Processors includes an annual inventory of processors in the U.S. In Section 1 we present data on investment in computers and constant quality price indices from NIPA. These data incorporate important innovations in modeling computer technology stemming from a joint study by IBM and the Bureau of Economic Analysis (BEA) completed in 1985. This study utilized a ‘hedonic’ methodology for constructing an econometric model of computer prices that accurately reflects rapid changes in computer technology. This methodology generates an index of computer prices that holds the quality of computers constant. In Section 2 we present the model of computer services originated by Oliner (1993,1994). This differs in important respects from the model of capital services used in the previous studies of U.S. economic growth surveyed by Jorgenson (1989,1990). The model employed in previous studies is based on the decline in productive capacity with the chronological age of a capital good. Oliner assumes that computers maintain their productive capacity until they are retired. Decline in productive capacity occurs only through removal of used computers from the inventory through retirement. In Section 3 we construct estimates of stocks of computers that incorporate IDC data on computer inventories and derive the implied flow of computer services. While output of computer investments has grown very rapidly, the input of computer services has grown even faster. The price of these services has declined at 23.22 percent per year over the period 1958 to 1992, while the input of these services has grown at 52.82 percent! This is prima facie evidence of an important role for computer price declines as a source of pecuniary externalities. In Section 4 we combine computer services with the services of other types of capital to produce a measure of capital input into the U.S. economy. We link this with labor input to obtain the contributions of both inputs to U.S. economic growth, arriving at the growth of productivity as a residual. We find that the contribution of computer services to input into the U.S. economy is far more important than the contribution of computer investments to output. This is a significant step toward resolution of the Solow paradox: ‘We see computers everywhere except in the productivity statistics.Declines in computer prices generate very sizable pecuniary externalities through the substitution of computer services for other inputs. By contrast Solow focuses on nonpecuniary externalities that would appear as productivity growth. In Section 5 we conclude that information on inventories of computers is critical in quantifying the role of computer services as inputs. The constant quality price indices for computers incorporated into NIPA are also essential. A price index for computers that reflects only general trends in inflation would result in a highly distorted perspective on the growth of GDP and capital services, especially during the past decade. To capture the contribution of all forms of investment to U.S. economic growth, similar price indices should be included in NIPA for capital goods with rapidly evolving technologies, as proposed by Gordon (1990). The long term goal should be a unified system of income. product, and wealth accounts, like that proposed by Laurits Christensen and Jorgenson (1973) and Jorgenson (1980). This incorporates capital stocks, capital services, and their prices. Achieving this goal will necessitate much greater elaboration of the accounting system described in Section 3. These accounts would incorporate data on prices and quantities of investment, stocks of assets, and capital services for all forms of capital employed in the U.S. economy.
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The assumption of given consumer tastes and production, loses ground very rapidly in information-intensive economic systems, where the ability to design products and services combinations for increasingly specific needs and skills is a key variable to competition. This article presents a search-oriented conceptual framework and proposes a schematic representation of endogenous product differentiation. The evolution of users' and producers' discriminating capabilities is shown to govern their interaction leading to product definition. Patterns of sub-market creation or standardization provide a central building block to market creation analysis.
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We prove that firms may decide to compete in undifferentiated products due to a prisoner's dilemma generated by externalities affecting R&D in product innovation. Moreover, the incentive to invest is higher under price competition than under quantity competition.
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In recent years, the relationship between information technology (IT) and productivity has become a source of debate. In the 1980s and early 1990s, empirical research on IT productivity generally did not identify significant productivity improvements. More recently, as new data are identified and more sophisticated methodologies are applied, several researchers have found evidence that IT is associated not only with improvement in productivity, but also in intermediate measures, consumer surplus, and economic growth. Nonetheless, new questions emerge as old puzzles fade. This survey reviews the literature, identifies remaining questions, and concludes with recommendations for applications of traditional methodologies to new data sources, as well as alternative, broader metrics of welfare to assess and enhance the benefits of IT.
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Growth of electronic commerce: present and potential -- The impact of electronic commerce on the efficiency of the economy -- The impact of electronic commerce on firms'business models, sectoral organisation and market structure -- Electronic commerce, jobs and skills -- Societal implications of electronic commerce
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Recently, Mankiw-Whinston (1986) and Suzumura-Kiyono (1987) have shown that socially excessive firm entry occurs in unregulated oligopoly. This paper extends this "excess entry" results by looking into strategic aspects of cost-reducing R&D investment that creates incentives towards socially excessive investments. In the first stage, firms decide whether or not to enter the market. In the second stage, firms make a commitment to cost-reducing R&D investment. In the third stage, firms compete in output quantities. It is shown that the excess entry holds even in the presence of strategic commitments.
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When research and development take place before the associated output is produced, imperfectly competitive firms may use R&D for strategic purposes rather than simply to minimize costs. Using a simple symmetric two-stage Nash duopoly model, we show that such strategic use of R&D will increase the total amount of R&D undertaken, increase total output, and lower industry profit. However, the strategic use of R&D introduces inefficiency in that total costs are not minimized for the output chosen. Nevertheless, net welfare may rise, and certainly rises if products are homogeneous, marginal cost is non-decreasing, and demand is convex or linear.
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Electronic commerce is creating a new mode of delivering new types of products in a global market in which geographical boundaries and location lose their meaning. This paper outlines some of the issues associated with measuring electronic commerce.
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This paper examines trends in computer usage and the effect on productivity growth for a sample of federal government agencies over the period from 1987 to 1992. We link data from the Bureau of Labor Statistics (BLS) on the growth in real output per employee with data from a marketing research firm, Computer Intelligence (CI), on the growth in per capita computer assets for a sample of 44 federal agencies. The data show that computer usage increased dramatically and that there was a shift towards more powerful, lower cost, distributed systems and that usage diffused more extensively throughout the sampled agencies. These trends mirror, while perhaps lagging, those experienced by large private firms over the same period. From estimates of a Cobb-Douglas production function for government services, we derive an estimated output elasticity for computers of 0.06, which allows us to conclude that computers did contribute significantly to output growth, thereby refuting the Computer Productivity Paradox as it applies to the public sector. Computers do not appear to be responsible for the disappointing productivity performance of the service sector. Although the magnitude of our estimated elasticity suggests that the returns to computer investments exceeded those to other types of capital, our results are not conclusive. We also observe a positive correlation between increased computer usage and compensation growth which is consistent with skill-biased technical change.
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The "productivity paradox" of information systems (IS) is that, despite enormous improvements in the underlying technology, the benefits of IS spending have not been found in aggregate output statistics. One explanation is that IS spending may lead to increases in product quality or variety which tend to be overlooked in the aggregate statistics, even if they increase output at the firm-level. Furthermore, the restructuring and cost-cutting that are often necessary to realize the potential benefits of IS have only recently been undertaken in many firms. Our study uses new firm-level data on several components of IS spending for 1987-1991. The dataset includes 367 large firms which generated approximately 1.8 trillion dollars in output in 1991. We supplemented the IS data with data on other inputs, output, and price deflators from other sources. As a result, we could assess several econometric models of the contribution of IS to firm-level productivity. Our results indicate that IS spending has made a substantial and statistically significant contribution to firm output. We find that the gross marginal product (MP) for computer capital averaged 81% for the firms in our sample. We find that the MP for computer capital is at least as large as the marginal product of other types of capital investment and that, dollar for dollar, IS labor spending generates at least as much output as spending on non-IS labor and expenses. Because the models we applied were similar to those that have been previously used to assess the contribution of IS and other factors of production, we attribute the different results to the fact that our data set is more current and larger than others explored. We conclude that the productivity paradox disappeared by 1991, at least in our sample of firms.
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This paper shows that the adoption of flexible manufacturing techniques by firms leads to a tougher price regime. However, consumers may not benefit since the tougher regime deters entry. Flexible manufacturing's ability to deter entry is moderated by two factors: non-prohibitive costs of re-anchoring flexible manufacturing processes and the possibility that entrants choose to produce niche products using designated technologies rather than adopt flexible manufacturing. Market preemption that deters entry will be characterized by excessive product variety. Alternatively, flexible manufacturers may prefer to accommodate entry by small-scale, niche firms. Moreover, ownership matters in determining equilibrium product configurations.
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In this paper, we develop an econometric model to estimate the impacts of Electronic Vehicle Management Systems (EVMS) on the load factor (LF) of heavy trucks using data at the operational level. This technology is supposed to improve capacity utilization by reducing coordination costs between demand and supply. The model is estimated on a subsample of the 1999 National Roadside Survey, covering heavy trucks travelling in the province of Quebec. The LF is explained as a function of truck, trip and carrier characteristics. We show that the use of EVMS results in a 16 percentage points increase of LF on backhaul trips. However, we also find that the LF of equipped trucks is reduced by about 7.6 percentage points on fronthaul movements. This last effect could be explained by a rebound effect: higher expected LF on the returns lead carriers to accept shipments with lower fronthaul LF. Overall, we find that this technology has increased the tonne-kilometers transported of equipped trucks by 6.3% and their fuel efficiency by 5%.
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The authors examine the impact of information technology on productivity in the public sector econometrically using data from the BLS Federal Productivity Measurement Program and from Computer Intelligence Infocorp and by interviewing some government officials. They estimate a production function for government services that includes information technology capital as an input and find a strong positive relationship across federal agencies between productivity growth and computer-intensity growth during the period 1987-92, controlling for growth in compensation and other outlays per employee and in the number of employees. The authors' estimates are consistent with the hypothesis that there are 'excess returns' to information technology capital. Copyright 1998 by Blackwell Publishing Ltd
Technical progress, international trade and low-skilled labour
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Electronic Commerce Enquete. Survey on the business uses of electronic commerce for companies in the German speaking area. Executive research report
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P. Belleflamme / Int. J. Ind. Organ. 19 (2001) 227 –248
Electronic Commerce Enquête. Survey on the business uses of electronic commerce for companies in the German speaking area
  • D Schoder
  • R Strauß
  • P Welchering
Schoder, D., Strauß, R., Welchering, P., 1998. Electronic Commerce Enquete. Survey on the business uses of electronic commerce for companies in the German speaking area. Executive research report, Stuttgart.
Measuring electronic commerce. Working Paper
OECD Committee for Information, Computer and Communications Policy, 1997. Measuring electronic commerce. Working Paper, OCDE / GD (97) 185, Paris.
Technical progress, international trade and low-skilled labour
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