article

The Relationship Between Investment in Information Technology and Firm Performance: A Study of the Valve Manufacturing Sector

Information Systems Research, Volume 3, Issue 4

Pages 307 - 333

https://doi.org/10.1287/isre.3.4.307

Published: 01 December 1992 Publication History

Abstract

<P>Large amounts of resources have been and continue to be invested in information technology IT. Much of this investment is made on the basis of faith that returns will occur. This study presents the results of an empirical test of the performance effects of IT investment in the manufacturing sector. Six years of historical data on IT investment and performance were collected for 33 valve manufacturing firms from the CEO, the controller and the production manager in each firm. Investment was perceptually categorized by management objective i.e., strategic, informational and transactional and tested against four measures of performance sales growth, return on assets, and two measures of labor productivity. Heavy use of transactional IT investment was found to be significantly and consistently associated with strong firm performance over the six years studied. Heavy use of strategic IT was found to be neutral in the long term and associated only with relatively poorly performing firms in the short term. This study suggests that early adopters of strategic IT could have spectacular success but once the technology becomes common, the competitive advantage is lost. In addition, the context of the firm was included in the analysis. Conversion effectiveness, which measures the quality of the firm-wide management and commitment to IT, was found to be a significant moderator between strategic IT investment and firm performance.</P>

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Index Terms

The Relationship Between Investment in Information Technology and Firm Performance: A Study of the Valve Manufacturing Sector
1. Applied computing
  1. Enterprise computing
    1. Business process management
  2. Law, social and behavioral sciences
    1. Economics
2. Social and professional topics
  1. Professional topics
    1. Computing and business
    2. Management of computing and information systems
      1. Project and people management

Index terms have been assigned to the content through auto-classification.

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cover image Information Systems Research

Information Systems Research Volume 3, Issue 4

December 1992

94 pages

ISSN:1526-5536

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INFORMS

Linthicum, MD, United States

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Published: 01 December 1992

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