The Influence of Industry Growth and Firm Market Share on Firm-Level IT Value

Market-dominant firms traditionally have an advantage in growing markets because they operate with larger average plant sizes and are better able to reap the rewards of economies of scale. We present evidence that with information technology (IT), the effect is precisely the opposite: firms with less market power enjoy the benefits in a growing market. The influence of firm-level attributes on the economic value of information technology (IT) to firms has been the predominant focus of much prior research in this field. While some studies have examined how IT value differs across industries, there has been little research on how industry and firm attributes jointly affect firms’ returns on their IT investments. To that end, we develop cross-level hypotheses to examine how the latter is influenced by industry growth and firm size. By using a hierarchical linear model to test the industry-to-firm interactions, we are able to control for violations of statistical assumptions that are likely to bias cross-level estimates obtained using conventional statistical methods. Results of the analysis reveal that 93.25% of the variance in firm-level IT value lies within firms, while 6.75% is attributable to industrylevel factors. The implications of these findings for research and practice are examined.

[1]  Yu Liu,et al.  A comprehensive investigation on the relationship between information technology investments and firm diversification , 2008, Inf. Technol. Manag..

[2]  Shane M. Greenstein,et al.  Which industries use the internet? , 2002, IEEE Micro.

[3]  C. Morrison.  Assessing the Productivity of Information Technology Equipment in U.S. Manufacturing Industries , 1991, Review of Economics and Statistics.

[4]  Paul A. Pavlou,et al.  From IT Leveraging Competence to Competitive Advantage in Turbulent Environments: The Case of New Product Development , 2006, Inf. Syst. Res..

[5]  Thomas H. Brush,et al.  The relative influence of industry and corporation on business segment performance: an alternative estimate , 1999 .

[6]  D. J. Wu,et al.  Which Came First, it or Productivity? Virtuous Cycle of Investment and Use in Enterprise Systems , 2006, ICIS.

[7]  J. Farley,et al.  Determinants of Financial Performance: A Meta-Analysis , 1990 .

[8]  Harbir Singh,et al.  Corporate and industry effects on business unit competitive position , 2000 .

[9]  Kenneth L. Kraemer,et al.  Information technology and economic performance , 2003, ACM Comput. Surv..

[10]  R. Ford,et al.  Managing Service Organizations: Does Having a “Thing” Make a Difference? , 2002 .

[11]  Jack E. Triplett,et al.  ‘Baumol’s Disease’ has been Cured: IT and Multifactor Productivity in US Service Industries , 2006 .

[12]  D. Jorgenson.  Information Technology and the U.S. Economy , 2001 .

[13]  Susanto Basu,et al.  Information and Communications Technology as a General-Purpose Technology: Evidence from U.S Industry Data , 2006 .

[14]  Michael E. Porter,et al.  The Emergence and Sustainability of Abnormal Profits , 2003 .

[15]  Chung-ki Min,et al.  The substitution of information technology for other factors of production: a Firm Level Analysis , 1997 .

[16]  Kevin J. Stiroh,et al.  Reassessing the Impact of IT in the Production Function: A Meta-Analysis and Sensitivity Tests , 2002 .

[17]  Arun Rai,et al.  Firm performance impacts of digitally enabled supply chain integration capabilities , 2006 .

[18]  Haim Mendelson,et al.  Industry Clockspeed: Measurement and Operational Implications , 1999, Manuf. Serv. Oper. Manag..

[19]  Susanto Basu,et al.  Information and Communications Technology as a General-Purpose Technology: Evidence from U.S Industry Data , 2006 .

[20]  Diana Farrell,et al.  The real new economy. , 2003, Harvard business review.

[21]  B. R. Nault,et al.  Investments in Information Technology: Indirect Effects and Information Technology Intensity , 2006 .

[22]  K. Stiroh.  Information Technology and the U.S. Productivity Revival: What Do the Industry Data Say? , 2001 .

[23]  Patrick J. Kehoe,et al.  Modeling the Transition to a New Economy: Lessons from Two Technological Revolutions , 2007 .

[24]  E. Thorndike,et al.  On the Fallacy of Imputing the Correlations Found for Groups to the Individuals or Smaller Groups Composing Them , 1939 .

[25]  B. Curry,et al.  Industrial Concentration: A Survey , 1983 .

[26]  Vernon J. Richardson,et al.  Determinants and Consequences of Firm Information Technology Budgets , 2008 .

[27]  Mike Chiasson,et al.  Taking Industry Seriously in Information Systems Research , 2005, MIS Q..

[28]  Eric K. Clemons,et al.  Evaluation of strategic investments in information technology , 1991, CACM.

[29]  Kenneth L. Kraemer,et al.  Review: Information Technology and Organizational Performance: An Integrative Model of IT Business Value , 2004, MIS Q..

[30]  Kenneth L. Kraemer,et al.  The productivity impact of information technology across competitive regimes: The role of industry concentration and dynamism , 2007, Decis. Support Syst..

[31]  Henry C. Lucas,et al.  The information systems identity crisis , 2005 .

[32]  Vijay Gurbaxani,et al.  The impact of information systems on organizations and markets , 1991, CACM.

[33]  Lorin M. Hitt,et al.  Productivity, Business Profitability, and Consumer Surplus: Three Different Measures of Information Technology Value , 1996, MIS Q..

[34]  R. Kauffman.  PAYOFF EXTERNALITIES , INFORMATIONAL CASCADES AND MANAGERIAL INCENTIVES : A THEORETICAL FRAMEWORK FOR IT ADOPTION HERDING , 2003 .

[35]  Sundar G. Bharadwaj,et al.  Information Technology Effects on Firm Performance as Measured by Tobin's q , 1999 .

[36]  Ravindran R. Pillai,et al.  Information Age organizations, dynamics and performance , 1999 .

[37]  Barrie R. Nault,et al.  Industry Level Supplier-Driven it Spillovers , 2006, Manag. Sci..

[38]  W. S. Robinson.  Ecological correlations and the behavior of individuals. , 1950, International journal of epidemiology.

[39]  Robert W. Zmud,et al.  Research Commentary: The Organizing Logic for an Enterprise's IT Activities in the Digital Era - A Prognosis of Practice and a Call for Research , 2000, Inf. Syst. Res..

[40]  Haim Mendelson,et al.  Clockspeed and Informational Response: Evidence from the Information Technology Industry , 1998, Inf. Syst. Res..

[41]  Mingdi Xin,et al.  Research Note - Comparing IT Workers' Compensation Across Country Contexts: Demographic, Human Capital, and Institutional Factors , 2007, Inf. Syst. Res..

[42]  B. Nalebuff,et al.  The Devolution of Declining Industries , 1990 .

[43]  Vijay Gurbaxani,et al.  An Empirical Investigation of Information Technology Returns: The Role of IT and Market Structure as Determinants of Efficiency , 2004, ICIS.

[44]  Rajiv Kohli,et al.  Measuring Information Technology Payoff: A Meta - Analysis of Structural Variables in Firm - Level Empirical Research , 2003, Inf. Syst. Res..

[45]  Shu Lin,et al.  Plant Information Systems, Manufacturing Capabilities, and Plant Performance , 2006, MIS Q..

[46]  Sarv Devaraj,et al.  The Impact of Information Technology Investments and Diversification Strategies on Firm Performance , 2007 .

[47]  Rajiv D. Banker,et al.  Value Implications of Investments in Information Technology , 2006, Manag. Sci..

[48]  Narayan Ramasubbu,et al.  Designing Web Sites for Customer Loyalty Across Business Domains: A Multilevel Analysis , 2006, J. Manag. Inf. Syst..

[49]  E. Brynjolfsson,et al.  Paradox Lost? Firm-Level Evidence on the Returns to Information Systems Spending , 1996 .

[50]  Soon Ang,et al.  Human Capital and Institutional Determinants of Information Technology Compensation: Modeling Multilevel and Cross-Level Interactions , 2002, Manag. Sci..

[51]  JoAnne Yates,et al.  Electronic markets and electronic hierarchies , 1987, CACM.

[52]  Neeraj Mittal,et al.  Research Note - Investments in Information Technology: Indirect Effects and Information Technology Intensity , 2009, Inf. Syst. Res..

[53]  Warren D. Miller.  Firm, Strategic Group, and Industry Influences on Performance , 2007 .

[54]  Matt Wimble,et al.  The Efficient Use of Information Technology : An Industry-Level Analysis , 2007 .

[55]  Andrew B. Whinston,et al.  An Empirical Investigation of Net-Enabled Business Value , 2004, MIS Q..

[56]  Sinan Aral,et al.  I.T. Assets, Organizational Capabilities and Firm Performance: Do Resource Allocations and Organizational Differences Explain Performance Variation? , 2007 .