The business value of IT investment

By Kevin Manne

BUFFALO, N.Y. —  Increased investment in information technology doesn’t necessarily improve a nation’s economic performance — raising questions about the effectiveness of IT spending — according to new University at Buffalo School of Management research.

Forthcoming in Asia Pacific Management review, the study analyzed how IT, along with unemployment and inflation rates, affect a country’s performance and found that the productivity paradox (a slowdown in productivity growth that occurred in the 70s and 80s despite rapid IT development) remains in some developed countries.

“This phenomenon confused managers, policymakers and researchers in the 80s, and was thought to have disappeared in the mid-90s,” says the study’s lead author Winston Lin, PhD, professor of operations management and strategy in the UB School of Management. “So while increased IT spending doesn’t always increase productivity, IT investment can pay off when countries leverage available complementary resources, such as e-commerce, traditional capital and traditional labor.”

To evaluate the impact of a country’s unemployment and inflation rates on the value of IT, the researchers applied 10 mathematical models to panel data of 11 countries from 1993 to 2011. The data was collected from several sources, including Digital Planet, the OECD Statistics, the United Nations Common Database, International Monetary Fund and Eurostat Database, and the World Bank.

The researchers indicate that their findings have implications for managers, policymakers and decision-makers who need to carefully consider the value and impact of IT investment, and that the research is highly relevant under the economic environments mixed by different rates of inflation and unemployment.

“Through a mix of fiscal and monetary policies, IT investment in the environment of unemployment and inflation can contribute to a country’s economic performance,” says Lin. “Superior performance results from a match between IT, competitive strategy and contingent factors in the economic environment.”

Lin collaborated on the study with Yueh H. Chen, PhD, professor of finance, and Shih-Sian (Sherwin) Jhang, PhD, assistant professor of finance, both from the National Sun Yat-Sen University College of Management.