Elsevier

Information & Management

Volume 34, Issue 3, 1 October 1998, Pages 141-159
Information & Management

The influence of information technology diffusion and business process change on perceived productivity: The IS executive's perspective

https://doi.org/10.1016/S0378-7206(98)00054-8Get rights and content

Abstract

A hallmark of the emerging `information age' is the dramatic rise in expenditures by modern business enterprises on information technologies (IT). On account of these investments, senior managers anticipate gains in productivity, which are commensurate with the cost of modern IT and Information Systems. While the evolving capabilities of emerging IT are evident, the association between technological diffusion and increased productivity has not been readily demonstrated in terms of corporate repositioning or scholarly research findings. One possible source of this paradox is the absence or presence of Business Process Redesign in positioning the organization to assimilate and leverage technological innovation. This study empirically examines the nature and magnitude of relationships between IT diffusion, perceived productivity improvement, and process redesign. The findings suggest that process redesign and IT have a complex relationship with productivity, and that these can be represented by a mediating or moderating model for different technologies. The data, while exploratory, do suggest alternate ways to examine the productivity paradox.

Introduction

The measurable impact of information technology (IT) investments on productivity remains a topic of intense debate among managers and researchers. While modern organizations continue to invest heavily in advanced communications and computing technologies, research studies and practitioner surveys report contradictory findings on the effect of these expenditures on organizational productivity 2, 5, 21, 38. Given the extraordinary improvement in speed, inter-connectivity, and user-friendliness of emerging IT, ambiguity with respect to this asset's influence on productivity is particularly troublesome. Perhaps of even greater concern is the possibility that this `productivity paradox' may create a wave of cynicism among top executives that may unfavorably bias technology-based investment decisions. Clearly, an important agenda within the area of IT management and research is the investigation of how, when, and to what extent investment in IT influences change in productivity.

This study takes an alternate view to this productivity paradox. Rather than examine IT investments and their impact on bottom line metrics, the study examines IT diffusion within the organization, and its impact on perceived productivity. By utilizing major IT decision makers as the frame of reference, the study attempts to provide a barometer of whether higher levels of IT diffusion result in a perception of increased productivity. Further, rather than using IT as a generic entity, it is refined into various types of IT, so that differential impacts on perceived productivity can be examined. The extent of business process change (or redesign) is empirically examined, as a potential intervening factor in the relationship between each type of IT diffusion and perceived productivity improvement. As noted in several recent studies 10, 14, 18, 19, investments in IT without a re-calibration of underlying process structures can lead to optimization of tasks and sub-optimization of larger inter-functional processes. This state of affairs can lead to incremental gains in productivity that fall well below managerial expectations. Through regression analysis, we examine two fundamentally different forms of intervention in the IT–productivity relationship. The first of these, moderation, suggests that the interaction of process change and IT diffusion is as important as either of its components (IT diffusion and process change) in predicting increases in perceived productivity. In essence, perceived process change is tested for its influence on the strength of the association between IT diffusion and perceived productivity improvement. The second effect, mediation, suggests that IT diffusion influences productivity primarily through its impact on process change. Through analysis of these relationships, it is hoped that further understanding of the nature and magnitude of these interactions can be gleaned, thereby providing a clearer frame of reference for IT decisions and associated changes in process structure, that are implied.

Therefore, the major questions addressed are: (1) is there a relationship between IT diffusion and productivity as perceived by senior IS executives? (2) what is the nature of the intervening effect (if any) of process redesign? and (3) Do these effects vary by type of IT? Collectively, through these questions we hope to get a different, albeit exploratory, perspective on IT's impact on productivity.

Section snippets

IT and organizational productivity

Through their direct impact on two important factors of production, information and knowledge, computing and communications technologies promise enormous gains in levels of organizational productivity [24]. As noted by Laudon and Marr [27], in advanced information economies where information and knowledge work account for 60% of GDP, it is only logical to conclude that revolutionary improvements in IT coupled with exponential increases in IT investment within factories and offices will most

IT and organizational productivity: The intervening role of process change

There are numerous models that examine the impact of technology on the organization. These are usually applied at the individual, work group, and organizational levels. Among these, the socio-technical model [35], the technological change model [42]and the independent effects model [15]have each proposed and examined the interdependence of technology and organizational initiatives (e.g. work redesign) in manufacturing units. However, to our knowledge, the study of process change as an

Methodology

In contrast to a prior study, our study uses primary firm-level non-economic data from a large sample. While many of the criticisms of survey research are acknowledged, we believe that this alternative method, albeit exploratory, is appropriate here. Further, given the diverse nature of technologies and process change efforts, it seems reasonable to suspect that some technologies will be enablers of reengineering efforts (a moderating effect) while others will depend on the existence of

Results

Table 3 contains the results of the regression equations estimated for a mediating effects model. As shown in the first column of Table 3, the regression equations for all technologies suggest that higher diffusion levels are associated with higher levels of perceived productivity improvement. The strongest associations are observed for E-mail, EIS, and EDI. The weakest associations are observed for teleconferencing, client/server, and RDBMS. Column 2 suggests that for all technologies

Discussion

The results of this study suggest that IT investment as manifested in its diffusion does lead to perceived improvement in productivity. In essence, the perceptual data inherent within this research design seem to corroborate the economic data characteristic of Hitt and Brynjolfsson's work. However, like their work, the results of this work are inconsistent with many earlier studies. A possible implication of this state of affairs is that a time lag between IT investment and productivity exists,

Limitations

The study of technology's impact on organizational functioning will always be inherently complex due to the many influences on performance metrics. Unlike previous work, this study has attempted to deepen our understanding of the relationship between IT and productivity through non-economic assessments of IT diffusion, perceived process change, and perceived productivity gain, the examination of `perceived process change' as an intervening variable, and assessment of individual technologies.

Conclusions

A major agenda of both practitioners and researchers within the area of IT management is the determination of value-added through investment in new technology. This critical link has not been consistently established due to a variety of methodological approaches, the existence of intervening variables, inconsistent operationalizations of productivity, and the treatment of IT investment as a `lump sum.' This study has attempted to broaden the understanding of the relationship between IT and

Acknowledgements

This research was funded by a grant from the Centre of International Business Education Research (CIBER), University of South Carolina.

Varun Grover is a professor of Information Systems and Business Partnership Foundation Fellow at the Darla Moore School of Business, University of South Carolina. He holds a B. Tech. in Electrical Engineering from Indian Institute of Technology, New Delhi, an MBA from SIUC, and a Ph.D. degree in MIS from the University of Pittsburgh. Dr. Grover has published extensively in the information systems field, with over 90 publications in refereed journals. His current areas of interest are business

References (43)

  • J.W Candler et al.

    The ORION project: Staged business process reengineering at Federal Express

    Communications of the ACM

    (1996)
  • J. Cohen, P. Cohen, Applied Multiple Regression and Correlation Analysis for the Behavioral Sciences. Hillsdale, NJ:...
  • T.H. Davenport, Process Innovation: Reengineering Work through Information Technology, Harvard Business School Press,...
  • T.H. Davenport, D.B. Stoddard, Reengineering business change of mythical proportions? MIS Quarterly 18(2), 1994, pp....
  • T.H. Davenport, N. Nohria, Case management and the integration of labor, Sloan Management Review, Winter 1994, pp....
  • G.W Downs et al.

    Toward a theory of innovation

    Administration and Society

    (1979)
  • D.A. Garvin, Leveraging processes for strategic advantage, Harvard Business Review, Sept–Oct. 1995, pp....
  • V Grover et al.

    The implementation of business process reengineering

    Journal of MIS

    (1995)
  • G Hall et al.

    How to reengineering really work

    Harvard Business Review

    (1993)
  • M. Hammer, J. Champy, Reengineering the Corporation: A Manifesto for Business Revolution, Harper Collins,...
  • S.E Harris et al.

    Organizational performance and information technology intensity in the insurance industry

    Organizational Science

    (1991)
  • Cited by (193)

    • The productivity paradox: A meta-analysis

      2017, Information Economics and Policy
    • Hospital performance: Efficiency or quality? Can we have both with IT?

      2015, Expert Systems with Applications
      Citation Excerpt :

      Deming proposed constantly improving the system of production by cutting-edge process improvement techniques; to critically re-examine care processes and simplify patient flows and consequently improve operational efficiency and healthcare quality. Business process redesigns (BPR) with the purpose of quality improvements has also been examined in the IT business value research (Grover, Teng, Segars, & Fiedler, 1998). For instance, Barua, Lee, and Winston (1996) proposed a theory of business value complementarity that argues IT investments and process redesign cannot succeed in isolation since IT and business process redesign are complementary factors (Devaraj & Kohli, 2000).

    View all citing articles on Scopus

    1. Download : Download full-size image
    Varun Grover is a professor of Information Systems and Business Partnership Foundation Fellow at the Darla Moore School of Business, University of South Carolina. He holds a B. Tech. in Electrical Engineering from Indian Institute of Technology, New Delhi, an MBA from SIUC, and a Ph.D. degree in MIS from the University of Pittsburgh. Dr. Grover has published extensively in the information systems field, with over 90 publications in refereed journals. His current areas of interest are business reengineering, electronic commerce, strategic information systems, telecommunications and interorganizational systems, and the organizational impacts of information technologies. His work has appeared in the MIS Quarterly, Information Systems Research, JMIS, Communications of the ACM, Decision Science, IEEE Transactions, California Management Review, and numerous others. He recently co-edited a book entitled Business Process Change: Concepts, Methods and Technologies, and two Special Issues of the Journal of Management Information Systems on the topic of business process change. Dr. Grover is the recipient of the Outstanding Achievement Award from the Decision Sciences Institute. He is currently serving on the Board of Editors of 4 journals and is a referee for 15 others. He has also consulted with numerous organizations and is a member of INFORMS, DSI and AIS

    1. Download : Download full-size image
    James T.C. Teng is Associate Professor at the Darla Moore School of Business, University of South Carolina. He holds an M.S. in mathematics from the University of Illinois and a Ph.D. in MIS from the University of Minnesota. His research interests include data management, process change and the impact of information technology on organizations. He has published extensively in journals such as Information and Management, Information Systems Research, MIS Quarterly, Communications of the ACM, Decision Sciences, California Management Review, and OMEGA.

    1. Download : Download full-size image
    Albert H. Segars is an associate professor in the Kenan Flagler Business School at the University of North Carolina at Chapel Hill. He holds master's and Bachelor's degrees from the University of North Carolina and a Ph.D. from the University of South Carolina. Dr. Segars' areas of interest include strategic planning, global supply chain management, organizational transformation through information technologies (IT), and methodological approaches for studying the impact of IT on people, organizations, and industries. His recent articles on these and other topics can be found in MIS Quarterly, Information Systems Research, Decision Sciences, and The Journal of Information Technology Management. Dr. Segars is the recipient of the 1995 Society of Information Management's (SIM) best paper award and is an active consultant to both industry and government.

    1. Download : Download full-size image
    Kirk Dean Fiedler is an associate professor of MIS at the University of South Carolina's College of Business Administration. He received a BA from Wittenberg University, an MBA and an MS in Information Systems and Systems Science from the University of Louisville before completing his Ph.D. in MIS at the University of Pittsburgh. His consulting experience includes several years at Arthur Young & Company where he earned a CPA certification. Currently, his research interests involve the investigation of technology assimilation and electronic commerce. He has published this research in various journals including ISR, CACM, MIS Quarterly, JMIS, IEEE Transactions in Engineering Management, California Management Review, Long Range Planning. Dr. Fiedler was also a finalist in Decision Science Institute's Instructional Innovation Award Competition. He is a member of AIS, AICPA, DSI, INFORMS and Academy of Management.

    View full text