Creating Value and Destroying Profits? Three Measures of Information Technology's Contributions

The business value of information technology (IT) has been debated for a number of years. Some authors have found large productivity improvements attributable to computers, as well as evidence that IT has generated substantial benefits for consumers. However, others continue to question whether computers have had any bottom line impact on business performance. In this paper, we focus on the fact that productivity, consumer value and business performance are separate questions and that the empirical results on IT value depend heavily on which question is being addressed and what data are being used. Applying methods based on economic theory, we are able to examine the relevant hypotheses for each of these three questions, using recent firm-level data on IT spending by 367 large firms. Our findings indicate that computers have led to higher productivity and created substantial value for consumers, but that these benefits have not resulted in measurable improvements in business performance. We conclude that while modeling techniques need to be improved, these results are consistent with economic theory, and thus there is no inherent contradiction between increased productivity, increased consumer value and unchanged business performance.