A multi‐dimensional empirical exploration of technology investment, coordination and firm performance

Abstract

As economic activities span the supply chain boundary, the effective use of technology as the medium for coordination (or integration) among and within organizations has received much attention. In the US manufacturing sector, IT usage is increasingly becoming a source of sustained competitiveness and an opportunity for improvement. And there is a growing demand to achieve conflicting performance objectives (revenue versus profitability versus efficiency, for example). This article explores the relationships between information technology investment, performance, and productivity. While management should continue to evaluate IT investments by any practical means that satisfies company needs, the development of IT competencies and investment policies so as to optimize the firm’s performance seems to be a worthwhile goal. Our empirical findings clearly suggest that IT investment has a positive impact on market performance as a result of better coordination in the value chain, but that larger investments do not seem to lead to higher financial performance. Additionally, coordination productivity seems to benefit from increased investment by reducing, say, working capital requirements. Given the diversity of firms represented, we conclude that the way in which these firms compete may also have a direct influence on the extent of IT investment and competencies.