Aligning IT investments and workforce composition: the impact of diversification in life insurance companies

Abstract

This paper investigates the impact on productivity of combined changes in information technology (IT) investments and workforce composition of life insurance companies. Workforce composition is defined in terms of three broad classes: clerical, managerial and professional. Hypotheses on the combined impact of changes in IT investments and workforce composition on productivity are proposed and empirically tested on a sample of companies from the US life insurance industry. Companies are clustered based on two main strategy alternatives, focus on a market niche vs diversification. In niche companies, higher IT investments accompanied by a decrease in the clerical and managerial components of the workforce are found to have a positive contribution to productivity. On the contrary, higher IT investments in conjunction with a decrease of the professional component show a negative effect. In diversified companies, increasing IT investments show a positive contribution to productivity when accompanied by a decrease of the professional component and a growth in the clerical and managerial component of the workforce. Findings are discussed in the light of fundamental competitive goals in the industry.