The performance impacts of information technology (IT) investments
in organizations have received considerable attention in recent
years. In this research, we investigate the cost factors that
are affected by such investments. We analyze a data set containing
the information technology budgets of over 400 large and medium-sized
U.S. corporations. We find that higher IT investments are associated
with lower average production costs, lower average total costs,
and higher average overhead costs. We also find that larger companies
spend more on information technology as a percentage of their
revenues than smaller companies. We do not find any evidence that
information technology reduces labor costs in organizations. We
explain our findings, which are often counterintuitive but interesting,
using basic microeconomic theory of the firm.
Key words and phrases: business value of information technology , impact of information technology , information technology investment , information technology payoff