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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27759
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| Title: | Which Came First, IT or Productivity? The Virtuous Cycle of Investment
and Use in Enterprise Systems |
| Authors: | Aral, Sinan
Brynjolfsson, Erik
Wu, D.J. |
| Keywords: | Business Value of Information Technology
Productivity
Simultaneity
Causality
Software Investment
Production Function
Customer Relationship Management
Supply Chain Management
Enterprise Resource Planning |
| Issue Date: | 10-Nov-2008 |
| Series/Report no.: | CeDER-PP-2006-11 |
| Abstract: | While it is now well established that IT intensive firms are more
productive, a critical question remains: Does IT cause productivity or
are productive firms simply willing to spend more on IT? We address this
question by examining the productivity and performance effects of
enterprise systems investments in a uniquely detailed and comprehensive
data set of 623 large, public U.S. firms. The data represent all U.S.
customers of a large vendor during 1998–2005 and include the
vendor’s three main enterprise system suites: Enterprise Resource
Planning (ERP), Supply Chain Management (SCM), and Customer Relationship
Management (CRM). A particular benefit of our data is that they
distinguish the purchase of enterprise systems from their installation
and use. Since enterprise systems often take years to implement, firm
performance at the time of purchase often differs markedly from
performance after the systems “go live.” Specifically, in
our ERP data, we find that purchase events are uncorrelated with
performance while go-live events are positively correlated. This
indicates that the use of ERP systems actually causes performance gains
rather than strong performance driving the purchase of ERP. In contrast,
for SCM and CRM, we find that performance is correlated with both
purchase and golive events. Because SCM and CRM are installed after ERP,
these results imply that firms that experience performance gains from
ERP go on to purchase SCM and CRM. Our results are robust against
several alternative explanations and specifications and suggest that a
causal relationship between ERP and performance triggers additional IT
adoption in firms that derive value from their initial investment. These
results provide an explanation of simultaneity in IT value research that
fits with rational economic decision-making: Firms that successfully
implement IT, react by investing in more IT. Our work suggests replacing
“either-or” views of causality with a positive feedback loop
conceptualization in which successful IT investments initiate a
“virtuous cycle” of investment and gain. Our work also
reveals other important estimation issues that can help researchers
identify relationships between IT and business value. |
| URI: | http://hdl.handle.net/2451/27759 |
| Appears in Collections: | CeDER Published Papers
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