The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction C

Question

The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective
Please answer the followings questions:
Discuss the following based on the paper and upload your document before next class.
1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.
2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm.
3. IT spending reduces both firm size and coordination costs, but fails to show any effect on firm productivity.
4. IT spending in IPI firms can only be transmitted through a reduction in coordination costs, which increases firm productivity The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective
Please answer the followings questions:
Discuss the following based on the paper and upload your document before next class.
1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.
2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm.
3. IT spending reduces both firm size and coordination costs, but fails to show any effect on firm productivity.
4. IT spending in IPI firms can only be transmitted through a reduction in coordination costs, which increases firm productivity The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective
Please answer the followings questions:
Discuss the following based on the paper and upload your document before next class.
1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.
2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm.
3. IT spending reduces both firm size and coordination costs, but fails to show any effect on firm productivity.
4. IT spending in IPI firms can only be transmitted through a reduction in coordination costs, which increases firm productivity The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective
Please answer the followings questions:
Discuss the following based on the paper and upload your document before next class.
1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.
2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm.
3. IT spending reduces both firm size and coordination costs, but fails to show any effect on firm productivity.
4. IT spending in IPI firms can only be transmitted through a reduction in coordination costs, which increases firm productivity The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective
Please answer the followings questions:
Discuss the following based on the paper and upload your document before next class.
1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.
2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm.
3. IT spending reduces both firm size and coordination costs, but fails to show any effect on firm productivity.
4. IT spending in IPI firms can only be transmitted through a reduction in coordination costs, which increases firm productivity The Impact of IT–Coordination Costs on Firm Size and Productivity: Transaction Cost Perspective
Please answer the followings questions:
Discuss the following based on the paper and upload your document before next class.
1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.
2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm.
3. IT spending reduces both firm size and coordination costs, but fails to show any effect on firm productivity.
4. IT spending in IPI firms can only be transmitted through a reduction in coordination costs, which increases firm productivity Discuss the following based on the paper and upload your document before next class.
1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.
2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm.
3. IT spending reduces both firm size and coordination costs, but fails to show any effect on firm productivity.
4. IT spending in IPI firms can only be transmitted through a reduction in coordination costs, which increases firm productivity

Explanation / Answer

1. IT spending is critical to coordination costs, which in turn influence firm size as well as firm productivity. It is noteworthy that coordination costs are a fundamental link between IT spending and firm size, as well as between IT spending and firm productivity.

The primary objective of this study is to examine the influence of information technology (IT) on organizational coordination costs using the theoretical lens of transaction cost economics. In doing so, the study addresses the following research questions: Does IT matter? How and why does IT matter to firms? How does coordination cost mediate the relationship between IT spending and firm productivity, and how does it influence IT spending and firm size when considering the information product industries (IPI) and the physical product industries (PPI)? To address these research questions, we use IT spending, coordination costs, firm size, and firm productivity with firm-level data, using Information Week and the CompUSA data set in the United States, from 2011 to 2013.

A Smart PLS path analysis was used to test the research hypotheses. The results show that use of the firm’s IT spending decreases coordination costs. Likewise, the results show that IT spending also decreases firm size. On the other hand, the results also show that IT spending does not significantly improve a firm’s productivity. Furthermore, the results indicate strong evidence that coordination costs act as a mediator between IT spending and firm size in IPI firms. Coordination costs also mediate the relationship between IT spending and firm productivity in IPI firms. Overall, this study sheds light on the importance of the impact of IT on reducing coordination costs as well as on firm size and firm productivity. This must be especially considered in regard to inter organizational coordination.

2. IT is becoming an important tool for business operations, which lead to increased revenues and profits, and simultaneously reduce the number of employees in a firm

investments in information technology (IT) by U.S. firms has grown at a fast pace over the last two decades, with the annual growth in real investment peaking at an average of 24% in the 1995 to 2000 period, some five times the growth rate of investment in other types of equipment (Doms 2004). IT investment as a share of total equipment and software (E&S) investment stands at 41% by the end of 2004 (Doms 2005), making IT the biggest component of capital investment by U.S. firms. In light of the growing scale of IT investment, a key question faced by individual firms is whether and how these investments are contributing to competitive advantage and profitability of the firm — which was also the topic of intense debate surrounding the “Does IT Matter?” question posed by Carr (2003). While most IS researchers reject the claims of Carr (2003), the issue of how IT investments can be combined with firm

IT and Firm Boundaries In the IS literature, there is a considerable body of research focused on the relationship between IT investment and firm boundaries. In their seminal piece that has served as the foundation for this research stream, Malone et al. (1987) argue that the adoption of information technologies reduces market coordination costs, leading to a relatively greater use of markets as compared to hierarchies.

Extending that analysis, Gurbaxani and Whang (1991) investigate the impact of IT on both external boundaries of the firm as well as internal allocation of decision rights, based on the useful distinction between internal and external coordination costs (more on these costs below). Building on the analysis of Gurbaxani and Whang (1991), Dewan et al. (1998) find that related diversification demands greater IT investments than unrelated diversification, and less vertically integrated firms have higher level of IT investments. Hitt (1999) finds that IT investments are associated with substantial decreases in vertical integration and weak increase in diversification. Extending prior research, Ray et al. (2006) examine how the relationship between IT and firm scope is moderated by firm

IT and Firm Return and Risk Performance

The ability of a firm to capture the value created by their IT investments, and translate it into profitability, depends not only on the firm’s business and IT strategies, but on industry structure, especially competition. As noted by Hitt and Brynjolfsson (1996) the value created by IT investments (total surplus) is split between the investing firms (producer surplus) and the end users (consumer surplus), and the distribution of gains is in part a function of the intensity of competition.

It is conceivable that all of the IT value is competed away so that the value from IT investments is transferred entirely to consumers in the form of lower prices or higher product quality or variety, as has historically been the case in the banking sector (Steiner and Teixeira 1990). To the extent that markets are not perfectly competitive, however, firms have some market power, and should be able to convert some of the IT value into profitability. Therefore, after controlling for the level of competition (as we do in our empirical analysis), we can predict at least a weakly positive link between IT investments and profitability.

IT SPENDING REDUCES BOTH FIRM SIZE AND COORDINATION COSTS, BUT FAILS TO SHOW ANY EFFECT ON FIRM PRODUCTIVITY.

With the use of information technology (IT), organizations radically redesign their business processes and improve their business profitability and productivity. Previous information systems (IS) research has investigated whether or not IT improves business profitability and productivity. However, most of the previous studies failed to consider any contextual or moderating factors that might affect firm performance and productivity. Because it is intangible and intermediate benefits, e.g. better coordination, quality improvement, increased variety, and innovation, complicate the justification process for IT investments, this paper empirically examines the direct relationship between IT and coordination. The results of this study clearly show that IT spending is strongly associated with a decline in coordination costs. From the results, it can be inferred that IT enhances coordination of economic activities by reducing coordination costs, and thereby can improve firm performance and productivity.

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