RELATING INFORMATION TECHNOLOGY INVESTMENT TO ORGANIZATIONAL PERFORMANCE - A CAUSAL MODEL ANALYSIS

Corporations have invested billions of dollars in information technolo gy (IT) over the last 20 years. There is much debate regarding the ben efits accruing from these expenditures. Direct linkage between technol ogy investment and increases in organizational performance and product ivity has been extremely elusive. This research investigates the relat ionship between IT investment and organizational performance so that m anagers may better evaluate IT expenditures. With data on IT investmen t and organizational performance from 350 public companies over 4 year s, this study uses structural equation analysis to empirically test a theoretical model composed of five IT investment variables and five or ganizational performance variables. The study found that the variable used to measure the extent to which users have access to IT was signif icantly and positively related to sales by employee, an organizational measure of labor productivity. Two other IT investment variables, the value of supercomputers, mainframes, and minicomputers and the percen tage of IT budget spent on IT staff, were significantly and negatively associated with the sales by employee measure. Another IT variable, t he IT budget as a percentage of revenue, was significantly and negativ ely associated with sales by total assets, a traditional measure of ca pital productivity. The last IT variable, the percentage of IT budget spent on IT staff training, was not related to any performance variabl e. Implications of these findings are discussed and, from a management perspective, postulations relating IT investment to organizational pe rformance are stated. Researchers are provided with suggestions and en couraged to use these results to probe deeper into the relationship be tween IT investment and organizational performance. (C) 1997 Elsevier Science Ltd.