Information technology and the organization of economic activities: An empirical study

A longstanding issue in the information systems field is how information technology affects organizational form and firm boundaries. Some argue that IT will lead to greater use of markets to organize activities while others say the outcome depends on whether IT has a greater impact on internal or external transaction costs.; To study this question, we conduct extensive qualitative research on the personal computer industry and develop a conceptual framework based on the results. We then test a number of hypotheses based on this framework using data from a survey of 300 manufacturing firms.; At a conceptual level, we find that existing models of IT and organization can benefit from incorporation of information processing theory in addition to transaction costs economics. Organizational outcomes are influenced by characteristics of the activity and its associated information processing requirements, which drive IT investment to create information processing capabilities that can reduce either internal or external transaction costs. The other important conceptual contribution is distinguishing between internal IT and interorganizational systems in order to understand the role and impacts of IT in regard to transaction costs and information processing capabilities.; The empirical findings support predictions in the IS literature that the impacts of IT can be complex and multidimensional, affecting the firm's internal costs and capabilities as well as its external costs and shared capabilities. The quantitative results provide some support for predictions that the use of IT would on balance favor markets over hierarchies. The qualitative results reinforce that finding and also support predictions that IT use would lead to more outsourcing with fewer suppliers. These impacts depend on characteristics of the economic activity, including complexity and asset specificity.; Both qualitative and quantitative results support the hypothesis that internal IT and interorganizational systems have different impacts, with internal IT lowering internal production and coordination costs and interorganizational systems lowering external coordination costs.