An economic view of information systems

ion of the functions/system (including software and hardware) constructed out of these building blocks. 1. IT investments: valuation and performance A trio of papers in this issue enhances our understanding of issues crucial to how firms should think about investing in new technology: how and how much information systems improve performance. An Application of the Learning Curve and the NonConstant-Growth Dividend Model: IT Investment Valuations at the Intel by Shana Dardan, Doug Busch, and David Sward provides an in-depth analysis of how investment in information systems grows over time and how to incorporate that growth into the initial investment decision. The Impact of Information Technology on the Financial Performance of Diversified Firms by Namchul Shin examines how the benefits of information systems investments are closely related to firms’ strategic direction, specifically the firms’ diversification strategy. Finally, the paper The Influence of Governance Equilibrium on ERP Project Success by Eric Wang and Jessica Chen studies the role of governance in deriving value from IT investments in an application area that is perhaps the fastest-growing sector within the software industry-Enterprise Resource Planning (ERP) systems. To fully capture the benefits of investing in information technology, Dardan, Busch, and Sward employ a learning curve function within a nonconstant dividend growth model to measure the marginal productivity benefits both during the learning about the technology and after its adoption. The model first displays a period of nonlinear growth, then approaches a constant level of productivity enhancing performance. The summation of the cash flows from the high-growth period and the constant-growth 41 (2006) 683–687