Productivity, Profitability and Sustainable Competitive Advantage – Three Key Questions (a Literature Review)

The debate over gains in productivity, profitability and sustainable competitive advantage (SCA) from information technology (IT) investment have perplexed managers and researchers for a number of years (Hitt and Brynjolfsson, 1996). Organizations continue to invest enormous amounts of money in IT, presumably expecting substantial gains in their performance. Yet a variety of studies present contradictory evidence as to whether these expected gains have materialized (Brynjolfsson, 1993; Wilson, 1993). More recently, three questions have been raised (Byrd, 2001; Dedrick et al., 2003). The first question concerns productivity, where productivity is defined as the quantity of goods and services produced by an organization at a specific level of IT investment (Hitt and Brynjolfsson, 1996). Studies that have measured the impact of IT investment on an organization’s productivity, show that an IT investment has a positive impact on an organization’s productivity (e.g. Ahituv et al., 1999; Barua and Lee, 1997; Koski, 1999) but not all organizations have similar productivity gains (Dedrick et al., 2003). Therefore Dedrick et al. (2003) called for research to identify what leads to differences in productivity gains from IT investment. The second question concerns profitability, where profitability is defined as an ability of an organization to convert investment into economic returns (DBA corporate finance S.A). Studies that have measured the impact of IT investment on an organization’s profitability show that the impact of IT investment on profitability is inconclusive because some of the studies show a positive impact (e.g. Brynjolfsson and Hitt, 1995, 1996) and the others show a negative or a neutral impact (e.g. Rai et al., 1996, 1997). Dedrick et al. (2003) called for research to find why there is a general failure among studies to show profitability.