Impact of information technology on productivity

University essay from Luleå/Business Administration and Social Sciences

Abstract: Productivity is an important economic factor which has a key role in
evaluating the economic growth. It is identified as the foundation for
economic prosperity, a prerequisite for national development and also an
important indicator of organizational competitiveness (Dedrick et al.,
2003).

Information Technology (IT) is one of the important resources for
increasing the economic growth. It causes companies to use their input
resources as much as possible in an effective way. As investment in IT
capital accounts for an ever-increasing share of capital investment, it is
important to understand how these investments might pay off (Gilchrist et
al., 2001).There has been much debate on whether or not the investment in
IT provides improvements in productivity and business efficiencies.

IT investment may make little direct contribution to overall performance of
companies until they are combined with complementary investments in
business activities, human capital, and company restructuring. Therefore,
according to role of IT in Business Process Reengineering, as a facilitator
and enabler, BPR is valuable for companies to increase the impact of IT on
overall performance of companies. On the other word, both IT and BPR
investments, together, are able to improve productivity drastically.

In this research Cobb-Douglas model was used to examine the impact of
Information Technology investment on productivity at Telecommunication
Company of Tehran (TCT).44 financial and economic data were collected since
1997 up to 2007 for driving the corresponding model. Weighted Least Square
(WLS) was run by SPSS 15 to test hypotheses. The results have indicated
that IT investment not only makes the positive contribution to output of
Telecommunication Company of Tehran but also this contribution is positive
after deductions for depreciation and labor expenses. Further productivity
analysis exposed the positive correlations between IT, Total Factor
Productivity and Labor Productivity.

In order to reveal the importance of BPR approach as a complementary
investment for improving IT influences, the appropriate questionnaires
distributed through Employees and Experts of TCT in the second phase of
this study. Evaluation of BPR factors proved the necessity of employing
this complementary investment at Telecommunication Company of Tehran.

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