The Efficient Use of Information Technology: An Industry-Level Analysis

Despite the salience of information technology investments in many firms, industry and firm-specific variations exist in the efficient use of information technology. Recent evidence suggests that industries vary in terms of how they use information technology (IT) and that the business benefits that firms receive from IT are strongly influenced by industry factors. This research examines some of factors that influence variations in the efficient use of IT resources across industries. Using COMPUSTAT data from the years 1998-2004 and data from the Bureau of Economic Analysis (BEA) and Bureau of Labor Statistics (BLS), we apply the Data Envelope Analysis (DEA) to trace industry-level efficiency of IT capital. Subsequently, our analysis of covariates reveals that the competitive intensity of the industry, industry growth, industry outsourcing intensity, and industry capital intensity significantly influence the extent to which industries are efficient in their use of IT. We find industry growth rate has significant interactions with both industry concentration and capital intensity. More interestingly, we find contrasting results about the relationships between these factors and IT use efficiency across the services and manufacturing sectors. Introduction Recent evidence has suggests that industries vary in terms of how they use information technology (IT) and the business impacts that firms receive from IT are strongly influenced by these industry factors. Investigation of the economic impacts of IT spending has primarily looked at the firm-level of analysis, this paper looks at the impacts of information technology at the industry-level in order to investigate what industry factors influence differences in economic outcome resulting from IT spending. Further more this research note looks at IT form an efficiency lens, which is markedly different from the central-tendency measures commonly used in economic analysis of IT expenditure. The paper performs two analyses. First, the paper identifies key industrylevel factors the impact the efficient use of IT. Second, using a exploratory approach the paper demonstrates how these factors are have very different effects in manufacturing industries compared with service industries. The findings of this note are: 1) industry concentration, outsourcing intensity, and capital intensity impact industry-level IT efficiency, 2) industry growth rate moderates the impact of industry concentration, 3) capital intensity moderates the impact of industry growth and 4) the impact of these factors vary significantly between manufacturing and services.