RC Passage: Business Use of IT

  
Time 0 0 : 0 0 : 0 0

Most pre-1990 literature on businesses’ use of information technology(IT)—defined as any form of computer-based information system—focused on spectacular IT successes and reflected a general optimism concerning IT’s potential as a resource for creating competitive advantage.  But toward the end of the 1980’s, some economists spoke of a “productivity paradox”:  despite huge IT investments, most notably in the service sectors, productivity stagnated.  In the retail industry, for example, in which IT had been widely adopted during the 1980’s, productivity (average output per hour) rose at an average annual rate of 1.1 percent between 1973 and 1989, compared with 2.4 percent in the preceding 25-year period.  Proponents of IT argued that it takes both time and a critical mass of investment for IT to yield benefits, and some suggested that growth figures for the 1990’s proved these benefits were finally being realized.  They also argued that measures of productivity ignore what would have happened without investments in IT—productivity gains might have been even lower.  There were even claims that IT had improved the performance of the service sector significantly, although macroeconomic measures of productivity did not reflect the improvement.


But some observers questioned why, if IT had conferred economic value, it did not produce direct competitive advantages for individual firms.  Resource-based theory offers an answer, asserting that, in general, firms gain competitive advantages by accumulating resources that are economically valuable, relatively scarce, and not easily replicated.  According to a recent study of retail firms, which confirmed that IT has become pervasive and relatively easy to acquire, IT by itself appeared to have conferred little advantage.  In fact, though little evidence of any direct effect was found, the frequent negative correlations between IT and performance suggested that IT had probably weakened some firms’ competitive positions.  However, firms’ human resources, in and of themselves, did explain improved performance, and some firms gained IT-related advantages by merging IT with complementary resources, particularly human resources. The findings support the notion, founded in resource-based theory, that competitive advantages do not arise from easily replicated resources, no matter how impressive or economically valuable they may be, but from complex, intangible resources.

The passage is primarily concerned with
(A)
describing a resource and indicating various methods used to study it
(B)
presenting a theory and offering an opposing point of view
(C)
providing an explanation for unexpected findings
(D)
demonstrating why a particular theory is unfounded
(E)
resolving a disagreement regarding the uses of a technology
GMATTM is a registered trademark of the Graduate Management Admission CouncilTM. The Graduate Management Admission CouncilTM does not endorse, nor is it affiliated in any way with the owner or any content of this web site.