The efficiency opportunity impact of information systems in an organizational economics framework of informatics: paper presented at: LINK seminar 26, 2000 (revised August 2000)

Information systems (IS) have a record of raising efficiency and effectiveness in business operations. In the modern economy, ongoing efficiency improvements through innovation play a decisive role. A new theory of distributed relations refocuses innovations comptence from core to distributed competence, raising new efficiency opportunities. The paper suggest an economic model of the efficiency opportunities of information processing revealing the efficiency form of distributed relations, a type of efficiency recently supported by IS. Previous research suggests examples of distributed information systems that support this type of efficiency. The distributed relations type of IS leverages an efficiency approach in the context of an organizational economics approach drawing attention to organizational informatics. Introduction In studies of the impact of IT upon organization some contributions stress the equivocal or contradictory results (Robey 1995) while others offer models accounting for IT impacts on a range of business processes creating business value, yet with a homogenous concept of IT (Mooney et al 1995). The economic research tradition with a production function approach to IT investments offers a disaggregated, heterogeneous IT capital analysis showing positive returns to investments in mainframe computers and PCs but mixed results for minicomputers (Gurbaxani et al 1998). An answer to the question of IT impact clearly requires solid distinctions between different types of effects and different types of IT to furnish an answer. In these models, Soh & Markus have traced a common process orientation of “necessary (but not sufficient) conditions in a ‘recipe’ that explains how the outcome occurs when it does, while acknowledging that it does not always do so” (Soh & Markus 1995:33). A weakness in these models is the lack of a proper theoretical model that accounts for processes to consider. This weakness has been exposed in the wake of the Internet that has caused focus to move towards inter-business processes as found in supply chain systems, customer response systems, and procurement systems (Bakos & Brynjolfsson 1998, El Sawy et al. 1999). The Internet revolution has generated rates of growth in demand for information and communication technologies (ICT) higher than for most other industries in the OECD economies (OECD 1998). A pervasive diffusion has created a uniquely suitable channel for the sales and distribution of information technologies and software in particular (Margherio 1998). Recent contributions rejecting speculative conjectures about a “new economy” suggests a ubiquitous relevance of the economic principle of complementarity for information services (Katz & Schapiro 1994, Shapiro & Varian 1999). Developing from organizational economics (Milgrom & Roberts 1992), this analysis has raised the question of IT impact again in terms of efficiency. The Internet revolution coincides with a new innovation theory. The model of distributed innovation patterns substitutes the traditional focus on the development of a specific product or process (Metcalfe and James 1998). Distributive rather than distinctive core competencies describe modern corporations (Granstrand et al 1997). Interdependencies between corporations creating new products and services reveal the efficiency opportunities of complementarity. The convergence of the organizational economics framework relevant to information systems and the innovation theory relevant to distributed systems like Internet applications, calls for a revisit to the basic ideas of IT impact.