Brynjolfsson & Hitt, 2000: Beyond computation, organizational transformation and business
performance
Article 1: week 1, technological change
How do computers contribute to business performance and economic growth ?
As computers become cheaper and more powerful, the business value of computers is limited less by
computational capability and more by the ability of managers to invent new processes, procedures and
organizational structures that leverage this capability.
IT, defined as computers as well as related digital communication technology, has the broad power to
reduce the costs of coordination, communications, and information processing. Thus, it is not surprising
that the massive reduction in computing and communications costs has engendered a substantial
restructuring of the economy.
➔ IT is best described not as a traditional capital investment, but as a general purpose technology.
This article reviews the evidence on how investments in IT are linked to higher productivity and
organizational transformation, with emphasis on studies conducted at the firm level.
Our central argument is twofold
1) A significant component of the value of IT is its ability to enable complementary
organizational investments such as business processes and work practices.
2) These investments, in turn, lead to productivity increases by reducing costs and, more
importantly, by enabling firms to increase output quality in the form of new products or in
improvements in intangible aspects of existing products like convenience, timeliness, quality,
and variety.
To be successful, firms typically need to adopt computers as part of a system or cluster of mutually
reinforcing organizational changes.
The article discusses case evidence on 3 aspects of how firms have transformed themselves by
combining information technology with changes in work practices, strategy, and products and services.
They have transformed 1) the firm, 2) supplier relations and 3) the customer relationship.
Transforming the firm
The need to match organizational structure to technology capabilities and the challenges of making the
transition to an IT-intensive production process is concisely illustrated by a case study of MacroMed.
▪ Investment in computer integrated manufacturing → provide greater product customization and
variety.
▪ Also other changes like giving authority, changes in decision rights, lateral communication and
teamwork (see table 1).
▪ Failed due to the inherited pattern of line workers → solution was found in introducing the new
equipment with young employees.
Changing interactions with suppliers
Due to problems coordinating with external suppliers, large firms often produce many of their required
inputs in-house. General Motors is the classic example of a company whose success was facilitated by
high levels of vertical integration. However, technologies such as electronic data interchange and
information systems have significantly reduced the cost, time and other difficulties of interacting with
suppliers.
▪ Baxter ASAP system in hospitals → electronically order supplies directly from wholesalers
▪ Efficient consumer response → each checkout scanner goes directly to the manufacturer,
products are continuously replenished.
1
performance
Article 1: week 1, technological change
How do computers contribute to business performance and economic growth ?
As computers become cheaper and more powerful, the business value of computers is limited less by
computational capability and more by the ability of managers to invent new processes, procedures and
organizational structures that leverage this capability.
IT, defined as computers as well as related digital communication technology, has the broad power to
reduce the costs of coordination, communications, and information processing. Thus, it is not surprising
that the massive reduction in computing and communications costs has engendered a substantial
restructuring of the economy.
➔ IT is best described not as a traditional capital investment, but as a general purpose technology.
This article reviews the evidence on how investments in IT are linked to higher productivity and
organizational transformation, with emphasis on studies conducted at the firm level.
Our central argument is twofold
1) A significant component of the value of IT is its ability to enable complementary
organizational investments such as business processes and work practices.
2) These investments, in turn, lead to productivity increases by reducing costs and, more
importantly, by enabling firms to increase output quality in the form of new products or in
improvements in intangible aspects of existing products like convenience, timeliness, quality,
and variety.
To be successful, firms typically need to adopt computers as part of a system or cluster of mutually
reinforcing organizational changes.
The article discusses case evidence on 3 aspects of how firms have transformed themselves by
combining information technology with changes in work practices, strategy, and products and services.
They have transformed 1) the firm, 2) supplier relations and 3) the customer relationship.
Transforming the firm
The need to match organizational structure to technology capabilities and the challenges of making the
transition to an IT-intensive production process is concisely illustrated by a case study of MacroMed.
▪ Investment in computer integrated manufacturing → provide greater product customization and
variety.
▪ Also other changes like giving authority, changes in decision rights, lateral communication and
teamwork (see table 1).
▪ Failed due to the inherited pattern of line workers → solution was found in introducing the new
equipment with young employees.
Changing interactions with suppliers
Due to problems coordinating with external suppliers, large firms often produce many of their required
inputs in-house. General Motors is the classic example of a company whose success was facilitated by
high levels of vertical integration. However, technologies such as electronic data interchange and
information systems have significantly reduced the cost, time and other difficulties of interacting with
suppliers.
▪ Baxter ASAP system in hospitals → electronically order supplies directly from wholesalers
▪ Efficient consumer response → each checkout scanner goes directly to the manufacturer,
products are continuously replenished.
1
