Information technology investment and firm performance

Abstract

There is a long debate whether the IT investment can stimulate firm performance. This paper aims to shed more light on this issue by developing a mathematical simulation model that is based on the reasons from different schools of thought. The results show that both schools of though are correct in different situation. In an early era, superior IT infrastructure can create a better firm performance because it can differentiate the IT leaders from others. However, in a long run, other firms are aware of benefits from IT investment so they invest more on IT projects. IT outsourcers and consultants also gain more experience from working in multiple projects which make the IT cost lower. Therefore, in a long run, IT investment does not drive a firm performance.