Measurement of IT returns on firm with multiple production processes by simultaneous production functions

Abstract

In practice, returns on investments in IT cannot be directly verified and it is difficult to identify the proportion of the shared IT budget allocated to each stage for multiple production process. In order to measure the IT returns on each stage directly, this paper proposes a simultaneous production functions model for the multiple production process connected in series. This model can be used not only to identify the impact of IT on firm performance, but also to estimate the technical efficiencies of each stage for multiple production process. It can be shown that the difficulty of identifying the shared inputs in each production stage will disappear with this new model when those decision making units have the same allocation of IT budget.