Previous researchers (many of which are referenced in this paper) have examined how the use of information technology (IT) improves the capital and labor efficiency of organizations. Shin hypothesizes that IT also improves the efficiency of coordination activities, which are a growing part of organizational processes.

Shin tested this hypothesis by analyzing data from two large databases. He extracted IT costs from an International Data Group (IDG) file, and financial data from the Compustat database. Shin focused on the costs of the central IT units for his study. He then matched the names of companies in the IDG database with those in the Compustat file. He manipulated, depending on the type of firm, the earnings statement data for the matching companies, to come up with what he defined as “cost of coordination.” He then tested the correlation between the two data streams over five years, using two different statistical techniques. In the process, he controlled for advertising and research and development (R&D) variables, assuming that companies that spend “a large amount on R&D and advertising must [also] be spending a large amount on coordination costs” (p. 133).

Shin’s analysis showed that “IT spending is strongly associated with a decline in coordination costs for the full sample” (p. 134). For two industries, transportation and utilities, however, the effect does not seem as strong as in the manufacturing and trade sectors.

I am an IT practitioner, rather than an academic, and I welcome analyses such as this that quantify the value of IT. But the proof of this value to me, while less rigorous, is more obvious. It’s in our daily use of personal computers, in our assumption of the pervasiveness of the Internet for routine communications and business transactions, and in the restructuring of organizations themselves into global businesses that would be unimaginable without IT. IT has not only made commerce more efficient, but has helped it to reach previously unthought-of areas.