Measuring the Financial Benefits of IT Investments on Coordination

Abstract

We know from the information processing perspective within the theory of organizations that IT can reduce coordination costs by increasing an organization’s information processing capacity. Purpose of this chapter is to empirically examine the relationship between greater investments in information technology and lower coordination costs on firm-level data. Two high-level measures of coordination costs are defined based on the information processing perspective within the theory of organizations. Our hypothesis that greater IT investments should be correlated with lower coordination costs is tested with both measures on longitudinal data from a cross-sectional sample of 18 large Italian companies over an 8-year period between 1988 and 1995. Results on this sample seem to support our hypothesis by showing a significant and negative correlation both aggregately and on sub-samples of data clustered by industry.