Why IT Matters in Midsized Firms

Marco Iansiti, George Favaloro, James Utzschneider, and Greg Richards

There is considerable confusion among academics and practitioners over how (or if) information technology (IT) impacts corporate performance. Some have stated that IT has become a ubiquitous input, like electricity or railroads, which confers little competitive advantage to a company that employs it.

Others have argued that IT is crucial, but failed to find systematic correlations between IT spending and business performance. Others still have claimed that IT is important, but based their arguments on a few, pre-selected examples of outstanding companies, like Dell and FedEx, that have long used information technology as a differentiator.

The crucial question has still remained open-can a typical company truly benefit from a focus on information technology to differentiate itself from competitors and achieve business objectives?

Executive Summary:

What does IT actually contribute to a business? Is IT a commodity like electricity or is it a crucial element of competitive advantage? In a study of over 600 medium-sized global firms to analyze the business benefits that IT can enable, the authors found that IT capability was key to profitable business growth. This was true in both the U.S. product and services sectors as well as in Germany and Brazil. Key concepts include:

• IT matters. IT enables firms to scale.
• The amount a company spends on IT is a poor indicator of IT functionality and business impact.
• Firms with business process scalability find it easier to overcome obstacles to growth, differentiate themselves from competitors, and quickly capitalize on opportunities.

Marco Iansiti is the David Sarnoff Professor of Business Administration at Harvard Business School.