3.2.4Complementarity of IT Capital and Work Reorganization

In the 1980s, Bowen (1986) proposed that, ideally, firms should invest in new IT equipment only after they have reorganized their work practices. He believed payoffs from IT would not come from doing old tasks more efficiently, but from changing the way things are done by reorganizing the work process around IT equipment. If, indeed, information technology helps doing things faster, it could also do the wrong thing faster.

Along these lines, Brynjolfsson and Hitt (1995) argued: “cutting-edge computer shops can provide ingredients needed to increase productivity,” but only if “they are aligned properly with the company’s strategy and organizational structure.” To illustrate this matter, the authors noticed that before 1995, InformationWeek used to report the big spenders in IT, the ones that were using the latest technology. After 1995, the rankings considered their performance as well, and the top companies were the ones that combined computers with new strategies and structures to generate more wealth than their competitors. Using a small sample of top and bottom companies, Brynjolfsson and Hitt found that firms that were investing in IT for customer-oriented reasons did better than the ones worried about savings and management controls. For instance, Wal-Mart and K-Mart both used high-technology systems to get information by satellite about their sales in each of their stores nationwide. However, K-Mart centralized this information and gave it to their decision makers, whereas Wal-Mart left the decision making power to local store managers so that they could match local competitors. Even if a company is customer-oriented, decentralized and reorganized to take advantage of IT, it might still do badly “if it does not have an ear for customers’ desires and a nose for technology’s capabilities that can’t be reduced to a financial statement or a checklist,” as stated by Brynjolfsson and Hitt.

Chapman (1996) called this hypothesis the “complementarity condition,” meaning investment in IT “needs to be accompanied by a rethinking of the job process, employees’ role, and organizational hierarchy.” Indeed managers had to reorganize working methods to use IT capabilities more efficiently, instead of simply computerizing traditional methods.