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# Most pre-1990 literature on businesses’ use of information

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Senior Manager
Joined: 10 Apr 2012
Posts: 268
Location: United States
Concentration: Technology, Other
GPA: 2.44
WE: Project Management (Telecommunications)

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Updated on: 26 Aug 2013, 00:36
Most pre-1990 literature on businesses’ use of information technology(IT)—defined as any form of computer-based information system—focused on spectacular IT successes and reflected a general optimism concerning IT’s potential as a resource for creating competitive advantage. But toward the end of the 1980’s, some economists spoke of a “productivity paradox”: despite huge IT investments, most notably in the service sectors, productivity stagnated. In the retail industry, for example, in which IT had been widely adopted during the 1980’s, productivity (average output per hour) rose at an average annual rate of 1.1 percent between 1973 and 1989, compared with 2.4 percent in the preceding 25-year period. Proponents of IT argued that it takes both time and a critical mass of investment for IT to yield benefits, and some suggested that growth figures for the 1990’s proved these benefits were finally being realized. They also argued that measures of productivity ignore what would have happened without investments in IT—productivity gains might have been even lower. There were even claims that IT had improved the performance of the service sector significantly, although macroeconomic measures of productivity did not reflect the improvement.

But some observers questioned why, if IT had conferred economic value, it did not produce direct competitive advantages for individual firms. Resource-based theory offers an answer, asserting that, in general, firms gain competitive advantages by accumulating resources that are economically valuable, relatively scarce, and not easily replicated. According to a recent study of retail firms, which confirmed that IT has become pervasive and relatively easy to acquire, IT by itself appeared to have conferred little advantage. In fact, though little evidence of any direct effect was found, the frequent negative correlations between IT and performance suggested that IT had probably weakened some firms’ competitive positions. However, firms’ human resources, in and of themselves, did explain improved performance, and some firms gained IT-related advantages by merging IT with complementary resources, particularly human resources. The findings support the notion, founded in resource-based theory, that competitive advantages do not arise from easily replicated resources, no matter how impressive or economically valuable they may be, but from complex, intangible resources.

1)The passage is primarily concerned with
(A)describing a resource and indicating various methods used to study it
(B)presenting a theory and offering an opposing point of view
(C)providing an explanation for unexpected findings
(D)demonstrating why a particular theory is unfounded
(E)resolving a disagreement regarding the uses of a technology

2)The passage suggests that proponents of resource-based theory would be likely to explain IT's inability to produce direct competitive advantages for individual firms by pointing out that
(A)IT is not a resource that is difficult to obtain
(B)IT is not an economically valuable resource
(C)IT is a complex, intangible resource
(D)economic progress has resulted from IT only in the service sector
(E)changes brought about by IT cannot be detected by macroeconomic measures

3)The author of the passage discusses productivity in the retail industry in the first paragraph primarily in order to
(A)suggest a way in which IT can be used to create a competitive advantage
(B)provide an illustration of the "productivity paradox"
(C)emphasize the practical value of the introduction of IT
(D)cite an industry in which productivity did not stagnate during the 1980's
(E)counter the argument that IT could potentially create competitive advantage

4)According to the passage, most pre-1990 literature on businesses' use of IT included which of the following?
(A)Recommendations regarding effective ways to use IT to gain competitive advantage
(C)Information about ways in which IT combined with human resources could be used to increase competitive advantage
(D)A warning regarding the negative effect on competitive advantage that would occur if IT were not adopted
(E)A belief in the likelihood of increased competitive advantage for firms using IT

OA to follow. Appreciate if a GMAT Coach can help me understand the right answer for the first question

Originally posted by guerrero25 on 25 Aug 2013, 21:58.
Last edited by guerrero25 on 26 Aug 2013, 00:36, edited 1 time in total.
Manager
Joined: 25 Sep 2012
Posts: 243
Location: India
Concentration: Strategy, Marketing
GMAT 1: 660 Q49 V31
GMAT 2: 680 Q48 V34

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25 Aug 2013, 22:50

What i'll first do is summerise the passage.
In first paragraph author talks about economists who think intorduction of IT led to productivity stagnation and propoenents of IT who disagreed with economists.

In second paragraph he mentions observers who agree that IT does not provide any direct competitive advantages for individual firms. Then he talks about Resource-based theory which suggests that firms gain competitive advantages by accumulating resources that are economically valuable, relatively scarce, and not easily replicated.

In the end he agrees with the theory (findings support the notion, founded in resource-based theory, that competitive advantages.. )

Now what you have to do is select a right answer. (which agrees with above summary). I do it by eliminating the wrong ones.

(A)describing a resource and indicating various methods used to study it --- Resource = IT.Are we talking about how to study it?(B)presenting a theory and offering an opposing point of view --- There is no opposition
(C)providing an explanation for unexpected findings --- I got confused with this one so hold
(D)demonstrating why a particular theory is unfounded --- There is no opposition
(E)resolving a disagreement regarding the uses of a technology --- sounds better than C
MBA Section Director
Affiliations: GMATClub
Joined: 22 May 2017
Posts: 2093
Concentration: Nonprofit
GPA: 4
WE: Engineering (Computer Software)

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10 Oct 2018, 22:55
Re: Most pre-1990 literature on businesses’ use of information   [#permalink] 10 Oct 2018, 22:55
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