Information Technology and Worker Composition: Determinants of Productivity in the Life Insurance Industry1

Abstract

This paper investigates the impact of IT investments and worker composition on the productivity of life insurance companies. The majority of previous IT productivity studies follow a technological imperative, hypothesizing a direct relationship between higher IT investments and increased productivity. This paper shifts the focus toward the organizational imperative, which views returns on IT investments as a result of the alignment between technology and other critical management choices. Specifically, the study focuses on the alignment between IT investments and worker composition, measured in terms of relative numbers of clerical, managerial, and professional positions to the total number of employees. Hypotheses are tested using a data set compiled over a 10-year period for 52 life insurance companies. With respect to prior research, the study is novel in its adoption of a model of productivity that accounts for both separate and combined effects of IT investments and worker composition. Premium income per employee and total operating expense to premium income are used as indicators of productivity. Study findings show that increases in IT expenses are associated with productivity benefits when accompanied by changes in worker composition. Life insurance companies that have decreased their proportion of clericals and professionals while at the same time investing in IT have experienced productivity improvements. On the other hand, companies decreasing their proportion of managers while investing in IT are found to have reduced productivity.

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