Most pre-1990 literature on businesses' use of information technology (IT)—defined as any form of computer-based information system—focused on spectac...
GMAT Reading Comprehension : (RC) Questions
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 1980s, 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 1980s, 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 1990s 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.
The passage is primarily concerned with
1. Passage Analysis:
Progressive Passage Analysis
| Text from Passage | Analysis |
|---|---|
| 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. | What it says: Before 1990, most business writing about information technology focused on success stories and was optimistic about IT helping companies beat competitors. What it does: Sets up the historical context and establishes the initial positive view of IT. Source/Type: Factual summary of past literature Connection to Previous Sentences: This is our starting point - no previous information to connect to yet. Visualization: Pre-1990 Business Literature about IT: • Focus: Success stories • Tone: Optimistic • Belief: IT = competitive advantage What We Know So Far: IT was viewed very positively before 1990 What We Don't Know Yet: What happened after 1990, whether this optimism was justified Reading Strategy Insight: This sets up what will likely be challenged or complicated later in the passage. |
Why It's Wrong:
- The passage doesn't describe "various methods used to study" IT - it only mentions one retail study
- The focus isn't on describing IT as a resource, but on explaining why IT doesn't create expected competitive advantages
- The passage is more explanatory than descriptive in nature
Common Student Mistakes:
- Does the passage mention research methods and studies about IT?
→ Yes, but mentioning research isn't the same as focusing on "various methods used to study" the resource - Isn't IT the main resource being discussed?
→ IT is discussed, but the primary concern is explaining unexpected findings about IT, not describing IT itself
Why It's Wrong:
- The passage doesn't primarily present resource-based theory and then offer an opposing view
- Resource-based theory is introduced as the solution/explanation, not as something to be opposed
- The opposing views (IT proponents vs. critics) come before the theory is introduced, not after
Common Student Mistakes:
- Doesn't the passage show IT proponents arguing against critics?
→ Yes, but this debate happens before the main theoretical framework is introduced - Isn't resource-based theory a major part of the passage?
→ It's important, but it's presented as the explanation for puzzling findings, not as a theory to be debated
Why It's Right:
- The passage centers on the "productivity paradox" - the unexpected finding that IT investments didn't boost productivity
- The research showing negative correlations between IT and performance was also unexpected
- Resource-based theory is introduced specifically to explain these surprising empirical results
- The entire structure moves from presenting unexpected findings to providing a theoretical explanation for them
Key Evidence: "But toward the end of the 1980s, some economists spoke of a 'productivity paradox': despite huge IT investments, most notably in the service sectors, productivity stagnated" and "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."
Why It's Wrong:
- The passage doesn't demonstrate that resource-based theory is unfounded - it uses the theory to explain the findings
- Resource-based theory is presented as valid and supported by the research evidence
- The theory that's being challenged is the early optimism about IT, not resource-based theory
Common Student Mistakes:
- Doesn't the passage show that early theories about IT were wrong?
→ Yes, but those weren't formal academic theories - they were general business optimism, and the passage uses resource-based theory to explain why that optimism was misplaced - Isn't the passage critical of some theoretical claims?
→ It's critical of IT proponents' arguments, but it supports resource-based theory as a valid explanation
Why It's Wrong:
- While the passage does present disagreement about IT, resolving this disagreement isn't the primary concern
- The focus is more on explaining why the disagreement exists through theoretical analysis
- The passage doesn't really "resolve" the disagreement as much as it explains why the productivity paradox occurred
Common Student Mistakes:
- Doesn't the passage present IT proponents vs. critics and then provide an answer?
→ Yes, but the primary purpose is explaining unexpected empirical findings, with the disagreement being part of that larger explanatory framework - Isn't the resource-based theory resolution of the debate?
→ It's more of an explanation for why the unexpected findings occurred, rather than a resolution of competing viewpoints