Previous information systems (IS) research has
examined the relationship between information
technology (IT) and diversification based on the
speculation that IT can affect firm structure by
reducing the costs of coordinating economic activities
within and between firms [14,19]. After
examining the relationship between IT and diversification,
Dewan et al. [14] found that diversified
firms, especially in related lines of business, made
greater investments in IT. They argue that their
findings might reflect a greater need for coordination
of assets and information processing within diversified
firms. Hitt [19] provides similar findings from
his analysis of the link between IT and diversification:
firms that were more diversified had a higher
demand for IT capital. He also argues that increased
use of IT is associated with a slight increase in
diversification.