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The debate around the value of Information Technology (IT) has raged for a long time and the analysis suggests that IT does in fact create business value. Value from IT arises not only directly but also indirectly through several channels. IT interacts with the organizational processes, strategies and incentives within an organization and alters the relationship of the firm with the external world by altering the competitive conditions. Because the benefits of IT are diffuse and arise through many mechanisms, the benefits have been measured at various levels (process, firm and economy) using different measures (market valuation, subjective and objective performance). But most studies have adopted a black-box approach in measuring the value of IT by focusing on the question of how much value is added rather than on the mechanisms that drive the value. The fact that IT interacts with other parts of the organization has only recently started to receive attention. In the first part of the study, we argue that IT affects other factors inputs such as non-IT capital and labor. In the process IT increase