Returns to Cloud Computing Investment: The Role of Environmental Uncertainty

Despite the significant potential of cloud computing to help firms adapt to uncertain and turbulent environments through flexibility, scalability, and reconfigurability, empirical evidence remains limited. This study addresses this gap by examining the impact of cloud computing on productivity and how its effects vary across different levels of environmental uncertainty. Using a novel measure of purchased cloud services in U.S. industries from 1997 to 2018, we further distinguish between software-as-a-service (SaaS) and infrastructure-as-a-service (IaaS). Employing a production function approach, our findings suggest that cloud computing investments do not uniformly translate into productivity gains. Instead, we observe significant variation depending on environmental conditions: while cloud computing enhances productivity in industries facing high uncertainty, it can even have adverse effects in highly stable environments. Moreover, the positive productivity effects under uncertainty appear to be driven primarily by IaaS rather than SaaS. Our findings contribute to the literature and offer important implications for IT strategy and digital resilience.