Effects of time-inconsistent preferences on information technology infrastructure investments with growth options

Increasing information technology (IT) infrastructure spending and the capability of such projects to provide a platform for a firm to realize value from IT marks their importance. Effective management of IT infrastructure investments includes identification of embedded growth options in the infrastructure, and exercising them in a timely manner. Extant research has recognized that while managers could use real options thinking in IT investment management, managerial bias could affect the timing of option exercise and their realized value. We analyze the effect of time-inconsistent preferences of present-biased managers on the exercise time of real growth options and the realized value using a discrete time option valuation model. The results show that present-biased managers are more likely to exercise options early when the net payoffs are low, the option payoffs have high volatility, and the risk free discount rate is small. In addition, present biased managers are more likely to exercise a growth option early in its life when the project is performing well. We provide implications for practice and IT governance.     

An exploratory examination of the relationship between flexible IT infrastructure and competitive advantage

Information technology (IT) professionals have discussed the potential value of an organization’s IT infrastructure. Unique characteristics of this infrastructure determine its value to the organization. One characteristic, flexibility, has captured the attention of managers in organizations. A flexible IT infrastructure has even been touted by some as the next competitive weapon. Despite this suggestion, empirical evidence has been sparse. The purpose of this paper is to offer an exploratory analysis into the relationship between flexible IT infrastructure and competitive advantage. A canonical correlation analysis is used to explore this relationship. The findings support the view that there is a positive relationship between flexible IT infrastructure and competitive advantage.     

Managing the Toughest Transition: Part One

The challenge for IT leaders is that they and their colleagues are under increasing pressure to help produce quantifiable business results. the recent downturn in IT spending is in part a result of the perception among CEOs and other C-level executives that investments in IT have not resulted in expected bottom-line improvements. This is ratcheting up the pressure for increasingly competent IT leadership. Adding to already-high stress levels, the transition from individual contributor to leader/manager continues to be a source of difficulty and frustration.

This series of two articles focuses on this “toughest transition” and describes ways in which CIOs and their leader and manager colleagues can improve the transition process. Part One focuses on the challenges new IT leaders experience as they begin their transition. Part Two revisits one of these new leaders as she prepares to lead a multi-location team working on customer-related initiatives.     

Resource Complementarity and IT Economies of Scale: Mechanisms and Empirical Evidence

ABSTRACT

In this study, we explore economies of scale for IT infrastructure and application services. An in-depth appreciation of economies of scale is imperative for an adequate understanding of the impact of IT investments. Our findings indicate that even low IT spending organizations can make a difference by devoting at least 60% of their total IT budget on IT infrastructure in order to foster economies of scale and extract strategic benefits.     

Offshore Outsourcing: A Swot Analysis of a State in India

Global trends indicate that IT spending will increasingly go to offshore solution providers. This article demonstrates the use of a SWOT analysis technique for identifying the strengths, weaknesses, threats, and opportunities associated with a potential IT outsourcing location. The factors assessed include business conditions, physical infrastructure, IT infrastructure, financial institution and government support, and various labor characteristics specific to a region: the state of Kerala in India.     

Exploring the perceived business value of the flexibility enabled by information technology infrastructure

We developed a multidimensional definition of IT infrastructure (ITI) and applied it in exploring the perceived strategic payoffs of ITI-enabled flexibility. We began by developing a typology of theoretical approaches that can be used to organize the literature and then developed a multidimensional model by conceptualizing how flexibility can be enabled through technical, human, and process elements of ITI and how these are interrelated. We used a resource-based view of the firm and a dynamic capabilities perspective to account for competitive impacts of the flexibility. Finally, we hypothesized on the moderating effects of organizational size and reporting level of the top IT executive. Data collected from 293 IT managers showed that the range of managerial ITI capabilities, which were positively affected by all areas of IT personnel knowledge and skills, was responsible for the competitive impacts of the ITI-enabled flexibility. Multigroup analyses showed that large organizational size or reporting to the CEO reduced the positive effects of the range of managerial ITI capabilities on competitive impacts.     

Bolster your budget proposals with IT market basket statistics

Tracking and comparing the costs of IT staples such as equipment, connectivity, and training can underpin your budget proposals with hard numbers. IT spending projections for the year 2000 remain surprisingly low. A review of all companies surveyed reveals a maximum IT spending increase of 30 percent at one end of the scale and a maximum spending decrease of 25 percent at the other end, numbers that reveal a strange symmetry. Perhaps more significantly, the average change in expenditure is very small: only a 2 percent spending increase. Worse, now when the industry needs skilled workers more than ever, employee training days per year continue their steady decline worldwide, from 8.5 days in 1997 to 7.25 days in 1999. The paper considers how you can fight these trends and win with solid statistics and an approach to IT activities that positions your department as a value center for driving technology investments     

Information Security Assessment: Procedures and Methodology: When investing in technology isn’t enough

It very often happens while setting up or renovating company IT infrastructure that most of the investment goes into purchasing new products. In particular, this may occur in the area of security, which is often not given the attention it deserves. The worst error one can commit is that of spending hundreds of thousands of dollars on perimeter protection products (firewalls, content filtering, etc.) and rearguard products (intrusion detection systems) without having assessed vulnerabilities and assets, and developed a post-implementation security management program.     

Addressing new security and privacy challenges

Now that Y2K is behind us, IT professionals have been tempted to rest on their laurels particularly because the economic recession has significantly slowed spending on IT equipment and services. However, the tragic events of 11 September and a series of serious worms and denial-of-service attacks should serve as an urgent wake-up call that society is indeed vulnerable to threats against critical infrastructure. These critical systems include those for telecommunications, transportation, energy, banking and finance, government, and emergency services systems vital to the world's normal functioning and well being. Incapacitating any one or multiple portions of these infrastructures could compromise economies and public safety     

Impact of information technology capability on financial performance during the period of economic downturn: the case of Chinese listed companies

Several earlier studies validate the positive impact of information technology (IT) capability on firm performance during economic expansion in developed countries. Given sustained IT investments and rapid adoption of various IT in developing countries (e.g. China) in the 2000s, there is a need for new research to test whether prior findings still hold true with up-to-date data from a period of economic downturn in developing countries. Thus, this study attempted to reexamine the linkage between IT capability and financial performance during recent financial crisis in 2008, especially in China context. Our results show that during the period of financial crisis, Chinese firms with superior IT capability tend to outperform a sample of control firms on average profit ratios but not on cost ratios, even after adjusting for prior performance. We also find that the profit performance effects of IT capability can be sustained over a long period of economic downturn. This study contributes to research by extending a different context (i.e. China) from developed countries with new data from economic downturn and providing new finding to reconcile prior research.     

A Can of Worms

We already know about the different security risks to IT infrastructure, we hear about them almost every day. But that doesn’t make the problem any easier to tackle. Security threats are a constant issue — a recent survey by the CBI warned that two thirds of British companies have been hit by cybercrime in the last 12 months.     

Scoping the global market: size is just part of the story

The IT market is changing so quickly that it's hard to keep pace. This concern is what motivated a recent study conducted by the International Data Corp. (IDC) and published by the World Information and Technology and Services Alliance. WITSA-a consortium of 35 IT trade associations worldwide-wanted more than market estimates. Its members wanted hard data on size and impact of the IT industry-details like the number of computers being used, the total IT investment companies made both inside and outside their walls, and the effect of that investment on individual countries worldwide. The resulting publication, Digital Planet-The Global Information Economy, provides measurements from 1992 to 1997 for the global IT industry with details for the 50 largest countries. Collectively, they represent 98 percent of the world's spending on IT and 97 percent of the world's gross domestic product (GDP). The Digital Planet study is unique in several respects. It is the first to look at IT's influence from a global perspective, to measure internal spending on IT, and to examine IT's social and economic effects. It is also the first to use hard data and consistent definitions on such a large scale     

Valuing information technology infrastructures: a growth options approach

Decisions to invest in information technology (IT) infrastructure are often made based on an assessment of its immediate value to the organization. However, an important source of value comes from the fact that such technologies have the potential to be leveraged in the development of future applications. From a real options perspective, IT infrastructure investments create growth options that can be exercised if and when an organization decides to develop systems to provide new or enhanced IT capabilities. We present an analytical model based on real options that shows the process by which this potential is converted into business value, and discuss middleware as an example technology in this context. We derive managerial implications for the evaluation of IT infrastructure investments, and the main findings are: (1) the flexibility provided by IT infrastructure investment is more valuable when uncertainty is higher; (2) the cost advantage that IT infrastructure investment brings about is amplified by demand volatility for IT-supported products and services; (3) in duopoly competition, the value of IT infrastructure flexibility increases with the level of product or service substitutability; and (4) when demand volatility is high, inter-firm competition has a lower impact on the value of IT infrastructure.     

Strategic context and patterns of IT infrastructure capability

The importance of a firm's information technology (IT) infrastructure capability is increasingly recognised as critical to firm competitiveness. Infrastructure is particularly important for firms in industries going through dynamic change, for firms reengineering their business processes and for those with multiple business units or extensive international or geographically dispersed operations. However, the notion of IT infrastructure is still evolving and there has been little empirically based research on the patterns of IT infrastructure capability across firms.We develop the concept of IT infrastructure capability through identification of IT infrastructure services and measurement of reach and range in large, multi-business unit firms. Using empirical case research, we examine the patterns of IT infrastructure capability in 26 firms with diverse strategic contexts, including different industry bases, level of marketplace volatility, extent of business unit synergies and the nature of firm strategy formation processes. Data collection was based on a combination of quantitative and qualitative methods with multiple participants.More extensive IT infrastructure capability is defined as a combination of more IT infrastructure services and more reach and range. More extensive IT infrastructure capability was found in firms where: (i) products changed quickly; (ii) attempts were made to identify and capture synergies across business units; (iii) there was greater integration of information and IT needs as part of planning processes; and (iv) there was greater emphasis on tracking the implementation of long term strategy. These findings have implications for both business and technology managers particularly in regard to how firms link strategy and IT infrastructure formation processes.     

MANAGING FOR FLEXIBILITY

To help companies compete in a world of rapid change, the IT function is assuming a new role of anticipating and meeting the infrastructure and information needs that support organizational flexibility. This article describes the new aligned IT organization and its implications for IT professionals.     

Return on Infrastructure, the New ROI

IT executives frequently must be able to communicate IT's value in real economic terms, characterizing how technology infrastructure financially benefits the business relative to the company's financial performance objectives. Traditionally, the approach taken has focused on the capital investment process, with return on investment being the primary metric. However, ROI approaches identify financial results pertaining to a specific project, rather than IT programs as a whole, and can be misleading. A new financial metric, return on infrastructure employed (ROIE), has economic and real practical meaning to senior executive management because it recognizes IT as both an asset and a service. ROIE is a new financial management tool with which to judge the business contribution of IT as a whole; using it can motivate management behaviors and disciplines that are essential for success in the modern-day information economy.     

Assessing the value and cost implications of manufacturing information and data systems: an empirical study

Although manufacturing information and data systems (MIDS) form an integral part of a manufacturing organization's infrastructure, the growth of corporate IT expenditure has left many companies questioning the value of their MIDS deployment. The use of traditional appraisal techniques to justify investments in MIDS typically relies on measures based on direct cost savings and incremental future cash flows. These techniques are considered no longer appropriate because of the largely intangible cost and benefit dimensions of many IT projects. This paper presents the results of a research study based on interviews in eighteen manufacturing companies, which investigated the methods used to assess the value and cost of MIDS investments. After showing that the concepts used to justify value vary significantly between respondents, the research indicates that intuition plays an important role in value prediction and assessment. A comparison between small and large companies indicates that the systems implementations are perceived in a better light in smaller companies. The results obtained are then compared with recent research.     

Can ITIL contribute to IT/business alignment? An initial investigation

Strategic alignment has been viewed as one of the main concerns of management and IT executives. Organizations have realized that in order to achieve competitive advantage, IT needs to be strategically aligned with business objectives. Strategic alignment enables organizations to choose IT applications that meet their needs and as a result, to enhance their profitability and reduce costs. Despite the importance of this matter and a large body of literature written on this subject, it has not yet been identified how it can be successfully achieved and maintained. This paper attempts to provide insight on this matter by investigating an initiative called Information Technology Infrastructure Library (ITIL), which ensures the effective and efficient delivery of IT services. The intention of this research was to identify how effective ITIL was in improving alignment between IT and business objectives. The Strategic Alignment Model (SAM) developed by Henderson and Venkatraman was used for this research. This consists of four parts: IT strategy; business strategy; organizational infrastructure and processes; and IS infrastructure and processes. By placing ITIL in the internal domain of the model as a substitute for the IS infrastructure and processes it has been identified that it has the ability to impact the other three main areas of the model and as result enables alignment between all the four parts of model to be achieved. In addition to the above an empirical study has been conducted in order to further investigate the ability of ITIL in achieving alignment between IT and business objectives. Four participants have been interviewed from three organizations ranging from education and banking to the IT sector. The results of the research indicate that ITIL has potential as an effective approach in achieving alignment.     

A critical success factors model for ERP implementation

An effective IT infrastructure can support a business vision and strategy; a poor, decentralized one can break a company. More and more companies are turning to off-the-shelf ERP (enterprise resource planning) solutions for IT planning and legacy systems management. The authors have developed a framework to help managers successfully plan and implement an ERP project     

“When Do You ASP?” The Software Life Cycle Control Model

Application Service Providers (ASPs) now offer a new alternative for the acquisition and operation of application software, enabling companies to rent or lease applications that are delivered via the Internet. In determining the appropriateness of this strategy, companies must tradeoff the cost and time advantages of this approach with its risks. This paper introduces a Software Life Cycle Control Model that describes the dimensions of control over software features and operations associated with various software acquisition strategies, including internal development and operation, purchasing packaged applications, outsourcing, and ASPs. Transaction cost economics (TCE) is used to identify the key costs and risks that must be considered in the software acquisition decision. We propose when ASPs may be appropriate for companies with existing IT infrastructure and companies lacking infrastructure to develop and operate new applications.