Evaluating organizational efficiency resulting from information technology investment: an application of data envelopment analysis

Abstract. Even during this recessionary era, information technology (IT) expenditure in most organizations continues to grow at a high rate. Because of this increased IT expenditure, more and more senior managers are demanding that IT play a greater role in determining their firm's success by helping them increase organizational efficiencies and perhaps even achieve competitive advantage. The existing information systems literature on IT investment and organizational strategic performance, however, provides very little help to senior managers in making before-the-fact IT investment decisions. The present research study puts forth some 'hard' evidence relating IT investment to organizational strategic and economic performance by using data envelopment analysis (DEA). Eight IT investment measures were used as inputs and 10 organizational strategic and economic performance ratios were used as outputs for the DEA model. The results indicate that two-thirds of the organizations in this research study are deemed efficient by DEA. A clear distinction exists between the efficient group and the inefficient group in terms of IT investment and organizational strategic and economic performance. The firms in the efficient group had a much higher return on their information technology investment than the inefficient group. In addition, the DEA results pinpoint the inefficient inputs and deficient outputs for an inefficient firm allowing a senior manager to take corrective actions to compensate for the situation.     

Impact of information technology investment: An empirical assessment

Assessing the impact of information technology (IT) investment on organizational performance has been found to be problematic. Past studies of relationships between information technology investment and organizational performance has generally produced mixed, inconclusive, and even confusing results. The research described here attempts to demonstrate the impact of IT investment by investigating relationships between sets of IT investment measures and organizational performance measures. The results reveal positive and significant relationships between certain of the IT investment measures and organizational performance measures used in the study, indicating that organizations with greater levels of IT investment also had higher performance, as measured by return on investment, return on sales, sales per employee, sales by total assets, and market value to book value.     

Causality in the alignment of information technology and business strategy

The need for a link between information technology (IT) use and organizational strategy has been identified and discussed for a number of years. The thrust of this work argues that the motives for investment in IT should derive from firm objectives and, more particularly, from the strategic plan which the organization wishes to pursue. This paper argues that, often, mere lip service is paid to the strategic nature of IT. Further, strategy justification has become a tool for securing investment in IT by circumventing established organizational policy on investments. Many IT investments labelled ‘strategic’ appear to be operational in nature. This paper discusses the nature and evaluation of strategy and relates it to the literature on IT as a strategic tool. The extent to which the relationship between IT and strategy has altered over recent years is subsequently investigated. The implementation process is investigated and evidence of IT investment activities and the returns available to investing organizations are reviewed. The paper argues that there are a number of alternative views on the IT-strategy relationship, some of which are organizationally detrimental.     

The competitive impact of information technology: can commodity IT contribute to competitive performance?

Despite polarizing arguments on the strategic potential of information technology (IT), academic research has yet to demonstrate clearly that information systems initiatives can lead to sustained competitive performance (CP). We investigate this question using data from 165 hotels affiliated with two brands of an international lodging chain. We study the effect of successful use and unreliability of an incremental IT-enabled self-service channel on overall CP. We find that the effect of the incremental service channel depends on the firm’s organizational resources. We also show that different organizations experience significantly different use and unreliability rates. Further, we find that the positive association between the use of an IT-enabled self-service channel and CP endures over a 2-year period, despite competitors’ widespread adoption of the technology enabling the incremental service channel (self-service kiosks). Our findings corroborate research on the strategic role of IT resources when appropriately coupled with complementary resources. They lead us to question the notion that IT is a strategic commodity. Indeed, the findings suggest that IT-dependent strategic initiatives have the potential to generate sustained CP, even when the technology that enables them appears ‘simple’. These findings suggest the need for a theoretical explanation of the complementarities and interaction among the elements of IT-dependent strategic initiatives.     

Relation of CIO background,IT infrastructure,and economic performance

The literature of the past three decades has not provided a consistent picture of payback for IT investment. Firm strategies and infrastructure play a part in determining return on investment and, in recent years, chief information officer (CIO) characteristics have been cited as essential factors in ensuring economic returns for IT investment. In our study we related CIO background and attitude toward IT investment to the objective measures of a firm's performance. The financial measures tended to be higher when the CIO was from IT rather than general management, however, an IT manager in a firm that had a strategic orientation to IT rather than a utilitarian one was more likely to have higher financial performance. Thus, although a CIO should have a technological background, the CIO who has a strategic rather than utilitarian orientation is more likely to help in forming a highly profitable company.     

Strategic and organizational determinants of information system sophistication: an analysis of the uptake of database marketing in the financial services industry

This paper investigates strategic and organizational determinants of adoption/non-adoption of strategic marketing information systems that differ in degree of sophistication. We identify potentially relevant variables and relate them to the use of database marketing (DBM) systems. Using an obtained sample of 49% of all major banks, building societies and insurance companies in the UK, we compare users and non-users and, within the users, we identify intercorrelations with those variables linked to degree of sophistication.Adoption of DBM systems is closely associated with the organization placing a greater strategic importance on direct marketing decisions, strategic integration of information technology (IT) and marketing, the possession of a large direct marketing grouping and a strong marketing and information orientation. These factors, coupled with a greater degree of organizational slack and weaker organization control of resources and more decisive decision making, which separate adopting organizations from non-adopters.Once adoption has occurred, greater DBM sophistication is closely linked to the power of the direct marketing function, the importance placed on the strategic integration of IT and marketing, the size of the direct marketing grouping, and the organization's overall information orientation.     

IT centrality,IT management model,and contribution of the IT function to organizational performance: A study in Canadian hospitals

The characterization of the IT function in organizations represents a central topic of investigation in the information systems field. The main purpose of this study was to predict the contribution of the IT function to organizational performance by focusing on the centrality of IT and the IT management profile as primary determinants. A cross-sectional survey of CIOs working in Canadian hospitals reveals that IT centrality positively influences the strategic orientation of the IT management model. In turn, the stronger the strategic orientation of the IT management model in place, the greater is the IT function’s contribution to organizational performance.     

It governance in the public sector: a conceptual model

Information technology governance (ITG) has been identified as an organizational ability of great importance for IT strategic alignment and the delivery of business though IT. However, the results and contribution of ITG are poorly understood. This work presents an explanatory model of the effects of IT governance mechanisms on IT and organizational performance of public organizations. To test the model, data was collected from a survey conducted in 146 Brazilian public organizations. Partial least squares analysis was applied to test the proposed model. The results indicate that (i) IT performance is positively correlated with organizational performance, (ii) relational mechanisms between IT and a business are determinant factors for the performance of IT, and also positively correlated with organizational performance, and (iii), decision structure and process maturity are not significantly correlated with IT performance.     

The Impact of Information Technology Investment on Enterprise Performance: A Case Study

Investment in information technology is steadily increasing, but many organizations find it difficult to formally assess the value of IT investments because the latter are often incorporated into broad management initiatives. the authors believe that the results of the research study reported on here can help firms to develop a better understanding of the dynamic relationship between IT investment and performance at both the firm and industry levels of analysis. This study clearly demonstrates the importance of adopting an organizational change perspective when assessing the impact of IT investment on firm performance.     

The critical success factors for ERP implementation: an organizational fit perspective

Since early 1990s, many firms around the world have shifted their information technology (IT) strategy from developing information systems in-house to purchasing application software such as enterprise resource planning (ERP) systems. IT managers responsible for managing their organization’s ERP implementation view their ERP systems as their organizations’ most strategic computing platform. However, despite such strategic importance, ERP projects report an unusually high failure rate, sometimes jeopardizing the core operations of the implementing organization. This study explores the root of such high failure rate from an “organizational fit of ERP” perspective. Based on the relevant literature, we define the concept of organizational fit of ERP and examine its impact on ERP implementation, together with ERP implementation contingencies. The results from our field survey of 34 organizations show that ERP implementation success significantly depends on the organizational fit of ERP and certain implementation contingencies.     

Information technologies and downsizing: Examining their impact on economic performance

Recent literature analyses the economic effects of employee downsizing on organizations under a contingent framework. Information technology (IT) can be considered a relevant factor for organizations that downsize. IT could enhance knowledge management, innovation management and organizational learning. Given the damage produced by downsizing on these organizational capabilities, the aim of this research is to study the moderating role of the implementation level of IT in the relationship between downsizing and organizational economic performance. Analyzing Spanish chemical industry, our results show that this negative effect can be mitigated by IT implementation.     

Effects of strategic alignment on IS success: the mediation role of IS investment in Korea

The purpose of this research is to develop a comprehensive information system (IS) evaluation model for IS success linked to organizational performance. The primary focus of this research is to investigate the role of IT investment in business values by means of a group survey of about 300 business executives in Korea. We used the contingency theory to discover the mediation effect of IS investment on strategic alignment and IS success. In contrast to previous research, this study expanded the test scope to IS architecture and organizational structure at the operational level. The results from 273 business executives in Korea indicated that strategy integration with IT is positively related to IT investment, and IT investment is a critical antecedent of IS success. Thus, the implications of the findings are that right-directional IT investment has played an important role in the success of IT companies in Korea.     

The leveraging influence of strategic alignment on IT investment: An empirical examination

Businesses have invested enormous sums in information technology (IT). The challenge now is to optimize these investments. We empirically examined the influence of the alignment between IS strategy and business strategy (strategic alignment) on the payoff of IT investment. Many studies have been performed on the value of IT investment and strategic alignment separately, in the past, but here we combined them by investigating the moderating affect of strategic alignment on the relationship between IT investment and firm performance for a group of manufacturing firms. The results indicated that there is a synergistic coupling between strategic alignment and IT investment with firm performance. Firms that have aligned IT and business strategies can invest in additional IT resources with some assurance that they will be leveraged substantially. One of our main contributions was in the examination of four differing perspectives of strategic alignment and their relationship with the payoff of IT investment.     

Assessing and managing the benefits of enterprise systems: the business manager's perspective

This paper focuses on the benefits that organizations may achieve from their investment in enterprise systems (ES). It proposes an ES benefit framework for summarizing benefits in the years after ES implementation. Based on an analysis of the features of enterprise systems, on the literature on information technology (IT) value, on data from 233 enterprise systems vendor‐reported stories published on the Web and on interviews with managers of 34 organizations using ES, the framework provides a detailed list of benefits that have reportedly been acquired through ES implementation. This list of benefits is consolidated into five benefits dimensions: operational, managerial, strategic, IT infrastructure and organizational, and illustrated using perceived net benefit flow (PNBF) graphs. In a detailed example, the paper shows how the framework has been applied to the identification of benefits in a longitudinal case study of four organizations.     

Opportunistic strategy formulation for IS/IT planning

Existing models and frameworks for information systems and information technology (IS/IT) planning are not robust enough to explain or predict strategic gains and many organizations are wary of investing further in their information infrastructure. Because technology is not the only ingredient of success, a complete and rigorous reconsideration of the techniques, options and approaches to IS/IT planning linked to business strategy is needed. It is argued that this can only be achieved through consideration of the recent organizational processes involved for creating a successful IS/IT strategy. This paper reviews aspects of both the literature on business strategy and IS/IT planning and considers case examples from two organizations in which the contrasting outcomes from the same technical innovation illustrate the dynamics of opportunistic strategy formulation.     

An empirical examination of a process-oriented IT business success model

The value of information technology (IT) to modern organizations is almost undeniable. However, the determination of that value has been elusive in research and practice. We used a process-oriented research model developed using two streams of IT research to examine the value of IT in business organizations. One stream is characterized by examining how IT and non-IT variables affect other so-called IT success variables. The second stream is commonly referred to as IT business value, defined as the contribution of IT to firm performance. The resulting research model is referred to in our paper as the IT business success model. Data was collected from 225 top IS executives in fairly large organizations to empirically examine several hypotheses derived from theory concerning the causal nature of the IT business success model. A set of measures for the IT business success model was developed through an intense investigation of the IT literature. The measures were tested for validity and reliability using confirmatory factor analysis. The hypotheses that resulted from past research and conceptually illustrated in the research model were assessed using structural equation analysis. The implications of these findings and the limitations of the study are discussed in an effort to contribute to building a process-oriented theory base for IT business success at the organizational level of analysis.     

Information technology,the organizational capability of proactive corporate environmental strategy and firm performance: a resource-based analysis

The study of the relationships between information technology (IT), environmental organizational issues and firm performance is a cutting-edge research topic for the information systems (IS) community. However, at present we know very little about these relationships. Drawing on the perspective of IT-enabled organizational capabilities and the literature on organizations and the natural environment, our study introduces conceptually the construct organizational capability of proactive corporate environmental strategy to the IS field. We propose that IT capability may enable the implementation of a proactive environmental strategy and that this strategy could play a significant role in determining the business value of IT. Using structural equations modeling with data collected from 63 firms, we find that IT capability is an enabler of proactive environmental strategy and that this strategy plays a significant role in mediating the effects of IT on firm performance. Our study provides initial evidence on the role of IT in the implementation of proactive environmental practices. Our results suggest to IT executives that their decisions matter in shaping environmental sustainability, which in turn will generate business value from IT.     

An examination of the antecedents and consequences of organizational IT innovation in hospitals

The healthcare industry is widely recognized as information-intensive and IT is considered to be an intrinsic component of the success of healthcare organizations such as hospitals. While both researchers and practitioners have argued that hospitals should aspire to be IT innovators, most tend to be IT laggards. An understanding of the factors that drive hospitals to become IT innovators remains an important phenomenon of interest. However, there is a lack of theory-driven empirical research that systematically investigates the factors that influence a hospital’s strategic choice to be an IT innovator and the influence of IT innovation on hospital performance. This study bridges the extant gaps in the literature by developing and testing an integrated model that seeks to understand why certain hospitals are IT innovators. Using IT innovation theory as our theoretical foundation, we examine three antecedents, including the chief information officer (CIO) strategic leadership, the top management team’s (TMT) attitude toward IT, and the hospital’s climate. Further, we examine the influence of IT innovation on the impact of IT within the hospital and the influence of IT impact on the hospital’s financial performance. The research model was tested using both survey and archival data from 70 matched pairs of hospital CIOs and executives. The quantitative analysis is supplemented with by interviews with 10 participating CIOs to further examine the relationship of the CIO to hospital IT innovation. The results suggest that the CIO strategic leadership and the TMT’s attitude toward IT are key factors that influence IT innovation; however, the influence of a hospital’s climate on organizational IT innovation is contingent upon the CIO’s level of strategic leadership. The results also suggest that hospitals that are IT innovators can generate greater impact from IT, which in turn results in greater performance for the hospital. Theoretical and practical implications as well as future research directions are discussed.     

Information systems assimilation in Indian organizations: An examination of strategic and organizational imperatives

IT investment by organizations in India has increased significantly over the last 10 years, as Indian firms have deployed IS for modernizing and reengineering their processes. This paper analyzes, in an exploratory vein, organizational and strategic imperatives that have influenced IS assimilation and evolution of the IS application portfolio in Indian firms. It first identifies three categories of organizations with respect to IS assimilation, and describes strategic and organizational factors characteristic of each group. Next, it traces the evolution of the IS application portfolio in each of the studied firms and analyses accompanying changes in strategic and organizational factors. The paper builds on IS assimilation studies in organizations from developed societies, and describes issues unique to IS assimilation in Indian firms. It is based on data collected from case studies of IS deployment in nine Indian organizations.     

Human resource management and its impact on strategic business-IT alignment: A literature review and avenues for future research

From an information systems perspective, organizations striving to leverage a strategic alignment between Information Technology (IT) and business areas often underestimate the role of human resource management in creating business value. This literature review analyzes 71 scholarly articles to assess the role of human resource management in supporting the strategic alignment between business and IT. We identify the organizational role of individual human resources in strategic alignment, their contribution to more effective strategic alignment, and how human resource management supports such contribution. Based on these insights, we formulate propositions and identify avenues for future research.