Quality engineering: a new framework applied to justifying and prioritising IT investments

Quality engineering (QE) is a generic concept developed by the author that is designed to assess rigorously new investment ideas concerned with improving the quality of business processes. The aim is to provide a solid basis to decide trade-offs between varying levels of quality to be achieved and limited resources to be employed. In the present context, the approach is applied to justify and to prioritise a growing class of IT investments: systems designed to implement quality, effectiveness and strategic business vision. Companies report that purely accounting-based methods are unable to cope with these kinds of investments and that a change in investment appraisal procedures is now needed to complement financial approaches, with quality-based approaches to support the decision-making process in relation to sophisticated IT. Based on research projects at the Kobler Unit, Imperial College, where data was collected on the relative success of new IT initiatives, and in collaboration with several large companies, quality engineering has been further developed into four modules, to be applied iteratively: quality standards (QS), quality awareness (QA), quality performance indicators (QPI) and quality value (QV). Compared to traditional accounting-based frameworks, quality engineering places a new emphasis on critical success factors, structured awareness raising exercises, measurable performance indicators, distinguishing between primary systems objectives and their inevitable second-order effects, risk assessment, and strategic business integration.     

Using regression splines to assess the impact of information technology investments on productivity in the health care industry

Abstract. This paper explores the impact of information technology (IT) investments on productivity using a new technique, multivariate adaptive regression splines (MARS). We believe that it provides additional insights on the nature of the impact of IT investments on productivity. The results from our study are compared with findings from a previous study that has also used the same data set. While the results of a previous study indicate that IT investments have a positive but uniform impact on productivity, our study suggests that the impact of IT on productivity is not uniform but is contingent on other complementary factors. Our findings describe that the complementary relationship exists between IT and non‐IT related investments. Thus, improved organizational productivity cannot be expected from investment in IT alone but only together with non‐IT investments. Our findings also point out that further investment may not necessarily bring on higher organizational productivity.     

An exploratory study of information technology evaluation and benefits management practices of SMEs in the construction industry

While the number of articles on IT evaluation and benefits management has been substantial, limited attention has been given to these topics in small and medium-sized enterprises (SMEs), particularly the construction industry. This paper presents findings from a questionnaire survey that sought to examine the approaches used by 126 construction organisations to evaluate and justify their IT investments, as well as the benefits and costs that they have experienced due to IT implementation. The analysis of their responses identified three key findings. Firstly, different organisation types significantly differ in the amount they invest in IT and their firm size (in terms of turnover and number of employees) does not influence investment levels in IT. Secondly, the evaluation process adopted by construction SMEs is used as for both control and learning. Thirdly, a major barrier to justifying IT investments was attributed to having no strategic vision. While organisations experienced no significant differences in the tactical and operational benefits incurred after the adoption of IT, differences were found with respect to the strategic benefits. If construction SMEs are to leverage the benefits of IT, then this should form an integral part of their business strategy. Considering this, recommendations for IT evaluation for construction SMEs that are also pertinent for SMEs operating in other industry sectors, are presented.     

The optimal level of CRM IT investments

In light of the growing relevance of customer-oriented business strategies IT investments in the field of Customer Relationship Management have increased considerably. However, firms often could not realize sufficient returns on these IT investments. One major reason for this failure seems to be the lack of appropriate approaches to determine the economic impact of such investments ex ante. Therefore, we develop an economic model to determine the optimal level of Customer Relationship Management IT investments. Using this approach, firms can evaluate, to what extent investments in Customer Relationship Management IT are reasonable. One major result is that in most cases the “all or nothing strategy” pursued by many firms does not lead to the optimal level of investments. To illustrate the practical utility and applicability of the approach, we provide a real world example of a German financial services provider.     

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.     

Complementary Investment in Change Management and IT Investment Payoff

Measuring information technology payoff continues to be a challenge for organizations. Considering the impact of complementary investments on IT payoff has been proposed by recent studies. This paper examines the impact of one type of complementary investment on IT payoff: organizational change management initiatives to support IT implementation. The paper reports a case study of Cisco Systems' IT investment in an operating systems upgrade of over 34,000 computer systems in 117 countries. The findings of the exploratory case study indicate that planned communications and change management strategies developed by their Organizational Change Management group led to the smooth implementation of the upgrade process and contributed to the payoff from the IT investment, measured in terms of client satisfaction with the process and system and reduced cost and time to upgrade all systems. The findings were supported by pre- and post-implementation surveys of clients, analysis of the change management initiatives and their impact on the process, and comparison of actual and budgeted costs for the project.     

Information technology investments and firm value

Our objective in this paper is to develop a firm value model to assist IT managers and researchers in understanding the multiple effects that IT investments have on firm value. This firm value approach adds to the process-oriented approach through simultaneous evaluation of all of the factors that affect firm value. It is crucial for IT professionals to recognize the complex and diverse implications of IT investments on firm value. The implications of the firm value approach include forcing IT managers to think in terms of both industry and company-specific effects of IT investments, to consider both the magnitude and duration of competitive advantage due to IT investments, and the implications of the effect that IT investments have on risk and its relation to firm value. We demonstrate an application of the firm value framework by evaluating a major stream of research in MIS—event studies of IT investment announcements. Appendices to this paper can be found at http://www.itandfirmvalue.com.     

Reexamining the impact of information technology investment on productivity using regression tree and multivariate adaptive regression splines (MARS)

As health care costs increased significantly in the 1990s, investments in information technology (IT) in the health care industry have also increased continuously in order to improve the quality of patient care and to respond to government pressure to reduce costs. Several studies have investigated the impact of IT on productivity with mixed conclusions. In this paper, we revisit this issue and re-examine the impact of investments in IT on hospital productivity using two data mining techniques, which allowed us to explore interactions between the input variables as well as conditional impacts. The results of our study indicated that the relationship between IT investment and productivity is very complex. We found that the impact of IT investment is not uniform and the rate of IT impact varies contingent on the amounts invested in the IT Stock, Non-IT Labor, Non-IT Capital, and possibly time.     

Understanding the impact of business cases on IT investment decisions: An analysis of municipal e-government projects

This study synthesizes the extant literature to derive an integrative developmental framework for IT business cases that can be applied to diagnose the feasibility of technological investments. We then construct a theoretical model that postulates the impact of IT business case elements on the initial cost estimates of technological investments. Subsequently, our theoretical model is subjected to empirical validation through content analysis of IT business cases developed for municipal e-government projects. Findings indicate that the richness of the richness of business cases translates to more initial costs being identified in technological investments, thereby conserving resources for the organization through informed investment decisions.     

Exploring the relationship between information technology investments and firm performance using regression splines analysis

Identifying the business value of information technology (IT) investments has been a major concern of managers and researchers. Various studies have addressed this issue but have provided contradictory results. Here, we explore the relationship between IT investments and firm performance using a relatively new technique, multivariate adaptive regression splines (MARS), and attempt to answer two questions: (1) do investments in IT have a positive impact on organizational productivity? and (2) for a given level of investment, what portion of the total should be invested in IT to maximize organizational productivity? Our results suggest that depending on the conditions that applied, an unbiased observer could either conclude that investments in IT has a positive statistically significant effect on productivity, or that there is a ‘productivity’ paradox. This suggests that the relationship between IT investments and organizational performance is much more complex than that found in some other studies. Our results could also provide guidance to managers who are responsible for determining the allocation of organizational resources.     

Exploring the relationship between information technology investments and firm performance using regression splines analysis

Identifying the business value of information technology (IT) investments has been a major concern of managers and researchers. Various studies have addressed this issue but have provided contradictory results. Here, we explore the relationship between IT investments and firm performance using a relatively new technique, multivariate adaptive regression splines (MARS), and attempt to answer two questions: (1) do investments in IT have a positive impact on organizational productivity? and (2) for a given level of investment, what portion of the total should be invested in IT to maximize organizational productivity? Our results suggest that depending on the conditions that applied, an unbiased observer could either conclude that investments in IT has a positive statistically significant effect on productivity, or that there is a ‘productivity’ paradox. This suggests that the relationship between IT investments and organizational performance is much more complex than that found in some other studies. Our results could also provide guidance to managers who are responsible for determining the allocation of organizational resources.     

Research opportunities in information technology funding and system justification

This article reviews IT funding and system justification practice and research in two dimensions, previews papers in the special issue on ‘Information technology funding and system justification in the organization’, and identifies opportunities for research in IT funding. IT funding decisions have been hard problems for firms and, because IT investments are so pervasive, they have been very important. Here we review IT funding decisions and research about IT funding historically, using two dimensions, justification dynamism and justification evidence. Over time, the IT funding decisions have changed from static, one time events to iterative and even continuous efforts. Early IT funding decisions were based on finance and accounting models, but changes in the purposes of new systems have necessitated justification based on a variety of qualitative measures. We preview the six papers in the special issue, with an eye to introducing them to readers and also to looking for areas that represent opportunites for future IS research. Finally, we identify eight areas that should represent good opportunities for future research in IT funding and systems justification.     

Competing or coordinating: IT R&;D investment decision making subject to information time lag

In this paper, we apply a dynamic option-game framework to examine the impact of information time lag on Research and Development (R&D) investment in innovative information technology (IT) industry. We focus on incentives of competition and coordination in R&D. Our results show that shorter information time lag may induce firms to coordinate their investments and avoid over-investment. The threshold of information time lag developed in this paper can facilitate managerial decisions on whether to compete or coordinate R&D investments.     

Why one big picture is worth a thousand numbers: measuring intangible benefits of investments in augmented reality based assistive technology using utility effect chains and system dynamics

The body of literature in the area of IT/IS investment evaluation proposes a variety of methods and techniques for the ex-ante assessment of IT/IS investments. However, the financial evaluation of intangible benefits associated with IT/IS investments in general and investments in innovative IT/IS in particular still remains a problem area of high relevance to decision makers. As a consequence, investment decisions are still taken by practitioners as an “act of faith”. With this in mind, it is our primary aim to develop a quantification model for the financial assessment of intangible benefits concerning investments in innovative IT/IS. Based on an augmented reality and smart glasses application scenario from the construction domain, we demonstrate how intangible benefits of innovative IT/IS investments can be visualised and measured more effectively by means of utility effect chains and system dynamics prior to their incorporation into a cost–benefit analysis. Based on design science research, the quantification model is developed by means of a systematic literature review and evaluated using the augmented reality application scenario in construction. The model can serve as an aid to the managerial decision making process by providing an enhanced understanding of the various tangible and intangible benefits associated with the investment.     

Information Systems Offshore Outsourcing: An Exploratory Study of Motivations and Risks in Large Spanish Firms

Prior research has documented that IT investment increases market returns. Economic theories predict such returns to be recognized in accounting profitability; this relationship remains ambiguous in prior literature. We reexamine the relationship between IT investment and firm profitability. Our approach is unique in that we examine complementarities between distinct IT components. We document that a firm’s investments in IT components exhibit different impacts on its profitability conditional on the level of investments in complementary components.     

Managing information technology investments using a real-options approach

Investments in IT have become a dominant part of the capital budgets of many organizations. While the costs seem readily identifiable, many of the benefits are elusive. In this paper we develop a formal and practical methodology to evaluate information technology infrastructure investments. Our experience in using this approach has shown that it not only impacts the outcome but also improved understanding of how to align operating drivers with business capabilities and investment decisions. Thus, the real value of the real options approach is in how it informs the management process of IT investments.     

Managing for Better Business-IT Alignment

Business-IT alignment is a complex and multidimensional problem that remains among the top-10 issues for many organizations. IT investment decisions usually fall to CIOs, and often the temptation is to base the decision to buy solely on superior technology. Clearly, organizations can gain a competitive advantage by such investments, but basing them only on the bells and whistles of a particular platform is foolhardy. Any competitive advantage would vanish as soon as the next platform enters the market, and the technological edge that the organization had briefly gained would evaporate. There are four themes in securing B-IT alignment: the role of IT, the business case, IT management intensity, and IT metrics, IT's role is important because not all organizations use IT in the same manner. The next three themes are natural intersections for business and IT investment. The business case is important because it determines how business and IT collaborate to justify the IT investment. The degree of IT management intensity both during and after the actual IT investment determines the organization's commitment to continuous process improvement. Finally, IT metrics are critical to demonstrate to business executives IT investment's value-generating potential     

Bridging the cognitive-cellular neuroscience gap empirically: a study combining physiology,modelling and fMRI

In this article, we present a mixed qualitative and quantitative approach for evaluation of information technology (IT) security investments. For this purpose, we model security scenarios by using defense trees, an extension of attack trees with countermeasures and we use economic quantitative indexes for computing the defender's return on security investment and the attacker's return on attack. We show how our approach can be used to evaluate economic profitability of countermeasures and their deterrent effect on attackers, thus providing decision makers with a useful tool for performing better evaluation of IT security investments during the risk management process.     

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.     

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.