A Method for Assessing the Economic Impact of Information Systems Technology on Organizations

Although the relative efficiency of information technology (IT) continues to improve at an exponential rate, the real investment in this technology throughout the economy is also - expanding. Despite these two empirical facts, the ability of managements to assess the economic impact of IT on their organization\u27s performance has not progressed very far in the past two decades. This paper presents a methodology for assessing the productivity of expenditures on information systems technology on the economic performance of business units (or profit centers), and demonstrates its use for several types of analysis within an organization. A business unit is modeled as a production process that employs various input resources to produce commodities which yield economic outputs (such as profits, revenues, ROI, market shares, etc.). The approach employs microeconomic production frontiers to compare output performance of organizational units through the method of data envelopment analysis based on mathematical programming. With IT expenditures isolated as separate input factors, methods for analyzing business unit performance based on production efficiency are described. Application of these procedures to cross-sectional and to longitudinal investigations of empirical data are discussed, and numerical examples are included. While the approach is primarily descriptive at this stage, it provides guidance for more indepth normative study to determine preferred management practices

The Impact of Informatization Level on Productivity

In recent times, most of governments make tremendous efforts to build up the information technology (IT) industry. This study investigates whether the huge amount of injection of money to IT industry is really effective to upgrade the national competitiveness through the examination of the relationship between the productivity and informatization. In particular, we test the hypothesis that the informatization level has a positive effect on the productivity at the national level utilizing the aggregate data on index of informatization and productivity. The proxies for productivity are total factor productivity (TFP) and labor productivity. Our main findings are twofold. First is that the informatization level has a positive relationship with total factor productivity in broad sense. Second, the positive relationship between total labor productivity and informatization gets stronger in the countries with relatively higher informatization level, such as USA or Finland

ALIGNING INFORMATION SYSTEMS WITH THE ORGANIZATION: A MEASUREMENT TOOL AND ITS APPLICATION

Achieving alignment between the goals of the information systems (IS) function and the organization as a whole remains a top priority. A perceptual instrument is described that measures this alignment. It allows organizations to monitor their IS function over time and to compare their situation with others. Largescale surveys of different industry sectors and more extensive studies of individual companies enable conclusions to be drawn about the extent and relevance of alignment in the views of users and IS staff. Of particular significance is the perceived alignment between the rated importance and performance of different aspects of IS. A large manufacturing company has used the instrument to evaluate the effectiveness of its IS function. Interpretation of the results revealed certain shortcomings and plans were made to rectify them. IS management took tangible action and a subsequent survey of both the user community and IS staff showed measurable changes in perceptions.Information Systems Working Papers Serie

PARAMETER HETEROGENEITY IN A MODEL WHICH ESTIMATES THE BUSINESS VALUE OF INFORMATION TECHNOLOGY

Developing robust and refined measures to quantify strategic impacts is a major challenge facing researchers who seek to improve methods for information technology (IT) investment evaluation. This paper presents a means to test for parameter heterogeneity in a model which quantifies the strategic contribution of IT. An iterative "jackknife" procedure is used to diagnose if different local competitive and demographic conditions present in branch banking enhance or suppress leverage on deposit market share associated with membership in an automated teller machine (ATM) network. The results are validated using correlation analysis and re-estimating partitioned data sets for a market share model developed by Banker and Kauffman (1988). Overall, the results suggest this new approach will be useful for managers who need to evaluate similar ITS which operate in different environments.Information Systems Working Papers Serie

EVALUATING IMPLEMENTATION SCHEDULES FOR INVESTMENTS IN STRATEGIC INFORMATION TECHNOLOGIES: FRAMEWORK AND APPLICATION TO EDI

We develop a framework based on "project networks" and net present value analysis in order to help managers evaluate investments in infrastructural and strategic information systems that require significant amounts of time and money to implement. The framework, which we term "value networks", supports decomposition of investment projects into separate increments, offers a means to represent crucial dependencies that affect the creation of IT business value, and provides a basis for developing a measurement methodology which can be used from the planning through the implementation stages. This enables the user to identify the implications of choosing among different implementation schedules. We illustrate these ideas by examining how our framework can used to evaluate investments in Electronic Data Interchange (EDI) and Cash Management Systems (CMS).Information Systems Working Papers Serie

MODELING AND MEASURING THE BUSINESS VALUE OF INFORMATION TECHNOLOGY

Determining the 'business value' of information technology (IT) requires managers to choose performance measures which are well-suited to capturing the economic impacts of the application they are evaluating. In this paper, the authors discuss a promising approach for bridging the gap between a theory for rational decisions and management practice in evaluating investments in IT: Data Envelopment Analysis (DEA). The referent discipline for the discussion is production economics, and the authors review basic concepts concerning performance measurement, efficiency, productivity and economic contribution or value-added from an economist's perspective. DEA's promise lies in its ability to handle multiple input and output production environments and its management action orientation. As an illustration of this potential, DEA is applied to assessing the performance of an automated teller machine (ATM) network, an IT which creates economic impacts at various organizational levels of a commercial bank.Information Systems Working Papers Serie

ALIGNING INFORMATION SYSTEMS WITH THE ORGANIZATION: A MEASUREMENT TOOL AND ITS APPLICATION

Achieving alignment between the goals of the information systems (IS) function and the organization as a whole remains a top priority. A perceptual instrument is described that measures this alignment. It allows organizations to monitor their IS function over time and to compare their situation with others. Largescale surveys of different industry sectors and more extensive studies of individual companies enable conclusions to be drawn about the extent and relevance of alignment in the views of users and IS staff. Of particular significance is the perceived alignment between the rated importance and performance of different aspects of IS. A large manufacturing company has used the instrument to evaluate the effectiveness of its IS function. Interpretation of the results revealed certain shortcomings and plans were made to rectify them. IS management took tangible action and a subsequent survey of both the user community and IS staff showed measurable changes in perceptions.Information Systems Working Papers Serie

PARAMETER HETEROGENEITY IN A MODEL WHICH ESTIMATES THE BUSINESS VALUE OF INFORMATION TECHNOLOGY

Developing robust and refined measures to quantify strategic impacts is a major challenge facing researchers who seek to improve methods for information technology (IT) investment evaluation. This paper presents a means to test for parameter heterogeneity in a model which quantifies the strategic contribution of IT. An iterative "jackknife" procedure is used to diagnose if different local competitive and demographic conditions present in branch banking enhance or suppress leverage on deposit market share associated with membership in an automated teller machine (ATM) network. The results are validated using correlation analysis and re-estimating partitioned data sets for a market share model developed by Banker and Kauffman (1988). Overall, the results suggest this new approach will be useful for managers who need to evaluate similar ITS which operate in different environments.Information Systems Working Papers Serie

The productivity of information technology : review and assessment

Second series information from publisher's list.Includes bibliographical references (p. 47-52).Sponsored by the MIT Center for Coordination Science, the MIT International Financial Services Research Center, and the MIT Industrial Performance Center.Erik Brynjolfsson

The productivity of information technology : review and assessment

Second series from publisher's list. "December, 1991." Running title: Draft: 1/29/92, Information technology and productivity.Includes bibliographical references (p. 47-52).Sponsored by the MIT Center for Coordination Science, the MIT International Financial Services Research Center and the Sloan Foundation.Erik Brynjolfsson