ECONOMICS AND MANAGEMENT INFORMATION SYSTEMS

Without exaggeration the basic challenge of management is economics: how to choose to employ scarce productive resources to accomplish limited objectives effectively. It is well recognized today, and increasingly so in post-industrial societies, that information, broadly defined, is a strategic economic resource that must be managed if it is to be productive. A comprehensive literature has developed .in the discipline of economics which concerns information, information systems and information-related phenomena of import to management and the development of management information systems (MIS). Although this literature is vast, this overview attempts to relate some of this work to MIS and MIS research. We highlight results in three general areas: 1) those which concern the effect of information upon economic markets external to the firm; 2) those which concern issues of information and its relation to decision making and the internal organization of the firm; and 3) those which concern questions of allocation and control of information resources within the firm. In particular, attention will be directed to interpretation of the major results related to the effect of information upon markets and upon individual decision making, team theory, agency theory, decomposition theory, resource allocation and pricing, incentives, and information evaluation

IDENTIFYING BUSINESS VALUE LINKAGES FOR INFORMATION TECHNOLOGY: AN EXPLORATORY APPLICATION TO TREASURY WORKSTATIONS

Pervasive and costly automation of information handling activities continues to put pressure on senior managers to quantify the contributions of information technology IT to the strategic goals of the firm. This paper proposes the use of "business value linkage BVL" correlation tests to provide evidence that investments in IT create the desired higher order, economic impacts. We argue that managers should carry out econometric tests which are specialized to capturing primal, revenue-enhancing impacts, as opposed to dual, cost-reducing impacts. As an illustration, a sample BVL correlation test is constructed to quantify the impact of a "treasury workstation" system on a large commercial bank's ability to increase demand balances from corporate customers. We conclude with some thoughts about where BVL correlation will provide the bt results for managers.Information Systems Working Papers Serie

CONTRIBUTIONS OF THE MANAGEMENT SCIENCES TO THE EVOLUTION OF MANAGEMENT INFORMATION SYSTEMS

The management sciences concern disciplines that . identify, extend, or unify scientific knowledge pertaining to the process and substance of management. The field of management science is often closely allied with the area called operations researcK through common analytical methods and models. The application and implementation of management science recognizes well the behavioral and economic realities of management practice in organizations. During the past twenty-five years, the management sciences and management\u27s use of information systems technology have evolved together· In this survey we highlight three aspects of this mutual evolution: first, as a basis for enunciating and understanding issues involved in theory and practice; second, as providing tools and techniques to solve managerial (and technical) problems related to MIS design and development; and third, as a component of MIS Technology available for application and use

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

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

Assessing the Business Value of Information Technology in Global Trade Services

In 1980, the information technology (IT) capital as a share of capital stock was 4.1 percent for the financial services industry and 7.5 percent for all industries in the U.S. By 1991, IT\u27s share of capital in the financial services industry had more than tripled to 15.3 percent compared to 13.8 percent for all industries (Roach 1993). The commercial banking industry spent 11.6 billion dollars on systems technology in 1988, which was almost 300 percent higher than it was in 1980 (Steiner and Teixeira 1990). In viewof the importance of IT in the FSS, the measurement of the value of IT is an important consideration for management. Unfortunately, the IT value measurement research is still in its infancy (Barua, Kriebel and Mukhopadhyay 1993). The majority of empiricalanalyses have not found any strong evidence for the impact of IT (Brynjolfsson 1993), even though a few recent studies have reported some positive findings (e.g., Brynjolfsson and Hitt 1993). In addition, the IT value research has not made much headway inthe FSS. Our assessment of the IT impact is at the product level. Since many banks organize product areas as profit centers, such an assessment would help managers make more informed decisions in terms of their IT investments. It should also be clear to an observer in the banking industry that the production processes across the different product areas are not homogeneous. The roles of IT and labor, as well as the information flows and decision tasks may vary from product to product. Hence aggregating across product lines may lead to spurious results if the IT impact is not uniform (Kauffman and Weill 1989). We focus on the trade services application in Global Wholesale Banking. We use the production function approach to estimate the impact of IT in this application. Our estimate of the output elasticity of IT is positive and statistically significant. In addition, we find that the return on investment of IT (increase in dollar revenue per dollar spent in IT) is about 100% per year, holding labor input constant. Our study provides one direct evidence that IT has a favorable impact on productivity in the financial services sector. The organization of the paper is as follows. In Section 2, we describe the trade services area and the role of IT in this business process. In Section 3, we present our results. We offer some concluding remarks in Section

MIS AND INFORMATION ECONOMICS: AUGMENTING RICH DESCRIPTIONS WITH ANALYTICAL RIGOR IN INFORMATION SYSTEMS DESIGN

Assessing the economic impacts of alternative Information System (IS) designs and selecting IS design parameter values for a given decision setting are two important research issues in the domain of Information Systems. Evaluation studies based on information economics provide rigorous but restricted models, while traditional MIS studies suggest richer but less formal evaluation frameworks. \u27 In this paper, we attempt to combine the analytical rigor and descriptive richness into a unified and consistent basis for evaluating IS designs and making design modifications (improvements) to existing IS. Expanding on the concepts of information economics, a multi-dimensional mathematical model of information quality is developed. Several properties of the quality model with implications for system design are derived in the form of propositions. The impacts of information quality differential upon the effectiveness of an operational level decision setting are investigated through a decision-theoretic approach. Next, a hierarchical model is suggested for relating system design variables to the quality of information generated by the IS. Based on the quality differential impact analysis and the hierarchical model, a structured methodology for making design changes to existing IS is outlined

EVALUATING RESEARCH APPROACHES TO IT BUSINESS VALUE ASSESSMENT WITH THE SENIOR MANAGEMENT AUDIENCE IN MIND

This chapter presents the transcript of a question and answer session that followed a debate on the case study and formal modeling approaches to IT valuation between Benn Konsynski, Harvard University and Charles Kriebel, Carnegie Mellon University. The debate was held in a panel session chaired by Rajiv Banker, University of Minnesota, and it occurred at the 1991 International Conference on Information Systems, December 17, 1991. Konsynski's and Kriebel's formal remarks were directed towards evaluating the case study approach and the formal modeling approach to IT business value assessment, and are presented in separate chapters in this volume. The discussion generated by their remarks is captured here, and will be especially interesting to senior managers who daily must face hard choices about investing in information technology.Information Systems Working Papers Serie

MEASURING BUSINESS VALUE FOR INVESTMENTS IN POINT-OF-SALE TECHNOLOGY

Information Systems Working Papers Serie

Cost of Quality in Software Products: An Empirical Analysis

Computer software has emerged as a major worldwide industry, estimated at $450B for 1995 of which$225B is attributable to US firms [Boehm, 1987]. Yet, in many organizations, costs and schedules for software projects are largely unpredictable, and product quality is often poor [DeMarco and Lister, 1993]. This underscores the need to study both the quality of the software product and the life-cycle cost incurred in the development and maintenance of the products. Increasing expenditure in software has caught the attention of researchers. Identifying software productivity factors and estimating software costs continue to be important research topics [Mukhopadhyay and Kekre, 1992; Banker et al., 1993]. Researchers have adopted both empirical and theoretical approaches to better understand the process of software development and maintenance. Though software cost continues to be an important research question, competition in the software industry and the increased role of software in everyday life have also made development cycle time and quality important research issues. The quality of software has been studied mainly from defect analysis and software maintenance perspectives. Empirical research has analyzed tradeoffs between software quality and maintenance, and examined drivers of software maintenance costs [Banker, et al., 1993]. Practitioners in the software industry are still faced with the challenge of understanding the key tradeoffs in a software project in order to deliver quality products to customers on time and without cost overruns. This underscores the need to study the various factors that influence the life-cycle cost and quality in software products. Moreover, the effect of the process used in a software project on the outcome of the project in terms of cost to the software developer and quality of the product has not been examined rigorously. Thus in this research, we propose to model the life-cycle cost and quality of software products based on the factorsrelated to product, people, process and technology deployed in the software project