Does Information Technology Investment Influences Firm’s Market Value? The Case of Non-Publicly Traded Healthcare Firms

Managers make informed information technology investment decisions when they are able to quantify how IT contributes to firm performance. While financial accounting measures inform IT’s influence on retrospective firm performance, senior managers expect evidence of how IT influences prospective measures such as the firm’s market value. We examine the efficacy of IT’s influence on firm value combined with measures of financial performance for non-publicly traded (NPT) hospitals that lack conventional market-based measures. We gathered actual sale transactions for NPT hospitals in the United States to derive the q ratio, a measure of market value. Our findings indicate that the influence of IT investment on the firm is more pronounced and statistically significant on firm value than exclusively on the accounting performance measures. Specifically, we find that the impact of IT investment is not significant on return on assets (ROA) and operating income for the same set of hospitals. This research note contributes to research and practice by demonstrating that the overall impact of IT is better understood when accounting measures are complemented with the firm’s market value. Such market valuation is also critical in merger and acquisition decisions, an activity that is likely to accelerate in the healthcare industry. Our findings provide hospitals, as well as other NPT firms, with insights into the impact of IT investment and a pragmatic approach to demonstrating IT’s contribution to firm value

Examining the Impact of Information Technology on Healthcare Performance: A Theory of Swift and Even Flow (TSEF) Perspective

The impact of information technologies on manufacturing operations and performance is well established. However, scant research has been devoted to examining information technology (IT) investment among hospitals and how it influences patient care and financial performance. Using the lens of the Theory of Swift Even Flow (TSEF), we present an operations management-based perspective on the effect of IT in streamlining hospital operations. Specifically, we examined the role of IT on patient flow and its consequences for improved hospital efficiency and performance. Analysis of data from 567 U.S. hospitals shows that IT is associated with swift and even patient flow, which in turn is associated with improved revenues. Interestingly, we find that the improvement in financial performance is not at the expense of quality because we find similar effects of IT and patient flow in improvements in the quality of patient care. Further, we observed differential effects of swift flow and even flow on various measures of hospital performance. Although swift flow affects financial performance, even flow primarily affects quality performance. Taken together, they have a mutually reinforcing overall impact on hospital performance. The implications of these findings for hospital decision makers are that patient flow is an important mediating variable that is affected by IT and can significantly affect the quality of patient care and financial performance

Technology\u27s Effect on Firm Size: Manufacturing vs. Service

We develop theory that describes how increased IT investment motivates different actions within different types of industries. We contend that manufacturing firms tend to have revenue that is firm dependent, regardless of the number of employees and thus use IT to reduce costs by reducing firm size, as stated in previous theory. However, retail and service firms tend to have revenue that is tied to the number of employees and use IT to increase firm size in order to allow greater revenue. Using 629 yearly observations from 37 industries from 1985 to 2005, we find that IT investment precedes size decreases with manufacturing firms and size increases with retail and service firms. Further, impulse response functions indicate that differences in firm size differences following IT investment eventually vanish, and non- IT-investing firms eventually achieve the same firm size after several years, indicating that IT allows firms to be more responsive

Performance Impacts of Information Technology: Is Actual Usage the Missing Link?

The relationship between investment in information technology (IT) and its effect on organizational performance continues to interest academics and practitioners. In many cases, due to the nature of the research design employed, this stream of research has been unable to identify the impact of individual technologies on organizational performance. This study posits that the driver of IT impact is not the investment in the technology, but the actual usage of the technology. This proposition is tested in a longitudinal setting of a healthcare system comprising eight hospitals. Monthly data for a three--year period on various financial and nonfinancial measures of hospital performance and technology usage were analyzed. The data analysis provides evidence for the technology usage--performance link after controlling for various external factors. Technology usage was positively and significantly associated with measures of hospital revenue and quality, and this effect occurred after time lags. The analysis was triangulated using three measures of technology usage. The general support for the principal proposition of this paper that "actual usage" may be a key variable in explaining the impact of technology on performance suggests that omission of this variable may be a missing link in IT payoff analyses.Information Technology, IT Payoff, IT Usage, Healthcare, Longitudinal Study, Profitability, Quality

Realizing the Business Value of Information Technology Investments: An Organizational Process

A primary reason businesses fail to realize intended payoffs from their information technology (IT) investments is their lack of an effective process for planning, implementing, evaluating, and institutionalizing the payoffs. We present a framework to conceive and implement an IT investment¡¯s payoffs, ensure creation of the appropriate assets needed to achieve the payoffs, and measure the actual outcomes. The four phases in the AIAC framework are Alignment, Involvement, Analysis, and Communication. In examining the business value of IT through this framework, we present three central themes in this paper: 1. IT payoffs are the responsibility of the entire organization, not just the IT department. 2. Management of IT payoffs begins prior to the investment and continues through post-implementation. 3. IT payoffs are contingent upon creating and exploiting complementary assets. We illustrate an organizational process for managing IT investments and measuring the business value of those investments by drawing on the experiences of Holy Cross Health System, a multi-entity healthcare organization that invested in a corporate-wide cost information system (CIS) and established a mechanism to extract business value from that investment

Can a Hospital’s Analytics Capabilities Impact Patient Satisfaction? A Multi-Year Panel Study

An empirical link between organizational performance and the IT necessary to enable data analytics capabilities has not yet been established. Drawing from organization information processing theory (OIPT), which argues that uncertainty and equivocality negatively impact organizational performance, we construct a model in which performance-”measured as hospitals’ patient satisfaction-”is a function of clinical analytics capabilities, complexity, and concentration. Our argument is that clinical analytics is an uncertainty-reducing mechanism that directly impacts satisfaction. However, we propose a nuanced moderating role of complexity of patient cases and concentration (the mix of procedures performed in a hospital). We show that analytics capabilities increased patient satisfaction, but we also find evidence for the moderating role of complexity on the effect of analytics on satisfaction. The result for the moderating impact of concentration was not significant; however, our post-hoc analysis indicated that the moderating effect was present in larger hospitals

Does Information Technology Investment Influence a Firm’s Market Value? A Case of Non-Publicly Traded Healthcare Firms

Managers make informed information technology investment decisions when they are able to quantify how IT contributes to firm performance. While financial accounting measures inform IT’s influence on retrospective firm performance, senior managers expect evidence of how IT influences prospective measures such as the firm’s market value. We examine the efficacy of IT’s influence on firm value combined with measures of financial performance for non-publicly traded (NPT) hospitals that lack conventional market-based measures. We gathered actual sale transactions for NPT hospitals in the United States to derive the q ratio, a measure of market value. Our findings indicate that the influence of IT investment on the firm is more pronounced and statistically significant on firm value than exclusively on the accounting performance measures. Specifically, we find that the impact of IT investment is not significant on return on assets (ROA) and operating income for the same set of hospitals. This research note contributes to research and practice by demonstrating that the overall impact of IT is better understood when accounting measures are complemented with the firm’s market value. Such market valuation is also critical in merger and acquisition decisions, an activity that is likely to accelerate in the healthcare industry. Our findings provide hospitals, as well as other NPT firms, with insights into the impact of IT investment and a pragmatic approach to demonstrating IT’s contribution to firm value

The Relationship Between Initial Quality Perceptions and Maintenance Behavior: The Case of the Automotive Industry

We examine the relationship between quality, represented by consumer ratings, and quality-related activities by the customer, represented by maintenance activities in the automotive industry. Based on several converging theoretical perspectives, we present and test a model relating vehicle initial quality ratings to consumers' routine maintenance. Three types of data were collected for the study: (1) vehicle service records at a local dealership, (2) primary data from a survey of vehicle owners, and (3) Consumer Reports data on quality ratings and initial purchase prices. The results of a structural equation analysis of the proposed model indicate a significant link between quality and customers' quality behavior. This link has important strategic implications for both automotive manufacturers and distributors, particularly as "leasing" becomes more prevalent in the industry.Service Quality, Product Quality, Maintenance, Self-Fulfilling Prophecy, Automotive Industry