Strategic Information Technology Management 1993 Perspectives on Organizational Growth and Competitive Advantage

1. Strategic Information Technology Management (1993)Perspectives on Organizational Growth and Competitive Advantage Chapter 22 Assessing the Impact of Information Technology on Organizational Performance Diane D. Wilson Massachusetts Institute of Technology

2. Agenda Introduction IT Spending IT Investments and Organizational Performance Planning and Controlling IT Investments and Resources Management Strategies for IT investments Best Practices Discussion

3. Focus of Wilson�s Chapter Information technology, strategy and firm performance evaluation. It raises new perspectives for senior management from information systems research. Through empirical studies on IT value, the author addresses three general management questions: What is known about the relationship between IT investments and organizational performance?  How do firm assess the impact of IT on economic performance?  What steps should managers be taking to increase the probability that their investments in IT will have the desired impact on organizational performance?

4. IT Spending 1973?1993: Explosive growth in the share of total capital stock devoted to IT. IT spending is expected to increase by 3.4% in 2004 (SG Cowen Securities 2003). Overall IT spending in the World in 2002 was approximately $2.4 trillion (www.witsa.org).

5. IT Investments and Organizational Performance Assessing the effects of IT investments. A selection of fifteen studies was used evaluating the effects of IT on economic and strategic performance. Taken as a whole, the evidence generated by these studies of IT value revealed only weak or negative effects.

6. IT Investments and Organizational Performance Regarding this IT productivity paradox, two opposite conclusions may be drawn: Managerial goals of improving productivity by increasing IT investments are rational and the potential for achieving such benefits real, however they remain invisible and illusive because of: Weak analytical tools and unreliable data Subject to lags Weak justifications Productivity gains do not constitute a sound basis for managers to justify IT investments. Studies of higher relevance; e.g. comparative studies, looking at industry leaders.

7. Planning and Controlling IT Investments and Resources CEOs unsatisfied with their organizations to assess the effectiveness of IT investments: IS managers get some of the blame. Corporate capital budgeting process does not accommodate well the types of IT investments that enhance future opportunities. In response a expert panel was convened in 1998. Selected based upon recommendations of MIS faculty at MIT and HBS.

8. Planning and Controlling IT Investments and Resources IT managers seek answers to three fundamental questions: How well are we doing the things we are doing now? Are we doing the right things? Are we positioned to compete in the future? Selecting the right assessment approach is contingent upon three factors for types of IT Control: Dominant Managerial Visions of Information Technology Knowledge of the Transformation Process and the Ability to Measure Output Method of assessment

9. Dominant Managerial Visions of Information Technology  Vision to automate Vision to informate Vision to transform Knowledge of the Transformation Process and the Ability to Measure Output Efficiency test Instrumental test Social test Social test Planning and Controlling IT Investments and Resources

10. Seven approaches for assessing IT performance: Assessing Functional Productivity Assessing User Utility Assessing Impact on the Value System and Chain Assessing Comparative Performance Assessing Business Alignment Investment Targeting Assessment Assessing Management Vision Planning and Controlling IT Investments and Resources

11. Management Strategies for IT investments Firms are still using a lot of money on IT-investments. (10-15% increase last 10 years, but there is a decreasing tendency, computerworld.no 12.09.03) Why are they doing this despite the lack of performance gain? The article mentions: Manager do not have the time to wait Using money on short term solutions

12. Management Strategies for IT investments We need a strategy for IT investments. The most important thing! �Success is dependant of how we spend our money, NOT how much we spend!� The article talks about five types of Organizational Capabilities. OC allow firms to exploit market opportunities more effectively than their competitors. Firms with superior operating performance have these five capabilities.

13. Management Strategies for IT investments The five capabilities External integration ? leads to quality Internal integration ? leads to speed and efficiency Flexibility ? leads to responsiveness and variety Capacity to experiment ? leads to continuous incremental improvement Capacity to cannibalize ? leads to radical improvement and change

14. Management Strategies for IT investments Five strategies Restore confidence in existing financial systems Promote executive education programs Communicate your vision of IT to all members of the Organization Analyze and assess overall IT performance Establish accountability for delivering the benefits expected from new investments

15. Management Strategies for IT investments We believe the mentioned strategies will not benefit the firm today. Everybody is dependent on IT ? a wide use of IT today don't give an competitive advantage, it�s a necessity. We need a different focus! Nicholas G. Carr (2003) defines some new rules for IT management: Spend less (the �80-20 -rule�, differ from �nice to have - need to have�) Follow, don�t lead. (Let others pay the price of development) Focus on vulnerabilities, not opportunities. (I.e. downtime, technical faults, security and accessibility�)

16. Best Practices IT investments Source: Weil and Broadbent 1998 Industry leaders spend on average 0.8% off revenues on IT investments (Carr 2003).

17. Discussion Does IT matter?