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IT Investments and Productivity

Aubert, B., HEC Montreal, Victoria University of Wellington Croteau, A.-M., John Molson School of Business Hooper, V., Victoria University of Wellington. IT Investments and Productivity. How does IT create value?. Value creation and IT infrastructure.

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IT Investments and Productivity

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  1. Aubert, B., HEC Montreal, Victoria University of Wellington Croteau, A.-M., John Molson School of Business Hooper, V., Victoria University of Wellington IT Investments and Productivity

  2. How does IT create value?

  3. Value creation and IT infrastructure • The role of IT governance in the establishment of IT architecture (Peterson, 2001, 2004) • The definition of IT infrastructure (Broadbent and Weill, 1997) • Services • HR components • IT components • Strategic alignment (Chan, Huff, Barclay, Copland, 1997) • Flexibility enabled by IT (Fink and Neumann, 2009) • Diminishing marginal returns with IT investments (Nevo, Wade, Cook, 2010)

  4. Interaction effects • Brynjolfsonn-Hitt (2004) suggest that complementary investments are required to extract benefits from IT investments • Yuhn and Park (2010) found that organizational transformation is associated with IT applications to produce growth • Cozzarin and Percival (2010) found no interaction between workplace practice and IT usage, and no interaction between training and IT usage • Bloom, Sadun, Van Reenen (2012) found that US multinationals enjoyed higher productivity from IT than non-US multinationals. The combination of IT investments with management practices was the likely explanation.

  5. Framing the IT Value Research Success Rate Governance of IT assets Definition of IT assets Source: Soh, C. and Markus, L., How IT Creates Business Value: A Process Theory Synthesis, ICIS 1995.

  6. Governance • Clear responsibility for the IT infrastructure • Policies • Acquisition • information • Planning process • Exists • Aligned with business goal • Assessment of new technology

  7. IT infrastructure • Connectivity • The degree to which IT can connect to others, both inside and outside the organization • Scalability • The degree to which IT can be scaled and upgraded on existing infrastructure • Compatibility • The degree to which IT can share any type of information both inside and outside the organization • Data administration • Use of data dictionary and common data definitions • Enterprise model • Comprehensive approach documenting business processes, inventories, standards • IT personnel competency • The degree to which IT personnel possess relevant skills and experience to perform IT activities

  8. Research Model IT infrastructure Governance Connectivity Compatibility Clarity of responsibility Scalability Market success/ business performance Internal performance Data administration definition Enterprise model definition Level of planning IT personnel competency Process change investment Non-IT personnel competency Training Controlling for strategic type

  9. Methodology

  10. Measures • Governance (Lewis and Byrd, 2003) • IT infrastructure • Connectivity (Chanopas, Krarit, and Khang 2006) • Scalability (Chanopas, Krarit, and Khang 2006) • Compatibility (Fink and Neumann, 2009) • Data administration definition (Lewis and Byrd, 2003) • Enterprise model definition (Lewis and Byrd, 2003) • IT personnel competency (Chanopas, Krarit, and Khang, 2006) • Complementary investments • Non IT Personnel competency (adapted from Chanopas et al. 2006) • Training (Statistics Canada) • Process changes (Statistics Canada) • Internal Performance (Hudson, Smart, and Bourne, 2001) • Market Performance (Venkatraman, 1989)

  11. Data • 429 respondents • 176 Canada • 253 New Zealand • No difference between jurisdictions • Firm Size • Less than 50 : 14,8% • Between 51 and 100: 27,5% • Between 101 and 250: 29,9% • Over 251: 27,8%

  12. Analysis • Partial Least Squares • Analysis of reliability • Validity • Convergent • Discriminant • Path analysis

  13. Reliability

  14. Correlations

  15. Results

  16. IT Infrastructure as a second order construct Centralization of responsibility R2 = 0,51 R2 = 0,21 R2 = 0,22 0,45 IT infrastructure Market success/ business performance Internal performance 0,21 0,46 Level of planning 0,34 0,22 0,74 Training 0,20 0,67 Scalability 0,87 0,70 0,04 (n.s.) 0,76 Non-IT personnel competency Enterprise model definition Compatibility IT personnel competency 0,63 Data administration definition Process change investment Connectivity

  17. First observations • IT infrastructure as a whole influences firm performance. It is not a specific component of infrastructure that increases the firm productivity • Training and IT skills of non-IT personnel increase the performance of the firm. • Process changes do not influence the performance of the firm • Training and process change do not show an interaction effect with IT infrastructure

  18. Dependent Variable: Performance

  19. Investigating Process changes

  20. Low IT Infrastructure R2 = 0,20 R2 = 0,22 Market success/ business performance Internal performance 0,45 0,26 0,22 -0,24 Non-IT personnel competency Process change investment Training

  21. High IT infrastructure (4+) R2 = 0,14 R2 = 0,18 Market success/ business performance Internal performance 0,38 0,17 0,23 0,25 Non-IT personnel competency Process change investment Training

  22. Process changes implemented (decreasing frequency) *: significant difference between high infrastructure and low infrastructure (p<0,05)

  23. Conclusion • Governance does explain IT infrastructure • Individually, infrastructure components do not have a significant influence on performance • IT infrastructure has to be considered as an ensemble • Efforts to improve IT infrastructure have to address all the components • Incentives to increase only one of the components (like hi-speed connections) might not enhance the firm performance significantly • Non-IT personnel have to be IT skilful • Training has a significant impact on performance • There is a high IT infrastructure threshold to reach before gaining benefits from process changes investments

  24. THANK YOU QUESTIONS?

  25. Background Information - Measures

  26. Governance (Lewis and Byrd, 2003) Back to Measures

  27. Data administration and enterprise model levels of definition Data administration level of definition Enterprise model level of definition Back to Measures

  28. Compatibility and connectivity Compatibility Connectivity Back to Measures

  29. Scalability Back to Measures

  30. Process Change Investments Built from a list provided by Statistics Canada Organizational change refers to a change in the way in which work is organized within your workplace or between your workplace and others. Has your workplace experienced any of the following forms of organizational change recently? Back to Measures

  31. Training investments In your organization, there is: Back to Measures

  32. IT Personnel competency (ChanopasKraritKhang 2006) Back to Measures

  33. Non IT Personnel competency (adapted from ChanopasKraritKhang 2006) Back to Measures

  34. Internal Performance (adapted from Hudson, Smart, and Bourne 2001) When comparing your company relative to your principal competitors: Back to Measures

  35. Market Performance (Venkatraman 1989) Using to the following scale, would you please indicate your perception along the following dimensions related to your actual business performance. Please circle the number that best represents your opinion. For any item that is not applicable to your situation, please circle na (not applicable). Back to Measures

  36. Governance and IT Infrastructure Data administration definition 0,386 Level of planning R2 = 0,33 0,287 0,480 R2 = 0,26 Compatibility 0,247 0,454 0,277 0,273 Enterprise model definition R2 = 0,46 0,243 0,261 Clarity of responsibility R2 = 0,35 0,187 Connectivity 0,316 R2 = 0,29 Scalability 0,349 IT personnel competency R2 = 0,29

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