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2008:037
M A S T E R ' S T H E S I S
Impact of Information Technologyon Productivity
Ahmad Sobhani
Luleå University of Technology
Master Thesis, Continuation Courses Marketing and e-commerce
Department of Business Administration and Social SciencesDivision of Industrial marketing and e-commerce
2008:037 - ISSN: 1653-0187 - ISRN: LTU-PB-EX--08/037--SE
MASTER'S THESIS
Impact of Information Technology on
Productivity
A case study in Telecommunication industry of Iran
Supervisors: Dr. Mohammad.T. Hamidi Beheshti
Dr. Deon Nel
Referee: Dr. Abbas Asosheh Dr. Anne Engstrom
Prepared by: Ahmad Sobhani
Tarbiat Modares University
Department of Industrial Engineering
Luleå University of Technology Department of Business Administration and Social Sciences
Division of Industrial Marketing and E-Commerce
Joint MSc. program in Marketing and Electronic Commerce
2008
Abstract Productivity is an important economic factor which has a key role in evaluating the
economic growth. It is identified as the foundation for economic prosperity, a
prerequisite for national development and also an important indicator of organizational
competitiveness (Dedrick et al., 2003).
Information Technology (IT) is one of the important resources for increasing the
economic growth. It causes companies to use their input resources as much as possible
in an effective way. As investment in IT capital accounts for an ever-increasing share
of capital investment, it is important to understand how these investments might pay
off (Gilchrist et al., 2001).There has been much debate on whether or not the
investment in IT provides improvements in productivity and business efficiencies.
IT investment may make little direct contribution to overall performance of companies
until they are combined with complementary investments in business activities, human
capital, and company restructuring. Therefore, according to role of IT in Business
Process Reengineering, as a facilitator and enabler, BPR is valuable for companies to
increase the impact of IT on overall performance of companies. On the other word,
both IT and BPR investments, together, are able to improve productivity drastically.
In this research Cobb-Douglas model was used to examine the impact of Information
Technology investment on productivity at Telecommunication Company of Tehran
(TCT).44 financial and economic data were collected since 1997 up to 2007 for
driving the corresponding model. Weighted Least Square (WLS) was run by SPSS 15
to test hypotheses. The results have indicated that IT investment not only makes the
positive contribution to output of Telecommunication Company of Tehran but also this
contribution is positive after deductions for depreciation and labor expenses. Further
productivity analysis exposed the positive correlations between IT, Total Factor
Productivity and Labor Productivity.
In order to reveal the importance of BPR approach as a complementary investment for
improving IT influences, the appropriate questionnaires distributed through Employees
and Experts of TCT in the second phase of this study. Evaluation of BPR factors
proved the necessity of employing this complementary investment at
Telecommunication Company of Tehran.
1
Acknowledgment I would like to extend my sincerest thanks and regards to all those who supported and
encouraged me during my study.
First, I would like to express my Special gratitude to Dr. Amir Albadvi at the
Department of Industrial engineering, Tarbiat Modares University, and Dr. Esmail
Salehi-Sangari at the Division of Industrial Marketing and E-Commerce, Luleå
University of Technology, for their continuous efforts in conducting this joint program
of Marketing and e-Commerce.
Additionally, I would like to express my gratitude to Dr. Mohammad.T.Hamidi
Beheshti, Professor at the Faculty of Engineering, for his supervision and valuable
assistance. Without his continuous encouragement and support, it would not have been
possible for this thesis’s completion. I would also like to express my special thanks to
my Luleå University of Technology supervisor; Dr. Deon Nel, who has given me this
pleasure to use his valuable comments, feedbacks and suggestions during the time that
I have been working on this thesis.
Separate thanks to experts at Iran Telecommunication Research center who give me a
lot of their working and even personal times.
My deep gratitude is expressed to my family and friends whose love and support have
made years of study an enjoyable and unforgettable experience. My father and mother
deserve special and heartfelt thanks for their support and patience during my work on
this thesis.
Ahmad Sobhani
February 15th, 2008
2
Table of content
Abstract………………………………………………………………………… 1
Table of content ………………………………………………………………... 3
Chapter One: Introduction and Problem statement………………………... 9
1-1. Back ground…………………………………………………………….. 9
1-2. Problem Area and Discussion…………………………………………... 12
1-3. Purpose of the research…………………………………………………. 14
1-3-1. Objective of the research…………………………………………. 15
1-4. Importance of the research……………………………………………… 15
1-5. Research Questions……………………………………………………... 16
1-6. Our contribution………………………………………………………… 17
1-7. Disposition of the thesis………………………………………………… 17
Chapter Two: ICT in Iran……………………………………………………. 19
2-1. Introduction……………………………………………………………... 19
2-2. ICT in Iran………………………………………………………………. 20
2-2-1. ICT indicators…………………………………………………….. 21
2-3. Information Technology sector in Iran…………………………………. 25
2-4. Telecommunication Company of Tehran………………………………. 26
2-4-1. ICT indicators ……………………………………………………. 26
Chapter Three: Literature Review………………………………………….. 29
3-1. Productivity……………………………………………………………... 29
3-2. Common minus of the term…………………………………………….. 31
3-3. Basic types of productivity……………………………………………... 31
3-3-1. Partial productivity……………………………………………….. 31
3-3-2. Total Factor Productivity…………………………………………. 32
3-3-2-1. Source of TFP growth………………………………………. 32
3-4. Benefits of productivity measurement of organizations………………... 33
3-5. Benefits of higher productivity in organizations……………………….. 34
3-6. Economic performance……………………………………………......... 34
3-7. Information Technology and Productivity……………………………… 35
3-8. The productivity paradox……………………………………………….. 37
3
3-9. IT opportunities for development………………………………………. 39
3-10. Role of IT in the production process………………………………….. 42
3-11. IT and Labor ………………………………………………………….. 43
3-12. IT, Coordination and Firm output……………………………………... 44
3-13. Production Function Model…………………………………………… 45
3-13-1. Cobb- Douglas function……………………………………………... 46
3-13-2. Translog function model…………………………………………….. 47
3-14. Decision tree technique………………………………………………... 47
3-15. Reengineering…………………………………………………………. 49
3-16. Business process………………………………………………………. 50
3-17. Business Process Reengineering………………………………………. 50
3-18. BPR approach…………………………………………………………. 52
3-18-1. Importance of BPR approach…………………………………… 53
3-18-2. Attributes of BPR approach…………………………………….. 53
3-19. Radical changes, Top management, Strategic thinking……………….. 55
3-20. BPR characteristics……………………………………………………. 56
3-21. Potential BPR impacts………………………………………………… 56
3-22. Principles in BPR……………………………………………………... 56
3-23. Impact of Information Technology on BPR…………………………... 57
3-24. Role of IT on BPR…………………………………………………….. 58
3-25. Benefits of IT – enabled BPR…………………………………………. 60
3-26. IT tools for BPR……………………………………………………….. 62
3-26-1. Enterprise Resource Planning…………………………………… 63
3-26-2. Outsourcing……………………………………………………... 63
3-26-3. Enterprise software……………………………………………… 63
3-26-4. Internet…………………………………………………………... 64
3-26-5. Intranet…………………………………………………………... 64
3-26-6. Electronic data interchange……………………………………... 65
3-26-7. Knowledge management……………………………………………. 65
3-26-8. Legacy system………………………………………………………. 66
3-27. Digitized information effects on business process…………………….. 66
3-28. Conceptual framework………………………………………………… 67
3-28-1. IT and Productivity………………………………………………….. 68
4
3-28-2. Production function model………………………………………….. 69
3-28-3. BPR, IT and Productivity…………………………………………… 69
3-28-4. Frame of reference…………………………………………………... 70
Chapter Four: Research Methodology………………………………………. 73
4-1.Research process.………………………………………………………... 73
4-2. Research design………………………………………………………… 74
4-3. Type of research………………………………………………………… 74
45-3-1. Reporting research………………………………………………. 75
4-3-2. Descriptive research……………………………………………… 75
4-3-3. Explanatory research……………………………………………... 75
4-3-4. Predictive research……………………………………………….. 75
4-4. Research approach……………………………………………………… 76
4-4-1. Deductive vs. Inductive…………………………………………... 76
4-4-2. Qualitative vs. Quantitative………………………………………. 76
4-5. Research strategy……………………………………………………….. 77
4-6. Sample selection………………………………………………………... 78
4-7. Classification of data…………………………………………………… 79
4-8. Data collection………………………………………………………….. 79
4-9. Reliability……………………………………………………………….. 81
4-10. Validity………………………………………………………………... 82
Chapter Five: Data analysis………………………………………………….. 84
5-1. Telecommunication Company of Tehran………………………………. 85
5-2. First phase analysis……………………………………………………... 85
5-2-1. Data sources………………………………………………………. 86
5-2-2. Hypotheses………………………………………………………. 87
5-2-3. Methodology……………………………………………………… 88
5-2-3-1. Linear regression………………………………………………… 88
5-2-3-2.Weight estimation………………………………………………… 89
5-2-4. Data analysis…………………………………………………………. 90
5-2-5. Further Productivity analysis……………………………………… 93
5-2-5-1. Total Factor Productivity…………………………………….. 93
5-2-5-1-1. Method of Kendrick…………………………………….. 93
5-2-5-1-2. Method of Dujea………………………………………... 94
5
5-2-5-2-1-3. Method of Solow…………………………………………… 94
5-2-5-2.Labor Productivity…………………………………………..... 95
5-2-5-3. Correlation…………………………………………………… 97
5-3. Second phase analysis…………………………………………………... 98
5-3-1. Hypotheses………………………………………………………... 100
5-3-2. Data sources………………………………………………………. 100
5-3-3. Methodology………………………………………………………. 101
5-3-3-1. 2-paired T-test……………………………………………….. 101
5-3-4.Data analysis………………………………………………………. 103
5-3-5. Cross analysis……………………………………………………... 106
5-3-5-1. Performance Quality…………………………………………. 106
5-3-5-2. Information Technology……………………………………... 108
5-4. Summary of the results…………………………………………………. 110
Chapter Six: Conclusions and Future Suggestions………………………… 111
6-1.Remarks on the first research question………………………………….. 112
6-2. Remarks on the second research question……………………………… 113
6-3. Conclusion……………………………………………………………… 115
6-4. Implications…………………………………………………………….. 116
6-5. Recommendations for future research………………………………….. 117
Reference………………………………………………………………………. 118
Appendix A……………………………………………………………………. 126
Appendix B……………………………………………………………………. 130
6
List of Tables
Table 2.1 Status of Telephone in Iran 21
Table 2.2 Status of Mobile phone in Iran 23
Table 2.3 Computers’ diffusion among various user groups 23
Table 2.4 Number of Internet users 24
Table 2.5 Internet penetration in designated countries 24
Table 2.6 E-commerce indicators 2004-09 25
Table 2.7 Status of Telephone in Tehran province 26
Table 2.8 Number of online Mobile phones in Tehran province 27
Table 2.9 ICT indicators in Telecommunication Company of Tehran 27
Table 2.10 Financial indicators of Telecommunication Company of Tehran 28
Table 3.1 Labor productivity growth by industries in US 1989-1999 36
Table 3.2 The annual percentage of GDP devote to expenditure on ICT 41
Table 3.3 Alternative estimates of the acceleration of productivity growth 42
Table 4.1 Reliability of the questionnaire 82
Table 5.1 Coefficients related to Cobb-Douglas model 90
Table 5.2 Strength analysis of Findings 90
Table 5.3 Calculated findings for relationship between IT and productivity
after deducting the ICT costs
91
Table 5.4 The Average of IT and non IT capital 92
Table 5.5 Correlation coefficient of IT capital and Labor productivity 97
Table 5.6 Correlation coefficient of IT capital and TFP 98
Table 5.7 Descriptive findings of second phase analysis 101
Table 5.8 2 paired t-test 102
Table 5.9 Parameters of 2 paired t-test 103
Table 5.10 Statistic findings for performance quality 103
Table 5.11 Paired test findings for performance quality 104
Table 5.12 Statistic findings for Information Technology 104
Table 5.13 Paired test findings for Information technology 105
Table 5.14 Paired test findings for performance quality indicators 107
Table 5.15 Paired test findings for IT indicators 109
Table 6.1 Summery of final results 114
7
Figure 1.1 Thesis outline 18 Figure 3.1 Labor productivity of US 37 Figure 3.2 Contribution of IT and non IT capital in GDP 39
List of Figures
Figure 3.3 BPR schematic 52
Figure 3.4 Kobu conceptual model 62
Figure 3.5 Impact of using IT on business benefits 67
Figure 3.6 BPR indicators 71
Figure 4.1 Research process 74
Figure 5.1 TFP of Telecommunication Company of Tehran 95
Figure 5.2 Indicators of TFP 95
Figure 5.3 Labor productivity of Telecommunication Company of Tehran 96
Figure 5.4 Indicators of Labor productivity 96
Figure 5.5 BPR main factors 99
Figure 5.6 Expected performance quality improvements 108
Figure 5.7 Expected Information Technology improvements 109
8
Chapter One
Introduction and Problem Statement
This chapter begins with background in productivity as an economic factor and
Information technology. This will be followed by problem area discussion, the purpose
of the research and the main objectives and importance of the study. The main
questions which are investigated within scope of research will be introduced. Finally,
our contribution and overview of entire thesis are presented.
1-1. Background Strong Competition causes the new technologies to be employed for improving
productivity level of companies’ resources. Productivity is one of the important factors
to evaluate the economic growth both at the industry and firm level. Its growth directs
companies to increase their market share (Tabatabae, 2000).
At the most basic level, productivity is based on the economics of the firms. It is
measured as the ratio of output to input. Historically, productivity is often defined as
the ratio of output to the most limited or critical input, with all the other inputs held
constant.
9
Based on Neo-classical economic model, productivity is one of the important factors
that impact on economic growth. It causes Companies to produce more products
through specified production’s factors, and to optimize the employment of the
production’s requirements (Solow, 1956).
Improving the productivity is fundamental to survival companies in a very competitive
market. The purpose of all productivity-related attempts is to make lasting
improvements in performance. Productivity is also the best methods we have to fight
inflation, reduce unemployment, enhance profits, reduce costs, create capital and
wealth and improve the quality of working life. (Drucker, 2001) clearly, indicated the
importance of productivity as an economic indicator when he stated “Without
productivity objectives, a business does not have direction.
Investigation of the productivity achieves the following results:
• The resources efficiency will be judged.
• Evaluation of resources management will be facilitated (Kazemi, 2003).
Measuring the productivity growth causes companies to evaluate the factors that affect
on value added such as IT, Innovation ant etc (NPC productivity report, 2003).
Current business activity is characterized by intense international, rapid product
innovation, increased use of automation, and significant organizational changes in
response to new manufacturing and information technologies (Dirks, 2005).
Information technology (IT) is one of the valuable resources to increase the economic
growth and customer satisfaction. It has a potential to impact on the structure of
organizations and improve the quality of organizational performance significantly.
In the 1980s, IT was heralded as a key to competitive advantage (Porter and Millar,
1985). Porter and Millar (1985) concluded that IT has influenced competition in three
ways: it has led to changes in industry structure and competition, it was used to support
the creation of new businesses, and companies using IT outperformed their
competition. Although IT as a critical factor to competitive advantage became less
certain in the recent years, the high percentage of top executives considered IT as a key
to a company's profitability and survival. This issue causes IT to pose a serious
10
dilemma for top management. On one hand, continuing IT innovations have the
potential of changing the competitive game for many organizations. On the other hand,
the size of the IT investment puts increasing pressure on managers to assess its
business value (Mukhopadhyay, et al., 1997).
For many years, there has been much discussion about whether the IT revolution was
paying off in higher productivity. Studies in the 1980s found no positive relationship
between IT investment and productivity, a situation referred to as the productivity
paradox (Dedrick et al., 2003). Since then, decades of studies at the firm and country
level has consistently shown that the impact of IT investment on productivity and
economic growth is significant and positive.
Albadvi and Keramati (2006) also provided the satisfactory evidences to show that IT
implementation increase productivity when supported by rational complementary
investment.
In the face of extreme competition and economic pressures, firms are changing their
fundamental unit of analysis from the business function to the business process. IT
investments may make little direct impact on the overall performance of the firms or
the economy until they are combined with complementary investments in business
activities, human capital, and companies redesigning. Therefore, according to the role
of IT in Business Process Reengineering (BPR), as an enabler, BPR is essential for
corporations to enhance the potential impacts of IT on their performances. On the other
word, both IT and BPR investments, together, are able to improve productivity
drastically.
Despite the fact that little more than 10 years ago Iran was backward technologically
among the Middle East countries, it has been considered as a successful example of
fast introduction of information technologies, recently.
The GDP growth of 6.9% in June 2005 places Iran among the fastest growing
economies in the region. The economy has grown by an average 5% every year since
1999. The continued growth of exports to Middle East and western markets,
integration with Asian countries, and institutional and regulatory reforms has thus laid
a strong foundation for sustainable economic growth. The economy is likely to grow
11
by 5- 6 percent per year in near future (Central Bank of the Islamic Republic of Iran,
30th June 2006; cited Pourmirza, 2006).
The Average of the annual economic growth has been calculated 8 percent in fourth
cultural, social and economic development plan of Iran (2005-09). 2.5% of the
mentioned growth should be obtained by productivity. Besides, in order to achieve the
above economic growth, all governmental sectors have to establish 31.3% of their
GDP growth via Total Factor Productivity (TFP). And labor productivity, capital
productivity and TFP would be at least 3.5%, 1% and 2.5% raised annually. Therefore,
all activities and investments cause to achieve the above goals and extract the
resources of organizations in the optimum ways are considered.
Telecommunication Company of Tehran (TCT) is one of the powerful companies
which have continued business activities independently since 1995. TCT serves
communication services and infrastructures. It is identified as a government company
which has positive balance of finance. Therefore, TCT has a key role in the economic
growth of Iran. The positive impact of IT investment on productivity causes TCT to
increase its capacity for stay in competitive telecommunication market.
This research identifies and describes the impact of IT investment on productivity at
Telecommunication Company of Tehran. Furthermore, the situation of BPR approach
in TCT, as a method to improve the IT influences, is evaluated.
1-2. Problem Area Discussion
More recently, the continuous movement towards globalization has made information
technology one of the most important factors in achieving success as well as in seeking
new markets, improving quality and providing better and faster customer service.
Many of the recent studies have shed some light on the impact of IT on economic
growth, productivity, employment, work organization and competitiveness (Satti,
2002).
Productivity at the organizational level is affected by the level of competition, which
leads other organizations to step up the development of their productivity (Dedrick et
al., 2003). Increased productivity, however, does not necessarily imply increased
profitability. Competition may result in lower prices, thus eroding improvement in
12
margins. The beneficiaries will then be consumers, who get more value added for the
price paid (Dedrick et al., 2003).This phenomenon is defined as consumer surplus.
IT has made rationalization possible in organizations by minimizing human
involvement. These aspects of IT are labeled as automational (Zuboff, 1988).
Increased access to information and enhanced means of accessing, analyzing, storing
and communicating information can result in effects in addition to pure rationalization.
These aspects are defined as informational (Zuboff, 1988) informational aspects
empower employees and enrich quality of decisions and performances.
Transformational is the third type of effects which encompasses the changes observed
in process innovation and transformation. Another type of effects is identified by Hitt
& Brynjolfsson (1996), who discuss the importance of the increased value perceived
by consumers as a result of technological improvements. This phenomenon is defined
as consumer surplus (Mooney et al., 1996).
IT is known as the productive resource to increase the economic growth, productivity
and customer satisfaction. It has an effective role to enhance the quality of
communication services. IT can be gainful in the communication services when
appropriate successful BPR is implemented in the different parts of companies
(Limayem, 2006). Moreover telecommunications service provider’s survival depends
on its ability to prepare for changes in customer needs, as well as changes in regulation
and technology (Fornell and Wernerfelt, 1987; Reichheld and Sasser, 1990).
BPR begins with process redesigning which leads to fundamental changes in many
aspects of an organization, including organizational structure, job characteristics,
performance measures and the reward system. BPR relies heavily on the IT uses to
create radically different working methods to achieve improvements of the order of
magnitude required. Furthermore, BPR facilitates the change in corporate
management’s perception of technology. It also confirms an alternative channel
through which IT solutions are being scrutinized and selected (Soliman, 1997).
Productivity growth arises from the development of new work methods based on new
technology and production techniques. Consequently, when the new technology of IT
was introduced in working life, productivity growth was expected. But, because
computers were initially used in a situation where productivity growth had been low
13
and unemployment had been high since the mid-1970s, it was initially difficult to
prove positive effects of investments in IT (Lundgren and Wiberg, 2001). Solow
referred to this situation when he stated, “You can see the computer age everywhere
but in the productivity statistics” (Solow, 1987). This phenomenon was later defined as
the productivity paradox (Horzella, 2005). Of late, however, firm-level studies, in the
manufacturing and service sectors, have shown that there are significant positive
contributions from IT investments toward productivity (Harker, 2000).
1-3. Purpose of the research
Nowadays, there are strong competitions among corporations which serve the
communication services. Therefore, they not only employ information technologies
through the organizational levels to improve the performance quality but also use the
newest technologies to cover customers’ needs.
There has been much discussion on whether or not the IT investment provides
improvements in productivity and business efficiency. Several studies at the industry-
level and at the firm-level have contributed differing understandings of this
phenomenon.
Telecommunication Company of Tehran is one of the powerful companies that serve
communication services and infrastructures.TCT has taken great steps in the
development of telecommunication networks and for this purpose, as the main
responsible organization in Iran, it has utilized the most advanced equipments and
services such as digital switching centers, mobile phones, data networks, satellite
services, Internet and special telephone services during the recent years. TCT has a key
role in economic growth of Iran. Acceptance of Iran in WTO provides superior
opportunities to penetrate in the Middle East and member’s markets. In addition
entrance the new competitors in communication market of Iran (Irancell and Taliya)
causes TCT to increase its services quality, productivity and customer satisfaction.
The purpose of this research is to investigate the impact of IT investment on
productivity at Telecommunication Company of Tehran. Besides, the status of BPR
approach in TCT, as a complementary investment for improving the IT influences, will
be evaluated.
14
In this research the production function model is used to assess impact of IT capital
and labor in a government company and evaluate the BPR factors such as team
working, paperwork and etc in order to obtain clear view about future investments and
organizational change.
1-3-1. Objective of the research The main objectives of the research are introduced in below:
• Investigating the productivity measurement models.
• Calculating the productivity during the specific period of time at
Telecommunication Company of Tehran.
• Calculating the variant subjects of Information Technology in Telecommunication
Company of Tehran.
• Measuring and analyzing the impact of IT investment on productivity at TCT.
• Investigating BPR indicators at TCT to improve the productivity.
1-4. Importance of the research Rapid process of information, producing low price IT equipments and employing
automation systems through the organizational levels in recent years cause
corporations to access to the update information and knowledge easily and quickly.
Information Technologies are driving national development efforts worldwide. And a
number of countries in both developing and the developed world are exploring ways of
facilitating their development process through deployment and the exploitation of IT
within their economies (Pourmirza, 2006).
More than 80% of the national GDP of Iran is created by governmental sectors.
Although economic stagnation impact on all companies in 1990s, IT investments have
been increased over the past years (Jahangard, 2004).Government companies, which
have the positive financial levels, are pioneers in this area. Besides, the organizational
levels of the most government companies in Iran are pyramidal. These kinds of levels
make a lot of waiting and wasting times so, heavy IT investment in the current
processes may fall down the positive IT influences.
15
Therefore, bright view of IT capital makes companies to better manage their recourses
and future investments.
Rational complementary investments increase the positive impact of IT implantation
(Albadvi and Keramati, 2006). Companies have implemented BPR approach to shift
their fundamental unit of analysis from the business function to the business process,
achieve remarkable improvements in critical, contemporary measures of performance
and employ the real potential of IT investment through their organizations. BTN,
British company in telecommunication area, is pioneer in implementing BPR. Thus,
BPR approach can be an essential way for Telecommunication Company of Tehran to
streamline its business activities.
In order to prove the importance of BPR in Telecommunication Company of Tehran,
evaluation of its indicators is the first step.
Evaluating the impact of IT on productivity causes at least the following results:
• Telecommunication Company of Tehran evaluates the factors that affect on value
added.
• Future planning for the value level of Telecommunication Company of Tehran can
be facilitated.
• The resources management of Telecommunication Company of Tehran will be
facilitated.
• Telecommunication Company of Tehran finds clear view about its future
investments and organizational change.
1-5. Research Questions The critical questions within the scope of this research are:
RQ1: What is the relationship between IT investment and productivity at
Telecommunication Company of Tehran?
RQ2: Is there a meaningful difference between the present situation and the desired
situation of Telecommunication Company of Tehran, with regard to BPR approach?
16
1-6. Our Contribution The study makes contribution to both theory and practice. Also, it has been conducted
in two phases. In the first phase, the research problem has been confined to explore and
describe the impact of IT investment on productivity. Production function model has
been used to assess the impact of IT capital and labor at Telecommunication Company
of Tehran. Hence, related financial and economic data were collected from
Management and planning Organization, Iran Telecommunication Research Center,
Telecommunication Company of Tehran and Telecommunication Company of Iran.
BPR factors have been evaluated in the second phase of the research. Several meetings
with experts of Iran Telecommunication Research Center assisted us to prepare and
localize the questionnaire. So, the practical information has been extracted through
questionnaire data collection from head offices of Telecommunication Company of
Tehran. Briefly in this study, the following theory and practical steps have been from
the beginning, in order to reach the final results:
• Review the literature, in order to understand the relationship between IT and
productivity deeply and find out the BPR indicators.
• Study of different methods to find an appropriate model for the first phase analysis.
• Model selection and modification based on the context (governmental
telecommunication sector) characteristics in the second phase of the research.
• Start field work with gathering financial and economic data for the first phase
analysis and distributing the questionnaires through the head offices of
Telecommunication Company of Tehran to evaluate BPR factors in the second one.
• Data entry, analysis and data presentation.
1-7. Disposition of the thesis The entire thesis is divided into seven chapters, as presented in figure 1.1.
17
Chapter 1: Introduction
Chapter 3: Literature Review
Chapter 4: Methodology
Chapter 5: Data analysis
Chapter 6: Conclusion
Chapter 2: ICT in Iran
Figure 1.1: Thesis outline
18
Chapter Two
ICT in Iran
This chapter presents the situation of Communication and Information Technology in
Iran. Also a brief introduction of Telecommunication Company of Tehran will be
review at the rest of this chapter.
2-1. Introduction Information and communication Technologies (ICTs) causes economic variables to
improve. These influences are considerable in developing countries (Qabadi, 2006).
Developing digital networks, computers, Mobile communication, TV and etc have
created unique capacity to enrich the knowledge in ICT area.
In millennium, 80% of ICTs’ market was covered by the top ten countries of the world.
And the bottom ten underdevelopment countries just employed 1% of the market.
Digital Divide is defined as the difference between developed and underdevelopment
countries in using ICT to improve productivity and efficiency of processes and to make
appropriate infrastructures for creating Knowledge of ICT and consuming the digital
goods and services. China, Vietnam, Poland and some others are able to fill digital
divide. China has tried hard to change traditional economy and improve its national
19
economy level by employing High – Technologies. So, these investments let china had
27% annual economic grow in 1992 and more than 220 Billion dollar ICTs’
expenditures in 2006 (Witsa, 2003).
Nations worldwide have recognized developmental opportunities and challenges of the
emerging information age characterized by ICT. These technologies are driving
national development efforts worldwide and a number of countries in both developing
and developed world are exploring ways of facilitating their development process
through development, deployment and the exploitation of ICT within their economies
and societies.
2-2. ICT in Iran In 1857, the first line of telegraph was started its activity between Tehran and Chaman
Soltanieh (near Zanjan).Two years later, this line was stretched to Zanjan, Tabriz, Jolfa
and connected to Russia’s Telegraph network. Iran was accepted as a member of
International Union of Telegraph in 1869.
The first company, which has produced communicational equipments, was established
in 1966. In recent years, government has invested in digital switches, Fiber cable,
Mobile phone, Information Networks, Satellite, Internet and telephones services(Iran
Telecommunication research center, 2003).
Government plays a key role to facilitate the use of ICT in Iran. All governmental
institutions in Iran were pooled into the portal www.salamiran.org in 1998. Iran first
time introduces the e-government system in 2005 while using Internet for internal
public administration communication. Iran has been also a pioneer with discussions
about e-banking but currently the implementation has been delayed due to some
factors (Iran Daily 15th June 2006).
49% of current revenues from Iran’s small and medium sized ICT and
telecommunications enterprises come from exports. Over the past five years, a key
focus of foreign investment in Iran has been on ICT (telecom) infrastructure,
accounting for about 20 percent of 130 major investments. In the last three years Iran
has established a thriving mobile telecommunications sector, winning the GSMA
global trade association's Government Leadership Award for 2006.
20
The performance of Iranian ICT cluster is based largely on the developments of
telecom, as it provides substantial input to computer services and equipment
production (Iran Daily, December 2005). This has also been a prerequisite for Internet
usage growth because providing good quality Internet connections is vital for attracting
wider public to the Internet. Iran was one of the first countries in Asia to get private
investments into the telecommunications industry when Pars Telephone Kar (PTK),
Keresm Communications Research (KCR), and Hi Tel Kar (HTK) acquired a 57%
stake in Iran’s Telecommunication Industry (ITI) in 2002/2003. From 2005, ITI enjoys
the exclusive rights for providing basic services granted by the Concession Agreement.
Since 2003 the number of telecommunications companies increased remarkably (ITI
annual report 2005) which means higher competition, diversity of services and growth
of quality (Pourmirza, 2006).
2-2-1. ICT indicators In this section the ICT Developing indicators, which were introduced as the
appropriate indicators to evaluate the situation of ICT by Consortium of national
union, are presented.
• Number of telephones
Telephone is one of the important communication services, which is identified as the
basic service in ICT area. Nowadays, this basic service develops by focusing on fiber
cables. Table 2.1 demonstrates the status of Telephone indicators in Iran.
Source: www.tci.ir Table 2.1: Status of Telephone in Iran
Content 2000 2001 2002 2003 2004 2005 2006 2007
unit Oct
Online phone
9486260
10896572
129344167
15340805
17798809
20340060
22626944
23681454
Penetration Coefficient
14.9
16.78
19.73
23.06
26.32
29.71
32.57
33.15
Public Telephone
86999
94311
100793
116776 128558 144145 168075 190017
21
• Number of mobile phones
Development of mobile phone is introduced through the economic, Cultural and social
plans.
First economic, cultural and social plan (1990-94): in this period of time, GSM
technologies were introduced in Europe. Without any scientific marketing research, the
small mobile network was established by government to Cover Tehran. Capacity of
this network was about 10000 mobile lines.
Second economic, cultural and social plan (1995-99): Iranian customers welcome this
new communication technology. Therefore, government presented mobile
communication for 450000 customers in Tehran and 220000 customers in other cities.
Third economic, cultural and social plan (2000-04): In 2000, 900000 online mobile
lines were established and about 337 cities were covered across Iran. Capacities of
mobile networks were augmented and about 3.5 million customers and 937 cities were
covered up to end of this period of time.
Fourth economic, cultural and social plan (2005-09): Capacity of mobile services have
increased in this period however, the quality of mobile communication has felt down.
Government executes some projects to overcome the problem.
Irancell and Taliya are non government companies which have initiated mobile
services in recent years.
Table 2.2 introduces the status of mobile phone indicators in Iran since 2000 up to
2007.
22
Content 2000 2001 2002 2003 2004 2005 2006 2007
unit Oct
Online Mobile phone
962595
2083353
2279143
3449876
5075678
8510513
15385289
21561954
Penetration Coefficient
1.51
1.72
3.48
5.19
7.49
12.43
22.20
31.15
Cities covered
337
493
594
708
851
999
1016
1016
covered roads (KM)
800
8500
9000
10000
25000
26000
32000
-
Countries have international
rooming
-
3
5
7 30 58
80
80
*Coefficients were calculated as each 100 persons Source: TCI website
Table 2.2: Status of mobile phone in Iran
• Number of Computers
According to the last issued report, in 2001, about 4.5million computers were used by
Iranian people. These computers were increased up to 7 million in 2004(penetration
coefficient: 10.4%). Table 2.3 exhibits the situation of computers’ diffusion among
various user groups
BUSINESS USERS
GOVERNMENTAL USERS DOMESTIC USERS 19% 26% 55%
Table 2.3: Computers’ diffusion
Furthermore the annual computer sale is about 1.2 million in Iran (Tabesh, 2004).
• Number of Internet users
In recent years, Government attempts hard to enhance internet access for the public
people. Cheap and easy access to the internet is the main goal of Iranian government.
Increasing the rate of internet from 9.74% to 30% indicates these kinds of endeavors.
Table 2.4 shows the number of internet users in Iran.
23
Year
Number of Internet users 2000 200,000 2001 1,700,000 2002 3,200,000 2003 5,500,000 2004 6,600,000 2005 6,750,000 2006 7,350,000
2007 11,260,000 Source: High Council of Informatics
Table 2.4: Number of Internet users
Furthermore, based on the Information Technology report of Europe and official
website of Telecommunication company of Iran, table 2.5 demonstrates the situation of
Internet penetration in different countries.
Countries
Internet penetration coefficient(2005)
Growth (2000-05)
China 7.9% 357.8% Denmark 69.9% 92.9%
Egypt 6% 833% France 42.2% 201.4%
Hong Kong 70.7% 113.7% India 3.6% 684% Iran 10.8% 2900% Iraq 0.1% 188%
Israel 45.8% 152% Italy 49.3% 118.7%
Kuwait 23.7% 300% Japan 60.9% 65.8%
Pakistan 5.7% 5522% Saudi Arabia 11% 1170% South Africa 9.9% 99.9% South Korea 65.2% 71.1%
Spain 37.1% 199% Sweden 75.2% 68% Turkey 13.9% 411%
*Coefficients were calculated as each 100 persons
Table 2.5: Internet penetration in designated countries
24
• Key indicators of ICT used at firm level
Based on WSIS report (2003), the e-commerce indicators have shown that ICT
employment, at the firm level in Iran, is far from the desired situation. According to
table 2.6, just 3 percent of Companies in Iran employed website through their business
in 2005.
There is no accurate information about using internet in Iranian companies. However
Iran small industries and Industrial parks organization issued that lack of Internet
equipments is considerable in some industrial parks.
Indicators 2004
(base)
2005 2006 2007 2008 2009
Companies which employ website - 3% 9% 16% 23% 30%
Active companies in E-commerce - 1% 2% 3% 4% 5%
- 2% 4% 6% 8% Rate of business through electronic networks to Total business(based on GDP)
10%
Source: Forth economic, cultural and social plan, 2004
Table 2.6: E-commerce indicators 2004-09
2-3. Information Technology sector in Iran IT is a term that encompasses all forms of technology used to create, store, exchange,
and use information in its various forms (business data, voice conversations, still
images, motion pictures, multimedia presentations, and other forms; including those
not yet conceived). It is a convenient term for including both telephony and computer
technology in the same word. With most of the global IT company presence in Iran,
and with revenues growth (35%) yearly, the IT industry is probably the most exciting
and dynamic sector in the country today. The industry is characterized with about
100000 professionals, major ongoing IT projects within the government and the
private sector to the tune of hundreds of millions of US dollars, and world-class
software product and services companies bears testimony to the vibrancy of the IT and
IT enabled services sector in Iran. The convergence of communications, computing,
and entertainment has resulted in the blurring of boundaries between disciplines and IT
companies now come in all shapes and sizes. IT has indeed been taken out of the closet
and has been mainstreamed into every aspect of industrial and economic activity
within the country (Pourmirza, 2006).
25
2-4. Telecommunication Company of Tehran Telecommunication Company of Tehran (TCT) has separated from
Telecommunication Company of Iran since 1995.Installation, development and
maintenance of the communication networks (Mobile and fixed) in different private
and governmental area through Tehran province are undertaken by TCT. Furthermore,
enhancing the quality level of communication networks, establishing and developing
different internet services (ISDN, ADSL and etc…) and Intelligence system (VOT,
UPT, NP and etc…) are pointed out as the other services.
80 communication centers, under control of 7 main communication zones, cover
Tehran. Besides, more than 390 communication centers undertake communication
activities of TCT in the other cities of Tehran province.
2-4-1. ICT indicators of Telecommunication Company of Tehran In this part, some of ICT indicators of Telecommunication Company of Tehran are
presented. Telephone is the basic communication. According to table 2.7, TCT could
not increase or just stabilize the increase rate of its penetration coefficient in recent
years.
Operation coefficient
Penetration coefficient
Year 20.9 851998
86 1999 22.24 2000 - 882001 22.24 892002 - 86
34.88 842003 86 2004 39.08
2005 44 83 84 46.03 2006
*Coefficients were calculated as each 100 persons
Table 2.7: Status of Telephone in Tehran province
Table 2.8 demonstrates the number of online mobile phones. According to the total
mobile phones in Iran, about 50% of them are served in Tehran province.
26
Number of online mobile phones
Year 1996 49199 1997 150185 1998 217788 1999 261688 2000 503774 2001 1100321 2002 11861232003 1735298 2004 2539970
4173726 2005 7231085 2006
Source: www.TCT.ir
Table 2.8: Number of online mobile phones in Tehran province
Table 2.9 is the last table which exhibits the main ICT indicators of TCT.
Indicators
2004
2005
2006 Number of Set up telephones 5496886 6400765 6796552
Number of online telephones 4742703 5331262 5704273
Number of public telephones 34783 36595 35715
Number of villages that have communication networks
1151 1181 1214
Number of special services’ clients 665704 733131 758081
Number of ADSL-clients - 6700 28691
Number of ISDN -Clients - 997 8283
Average of waiting time to engage telephone 6 (month)
4.5 0.47
Source: Telecommunication Company of Tehran
Table 2.9: ICT indicators in TCT
Telecommunication Company of Tehran is one of the government companies, which
has favorable balance of finance. By considering the situation of above presented
services, TCT plays a key role in the economic growth of Iran.
Table 2.10 shows the financial situation of TCT over the past 11years.
27
Thousand IR Rials
Profits
Total Costs
Revenues
Year
3670501130
33407663
370397793
1997
44204705.4
406588691
450793397
1998
1999 000 893 509 000 863 459 000 030 50
2000 382 151 702 1 035 777 635 347 374 066 1
2001 000 790 743 1 000 531 788 000 259 955
2002 954 712 317 2 785 960 967 169 752 349 1
2003 938 574 849 2 000 415 195 1 938 159 654 1
2004 852 317 002 5 214 824 399 3 638 493 602 1
2005 593 937 083 5 849 463 980 3 744 473 103 1
2006 557 097 641 5 760 610 793 3 797 486 847 1
962 654 051 7 099 303 191 5 863 351 860 1
2007
Table 2.10: Financial indicators of TCT
28
Chapter Three
Literature Review
During the last few decades, organizations have made immense investments in IT. The
implications of these investments for productivity have been widely discussed in
business and academic communities. Besides, according to the role of IT in Business
process reengineering, BPR is essential for companies to increase potential impact of
IT to overall performance of a company. This chapter will frame the study in the
theoretical context and provides an overview of relevant literature, relating to
productivity, to direct theoretical contexts toward research questions.
3-1. Productivity Productivity growth is identified as the foundation for economic prosperity, a
prerequisite for national development and also an important indicator of organizational
competitiveness (Dedrick et al., 2003). Measured productivity therefore shapes the
political decisions of national governments and management decisions within
organizations.
29
The word “productivity “has become such a buzz word these days. It is almost
mentioned in different fields such as commercial magazine, newspapers, political
speeches, TV news, business news, social magazine and etc…
In a formal sense, probably, the first time the word “productivity “was mentioned in an
article by Quensay in the year 1766. In 1833 Littre defined productivity as the “faculty
to produce “, that is, the desire to produce. In 1950, the Organizational European
Economic cooperation (OEEC, 1950) offered the more precise definition of
productivity: “Productivity is the quotient obtained by dividing output by one of the
factors of production. In this way it is possible to speak of the productivity of capital,
investment, or raw materials according to whether output is being considered in
relation to capital, investment or raw materials “After this time many economic
specialists offered other definition from productivity. Sumanth offered that total
productivity is the ratio of tangible output to tangible input (Sumanth, 1984) and Siegel
said productivity is a family of ratios of output to input(Tabatabae, 2000).
Finally, productivity can be defined as the below formula:
(Output obtained) (Input expended)
Or
(Performance achieved) / (Resources consumed)
Traditional economic studies of productivity focused on labor and capital such as
plants and equipments. In order to measure capital, all component categories are
considered. This issue is also considering about measuring labor. In some cases the
number of the labors is used and in some other cases the person- hour for special
period of time is regarded.
Increasing the productivity growth causes that:
• The life level in the investigated countries goes up.
• Inflation is decreased.
• The buying power of the people is increased.
• The life quality is improved and etc…
Some authors distinguish between productivity and efficiency. While productivity
applies to the transformation of input to output in a process, efficiency expresses the
relation between input and output in monetary terms. Thus measured, the results not
only indicate the improvement in output per man-hour or the change in the quantity of
30
inputs, but also the importance of changes in costs of inputs such as human
resources(Rapp, 1999) .In this study, however, no difference is made between
productivity and efficiency and the term productivity will primarily be used.
3-2. Common misuse of the term
The term “productivity “is often confused with the term “production “. Many people
think that the grater the production, the greater the productivity. This is not always
true, the meaning of productivity and production are different. Production is concerned
with the activity of producing goods and / or services. But productivity is defined with
the efficient application of resources in producing goods and / or services.
3-3. Basic types of productivity At this part two basic types of productivity will be introduced. 3-3-1. Partial productivity Partial productivity is the ratio of output to one of the consumed resources. For
example capital productivity is the ratio of output to capital input or Materials
productivity is the ratio of output to materials input and labor productivity is the ratio
of obtained output to labor input. Also Labor productivity can be defined as the
traditional, generally used indicator – measuring output produced per a certain unit of
labor time, usually per man-hour (Janáček and Zamrazilová, 2001).
Advantages:
1. Easy to attain the data
2. Easy to compute the productivity indices
3. Easy to understand
4. Good diagnostic tools for productivity improvement. if used along with total
productivity indicators.
5. Easy to sale management because of the above first third advantages.
Limitations:
1. If used alone, can be very misleading and may lead to costly mistakes.
2. Tend to shift blame to the wrong areas of management control.
3. Profit control through partial productivity measures can be a hit and miss approach.
4. Do not have the ability to explain overall cost increases.
31
3-3-2. Total Factor Productivity (TFP) Total – factor productivity is the ratio of the net output (pure output) to the sum of
associated labor and capital input. “Net output “means total output minus intermediate
goods and services purchased. Theoretically, TFP is a relevant measure for
technological change by measuring the real growth in production value, which cannot
be explained by changes in the input of labor, capital and intermediate input (Zhi et al.,
2001).
A series of articles that appeared in the recent World Bank Economic Review
highlights the important role of total factor productivity (TFP) in the process of
economic growth of countries (Cororaton, 2002).Total Factor Productivity measures
the synergy and efficiency of the utilization of both capital and human resources. It is
also regarded as a measure of the degree of technological advancement associated with
economic growth. Higher TFP growth indicates efficient utilization and management
of resources, materials and inputs necessary for the production of goods and services
(NPC report, 2003). TFP also refers to the additional output generated through
enhancements in efficiency arising from advancements in worker education, skills and
expertise, acquisition of efficient management techniques and know-how,
improvements in an organization, gains from specialization, introduction of new
technology and innovation or upgrading of existing technology and enhancement in
Information Technology (IT) as well as the shift towards higher added value processes
and industries (Cororaton, 2002).
Generally, higher productivity growth is associated with growth in Capital Intensity
(CI) and the growth in TFP. Capital Intensity measures the physical capital expansion
(Fixed Assets) allocated to each employee. This measure indicates whether an
enterprise adopts a capital-intensive or labor intensive policy. Higher CI provides the
advantage of technology, quality, volumes and speed to increase productivity and
hence generate greater output.
3-3-2-1. Sources of Total Factor Productivity Growth
There are five major determinants of TFP growth. (a) Demand Intensity which
indicates the extent of productive capacity of the economy. A slow-down in demand
intensity would result in unused capacity, lowering the utilization of existing
32
machinery and equipment. Demand intensity is reflected in sales performance. (b)
Education and training of the worker which aims to upgrade skills, and knowledge.
With higher level of skills, workers will be more efficient and produce better quality
products and services. (c) Economic restructuring which refers to the movement of
resources from less productive to the more productive sectors of the economy.
Experience of the developed countries indicates that resources in the more Productive
sectors of the economy were utilized at the more efficient level than resources in the
less productive sectors. (d) Capital structure which relates to the proportion of
investments in productive capital inputs. Investment in machinery and equipment
which are productive capital inputs yields immediate output as compared to
infrastructure, plant and buildings which have longer lag time. (e) Technical progress
which relates to the effective and efficient utilization of technology, innovation, work
attitudes and management and organizational effectiveness. With high technological
capabilities, a motivated workforce and as effective management, higher value-added
products and services will be produced at competitive costs (NPC report, 2003).
Advantages:
1. The data from company records are relatively easy to obtain.
2. This factor investigates the efficiency of resources convert and studying the value
added that made in the companies.
3. Planning and managing the resources will be facilitated by measuring TFP.
4. Measuring TFP causes that the company knows how to compete and recognize and
increase its ability for competing in target market.
Limitations:
1. The value added approach is not very appropriate in a company setting because it
is difficult for middle managers to relate the value added output to production
efficiency.
3-4. Benefits of productivity measurement in the organizations
Productivity measurement should be considered in order to organizations know in
which productivity level they are working now and in which corresponding level
should be operating productivity measurement also shows the direction for companies
within their industries. Productivity measurements in the organizations have the
following benefits:
33
The organizations access to the conversion efficiency of their resources. Hence, more
goods and services are produced for a given amount of expended resources. Also
resource planning can be facilitated. The economic and none economic objectives of
the companies can be re organized by the priority in the light of the productivity
measurement efforts.
Measuring and investigating the productivity create the competition action among
companies. Strategies to improve productivity would be determined based on the
extended distance (gap) between the planned level and measured level of productivity
(Sumanth, 1981).
3-5. Benefits of the higher productivity in the organizations Higher productivity in a company with the respect to physical and human resources
will mean higher profit because, Profit = revenue – cost of goods and services
produced by the utilization of the material and labor resources( Bernolak, 1976 ).Also
higher productivity can be translated in to higher real earning for its employees.
Moreover, it causes the cost of manufacturing to be reduced and the customers to pay
relatively low price. This role increases the market share (Tabatabae, 2000).
3-6. Economic performance Economic performance can be interpreted in a variety of ways at each level of analysis.
At the country level it usually refers to economic growth, labor productivity growth,
and consumer welfare .Economic growth is the rate of change in real output, or GDP,
and is measured at the country level. Labor productivity growth, is a measure of the
efficient use of (human) resources to create value. It “allows the economy to provide
lower-cost goods and services relative to the income of domestic consumers and to
compete for customers in international markets” (McKinsey Global Institute 2001,
cited by Dedrick .2003). Corresponding measures focusing on the output of an industry
sector and companies are utilized at the industry level and company level (kraemer et
al., 2003).
Clearly, labor productivity growth is also an indicator of the economic performance of
firms. A firm that is more productive than its competitors will generally enjoy higher
profitability, which is of course, also an important measure of economic performance
34
for firms. A more productive firm will either produce the same output with fewer
inputs and thus experience a cost advantage, or produce higher quality output with the
same inputs, enabling a price premium. Sustaining higher profits through productivity
gains requires a firm to maintain productivity levels higher than its competitors.
Therefore, over time, profits might be competed away with result that consumers
benefit (Gurbaxani et al., 2003).
3-7. Information Technology and Productivity Some recent studies have highlighted both the opportunities and the challenges that IT
has imposed on the world economy. For instance, Hitt and Brynjolfsson (1996) have
analyzed the implications of IT on productivity while studies by Stiroh (2001), Pohjola
(2001) have looked at growth and development (Satti and Nour, 2002).
Proving the business value of IT on organizational productivity has been a major
concern of information system (IS) research. It has been a matter of much debate
whether or not investment in IT provides improvements in productivity and business
efficiency. In 2002, Morgan Stanley reported that US companies wasted $130 billion
in the previous 2 years on technology. While organizations have increased investments
in IT in order to improve organizational performance, findings from earlier IT
productivity studies have been inconclusive despite the fact that several recent firm-
level empirical studies have found a positive relationship between IT investments and
organizational performance. For several years, scholars and policy makers lacked
conclusive evidence that the high levels of spending on IT by businesses improved
their productivity, leading to the coining of the term “IT Productivity Paradox”.
Morrison and Berndt (1990) concluded that additional IT investments contributed
negatively to productivity, arguing that “estimated marginal benefits of investment in
IT are less than the estimated marginal costs”. Others, such as Loveman (1994) and
Barua et al. (1991), said that there is no conclusive evidence to refute the hypothesis
that IT investment in inconsequential to productivity. Of late, researchers working with
firm-level data have found significant contributions from IT toward productivity
(Brynjolfsson and Hitt 1996). Most of these firm-level studies have been restricted to
the manufacturing sector, in large part owing to lack of firm-level data from the service
sector.
35
Kamil (2001) Declared that appropriate use of IT in the companies increase the
productivity by three ways: (a) Increasing the volume of capital used per worker
(capital deepening), when firms invest in IT (b) A speedup of growth of Total Factor
Productivity in industries producing information technologies, thanks to technological
progress (c) A speedup of growth of TFP in industries using information technologies.
Table 3.1 shows the labor productivity growth in different industries in US. Also at
this table intensity of IT use in us industry also compared between corresponding
periods of times.
Industry 19989-1995 1995-1999 Change Private industry .88 2.31 1.43
Agriculture,forestry,fisheries .34 1.18 .84 Mining 4.56 4.06 -.50
Manufacturing -.10 -.89 -.79 Durable Goods 3.18 4.34 1.16
Nondurable Goods 1.65 1.07 -.59 Transportation 2.48 1.72 -.76
Trucking and Warehousing 2.09 -.78 -2.82 Transportation by air 4.52 4.52 0.0 Other Transportation 1.51 2.14 .63
Communications 5.07 2.66 -2.41 Electric, gas and sanitary service 2.51 2.42 -.09
Wholesale trade 2.82 7.84 4.99 Retail trade .68 4.93 4.25
Finance, insurance and real state 1.70 2.67 .97 Finance 3.18 6.76 3.58
Insurance -.28 .44 .72 Real state 1.38 2.87 1.49 Services -1.12 -.19 .93
Personal Services -1.47 1.09 2.55 Business Services -.16 1.69 1.85
Other services -3.03 -1.76 1.27 Industry by intensity of IT use
Intense IT use 2.43 4.18 1.75 Less intense IT use -1 1.05 1.15
Source: (Kenneth. Kramer et al., 2003)
Table 3.1: Labor productivity growth by industries in US 1989-1999
As shown on table 3.1, we understand that by increasing the rate of IT use in variety
industries, approximately labor productivity in the most of corresponding industries
increased too (Kamil, 2001).
36
In the studies of IT and productivity, for successful measuring, it becomes necessary to
disaggregate capital into the component categories of investment—IT and the
traditional forms of capital, labeled non-IT. IT investment, broadly defined, includes
investments in both computers and telecommunications, and in related hardware,
software, and services (Dedrick et al., 2003).
At the end, the positive impact of IT capitals on the labor productivity growth at US
industry is shown in figure 3.1.
Sour
ce: (Triplett, 2000) Figure 3.1: Labor productivity of US
3-8. The productivity paradox During the last few decades, organizations have made immense investments in IT. The
implications of these investments for productivity have been widely discussed in
business and academic communities since the American economist Solow questioned
their benefits (Horzella, 2005). In a now famous quote from 1987, he claims, “You can
see the computer age everywhere but in the productivity statistics” (Solow, 1987).
Growth in productivity is a central measure of national and organizational success and
is often considered in economic decision-making. This is because the amount that a
nation can consume is closely linked to what the nation produces. In a similar way, the
performance of a company is dependent on its ability to deliver more value for
37
consumers based on the same resources. The inability to demonstrate a positive
correlation between IT investments and improved productivity and increase the IT
investments in the companies was later defined as the productivity paradox and formed
a baseline for many studies and discussions in subsequent years. The results were
conflicting (Harker, 2000).
Many studies in the 1980s showed no correlation between IT investments and
productivity growth, whereas research based on subsequent data and new assumptions
mainly showed a positive and significant effect on productivity and economic growth
(Dedrick et al., 2003).
As various questions of measurement made it difficult to present distinct conclusions
based on aggregate national or industry-level data, researchers turned to aggregate
firm-level data when seeking explanations for the productivity paradox. This research
indicates that organizations that have made IT investments of equal scale show
substantial differences in the development of their productivity (Brynjolfsson, 2003).
Explanation for this phenomenon is that the benefits gained from investments in IT are
dependent on firm-specific conditions. Idiosyncratic conditions (market position, cost
structures and etc.) and complementary investments in management practices,
organizational development and strategy are decisive for achieving planned effects. As
a example is Åsa Horzella (2005) concluded that there is a correlation between the
level of employee education and the productivity gains from investments in IT.
Another part of the explanation for the productivity paradox is the view of IT as a
General Purpose Technology (GPT) that makes extensive further development possible
and offers a wide range of potential applications. The implementation of other GPT’s,
such as the electrical dynamo and the steam engine, has shown that it takes time before
full advantage of the technology can be taken and productivity improvements
achieved. Information structures and operating modes need to be developed and
organizations adjusted for the effects of a new technology to be realized. Another
explanation for productivity paradox includes:
• Miss measurement of outputs and inputs.
• Time lags due to learning and adjustment.
• Redistribution of profits, and Mismanagement of IT.
38
• Inappropriateness of traditional productivity measures (Brynjolfsson, 1993;
Loveman, 1994).
Some experts claimed that inconsistent findings from IT productivity research were
due to interchanging terms between productivity and financial performance and also
lack of adequate data. However, recent studies have claimed that IT productivity
paradox no longer exists (Åsa Horzella, 2005) and there is a positive correlation
between appropriate use of IT and economic growth. To prove this issue, figure 3.2
presents the contribution of IT and non IT capital in GDP (from 1948 to 1999).
Source: (Kenneth. Kramer et.al, 2003)
Figure 3.2: Contribution of IT and non IT capital in GDP
3-9. IT opportunities for development IT has the potential to accelerate economic development by:
• Promoting economic growth by facilitating the generation or increase of another
sources of income and investment, thus enhancing sustainable development and
welfare economy.
• Enhancing employment opportunities by creating and initiating new jobs and
increasing the employment rate of already existing jobs.
• Improving the knowledge-based economy by (a) increasing the efficiency of the
educational system and learning to benefit from long-distance teaching in the near
future; (b) developing the communication system through the provision of cheaper,
easier, faster and more efficient services; (c) Upgrading skills and developing human
resources through improved educational and training systems and enhancing the
capability of people.
• Promoting the degree and the efficiency of the work organization.
39
• Accelerating the catching-up effect. The diffusion of IT can be used to accelerate
and facilitate efforts to bridge the gap with the advanced countries.
• Minimizing poverty in the region by creating additional employment opportunities.
• Advancing R&D efforts by motivating and facilitating the collaboration between
research institutes and organizations in the region, thus promoting research activities in
the region.
• Insuring gender equality in the region by increasing both education and
employment opportunities for women.
• Promoting e-commerce. Investments in IT have the potential to push/enhance e-
commerce. Both Internet and the recent growth in e-commerce can help facilitate the
fast delivery of products or services to large number of consumers (Satti and. Nour,
2002).
Table 3.2 shows the average of annual percentage of GDP devoted to expenditure on
ICT in different countries (from 1998- 2004). By considering the requested table,
importance of ICT opportunities for development is tangible as much as pervious.
40
Country Percentage New Zealand 10.3
Singapore 9.6 Australia 8.7
UK 7.9 USA 7.8 Japan 7.8
Canada 7.7 Switzerland 7.6
Sweden 7.5 Czech Republic 7.4
Denmark 7.3 Hong Kong 7.3 South Africa 7.1 Netherland 7 Colombia 7 Malaysia 7 Finland 7 Korea 6.6
Hungary 6.2 Germany 6
France 5.9 Austria 5.8
Slovakia 5.6 Norway 5.5 Portugal 5.5 Brazil 5.4 Ireland 5.3
Vietnam 4.7 Italy 4.6
China 4.3 India 4.27 Iran 2
Table 3.2: The annual percentage of GDP devoted to expenditure on ICT
Moreover some more important improvements of using IT in the firms are:
• Better information about customers – Retailers, wholesalers, service providers
and manufacturers can now use detailed real-time information about customer
purchases to make business decisions.
• Faster information flow – Information gathering and reporting is highly
automated and flows almost instantaneously between business units and companies.
• Smaller and more accurate inventories – At all stages of the value chain
participants boost efficiency by keeping lower inventories on hand.
41
• Sharp declines in operating margins and real consumer prices – These are the
ultimate rewards of the investment, and many of the gains are passed on to the
consumer.
• Increased firm and store size – The technology rewards scale and scope, enabling
large centralized chains and “big box” stores to expand rapidly.
These achievements are substantial, but they have not been realized quickly or easily.
Rather, they are the product of decades of heavy investment, meaningful
organizational change, and effective managerial leadership. Indeed, the transformation
is far from complete (McGuckin et al., 2004).
Table 3.3 exhibits the acceleration of productivity growth from 1973 up to 1995 in US
industry. The estimations were introduced by different experts. The major factor that
affect on this Acceleration is IT investment.
Category Jorgenson and
Stiroh
Oliner and Sichel
Concil Economic Advance
Robert Gordon
Labor productivity 0.9 1.2 1.5 1.4 Cycle n.a. n.a. n.a. 0.7 Trend 0.9 1.2 1.5 0.7
Capital per worker 0.0 0.3 0.5 0.3 IT capital 0.3 0.5 n.a. n.a
Other Capital 0.0 -0.2 n.a. n.a. Labor Quality 0.0 0.0 0.1 0.1
Multi factor productivity 0.7 0.8 0.9 0.3 Production of IT 0.3 0.3 0.2 0.3
Other sectors 0.4 0.5 0.7 0.0 Source :( Bosworth, 2000)
Table 3.3: Alternative estimates of the acceleration of productivity growth
3-10. Role of IT in the Production Process
Production process is defined as the process of producing the products or presenting
the services. Many studies addressed and evaluated the role of IT on the production
process and its affection on productivity both in industry level and country level. Yet,
the decision makers who choose to invest in IT are managers who deploy IT for use in
their organizations and who use investment criteria that are related to the outcomes at
the level of the firm. labor productivity and total factor productivity is certainly one
42
often-used criterion, managers also use measures such as profitability, market share,
margins, and product variety and quality as justifications for investment in IT systems.
In order to understand the overall impact of IT at the firm level, it is useful to begin by
thinking about the qualitative impacts of introducing IT into a firm’s production
processes. Past research has distinguished among using IT to automate processes, to
provide better information, and to transform entire processes. For example, a cashier at
a retail chain store using a computer-based information system such as a scanner can
process a transaction in less time.
Impact of improved information allows workers and managers to make decisions more
effectively. For instance, information provided by the store-based system allows the
managers to better manage inventory. Transformation impacts occur when a firm
redesigns a process to achieve significantly higher levels of productivity. One key
difference between IT capital band other forms of capital is the dual roles that IT can
play in a firm. First, like other types of capital, IT can be used directly as a production
technology to improve labor productivity, as in the case of a bank’s transaction
processing system. However, research suggests IT has its greatest impact in its second
role as a technology for coordination also it has important role on effective integration
of business process of the company for increasing the productivity of the firms
(Brenham 1997; and Whang 1991; cited by Vijay Gurbaxani et al., 2003).
3-11. IT and Labor Firm-level studies in Us have shown that IT capital has been a net substitute for labor,
as the use of IT allows firms to reduce headcounts or to grow output faster than
employment (Dewan and Min, 1997). In addition, IT use is associated with a shift
toward workers with higher skill levels, and these workers earn higher wages on
average. Comparing industry sectors, found that the rate of skill upgrading has been
most rapid in industries that are the most intensive users of computers. By Looking at
the U.S. labor force, Krueger found that workers who used computers earned 10 to
15% more than nonusers. Also Reenen (1999) found similar results in studies of other
developed countries (Dinardo and Pischke, 1997). he has found the strong correlation
between wages and computer use in German data also Chennells and Van Reenen
43
(1999) pointed out, there is much evidence that workers with the best skills are given
the best technology to use (Gurbaxani et al., 2003).
3-12. IT, Coordination and Firm Output The relationship between coordination and organizational performance has been
reviewed by organizational researchers. These researchers regard coordination as a
necessary condition for effective organizational performance. Viewing the
organization as an information processing system, Galbraith (1973, 1977) argued that
the primary function of an organization is to process the information for decision
making needed for a given level of performance. Egelhoff (1982) also considered
information processing as an important aspect of organizational performance.
Coordination refers to all of the information processing necessary to integrate various
economic activities. (Namchul Shin, 2000).
From an information processing perspective, Cheng (1984) argued that coordination is
associated with a given level of organizational output performance: the higher the level
of coordination, the better the organization can synthesize information into the
organizational knowledge needed for better organizational output performance.
According to Lawrence and Lorsch, coordination also aims to achieve unity of effort
among various subsystems in the accomplishment of the organization’s task, which is a
complete input-transformation-output cycle involving at least the design, production,
and distribution of some goods and services. The above organizational research agrees
that a higher level of coordination can improve organizational output performance
since coordination is a necessary condition for a given level of firm output
performance. Since a higher level of coordination requires large coordination
expenses, and since coordination can be achieved efficiently if coordination costs are
reduced, IT can contribute to firm productivity by reducing coordination costs, thus
facilitating a higher level of coordination. Production enhancement can also be
achieved by IT applications that automate production processes and improve the
capabilities of existing machinery.
IT, however, is most often used to reduce coordination costs within and between
organizations. Organizations can produce more if they cooperate, each specializing in
44
its own productive activities and then interacting with one another to acquire the actual
goods and services they desire (Milgrom and Roberts 1992). When organizations are
specialized producers that need to trade, their decisions and actions need to be
coordinated to achieve these gains. A key problem in achieving coordination is that the
information needed to determine the best use of resources is not freely available. By
providing better means of communication, information processing, and searching, IT
reduces coordination costs, improves the coordination cost efficiency, and contributes
to firm productivity. The microeconomic theory of production considers the firm as a
producer of goods and services. The production process requires a set of inputs—such
as capital, labor, materials—in order to produce output.
The theory of production assumes that a competitive firm will adopt the most
productive bundle of inputs by substituting more productive inputs for less productive
inputs. The most efficient economic output is produced by combining inputs in the
most efficient manner over time. From this perspective, IT can be regarded as an input
equivalent to capital, labor, or other production factors. As an input, IT contributes to
an increase in firm output by improving the cost efficiencies of labor and capital. As
mentioned above, productivity gains can be achieved by coordination cost efficiency,
as well as production cost efficiency. Thus, coordination (costs) will be considered
here as an important factor in the analysis of the impact of IT on firm productivity
(Namchul Shin, 2000).
At the rest of this part the methods that used for investigating the impact of IT on
output of the companies and productivity will be introduced.
3-13. The Production Function Model In order to better understand IT and productivity debate, it is useful to begin with a
discussion of the production process by which inputs are transformed into outputs in
firms and economies, and the specific role of IT as a factor of production. Economists
use two related approaches to modeling the production process by which inputs are
transformed into outputs. One approach to understanding the output of an economic
system is production economics, which uses specific functional forms, called
production functions, to model the production process. (Brynjolfsson and Hitt 2000).
This approach uses econometric techniques to relate the output of a firm, industry, or
45
economy to the inputs based on estimation models derived from the production
function. Inputs typically accounted for in this approach include labor and capital,
including both IT and non-IT capital. Most of the studies at the firm level use this
approach. The primary approach used to model the production process inherent in an
economy (or industry) is growth accounting (Oliner and Sichel 2000; Jorgenson and
Stiroh 1999, 2000). This method also assumes specific properties of the production
process and, based on these assumptions, allocates shares of output to the various
inputs to production. Output growth in firms, industries, and the economy may arise
from increases in input levels, improvement in the quality of inputs, and growth in the
productivity of inputs (Gurbaxani et al., 2003).
The production function framework has been the most widely used methodology in the
study of returns to IT investment (Loveman 1994; Lichtenberg 1995; Brynjolfsson
1996). In the absence of measures of actual benefits associated with IT, it is not
possible to perform cost-benefit analyses of IT investment and thus, production
functions which relate IT spending to overall productivity or output measures are seen
as the best alternative (Parsons et al., 1993).
Production function techniques have been shown to be valid and quite successful
through hundreds of empirical studies. The choice of the form of the production
function is constrained by economic theory which requires that conditions such as
monotonicity and quasi-concavity be satisfied. One of the simplest production
functions that satisfies such conditions and has been used for about a hundred years is
the Cobb-Douglas function (Berndt 1991). Most of the studies on IT-based
productivity have used this model (Lichtenberg 1995, Brynjolfsson and Hitt1996).
3-13-1. Cobb Douglas Function The Cobb-Douglas function has had a long and successful life and is still a popular
production function. The parameters estimated from this function have provided results
which seem to be meaningful from the point of view of economic theory. In a majority
of the cases the function fitted has been of the unrestricted type, in the sense that the
parameters were allowed to take any value whatsoever, positive or negative, high or
low.The Cobb Douglas Function is:
46
Where:
Q = total production (the monetary value of all goods produced in a year)
L = labor input
K = capital input
A, α and β are constants determined by technology.
If α + β = 1, the production function has constant returns to scale. That is, if L and K
are each increased by 20%, Q increases by 20%.
If α + β < 1, Returns to scale are decreasing, and if α + β > 1 returns to scale are
increasing. Assuming perfect competition, α and β can be shown to be labor and
capital's share of output.
3-13-2. Translog Function model This production function was introduced by Christenson & Jorgenson and Lau in 1973
The general equation of Translog is:
i , j = 1,2,….n
Where:
Y = Total production
Xi and Xj = inputs efficiency parameter
By increasing the number of inputs, the elastisities (βij) are increased dramatically .So
this issue is the important problem to use this model.
3-14. Decision Tree Technique (DT)
Using production function model is the basic method for investing the impact of IT
investment on productivity. Decision tree regression is the data mining technique that
extracts additional information through the results.
Data mining techniques allow organizations to explore and discover meaningful,
previously hidden information from huge organizational databases. An important
47
knowledge structure in data mining activities is the decision tree (DT). A DT is a tree
structure representation of the given decision problem such that each non-leaf node is
associated with one of the decision variables, each branch from a non-leaf node is
associated with a subset of the values of the corresponding decision variable, and each
leaf node is associated with a value of the target (or dependent) variable. There are two
main types of decision trees (DTs): 1) classification trees (CT); and 2) regression trees
(RT). For a classification tree, the target variable takes its values from a discrete
domain, and for each leaf the DT associates a probability (and in some cases a value)
for each class (i.e. value of the target variable).
The class that is assigned with a given leaf of the classification tree results from a form
of majority voting in which the winning class is the one that provides the largest class
probability even if that probability is less than fifty percent (50%). For the regression
tree (RT), the target variable takes its values from a continuous domain, and for each
leaf the DT associates the mean value of the target variable. Thus, a DT is an
alternative approach to continuous linear models for regression problems and to linear
logistic models for classification problems (Clark and Pregibon, 1992).
To generate a DT, the model dataset is partitioned into at least two parts: the training
dataset and the validation dataset (commonly referred to as the test dataset). Then it
undergoes two major phases of process: the growth phase and the pruning phase (Kim
and Koehler, 1995).
The growth phase involves constructing a DT from the training dataset in a top-down
recursive manner (Han and Kamber 2001; Hand et al., 2001). In this phase, either each
leaf node is associated with a single class or further partitioning of the given leaf
would result in the number of cases in one or both child nodes being below some
specified threshold.
The pruning phase aims to generalize the DT that was generated in the growth phase in
order to avoid over fitting. In this phase, the DT is evaluated against the test (or
validation) dataset in order to generate a sub tree of the DT generated in the growth
phase that has the lowest error rate against the validation dataset. The DT that results
from this two-phase process is the sub tree of the pruning phase that had the smallest
error (i.e. average squared error for RT) when applied to the validation dataset. It
48
follows that this DT is not independent of the training dataset or the validation dataset.
There are several criteria for measuring performance of RTs. Although the predictive
accuracy (R-squared, average squared error) is the most commonly used performance
measure for an RT, simplicity and stability are also important measures for an RT.
Simplicity refers to the interpretability of the RT and is often based on the number of
leaves in the RT, but the chain lengths of the corresponding rules could also be used to
determine this criterion of the RT. On the other hand, a stability of an RT refers to
obtaining similar results for the training and validation datasets (Myung Ko, Kweku-
Muata Bryson, 2002).
3-15. Reengineering Competitions among companies oblige them to employ the new technologies for
improving productivity level at their resources. Productivity growth directs companies
increase market share. Business process reengineering has been adopted by many firms
in an effort to improve their competitive position and enhance their ability to provide
customer satisfaction and delight.
Nowadays, demands of customers change continually, and strong competition makes
companies retain their customers and delight them. So, hierarchy structures do not able
to fulfill companies’ competitive requirements any more (Javanmard, 2002) and
organizational modification is necessary for companies to stay in the competitive
market.
Radical changes are the main characteristics of BPR to alter organizational structures
from duty orientation to business process approach. Therefore reengineering is one of
the important necessities for companies to fortify their situation in market.
BPR involves the fundamental redesign of a business process. It has been called the
“new industrial engineering” in contrast to the old Taylorian industrial engineering
based on task decomposition and specialization .BPR could involve a change in the
way the process is organized, the roles of the participants involved in the process,
elimination of steps in the process or a change in their temporal sequence. In its purest
sense BPR initiatives should start with a “clean slate” (Grover et al., 1994).
49
Companies which are employed appropriate business process reengineering throughout
their supply chains will have more effective and efficient IT investment. Furthermore
higher productivity l means higher profit with respect to the input resources. So
reengineering accompanied by using IT cause companies to use their resources as
effective as possible (Chin et al., 2003).
Implementing IT in business is traditionally aimed at automating the pre-existing
processes in an organization. IT cannot elevate productivity drastically unless
management processes, including the very organizational structure, are changed to
accommodate and maximize the benefits of the current advances in the IT
environment.
3-16. Business process
Business process is a structured, measured set of activities designed to produce a
specified output for a particular customer or market. It implies a strong emphasis on
how work is done within an organization (Davenport, 1994).
Also business process defined as a group of related tasks that together create value for
(internal and external) customers. The goals follow in the business process are (a)
customer satisfaction, (b) return on investment, and (c) market share (Hales and Savoie
1994, Hewitt 1995). These goals require process inter-dependencies and system
dependencies that are established through the integration of various business processes.
Main Characteristics of business processes:
• Cross organizational/departmental boundaries
• Oriented toward a customer
• Create value (have a deliverable)
• Are formed by a sequence of activities
• Respond to a business objective
• Have partners
• Are repeatable
• Are measurable
3-17. Business Process Reengineering Business process re-engineering (BPR) is not another technique for downsizing an
organization. Re-engineering is not another quality improvement, just-in time, or cycle
50
time reduction program. These activities typically focus on improving the existing
process, whereas re-engineering has the goal of radically changing the processes.
Business Process Reengineering (BPR) concerns the fundamental rethinking and
radical redesign of a business process to obtain dramatic and sustained improvements
in quality, cost, service, lead time and productivity (Gunasekaran et al., 2002).
Hammer (1990), defined BPR as the “fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in critical measures of
performance-cost, quality, capital service and speed.”
BPR involves the fundamental redesign of a business process. It has been called the
“new industrial engineering” in contrast to the old Taylorian industrial engineering
based on task decomposition and specialization .BPR could involve a change in the
way the process is organized, the roles of the participants involved in the process,
elimination of steps in the process or a change in their temporal sequence. In its purest
sense BPR initiatives should start with a “clean slate” (Grover et al., 1994).
Moreover, the strategic importance of customer satisfaction and delight has prompted
many firms to begin examining core processes from the perspective of the customer
(Scherr, 1993). Thus, reengineering programs must first concentrate on processes that
have an impact on providing customer value, satisfaction, and delight while enhancing
a firm’s strategic advantage over its competitors (Holland and Kumar, 1995).
Therefore, the “driving force” behind effective business process reengineering efforts
must be those critical factors which influence the customer’s perception of value, and
improve the firm’s competitiveness.
BPR focuses on the whole process starting from product conceptual stage to final
product design. It provides the opportunity to reengineer the process or to reduce
radically the number of activities it takes to carry out a process with the help of
advanced Information Technology, (Hammer and Champy 1993). Business Process
Reengineering Aims to achieve quantum improvements and IT is the primary
facilitator to achieve the requested goal of BPR (Limayem, 2006). In figure 3.3, the
schematic form of BPR has been shown.
51
Source: (Limayem, 2006) Figure 3.3: BPR schematic
The BPR analysis task typically consists of the following:
1. Collecting data on the existing process.
2. Breaking the existing process down into activities.
3. Capturing expenses, staff and materials information for each activity.
4. Capturing the sequence and timing of the several activities.
5. Capturing information flow and material flow through the process.
(Soliman et al., 1998)
3-18. BPR approach Global competition, customer satisfaction, and environmental and governmental
regulations suggest that dramatic changes are required by many firms for future
success and economic survival. Firms across a wide range of industries have
reengineered major business processes in the pursuit of continuous improvement.
Reengineering involves rethinking and redesigning a firm’s core business processes to
achieve dramatic and rapid improvements. However, Holland and Kumar (1995) note
that 60-80% of reengineering programs have been unsuccessful. Thus, an approach is
needed for the deployment of reengineering program.
BPR approach means that refusing the present system and making radical changes to
gain the companies’ vision and radical improvements in critical measures of
performance-cost, quality, capital, service and productivity. Also customers
52
satisfaction is identified the main concentration of BPR approach. In this approach
companies are directed to complex duties and simple processes (Soliman et al., 1998).
3-18-1. Importance of BPR approach Nowadays, customers are so intelligent and aware. Besides, there are many choices to
fulfill customers’ needs and desires in competitive market. So, they like to be
considered individually. According to Hammer “time is about customer not specific
group of customers”.
Customers have renewal views about the presented services or goods. First, they would
like that services or goods are conformed to their needs and desires as much as
possible. Second, goods and services are available and usable easily and conveniently.
In recent years, improvements and progress in Technology cause that, costs of services
or goods come down incessantly and companies propel their business activities to
delight customers. So market is much more competitive than before.
Therefore, companies should have dynamic structures to conform themselves to
continues changes in competitive market. And just strategies and methods which offer
dynamic and simple processes are considerable.
3-18-2. Attributes of BPR approach The positive attitudes of BPR approach make companies, especially governmental
organizations, to consider it.
• Business Process orientation
In the face of intense competition and economic pressures, corporations are shifting
their fundamental unit of analysis from the business function to the business process.
Organizational structures in the old companies and the majority of governmental
organizations are pyramidal. Specified responsibilities and duties are assigned to each
department. It means that each department just responsible for duties, which are
delivered by the upper parts. These organizational levels make the hierarchy structures.
Pyramidal structures lead companies to satisfy the mangers rather than customers.
Besides, the connections of departments would be at the lowest level.
53
BPR approach focus on business process. It cuts organization levels horizontally and
connects different departments to customers. This performance causes to all
components and departments, which work under definition of business process, try to
cooperate together and to achieve goals of business process and satisfy customers,
without paying attention to departments’ boundaries. Team working is established and
all the duties are aligned the business process, and related members are responsible for
the performance of business process and organization. BPR approach makes
companies to distinguish the excess activities through the business process and omit
them. Therefore, the final costs are decreased remarkably (Davenport, 1995).
• Complex duty ,Simple process
Combination of duties and elimination of montage activities through the business
process is one of the important attribute of BPR approach.
BPR approach attempts to integrate the business process and eliminate all excess
members and activities. This approach causes the process to be simple and duties to be
complex in order to delete all waiting and wasting times and related errors (Rezaee
nejad 1999; Hammer, 1998).
• Making decision in necessary circumstances
All organizational levels are compressed both horizontally and vertically.Vertical
compression means that members, of business process, do not need any more execute
the organizational decisions which are made by upper parts. On the other word,
making decision is identified as one of their duties. Vertical and horizontal
compression not only decrease delay times and costs but also accelerate
responsibilities and empower experts and executive employees (Pad 1998; Oblinski
1997; hammer and champy 1995).
• Distributing update information
Making decision by members of the business processes, cause companies to facilitate
updated information flow through their organizations (Darnton 1997; Jackson 1995;
Davenport 1995).
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• Information Technology
IT is the primary enabler of new business process. BPR does not aim to automate an
existing business process but to deploy IT to enable a new business process. Therefore
we define BPR as a complex, top-down driven and planned organizational change task
aiming to achieve radical performance improvements in one or several cross-
functional, inter- or intra-organizational business processes whereby IT is deployed to
enable the new business process(es) (Barothy et al., 1995).
Radical changes through BPR approach alter the approach of the employees and
managers. Relationships among employees, mangers and departments are changed.
Besides, evaluation of employees and role of top mangers change dramatically.
3-19. Radial changes, Top management, Strategic thinking Top management plays a critical role in radical organizational change. Radical changes
cannot occur without sufficient understanding of the new conceptual objective. Having
the skills and required competencies to function in that new objective is another factor
to occur the radical changes. Moreover the ability to manage how to get that objective
is important factor for radical changes. Theories of organizational change suggest that
new top management facilitates radical change, especially if new top managers are
from outside the firm (Romanelli and Tushman, 1994).Top managers generally are
more exposed to and aware of changes in their business environment than rank and file
employees (Brunsson 1995; Thompson 1967), and therefore may perceive the need for
change more readily. Strategic thinking by the top management has important role to
succeed radical changes and reengineering in the companies (Newman, 1998).
Strategic thinking is meant under pressure of three main aspects: the first aspect is the
ability to understand the firm’s resources and capabilities and how they are relevant in
the marketplace. The second aspect of strategic thinking that is the ability to
understand the market, assess its characteristics, and adapt the firm appropriately. The
third aspect of strategic thinking is the ability to envision and plan for a new future,
based on an accurate assessment of the market and the firm’s resources and
capabilities.
55
3-20. BPR Characteristics • Seeking of dramatic levels of improvements
• Break-away from outdated rules and fundamental assumptions that underlie
operations.
• Break-away from the constraints of organizational boundaries
• One-time change
• Information technology is the primary enabler
• Focus is on internal and/or external customers
• Risky. BPR is risky because the radical changes are done.
3-21. Potential BPR Impacts • Dramatic productivity improvements
• As mentioned before IT is one of the important enabler of BPR so by using
requested enabler and successful BPR, companies employ and manage their resources
more profitable.
• Dramatic product and service quality improvements.
• Cost reduction/efficiency gains.
• BPR causes that not gainful activities throughout the business process are
omitted and the cost of product and services are reduced.
• Improvement of organizational quality.
• Increasing market coverage.
• Reengineering the business process and using IT cause companies to use their
resources as effective as possible.
• BPR helps companies to transform from a bureaucratic to a customer-centered
orientation by reducing process time and improving quality.
3-22. Principles in BPR There are some principles and tactics that must be considered through the
reengineering in the companies.
• Streamline By streamlining the business process, the wasting activities will be omitted. Also this
tactics let companies simplify their business process.
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• Lose Wait
Squeezing out the waiting time in the business process is one of the important factors
for successful BPR. Furthermore this principle assists companies to modify upstream
practice to relieve downstream bottlenecks.
• Orchestrate
Synchronizing the physical and virtual parts of the process is the goal of this tactic.
• Mass Customize
In order to retain customers, Companies not only satisfy customers but also try to
delight them. So, they should push customization to occur closest to the customers.
• Digitize The important and effective tactics that have to be used in BPR is digitizing the
resources and organizational information and distributing digital information flow
through supply chain.
• Vitrify
This principle Provides glasslike visibility through fresher & richer information about
the process.
• Sensitize
Feedback loops should be built in order to detect process dysfunction.
• Analyze and Synthesize
Augment the interactive analysis and synthesis capabilities around a process to
generate value added.
• Personalize
By employing IT- enabler, companies direct their activities through personalizing the
products or services to much more satisfy their customers.
3-23. Impact of IT on BPR Organizations have dramatically redesigned their methods of doing business and their
underlying IT infrastructure to compete effectively in today’s global market.
According to a survey of business-process redesign (BPR) practices carried out by
Business Intelligence, 60% of the companies surveyed considered IT a critical enabler
for their BPR efforts In describing IT’s role in BPR, Chu et al. (1996, p. 5) state,
“Most analysts view reengineering and IT as irrevocably linked. Wal-Mart, for
57
example, would not have been able to reengineer the process used to procure and
distribute mass-market retail goods without IT. Ford was able to decrease its headcount
in the procurement department by 75% by using IT in conjunction with BPR, in
another well known example.”
3-24. Role of IT in BPR The role of IT in business process reengineering can be viewed from two perspectives:
(a) the role of the IT function (e.g. Internet, E-Commerce, Multimedia, EDI,
CAD/CAM, and ISDN), and (b) the role of the technologies themselves (e.g. CD-
ROM, ATM,). IT has played a vital role in the success of the overall reengineering
initiative. Information management throughout the company should be encouraged to
develop skills in computer-aided systems engineering (Kobu et al., 2002).
IT is enabler of BPR. Without proper use of IT, BPR would be very difficult executed.
If BPR is done without understanding the way it is done, then the most likely outcome
would be continuing less-than-satisfactory current practice and automating outdated
processes (Kobu et al., 2002).
BPR can be implemented by constructing an information architecture, which is
composed of the data architecture and process architecture of the organization. The
data architecture aims to specify what kinds of information are required and
maintained. Process architecture on the other hand specifies what an organization does
using the information specified in the data architecture. This means information
architecture is concerned with the design and implementation of an information system
of the enterprise. Data architecture specifies the information needs of business,
independent of the functional and geographical boundaries of an organization and is
relatively stable even during the drastic change of business re-engineering. The
identification and maintenance of the stable data elements of an organization’s
activities are the main task of building an information infrastructure of business. An
organization’s process architecture represents the activities of the business. In general
process architecture is less stable and can be changeable during and after the
completion of BPR work (Soliman et al., 1998).
As presented at the beginning of this part IT infrastructure is a vital factor in successful
BPR implementation. Adequate understanding and identification of enabling
58
technologies for redesigning business processes, proper selection of IT platforms
(Guha et al., 1993), effective overall system architecture, adaptable and flexible IT
infrastructure and proper installation of IT components all contribute to building an
effective IT infrastructure for business processes (Al-Mashari and Zairi, 1999). IT
infrastructure is defined as the extent to which data and applications through
communication networks can be shared and accessed for organizational use
(Broadbent et al., 1999; cited by Zairi, 1999). The main purpose of IT infrastructure is
to provide consistent and quick information support throughout the organization to
respond to dynamic challenges in the markets. IT infrastructure consists of a portfolio
of IT resources that are shared and used by firms .It consists of both technical and
organizational capabilities to provide the opportunities to share IT resources within and
across the firms (Broadbent et al., 1999). The IT infrastructure and BPR are
interdependent in the sense that deciding the information requirements for the new
business processes determines the IT infrastructure constituents, and recognition of IT
capabilities provides alternatives for BPR. Building a responsive IT infrastructure is
highly dependent on an appropriate determination of business process information
needs. This is determined by the types of activities embedded in a business process,
and their sequencing and reliance on other organizational processes .Variance in how
activities are performed and the flow of materials, people, and information can be a
source of competitive advantage (Hammer, 1990).
Analyzed IT infrastructure should not only facilitate the development and use of data,
applications, and other processing technology, but also provide flexibility to meet the
future business demands in workstations, processing types, and applications (Mudie
and Schafer, 1985; cited by Akhavan, 2006). At conceptual level, IT infrastructure
consists of data architecture, communication networks infrastructure, and support
organizations. Based on these studies, Bhatt (2000) used the following four dimensions
of IT infrastructure: extent of intrafirm infrastructure: extent of interfirm infrastructure;
extent of infrastructure flexibility; and extent of data integration. Theoretically,
intrafirm infrastructure refers to the scope of communication networks within an
individual organization, and interfirm infrastructure refers to the scope of
communication networks beyond an individual organization .Infrastructure flexibility
refers to the extent to which compatible standards and protocols exist to allow
heterogeneous hardware and software to communicate and meet present and future
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business computing environments. In sum, infrastructure capability captures the extent
to which an organization’s units and their respective databases are made accessible
internally and externally via electronic linkages (Akhavan, 2006).
Intrafirm infrastructure; interfirm infrastructure; and infrastructure flexibility are not
separate, rather they are highly correlated to each other. Therefore, for getting a
meaningful measure, Bhatt (2000) combined the first three dimensions, and
conceptualized it as network infrastructure. The use of widespread network
connectivity between different firms makes it difficult to distinguish between intrafirm
infrastructure, interfirm infrastructure, and infrastructure flexibility empirically.
Interfirm infrastructure, by definition, includes intrafirm infrastructure. Similarly,
extensive connectivity between different firms, by definition, meets the requirement of
infrastructure flexibility (Akhavan, 2006).
Several researchers have discussed the role of IT in BPR from different viewpoints.
They categorize them under two groups(a)change technologies and (b)support
technologies. They describe support technologies as relating to implementing
information system (IS) to support the process configurations needed. By change
technologies, they mean analyzing, modeling, and mapping existing processes,
assessing their efficiency and effectiveness, measuring performance, and providing
structured support for the change project’s management and associated planning and
control functions. Higgins declared the imperatives for effective use of IT in BPR. He
found the role of IT in BPR as having three major aspects: (a) knowing what new
business opportunities are made possible with computer-based technologies, (b)
building an active platform of systems and capabilities, and (c) focusing on the process
of delivering new systems (Akhavan, 2006).
3-25. Benefits of IT-Enabled BPR IT, accompanied by BPR efforts, provides business with a number of benefits, such as
reduction of the cost, time elimination, and error minimization. However, there are
other benefits that are mostly related to IT-enabled process orientation. These can be
summarized in the following:
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• Enabling parallelism. Moving from a sequential structure of processes into a
parallel one reduces the processes’ cycle time, problems resulting from delays, process
disruptions, and handoffs.
• Facilitating integration. Moving from the division of labor approach into the “case
management” approach (Davenport and Nohria, 1994) eliminates unnecessary tasks
and improves communication and quality of services.
• Enhancing decision making. Reducing the number of levels in an organization’s
hierarchies enhances the decision-making process.
• Minimizing points of contact. BPR, when combined with IT, eliminates
intermediaries at different levels and reduces time and distance in the exchange of
information required in any process (Al-Mashari and Zairi, 2000).
Kobu (2002) conceptual model expresses the relationship between IT and BPR and
level customer service. At this model other elements such as organizational structuring
and behavioral changes for serving better result is declared. Organizational
restructuring by simplification eliminates barriers for a smooth flow of information and
materials along the supply chains. The smooth flow of information can be facilitated
by the use of various ITs to improve the integration of various functional areas. Deliver
quality goods at competitive prices in a timely fashion is the basic aim of BPR so the
coordination through the supply chain is the important point for achieving the
requested aim and IT is the enabler for coordinating all parts of supply chain. The
behavioral changes should precede the reengineering. Therefore, issues such as
training and education, employee empowerment, teamwork and incentive schemes
should be given priority in BPR. As shown in figure 3.4, IT is the important point for
improving the customer level because this element has direct influence on BPR and
other elements of Successful BPR.
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Information Technology
Organizational
Structuring
Behavioral Changes
Business process Reengineering
Process Delivery system
Improved Customer Service Level
Source: (Kobu, 2002) Figure 3.4: Kobu Conceptual model
3-26. IT tools for business process reengineering
For managers to play an active role in reengineering or process changes, they must
possess a basic knowledge of the mechanisms for change: the IT tools.
This is not to say that non-technical managers need to be experts in each IT tool or
system. These managers can focus on familiarity rather than expertise. The role of
expertise should remain with the IT organization and expert consultants. Non-technical
managers should make an effort to become familiar with IT reengineering tools and
methods that can be used to implement process change successfully. There are some IT
applications such as: enterprise planning systems (ERP), outsourcing, enterprise
software, internet, intranet, EDI, knowledge management (KM), and legacy systems
that will be explained as follows.
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3-26-1. Enterprise resource planning (ERP) systems
ERP allows the sharing of real-time information between manufacturers, customers,
suppliers and other business partners. Some of the benefits include: shorter
manufacturing cycles; increased communication between consumers and business
partners; better supply-chain management; and greater control of operation
management.
ERP solutions succeed when training are implemented quickly and efficiently. The
ability to introduce quickly via functioning system with little business disruption
should be an underlying goal of a project. Equally important in ERP systems,
especially as employees’ roles and skills change, is providing adequate training before
and after implementation. In the case of ERP system, creating super users can ease the
post deployment process by giving a functional department a central source of
application information. Super users are users who are intimately familiar with an
application, like SAP, within a single department (Akhavan et al., 2006).
3-26-2. Outsourcing Outsourcing the projects or some activities of the business process is an attractive
choice and effective way for the corresponding companies. This procedure allows
companies to implement new technologies quickly, cut costs or improve IT services.
However, the reality of outsourcing falls short of the perceived advantages. One of the
important problems with outsourcing is the high relationship between technology and
internal business processes. When systems are outsourced, systems and processes can
often become dysfunctional (Caldwell and McGee, 1997). Companies seeking radical
change will not find outsourcing a source of substantial productivity gain. Moreover,
for smaller projects, outsourcing can be a cost-effective solution (Jafari et al., 2006).
3-26-3. Enterprise software In addition to ERP discussed earlier, other enterprise software solutions exist which
can lead company to radical improvements in information and reengineering
processing. Supply-chain systems (supply chain management system) allow suppliers,
distributors and retailers to connect each other, similar to ERP systems. By using the
requested systems, companies can outsource specific portion of the value chain to the
best-equipped business partner. Furthermore, supply chain systems focus on
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Reengineering and information technology supplier issues and are often more
affordable than larger, more functionally integrated systems like SAP. Sales and
business process automation is becoming an increasingly popular area for
reengineering. Although some of these software applications are limited in capabilities,
the majority of packages will give companies a good start with the planning aspects of
a reengineering project. Software prices begin at low prices for simple flowcharting
and can go up to tens of thousands of dollars for sophisticated simulation/modeling
software. Depending on the size of the company and the size of the reengineering
project, BPR software is well worth investigating ( Ali-Ahmadi et al., 2006).
3-26-4. Internet Companies have been investing heavily in the internet. Many companies agree that
using the internet provides a competitive advantage to their business. Communication
and customer service area through the internet are the popular areas that companies
tend to address their internet applications.
For instance, in the computer industry, the use of the internet has had a severe impact
on improving margins. With the internet, a single point of distribution to all customers
could be created at a fraction of the cost. Essentially, the internet allows the barrier
between the company and customer to be demolished. Some other benefits of using
internet include: better communication, cost reduction, increased productivity and a
flattening of the organization. Understanding the technical hurdles surrounding the
internet are pivotal before any business process strategy can be developed. Security,
employee productivity and support are just a few of the main IT concerns. A
company’s decision to outsource its internet business or develop a strategy internally
using existing IT can have severe financial repercussions on a company. Other
technical concerns include the reliability of internet-based systems and management
concerns.
3-26-5. Intranet An intranet is like an internal internet for the companies. An intranet is a software/
hardware/network system that is accessible to the entire company. The term intranet is
used because the information on the system is only accessible to employees within the
company. Sophisticated security prevents people from outside the company from
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gaining access to company-held information. An intranet allows employees to use a
software application, like an internet browser, to gain access to a wide variety of
information. Employees can access text, images, audio and video. The main advantage
of an intranet is its ability to create a single point of distribution to the entire company.
If all employees have access to the intranet, then information can be instantaneously
distributed to all employees with little effort. Not only does the company save money
on distribution, but it also improves information speed and corporate communication
(A. Ali-Ahmadi et al, 2006).
Many companies are using intranet strategies for application training and for human
resource management. When used prior to a new application launch, such as a SAP or
ORACLE-based product, an intranet training solution could disseminate important
information to all users instantly. In addition, as updates and changes to the system are
made, all employees can be notified immediately.
3-26-6. Electronic Data Interchange (EDI) EDI is used in many companies for keeping customers and suppliers in contact with
one another. Recently, EDI systems have improved by allowing more information to
be communicated from the retailer back to the manufacturer. This function is done by
using bar-coding, which allows manufacturers to monitor customer demands in
different regions. Effective control of the inventory and purchasing are the another
result of EDI.
Many companies have combined EDI solutions with ERP solutions like SAP to
decrease their lead time. Not only EDI allows companies to manage inventory, it gives
the company the capability to smooth out the peaks and valleys in the normal
production cycle. As the combined EDI/internet systems become more secure, more
companies will be able to utilize the technology as a source of cost reduction and
process improvement (P.Akhavan et al,2006).
3-26-7. Knowledge management The concept of KM is a method that allows employees to gain access to the knowledge
base of a company. Essentially, by allowing employees access to clear and tacit
knowledge, companies can develop more informed employees, which in turn, will lead
to greater innovation.
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Explicit knowledge is common information. Tacit knowledge explains the difference
between an engineer with one year of experience and an engineer with 20 years of
experience. Certain types of expertise can only be acquired through extended periods
of working knowledge.
KM can be achieved through information repositories and specialized networks. With
KM, Duplication is reduced, flexibility is increased and the system has added value by
generating revenue through an online commercial package connected to an internet-
based application.
3-26-8. Legacy systems Legacy systems, or mainframe computer systems, will continue to remain an integral
part of corporations. During the 1980s, as computing costs continued to fall, many
companies began switching their mainframe applications to less expensive UNIX-
based client-server systems. However, the long-term advantages of client-server over
legacy systems are open to debate. Many companies switched to client-server in order
to reduce costs and improve their functions.
3-27. Digitized information effects on business process
Digitization of information flows can generate value in different ways: by rationalizing
or totally eliminating activities, by creating new ways to access and analyze
information, by re-engineering processes and by increasing the value experienced by
customers(Jafari et al., 2006).
Now categorized the digitized information flow based on automational effects,
informational effects, transformational effects and the effects on value that are
perceived by the customer.
• Automational effects refer to the efficiency perspective, in which value is derived
primarily from productivity improvement, labor savings and cost reductions (Mooney
et al, 1996).
• Informational effects are related to IT as a means of collecting, storing, processing
and communicating information. In this perspective, value can be generated through
enhanced decision making, employee empowerment, quality improvements an greater
organizational effectiveness (Zuboff, 1988).
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• Transformational effects are derived from using IT to facilitate and support
business innovation and development through re-engineered processes. Such effects
are manifested, for example, in reduced cycle times, improved responsiveness,
redesigned organizational structures and improved competitive capabilities (Mooney et
al, 1996).
• Consumer surplus refers to the difference between the price that a consumer is
willing to pay for a product and the market price (Hitt and Brynjolfsson, 1996).
In figure 3.5, the impacts of using Information Technology (digital information) on the
business benefits are showed.
Figure 3.5: Impact of using IT on business benefits
3-28. Conceptual framework A conceptual framework focuses on the main dimensions to be studied, the factors of
variables, and the presumed relationship between them or, in other words, something
that explains, either graphically or in narrative form, the main things to be studied
(Miles & Huberman, 1994).The aim of this part is to review the summary of relevant
main concepts that will be employed to conduct this research. Also, the frame of
reference builds an appropriate framework to study the Impact of IT investment and
evaluate BPR factors at Telecommunication Company of Tehran.
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3-28-1. IT and Productivity
Productivity growth is the foundation for economic prosperity, a prerequisite for
national development and also an important indicator of organizational
competitiveness (Dedrick et al., 2003). Measured productivity therefore shapes the
political decisions of national governments and management decisions within
organizations.
As investment in IT capital accounts for an ever-increasing share of capital investment,
it is important to understand how these investments might pay off. In order to
understand the overall impact of IT at the firm level, it is useful to begin by thinking
about the qualitative impacts of introducing IT into a firm’s production processes
(Simon Gilchrist.el.at, 2001).
IT has been defined as a term that encompasses all forms of technology used to create,
store, exchange, and use information in its various forms. It is a convenient term for
including both telephony and computer technology in the same word. Besides,
previous studies have characterized the impacts of IT as automating, informating and
transforming. Automating impacts are primarily the direct substitution of capital for
labor, consistent with capital deepening. For example, a cashier at a retail chain store
using a computer based information system such as a scanner can process a transaction
in less time. Informating impacts are those where an information system provides
information that allows decision makers to make more effective decisions. To stay
with the above example, information provided by the store-based system allows the
firm to make better inventory decisions, which may increase total factor productivity at
the firm level. Transforming impacts occur when a firm re-engineers a process to
achieve significantly higher levels of productivity. In our example, the firm may
redesign their supply chain using a supply chain management system, of which the
store system is a key element (Gilchris et al., 2001).
The productivity paradox of information technology has questioned the contributions
of IT to economic output and productivity, based on the fact that there has been a
marked slowdown in productivity growth despite massive and growing investments in
IT. During the last decades, several studies analyzed the relationship between IT
capitals and Productivity. At first, little evidence was found about the corresponding
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correlation, but recent studies have shown significant relationship between IT and
Productivity. Harzolla (2005) stated that there is no productivity paradox any more.
3-28-2. Production function model In order to better understand IT and productivity debate, it is useful to begin with a
discussion of the production process by which inputs are transformed into outputs in
firms and economies, and the specific role of IT as a factor of production.. One of the
main approaches to understanding the output of an economic system is production
economics, which uses specific functional forms, called production functions, to model
the production process. This approach uses econometric techniques to relate the output
of a firm, industry, or economy to the inputs based on estimation models derived from
the production function. Inputs typically accounted for in this approach include labor
and capital, including both IT and non-IT capital (Brynjolfsson et al., 2000).
3-28-3. BPR , IT and Productivity BPR is an aggressive idea on innovating a business process or system. It includes
change in systems, organization structures, and responsibility of workers to provide a
valuable business processes in dealing with customers, suppliers, products and
services. Unlike the traditional automation and long-term continuous improvement
programs, radical changes through business process and dramatic improvement in the
performance are the important goals of BPR approach. In the celebrated discussions of
BPR, Hammer and Champy (1993) defined “reengineering” as “the fundamental
rethinking and radical redesign of business processes to achieve dramatic
improvements in critical, contemporary measures of performance, such as cost,
quality, service, and speed”.
IT investment may make little direct contribution to overall performance of companies
until they are combined with complementary investments in business activities, human
capital, and company restructuring Therefore, according to role of IT in BPR, as a
facilitator and enabler, BPR is essential for companies to increase the potential impact
of IT to overall performance of a companies. On the other word, both IT and BPR
investments, together, are able to improve productivity drastically.
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3-28-4. Frame of reference Based on the relevant selected literatures and the research questions, this study was
conducted in two phases. In the first phase the relationship between IT capitals and
output of Telecommunication Company of Tehran was investigated by several
hypotheses.
There is a large body of literature devoted econometrics productivity analysis. So, in
the first phase a production function framework is used with capital and labor as
inputs. A simple Cobb-Douglas production function specification is used because it is
the popular and valid production model to investigate the IT capitals.
According to Cobb-Douglas model:
4321 .... ββββ LSKCAQ =
C = IT Capital
Employing IT through the organizational levels is one of the important applications.
Therefore according to the above definition of IT, IT equipments, which are employed
through the organizational levels, communication centers and office automation, are
considered in this research rather than other equipments which contribute in producing
products.
K = non-IT Capital
S = IT Labor
L = Non-IT Labor
A = defined as the Total productivity and calculate by the regression.
β 1, β 2 , β 3 and β 4 are the associated output elasticities.
In order to examine the research questions, an appropriate research model was built to
conduct the data collection process in the second phase. In this phase, the indicators of
BPR approach were evaluated by the experts and employees of Telecommunication
Company of Tehran. The reference frame of the second phase has emerged in figure
3.6.
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Information Technology
Performance Quality
BPR approach
Establishing different work forces in the organization.
Accessible information networks (such as Internet). Accessibility to the necessary and common information of team working.
Rate of cession of decision making power to the skillful personnel.
Rate of forms, reports and paper works in the organization.
Rate of the redundant, unnecessary and parallel activities. Rate of the excess and useless employees.
Accessibility to the feedback information.
Complex duties.
Rate of immediate Accessibility to update information.
Overall customers’ satisfaction. Hierarchy levels. Distance among executive employees and top managers.
Office automation.
Figure 3.6: BPR indicators
V. Grover, K. D. Fiedler (1994), Limayem(2006), Ruth Sara and A.Savlen(2004),
Leslie.Willcocks(2002), Cecilia Temponi (2005), and James T. C. Zairi(2000)
remarked that information technologies with their rapidly improving capacity, quality
and cost/performance ratios are playing a significant role in facilitating BPR.
Furthermore, they are positioned as a unique resource that can enable automation,
monitoring, analysis and coordination to support the transformation of business
processes. In other words, IT works as an enabler of BPR to achieve the goals of
reengineering such as eliminate the wasting and waiting time, accessing to update
information, digitalize the databases and etc…
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Moreover, BPR approach is structured to improve the quality of business performance
(M. oleary, 2003). It means that radical changes are carried out to simplify the business
processes, omit the waiting and wasting activities, decrease hierarchy levels and
empower executive employees to make decision in necessary circumstances. Besides,
BPR tries to increase the productivity of activities through each business processes
(Hammer, 1993).So all these kinds of attempts are identified as the quality improving
of business performance.
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Chapter Four
Research Methodology
Proper research method is important to start scientific research. Research
methodology presents the route map to continue the scientific investigation. At the end
of the pervious chapter a framework on literature review and related theories to the
purpose and research questions of the thesis has been presented. This chapter
describes research process, research design and also explains type, approach and
strategy of this research. Sample selection, method of collecting data, reliability and
validity of this study are other issues which are discussed in this chapter.
4-1. Research process Although there are different methods to conduct the research, all these methods are
involved in a sequence of activities that form research process with high dependency
together. All activities in research process do not always follow the same order
nevertheless the relevant generic pattern is presented in figure 4.1.
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Source: (Zikmund, 2000)
Figure 4.1: Research process
The conclusion of studies usually generate new ideas for future research .So, it makes
research process cyclical.
4-2. Research design
The research design is a framework for marketing research (Malhotra and Peterson,
2003). As a consequence, research design is the basic plan that indicates an overview
of the activities that are necessary to execute the research project. Research design
provides an operational frame within which the facts are placed, processed through
analyzing procedures and the valuable research output is produced.
The essential Sources and type of information are specified in research design to
answer research questions. Furthermore the provided framework guides the data
collection and the data analysis process.
4-3. Type of research
Research can be arranged in different types. Based on nature of the problem four types
of research were introduced by Cooper and Schindle (2003).The four categories are
described below.
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4-3-1. Reporting research
A reporting study may be made only to provide an account or summation of some data
or to generate some statistics .Furthermore it calls for knowledge and skill with
information sources and gatekeepers of information sources. Purists claim that
reporting studies do not qualify the research, although carefully gathered data can have
great value. (Cooper and Schindler, 2003)
4-3-2. Descriptive research A descriptive study tries to discover answer to questions, who, what, when, where and
sometimes how. The researcher attempts to describe and define a subject, often by
creating a profile of group of problems ( Cooper and Schindler, 2003). The objective
of this type of research is to provide a description of various phenomenon connected to
individuals situations or events that occur (Johansson and Sparredal, 2005), but the
intention is not to conduct research toward connection between causes and symptoms
(Islam Sheikh, 2006).
4-3-3. Explanatory research The goal here is to develop precise theory that can be used to empirical generalizations
(Johansson and Sparredal, 2005). An explanatory research goes beyond description
and attempts to explain the reasons for the phenomenon that the descriptive study only
observed. The researcher uses theory or at least hypotheses to account for the forces
that caused a certain phenomenon occur (Cooper and Schindler, 2003). This type of
research must be used when it is necessary to show one variable determine or affect on
the value of other variables.
4-3-4. Predictive research A predictive study is just as rooted in theory as explanation. It means that if we can
provide an explanation for an event before it occurs, by considering the pervious
symptoms, we predict the event. In this type of research, control is defined as it’s a
logical outcome. The complexity of phenomenon and the adequacy of the prediction
theory, however, largely decide success in a control study.
As a consequence, the research questions indicate that this study is explanatory.
Initially, Literature review was engaged to drill down to the theory of the relationship
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between IT and productivity and explore the high interrelation between IT and BPR. In
the first phase of research, the relationship between IT and productivity at
Telecommunication Company of Tehran (TCT) has been investigated. Three
hypotheses were tested in order to explain the relationship among IT and the main
economic factors of TCT. In the second phase, the BPR factors have been evaluated.
Based on hypotheses and cross analysis, the indicators of BPR and expected
improvement in each factor have been explained. Therefore, based on data analysis the
situation of BPR factors at TCT were discussed.
4-4. Research approach
4-4-1. Deductive vs. Inductive approach
When conducting the research, there are two different types of approach to consider
the inductive approach and deductive approach. Deduction is a form of inference that
supports to be conclusive. The conclusion must necessarily follow from the reasons
given (Cooper and Schindler, 2003). So, the conductive approach implies that the
conclusions derived from premise or something known to be true. But in inductive
approach the conclusions come from the particular fact (Zikmond, 2000).
In this study an inductive approach has been designated. Although the literatures were
reviewed and correlated and interrelated aspects were specified, the final conclusions
have been concluded based on the results, which were found during the research and at
the specific environment (Telecommunication Company).
4-4-2. Quantitative vs. Qualitative research approach Quantitative research is a research strategy that emphasizes quantification in the
collection and analysis of data. A qualitative research implies the search for the
knowledge that will measure, describe and explain the phenomenon of our reality.
Quantitative is about amount and how much or many of something. It is always
formalize and well structured. Data in quantitative research are obtained from samples
and observation seeking for relationship and patterns than can be expressed in numbers
than words (Johansson and Sparredal, 2005).
Qualitative research is mostly exploratory in nature, involving small number of
respondents (Rusli and Ali, 2003). This type of research is used when there is concern
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of understanding how things happen and how they are related rather than only
measuring the relationship between variables. Consequently, the qualitative
methodology can provide the investigator with meaningful insights by delivering more
deeply and examine the intangible aspects of complex issues of the process (Rusli and
Noor Azman, 2003).
According to the above explanation, this study is a quantitative research. In the first
phase, the quantitative data, which are related to the value of IT capitals and non IT
capitals, have been collected from Iran Telecommunication research center,
Telecommunication Company of Tehran, Management and Planning Organization and
Telecommunication Company of Iran. On the second phase, the questionnaires
distributed through the employees and experts of TCT in order to evaluate BPR
factors. Finally, information was analyzed as the numerical findings.
4-5. Research Strategy The research strategy should be chosen according to the research questions in the
particular situation (Yin, 1994). There are several different methods to perform the
research, Case study, Secondary data analysis and focus group are the most important
of techniques used in this area.
Case study is a method to gain the formation from a few situations that to researcher’s
problem area. This method concerns the intense investigation of problem solving
situations in which problems are relevant to the research problem. The underlining
concept is to select several targeted cases where an intensive analysis will identify the
possible alternatives for solving the research questions on the basis of the existing
solution applied in the selected case study.
In Secondary data analysis, the data collected for another purposes are employed. The
main research questions in this kind of method are how, what, how many and how
much. Abdicating the control over the behavioral events is the major characteristics of
this method.
Experience study is a kind of technique in which individuals who are knowledgeable
about a particular research problem are surveyed. The purpose of experience study is
to formulate the problem and explains concepts (Persson, 2004).
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Focus group discussion is the process of obtaining possible ideas or solutions to a
certain problem from a group of respondents by discussing and brain-storming the
problem. The emphasis in this method is on the results of the group interaction when
focused on a series of topics introduced by the leader. Each participant in a group from
five to nine people have a possibility to both express points of view in each topic
discussed and to elaborate on or react to the views of other participants (Bengtsson et
al., 2004)
For this research, case study is the most appropriate technique. At the first phase the
economic and financial data (secondary and primary) of TCT in the specific period of
time have been analyzed to find out the contribution of IT investment. Furthermore, in
the second phase, the importance of BPR approach in TCT was tested by distributing
the questionnaires through its employees and experts.
4-6. Sample selection Sampling techniques provide a range of methods that facilitate to reduce the amount of
data need to collect by considering only data from a sub-group rather than all possible
cases or elements (Saunders and Thornhill, 2000). At the time of conducting research,
it is often impossible, impractical, or too expensive to collect data from all the
potential units of analysis included in the research problem. A smaller number of units,
a sample, are often chosen in order to represent the relevant attributes of the whole set
of units, the population. Since the samples are not perfectly representative of the
population from which they are drawn, the researcher cannot be confident that the
conclusions will generalize the entire population (Shahidul and Sheikh, 2006)
The target population is the economic and financial information of TCT for the first
phase of this study and the experts and employees of TCT who are working at the head
offices of communication zones for the second one.
According to the first phase, there are a lot of economic, financial and scientific data in
the field of telecommunication in Tehran. Some of them have been collected in data
centers. But most of them have no integration. Finding appropriate data bases and
assessing information needed to extract them were identified as the important issues to
direct research in an effective and efficient way. By considering limitations and
boundaries to find suitable information about IT capitals and non-IT capitals of TCT,
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44 samples were collected from Management and Planning Organization
Telecommunication Company of Iran, Iran Telecommunication research center and
Telecommunication Company of Tehran. These samples are covered the past eleven
years data (1997 – 2007). After several meeting and discussion with my Iranian
supervisor and IT experts of Iran telecommunication research center, these number of
samples and information were confirmed.
According to the aim of second phase, the judgments of the experts and employees of
TCT about BPR factors are approval and valuable because they are directly familiar
with organizational and business activities of the company.
From 245 dispersed questionnaires, 215 of them were returned. By employing initiate
analysis and data cleaning technique, 201 returned questioners were approved. After
several meeting with my supervisors and limitation of time and some official barriers,
201 returned questioners were confirmed to employ in the final analysis.
4-7. Classification of data The data collected can be classified as primary data versus secondary data. Primary
data are gathered and generated for the project at hand, but secondary data were
gathered for other purposes and now are used in the recent project .usually the
secondary data are found inside the company, libraries, research centers, internet and
etc…
This study used both primary and secondary data.
4-8. Data Collection
There are six sources of evidence that can be focused in case studies. Each of them will
be briefly explained below.
• Interview
There are different form of interview, such as open ended, focus interview and survey.
Open ended interviews are performed in a conversational manner. The investigator can
ask key respondent for the facts of matter as well as for respondent’s opinion about
events (Johansson and Sparredal, 2005).With the focused interview the main purpose
is to confirm facts that already have been established and not ask questions of boarder
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nature and the respondents are interviewed in the short period of time such as an hour.
In survey the questions are more structured (persson, 2004).
• Physical artifact
In this king of data collection the physical evidences, which are needed, such as
technological device, work of art instruments and etc… are observed or collected by
visiting the site of case study.
• Direct observation
This can involve observation of meeting, side walk activities, factory works
classrooms and etc. Observational evidence is often useful in providing additional
information about the topic being studied (Yin, 1994 ; cite: Sparredal, 2005).
• Archival records
This data collection method include organizational records, charts and maps and
survey data previous collected. Also the secondary data can be used in this kind of
collection.
• Documentation
Different types of documents such as examples, statistics, registration and official
publication, letter journals and branch literature are employed to collect data (Yin,
1994).
• Questionnaire
The data in this method will be gathered by sending questions to the respondents.
Questionnaires can be distributed in paper form or by email, fax and etc…there is no
explanation or influence of researcher in this method .Also, questionnaire is not to be
more long and exhaustive, because these happens cause the questions not to be
answered.
Different methods were used to gather information. The archival records and different
documents were used in the first phase. The economic and financial data were
collected from Management and planning organization, TCT’s databases,
Telecommunication Company of Iran and Iran Telecommunication research center.
In the second phase, the questionnaires were distributed through the employees and
experts to investigate BPR approach in TCT. All questions were designed based on the
BPR characteristics. The questionnaire is consists of two main parts. In the first part,
the factors of performance quality of company were tested in the current situation and
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the desirable situation independently. Second part asks respondents to evaluate the
current situation and the desirable situation of IT indicators at their organization
separately.
The five points Likert scale was used, ranging from “very low” to “very much” for
statements of the mentioned parts of the questionnaire.
4-9. Reliability Reliability is concerned with the question of whether the results of a study are
repeatable. The term is commonly used in relation to the question of whether the
measures that are devised for concepts in business are consistent. One factor that might
run the disc of affecting the reliability of the study is the respondents’ lack of
knowledge. It is further suggested that if a respondent at the moment is tired or
stressed, or have attitudes toward the questionnaire / interview it can impact negatively
on the reliability of the study (Eriksson and Wiedersheim-Paul, 2001). Moreover
reliability is particularly an issue in connection with quantitative research. The
quantitative researcher is likely to be concerned with the question of whether a
measure is stable or not.
The main concern of the second phase of this research is evaluating the BPR factors at
telecommunication Company of Tehran. After consulting with my Iranian supervisor
and Iran telecommunication research center’s experts, some modifications and
adjustments were done. After the final confirmation, a pilot test was conducted by
distributing the questionnaire among 21 experts of TCT which ensured that the
questionnaire is appropriate and the statements are generally understandable.
In order to check reliability of the results, researcher used cronbach’s alpha
methodology, which is based on internal consistency. Cronbach’s alpha measures the
average of measurable items and its correlation. The current and desirable situation
were tested for IT and performance quality separately. Table 4.1 presents the values of
cronbach’s alpha.
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Value of Cronbach's Alpha for IT (6 items)
Value of Cronbach's Alpha for Performance Quality (8 items)
Current situation
Desirable situation
Current Situation
Desirable Situation
0.883 0.879 0.898 0.901 Value of Cronbach's Alpha for questionnaire (Pilot test)
(14 items) Current situation Desirable Situation
0.894 0.896
Table 4.1: Reliability of the questionnaire
SPSS software was used to verify the reliability of collected data. Overall scales’
reliability of the present situation and the desirable situation were tested by Cronbach's
alpha, which were 0.894 for the present situation and 0.896 for the desirable situation
and above the acceptable level of 0.70 (Hair et al., 1998).
4-10. Validity The most important criterion of research is validity. Validity is concerned with the
integrity of the conclusions that are generated from a piece of research.
Validity is concerned with whether or not the item actually elicits the intended
information. Validity suggests fruitfulness and refers to the match between a construct,
or the way a researcher conceptualizes the idea in a conceptual definition, and the data.
It refers to how well an idea about reality “fits” in with actual reality. Actually,
qualitative researchers are more interested in giving a fair, honest, and balanced
account of social life from the viewpoint of someone who lives it every day (Neuman,
2003).
On the other words, Validity is concerned with whether the findings are really about
what they appear to be about. Validity defined as the extent to which data collection
method or methods accurately measure what they were intended to measure (Saunders
et al., 2003). Yin (2003) states, “no single source has a complete advantage over all
others”. The different sources are highly complementary, and a good case study should
use as many sources as possible. The validity of a scientific study increases by using
various sources of evidence (Yin, 2003).
The first phase of this research employed the econometric technique to investigate the
relationship between IT investment and productivity at TCT. The data were collected
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from reputable organizations and companies such as Management and planning
organization, Telecommunication Company of Tehran, Iran telecommunication
research center and Telecommunication Company of Ira. This issue confirms the
validity of the data and relevant results.
Due to evaluate the BPR factors in Telecommunication Company of Tehran, several
steps were taken to ensure the validity of second phase of this study. First, the basis of
questionnaire was acquired from valid and scientific research which was run in Iranian
Ministry of commerce. This issue caused the questionnaire to be appropriate and valid
to employ in the governmental environment in Iran. After the initial preparation,
questionnaire was investigated based on the literatures, which are related to BPR, in
order to consider validity of the items which were tested in the research. This step was
taken directly under supervision of Dr. Beheshti. In the third step, the questionnaire
was evaluated by professional experts of Iran telecommunication research center.
Measurement of scales, reliability of statement and validity of questions were deeply
rechecked, based on the aims of the research. Preparing the valid questionnaire which
was localized to employ in Telecommunication industry in Iran is the main
achievement of this step.
The questionnaire has been pre-tested. A pilot test was conducted by distributing the
questionnaire through Telecommunication Company of Tehran. 21 experts of TCT
were participated in this part .This test ensured that the questionnaire is appropriate
and the statements are understandable.
Therefore, the collected data is valid for the second phase of this particular study
because it considers the factors of BPR approach that are assumed to be factual, and
the reviewed studies are dealing with the subjects that the researcher wishes to address.
Besides, the following steps assisted this research to establish correct operational
measures for the studied concepts at TCT and find out the creditable relationships.
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Chapter Five
Data analysis
In the previous chapter the research methodology was discussed. In this chapter the
empirical findings and data analysis from Telecommunication Company of Tehran
(TCT) have been investigated. At the first phase analysis, the details of the production
function model were introduced and also the data collection procedure was followed
by gathering data from different databases of Telecommunication Company of Iran,
Iran Telecommunication research center, Telecommunication Company of Tehran and
Management and Planning Organization. Then, the related hypotheses were
introduced and the results of data analysis were achieved. In the second phase, the
data collected from employees and experts of TCT were presented. After that the
relevant hypotheses tested and data analysis procedure was completed. All the
empirical findings are in a manner that addresses the research questions.
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5-1. Telecommunication Company of Tehran Seven Telecommunication zones in Tehran(more than 80 centers) ,capital of Iran, and
information and communication centers in Karaj region and other smaller cities of
Tehran province are served all communicational services under control of TCT.
Telecommunication Company of Tehran has taken great steps in the development of
telecommunication networks and it has utilized the most advanced equipments and
services such as digital switching centers, data networks, satellite services, internet
services and special telephone services in recent years.
5-2. First phase analysis In order to better understand IT and productivity discussion , it would be advantageous
to begin with a discussion of the production process by which inputs are transformed
into outputs in firms and economies, and the specific role of IT as a factor of
production.
Economists use different approaches to model the production process by which inputs
are transformed into outputs. One of the important approaches to understand
thoroughly the output of an economic system is production economics, which uses
specific functional forms, to model the production process. This approach employs
econometric techniques to relate the output of a firm, industry, or economy to the
inputs based on estimation models derived from the production function.
Cobb – Douglas model is one of the popular, simplest, and appropriate production
functions that satisfies such conditions and has been employed for about a hundred
years. Therefore, based on conceptual framework, this model was employed for
analyzing the first phase of this study.
According to the aim of this research, the Cobb-Douglas function becomes:
4321 .... ββββ LSKCAQ =
Q = Total income which have been earned by TCT since 11 years ago. (Output)
C = Value of PC’s , hard wares , servers, internet domains and their related
infrastructures data bases (which are used for storing and exchanging information
85
through the Departments and agencies) and value of automation equipments and
infrastructures which were employed through TCTs’ organizations to integrate official
and organizational affairs such as Integrated financial system and MAN system
(Input).
K = Total Capitals of TCT. IT capital and budgets of IT and non IT labors have been
subtracted.
S = Budget which is devoted to IT staffs. IT staffs are defined as the personnel who
work in computer centers (Input).
L = Total labor expenses. The budget of IT staffs has been subtracted (Input).
A = defined as the Total Factor Productivity and calculate by the regression.
β1, β 2 , β 3 and β 4 are the associated output elasticities.
To estimate the purposes, the original form of Cobb – Douglas model was linearized
by taking logarithm of its equation and adding an error term.
Ln Q = A + 1β Ln( C)+ 2β Ln (K)+ 3β Ln (S)+ 4β Ln( L) + ε
Where A, Q, C, K, S and L and β1 - β4 were defined before and ε is the error term.
5-2.1 Data sources There are various economic, financial and scientific data bases in the field of
telecommunication in Tehran. Some of them have been integrated together. However,
most of them have no integration.
In order to conduct this research and gathering reliable and valuable information,
specifying information needed and finding resources to extract information were
identified as the important issues to propel research in an effective and efficient way.
Therefore, based on several consulting and cooperation with my Iranian supervisor and
experts of Iran Telecommunication Research Center, the information and related raw
data were collected from Management and Planning Organization, Telecommunication
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Company of Iran, Iran Telecommunication Research Center and Telecommunication
Company of Tehran.
5-2-2. Hypotheses Three hypotheses were tested to investigate the impact of IT investment on
productivity at Telecommunication Company of Tehran.
Hypotheses are:
H1: IT Capital makes positive contribution to output (i.e., the gross marginal product
is positive) β1 > 0; β 3 > 0 versus the null hypothesis that β 1= β 3 = 0
H2: IT investment makes positive contribution to output after deductions for
depreciation and labor expenses (i.e., the net marginal product is positive)
H3: The ratio of the marginal product to the investment in IT capital and labor is
higher than it is for the corresponding non-IT investments.
β1 - (IT Capital Expenses / Non-IT Capital Expenses)* β2 > 0; and
β3 - (IT Labor Expenses / Non-IT Labor Expenses)* β4 > 0.
Second hypothesis allows us to verify that IT investment (IT capital and IT labor) is
not just positive, but that it pays more than what we spend on it. This is a stronger test
than first one, which only tests for the gross benefits, since we estimate whether there
are any positive net benefits (i.e. benefits after we have subtracted the costs from the
gross benefits) associated with IT. To direct the second hypothesis, Marginal Product
has been defined.
Marginal product for IT capital is:
= β1. A.
The above equation identifies that how much output will change instead of changing
one unit in IT Capital.
87
Marginal product for IT labor is:
= β3. A.
5-2-3. Methodology To conduct the study and validate our results, 44 samples have been extracted from
data bases since 1997 up to 2007. By employing these samples in Cobb – Douglas
model, the hypotheses were tested with acceptable confidence interval.
The influences of inflation have to be decreased as much as possible in order to
achieve accurate and scientific results, Thus, Time Value of Money (TVM) equation
was used to remove negative influences of inflation from the values of all mentioned
factors.
TVM: P =
According to the document of productivity growth in the field of Information and
Communication Technology in Iran (2006), the average of inflation coefficients ( )
for the past eleven years are 11% (IT capital), 15% (Non IT capital),10% (IT and Non
IT labor) and 11% (output). This technique assisted us to diminish the negative
influences of inflation.
By employing the above equation values of samples (IT Capital, Non IT Capital, IT
Labor and Non IT labor) were calculated based on the constant value in 1997.
Weighed Least Square is the method which was used to overcome effects of
heteroskedacity and make linear regression to calculate elasticities.
5-2-3-1. Linear regression Linear regression is used to model the value of a dependent scale variable based on its
linear relationship to one or more predictors.
The linear regression model assumes that there is a linear relationship between the
dependent variable and each predictor. This relationship is described in the following
formula.
Yi = β0 + β1Xi1 + ... + βn Xin + εi
88
For the purpose of testing hypotheses about the values of model parameters, the linear
regression model also assumes the following:
• The error term has a normal distribution with a mean of 0.
• The variance of error term is constant across cases and independent of the variables
in the model. An error term with non-constant variance is said to be heteroscedastic.
• The value of error term for a given case is independent of the values of the
variables in the model and values of error term for other cases.
5-2-3-2. Weight Estimation Weight Estimation is appropriate when the spread of residuals from linear regression is
not constant, and dependent upon another variable.
The regression model has the form:
Yi = β0 + β1Xi1 + ... + βn Xin + εi
In the ordinary least-squares (OLS) model, the error term, εi, has a normal distribution
with mean 0 and variance s2. In the weight least-squares (WLS), the error term has a
normal distribution with mean 0 and variance s2 Xiw, that is, the variance of the
dependent variable is related to the value of a predictor.
Unlike linear and nonlinear least squares regression, weighted least squares regression
is not associated with a particular type of function used to describe the relationship
between the process variables. Instead, weighted least squares reflects the behavior of
the random errors in the model; and it can be used with functions that are either linear
or nonlinear in the parameters. It works by incorporating extra nonnegative constants,
or weights, associated with each data point, into the fitting criterion. The size of the
weight indicates the precision of the information contained in the associated
observation. Optimizing the weighted fitting criterion to find the parameter estimates
allows the weights to determine the contribution of each observation to the final
parameter estimates. It is important to note that the weight for each observation is
given relative to the weights of the other observations; so different sets of absolute
weights can have identical effects.
Advantages of Weighted Least Squares like all of the least squares methods discussed
so far, weighted least squares is an efficient method that makes good use of small data
sets. It also shares the ability to provide different types of easily interpretable statistical
89
intervals for estimation, prediction, calibration and optimization. In addition, as
discussed above, the main advantage that weighted least squares enjoys over other
methods is the ability to handle regression situations in which the data points are of
varying quality. If the standard deviation of the random errors in the data is not
constant across all levels of the explanatory variables, using weighted least squares
with weights that are inversely proportional to the variance at each level of the
explanatory variables yields the most precise parameter estimates possible.
5-2-4. Data analysis The average of IT Capital in TCT, is about 219 Billion IR Rials (23.55 million $ ) over
the past 11 years. According to the Cobb – Douglas model and WLS method the
elasticities of related inputs were calculated to test the hypotheses.
Table 5.1 presents the results.
Coefficients Sig.
Elasticities β T Std. Error
IT Labor 0.023 0.164 0.8800
Non IT Labor 0.199 2.287 0.0188
IT Capital 0.067 1.114 0.0386
Non IT Capital 0.726 4.426 0.0000
Table 5.1: Coefficients related to Cobb-Douglas model
Table 5.1 shows the coefficients of IT Capital, non IT capital, IT Labor and non IT
Labor. Based on the results, each coefficient indicates the portion of corresponding
input in output of TCT. For example, 72.6% of total revenue of TCT is obtained by
non IT capital.
Significant Std. errors points out that the value of each coefficient has enough and
approvable contribution to the model and their values are acceptable.
Multiple R .949 R Square .901
Adjusted R Square .891 Table 5.2: Strength analysis of findings
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Table 5.2 shows the strength of the relationship between the model and the dependent
variable. R, the multiple correlation coefficient, defines the linear correlation between
the observed and model-predicted values of the dependent variable. Its large value
indicates a strong relationship .R Square, the coefficient of determination, is the
squared value of the multiple correlation coefficient and its value demonstrates the
vigorous relationship between observation and model –predicted value. About 91% of
variations are explained by the model.
According to the H1, its null hypothesis is rejected. So IT Labor and Capital make
positive contribution to output. (β1 = 0.067 > 0; β2 = 0.023 > 0)
In order to test the second hypothesis, marginal products of IT Labor and IT Capital
were generated.
So:
Table 5.3: Findings for relationship between IT and productivity after deducting the IT costs
Table 5.3 indicates that 0.3083 unit of output (total revenue) increase instead of
investing 1unit in IT capital. Furthermore 1 unit augmentation in IT Labor makes the
output increased about 1.02.
IT depreciation costs are considered as the expenses of IT capital. So, with regard to
the total depreciation costs of Telecommunication Company of Tehran, the ratio of IT
capital to non IT capital and getting advice from experts, the average of annual
depreciation of IT Capital was calculated about 14.6% .It means that 14.6% of IT
capital in each year is equal to its depreciation costs. On the other words, after 6.8
years the depreciation costs covers the IT capital. Thus, after converting the value of
Aspect Marginal Product Annual IT Expenses
IT Capital 0.3083 0.146
Labor Capital 1.02 1
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annual depreciation to constant value 1997, the net marginal product of IT capital was
achieved:
Annual depreciation: 15,832,485,300 IR Rials (constant value)
0.3083 - 0.146 = 0.1623 > 0
IT labor is flow variable. It means that the standard of Labor expenses is about 1unit
instead of 1 unit Labor investment.
Thus: 1.02 – 1 = 0.02 > 0
As a consequence, the null hypothesis is rejected and IT investment makes positive
contribution to output after deductions for depreciation and labor expenses.
The following equations were employed to test H3 hypothesis.
β1 - (IT Capital Expenses / Non-IT Capital Expenses)* β2 > 0
β3 - (IT Labor Expenses / Non-IT Labor Expenses)* β4 > 0.
IR Rials
Avg. Non IT capital Avg. IT capital Avg. IT labor Avg. Non IT labor
3,622,829,370,000 108,441,680,300 11,228,339,480 131,661,411,200
*The variables were calculated based on constant value of 1997
**The exchange rate of IR Rial to Us Dollar is about 0.00010752
Table 5.4: The average of IT and non IT capital
By using the figures from table 5.4 and the coefficients from table 5.1, the net marginal
product is:
0.067 – 0.0217 = 0.0452
In the same way, the third hypothesis for IT labor is:
0.023 - .016 = 0.07
Therefore, the null hypothesis is also rejected. So, the ratio of the marginal product to
investment in IT capital and labor is higher than it is for the corresponding non-IT
investments.
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In the first phase of data analysis, the relationship between of IT investment and output
(productivity) of TCT was tested. According to the hypotheses ,not only the positive
impact of IT investment on output were found out but also its positive contribution
were proved after deductions for IT capital depreciation and IT labor expenses.
Besides, in the third hypothesis, the positive returns of IT investment were found
higher than non IT capital and labor. All these results points out the positive impact of
IT investment in economic growth and productivity of TCT.
Another important conclusion of this part is about non -IT investments. Although 70%
of Total income of TCT is earned by non- IT capital, the productivity level of non-IT
capital is lower than IT capital.
5-2-5. Further productivity analysis
In this part, further analysis is accomplished. Total Factor Productivity and labor
productivity are two mains economic factors in Iran. 31.3% GDP growth in Iran must
be obtained by Total Factor Productivity. Hence, at least 2.5% and 3.5% annual growth
in TFP and labor productivity are necessary to achieve 8% annual economic growth in
each year. Therefore, investigating the correlation between IT capital, TFP and labor
productivity will assist us to better analyze the impact of IT investment on productive
factors of TCT.
5-2-5-1. Total Factor Productivity Theoretically, TFP is a relevant measure for technological change by measuring the
real growth in production value, which cannot be explained by changes in the input of
labor, capital and intermediate input (Pedersen, 1994).
TFP is the ratio of net output (pure output) to the sum of associated labor and capital
input. Net output means total output minus intermediate goods and services purchased.
TFP can be measured from different methods.
5-2-5-1-1. Method of Kendrick Kendrick presented the special way to measure the TFP.
tt
tt
KLVorQTFPβα +
=
Q t = output with constant value or the real value-added.
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K = Real Capital L = Number of persons or working hours of labors
are defined as the portions of labor and Capital in production or value –
added.
5-2-5-1-2. Method of Dujea Dujea presented the following method.
βαtt
tt
KLVorQ
TFP =
Q t = output with constant value or the real value-added.
K = Real Capital L = Number of persons – working hours of labors
are defined as the portions of labor and Capital in production or value –
added.
In this approach α + β = 1. So, by measuring one of elasticities, the other one will be
calculated. According to Production functions, Dujea is an appropriate method to investigate the
TFP of projects which employ Cobb –Douglas model.
5-2-5-1-3. Method of Solow Solow introduced following way to analyze Total Factor Productivity:
tttt KLQTFP βα −−=
According to the above equation, if labor and capital stay constant, the output will be
changed only by Total Factor Productivity. By taking logarithm from the Dujea model and then using differentiation, Solow
approach will be achieved.
The Cobb –Douglas model is an appropriate method to identify the portions of the
labor and capital which are remarked in the last two patterns.
94
In order to direct the productivity analysis of TCT, Dujea method was designated to
employ in this research. Therefore, figure 5.1 and 5.2 indicate TFP in
Telecommunication Company of Tehran.
Figure 5.1: TFP of Telecommunication Company of Tehran
* 2001 has been identified as the basis year and other years have been compared with 2001.
*Quantities of TFP were calculated based on value constant - 1997. **44 samples were calculated in this figure.
Figure 5.2: Indicators of TFP
As shown in Figure 5.2, although TFP had negative growth during 2001 and 2005, the
average growth of TFP was about 16.2% during the past 11 years. Also, the average of
annual growth of TFP has been about 8.6% since 2005.
5-2-5-2. Labor Productivity
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Labor productivity is regarded useful as it is relatively easy to apply and reflects the
degree of efficiency in the combination of labor and other resources (OECD Statistics
Directorate, 2001) besides it is identified as one of the effective economic factors in
Iran. Based on the fourth cultural, social and economic development plan (2005-09),
3.5% annual growth in labor productivity is one of the main goals to achieve 8%
economic growth in Iran.
Labor productivity is the ratio of output to labor input (number of persons or total
working hours of labors). In order to obtain the labor productivity of TCT, the ratio of
total revenue of TCT to the number of personnel was calculated. All data were
converted to constant value-1997 to reduce the influences of inflation. Figure 5.3
shows the Labor productivity results of TCT.
Thousand IR
Rials / Person
Figure 5.3: Labor productivity of Telecommunication Company of Tehran
96
Figure 5.4: Indictors of Labor productivity
*2001 has been identified as the basis year and other years have been compared with 2001.
As shown in Figure 5.4, the average of annual growth of labor productivity was about
29.8% during 11 years ago. Besides, the average of annual growth of labor
productivity has been 16.4% since 2005.
5-2-5-3. Correlation The annual economic growth of Iran was determined 8% in the fourth plan of
economic, social and cultural development (2005-09). 5.5 percent of this growth has to
be obtained by developing and creating new investment resources and 2.5 percent of
growth must be created by productivity growth. So, based on corresponding plan, 31.3
percent of GDP growth of each government organization has to be conducted by TFP.
By considering these two goals, Labor productivity, Capital productivity and TFP of
each company have to be ,at least, 3.5, 1 , 2.5 percent growth in each year (Iran
Productivity Association, 2006).
According to the economic indicators which were issued by Management and Planning
Organization, TCT is one of government companies which has positive balance of
finance in recent years (profitable). Hence, in order to achieve the mentioned economic
factors, the annual growths of TFP and Labor productivity of TCT have to be more
than 3.5 and 2.5 percent to compensate the other companies which are not profitable.
97
Therefore, productive resources which direct TCT to achieve the above goals are
considered by Top managers.
The correlations between Labor productivity, TFP and IT capital are indicated in table
5.5 and 5.6.
IT Capital
Labor productivity
1 0.430
0.032
IT Capital 44 44
0.430 1
0.032
Labor Productivity
Pearson Correlation
Sig. (2-tailed) N
Pearson Correlation
Sig. (2-tailed) N 44 44
Table 5.5: Correlation coefficient of IT capital and Labor productivity
IT Capital
TFP
1 0.869 0.002
IT Capital
44 44 0.869 1
Pearson Correlation
Sig. (2-tailed) N
Pearson Correlation TFP 0.002
Sig. (2-tailed) N 44 44
Table 5.6: Correlation coefficient of IT capital and TFP
As shown in 5.5 and 5.6, IT capital has approximately the considerable correlation
with labor productivity and the significant correlation with TFP. The above results
confirm that IT capital is able to make the meaningful impact on productivity level of
labors and capitals.
According to the economic report ,which was issued by Telecommunication Research
Center, the labor productivity and TFP of Telecommunication industry in Iran have
strong correlations with value–added (0.99 , 0.98).Therefore, investing on IT should
be considered as much as possible.
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5-3. Second phase analysis As discussed in literature review, complimentary investments are urgent to stabilize
the impact of IT investment. Especially continuing IT investment in the current
business processes of governmental companies at third world countries may cause to
fall down the positive impact of IT investment and convert its opportunities to threats.
Reengineering examines the private and government organizations from different point
of views. Customers pay the final costs of the services or products in this approach. So,
they are the principal beneficiaries of organizations. According to this point of view,
all organizations and companies in developing countries have to reduce the mechanical
views and initiate to analyze and reengineer their organizational structures.
BPR approach is recognized by two main characteristics. These characteristics not
only cover the goals of BPR but also direct the successful BPR efforts. Figure 5.5
shows the relationships of the requested attributes.
BPR approach
Information Technology
Performance Quality
Figure 5.5: BPR main factors
• Information Technology
(V. Grover, K. D. Fiedler (1994), Limayem(2006), Ruth Sara and A.Saven(2004),
Leslie.Willcocks(2002), Cecilia Temponi (2005), and James T. C. Zairi(2000) stated
that information technologies with their rapidly improving capacity, quality and
99
cost/performance ratios are playing a significant role in facilitating BPR. Furthermore,
they are identified as a unique resource that can enable automation, vitrifying, analysis
and coordination to support the transformation of business processes. In other words,
IT works as an enabler of BPR to fulfill the goals of reengineering of business process
such as omit the wasting and waiting time, accessing to updated information, digitalize
the databases and etc.
• Performance quality
(Hammer and Champy ,1990,1993) , (M.Oleary ,2003), (Archie Lockamy, W. Smith
,1997) ,(Holland; Kumar ,1995) stated that a business process represents distinct
activities whose outcomes are characterized to meet the business goal of the business
process. They believe that each process activity tries to perform its commitments by
adding the value added on it and satisfy its own clients.
BPR approach tries to improve the business performance to enhance the corporations’
ability for satisfying their customers. Therefore, customer satisfaction is the main goal
and attribute of BPR approach and all BPR efforts are conducted to achieve it.
BPR approach is also organized to improve the quality of business performance (M.
Oleary, 2003). It means that radical changes are carried out to simplify the business
processes, omit the waiting and wasting activities, decrease hierarchy levels and
empower executive employees to make decision in necessary circumstances. Besides,
BPR tries to increase the productivity of activities through each business processes
(Hammer, 1993).So all these kinds of attempts are identified as the quality improving
of business performance.
5-3-1. Hypotheses Based on the conceptual framework, the BPR factors were tested at
Telecommunication Company of Tehran.
The main hypothesis is:
H4: There is a meaningful difference between the current situation and the desired
situation at TCT, based on BPR approach.
In order to evaluate the main hypothesis, two secondary hypotheses are:
H4a: Based on Information Technology, there is a meaningful difference between the
present situation and the desired situation.
100
H4b: Based on Performance Quality, there is a meaningful difference between the
present situation and the desired situation.
14 questions were established to direct hypotheses. 8 questions were related to H4a
and 6 numbers of them investigated the H4b.
In each question, Respondents were asked to evaluate independently the corresponding
factors in the current situation and the desired situation, with respect to BPR approach.
The questionnaires were set by five points Likert scale.
5-3-2. Data sources Experts of Telecommunication Company of Tehran are eligible to conduct the
investigation of BPR, because the main goal of questionnaire is to evaluate the BPR
approach and its main factors deeply, accurately and validly. Besides, experts and
employees of TCT are directly familiar with organizational and business activities, so
their judgments about factors of BPR are approval and valuable for this research.
5-3-3. Methodology
Questionnaires were distributed randomly through the experts of head offices of
communication zones in Tehran province. These offices are controlling and supporting
organizational and business activities throughout Tehran province. 245 questionnaires
were distributed and 215 of them were completed and delivered to the researcher. The
response rate is about 87.75%. After initial analysis and dada cleaning 201
questionnaires were prepared to final analysis.
Table 5.7 presents the preliminary information about respondents at
Telecommunication Company of Tehran. According to table 5.7, most of the
respondents work in department of official and financial affairs (69). Also, more than
91% of respondents are men. Table 5.7 shows that about 66% of respondents hold
bachelor degree. Besides, more than 53% of respondents have 10 to 20 years work
experiences.
Administrative and financial
affairs
Client’s affairs
Contracts
& procurement
Computer
Center
Engineering
affairs
Variable Classification of variables
Freq Per Freq Per Freq
Per Freq Per Freq
Per
101
% % % % % Gender Male
Female
59
4
93.7
6.3
60
9
87
13
33
2
94.3
5.7
18
3
85.8
14.2
13
0
100
0
Education level
Diploma
Junior college
Bachelor
Masters
PhD
3
8
45 6
-
4.76
12.69
71.48
9.54
0
5
9
50
7
-
7.24
13.04
72.46
10.14
0
4
12
17
1
-
11.42
34.28
48.57
2.5
0
1
1
15
3
1
4.7
4.7
71.43
14.28
4.7
0
6
7
-
-
0
46.15
53.84
0
0 Work
experience
(Year)
1-10
10-20
> 20
11
42
10
17.46
66.66
15.87
19
39
11
27.53
56.52
15.94
12
15
8
34.28
42.85
22.85
10
6
47.61 5 38.46
28.57 6 46.15
5 23.80 2 15.38
Table 5.7: Descriptive findings of Second phase analysis
5-3-3-1. 2-paired T-test In order to direct the Questionnaires’ analysis “2 paired samples T-test” was used. This
method compares the means of two variables for a single group. The procedure
computes the differences between values of the two variables for each case and tests
whether the average differs from 0.
One of the most common experimental designs is the “pre-post” design. A study of this
type often consists of two measurements taken on the same subject, one before and one
after the introduction of a treatment or a stimulus. The basic idea is simple. If the
treatment had no effect, the average difference between the measurements is equal to 0
and the null hypothesis holds. On the other hand, if the treatment did have an effect
(intended or unintended), the average difference is not 0 and the null hypothesis is
rejected.
The Paired-Samples t-test procedure is used to test the hypothesis of no difference
between two variables. The data may consist of two measurements taken on the same
subject or one measurement taken on a matched pair of subjects.
H0 = µ1 = µ2
Additionally, the procedure produces:
• Descriptive statistics for each test variable
• A confidence interval for the average difference (95%).
102
Table 5.8 and 5.9 present 2 paired t-test briefly.
Xi Yi di (xi-yi) X1 Y1 d1
″ ″ ″ ″ ″ ″
Xn Yn dn
Mean Mean Mean
Table 5.8: 2-paired t-test
Parameter Sample
N
dN
i
d
∑= 1μ
nd
d i∑=
Nd di
d∑ −
=2
2 )( μσ
1)( 2
2
Table 5.9: Parameters of 2 paired t-test
Similar paired samples for specific variables cause to reduce the numbers of outside
resources of variance, as much as possible (Azar,1998).
5-3-4. Data analysis
Table 5.10 and 5.11 indicate the correlation and difference between the current
situation and the desired situation, with the respect of Performance Quality at TCT.
Performance
N
Mean
Standard
Std. Error
Samples
nd
d
22 σ
σ =
−−
= ∑n
ddS i
d
nSS d
d
22 =
103
Quality Deviation Mean Correlation
Current situation
201
16.69
1.314
0.093
0.032
Desired Situation
201 33.29 1.325 0.093
0.032
Table 5.10: Statistic findings for performance quality
Paired Differences
Performance Quality
Mean
Standard
Deviation
Std. Error Mean
95%confidence interval of difference
t
df
Sig
(2-tailed)
Maximum
Difference
Lower
Upper
Desired situation
- Current situation
16.602
1.836
0.129
128.21
200
16.347
0.00*
32
16.857
*significant at 5% level of probability
Table 5.11: Paired test findings for performance quality
As shown in table 5.11, the difference between the current situation and the desired
situation of performance quality has been calculated as 16.602. By considering the
maximum difference, the presented difference covers more than 50% of the maximum
(16.602/32 = .5188). Besides, based on t distribution table, the exploratory rate of t for
104
95% confidence interval and related degree of freedom (200) is about 2, but the real
rate of t has been substituted by 128.21.So, the difference is Significant.
By taking in to account the significance (2-taield), it could be concluded that the
average of differences is not due to the chance variation and it can be attributed to the
respondents’ believe.
Therefore, null hypothesis of H4a is rejected and there is a meaningful difference
between the current situation and the desired situation with the respect of Performance
Quality.
Information Technology
N
Mean
Standard Deviation
Std. Error Mean
Samples Correlation
Current situation
201
11.94
1.660
0.117
0.043
Desired Situation
201
24.63
2.359
0.166
0.043
Table 5.12: Statistic findings for Information Technology
Paired Differences
Information Technology
Mean
Standard Deviation
Std.
Error Mean
95%confidence
interval of difference
t
df
Sig (2-
tailed)
MaximumDifference
Lower
Upper
Desired situation
- Current situation
12.692
2.826
0.199
63.678
200
0.00*
24
12.299 13.085
* Significant at 5% level of probability
Table 5.13: Paired test findings for Information Technology
Table 5.12 and 5.13 demonstrate the relationship and difference between the current
situation and the desired situation of Information Technology at TCT. Based on
results, more that 50 percent of the maximum difference, in the field of Information
Technology, is also covered by the difference between the current situation and the
desired situation of Information Technology (12.692/24=.52).
105
Moreover, based on t distribution table, the exploratory rate of t for 95% confidence
interval and related degree of freedom (200) is about 2, however the real rate of t, was
substituted by 63.678. So, there is a meaningful difference between them.
According to significance, it could be concluded that the average of differences is not
due to the chance variation and it can be attributed to the respondents’ believe.
Therefore, the null hypothesis of H4b is rejected and there is a meaningful difference
between the current situation and the desired situation, based on Information
technology.
As a consequence, H4a and H4b confirm that there is a meaningful difference between
the present situation and the desired situation of Telecommunication Company of
Tehran, with the respect of BPR approach. On the other word, BPR is identified as an
important complementary investment for Telecommunication Company of Tehran.
Furthermore, the above analysis reveals that IT investment through TCT is not enough.
Thus, According to the deep relationship between IT and BPR, reengineering improves
the present situation of IT investment at TCT.
5-3-5. Cross analysis This part presents more information about the BPR factors.
5-3-5-1. Performance Quality Establishing different work forces in the organization, rate of cession of decision
making power to skillful personnel, distance among executive employees and senior
managers, redundant, unnecessary and parallel activities, excess and useless
employees, complex duties, hierarchy levels and rate of overall customers satisfaction,
are the indicators of performance quality, which were evaluated in Telecommunication
Company of Tehran by its experts and employees.
Table 5.14 Points out the difference between the current situation and the desired
situation in each performance Quality factor. The respondents believe that the present
situation of unnecessary and parallel activities has the most difference from its desired
situation. By taking in to account the significance (2-taield) of each factor, it could be
106
concluded that the average of difference of each factor is not due to the chance
variation and it can be attributed to the respondents’ believe.
Paired Differences
Difference based on
Likert scale. (Desired – Present )
Performance Quality indicators
Mean
Standard Deviation
Std.
Error Mean
95%confidence
interval of difference
t
df
Sig (2-
taield)
Lower
Upper
107
Establishing different
work forces in the organization
Rate of cession of
decision making power to skillful personnel
Distance among
executive employees and senior managers
Rate of unnecessary and parallel activities
Rate of excess and useless employees
Rate of hierarchy levels
Complex Duty
Rate of overall
customers satisfaction
1.83
2.28
1.78
2.62
1.53
1.78
1.79
1.91
0.882
1.08
0.861
1.01
0.975
0.838
1.10
0.938
0.062
0.076
0.061
0.071
0.069
0.059
0.058
0.070
1.71
2.13
1.66
2.48
1.40
1.66
1.64
1.77
1.95
2.43
1.90
2.86
1.67
29.50
30.06
29.38
36.78
22.36
30.142
23.11
27.47
200
200
200
200
200
200
200
200
0.00*
0.00*
0.00*
0.00*
0.01*
0.00*
0.00*
0.00*
1.89
1.94
2.04
*significant at 5% level of probability
Table 5.14: Paired test findings for performance quality indicators
Figure 5.6 shows the desired improvements which are expected by experts and
employees of TCT. The maximum of desired improvement is about unnecessary and
parallel activities (178%). Experts and employees of Telecommunication Company of
Tehran believe that there are a lot of unnecessary and excess activities through their
company. With the respect of evaluated factors, Respondents expect BPR approach to
improve the present situation 102% averagely.
108
Fig
ure 5.6: Expected performance quality improvements
5-3-5-2. Information Technology Accessible Information Networks such as Internet, Accessibility to necessary and
common information of team working, forms, report and paper work in the
organization, Accessibility to feedback information, rate of immediate Accessibility to
updated information and office automation were evaluated by personnel of
Telecommunication Company of Tehran. Figure 5.7 exhibits the improvements of each
mentioned factors which are desired by experts and employees.
Table 5.15 presents the differences between the current situation and the corresponding
desired situation of Information Technology factors. By considering the significance
value (2-taield) of each factor, it could be concluded that the average of differences is
not due to the chance variation and it can be attributed to the respondents’ believes.
Experts and employees believe that the current situation of accessibility to necessary
and common information team working and rate of paper work in TCT is not good
enough.
109
Paired Differences
Difference based on
Likert scale. (Desired – Present )
IT indicators
Mean
Standard Deviation
Std.
Error Mean
95%confidence
interval of difference
t
df
Sig (2-
taield)
Lower
Upper
Accessible Information Networks
Rate of Accessibility to necessary information
of team working
Rate of paper work in the organization
Rate of accessibility to feedback information
Rate of immediate
accessibility to updated information
Office automation
1.40
2.05
2.04
1.82
1.80
1.90
0.945
0.947
1.00
0.908
0.870
0.917
0.051
0.067
0.071
0.055
0.061
0.064
1.27
2.18
2.18
1.69
1.68
1.02
1.51
1.91
1.89
1.94
269.94
30.67
28.65
32.86
29.42
29.57
200
200
200
200
200
200
0.00*
0.00*
0.00*
0.00*
0.00*
0.00*
1.92
1.77
*significant at 5% level of probability
Table 5.15: Paired test findings for Information Technology indicators
Figu
re 5.7: Expected Information Technology improvements
110
According to figure 5.7, experts and employees of TCT expect BPR approach to
create about 90.5% improvement in the current situation of IT factors.
5-4. Summary of the results
Data analysis was directed in two phases. The first phase analysis not only indicated
the positive relationship between IT investment and productivity at TCT but also
exposed that the positive return of IT investment is higher than non IT investment.
In the second phase, the BPR factors were tested by the experts and employees of
TCT. So a meaningful difference between the present situation and the desired
situation of TCT were found, based on BPR approach.
Ultimately, IT investment showed its positive impacts at TCT. Besides, BPR was
identified as the necessary complementary investment to develop, support and stabilize
the positive IT influences in this study.
111
Chapter Six
Conclusions and Future suggestions
In this chapter answers of the main research questions will be provided, based on the
relevant data analysis. First of all results and findings for each research questions will
be provided and after that, the conclusions that I have drawn based on data analysis
will be presented. Finally, managerial implications and future research will be
suggested.
The aim of this research was to shed light on the relationship between IT investment
and productivity. Telecommunication Company of Tehran is not only pioneer in
telecommunication industry, but also identified as one of the successful government
companies in economy environment of Iran. Evaluation of IT investment provided an
insight into the role of IT for improving economic factors of Telecommunication
Company of Tehran.
112
The business activities of Telecommunication Company of Tehran are concentrated to
serve information and communication technologies across Tehran province. However,
in this research, IT was identified as the equipments to exchange, store, distribute the
information of organizational levels, communication centers and also to automate
office activities.
Investigating BPR in Telecommunication Company of Tehran caused to understand
the situation of BPR factors. Furthermore, this research revealed the expectations of
the experts and employees from BPR approach.
6-1. What is the relationship between IT investment and productivity at Telecommunication Company of Tehran?
Productivity growth is identified as the foundation for economic prosperity, a
prerequisite for national development and also an important indicator of organizational
competitiveness (Dedrick et al, 2003). Evaluation and measuring productivity organize
the management decisions within organizations.
In order to better understand IT and productivity discussion, it would be useful to
initiate with a discussion of the production process by which inputs are transformed
into outputs in firms and economies, and the specific role of IT as a factor of
production. So, Cobb- Douglas model was used to investigate the impact of IT
investment on productivity in this research. It is identified as a kind of econometric
techniques.
Impact of IT investment was evaluated by three hypotheses. The results shows, IT
investment not only makes positive contribution to output of Telecommunication
Company of Tehran but also this contribution is positive after deducting the IT capital
and its labor costs. The final hypothesis also indicates that return of IT investment is
higher than corresponding non IT investments. The mentioned results imply that IT
investment improves productivity.
Total Factor Productivity and Labor productivity are the main economic factors that
assist companies to manage their resources and business activities. Therefore, the
correlation of IT investment with TFP and labor productivity was analyzed, in order to
understand deeply the role of IT capital in Telecommunication Company of Tehran.
113
The results indicate that the correlation between IT capital and labor productivity is in
medium level however, TFP has strong correlation with IT capital. Besides, the
previous studies have proved the significant correlation of value added with TFP and
Labor productivity in Telecommunication industry of Iran. Therefore, IT capital not
only improves TFP and labor productivity growth of Telecommunication Company of
Tehran but also, has strong potential to create value added.
6-2. Is there a meaningful difference between the present circumstances and the desired circumstances of Telecommunication Company of Tehran , with regard to BPR approach? Although IT investment makes contribution to the overall performance of companies,
combining the complementary investments in work practices, human capital, and
company restructuring with IT investment is essential to stabilize and support the
positive contribution in future. So, according to the role of IT in BPR, as a facilitator
and enabler, BPR is one of the fundamental approaches to increase the impact of IT to
overall performance of companies. On the other word, both IT and BPR investments,
together, are able to improve productivity drastically.
Moreover, Companies in Iran have invested in IT through their organizational levels
since at least 10 years ago. Especially, government companies which have positive
balance of finance, are pioneers in this area. Furthermore, most of the organizational
levels of government companies in Iran are pyramidal. These kinds of levels make a
lot of waiting and wasting times. Therefore, heavy IT investments in the current
processes may fall down the positive IT influences.
In order to prove the importance of BPR, as a complementary investment in
Telecommunication Company of Tehran, evaluation of its indicators is important.
Thus, in the second phase of this research, the main BPR indicators, IT and
performance quality, were tested. Questionnaires were distributed through its experts
and employees and asked them to evaluate the BPR factors. Based on IT and
performance quality, the results indicates that there is a meaningful difference between
the present situation of Telecommunication Company of Tehran and the desired
situation. Therefore, a meaningful difference between the present circumstances of
114
Telecommunication Company of Tehran and the desired circumstances was founded,
with regard to BPR approach.
Furthermore, as shown in table 6.1, my research respondents expect BPR approach to
improve the situation of evaluated indicators 97.2% averagely.
The mentioned results were also visible and understandable while the questionnaires
were distributed to the experts of Telecommunication Company of Tehran. They
complained about excess activities and personnel, paper work, lack of accessing to
update and feedback information and etc.
Variable
Value
(percentile)
Average of LP growth (1997-07)
29.8%
Average of LP growth
(2005-07)
16.4%
Average of TFP growth
(1997-07)
16.2%
Average of TFP growth (2005-07)
8.6%
Correlation IT capital & LP
43%
Correlation IT capital & TFP
86.8%
Average of expected Improvement
(BPR indicators)
97.2%
Average of expected improvement
102% (Performance quality)
Average of expected improvement 90.5%
(IT)
Table 6.1: Summery of final results
115
6-3. Conclusion Based on fourth plan of cultural, social and economic development (2005 -2009),8%
has been calculated as the annual economic growth of Iran.5.5 % of the mentioned
growth should be achieved by new investments and developing resources and 2.5% of
it have to be created based on productivity growth. Hence, government companies and
organizations must cover 31.3% of their GDP growth from TFP. Besides, in order to
achieve the above economic factors, companies should at least 1%, 2.5% and 3.5%
growth in their capital productivity, total factor productivity and labor productivity in
each year.
According to the fourth economic development plan, ICT sector has the considerable
impact on economic growth of Iran. Hence, 7.9%, 9% were calculated as the annual
growth of TFP and labor productivity in this sector. Moreover, TFP and labor
productivity have remarkable correlation with value added in ICT sector (correlation
coefficient: 0.98 and 0.994).
Telecommunication Company of Tehran (TCT) is one of the powerful government
companies in Iran. Based on this research, the impact of IT investment in economic
factors of TCT was investigated in the first phase. The findings show that IT
investment not only makes positive contribution to productivity but also its return is
higher than non IT investments.
The correlation between IT capital and labor productivity is in the medium level
(0.430) however, TFP has considerable correlation with TFP (0.868).
As shown in table 6.1, Although the average of labor productivity growth in the last
two years has been obtained more than standard level specified in forth development
plan(2005-09),it is lower than the average of its growth in the past 11 years (1997-
2007).This issue can be concluded for the average of TFP growth too. These symptoms
may cause worry for TCT in future. Finally, Based on the mentioned correlations, IT
investment is able to reduce the uncertainties in future.
Although IT investment makes the positive contribution to overall performance of
Telecommunication Company of Tehran, combining the complementary investments
116
in work practices with IT investment is essential to stabilize and support the positive
contribution in future. Therefore, the factors of BPR were tested by the experts and
employees of TCT in the second phase of this research. After final analysis, a
significant difference between the present situation and the expected situation were
proved, with regard to BPR approach.
According to table 6.1, the experts and employees of TCT expect 97.2% improvement
in the current IT and performance Quality situations.
As a consequence, by considering the positive return of IT investment and the average
rate of IT capital to non IT capital in TCT (2.99%), IT investment should increase to
achieve goals of the fourth development plan, create much more value added and gain
more profits. Moreover, BPR approach is a necessity, as a complementary investment,
for TCT to improve the current IT and performance quality situation.
6-4. Implications Top managers play the critical role in employing IT and radical organizational change.
They have to think strategically. It means that they should recognize their companies’
resources and assess the target market and its characteristics .Finally they are able to
make an image for new future. Therefore the managerial implications are:
Iranian top managers should consider IT usages through their organizational levels
and try to expose the positive influences of IT in their organizations. Moreover, this
research indicates that the return of IT investment can be higher than non IT capitals
so, it is the time to employ this remarkable power. On the other words, IT should be
developed its usages from the new technologies to produce products towards the
effective enabler for increasing productivity growth.
Although IT implementations through organization are able to improve
productivity, managers should aware that without complementary investment this
opportunity may change to threat.
Many companies in Iran are using continuous improvement methods such as Total
Quality Management and etc. So ,top managers of Iranian companies should consider
that Business process reengineering is the essential issue because, continuous methods
make little improvements in the current process, however the successful BPR efforts
117
are able to make radical improvements in business. Moreover IT investment in the
current business processes may reject the positive impact of IT on productivity.
Therefore, top managers should provide appropriate infrastructures in order to
reengineer the business processes and stabilize and support the positive contribution of
IT in productivity.
6-5. Recommendations for future research
Nowadays, IT investments become much more important for companies not only as
the new technologies to produce products but also as the enabler to increase
productivity growth.
This research investigated the impact of IT investment at Telecommunication
Company of Tehran. An econometric technique was used to conduct the research.
Besides, BPR factors were evaluated by its experts and employees.
As the recommendation for future research, researchers should investigate this
approach in the private telecommunication sectors or other governmental companies in
Iran to compare the findings. Furthermore, economic view is the approach that directed
this study, it is suggested that future researchers investigate the impact of IT from other
perspectives, such as influences of IT in creating value for customers or impact of IT
on other resources like labors. It is also useful to investigate the impact of IT in
organizational culture.
This study have been conducted based on financial values (total income , IT and non
IT capitals), so investigating the impact of IT on other intangible outputs such as
product(service) quality or variety, is highly recommended for future research. IT
readiness in companies is another issue that is suggested for future.
Not least but last, this research has focused on BPR approach as a complementary
investment. It is useful that future researchers evaluate other complementary
investments such as education.
118
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Appendix A Weighted Least Squares Analysis [DataSet2] C:\Ahmad Sobhani\FINAL ANALYZE\Ahmad1.3_1.sav Power Summary Log-Likelihood Values(b)
Power -2.000 1.758 -1.500 1.796 -1.000 1.833 -.500 1.870 .000 1.907 .500 1.943 1.000 1.978 1.500 2.013 2.000 2.047(a)
a The corresponding power is selected for further analysis because it maximizes the log-likelihood function. b Dependent variable: Revenue, source variable: Non IT capital Best Model Statistics Model Description
Dependent Variable Revenue Independent
Variables 1 IT Labor
2 Non IT Labor
3 NonIT Capital
4 IT Capital Weight Source non IT capital
Power Value 2.000 Model: MOD_2 Model Summary
Multiple R .949 R Square .901
Adjusted R Square .891 Std. Error of the Estimate .008
Log-likelihood Function Value 2.047
127
ANOVA
Sum of Squares df Mean Square F Sig.
Regression .027 4 .007 95.367 .000 Residual .003 39 .000
Total .029 43
Coefficients
Unstandardized
Coefficients Standardized Coefficients t Sig.
B Std. Error Beta Std. Error B Std. Error (constant) .725 .473 ITLabor .023 .140 .022 .134 .164 .880
NonITLabor .199 .0.87 .119 .047 2.287 .0188
NonITCapital .726 .164 .778 .175 4.426 .000 ITCapital .067 .060 .075 .067 1.114 .0386
CORRELATIONS /VARIABLES=TFP IT Capital /PRINT=TWOTAIL NOSIG /MISSING=PAIRWISE. Correlations [DataSet2] C:\Ahmad Sobhani\FINAL ANALYZE\Ahmad1.3_1.sav
Correlations TFP IT Capital
Pearson Correlation 1 .869(**) Sig. (2-tailed) .002
TFP
N 44 44 Pearson Correlation .869(**) 1
Sig. (2-tailed) .002 ITCapital
N 44 44 ** Correlation is significant at the 0.01 level (2-tailed). CORRELATIONS /VARIABLES=IT Capital Labor Productivity /PRINT=TWOTAIL NOSIG /MISSING=PAIRWISE . Correlations [DataSet2] C:\Ahmad Sobhani\FINAL ANALYZE\Ahmad1.3_1.sav
128
Correlations
IT Capital Labor productivity IT Capital Pearson Correlation 1 .430
Sig. (2-tailed) .032 N 44 44
LaborProductivity Pearson Correlation .430 1 Sig. (2-tailed) .032 N 44 44
2- paired T-test GET FILE='C:\Ahmad Sobhani\FINAL ANALYZE\1233455.sav'. DATASET NAME DataSet1 WINDOW=FRONT. GET FILE='C:\Ahmad Sobhani\FINAL ANALYZE\12.12.sav'. DATASET NAME DataSet2 WINDOW=FRONT. T-TEST PAIRS = lastCSQuality lastCIT WITH lastDSQuality lastDIT (PAIRED) /CRITERIA = CI(.95) /MISSING = ANALYSIS. T-Test [DataSet2] C:\Ahmad Sobhani\FINAL ANALYZE\12.12.sav
Paired Samples Statistics
Mean N Std. Deviation Std. Error
Mean lastCSQuality 16.69 201 1.314 .093 Pair 1 lastDSQuality 33.29 201 1.325 .093
lastCIT 11.94 201 1.660 .117 Pair 2 lastDIT 24.63 201 2.359 .166
Paired Samples Correlations
N Correlation Sig. Pair 1 lastCSQuality
& 201 .032 lastDSQuality
.338
Pair 2 lastCIT & lastDIT 201 .043 .465
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Paired Differences
Mean
Standar
d Deviatio
n
Std.
Error Mean
95%confidence
interval of difference
t
df
Sig (2-
tailed)
Lower
Upper
Pair 1 lastCSQuality lastDSQuality
Pair 2 lastCIT lastDIT
-16.602
-12.692
1.836
2.826
0.129
0.199
-16.857
-128.21
-63.678
200
0.00
0.00
-16.347
200 -13.085 -12.299
130
Appendix B Dear Respondent: The question which is accessible for you is in direction of a student research. The purpose of this research is to evaluate the impact of employing Business process reengineering on some parameters which are effective on the function of Telecommunication Company of Tehran. The intension of “Reengineering" in short is transformation of organizational structure from the form hierarchy to process structure ,that its final purpose is just attracting the customer’s satisfaction and providing their needs and desires with the assistance of establishing active working teams and increasing the rate of organizational productivity. Please help us for performing this research by answering to the fallowing questions. Incidentally, please write your proposal or opinion at the back of this questionnaire. We are so thankful because of your attention and patience for completing this questionnaire. Best regards,
1- Gender: Male Female
2- Level of Education: Diploma Junior college Bachelor Master PhD
3- You have had work experiences in Telecommunication Company of Tehran for: 1-10 years 10-20 years More than 20 years
4- Section that you are working in Telecommunication of Tehran is : Administrative and financial affairs Client’s affairs Contracts & procumbent Computer center Engineering affairs Others
5- Establishing different teams in the executive portion of organization for accomplishing client's affairs without any requisite for following all phases of customer's affair by themselves.
The present situation The desirable situation Very much
much medium low Very low
Very much
much medium low Very low
6- The rate of cession of decision-making power to skillful and with work experience personnel; and their ability for freely decision-makings in necessity occasions.
The desirable situation The present situation Very much
much medium low Very low
Very much
much medium low Very low
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7- The distance between senior managers and executive employees.
The desirable situation The present situation Very much
much medium Very much
much medium low Very low
low Very low
8- The rate of the existence of excess, unnecessary, parallel or repetitions activities in the organization.
The present situation
Very much
much medium low Very low
The desirable situation Very much
much medium low Very low
9- The rate of the presence of excess work forces and useless personnel in the
organization.
The desirable situation The present situation Very much
much medium low Very low
Very much
much medium low Very low
10- The situation of official hierarchy and the number of organizational levels.
The desirable situation
The present situation Very much
much medium Very much
much medium low Very low
low Very low
11- The rate of successive and interconnected activities under one job title (complex
duties).
The present situation Very much
much medium low Very low
12- The rate of general customers’ satisfaction from performing and fulfilling the process
of their affairs(quality) in the organization.
The desirable situation Very much
much medium low Very low
The desirable situation Very much
much medium The present situation
low Very low
Very much
13- The rate of accessibility to information networks such as internet.
much medium low Very low
The desirable situation Very much
much medium The present situation
Very much
much medium low Very low
low Very low
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14- Rate of simultaneous accessibility to necessary and common information for all of
the persons who are implicated( as a team) for doing a specific work in the organization.
The present situation The desirable situation Very much
much medium low Very low
Very much
much medium low Very low
15- The rate of forms, reports, paper work and excessive bureaucracy in the
organization.
The present situation Very much
much medium The desirable situation
low Very low
Very much
much medium low Very low
16- The rate of accessibility to feed back information (opportune)for personnel of the organization in order to awareness from the deficiency of their functions and correct them.
The present situation The desirable situation Very much
much medium low Very low
Very much
much medium low Very low
17- The rate of fast, instant and immediate accessibility of personnel to the information.
The desirable situation
Very much
much medium low Very low
The present situation Very much
much medium low Very low
18- Office automation and accomplishing the automatic activities in the organization.
The desirable situation The present situation Very much
much medium low Very low
Very much
much medium low Very low
133
