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IT INVESTMENTS AND PRODUCTIVITY
Aubert, B., HEC Montreal, Victoria University of Wellington
Croteau, A.-M., John Molson School of Business
Hooper, V., Victoria University of Wellington
HOW D
OES IT C
REATE
VALU
E?
VALUE CREATION AND IT INFRASTRUCTURE
The role of IT governance in the establishment of IT architecture (Peterson, 2001, 2004)
The definition of IT infrastructure (Broadbent and Weill, 1997) Services HR components IT components
Strategic alignment (Chan, Huff, Barclay, Copland, 1997)
Flexibility enabled by IT (Fink and Neumann, 2009)
Diminishing marginal returns with IT investments (Nevo, Wade, Cook, 2010)
INTERACTION EFFECTS
Brynjolfsonn-Hitt (2004) suggest that complementary investments are required to extract benefits from IT investments
Yuhn and Park (2010) found that organizational transformation is associated with IT applications to produce growth
Cozzarin and Percival (2010) found no interaction between workplace practice and IT usage, and no interaction between training and IT usage
Bloom, Sadun, Van Reenen (2012) found that US multinationals enjoyed higher productivity from IT than non-US multinationals. The combination of IT investments with management practices was the likely explanation.
FRAMING THE IT VALUE RESEARCH
Source: Soh, C. and Markus, L., How IT Creates Business Value: A Process Theory Synthesis, ICIS 1995.
Success Rate
Governance of IT assetsDefinition of IT assets
GOVERNANCE
Clear responsibility for the IT infrastructure Policies Acquisition information
Planning process Exists Aligned with business goal Assessment of new technology
IT INFRASTRUCTURE
Connectivity The degree to which IT can connect to others, both inside and outside the
organization
Scalability The degree to which IT can be scaled and upgraded on existing infrastructure
Compatibility The degree to which IT can share any type of information both inside and outside the
organization
Data administration Use of data dictionary and common data definitions
Enterprise model Comprehensive approach documenting business processes, inventories, standards
IT personnel competency The degree to which IT personnel possess relevant skills and experience to perform
IT activities
RESEARCH MODEL
IT infrastructure
Market success/ business
performance
Internal performan
ce
TrainingProcess change
investment
Non-IT personnel competen
cy
IT personnel competency
Enterprise model
definition
Data administration definition
Compatibility
Connectivity
Level of planning
Clarity of responsibilit
y
Controlling for strategic type
Scalability
Governance
METHODOLO
GY
MEASURES
Governance (Lewis and Byrd, 2003)
IT infrastructure Connectivity (Chanopas, Krarit, and Khang 2006) Scalability (Chanopas, Krarit, and Khang 2006) Compatibility (Fink and Neumann, 2009) Data administration definition (Lewis and Byrd, 2003) Enterprise model definition (Lewis and Byrd, 2003) IT personnel competency (Chanopas, Krarit, and Khang, 2006)
Complementary investments Non IT Personnel competency (adapted from Chanopas et al. 2006) Training (Statistics Canada) Process changes (Statistics Canada)
Internal Performance (Hudson, Smart, and Bourne, 2001)
Market Performance (Venkatraman, 1989)
DATA
429 respondents 176 Canada 253 New Zealand
No difference between jurisdictions
Firm Size
Less than 50 : 14,8%Between 51 and 100: 27,5%Between 101 and 250: 29,9%Over 251: 27,8%
ANALYSIS
Partial Least Squares Analysis of reliability Validity
Convergent Discriminant
Path analysis
RELIABILITY
Variable Alpha
Responsibility 0,90
IT Planning 0,88
Connectivity 0,76
Scalability 0,91
Compatibility 0,76
Data administration 0,87
Enterprise model 0,86
IT personnel competency 0,91
Process change investments 0,75
Training 0,68
Non-IT personnel competency 0,85
Internal performance 0,67
Market performance 0,86
CORRELATIONS
IT_PE
RS_COMP
DATA_ADM
ENTE
R_MODEL
COMP
ATIBILITY
RESPONSI
BILITY
IT_PL
ANNING
CONN
ECTIVITY
SCAL
ABILITY
NON_I
T_COMPET
PROCESS_I
NVEST
TRAINING
INTER
NAL_PERF
BUSI
NESS_PERF
IT_PERS_COMP ,77
DATA_ADM ,402** ,75
ENTER_MODEL ,475** ,824** ,77
COMPATIBILIT
Y
,390** ,517** ,549** ,76
RESPONSIBILITY
,497** ,485** ,551** ,442** ,88
IT_PLANNING ,482** ,538** ,631** ,446** ,649** ,84
CONNECTIVITY ,354** ,460** ,491** ,537** ,439** ,548** ,72
SCALABILITY ,502** ,479** ,530** ,558** ,482** ,480** ,487** ,86
NON_IT_COMPET
,418** ,373** ,403** ,395** ,393** ,450** ,367** ,422** ,72
PROCESS_INVEST
,002 ,248** ,235** ,149** ,090 ,149** ,220** ,055 ,143** ,55
TRAINING ,158** ,226** ,208** ,160** ,136** ,229** ,162** ,130** ,203** ,393** ,66
INTERNAL_PERF
,220** ,243** ,253** ,235** ,233** ,192** ,109* ,253** ,269** -,065 ,224** ,57
BUSINESS_PER
F
,189** ,236** ,309** ,234** ,197** ,243** ,196** ,277** ,257** ,061 ,209** ,357** ,57
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
RESULTS
IT INFRASTRUCTURE AS A SECOND ORDER CONSTRUCT
IT infrastructure
Market success/ business
performance
Internal performanc
e
Training
Process change
investment
Non-IT personnel competen
cy
IT personnel competen
cy
Enterprise model
definitionData
administration definition
Compatibility
Connectivity
Level of planning
Centralization of
responsibility
Scalability
0,45
0,340,21
0,22
0,20
0,04 (n.s.)
R2 = 0,51R2 = 0,22
R2 = 0,21
0,74
0,67
0,760,87
0,63
0,70
0,46
FIRST OBSERVATIONS
IT infrastructure as a whole influences firm performance. It is not a specific component of infrastructure that increases the firm productivity
Training and IT skills of non-IT personnel increase the performance of the firm.
Process changes do not influence the performance of the firm
Training and process change do not show an interaction effect with IT infrastructure
DEPENDENT VARIABLE: PERFORMANCE
Base model Interaction model
Low infrastructure
High infrastructure
IT infrastructure (ITI) 0.218* 0.241*
Training 0.219* 0.216* 0.220* 0.247*
Non-IT personnel competency 0.198* 0.180* 0.258* 0.175*
Organizational changes 0.040 -0.001 -0.236* 0.229*
ITI x Training -0.108
ITI x Non-IT pers. competency -0.042
ITI x Organizational changes 0.187*
Variance explained 0.222 0.243 0.224 0.181
INVESTI
GATIN
G PROCESS
CHANGES
LOW IT INFRASTRUCTURE
Market success/ business
performance
Internal performan
ce
TrainingProcess change
investment
Non-IT personnel competenc
y
0,22 0,26 -0,24
R2 = 0,22R2 = 0,20
0,45
HIGH IT INFRASTRUCTURE (4+)
Market success/ business
performance
Internal performanc
e
TrainingProcess change
investment
Non-IT personnel competenc
y
0,25 0,17 0,23
R2 = 0,18 R2 = 0,14
0,38
PROCESS CHANGES IMPLEMENTED (DECREASING FREQUENCY)
Low infrastructure High infrastructureReingineeringIntegration between departmentsCentralizationJob rotation/enrichmentOutsourcingIncreased inter-org collaborationFlattening of the organizationDecentralization
ReengineeringIntegration between departments*CentralizationIncreased inter-org collaboration*Job rotation/enrichmentOutsourcingFlattening of the organizationDecentralization *
*: significant difference between high infrastructure and low infrastructure (p<0,05)
CONCLUSION
Governance does explain IT infrastructure
Individually, infrastructure components do not have a significant influence on performance
IT infrastructure has to be considered as an ensemble Efforts to improve IT infrastructure have to address all the
components Incentives to increase only one of the components (like hi-speed
connections) might not enhance the firm performance significantly
Non-IT personnel have to be IT skilful
Training has a significant impact on performance
There is a high IT infrastructure threshold to reach before gaining benefits from process changes investments
THANK YOU
QUESTIONS?
BACKGROUND INFO
RMATIO
N
- MEASURES
GOVERNANCE (LEWIS AND BYRD, 2003)
Responsibility
RP1 1.A person is responsible for corporate-wide information systems and technology policy
1 2 3 4 5
RP2 2.A single person involved in IT is also involved in the corporate business planning process
1 2 3 4 5
RP3 3.A person approves corporate-wide information systems and technology acquisitions
1 2 3 4 5
RP4 4. A person is responsible for distributed information systems and technology 1 2 3 4 5
IT planning
PL1 5. There is a plan for enterprise-wide information systems and technology 1 2 3 4 5
PL2 6.Information systems/technology plan incorporates central system and desktop
1 2 3 4 5
PL3 7. Information systems/technology plan reflects business goals 1 2 3 4 5
PL4 8. Planning process for IS/IT incorporates end users 1 2 3 4 5
Strongly disagree
neutral Strongly agree
1 2 3 4 5
Back to Measures
DATA ADMINISTRATION AND ENTERPRISE MODEL LEVELS OF DEFINITION
EM1 9. A documentation for corporate-wide information flow 1 2 3 4 5
EM2 10. An inventory of corporate data and information 1 2 3 4 5
EM3 11. An inventory of company IT facilities 1 2 3 4 5
EM4 12. A formal methodology for systems development 1 2 3 4 5
EM5 13. Corporate-wide adherence to information systems and technology standards 1 2 3 4 5
EM6 14. Corporate-wide adherence to information systems and technology standards 1 2 3 4 5
EM7 15. Data communications between central and distributed facilities (PCs) 1 2 3 4 5
DA1 16. Formal data administration (policies, standards, corporate oversight) 1 2 3 4 5
DA2 17. A corporate data architecture (structure, framework, philosophy) 1 2 3 4 5
DA3 18. A quality assurance program for systems and facilities 1 2 3 4 5
DA4 19. A corporate policy on data ownership 1 2 3 4 5
DA5 20. A data dictionary 1 2 3 4 5
DA6 21. Data integration between applications 1 2 3 4 5
DA7 22. Data sharing between users and departments 1 2 3 4 5
Strongly disagree
neutral Strongly agree
1 2 3 4 5Data administration level of definition
Enterprise model level of definition
Back to Measures
COMPATIBILITY AND CONNECTIVITY
CM1 28.Software applications can be easily transported and used across multiple platforms
1 2 3 4 5
CM2 29. The company offers a wide variety of types of information to end users 1 2 3 4 5
CM3 30.The user interfaces provide transparent access to all platforms and applications
1 2 3 4 5
CM4 31.The company provides multiple interfaces or entry points (for example, Web access) for external end users
1 2 3 4 5
CN1 32.Authorized data can be accessed by external parties through IT networks, regardless of location
1 2 3 4 5
CN2 33.Authorized data can be accessed by internal users through IT networks, regardless of location
1 2 3 4 5
CN3 34.All external parties (e.g. customers, suppliers) are electronically linked with the organization through IT networks
1 2 3 4 5
CN4 35.Conferences within the organization can be held through IT networks, regardless of location
1 2 3 4 5
CN5 36. All departments and branches are electronically linked together through IT networks 1 2 3 4 5
Strongly disagree
neutral Strongly agree
1 2 3 4 5Compatibility
Connectivity
Back to Measures
SCALABILITY
SC1 23.Hardware/software can be easily upgraded on existing IT infrastructure
1 2 3 4 5
SC2 24. Hardware/software can be easily scaled on existing IT infrastructure 1 2 3 4 5
SC3 25.Hardware/software can be easily and quickly adapted for changing needs and standards
1 2 3 4 5
SC4 26. Hardware/software can support business growth in the future 1 2 3 4 5
SC5 27.Hardware/software can be added to, modified or removed from existing IT infrastructure with no major overall effect
1 2 3 4 5
Strongly disagree
neutral Strongly agree
1 2 3 4 5
Back to Measures
PROCESS CHANGE INVESTMENTS
None Some Extensive
PC1 54. Greater integration among different functional areas PC2 55. Increase in the degree of centralization PC3 56. Decrease in the degree of centralization
PC4 57.Re-engineering (redesigning processes to improve performance and cost)
PC5 58. Reduction in the number of managerial levels (delayering) PC6 59. Greater reliance on job rotation, multi-skilling
PC7 60.Greater reliance on external suppliers of products / services (outsourcing)
PC8 61.Greater inter-firm collaboration in R&D, production or marketing
Built from a list provided by Statistics Canada
Organizational change refers to a change in the way in which work is organized within your workplace or between your workplace and others. Has your workplace experienced any of the following forms of organizational change recently?
Back to Measures
TRAINING INVESTMENTS
None Some Extensive
TR1 62. Job rotation TR2 63. Apprenticeship TR3 64. Assigning trainee as a member of task force
TR4 65.
Other form of on-site training (Lecture, group discussion, role playing, on-line training, simulation, video, etc.)
TR5 66. Off-site training (example: Part times college course)
In your organization, there is:
Back to Measures
IT PERSONNEL COMPETENCY (CHANOPAS KRARIT KHANG 2006)
IC1 37. IT personnel understand the policies and goals of the organization 1 2 3 4 5
IC2 38. IT personnel are able to plan for future technological challenges 1 2 3 4 5
IC3 39. IT personnel are able to be IT project leaders 1 2 3 4 5
IC4 40. IT personnel are able to quickly learn and apply new technologies 1 2 3 4 5
IC5 41. IT personnel are eager to learn new technologies 1 2 3 4 5
IC6 42.IT personnel are able to interpret business problems and develop appropriate technical solutions
1 2 3 4 5
IC7 43.IT personnel are knowledgeable about environmental constraints within the industry
1 2 3 4 5
IC9 44.IT personnel are able to work cooperatively with users in a cross-functional team
1 2 3 4 5
IC10 45.IT personnel are skilled in multiple technologies and tools (e.g. programming languages , operating systems)
1 2 3 4 5
Strongly disagree
neutral Strongly agree
1 2 3 4 5
Back to Measures
NON IT PERSONNEL COMPETENCY (ADAPTED FROM CHANOPAS KRARIT KHANG 2006) Strongly
disagreeneutral Strongly
agree1 2 3 4 5
NC1 47.Non-IT personnel are able to participate in planning for future technological challenges
1 2 3 4 5
NC2 48.Non-IT personnel are able to quickly learn and apply new technologies
1 2 3 4 5
NC3 49. Non-IT personnel are eager to learn new technologies 1 2 3 4 5
NC4 50.Non-IT personnel are able to correctly identify their problems and convey their needs for technical solutions to the IT function
1 2 3 4 5
NC5 51.Non-IT personnel are knowledgeable about environmental constraints pertaining to IT
1 2 3 4 5
NC6 52.Non-IT personnel are able to work cooperatively with IT in a cross-
functional team 1 2 3 4 5
NC7 53.Non-IT personnel are sufficiently competent in the technologies and tools they need to do their jobs.
1 2 3 4 5
Back to Measures
INTERNAL PERFORMANCE (ADAPTED FROM HUDSON, SMART, AND BOURNE 2001)
BP9 75. Our product/service quality is: Very low :__:__:__:__:__: Very High
BP10 76. Our process quality is: Very low :__:__:__:__:__: Very high
BP11 77. Scrap or lost efforts is (are): Very low :__:__:__:__:__: Very high
BP12 78. Defect or error rate is: Very low :__:__:__:__:__: Very high
BP13 79. The quality of inputs provided by our suppliers/ collaborators is:
Very poor :__:__:__:__:__: Very high
BP14 80. Our work in progress is running: Smoothly :__:__:__:__:__: inefficiently
BP15 81. Our lead time is: Very short :__:__:__:__:__: Very long
BP16 82. Our delivery time is: Very short :__:__:__:__:__: Very long
When comparing your company relative to your principal competitors:
Back to Measures
MARKET PERFORMANCE (VENKATRAMAN 1989)
BP1 67. The sales growth position relative to our principal competitors is:
Very low:__:__:__:__:__: Very High
BP3 69. The return on corporate investment position relative to our principal competitors is:
Very low :__:__:__:__:__: Very high
BP6 72. The market share gains relative to our principal competitors are:
Very small :__:__:__:__:__: Very large
BP7 73. The net profit position relative to our principal competitors is:
Very low :__:__:__:__:__: Very high
BP8 74. The financial liquidity position relative to our principal competitors is:
Very low :__:__:__:__:__: Very high
BP2 68. My satisfaction with sales growth rate is: Very low :__:__:__:__:__: Very high
BP4 70. My satisfaction with return on corporate investment is: Very low :__:__:__:__:__: Very high
BP5 71. My satisfaction with return on sales is: Very low :__:__:__:__:__: Very high
Using to the following scale, would you please indicate your perception along the following dimensions related to your actual business performance. Please circle the number that best represents your opinion. For any item that is not applicable to your situation, please circle na (not applicable).
Back to Measures
GOVERNANCE AND IT INFRASTRUCTURE
IT personnel competenc
y
Enterprise model
definition
Data administra
tion definition
Compatibility
Connectivity
Level of planning
Clarity of responsibil
ity
Scalability
0,386
0,247
0,349
0,316
0,277
0,187
0,2610,243
0,273
0,454
0,480
0,287
R2 = 0,33
R2 = 0,26
R2 = 0,46
R2 = 0,35
R2 = 0,29
R2 = 0,29