CHAPTER 2 REVIEW OF LITERATURE - Information and …shodhganga.inflibnet.ac.in/bitstream/10603/38126/11/11_chapter 2.pdf · infrastructure which is essential to carry out the business,

Padmalatha N.A. 2013

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CHAPTER 2

REVIEW OF LITERATURE

This chapter reviews a selection of literature relevant to dimensions constituting IT

investments, the measures of IT investment, as well as IT measurement methodologies.

The review of the literature has three main objectives:

To aid in the identification of measures of IT impact.

To aid in the confirmation of dimension of IT impact.

To aid in the development of the hypothesized pattern of the measure of IT

impact.

The chapter provides highlights and the details of review of literature on IT investment,

Management Framework, Benefits Framework, Integrated framework and specific measures

of business performance; Information technology usage articles are also reviewed. The

chapter includes the review of referred thesis and books as well.

2.1 Information technology investments

Businesses are investing enormous resources in Information Technology (IT). Information

technology resources constitute a large and, in some cases, growing portion of most firm’s

budgets. Because of cost pressures, increasing competition, and outsourcing opportunities,

many organizations today increasingly focus on information technology investments.

Substantiating the business value of IT investment on organizational productivity has been a

major concern of information system researchers. Literature studies demonstrate that high-

performing companies allocate a significantly greater portion of revenues to IT expenditures

than companies with lower performance (Harris and Katz, 1988). While it is tempting to

conclude that so much IT investment increases organizational performance, there is a little

evidence that it is so. The existing literature provides little evidence of all conclusive and

positive relationship between IT investment and organizational performance.


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The Information Technology investments are typically capital investments and ideally are

evaluated like any other capital investment. There are wide ranging investment options and

mechanisms for evaluation of these options. One of the general frameworks to understand the

IT investments is the framework that treats Information Technology as the business

infrastructure which is essential to carry out the business, i.e. like any other infrastructure

such as machinery or other physical infrastructure (Laudon & Laudon,2007).

As the framework (Fig 2) indicates, the inputs for the investments will come from business

strategy, IT strategy and the technological trends/possibilities offered by IT. The investments

will be in what the author calls IT infrastructure, and the purpose is to deliver services –

services to customers, suppliers and employees.

The IT infrastructure in this case is a set of physical devices and software applications that are

required to operate the entire enterprise. A firm’s IT infrastructure is expected to provide the

foundation for serving customers, working with vendors and managing firm’s internal

business processes.

Fig. 2 Firm’s IT infrastructure

Source: Laudonand Laudon, 2007

The IT infrastructure is described as a set of firm wide services budgeted by management and

comprising both human and technical capabilities. According to Laudon and Laudon (2007),

infrastructure investments are defined in two ways as technology or service clusters.

Technology-based definition focuses on a set of physical devices and software applications


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that are required to operate the entire enterprise. Service-based definition focuses on the

services provided by all the hardware and software. Infrastructure may include upgrading the

devices/software with newer versions or enhancing the capacity like increasing the number of

corporate servers, or in communication devices like converting all phones to voice over IP

(VOIP), or off-shoring company’s international bandwidth to offshore subsidiaries. (Laudon

and Laudon, 2007).

This framework of IT infrastructure has following broad components. The subsequent

literature survey will also be along these components.

Infrastructure components – the components in which investments need to be made

Benefit framework – the services to customers, suppliers and employees through

which the business benefits are realized

Management framework – the framework for integrating the business strategy, IT

strategy and IT trends & possibilities, for decision making on investments.

Integrated frameworks – the ideas which intend to combine all the three aspects of the

IT investments – benefits, investment in infrastructure and the management drivers,

into comprehensive decision making frameworks

2.1.1 Infrastructure components

For the purpose of understanding the difference between them in terms of nature and purpose,

IT infrastructure is typically categorized into seven major components. These components

must be coordinated either by a set of service providers or by the internal IT team with one

another to provide the firm with a coherent set of services or business value. The diagram

(Fig 3) depicts the different elements of the IT infrastructure.


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Figure 3: I T Infrastructure Ecosystem

Source: Laudon and Laudon, 2007

The nature of the different components and some of the typical trends in these components

are described here.

Computer hardware platform: These are the devices or hardware required in every IT

infrastructure. This component includes client machines (desktop PCs, mobile

computing devices such as PDAs and laptop, printing machines, scanners, other input

or output devices, digital measuring or recording devices) and high capacity server

machines which are used for carrying out complex computing operations. One of the

key characteristics of investments in computing platform has been the constant shifts

in substituting one with the other like substituting client with centralized servers or

substituting the centralized platforms with decentralized/federated devices.

Operating system platform: A typical IT infrastructure consists of many computing

resources and users of these resources. The operating system platform, manages the

computing resources and activities being carried out using the IT infrastructure. The

key characteristics of the operating system platform are the ability to manage multiple

resources, the ability to run on different platforms and capability to deliver multiple

services.


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Software application: Software application is a complex computer program to

automate the different business processes and deliver different services to the users –

the suppliers, employees and customers. These can be prebuilt software configured to

specific needs like the Enterprise Resource Planning (ERP) applications or the so

called custom built solutions – computer programme written specifically for a specific

business or business process. One of the key characteristics of enterprise applications

has been the ability to deliver more and more services and coverage of wide spectrum

of business processes. The applications which set out to deliver services to employees,

are capable today to offer a wide spectrum of services to employees, suppliers and

customers.

Data management and storage: In today’s digital world, the definition of data has

changed significantly from the earlier days. From being information about activities or

objects, today data means drawings, documents, images, voices, measurements, maps

etc. The facilities for storing and managing the different types of data are critical

components of an IT infrastructure. As the nature and quantity of data changes so

does investments in data management. The amount of new digital information is

doubling every three years, driven in part by e-commerce and e-business and by

regulations requiring firms to invest in extensive data storage and management

facilities

Networking and telecommunications platform: Any business today has multiple

people using the IT infrastructure and typically these are spread out geographically.

The networking and telecommunication platform consist of mechanisms to coordinate

the activities between the different computing devices/resources and the users of these

resources. They consist of means of communication –either wired or wireless and

devices to coordinate the communication. Telecommunications platforms are typically

provided by telecommunications / telephone service companies that offer voice and

data connectivity, wide area networking and Internet access. With multiple options for

means as well as coordination, the decision on networking and telecommunication

platform is a critical element in IT investments.

Internet platform: The internet has become the key medium to reach out to different

stake holders of an organization, either as a means for broadcasting or for narrow

casting. The multiplicity of reach, intensity of interactions and degree of


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personalization of these interactions are the key decision areas while investing on

internet platforms.

Service provider services: One of the key elements in building the IT infrastructure is

to ensure that all the different components work together smoothly. Making this

happen continuously is the role of system integration. This is either done by an

internal IT team or by a service provider. Implementing new infrastructure includes

significant changes in business processes and procedures, training and education and

software integration. Software integration means ensuring the new infrastructure

works well with the firm’s older and ensuring the new elements of the infrastructure

work with one another. The mix of internal team and service provider required, the

location of the team, the contractual obligations of the team etc are the key decisions

while investing in system integration services.

2.1.2 Network investment in detail

Each of the IT infrastructure components has multiple options of investment, primarily

dictated by what the corporation intends to achieve. The description of options for investment

in network gives an idea about the complexities involved in decision making regarding these

investments.

When information processing disperses throughout the firm, IT expenses gets reallocated

from centralized to distributed systems. The trend towards more vendors, services, Internet

technologies, and open systems, and the rapid growth of the internet, the World Wide Web,

the corporate intranets and extranets dramatically increase the number of feasible

telecommunication applications.

Telecommunication networks are playing a vital and pervasive role in electronic commerce,

enterprise collaboration and other e-business application that supports the operation,

management and strategic objectives of both large and small business enterprises.


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Table 2

Key telecommunication networking components

examples of alternatives

Network Internet, Intranet, Extranet, wide area, local area, client

server, network computing, peer-to-peer

Media twisted pair, coaxial cable, fibre optics, microwave radio,

communication satellites, cellular and PC systems, wireless

mobile and LAN systems

Processors modems, multiplexers, switches, routers, hubs, gateways,

front-end processors, private branch exchanges

Software network operating systems, telecommunications monitors,

Web browser and middleware

Channels analog/digital, switched/ nonswitched, circuit/message/cell

switching, bandwidth alternative

Topology/ Architecture star, ring and bus topologies, OSI and TCP/IP architectures

and protocols

Source: O’Brien et al., 2007

2.2 IT investment measures-Productivity framework

Productivity is the fundamental measure of technology’s contribution to business

performance. Previous research examining the impact of information technology investments

on organizational performance has employed a wide range of productivity outcomes and

measures.

Beyond the conventional measures: Robert Solow, the Nobel laureate, had remarked

“Computers are showing up everywhere except in our productivity statistics." Many people

pointed to the unproductively to inadequacies of proper measurement. The productivity

metrics must not be oriented around counting things like number of employees, or the number

of checks processed. There is strong evidence that managers are not making IT investments

that cut costs. Survey suggested that there is strong evidence that IT investments are made to


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improve customer service and quality (Brynjolfsson and Hitt, 1991).It is important for the

“researchers [ought to] be prepared to look beyond conventional productivity measurement

techniques.”

Strategic synergy: There are a number of factors which decides the productivity of the firm.

Research has shown that firms which are more focused (i.e. less vertically integrated and/or

less diversified) can expect greater productivity from IT investments. In other words, firms

that have less diversity in their product lines, tend to be associated with more efficient or

productive IT investments (McAfee and Brynjolfsson, 1997). Using market value measures

for IT returns, it was found that IT investments are complementary with increased scale and

scope. That is firms that are pursuing a business strategy of increased diversification or

vertical integration will find synergy in increased IT investments, with respect to increasing

their overall market value. The empirical results support the notion that IT investments can

simultaneously create value but destroy profits, or enable profits despite production

inefficiencies This nuanced role of IT investments in business firms deserve further

qualitative examination in further research.

Objectives driven: Productivity of the firm can be measured to a certain extent by

classifying them into management objective. According to Weil (1992), “investments in IT

alone will not guarantee returns and managing the portfolio were needed to achieve the

greater return. “ The method based on the classification of productivity in terms of

transformational, informational and strategic provides an understanding of productivity

construct by management objective. However, this classification was limited in determining

the level of analysis for any specific type of productivity. For example, even if the

organization achieves transactional productivity, it is difficult to trace at what level of

analysis is the productivity traceable because of the convergence of IT.

Portfolio approach: Studies by Brynjolfsson (2000) concluded that firms are having

portfolios of IT investments, just as investors have portfolios of financial investments.

Brynjolfson (2000) conducted and analyzed the IT survey data testing the interactions

between the six types of organizational capabilities and the four different classes of IT

investments. He considered different classes of IT investments as asset classes. The measures


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of firm performance include market evaluation, profitability, operational performance and

innovation.

Value chain analysis: In our attempt to disaggregate and classify organizational productivity

as a consequence of its specific IT investment, the concept of “value Chain” (Laudon and

Laudon, 2007) can be looked into. According to value-chain concept, impact of IT differs at

multiple points within an organizations’ value chain. For example, the locus of value of an

automated transaction process system would most likely be discernible through increased

financial performance (cost effectiveness technological substitution for labor) and operational

efficiency. The locus of value for a CRM system would generally discernible in terms of

higher operational quality and better strategic decision making ability. Similarly the locus of

value for web based commerce is discernible through increased financial productivity (Higher

revenue, lower cost of maintenance) and operational quality (faster customer service and

streamlined shopping experience. These observations extend our understanding of both IT

infrastructure and organizational productivity. Because a firm’s value chain occurs over a

spectrum rather than at a particular level or within a specific process, an organization’s

infrastructure may have “multiple locus of value nested within different levels of analysis”

Efficiency orientation: One of the earliest evidenced research on IT productivity can be

traced to the King and Schrems (1978). Two and a half decades ago, King and Schrems

discussed the productive benefits of IT that link to efficiency. Their classification mainly

surrounded transactional benefits such as record-keeping and calculating efficiencies.

Quality driven: Bailey (1982) was the first to give the perspective towards operational

quality rather than efficiency by developing a measure for IT-related user satisfaction.

However, it was the research work by Porter and Miller (1985) that first raised awareness that

IT could be used to leverage a firm’s strategic and competitive presence- affecting

competition, altering organizational structures, and spawning new businesses.

Balanced score card approach: Balanced Score Card again gave the integrated approach.

According to Kaplan and Norton (1996), traditionally organizations focused on financial

measures only. These indicators seem to be lagging indicators of business performance since

they capture the impact of management decisions only after the results of those decisions


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have materialized. However, whilst traditional financial measures are extremely important

they are not enough to address the complex world of IT investments. A comprehensive

balanced approach is needed for IT investments to address accurately and timely the possible

investment failures. While the Balanced Scorecard does not create IT investment strategy, it

does force organizations to be very clear on their IT investment objectives and to measure

progress against them. The scorecard allows organizations to examine their IT investment

from four perspectives; Financial, Internal Business, Customer and innovation and learning.

2.2.1 Productivity Measures of IT Investment/Usage

There are many research works and related literature on measuring the IT investments and

their usage:

1. The articles focused on productivity of IT capital in manufacturing industry and are

strongly based on the review of empirical literature to understand the impact of IT on

productivity. Productivity of IT capital in manufacturing industry (q) is based on key

inputs material (m), purchased services (PHS), labor (l), IT capital(c), Time Trend (λ)

and Error (ε). The article (Brynjolfsson, 2000) highlights the effect of IT on

intermediate variable such as capacity utilization, inventory turnover, quality, relative

prices and new product introduction. Various productivity metrics such as increased

variety, improved timeliness of delivery, and personalized customer care are

represented for measuring the productivity. There are certain reasons for the inability

for measuring the performance such as wrong measurement, lags, redistribution and

mismanagement to name a few. The article highlights in detail the reasons for the

shortfalls.

2. This article mainly addresses 3 different aspects of IT situations applicable to any

industry. The article(Dempsey et al., 1997) also mentions about applications,

technology infrastructure and IT organizations of the present business landscape. In

order to achieve high return on IT investments it is necessary to do a diagnosis of a

company’s position and one that takes into account where it has been (its IT past),

where it is heading (its current IT management processes), and what results are being

achieved (its IT performance). Armed with this knowledge, companies can determine

the best strategy to pursue to improve their overall IT performance. It is possible for


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executives to get a knowledge on their companies IT performance, and to chart a

course for improvement once that diagnosis has been made. The article has illustrated

4 different situations in the industries based on their performance-frozen in the past, in

the abyss, leading and competitive. The article has given the evaluation parameters

which involve assessing the consistency, robustness, and complexity of the overall

architecture and understanding the viability and reliability of the individual

technologies that make it up.

3. This article tries to establish relation between investments in IT and two measures of

firm performance: labor productivity and productivity growth between 1992 and 1997

period. This study is based on the firm performance of the retail trade sector of the

U.S. economy. The study finds that IT contributed significantly to the acceleration in

productivity growth. A problem on IT/productivity relationship is that results can vary

tremendously depending on specification, time period, and industries examined

(Stiroh, 2003). Previously untapped micro level data collected by the census bureau is

analyzed for the firm performance in the retail trade sector. Some of the findings are-

large firms account for most retail IT investment, employment and establishment

growth, a significant relationship exists between IT investment intensity and

productivity growth and no evidence of a similar link between IT and growth in the

number of establishments operated by retail firms. Small firms do not seem to benefit

from increased spending on IT and high capital intensity, but large firms do. Large

firms who had a large share of their capital spending on IT and who has high capital

intensities had significantly higher productivity than firms with lesser spending in IT.

Whether firms receive a high return on their IT investments depends, in part, on the

areas of investments.

4. The research (Datta, 2003) employed a holistic perspective to develop a conceptual

framework and empirically examine the association between IT infrastructure and

organizational productivity. This research presents a fresh outlook on IT investments

and organizational productivity through the development and empirical investigation

of a proposed productivity framework. The question being addressed is the process by

which IT capital outlays are transformed into organizational productivity. This

research finds that the path between IT investments and productivity is mediated by


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the creation of an IT infrastructure design as an organizational asset. In addition, the

productivity process is influenced by its contingencies such as management of IT and

operational environment.

2.2.2 The Productivity Subsystem Framework

As highlighted in the research (Datta, 2003 ), “the framework for the IT investments classify

productive benefits in terms of standardization. “Standardized metrics” comprise of measures

commonly used to quantify productivity in conventional financial/accounting and

operational/process efficiency dimensions. On the contrary, “non-standardized metrics”

comprise of measures that focus on strategic measures.”

Accounting measures are commonly standardized according to generally accepted accounting

practices (GAAP).Strategic measures are completely non-standardized and are difficult to

formulate and even more difficult to measure. Unlike standardized measures, strategic

measures are not compliant to any standard methodology or guidelines. These two measures

can be considered as two extremes in the productivity spectrum. What lie in between these

two ends of a spectrum, can be called quasi-standardized measures ,which are used to

measure operational quality and operational efficiency.

Accounting measures- These measures are easily quantifiable and usually available as

secondary data. Since they provide credibly evaluated evidence about the sector or

organization, it is considered as the most popular measure of any investments or performance.

Examples of widely adopted accounting measures are return on equity (ROE), return on

investment (ROI), return on assets (ROA) (Brynjolfsson and Hitt ,1991).

Operational efficiency measures- These are measures used to assess the efficiency of the

organizational business processes and HR processes. These measures typically indicate the

cost advantages of an organization. Operational efficiency measures have characteristics of

ease of measurement, simplicity to understand and availability of data for measurement.

Some of the widely used operational efficiency measures are inventory turnover, plant load

factor, inventory holding cost, variable cost, marginal cost of production andcapacity

utilization.


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Operational quality measures- These measures indicate the reliability of the organizational

business processes and human resource processes. The measures are usually collected and

revealed through data collection and rigorous analysis. These measures have the

characteristics of delivering multidimensional perspective of productivity and constraints of

widely understandable definition. Examples of operational quality measures are quality

improvement, employee satisfaction etc.

Strategic productivity measures- Strategic measures, as per some of the researchers,

(Laudon and Laudon, 2007) “hinge on how much an organization has been able to enhance its

strategic position in the market- creating a value-proposition for their customers.” Strategic

measures are expected to provide indications of the competitive advantage of an organization.

These are typically executed through customer service enhancement, identification of new

market, tapping new opportunities, product/service enhancement. Examples of strategic

measures include parameters like increased innovations in goods or services (Barua, Kreibel

and Mukhopadhyay, 1995), development of new markets, and strategic decision-making

(Laudon and Laudon,2007).

2.3 IT investment measures- management framework

The infrastructure investment are measured based on direct infrastructure and indirect

infrastructure investment. The investments in the first six components of IT infrastructure as

shown in Fig 3 are easy to measure. The difficult thing is to quantify the investments in the

seventh components i.e. the services component.

Measuring the cost of services: The costs related to problem analysis, training and operation

of the system need to be measured for the IT investment (Stair and Reynolds, 2007). The

study has identified the following costs-salary and overhead for IT staff, cost of

communication and travel related to project, consulting fees are costs in the initiation phase

and during development phase costs associated are salary and overhead for IS staff,

equipment purchase and installation costs, purchase of systems or application software. For

many systems, training, implementation and troubleshooting absorb so much time and effort

that their costs far exceed the original cost of the hardware and software. Implementation


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costs include operation and maintenance cost which in turn includes salary and overhead for

IT staff, software license and depreciation of hardware.

Capturing the actual cost and value: Because of competition, the value created by

computers may primarily flow to customers, rather than to the company making the

investments. (Brynjolfsson, 2000) Rather than using absolute investment dollars, suggested

substitute measures are: computer ownership, number of application areas computerized,

types of application areas computerized. These approaches, having financial and non-

financial measures have advantages and disadvantages .Any one of them will capture all of a

given firm’s investment in IT and hence both financial and non-financial approaches are used

for the research.

Accounting for the costs: The cost of any information system includes the cost of buying the

hardware, building or buying the software and the cost of ownership. The total cost of

ownership (TCO) includes the cost of implementing, operating and maintaining (Stair and

Reynolds , 2007). For many information systems, the cost of the implementation is much

higher than the cost of original development because training and conversion requires work

by all the users. This methodology was designed to identify the cost of IT components

beyond the cost of implementation. TCO can be a useful tool to reduce ongoing costs by

improving IT management practices, but it is a not sound basis for decision-making. For

example, applying TCO blindly can lead to bad decisions such as replacing all PC’s with

clearer dumb terminals(TCO focuses only on costs) or switching vendors every month to get

the lowest PC price(TCO doesn’t capture the cost of supporting multiple vendors or the

benefit of volume purchasing agreements.)

Quantifying the value: Given the complexity of the organization ,single percentage IT

investment is not substantial to measure the IT investment. Hence, IT investment can be

measured as profitability/ financial market measures and substitute measures. According to

Wu (2006), profitability measures such as return on investment, return on sales, and growth

in revenue are important organizational economic measures.


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Investment effectiveness: In addition to this, complementary resources such as up-to-date IT

infrastructure have been found to make investments more effective in improving firm

performance .Information technology investments were more likely to improve firm

performance if they were accompanied by complementary investments in new business

process, organizational structures, and organizational learning that could unleash the potential

of the new technology. information technology investments in building global network,

enterprise network, distributed computing, portable computing, multimedia and graphical

user interface transforms organizations and business processes. Four kinds of structural

organizational change that are enabled by IT are shown in figure 4. They are (1) automation,

(2) rationalization (3) reengineering (4) paradigm shifts

Fig 4 :Organizational Change carried by information technology

Source: Laudon and Laudon, 2007

Automation: The most common form of IT-enabled organizational change is automation.

Here, the computers are used for speeding up the process of existing tasks. Calculating

paychecks and payroll registers, giving bank tellers’ instant access to customer deposit

records, and developing a nationwide network of airline reservation terminals are the

examples of early automation.


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Rationalization: Rationalization of procedures involves investment in information

system procedures. Rationalization enables the organization to operate more

efficiently. For instance, without certain amount of appropriate standard rules,

investments in computer technology would be useless.

Reengineering: A more powerful type of organizational change is business process

reengineering. Business process reengineering is the rationalization of procedures,

requiring the new vision of how the tasks to be organized, how skills are deployed,

how large set of tasks are controlled and finally how business performance are

measured – first in terms of what customers see and then as internal operations.

Business engineering reorganizes workflows, combining steps to cut costs and

eliminating repetitive, paper-intensive tasks, by exploiting the power of Information

Technology.

Paradigm shift: Paradigm shifts involve rethinking the nature of business, nature of

operations, nature of customer interface and redefining the market and competition.

For example , online reservation systems for travel or retailing of books and music

etc, have changed the paradigm of these industries by exploiting the power of internet.

New information systems can ultimately affect the design of the entire organization by

transforming how the organization carries out its business or even the nature of the

business.

The value based approach: Firms that have built appropriate infrastructure and view their

infrastructure as sets of services providing strategic agility-have faster time to market, higher

growth rates, and more sale from new product. (Weil, Subramani, and Broadbent,

2002).Introduction of technological advances into business and industry is a principle driver

of competition. The value of technology to international competition is evident in advances in

communication and transportation, the revolution in chemicals and pharmaceuticals, and the

importance of information processing. In the manufacturing sector, IT is used in conjunction

with parts –logistics control to attack setup time.

Strategic possibilities: In addition to reducing costs, computers may increase the quality of

products or may create entirely new products and revenue streams.( Symons,2004) . These

intangible benefits may be difficult to measure and consequently are not addressed by direct

measures.


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Holistic Planning: IT investments are now the norm rather than exceptions. However,

projects are still considered individually as discrete components. There is often segmentation

between new application spending, existing application maintenance and infrastructure

investments. The article stresses the importance of looking holistically and deploy tools for

managing the entire budget as a unified suite of investments. According to Gliedman et al. (

2004), IT departments can apply many of the same tools the financial community uses to

build and manage financial portfolios to maximize benefits, mitigate risks and better meet the

needs of the customers. Even though IT portfolio management tool cannot be adopted for the

research, when adopted it may deliver predictable and higher returns at the appropriate level

of risk.

2.3.1 IT Investment Pattern

There are many different ways the IT investments are made by corporations. These

investment patterns are dictated by different business drivers and approaches for

measurement of investment.

Incremental investments: Although IT investments are capital investments in nature, a large

part of the IT spending is discretionary in nature. These are largely dictated by the business

strategy of the organizations. When it comes to non discretionary spending, there are

instances when the investments are done based on the percentage of revenue or a flat

increment on last year’s budget.

Competitive benchmarks: When it comes to understanding the IT investment, frequently,

the only spending guidelines managers use are the spending levels of competing firms in their

industry or increment on the previous year’s IT investment.

Investments in specific components: Investments in Information technology can be broken

into software and communication technology (Paganetto et al.,2004). Rationale behind this is

simple bivariate correlation between aggregate productivity and aggregate information

communication technology (ICT ) capital stock do not take into account the impact of all

controls which affect the productivity and are therefore likely to measure the effects.


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(Lehrand Licthemberg, 1999). Secondly, ICT investments have a positive effect on product

variety and negative effect on productivity.

Strategic drivers: Investments in Information Technology is categorized by three different

management perspectives. Research on IT investment indicates that total firms IT

investments did not influence the performance of the organization. The empirical test of the

performance effects of IT investments by Weil (Weil, 1992) indicates the different

perspective of investment. The research on valve manufacturing sector indicates that heavy

usage of transactional IT is associated with strong financial performance. Strategic IT is

associated with growth aspects of firm’s performance such as market share or sales growth.

Informational IT enables management’s tasks such as control, budgeting, communication,

accounting and analysis. IT investment is measured as the ratio of IT expenditures to total

annual sales. This ratio provides a measure of the relative size of IT investment compared to

the size of the firm. Performance measures used in the study are sales growth, return on assets

and labor productivity. Conversion effectiveness which measures the quality of firm-wide

management and commitment to IT is found to be a moderator between strategic IT

investment and firm performance.

Objectives driven investments: In another study(Brynjolfsson,2000) , investment in

information technology is based on four different objectives: transactional, informational,

strategic and infrastructural. Measures of organizational IT capability used in the study are

internal IT use intensity, external IT use intensity, human resource capability, management

capability, digital transaction intensity and internet capability.

Futuristic investments: When a corporation has some basic investments in IT infrastructure,

the subsequent investments are likely to be in enhancing the sophistication(Laudonand

Laudon, 2007). In such cases the future investments or subsequent investments are on more

powerful workstation, increased volume of data storage, complex networked systems,

scanners, color printers, personal communication devices, and purchased software.

Services oriented investments: The thrust toward developing and exploring more strategic

options, such as outsourcing, requires firms to invest in proper IT investments(Laudon and

Laudon,2007). Some IT expenses are tied directly to the internal working of complicated


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hardware and software systems, some are incurred in the operation of sophisticated network,

and others are related to pools of labor throughout of the firm. For example, investments for

the operations of client/server systems or well developed intranet required detailed

knowledge of operating and support labor, training costs, and hardware and network

maintenance costs.

2.4 IT investment measures-integrated model

The ultimate challenge for investments in information technology is to create the right mix

of investments that use the limited source while providing the maximum benefits. Prior to

funding, the organization must be able to answer the question “What will we get for our

money?” .Proper analysis will include not just the estimated spending over the system/

initiative, but it will also include the evaluation of potential business benefits, future options

and relative risks. (Gliedmanand Brown, 2004) Key objectives of technology investments

are

To improve an existing business transaction / process

To create a new process

To protect against the potential for loss and exposure

To generate an incremental revenue

To comply with government regulations

2.4.1 Performance measurement models

1. Decision analysis:

Decision analysis was developed to be used as a formal aid to the decision maker when faced

with complexity, uncertainty and conflicting goals. Decision analysis makes explicit

representation (Decision Model) of subjective preferences and it makes no claim to being an

objective model of the environment. Requisite decision modeling and decision conferencing

techniques provide a means for the iterative and consultative development of a coherent

representation of a problem (Proctor, 1995). A model is considered to be ‘requisite', in the

sense that everything required to ‘solve' the problem is either included in the model or can be

simulated in it.


Ph.D. 48

The decision tree depicts as its branches the options or actions under consideration. The

decision-maker’s preferences for the attributes of these consequences are elicited in terms of

numerical values and his/her judgments of uncertainty are scaled as possibilities.

Construction of a utility function, which aggregates all the possible impacts into a single

indicator for each alternative, allows the options or actions to be ranked. . It is expected that

people will change their view of the problem during the development of the model and this is

why the process has to be iterative. Sensitivity analysis plays an essential part in resolving

disagreements about the implications of differing assumptions.

An important lesson learnt from using this method, according to Clemons(Clemons,1990), is

that sometimes the investment decision can be made rationally and analytically, even when it

cannot be made numerically. The advantages of decision analysis are -

Representation of conflicting objectives and of preferences towards uncertainty.

Representation of sequential analysis.

A decision-making cost/benefit analysis can be thought of as a special case of decision

analysis, when uncertainty can be ignored.

However, the major problem in the application of decision analysis is the trap of the

numerical estimates. Much research has gone into the methods of enumerating values and

probabilities, but this is still an area of great difficultyin which to quantify the unquantifiable

(Clemons, 1990).

Decision analysis can be used in for pre implementation assessment for applications such as

choosing between the alternatives. However, usage of this method for pre implementation is

also limited because of the difficulty in enumerating values and probabilities.

2. Return on management (ROM)

ROM approach is based on the assumption that revenue is directly dependent on the actions

of management. An understanding and measurement of managerial productivity is

prerequisite for the analysis of the effects of IT investment, according to Strassmann (1976).


Ph.D. 49

ROM is calculated as the ratio of management’s value added to the cost of management as a

definition of management productivity, within which the benefit attributable to IT is

measured as an incremental change. This method provides reasonable explanation only for a

strategic business unit and an enterprise with a strong profit orientation.

However, the previous research has shown this method attributes surplus value to

management rather than capital, and as such, it is a departure from classical economics. It is

based on the assumption in modern society that capital, raw materials of technology are not

the scarcest resources, but rather management. The computations used in ROM require

figures from profit and loss statements and balance sheets. These numbers are unlikely to be

very meaningful for calculating ROM of divisions internal to an organization.

Strassmann comments that it is important to look at the influence of IT on strategic aspects

such as changes in market share and market penetration, product quality, customer service

and profit margin. But, trends in revenue can only be observed as long-term effects and even

it may be impossible to distinguish the impact of management from a host of other complex

factors.

This method looks at the influence of IT on strategic aspects and develops a few dimensional

measures such as changes in market share, market penetration, customer service and better

quality .The research measures the management productivity on strategic organizational

performance measures. But, simple calculations of management productivity cannot be used

on these measures because of the influence of the complex interlinking factors.

3. Boundary values and spending ratios

According to Remenyi et al,(1995) boundary values or spending ratios are intended to

provide a crude but simple view of how an enterprise or one division within an enterprise

compares to its peer enterprises in the same industry. They are based on ratios of total

expenditure against known aggregate values. Typical ratios include total IT expenditure

against the value of sales, total labour costs, total operating expenses, total value of assets, or

total value of deposits (financial institutions).


Ph.D. 50

In this method, management can judge its position relative to its competitors very quickly,

and can launch further investigations if it finds it has an abnormal spending pattern. Thus, at

best the method can be applied to suggest the need for a much more thorough investigation.

4. Information Economics (IE)

Information economics (Parker et al., 1988) was developed to cope with some of the

difficulty organizations had in attempting to evaluate IT investment proposals. Previous

research has shown that as such it seeks to be the one and only method capable of coping with

the IT investment evaluation jungle. It retains ROI calculations, but puts forward for the

decision process a more complex report based on a ranking and scoring technique of

intangibles and risks. Information economics involves scoring IT investments on ten features,

of two types.

Assessing the business justification of the IT investments.

Assessing its technical viability.

Weights for the different features must be set by each organization to reflect its own priorities

for IT investment and the features of its technical architecture. IT investments are then ranked

in terms of their weighted scores. The method seems to be the most comprehensive in its

treatment of benefits and risks. It applies both innovation and investment evaluation. Table 3

summarizes the measures IT-Performance dimension, as addressed by Parker et al (1988).

Table 3

Measures of IT-performance dimension according to Parker

Measures of IT-performance dimension

Degree of integration

Competitive advantage

Strategic architecture

Systems infrastructure

The quantified financial return of the

IT investments

MIS


Ph.D. 51

5. Value analysis

Value analysis, proposed by Keen (1981) is a method designed to support and enhance but

not replace managerial decision-making. By value analysis, Keen (1981) mean, “A systematic

model of assessment, which recognizes explicitly the central importance of qualitative

benefits. It is based on the incremental development of the system and phased cost-value

judgments. The value of the system is first assessed and then a cost is calculated. Once the

first phase of the system has been completed, and the value and benefits assessed, a decision

is made to continue or not to continue with the next phases of the system”

This method is a very practical approach and emphasizes the qualitative value of a system

rather than the quantifiable benefits. The decision to build a Decision Support Sysyem(DSS)

is most often based on value rather than cost, as an investment for future effectiveness based

on perceived need or long-term value.

But, the benefits of such systems are often extremely difficult to measure. Examples are

improved communication between managers and an increase in the number of alternatives

examined. In addition, most DSS follow an evolutionary life cycle, being developed in

response to user and designer learning. This makes the costs difficult to quantify. Thus DSS ,

by their nature, make traditional cost/benefit analysis nearly useless.

Furthermore, value analysis can only be applied to one category of IT, namely DSS, ignoring

all the other categories of IT. Thus, value analysis cannot be seen as the one and only IT

performance measure method. Table 4 summarizes the measures of IT performance

dimension as addressed by Keen (1981).

Table 4

Measures of IT- performance dimension according to Keen

Measures of IT performance dimension

Value analysis (MIS)


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6. Buss model

Buss model includes all the macro elements to assess the business value of IT portfolios

effectively. It is an oversimplified and subjective model for a very complex issue.

According to Buss (1983), overall factors influencing the assignment of priorities for IT

investments, will be the same for all industries, and all categories of systems.

Table 5 summarizes the measures of IT performance dimension as addressed by Buss (1983).

Table 5

Measures of IT- Performance dimension according to Buss




User satisfaction

Employee satisfaction

MIS

The quantified financial return of the IT

investment

Organizational learning and growth

As said by Buss, IT performance measures identified can be applied to any industry and IT

performance dimensions such as user satisfaction, employee satisfaction, organizational

learning and growth along with others are identified in this method.

7. McFarlan and McKenney Model: A portfolio approach to IT Investment

McFarlan and McKenney (1983) suggested a portfolio approach to IT investments.

According to McFarlan and McKenney (1983), assessing the risks of IT portfolios, separately

and taken together, will help managers to make decisions that are more rational and ensure

outcomes that are more successful. While other researchers in the field of IT investment

assessment concentrate on benefits and value, McFarlan and McKenney approach this issue

from a risk viewpoint. In practice, these kinds of risks are not independent of each other, but

are closely related.


Ph.D. 53

By risk McFarlan mean:

Failure to obtain all, or even any, of the anticipated business value

Cost of implementation that vastly exceeds planned levels

Time for implementation that is much greater than expected

Technical performance of resulting systems that turns out to be significantly

below estimate

Incompatibility of the system with the selected hardware and software.

According to them, three important dimensions influence the risk inherent in an IT

investment, namely:

Project size

Experience with the technology

Project structure.

The benefit of using this method assessment of the IT risk portfolio is the systematic analysis

which reduces the number of failures. The risk portfolio provides a communication link that

helps the IT managers to reach an agreement on the risks to be taken in align with goals and

objectives.

However, in addition to determining a relative risk for a single project, a company should

develop an aggregate risk profile of IT priorities. While there is no such thing as a correct risk

profile in the abstract, there are appropriate risk profiles for different types of organizations

and strategies. The approach has one more shortcoming. The model focuses only on project

or portfolio risk. IT involves more than project or portfolio at hand. The following risks have

also to be considered:

Business domain risks

IT infrastructure risks

Organizational risks.


Ph.D. 54

Table 6 Summarizes the measures of IT-performance dimension as addressed by McFarlan

and McKenney (1983).

Table 6

Measures of IT-Performance according to McFarlanand McKenney


Organizational risk

Technical uncertainty

8. Earl approach

Although Earl(1994), does not go into any detail on assessment criteria for IT investments, he

identifies the following evaluation questions which act as a checklist that should be included

when assessing IT assessments:

Is the required IT available and proven?

Are the relevant skills available?

Are the system dependencies involved?

Does the investment represent a new technological risk?

Does the proposal fit the architecture framework?

Is there support and commitment for the investment?

Have organizational influences been considered?

He also identified the following important factors like competitive edge, strategy alignment

and MIS to serve as criteria when assessing IT investments. The factors to considered when

assessing the criteria are:

Risk and skill shortages

IT investment should form an integral part of the corporate decision making process

and not seen as a separate issue from other investments.


Ph.D. 55

Table 7

Measures of IT-performance according to Earl

Measures of IT-Performance dimension




investment

9. Butler Cox: Getting value from information technology

The business value of a proposed investment in IT must be evaluated in relation to the

business purpose of the investment. The criteria vary according to the priorities of each

business. The approach given by Cox(1990),for measuring the impact of IT investment

varies from the highly subjective approach based on management judgment, to hard

quantifiable cost savings, making it a very attractive approach.

Although, it helps to prioritize IT investments according to a set of criteria, the Butler Cox

approach overlooks the most important factor for IT to be successful in any organization, the

human factors.

Table 8

Measures of IT-performance according to Butler Cox.


Fulfillment of CSFs





investments


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10. Ward et al model

Ward et al.(1990) put forward their four quadrant model (representing turnaround, factory,

support and strategic), which highlights some of the key factors to be considered in the

evaluation of IT. According to Earl, “What is more important is to use the appropriate basis

for judgments of applications based on their expected role in the organizations.”

The factors to be included for the assessment of priorities for each quadrant are:

What is most important to do? – The benefits.

What is capable of being done? – The resources.

What is likely to proceed? - The associated risks.

According to Ward(1990) ,“Within the support segment priority, those with the greatest

financial benefit that use the least resources should get the highest priority; Within the

strategic segment, those who are the closest align with the business strategy, and use least

resources in the process, should have the highest priority” . Setting priorities to the "factory"

systems is not easy. The value of a factory system will comprise of the following:

Economic considerations

Critical success factors (CSFs)

Risk to current business evaluation

Infrastructure improvement possibilités.

According to Ward et al, each of these issues must be given a relative weighting to decide the

order of priorities ahead. However, for high potential applications most of the future benefits

are unknown. Although Ward et al agree that setting priorities across the segments of the

portfolio is not an easy task since the investment rationale in each segment is different.


Ph.D. 57

Table 9

Measures of IT- performance dimension according to Ward

Measures of IT- Performance

dimension


Fulfillment of CSFs





IT investment

11. User satisfaction

This model is based on the argument that that an organization would only get value from its

IT investments if they were used appropriately (Soh and Markus ,1995). This model is based

on the notion that the more a system is used, the more successful the system is. In cases

where the usage is mandatory, or where there is no alternative means of measuring the tasks,

levels of use signify nothing about the success of the systems or the appropriate use of it.

The advantage of this method is that it is relatively straightforward. The measures used for

usage are system log, work-study, connect hours, number of times a model is accessed etc.

The fundamental flaw in the approach is its disregard of the importance of the tasks being

carried out, the appropriate use of IT.

Table 10

Measures of IT-Performance dimensions according to user-satisfaction model

Measures of IT-Performancedimension

User satisfaction




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12. Matlin’s approach

Matlin (1979) advocates that values can be assigned to IT projects based on their achievement

of business objectives. This method is based on the understanding that “a limited number of

concrete goals must be met for the organization to be successful. Identifying these key factors

(Critical Success Factors) helps determine the strategic directions and highlights the areas that

can benefit from improved information systems”

This method uses CSF as a measure to identify how IT investments will align with the

business strategy. The CSFs are derived directly from the goals of management. If

management goals are linked to the business strategy then the CSF technique will identify

how to match IT investments with business strategy. According to this method, the more a

proposed IT investment confirms to the organization’s critical success factor, the higher IT

investment should be ranked.

This method may assist in an organization’s attempts to align IT investments with its strategic

objectives. However, the method assumes organizational consensus –something that is rarely

found. Secondly, the method is open to subjective influence and evaluation due to a lack of

evaluation criteria other than critical success factors. It neglects all other influencing factors

like risk factors, financial benefits and organizational culture, all of which play an important

role in any type of investment.

Table 11

Measures of IT-performance dimension according to Maltin.

Measures of IT-performance

dimension


Fulfillment of CSFs



Ph.D. 59

13. Bacon model

Bacon (1992) believes that IT investment decision-making criteria should have a balance

concerning qualitative and quantitative forms of evaluation. He suggests two tables of criteria

to differentiate between primary and secondary criteria. He also divides the evaluation criteria

into different categories such as:

Financial criteria: net present value, internal rate of return, probability index, average

rate of return, and payback period

Management criteria: support of business objectives, response to competitors, support

of management decision-making and legal requirements

Development criteria: technical requirements, probability of project completion and

learning new technology.

Bacon had launched a study on the Fortune 500 organizations using these evaluation criteria

and the results show that financial criteria to evaluate IT investments are used by 75% of

those organizations and the support of business objectives criteria, by 90% of the

organizations. The method is comprehensive in its treatment of financial benefits,

organizational support and risks. Like Parker et al, Bacon applies both innovation and

investment evaluation when the financial issues change from measuring to evaluation of, and

choosing amongst new, untried and unproven alternatives. However, the ranking of the

evaluation criteria is done subjectively according to the organizations own frame of reference

and therefore cannot be seen as the comprehensive answer to IT investment evaluation and

measurement.

Table 12

Measures of IT-Performance dimension according to Bacon .







IT investment

MIS


Ph.D. 60

14. Balanced Score Card

The balanced scorecard approach formulated by Kaplan and Norton (1996) focuses on the

implementation or realization of business strategy of an organization. According to Kaplan

and Norton (1996), traditionally organizations focused predominantly on financial measures

while formulating and implementing business strategy. This left the operations managers with

measures which were either isolated measures or had very little identifiable linkages to the

strategy of the organization. That is because most of the indicators like the financial measures

are lagging indicators and many of them did not have a designed linkage to each other.

However, with balanced score card the focus shifted to facilitate balancing actions by

managers in carrying out day to day activities and in formulating strategies – the balance was

between lagging and leading indicators, the operational measures and financial performance,

the short term measures and long term performance etc. The popularity of the balanced score

approach for management is attributed to the fact that a well designed score card would

communicate the strategy to all cross sections of the organization as well as facilitate the

implementation of strategy and investment decisions. The information technology

investments being capital intensive and critical part of the strategy implementation, it is

widely believed that balanced score card approach can be an effective tool for managing IT

investments. Whilst traditional financial measures are extremely important they are not

enough to address the complex world of IT investments. A comprehensive balanced approach

is needed for IT investments to accurately and timely address possible investment failures.

While the Balanced Scorecard does not create IT investment strategy, it does force

organizations strategy; it does force organizations to be very clear on their IT investment

objectives and to measure progress against them. The scorecard allows organizations to

examine their IT investment from four perspectives; financial, internal business, customer

and innovation and learning.


Ph.D. 61

Table 13

Measures of IT-performance dimension as addressed by Kaplan and Norton

Measures of IT performance dimension



User Satisfaction


2.4.2 Review of IT performance dimension research literature

As the nature of role of IT within an organization changes over the years, deeper assessment

of many of these methods indicate that most of these have some or the other limitation in

terms of either applicability or the degree of rigor required to make them useful. Some of

them are too complex to use. Some of the obvious limitations are –

Simplicity versus completeness: The methods such as return on management are

simple in their structure and are easy to use. However, given the wide spread impact

of IT systems on business, they often fail to correctly incorporate all the relevant

aspects of the complex nature of IT-investments in the decision making process.

Quantifying the uncertainties: The methods such as decision analysis have the rigor

of analysis and the potential to be used for the purpose of research on IT systems both

before and after implementation. However, the very fact that their application requires

quantifying probabilities and enumerating their values, makes it difficult to use these

methods in day to day decision making.

Detailed without Clarity: The methods such as Ward Model are detailed, complex

and incorporate lot of parameters for assessing the impact of IT-investments on

business. If they are to be used for decision making, it is critical to pick and choose

the parameters relevant to the context of investment. However, these methods fall

short in explaining the characteristics that the IT-systems should have, in order to

achieve the business values desired under different contexts of investment. For

instance, how the different IT systems or investments can be categorized or what are


Ph.D. 62

the parameters required for categorizing the IT applications into the four quadrants

(support, strategic, factory and turnaround).

Easy to use but lack of causality: Many of the methods are fairly straight forward in

their approach, such as measuring user satisfaction as a measure of businessvalue

dimension. However, when the primary focus of assessment is the measure of output

or outcome, without any means of linking them to inputs or investments responsible

for the outputs, the models will be useful only for post implementation assessment but

not as a means of planning for an investment.

Optimizing the risks: Methods such as McFarlan and McKenney model considers

evaluation of risks associated with IT projects and these risks are assessed as a

portfolio instead of risks associated with each of the investments. This method is a

useful tool for optimizing the risks as well as for prioritizing the IT investments, based

on the risk under the business scenario faced by the company. IT Portfolio risk is a

useful criteria in helping towards the effective establishment of IT investment

priorities. Although project size risk, technology risk, project structure risk are

important, business domain risk, organizational risk, IT infrastructure need to be

considered. Another limitation is the inability to associate specific returns to each of

the risk categories.

Subjective in approach: The methods such as Butler Cox use lot of subjective

parameters, depending on the priorities of each business. Although this method helps

to prioritize IT investments, based on the set of criteria which are unique to the

business, lack of details and rigor in assessing returns required for large scale

investments make these models to be of any pragmatic use to any organizations.

Comprehensive and rigorous: Some methods such as balanced score card combine

multiple parameters from different perspectives and different time horizons making

them rigorous, and effective tool for not only strategic planning but also to monitor

the implementation of these strategies. However, the need for extensive experience,

correct analyses and strong causal relationships established through careful analysis

and forward thinking makes these models difficult to implement without expensive

external help.


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2.4.3 Information technology performance literature

The assessment of the impact or outcome of information technology investment needs to be

linked for any effective decision making on these investments. To do so, what is important is

to understand how Information technology does influences business performance and

measurement for this performance. The examples from different industry and different

circumstances, provides insights into the conceptual breadth required and explains how

specific situations are to be analyzed. Some of the critical literatures regarding this is

reviewed here –

1. Relationship between IT investment and performance from manufacturing sector:

The relationship between investment in information technology and firm performance in

valve manufacturing sector is established by Weil, 1992. The study presents the results of

the empirical test of the performance effects of IT investments. In the study, investments

were categorized by three management perspective (i.e. strategic, informational, and

transactional) and tested against four measures of performance. Performance measures are

sales growth, return on assets and two measures of labor productivity. Labor productivity

measures include the number of non-production employees per million dollar of sales and

the percentage change in this measure.

The article also tries to address whether there is any relationship between previous year’s

investments and firm performance. The study addresses two major questions.

Firstly, the measurable effect on the firm performance with each of the

management objectives.

Secondly, the firm characteristics which are associated with stronger and positive

relationships between IT investments and firm performance.

Some of the findings of this research are heavy usage of transactional IT investments are

found to be significantly and consistently associated with strong firm performance.


Ph.D. 64

Strategic investments in IT are expected to influence the growth aspects of firm

performance such as market share/sales growth. Informational IT provides the

information backbone of the firm and includes the IT infrastructure. In addition, the

conversion effectiveness plays an important role in the analysis. Conversion effectiveness,

which measures the quality of the firm-wide management and commitment to I T, was

found to be significant moderator between strategic IT investment and firm performance.

2. Strategic and economic measurements: The research (Mohamood and Mann , 1993)

relates IT investment measures to organizational strategic and economic measures. It

brings out that Individual IT investment variables are weakly associated with

organizational strategic and economic performance. However, they are significantly

related to performance when grouped and analyzed by canonical correlation.

IT investment measures used are IT budget as a percentage of revenue (BUDBYREV),

Value of organization’s IT as a percentage of revenue (ITVALBYREV), Percentage of IT

budget spent on staff (BUDBYSTA), Percentage of IT budget spent on training

(BUDBYTRA), Number of PC’s and terminals as a percentage of total employees

(PCSEMP).

Organizational strategic and economic performance measures used for the study are sales

by employee, return on sales, sales by total assets, return on investment and market to

book value.

3. Portfolio of IT systems: Firms are having portfolios of Information Technology (IT)

investments just as investors have the portfolios of financial investments. Brynjolfsson

(2000) investigated that firms invest in IT for four objectives: strategic, informational,

transactional and infrastructural. Investments with these different objectives behave as

different asset classes and are expected to have different risk-return profiles.

This article explores relationships between investments in the different IT asset classes

and different aspects of firm performance across 3 time periods:1993-97,2001-2002 and

2005-2006. The article also investigates the business practices associated with superior

returns from investments in the different IT asset classes in the portfolios.


Ph.D. 65

In a survey of metal manufacturing industry, firm performance measures are market

evaluation, profitability, operational performance and Innovation. organizational IT

capability are measured by internal IT use capacity, external IT use capacity, human

resource capability, management capability, digitaltransaction intensity, internet

capability.

Some of the findings of this research are business practices in digital organization have

higher than average productivity and market value. They have a policy of open

information access communication, distributed decision rights and “empowerment” of

line workers, strong performance linked incentives, active investment in corporate

culture, regular communication of strategic goals throughout the organization, and an

emphasis on hiring and recruiting top employees, which have contributed to performance.

Exploitative technology initiatives strongly predicted both the expected values and the

reliability profitability in the year following the investments. Analysis on the interaction

between IT and geography demonstrated the following finding-IT intensive firms were

more likely to have geographically dispersed operations and more sensitive to small

differences in prevailing usage rates. Firms with more PCs/employee had a more

decentralized allocation of decision rights for key technology decisions.

In the study which included comparing the average portfolios over 1993-1997 time frame,

portfolios in certain years had less investments in IT infrastructure and more investments

in informational and transaction systems. The reduction in the infrastructure comes from

the following two factors:

Availability of more open systems and connective technologies reduced the need

for dedicated infrastructure for applications thus reducing total infrastructure

investment of the firm.

A sharp increase in the use of shared IT services across multiple business units in

large firms reduced the duplication of infrastructure.


Ph.D. 66

4. Technology specific analysis: Information about how to use and manage information

technologies to revitalize business processes, improve decision making, gaining

competitive advantage in the industry is discussed with global and Indian case studies by

O’Brien,2007. When one says information Technology, there are different elements in it

and each of them is used for specific purposes like automation, communication, process

reengineering etc. Different roles of automation, communication technologies which

provides a platform for business, commerce and collaboration processes among all

business stakeholders in today’s networked enterprises and global markets are discussed.

5. Example from finance industry: The research (Nel, 2004) done for financial institutions

is a methodological approach for development of an integrated ITIEM model constituting

IT-business-value as well as related measures. The ITIEM methodology, demonstrated

how IT investments can enable measurable IT business- value. This research helps to

determine which IT investments will yield the most IT-business value for the organization

and ensures that IT investments and business initiatives support each other.

6. Multiple benefit analysis: The study (Gammelgard, 2007) based on IT investment

evaluation method divided benefits into eight general dimensions (strategic benefits,

management benefits, operational efficiency and effectiveness, functionality, support

benefits, information benefits, and communication benefits. This research done with an

electric power company, provides, at a relatively low cost of investigation, indications of

not only the technical differences between the IT-investment alternatives in a specific

investment situation, but also an assessment of the differences in types and amounts of

their business value.

7. Performance benefits in a Longitudinal setting: The research (Devaraj et al., 2003)

tests the relationship between actual usage of Information Technology and its effect on

organizational performance in a longitudinal setting of healthcare system. The application

of a strategic technology in healthcare organization, which has resulted in a positive

impact on organizational performance is the main outcome of the study. Independent

variables of technology adoption are reports, processing time and number of reports

accessed. Hospital Performance is measured by mortality (MORT), revenue per

admission (NPRADM) and revenue per day (NPRADAY).


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Following are the major implications of the results –

Investments in technology have positive payoffs when actual usage of information

technology is considered.

The study presents evidence for the monetary and temporal impact.

Payoffs may not be realized instantaneously, but only after certain periods of time.

As is the case with all organizations, hospitals benefit from quantification of the

usage by justifying the IT investments.

8. Clemon’s model for IT investments: The article (Clemons, 1990) provides seven

principles on which to base an evaluation of strategic nature. These principles discussed

below, range from modeling the investment decisions, through managing risks to

preparing for unanticipated upside and downside implications -

Investment decisions can be made on a rational analytical basis, even when the

numbers required for discounted cash flow analysis cannot be obtained. Using cash

flow analysis to rank alternatives, requires the availability of reasonably good

estimates for all relevant cost and income streams. However, when true investments

are not obtainable, decision tree analysis can be performed.

Thresholds established by sensitivity analysis can be used as trigger points for fine-

tuning a project once it is initiated.

Advantage results from unique assets and results of the implementation firm. If a

fundamental impact of an IT innovation is to raise the value of a set of specialized

assets, then one of the key decisions in considering a strategic IT venture will be,

which of these assets to buy and when to buy them.

Several types of risks exist and must be recognized early in the evaluation of IT

development.

Technology investments may have option and timing value and unexpected upside

benefits. In other words, IT developments give firms valuable options and provide a

platform for enhancing a bundle of assets and resources that make up the firm.


Ph.D. 68

Downside risk exists in rejected IT programs, which then may become strategic

necessities through another firm’s initiative. If development of an IT capability

appears uneconomic, not developing this IT capability while the rest of the industry

does, may be even less attractive.

Cooperation may be the dominant investment alternative under conditions of strategic

necessity.

These principles provide guidelines, which ranges from modeling the investment

decisions through managing risks, to preparing for unanticipated implications.

9. Buss’s model for IT investments: The article (Buss, 1983) provides a structured

approach to make a more effective use of information system resources. For information

processing projects, benefits identified are financial, business objectives, intangible

benefits and technical importance. These factors may well present contradictory pictures.

Therefore, the article discusses about eight detailed steps to measure the relative

importance of financial and intangible benefits, assess the fit with objectives, and express

the technical importance of a range of projects in a readily understandable way. These

steps are:

Getting control of data processing.

Documenting systematically.

Clarifying business objectives.

Ranking against financial costs and benefits.

Ranking intangible benefits.

Ranking according to technical importance.

Assessing alignment with objectives.

Summarizing priorities.

In the process of setting priorities, success depends on the interaction of high-level

executives, users and information systems managers. Although, measuring and ranking

the information technology projects is out of the scope of this research, the article

provides scope for further research.


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10. McFarlan’s model for IT investments: The article analyses the reasons for failures and

ways of redressing information systems projects. According to McFarlan (McFarlan,

1974), managers must assess the risks singly and as a portfolio – in advance to

implementation. Three important dimensions influencing the risks inherent in a project

are -project size, experience with technology and project structure. The important findings

are different risk profiles have to be developed for different types of companies and

strategies. For instance, in an industry which is data processing intensive or where

computers are an important part of product structure , heavy investments in high risk

projects are essential . This strategy prevents competitors from stepping in. In less

computer dependent companies, information system plays a profitable, useful, but

distinctly supportive role. In such cases, heavy investments in high-risk projects may be

lesser compared to first type of company. The general methods for managing projects

discussed in the article are external integration tool, integral integration tool, formal

planning tool and formal execution tool. However, information technology involves more

than just projects and these factors need to be considered in information system

investments.

11. Parker’s model for information technology investments: Information economics

(Parker et al, 1988) was developed to cope with some of the difficulty organizations had

in attempting to evaluate IT investment proposals. IT investment frame work is done

clearly with the help of a series of case studies. The book focuses on cost and

performance with a combination of techniques ranging from traditional cost displacement

to evaluating risk and uncertainty. A technique of mixing traditional cost benefit analysis

with four relevant techniques such as value linking, value acceleration, value restructuring

and investment valuation are given. Value linking and accelerating are techniques to

assess IT costs, which benefits to other departments through ripple, knock-on effects or

by reduced timescales for operations. Value restructuring is a technique used to measure

the benefits of restructure of a department as a result of introducing information

technology. Innovation valuation considers the value and benefits of gaining and

sustaining competitive advantage while calculating the risks or cost of being a pioneer of

the project. These techniques are used in conjunction with an expanded cost-benefit

analysis to get better insights into costs and benefits. The benefits measured are -enhanced

view of return on investment, strategic match, competitive advantage, management


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information and competitive response. Information economics by Parker is a method of

evaluation of a decision process using new tools. Information Economics is widely used

for flexibility and can be considered an effective tool by all managers.

12. Matlin’s model for IT investments: Matlin (1979) advocates the assignment of values to

IT projects based on their achievement of business objectives. This method is based on

the understanding that “a limited number of concrete goals must be met for the

organization to be successful. Identifying these key factors (Critical Success Factors)

helps determine the strategic directions and highlights the areas that can benefit from

improved information systems”.

This method uses CSF as a measure to identify how IT investments will align with the

business strategy. The CSFs are derived directly from the goals of management. If

management goals are linked to the business strategy then the CSF technique will identify

the means to match IT investments with business strategy. Whenever an IT investment is

more, it is likely that it will have a proportionate influence on the critical success factor.

This method may assist in an organization’s attempts to align IT investments with its

strategic objectives. However, the method assumes organizational consensus which is

rarely found. Secondly, the method neglects all other influencing factors like risk factors,

financial benefits and organizational culture, all of which play an important role in any

type of investment.

13. Remenyi’s model for IT Investments: Remenyi et al.(1995) attempts to summarize the

theory and practice behind strategic information system. According to him, boundary

values or spending ratios are intended to provide a crude but simple view of how an

enterprise or one division within an enterprise compared to its peer enterprises in the same

industry. They are based on ratios of total expenditure against known aggregate values.

Typical ratios include total IT expenditure against the value of sales, total labour costs,

total operating expenses, total value of assets, or total value of deposits (financial

institutions).An advantage of the method is that management can judge its position

relative to its competitors very quickly, and can launch further investigations if it finds it


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has an abnormal spending pattern. Thus, at best the method can be applied in order to

confirm or deny the need for a much more thorough investigation.

14. Keen’s model for IT investments: According to Keen,(Keen,1981) “value analysis is a

systematic methodology that focuses on value first and cost second. Decision makers

cannot and should not have to provide precise estimates of uncertain and qualitative

future variables, which reduces uncertainty and risk and focus on innovation, rather than

routinization.” The first stage of value analysis is similar to the way in which effective

decisions to adopt innovations are made. Once the nature and value of the concept has

been established the next step is to build the DSS. The assessment of cost and value now

needs to be reversed. In this way, after completing the first phase, the value and benefits

are assessed; a decision is made to continue with the next phase. Value analysis is a

staged approach. The first stage contains activities: Define operational list of benefits,

Determine Cost Threshold; Build Version 0. Second stage activities are: Asses prototype,

Establish cost of version 1, Determine benefit threshold, Build version 1.

The article examines how information system is justified and recommends value analysis

(VA) , an overall methodology for planning and evaluating DSS proposals.

15. Bacon’s model for IT investments: Bacon (1992) examines the information technology

investments criteria used by 80 organizations in allocating resources. Senior executives

were asked to indicate the criteria which they use in deciding among competing projects.

Three criteria are identified: financial, management and development criteria. Financial

criteria include discounted cash flow and other financial methods. Management criteria

used are support explicit business objectives, support implicit business objectives,

response to competitive systems, support management decision making, probability of

achieving the benefits, legal/ government requirements. Development criteria used for

measurement are technical/system requirements, introduce/learn new technology and

probability of project completion. The article also identified how frequently the criteria

are used and ranked them by importance. The results indicate that criteria such as the

support of explicit business objectives and response to competitive systems are important

in selecting information systems technology investments. The companies were asked to

indicate which criteria they use, the percentage of projects to which each criteria are


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applied, and the overall ranking in terms of total project value for each criterion. The

method is comprehensive and takes into consideration risks, benefits and risks.

2.4.4 Information Technology based balanced scorecard metrics

According to Symons (2004), ”The use of balanced score card based approach by IT

organizations to measure their performance is a surrogate for measuring the impact or

influence of IT on business performance.” IT organizations are successfully using the

balanced scorecard as a measurement and management tool to improve the effectiveness and

efficiency of their operations. IT Balanced Scorecard is also used to communicate the value

of Information Technology throughout the enterprise. A typical IT balanced scorecard has

the following four perspectives:

User orientation [Customer Perspective] - How IT should appear to the user

IT value [Financial Perspective ] – How ITshould appear to the senior management to

be considered a significant contributor to company’s success

Operational excellence [Internal Processes]- The services and processes IT must

excel in to satisfy the users.

Future orientation [Learning and growth] – How IT will develop the ability to change

and improve to better achieve the business performance.

The operational excellence perspective of IT is the one which has a direct bearing on the

business performance. Four segments typically required for operational excellence are:

Process Excellence: To achieve process excellence, metrics that monitor and

measure the key processes will be included and developed as a part of the

enterprise.

Responsiveness: Since IT basically exists to serve the business, responsiveness is

of utmost importance and vital for developing an IT/business partnership.

Project Management: Project management execution is the primary driver of on

time, on budget performance and a good measure of process excellence.

Security: Security has become an increasing focus of IT organizations as they

struggle to stay one step ahead of hackers and other cyber criminals’ intent on

disrupting networks and systems.


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For each of them, the objectives of effective deployment of IT are -

1. Process Excellence: The goal behind process excellence is to improve the efficiency

and effectiveness of IT processes. Process improvement involves three dimensions:

time, cost and quantity, which are not necessarily mutually exclusive.

Time: Time improvements typically come from re-engineering processes to make

them more efficient by reordering steps, removing steps, and/or by introducing

automation.

Cost: Reducing the time of the processes will reduce the costs.

Quality: Quality is often linked to process time and cost and must be monitored

closely when making changes along these other two dimensions.

2. Responsiveness: Responsiveness can be measured along two dimensions:

Time to deliver: A major role of IT is to deliver applications in support of the

business units. How quickly IT can move from requirements phase to the delivery

of a working system is one measure of responsiveness.

Process Cycle Times: IT is used in numerous operationally focused activities,

from responding to help desk requests, to delivering and configuring new

workstations /server. How quickly the organization is able to execute is another

measure of responsiveness. Sample metrics include:

o Time to initiate project from first request.

o Time to order configure and install a PC.

o Time to complete an install, move, add and change (IMAC).

3. Project Management: Managing projects to bring them in on time and on budget

remains one of IT’s biggest challenges and one that many organizations fail. Metrics

that can be used to measure Project Management excellence include:

Number of completed projects.

Number and size of project changes.

Percentage of completed milestones.

Percentage of budget variance.

Staff capacity.


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4. Security: There are many potential security metrics that can be used in the IT based

balanced score card -

Number of security incidents broken down by priority.

Number of incidents responded to by priority/business impact.

Number of vulnerabilities the organization is exposed to.

Number of vulnerabilities addressed and number outstanding in a given time

frame.

Cost of security-related outages.

How the balanced score card has to be developed and how operational excellence has to be

built into the organization, through effective deployment of IT has been elaborated in

literature. Few of the critical steps or practices are

Start with strategy.

Involve user management.

Develop metrics along four dimensions.

Include fewer metrics.

Provide reliable and easily available data.

Review and refresh metrics regularly.

2.5 Specific measures of business performance

The usage of Information Technology is expected to influence different areas of a business.

The two areas of interest are the quality of operations and the project management

effectiveness. The literature looks into how businesses measure quality do and how these

measurements can be used for measurement of business performance. Similarly the tools and

techniques used in project management are considered to be effective measures of business

performance.

2.5.1 Quality measures of business performance

1. This research (Dilrukshi et al., 2008) which is based on the case study of a

manufacturing organization stresses the importance of employee involvement and the

role of systems in quality management. Total quality management is about installing


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systems and procedures, including cultural change, involving employees,

empowerment, and appropriate leadership. Non-sustainability of TQM is mainly

because of the lack of ongoing employee involvement. This article addresses two issues:

the importance of employee involvement in the sustainability of TQM in the

organization and the benefit of TQM to the organizations and employees.

2. The paper (Denis & McAdam, 2003) aims to analyze and evaluate the framework for

the dynamics of TQM within organizations. TQM can have a dynamic role in strategy

formulation, in addition to the more tactical role of strategy application and deployment.

Five-model framework developed during analysis contains the following key points of

TQM application, which includes the strategic drivers, TQM profiles, TQM Application

Model, TQM environment and TQM lifecycle. These models are interrelated as they are

developed through a natural progression of analysis. These models are real world

models. The article concludes that the decline of TQM in organization is caused by a

number of factors: lack of commitment, replacement of newer and more appropriate

TQM approaches, specific organizational requirement caused by market changes.

3. The paper (William et al., 2003) in order to understand the dispersion of TQM in small

manufacturing firms, classified the research parameters into the following groups:

attitude toward quality, measures of importance, uses of team approach, amount of

training, documentation of processes, degree of responsibility. Performance measures

used by the firm are - per unit production cost, on-time deliveries, customer satisfaction

and customer returns, job order specification. In order to measure use-of-team approach,

respondents were asked about the number of hours spent on team meetings each week

and the amount of specific team training provided. Degree of responsibility results

indicate large percentage of the small manufacturers followed the national trend of

upgrading their quality systems. The authors conclude that points outlined above should

be implemented on a continuous basis, improvement is the responsibility of everybody

in the company, everyday and all the time.

4. The aim of the paper ( McAdam & McLean, 2002) is the use of TQM in electricity

companies as “push” or “pull” change methodology. “Push” is the operational

improvement of TQM. “Pull” is the strategic or direction giving improvement role .The


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method includes a case study analysis of five regional electricity companies(REC)

which have used TQM as an overarching approach to change. The findings of this study

indicate that there is a need to have a balanced portfolio of operational or “push-based”

TQM activity that is driven by strategy and pull based TQM planning and activity. All

the REC’s must embrace the TQM approach in a bid to satisfy their stakeholder group,

albeit in varying degrees of adoption.

2.5.2 Project Management Measures for business and IT

1. Project management is the application of knowledge, skills, tools, techniques to project

activities to meet the requirement of projects (PMBOK,2000). Project management

knowledge areas describes nine knowledge areas which are expressed in the following

paragraphs–

Project Integration Management includes Project Plan development, Project Plan

Execution and Integrated Change Control.

The processes required to ensure that project includes all the work required and

only the work required to complete the project successfully is Project Scope

management.

The process required to ensure that the project is completed within the approved

budget is Project Cost Management. It consists of resource Planning, Cost

estimating, cost budgeting and cost control.

The project quality management describes the processes required to ensure that

the project will satisfy the needs for which it was undertaken.

Human resource management ensures effective use of people involved in the

project.

Project communications management describes the processes required to ensure

timely and appropriate generation, collection and dissemination of project

information.

Project risks management describes the processes concerned with identifying,

analyzing and responding to project risks.


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Project Procurement Management describes the processes required to acquire

goods and services from outside the performing organizations. All these

processes along with their activities are discussed in detail in the book.

2. Information Technology (IT) tools play a critical role in sharing of information among

project team members and facilitates integration of various activities. Despite the

presence of sophisticated tools in the organizations, utilization of such tools depends on

the organization. However, research on IT tools and the usage of IT (Barczak. etal. ,

2008) has shown positive relation between the two.

3. The article (Whittaker, 1999) based on the survey of KPMG Consulting finds the best

way to manage software projects to avoid excessive costs. Survey concerning

information technology projects of chief executives of 1,450 public and private sector

organization across Canada was conducted for the study. The aim of the survey was to

collect information on the reasons behind the failure of software projects. The project

failure for this research was defined as

Project budget overrun

Project budget overrun

Failing to demonstrate planned benefits for the study.

Even though the project failure was defined in three different ways, failure due to

overrunning schedule was very common. Common reasons for project failure were:

Poor Project Planning (specifically, risks which were not addressed or the

project plan was weak)

The business case for project was weak in several areas or missing several

components

Lack of management involvement and support

The four important risks not addressed as a part of the project planning process are

Incorrectly estimated activity durations

Incorrect assumptions regarding resource availability

Inadequate assignment of activity accountabilities

Missing or incorrect review and approval activities


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The most likely factors affecting the project management analyzed in the business

case are business and operational changes needed to deliver the benefits, clearly

understood deliverables, quantified costs and benefits, overall scope of project,

business and technology risks. Lack of management involvement and support resulted

from lack of commitment from the business sponsor, inconstancy with the established,

lack of management support and lack of follow through with middle management.

2.6 Information Technology Usage

Although it is a widely known fact that Information Technology is critical to effective

management of business operations, the typical areas of businesses which need to or

generally adopt IT, the nature of IT usage in business etc. is another piece of information

essential for this research. The following sections review literature on the nature of usage of

IT by business organizations in general and power industry in particular.

2.6.1 Information Technology Usage

1. IT in the value chain of a business: The earliest work which brings out the role of

Information Technology on the competitiveness of business organizations is by Porter

(Porter ,1985). The article brings out how “Dramatic reductions in the cost of obtaining,

processing, and transmitting information are changing the way we do business”. The

article highlights that the Information Technology changes industry structure and in so

doing, alters the rules of competition, it creates competitive advantage by giving

companies new ways to outperform their rivals and it spawns whole new businesses, often

from within a company’s existing operations. The salient point of this article is the

description of how Information Technology influences the value chain, the classification

of industries based on their information intensity and how companies can use the power

of Information Technology to formulate competitive strategy. The ideas of this article are

very critical in understanding the firm level influence of Information Technology and its

impact on industry structure. However, it does not bring out how to measure the impact of

Information Technology at either the firm level or the industry level.


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2. IT with process design: The article by Hammer (Hammer ,1990) tries to address what

the previous article did not. Based on a report by the US Government, which indicated

that in spite of increase in the investment in Information Technology, the overall

productivity of the US industry had decreased during a particular period. Hammer

proposes that mere investment in Information Technology would not increase

productivity. He brings out the need for task restructuring around Information Technology

capabilities, which he calls “Process Reengineering”. Using the aggregate level

information, the article highlights how to understand the impact of Information

Technology at the firm level. This article brings out how at a firm level, businesses

operating in manufacturing, insurance and banking can use Information Technology to

shorten product life cycle, product development and provide dramatically better level of

process performance. The article brings out instances of heavy investments in Information

Technology delivered bad results largely because of companies mechanizing the old way

of doing business. The theme of the article is that IT must be used for achieving

innovation, speed, service and quality instead of speeding up the existing business

process. This article brings out a few parameters, which help to understand the impact of

information technology on business. However, the article does not suggest a way to

understand the impact of IT at an industry level and how the firm level parameters can be

summed up for an aggregate view.

3. Example from Banking: The research by McKinsey & Co. (Olazabel,2002)provides

methods to analyze the impact of Information Technology on the banking industry. The

report identifies the parameters to assess the intensity of IT investment and links them to

business performance. The interesting part of this report is the identification of different

functional areas and segregation of investments by the banking industry in these areas and

how they are related to the strategy of the organization. The ideas from this report indicate

the approach required to look at the industry level investments of Information

Technology.

4. Aggregate level adoption: There are many frameworks, which have been used to analyze

the impact of Information technology at the aggregate level. When it comes to analyzing

this at the firm level, the best frameworks are those which are used for preparing the

business case for IT investments since these frameworks use the modeled outcomes to


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make investment decisions. Reports by McKinsey & Co (MGI Report,2004) bring out

general principles as well one specific to manufacturing industry. This approach would be

highly applicable to power sector as well.

5. Empowering the employees: Systems usage is defined as the utilization of information

technology for increasing the productivity.(Detmar et al.,1995) Subjective measures used

for the study are perception of the number of messages sent on an average day, perception

of the number of messages received on an average day, perception of self usage as heavy,

moderate, light or nonuse, estimating the number of features. Number of messages sent,

received, usage, system features as recorded by computers were the objective measures

of the study used by the researcher. The findings of the article (McAfee, 1997) show that

enterprise information technology now has accelerating competition because processes

can be propagated with much higher fidelity across the organization by embedding it on

the enterprise information technology.

6. User specific adoption: The usage of communication and information equipments differs

according to gender. (Ono et al., 2004). Gender difference exists in the usage in countries

like Japan during 1997-2001 and working women have lesser IT use than men.

Organizational and management practices developed in western countries have failed

when introduced to other countries. In this context, the researcher finds that while most of

the technologies are considered universal, IT is culture sensitive.

7. Usage specific to management practice: Information technology which was developed

in western society has spread to other societies as well. However, the spread and usage of

IT is not uniform. Applications such as Group Decision Support System are more

influencing in U S than in Singapore. The reason is, while most of the technologies are

considered culture free technologies such as IT cannot be considered universal. The

impact of information technology (Calhoun et al., 2002) on culture in two countries (USA

and Korea) with distinctly different cultures was studied. The study confirms that usage of

IT depends on the behavior of professionals and managers of distinctly different cultures.

8. Industry Specific Usage: The usage of computers varies across industries. The reason for

the variation helps in understanding beliefs that enables people to adopt the mandated


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system. The reason for the varying adoption shows that when people are cognitively

absorbed, they are more likely to see the information system as both useful and ease to

use. (Agarwal et al., 2000). Researches on IT usage on manufacturing firms (Chowdary,

2005) identifies wide usage of IT tools in manufacturing industry. CAD, CAPP, CAM,

JIT, MRP II, CNC are some of the tools widely used. This research confirms that

manufacturers believe that actual benefits are very close to the perceived benefits. The

major roles of IT are knowledge management, e-business, enterprise resource planning,

enterprise maintenance and asset management. Some routine IT tools employed are e-

mail, Internet access, intranet and collaboration and web enabled applications. These tools

have brought about significant enhancements such as improved quality, responsiveness,

effective sales and marketing information, increased operational productivity, lower

overhead costs, reduced WIP, reduced lead time in procurement, reduced floor space and

reduced set-up costs.

9. Influence of regulation: The regulation and control of a sector has great influence on its

performance. The McKinsey & Co (MGI Report,2004) brings out this influence on

different sectors in India. It also highlights how the government control of the power

sector has a significant influence on the productivity of this sector. The ideas from this

research would be inputs for understanding and isolating the impact of protection and

government control, in the Indian context.

2.6.2 Information Technology in the Power Sector

1. Productivity performance: The structure of the power sector has a significant

influence on the productivity performance. The research by the McKinsey Global

Institute (MGI Report,2004) has identified the performance parameters and the

different regulatory influences on the Indian Power Sector in detail. However, it has

not identified the adoption and influence of Information Technology on this sector.

2. IT adoption over the years at aggregate level: The trends in the power sector and

the application of technology for efficient management have been a topic of research.

Deloitte Consulting report ( Deloitte Research Report,2001) has been monitoring one

such trend. This report describes four dramatically different but equally useful


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scenarios in the energy sector between 2000-2010(Superabundance, Techno-World,

Second Thoughts, and Troubled Planet). This article discusses how technological

advances create a world of smart, interconnected devices and systems. Rising energy

prices make energy management services important. Top energy retailers are

interlopers from outside the energy business who excel at technology and e-

Commerce.

3. Benefits of IT at aggregate level: Research by Tata InfoTech Limited (Now part of

Tata Consultancy Services) has outlined the benefits of the effective usage of

Information technology. This report (Maitra et al., 2007) describes the changes in the

Indian Power Sector due to the emergence of intense competition with the entry of

private including foreign investments. Increasing efficiency by increasing plant load

factor, reducing T & D losses, minimizing power theft and increasing service quality

are tantamount to remain competitive in the market. This requires not only the

modernization of equipment , but also better planning, supervision, monitoring and

control of all activities related to power generation, transmission and distribution and

commercial operations.

4. IT usage over the years: The use of Information technology in the power sector has

moved from mere electronic data processing covering only certain parts of operations

to real time management covering all operational areas This article (Integrated

Approach,2007) emphasizes the need for a comprehensive IT strategy to address

performance improvement and cost effectiveness in the emerging context. The key

issues in the usage of IT in generation, transmission as well as distribution are

discussed. But this article has not measured the various applications and the impact of

information technology on the above application is not discussed.

5. Effect of industry drivers: With increasing emphasis on efficient power system and

supply mechanisms, the use of information technology is becoming imperative. The

article “Getting IT Enabled: Streamlining processes and improving efficiencies:”

focuses on the goals and objectives with respect to the use of IT in select

organizations(Power Line, 2007). IT is used in NTPC Limited for cycle time

reduction, managing the project better and reduction of the implementation period.


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The objective of using IT in Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited is to

automate the business process and to inform the commercial wing about the plant’s

status so that it can cater to the ABT requirements.

6. The breadth of technology and adoption issues: The main challenges of Power

Companies are assimilation of new technology, integration of various business

processes, total energy accounting which revolves around the utility’s efficiency in

metering, billing and collection. (Ramdev , 2011)Security of data and systems- ISO

27001:2005 certification, Implementation of integrated CRM and revenue cycle

management systems for metering, billing and payment collection, Enterprise

Application Integration for integrating SCADA, GIS , Enterprise Resource

management (ERP) software, New payment method for consumers, Consumer request

through SMS are the breadth of technology adoption discussed in the article.

7. IT in power generation – a specific example: The article -“Implementing IT

Solutions” focuses on the scope of IT use in a power generation company with

specific examples of usage of IT in NTPC. (Power Line,2007) The new area of IT

implementation and reasons for adopting IT deployment are discussed. The key issues

and concerns in implementing IT across the company are explained. This article also

provides insight into how power companies utilize information technology such as

RFID, Wireless Technology to increase operational efficiency and operational control.

2.6.3 The Indian Power Sector and usage of IT

1. The structure of the power Sector: The structure of the Indian Power sector is

complex, varies across different states and is undergoing significant changes. The

report on the Indian Power Sector Reforms (Prayas 2001) highlights this trend at a

particular point in time. This report is a valuable means to understand the structure of

the Indian Power Sector and its performance. Power Sector scenario in major states in

India along with different reform policy and implication of these policies are

discussed in the article by Reliance Review of Energy Market. Karnataka, even

though a pioneer in unbundling of the electricity sector, was unable to manage the T

& D losses. The reasons behind this are discussed. Financial restructuring plan for the


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power sector, Commission analysis for the same, Karnataka power sector reforms-

New IPP Policy(January 2001) are the highlights of the article.

2. The Management Practices: Energy management is a complex dynamic process in

real time. The article by Lokhande & Jape (2008), talks about energy management,

energy strategy by working with two industries. This article has highlighted the

principal aspects of the energy strategy for the supply and demand sectors. The

demand for each form of energy varies and depends on the long term and short term

basis to ensure that the activities are sustained without interruption. The supply side is

responsible for several activities in the energy chain, right from the extraction of

primary energy to delivery of secondary energy. Hence this article has highlighted the

need to ensure adequate energy supply to all regions, all sectors of the society and the

economy at the minimum cost and to achieve self sufficiency in the energy sector.

Parameters to be considered for energy strategy such as uncontrolled population

growth, dependence on imports for petroleum oil, short fall between projected and

realized growth etc. are discussed in this article.

3. The characteristics of users: A study (Shashikala et al. , 2008) suggests that the

Power Quality and Reliability costs for demand side management are applicable to

supply side as well. The steady state PQ characteristics in the supply voltage include

frequency variation, voltage variation, and imbalances in the three-phase voltage,

flicker and harmonic distortion. Power-system reliability is measured in terms of the

service to end-users. It is measured by the frequency and duration indices that are

reported to regulators and commissions. One important note that the author derives is

that power quality characteristics are a function of power supply system, end-user

system and equipment characteristics. This article has divided customers based on the

Power Quality and Reliability standards. Customers who require class I type of power

– where there should not be any interruptions, voltage sags or harmonic distortions.

Class I type of customers in India are IT and BT industries, Hi-Tech hospitals,

Railways, Airports and other essential services. Class II type of customers include the

Automobile and textile where interruptions, voltage sags or harmonic distortions

occur very rarely with prior intimation. Customers who are not bothered about any

type of power interruption and other associated quality parameters. Class III


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customers include Households, Trading Companies, and Rural Section etc. The limits

and tolerance of electricity for the low voltage side of the supply network in standard

BS EN 50160 are given in this article.

4. Spread of Computerization: The major advantage of computerization is the

centralization of data collection. This in turn leads to improvement in voltage profile,

reduction in power losses, and improvement in reliability, quick deduction of faults,

restoration of services etc. According to Bansal (2008), along with the uses and

advantages of Information Technology in the power sector in the areas of power

generation and distribution ,issues related to Reforms/Privatization , impact of

renewable energy resources ,the government’s future plan etc. In addition, the

problems caused by conventional sources of electricity generation (coal fired plants)

such as acid rain (SO2) , global warming (CO2,N2O, CH4), fly-ash disposal are dealt

with. This article also discusses the usage of computerization/automation in areas

such as Power Plant Maintenance, fuel management systems, automatic generation

control and supervisory control. The major objectives of these systems along with the

systems that they interface are discussed in brief.

5. IT usage in Hydro Power Plants: This article (Swain, 2007) on cost effectiveness in

hydro power plants provides the classification of small hydro schemes as given by

Central Electricity Authority. In the world, the relative amount of hydropower used

today is 20%, whereas in India it is 26%. In addition, many of the small hydro plants

are located in remote areas and capital cost per kW of installation capacity is more

than that of a large hydro project or of other energy resources. Hence, achieving cost-

effectiveness in these plants is important and is done by automatic control system

through Unit Control System, Generator Protection, Metering system, SCADA

system. Advantages of the modern control system such as increase in reliability of the

power station, automated continuous surveillance, agility in detecting and pinpointing

faults, completing the repairs much faster and efficient use of available water are

listed. According to the author, modern control system benefits the small hydro plants

not only by reducing the number of in-plant workers, but by simultaneously

increasing the availability and reliability of the power house.


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6. The adoption of IT and the challenges: Power Companies increasingly turn to IT

Sector . As given in the article “ IT Roadmap: Power Companies increasingly turn to

IT sector”(Power Line ,August 2008) the use of IT in power sector extends beyond

utilities. IT plays a major role in facilitating power trading, something that requires

real-time information exchange. The article has highlighted various policy initiatives

and programmes to encourage the use of IT in the power sector. The National

Electricity Policy, 2005 and the revised and revamped Accelerated Power

Development Reform Programme is the key driver for utilities to adopt modern IT

systems. The key uses of IT in generation, transmission and distribution are also

given. In generation, according to the article, IT solutions used at the plant level are

fairly sophisticated, easy to implement due to uniform standards and enable

centralized monitoring. On the flip side, these solutions do not have diagnostic

capabilities for improving efficiency. The problems facing Information Technology

implementation are inadequate resources to IT projects, failing to overcome the

resistance from employees to IT implementation and lack of clear strategy. The IT

Roadmap article gives the overall initiatives taken in Power Sector.

7. Raising efficiency standards in Generating Companies: The key IT initiatives

taken by generating companies of Madhya Pradesh, Gujarat and Bihar, challenges and

future plans are discussed in the article “Bringing in Change”(Power Line,2008).Some

of the key points worth observing are regarding the Gujarat State Electricity

Corporation limited (GSECL)’s “e-Urja” package. This Oracle Application package

connects eight power stations and corporate office. The main modules and the scope

are discussed in brief. The article also discusses the key challenges faced by the utility

with respect to IT. Some of the noteworthy IT initiatives and the area in focus are

listed in the article. The major challenges includes alignment of IT systems with

business objectives, effective project implementation , enabling precision billing and

revenue collection, creative active users of IT in various non- IT domains of the

power sector etc. This article lists most of the IT applications in power sector.


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2.6.4 Information Technology Solutions used by Power Industry

With the increasing adoption of IT by the power companies, specialized software or packaged

solutions with a library of best practices and processes which can be configured for the needs

of the specific organizations, have been developed by the leading suppliers of IT

solutions/software. Other than developing their own solutions, many of the companies in the

power sector have been using these solutions to take advantage of the best practices, quick

deployment and adopt the processes which are meant to improve the business performance.

One class of solutions is Enterprise Resource Planning (ERP) solutions.

1. Enterprise Resource Planning (ERP) functions in Power industry

According to Thukral (2008), the ERP solutions are primarily aimed at improving

operational and managerial efficiency and enable the timely tracking of materials and

payments. Major benefits that have been reportedly realized with the deployment of

the ERP packages in the power sector are

Easier regulation of the activities and processes of the organization.

Tracking of progress in construction projects and timely allocation of materials.

Tracking of payments and minimization of human intervention of the payment of

bills.

Tracking of bank balances of each accounting unit at any point of time.

Reduction of paper correspondence

Improvement in transparency and accountability.

Achieving uniformity in transactions.

Availability of data (Once entered data will remain in the system for all the

permitted users, across departments.

2. Features or Modules of ERP solutions

The ERP solutions are available in functional modules. Each of the modules is

capable of operating as independent solution or as an integrated entity in conjunction

with other modules, as the case may be. The choice of deploying the solution as

separate modules or as integrated solution is left to the specific requirements of an


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organization. Some of the typical module available with the ERP solutions and their

features are-

Financial Control

To provide a budgeting tool for forecasting revenues and costs.

To generate financial statements for the management to take appropriate

decisions based on updated financial data.

To provide necessary information to be submitted to the Electricity Regulatory

Commission with regard to tariff/ accounting rate of return/compliance

reports.

Material management

To enable faster evaluation and selection of vendors.

To view material availability across all the stores of the company.

To enable proper inventory and scrap management system.

To implement an online management information system.

To complete the procurement process.

To conduct material valuation by location and material classification by

division.

Project Management

To capture all the project management activities for the entire cycle of

construction projects with project evaluation and review technical/critical path

method capabilities.

To monitor all the processes/activities and related sub-processes/activities

which impact the total time taken from project planning, inception, execution

to its completion.

To provide a suitable mechanism to index and categorize various proposals for

new projects/schemes.

To set up project completion in finance and costing.


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Maintenance Management

To provide the necessary features to help improve the core activity of equipment maintenance

according to norms, and to minimize the occurrences of breakdown.

To reduce the time involved in carrying out basic activities

o Retrieving past data

o Verifying stock at the stores

o Raising material requisitions

o Planning for maintenance

To provide better tracking and monitoring of core equipment maintenance.

Document Management

To enable optimal maintenance of all kinds of data in the form of documents

To provide facilities that takes documents through different levels of approvals

or modification in a structured manner

3. Configuring the ERP solution

The ERP solution has to be configured to meet the specific requirements of the

organization. Although the processes available in the ERP solution are the same for all

the organizations before deployment, when they are deployed in a specific

organization, they are unique to that organization. Basic processes configured in the

ERP system are

Approval of all schemes and projects at the HQ.

Consolidation of all material indents from projects and from the operation and

maintenance side at the headquarters, as well as the generation of item wise

purchase requisitions.

Floating and finalization of tenders on the e-procurement platform, to be

followed by the creation and approval of purchase orders on the ERP.

Receipt of material at stores as per purchase orders.

Allotment and division of materials at the headquarters based on which

withdrawals are made from the stores.


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Daily entry of progress of construction activity in the offices of executive

engineers on the field. Based on this, material consumption is booked, thereby

instantly updating/tracking the cost of the project. This forms the basis for

raising work bills, and approving and paying them- all of which is done

through the system.

Verification of invoices by the finance wing, based on which payments are

made. Budget/cash grants allocation and expenditure by accounting units

against the same, are tracked by the system. All payments are made through

the system.

Availability of all substations and line equipment data on the ERP system,

helping it generate the remainders according to programmed maintenance

schedules.

4. ERP- In Power Generation

Although many of the functional areas of a power generation organization are similar

to the functions in other industries, there are always subtle differences. So the ERP

solution deployed in a power company will have generic solution modules as well as

power generation specific modules. Some of the key modules typically deployed by

power generation companies are-

1. HR and Payroll: This includes employee overtime details, online approval of

employee requests, savings declarations, income tax calculations, employee history,

pay slips, performance appraisals and self-appraisals.

2. Finance: This includes payments to suppliers, contractors, employees; money receipts

from employees, vendors, consumers(tender fees, earnest money deposit, employee

loan/ advance settlements, registration fees, fixed quotation amounts), Tracking of

fixed assets, cash-bank book generation, inter-bank money transfers, provisional

accounting entries, real-time cash forecasting, Maintenance of outstanding loans(REC

bonds, bill discounting)


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3. Fuel Accounting: This includes coal rake receipts, railway receipts, coal bill receipts,

matching of railway receipts, gas receipts in case of gas based plants, creation of

relevant vouchers and payments.

4. Process Manufacturing: This includes capturing generation parameters, fuel

consumption, de-mineralised water consumption, auxiliary power consumption,

recording plant shutdowns, outages and generation of MIS reports.

5. Enterprise Asset Management: This includes creation of work order for equipment

maintenance, monitoring and analysis of maintenance activities, maintenance

scheduling in plants and work permits.

6. Inventory Management: This includes material transactions(material requisition for

projects/ maintenance/ material transfer from one store to another within the same

plant or department, and across plants), receipt of material into stores, physical

inventory ; Scrap and Ash disposal

7. Purchase Module: This includes supplier/ vendor registrations, purchase order for

materials, labour works, civil works, repair agencies, planned purchase with delivery

inspections, standard purchase for one-time purchases, blanket purchases with

releases, internal requisition of material transfer from one store to another and

approvals based on position hierarchy.

8. Project Module: This includes project planning and monitoring of all capital

projects, financial tracking, planned versus actual expenditure and capitalization of

projects after completion.

2.7 Review of Research Thesis

There is a considerable amount of research work covering some or the other aspects of this

research. Some of the relevant research work has been reviewed here to take their findings or

models into consideration.


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1. Conceptual framework for empirical examination

The research (Datta,2003) examines the relationship between IT infrastructure and

organizational productivity by developing a conceptual framework and applying the

framework to some specific situations. A holistic approach for measuring the IT investments

and productivity is developed addressing the key points and research investigations

1. “What is the purpose for transforming IT capital outlays into organizational

productivity?

2. How do IT capital outlays impact organizational productivity?

3. How does IT management influence organizational productivity?

4. How do IT infrastructure designs impact organizational productivity?

5. How does the organizational environment influence organizational productivity?

6. To what extent does IT productivity provide feedback for future changes?”

Some of the key highlights of this research are-

The researcher has developed a modular and holistic approach for measuring the

Organizational productivity through a systematic approach.

The framework developed in the research brings together IT capital outlays, IT

management, IT infrastructure, and the environment and productivity subsystems.

In order to address the dynamics of the IT systems, the investments and impact on

performance, a recursive and time-lagged approach is adopted.

The research has used Delphi study to identify the factors for investigation.

IT infrastructure is defined as the convergence between content, computing and

communication technologies. Content is driven by data and information architecture,

computing has resulted from systems and processing alternative and network

infrastructure has resulted from networking alternative.

Organizational productivity is measured in terms of financial, operational quality,

operational efficiency and strategic productivity measures.

The research results does not suggest any direct effect of IT investments on

productivity subsystem. However, it indicates that the subsystems such as IT

management, IT infrastructure design and organizational environment factors as

critical elements.


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Results from the empirical investigation do not suggest any direct effects of IT

investments on productivity. In other words, their findings indicate that IT

investments have failed to impact the productivity of the organization. However, they

did indicate the significant roles played by subsystems such as IT management, IT

infrastructure design, and operational environment on productivity.

The research indicates that the benefits of IT infrastructure designs are dependent on

the underlying management styles. It also indicates that coupled with a suitable

operational environment, the organization can harvest better value from the IT

infrastructure design. Hence, productivity path is essentially influenced by the internal

organization and management style, and external factors such as the organizational

operating environment.

The uniqueness of the research is the development of taxonomical classification based

on the convergence of the technologies and exploring the business value

systematically.

2. Physical Asset Planning

The research on physical asset planning (Grasso, 2009) has demonstrated the processes of IT

planning and its integration with IT governance, particularly within Queensland University of

Technology in Australia. The study has adopted a central organizational planning framework,

via asset management plan (AMP). AMP is coordinated with physical and capital asset

planning. As a result, budget for IT has been centralized and linked to strategic management

of the organization. IT governance has been linked to information Technology Strategic

Governance Committee (ITSGC). The committee manages portfolio and project management

activities throughout academic and administrative wings of the university.

Some of the key highlights/findings of the research which are relevant to the current

investigation:

IT implementation needs to be aligned with organizational goals and strategies to

achieve the benefits.

Effectiveness of planning is measured through the survey questionnaire. The results

are confirmed with qualitative evidence such as interviews and observations.

Benefits are achieved in terms of innovation, acceptance of IT implementation and

service provision.


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It is difficult to achieve full integration because of professional bureaucracy and the

implementation process must cater to organization’s need of flexibility.

In order to enable IT as an agent for change, it needs to cater to departmental adoption

of standardized infrastructure.

The research has linked IT planning to portfolio and project management processes

throughout the academic faculties and administrative divisions of the university.

The investigation has confirmed the previous research that “IT governance provides

benefits for integrated planning, allocation of responsibilities, determination of

priorities for IT initiatives, and monitoring of IT performance and outcomes (Weill &

Broadbent, 1998). This research also confirms that governance is most effective with

high-level and cross organizational representation. It confirms previous research

according to which strategic, longer-term planning for IT is essential to ensure better

IT infrastructure and services (Earl,1993).”

The results of the research demonstrated that integration of IT planning with the

management and governance provides business value within an organization with

unique characteristics.

3. Holistic Planning

This study (Assadi, 2005) uses holistic approach for evaluation of investments in information

and communications technologies in a Canadian cabinet manufacturing company. The study

involves multiple tangible and intangible criteria and the interdependencies among them. The

evaluation also includes consideration and aggregation of different decision maker’s

viewpoints. Evaluation of criteria chosen for the evaluation of a design and manufacturing

software packaging is done in the research. The study performs various sensitivity analyses to

investigate the stability of the evaluation when the evaluation parameters modified.

Some of the criteria such as functionality, usability, security, reliability, support, cost, service,

reputation, ease of integration, ease of implementation, technical capability are derived from

software selection literature. More data are collected from software brochures, software

vendor interviews, staff and workers. Pair wise comparison is made by each decision maker.

Methodology incorporated for the study is Analytical Hierarchical Process (AHP) and

Analytical Network Process (ANP). An attempt has been done in the research to evaluate the


Ph.D. 95

software package using the AHP taking into consideration decision makers concern.

Mathematical models are used for the research.

4. Integrated methodology

This research (Nel, 2004) takes on a methodological approach for developing an integrated

ITIEM model constituting measurable IT-business-value. The ITIEM methodology, has

highlighted the following -

IT investments yield business-values that can be easily measured.

Specific investments in IT provide the most benefits to the financial organization.

Investments in IT and business initiatives sustain each other.

The study has formulated a benefits framework, revised and supported by

observation, with the help of both case studies and action research.

The ITIEM methodology, intends to aid practice by:

Demonstrating how IT investments can enable measurable IT business- value;

determining which IT investments will yield the most IT-business value for the

organization;

Ensuring that IT investments and business initiatives support each other.

The study has also contributed to the growth of knowledge by raising new problems, mapping

out a program for future research on ITIEM, and putting forward a benefits framework that is

verifiable by empirical observation, with the use of both case studies as well as action

research. IT Business Value Dimensions – Business Strategy Alignment, Soft Value,

Financial Value and Contextual value and the measures are identified.

The study design included: The production of a draft case study protocol of a South African

bank and the cross case analysis of multiple case studies of that South African bank, which

yielded a draft case study protocol. A cross-country comparison of three Australian banks

was done to verify the location of theoretical replication. The existing ITIEM methodology

was revised and a new hybrid ITIEM methodology was formulated. Finally, the hybrid

ITIEM methodology was developed and revised with action research. The outcome of the

process was the development of ITIEM methodology and ITIEM model.


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5. IT Investment evaluation method at an electric power company

In this thesis (Gammelgard,2007) an integrated IT investment method for an Australian

electric Power company is presented . The research provides a methodology that indicates IT-

investment alternatives, evaluation based on differences in type and amount of business-

value. An integrated architecture such as Enterprise architecture for holistic management of

IT in organization is chosen to collect and evaluate the IT investment evaluation information.

The IT investment decision is about selecting the system which is a combination of important

business values. The important business-values identified by the researcher are - enhancing

business process efficiency, enabling a better organizational structure, enhancing decision

making capability etc. But the business value of IT-investments depends on factors such as -

ease of use, information security, quality of data in the system etc.

Some of the limitations identified by the researcher are related to the resources for measuring

the IT benefits. With limited resources availability, it is often difficult to get complete

information. The resources used for gathering the information are also incomplete,

contradictory and have varying trustworthiness. IT investment-evaluation method also takes

considerable amount of time and resources.

Uncertainty is the next important factor contributing to complication of IT investment. Most

of the benefits of IT investments are intangible in nature. Since all these factors contribute to

uncertainty, the researcher has suggested estimation of uncertainty to enhance the relevance

of the results. It is interesting to note that lack of trustworthiness is not limited to electrical

power industry.

The major contribution of the research is the formulation of enterprise model for assessment

of IT investment. The model is generic in nature hence it is supportive to different purposes

of the business. However, for choosing the best IT system we need to have a specific IT

evaluation method based on requirement and functionality of the industry.


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6. IT in Public Organizations

To investigate the impact of IT in public organizations, this study used the data of U.S. state

governments from 1989 to 1995. Two aspects of IT investments were investigated (Lee,

1999). First, the study looked at the diffusion of IT in state governments. Secondly, using a

model based on the Cobb-Douglas production function, the impacts of state government IT

investments on state-wide economic performance were estimated.

The analysis of productivity impact of IT indicates that IT in state governments has a positive

impact on state-wide economic performance. It also shows that state governments with chief

information officers perform better than with other states with different information resources

management structures. According to the study, management structure is an even more

critical factor in large states than small states.

The results of the analysis indicates that while the amount of IT is an important factor in

enhancing productivity, the way IT resources are managed is also a critical factor in

achieving IT’s potential. Performance indicators used for the study are- Productivity,

efficiency and effectiveness. The research tries to answer the question: Do the IT investments

in public organizations pay off?

The hypotheses being tested are regarding the relationship between IT investment and

economic performance. Some of the findings are- due to the nature of services and lack of

market, it is difficult to count or attach a price to services and goods that public organizations

deliver. This makes it difficult to quantify public organizations and compare their aspects. To

overcome such difficulties, this study used statistical economic performance as dependent

variable and estimated the impact of IT investments on it. From all the numerous arrangement

and organizational variables, this study focused on the management structure of information

resource. It is hypothesized that different managerial arrangements will have different

impacts on the performance of the state. The third hypothesis is about the lagged effect of IT

on performance. This study estimated the lagged effect of IT, especially one-year lag.


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2.8 References from books

1. The book (O’Brien, 2007) provides information about how to use and manage

information technologies to revitalize business processes, improve decision making,

and gaining competitive advantage in the industry. Different roles of automation,

communication technologies in providing a platform for business, commerce and

collaboration processes among all business stakeholders in today’s networked

enterprises and global markets are discussed. Various concepts with global and Indian

case studies are discussed in the book.

2. The book (Stair and Reynolds, 2008) provides information about what information

system can and cannot do and how to use them to accomplish the work. The book

contains an overview of the entire information systems discipline including

specialized information systems, new information on the importance of enterprise

wide management, knowledge management and better corporate use of information

system.

3. The book (Deming, 1992) provides direction on the subject of productivity on

manufacturing and service industries. But measuring the productivity is not addressed.

“Long-term commitment to new learning and new philosophy are required of any

management that seeks transformation” is one of the main observations .The fact that

management throughout a number of companies is at work on the 14 points is shown

in various instances.

4. The book “Management Information Systems: Managing the Digital Firm” provides

the most comprehensive and leading-edge uses of information technology. With

illustrations the book(Laudon and Laudon, 2007) explains about how the digital

integration from the warehouse to the executive suite is changing the management and

organization of firms. Vital knowledge about any firm achieving value from the IT

investment is explained. The book contains information in IT investments and

investment effectiveness.


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5. The case study (Yin, 2004) is one of the several ways of doing social research. This is

the preferred method when ‘how’ or ‘why’ questions are being posed and when the

focus is on a contemporary phenomenon within some real-life context. In this context,

investigators must exercise great care in designing what is explained as a research

strategy in this book. The book explains how to design, conduct, analyze and report

case studies.

2.9 References from Internet

The websites provided references which are available on-line and helped in better

understanding of the research work. The information was retrieved during the month July,

2011.

1. www.karnatakapower.com-The official website of KPCL, which provides project

information, financial information, technical information and technical details of the

projects .

Accessed on July 10 , 2011

2. www.indiaenergypotal.org -The Indian Energy Portal website provides insight into Indian

as well as global energy scenarios in terms of resources, demands, supply and

installations, reforms and restructuring,

Accessed on September 17 ,2011

3. www.powermin.nic.in-The official website of the Ministry of Power, Government of India

provides information on Indian electricity scenario, acts and notifications, research and

training, energy conservation measures and most importantly new government policies

and programmes. The website provided complete information about policies such as tariff

policy, rural electrification policy, amendments etc l

Accessed on January 15, 2011

4. www.cercind.gov.in-The central electricity regulatory commission (CERC) website gives

information regarding electricity tariffs and transparent policies regarding tariffs. Various

reports of market monitoring such as Short-term Power Market, Latest regulations,

Analysis of various reports were also available in the website.

Accessed on January 20 ,2010

http://www.karnatakapower.com/

http://www.indiaenergypotal.org/

http://www.powermin.nic.in/

http://www.cercind.gov.in/


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2.10 The research gap

As highlighted earlier key research questions were identified for the purpose of this research.

These research questions intend to address specific areas of usage and impact of Information

technology and use the findings to formulate or derive feasible solutions to generic questions.

The two specific questions are:

How to measure the effective usage of Information Technology especially in a power

generation company in Karnataka?

Has the application of Information Technology resulted in any real improvements in

the performance of the of the power generation companies in Karnataka?

The findings of these specific questions are expected to facilitate formulation of an answer to

the generic question, i.e. impact (usage & application) of Information Technology (IT), which

would become a model for all future investments in information Technology.

When it comes to measuring the investments, like all other investments, it is easy to measure

the Information Technology investments in financial terms. Similarly it is easy to articulate

the need to assess the resulting improvements also in financial terms.

In generic terms as a tool for automating the business processes, the possibilities of creating

differentiating value chain by the application of information technology were articulated by

Michael Porter (Michael Porter, 1985). However, with every new development in its field, the

deployment of Information Technology provides multiple options and possibilities.

As some of the literature reviewed in the next section indicates, the investments in

information technology can be in multiple areas – networks, hardware, service providers,

automation tools, software applications, change management etc (Laudon and Laudon, 2007).

A corporation or a business can make investments in different degrees in each of these

elements, leading to different degrees of usage. As new technologies emerge what constitutes

the effective usage of Information Technology is the question every organization needs to

answer before making the investments. The answers to these questions probably will vary

based on what are the historical investments made by the company. The critical gap in the

current understanding which the research intends to address is development of framework to


Ph.D. 101

understand the effective usage of information technology in business organizations, against

the multiple and ever changing possibilities offered by Information technology.

The final result of any investments by a business organization should either result in top line

growth through better management of market/customer or improvements in the bottom line

through efficient operations. Since business organizations are complex entities with multiple

cause and effect relationships, it is a herculean task to establish one or many unique cause and

effect relationships between investments and performance improvements. This applies to

investments in Information technology as well.

As the literature reviewed in the subsequent section indicates, different researchers have

proposed or tested different frameworks and models for this purpose(Bacon Model, Parker

Model, Buss Model etc.). Some of these frameworks are generic in nature and could be

applied to multiple industries, businesses, since the state controlled power Generation

Company has its unique operational challenges, the framework required to assess the

performance improvements of such companies also need to be unique(Gammelgard, 2007).

The availability of framework to assess the performance of the state controlled power

generation company and linking the performance to information technology investments is

another critical gap the research intends to bridge.

As mentioned earlier the complexity of decision making increases with the advent of every

new technology in the field of information technology. The status of current research, as

elaborated in the review of literature, indicates that there is a need for a generic framework to

facilitate decision making which could survive the technological changes. Such framework

also needs to be based on the findings from real world businesses. The development of

frameworks which would help to understand what types of investments/usage of Information

technology has the potential to make performance improvements, is expected to bridge the

gap in the availability of generic tools for decision making with reference to investments in

IT.


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Chapter summary

The chapter reviewed a selection of literature relevant to the dimensions constituting the

information technology business value. The literature review is based on the following

dimensions: IT usage, Productivity Dimension, Performance Dimension, Quality Dimension,

Project Management Dimension and Quality Dimension. The literature review attained the

following objectives:

It aided in the confirmation of the dimension of the IT business value.

It aided in the identification of the method to measure the IT investment.

It aided in the development of the hypothesized pattern of the IT business value,

needed for pattern matching.

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