IT Investments and Productivity

IT INVESTMENTS AND PRODUCTIVITY

Aubert, B., HEC Montreal, Victoria University of WellingtonCroteau, A.-M., John Molson School of Business

Hooper, V., Victoria University of Wellington

HOW DOES IT CREATE

VALUE?

VALUE CREATION AND IT INFRASTRUCTUREThe role of IT governance in the establishment of IT

architecture (Peterson, 2001, 2004)The definition of IT infrastructure (Broadbent and Weill, 1997) Services HR components IT componentsStrategic alignment (Chan, Huff, Barclay, Copland, 1997)Flexibility enabled by IT (Fink and Neumann, 2009)Diminishing marginal returns with IT investments (Nevo, Wade,

Cook, 2010)

INTERACTION EFFECTSBrynjolfsonn-Hitt (2004) suggest that complementary

investments are required to extract benefits from IT investments

Yuhn and Park (2010) found that organizational transformation is associated with IT applications to produce growth

Cozzarin and Percival (2010) found no interaction between workplace practice and IT usage, and no interaction between training and IT usage

Bloom, Sadun, Van Reenen (2012) found that US multinationals enjoyed higher productivity from IT than non-US multinationals. The combination of IT investments with management practices was the likely explanation.

FRAMING THE IT VALUE RESEARCH

Source: Soh, C. and Markus, L., How IT Creates Business Value: A Process Theory Synthesis, ICIS 1995.

Success Rate

Governance of IT assetsDefinition of IT assets

GOVERNANCEClear responsibility for the IT infrastructure Policies Acquisition informationPlanning process Exists Aligned with business goal Assessment of new technology

IT INFRASTRUCTUREConnectivity The degree to which IT can connect to others, both inside and outside the organizationScalability The degree to which IT can be scaled and upgraded on existing infrastructureCompatibility The degree to which IT can share any type of information both inside and outside the

organizationData administration Use of data dictionary and common data definitionsEnterprise model Comprehensive approach documenting business processes, inventories, standardsIT personnel competency The degree to which IT personnel possess relevant skills and experience to perform IT

activities

RESEARCH MODEL

IT infrastructure

Market success/ business

performance

Internal performan

ce

TrainingProcess change

investment

Non-IT personnel competen

cy

IT personnel competency

Enterprise model

definition

Data administration definition

Compatibility

Connectivity

Level of planning

Clarity of responsibilit

y

Controlling for strategic type

Scalability

Governance

METHODOLO

GY

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

DATA429 respondents 176 Canada 253 New ZealandNo difference between jurisdictions Firm SizeLess than 50 : 14,8%Between 51 and 100: 27,5%Between 101 and 250: 29,9%Over 251: 27,8%

ANALYSISPartial Least Squares Analysis of reliability Validity

Convergent Discriminant

Path analysis

RELIABILITY

Variable Alpha Responsibility 0,90IT Planning 0,88Connectivity 0,76Scalability 0,91Compatibility 0,76Data administration 0,87Enterprise model 0,86IT personnel competency 0,91Process change investments 0,75Training 0,68Non-IT personnel competency 0,85Internal performance 0,67Market performance 0,86

CORRELATIONS

IT_PERS_COMP

DATA_ADM

ENTER_MODEL

COMPATIBILITY

RESPONSIBILIT

Y

IT_PLANNING

CONNECTIV

ITY

SCALABILI

TY

NON_IT_COMPET

PROCESS_INVES

TTRAINING

INTERNAL_PERF

BUSINESS_PERF

IT_PERS_COMP ,77 DATA_ADM ,402** ,75 ENTER_MODEL ,475** ,824** ,77 COMPATIBILITY

,390** ,517** ,549** ,76

RESPONSIBILITY

,497** ,485** ,551** ,442** ,88

IT_PLANNING ,482** ,538** ,631** ,446** ,649** ,84 CONNECTIVITY ,354** ,460** ,491** ,537** ,439** ,548** ,72 SCALABILITY ,502** ,479** ,530** ,558** ,482** ,480** ,487** ,86 NON_IT_COMPET

,418** ,373** ,403** ,395** ,393** ,450** ,367** ,422** ,72

PROCESS_INVEST

,002 ,248** ,235** ,149** ,090 ,149** ,220** ,055 ,143** ,55

TRAINING ,158** ,226** ,208** ,160** ,136** ,229** ,162** ,130** ,203** ,393** ,66 INTERNAL_PERF

,220** ,243** ,253** ,235** ,233** ,192** ,109* ,253** ,269** -,065 ,224** ,57

BUSINESS_PERF

,189** ,236** ,309** ,234** ,197** ,243** ,196** ,277** ,257** ,061 ,209** ,357** ,57

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

RESULTS

IT INFRASTRUCTURE AS A SECOND ORDER CONSTRUCT

IT infrastructure


performance

Internal performanc

e

Training

Process change

investment

Non-IT personnel competen

cy

IT personnel competen

cy

Enterprise model

definitionData administration definition

Compatibility

Connectivity

Level of planning

Centralization of

responsibility

Scalability

0,45

0,340,21

0,22

0,20

0,04 (n.s.)

R2 = 0,51R2 = 0,22 R2 = 0,21

0,740,67

0,76 0,87

0,63

0,70

0,46

FIRST OBSERVATIONSIT infrastructure as a whole influences firm performance. It is

not a specific component of infrastructure that increases the firm productivity

Training and IT skills of non-IT personnel increase the performance of the firm.

Process changes do not influence the performance of the firmTraining and process change do not show an interaction effect

with IT infrastructure

DEPENDENT VARIABLE: PERFORMANCE

Base model Interaction model

Low infrastructure

High infrastructure

IT infrastructure (ITI) 0.218* 0.241*

Training 0.219* 0.216* 0.220* 0.247*

Non-IT personnel competency 0.198* 0.180* 0.258* 0.175*

Organizational changes 0.040 -0.001 -0.236* 0.229*

ITI x Training -0.108

ITI x Non-IT pers. competency -0.042

ITI x Organizational changes 0.187*

Variance explained 0.222 0.243 0.224 0.181

INVESTIGATI

NG PROCESS

CHANGES

LOW IT INFRASTRUCTURE


performance

Internal performan

ce


investment

Non-IT personnel competenc

y

0,22 0,26 -0,24

R2 = 0,22R2 = 0,20

0,45

HIGH IT INFRASTRUCTURE (4+)


performance

Internal performanc

e


investment

Non-IT personnel competenc

y

0,25 0,17 0,23

R2 = 0,18 R2 = 0,14

0,38

PROCESS CHANGES IMPLEMENTED (DECREASING FREQUENCY)

Low infrastructure High infrastructureReingineeringIntegration between departmentsCentralizationJob rotation/enrichmentOutsourcingIncreased inter-org collaborationFlattening of the organizationDecentralization

ReengineeringIntegration between departments*CentralizationIncreased inter-org collaboration*Job rotation/enrichmentOutsourcingFlattening of the organizationDecentralization *

*: significant difference between high infrastructure and low infrastructure (p<0,05)

CONCLUSIONGovernance does explain IT infrastructureIndividually, infrastructure components do not have a

significant influence on performanceIT infrastructure has to be considered as an ensemble Efforts to improve IT infrastructure have to address all the

components Incentives to increase only one of the components (like hi-speed

connections) might not enhance the firm performance significantlyNon-IT personnel have to be IT skilfulTraining has a significant impact on performanceThere is a high IT infrastructure threshold to reach before

gaining benefits from process changes investments

THANK YOU

QUESTIONS?

BACKGROUND INFO

RMATION -

MEASURES

GOVERNANCE (LEWIS AND BYRD, 2003)Responsibility

RP1 1.A person is responsible for corporate-wide information systems and technology policy

1 2 3 4 5

RP2 2.A single person involved in IT is also involved in the corporate business planning process

1 2 3 4 5

RP3 3.A person approves corporate-wide information systems and technology acquisitions

1 2 3 4 5

RP4 4. A person is responsible for distributed information systems and technology 1 2 3 4 5

IT planning

PL1 5. There is a plan for enterprise-wide information systems and technology 1 2 3 4 5

PL2 6.Information systems/technology plan incorporates central system and desktop

1 2 3 4 5

PL3 7. Information systems/technology plan reflects business goals 1 2 3 4 5

PL4 8. Planning process for IS/IT incorporates end users 1 2 3 4 5

Strongly disagree

neutral Strongly agree

1 2 3 4 5

Back to Measures

DATA ADMINISTRATION AND ENTERPRISE MODEL LEVELS OF DEFINITION

EM1 9. A documentation for corporate-wide information flow 1 2 3 4 5EM2 10. An inventory of corporate data and information 1 2 3 4 5EM3 11. An inventory of company IT facilities 1 2 3 4 5EM4 12. A formal methodology for systems development 1 2 3 4 5EM5 13. Corporate-wide adherence to information systems and technology standards 1 2 3 4 5EM6 14. Corporate-wide adherence to information systems and technology standards 1 2 3 4 5EM7 15. Data communications between central and distributed facilities (PCs) 1 2 3 4 5

DA1 16. Formal data administration (policies, standards, corporate oversight) 1 2 3 4 5

DA2 17. A corporate data architecture (structure, framework, philosophy) 1 2 3 4 5

DA3 18. A quality assurance program for systems and facilities 1 2 3 4 5

DA4 19. A corporate policy on data ownership 1 2 3 4 5

DA5 20. A data dictionary 1 2 3 4 5

DA6 21. Data integration between applications 1 2 3 4 5

DA7 22. Data sharing between users and departments 1 2 3 4 5

Strongly disagree


1 2 3 4 5Data administration level of definition

Enterprise model level of definition

Back to Measures

COMPATIBILITY AND CONNECTIVITY

CM1 28. Software applications can be easily transported and used across multiple platforms

1 2 3 4 5

CM2 29. The company offers a wide variety of types of information to end users 1 2 3 4 5

CM3 30. The user interfaces provide transparent access to all platforms and applications

1 2 3 4 5

CM4 31. The company provides multiple interfaces or entry points (for example, Web access) for external end users

1 2 3 4 5

CN1 32. Authorized data can be accessed by external parties through IT networks, regardless of location 1 2 3 4 5

CN2 33. Authorized data can be accessed by internal users through IT networks, regardless of location 1 2 3 4 5

CN3 34. All external parties (e.g. customers, suppliers) are electronically linked with the organization through IT networks 1 2 3 4 5

CN4 35. Conferences within the organization can be held through IT networks, regardless of location 1 2 3 4 5

CN5 36. All departments and branches are electronically linked together through IT networks 1 2 3 4 5

Strongly disagree


1 2 3 4 5Compatibility

Connectivity

Back to Measures

SCALABILITY

SC1 23. Hardware/software can be easily upgraded on existing IT infrastructure

1 2 3 4 5

SC2 24. Hardware/software can be easily scaled on existing IT infrastructure 1 2 3 4 5

SC3 25. Hardware/software can be easily and quickly adapted for changing needs and standards

1 2 3 4 5

SC4 26. Hardware/software can support business growth in the future 1 2 3 4 5

SC5 27. Hardware/software can be added to, modified or removed from existing IT infrastructure with no major overall effect

1 2 3 4 5

Strongly disagree


1 2 3 4 5

Back to Measures

PROCESS CHANGE INVESTMENTS

None Some Extensive

PC1 54. Greater integration among different functional areas PC2 55. Increase in the degree of centralization PC3 56. Decrease in the degree of centralization PC4 57. Re-engineering (redesigning processes to improve performance

and cost)

PC5 58. Reduction in the number of managerial levels (delayering) PC6 59. Greater reliance on job rotation, multi-skilling PC7 60. Greater reliance on external suppliers of products / services

(outsourcing)

PC8 61. Greater inter-firm collaboration in R&D, production or marketing

Built from a list provided by Statistics Canada

Organizational change refers to a change in the way in which work is organized within your workplace or between your workplace and others. Has your workplace experienced any of the following forms of organizational change recently?

Back to Measures

TRAINING INVESTMENTS

None Some Extensive

TR1 62. Job rotation TR2 63. Apprenticeship TR3 64. Assigning trainee as a member of task force

TR4 65.Other form of on-site training (Lecture, group discussion, role playing, on-line training, simulation, video, etc.)

TR5 66. Off-site training (example: Part times college course)

In your organization, there is:

Back to Measures

IT PERSONNEL COMPETENCY (CHANOPAS KRARIT KHANG 2006)

IC1 37. IT personnel understand the policies and goals of the organization 1 2 3 4 5IC2 38. IT personnel are able to plan for future technological challenges 1 2 3 4 5IC3 39. IT personnel are able to be IT project leaders 1 2 3 4 5IC4 40. IT personnel are able to quickly learn and apply new technologies 1 2 3 4 5IC5 41. IT personnel are eager to learn new technologies 1 2 3 4 5

IC6 42. IT personnel are able to interpret business problems and develop appropriate technical solutions

1 2 3 4 5

IC7 43. IT personnel are knowledgeable about environmental constraints within the industry

1 2 3 4 5

IC9 44. IT personnel are able to work cooperatively with users in a cross-functional team

1 2 3 4 5

IC10 45. IT personnel are skilled in multiple technologies and tools (e.g. programming languages , operating systems)

1 2 3 4 5

Strongly disagree


1 2 3 4 5

Back to Measures

NON IT PERSONNEL COMPETENCY (ADAPTED FROM CHANOPAS KRARIT KHANG 2006) Strongly

disagreeneutral Strongly

agree1 2 3 4 5

NC1 47. Non-IT personnel are able to participate in planning for future technological challenges

1 2 3 4 5

NC2 48. Non-IT personnel are able to quickly learn and apply new technologies

1 2 3 4 5

NC3 49. Non-IT personnel are eager to learn new technologies 1 2 3 4 5

NC4 50. Non-IT personnel are able to correctly identify their problems and convey their needs for technical solutions to the IT function

1 2 3 4 5

NC5 51. Non-IT personnel are knowledgeable about environmental constraints pertaining to IT

1 2 3 4 5

NC6 52. Non-IT personnel are able to work cooperatively with IT in a cross-functional team

1 2 3 4 5

NC7 53. Non-IT personnel are sufficiently competent in the technologies and tools they need to do their jobs.

1 2 3 4 5

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INTERNAL PERFORMANCE (ADAPTED FROM HUDSON, SMART, AND BOURNE 2001)

BP9 75. Our product/service quality is: Very low :__:__:__:__:__: Very HighBP10 76. Our process quality is: Very low :__:__:__:__:__: Very highBP11 77. Scrap or lost efforts is (are): Very low :__:__:__:__:__: Very highBP12 78. Defect or error rate is: Very low :__:__:__:__:__: Very high

BP13 79. The quality of inputs provided by our suppliers/ collaborators is:

Very poor :__:__:__:__:__: Very high

BP14 80. Our work in progress is running: Smoothly :__:__:__:__:__: inefficientlyBP15 81. Our lead time is: Very short :__:__:__:__:__: Very longBP16 82. Our delivery time is: Very short :__:__:__:__:__: Very long

When comparing your company relative to your principal competitors:

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MARKET PERFORMANCE (VENKATRAMAN 1989)

BP1 67. The sales growth position relative to our principal competitors is:

Very low:__:__:__:__:__: Very High

BP3 69. The return on corporate investment position relative to our principal competitors is:

Very low :__:__:__:__:__: Very high

BP6 72. The market share gains relative to our principal competitors are:

Very small :__:__:__:__:__: Very large

BP7 73. The net profit position relative to our principal competitors is:


BP8 74. The financial liquidity position relative to our principal competitors is:


BP2 68. My satisfaction with sales growth rate is: Very low :__:__:__:__:__: Very high

BP4 70. My satisfaction with return on corporate investment is: Very low :__:__:__:__:__: Very high

BP5 71. My satisfaction with return on sales is: Very low :__:__:__:__:__: Very high

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

Back to Measures

GOVERNANCE AND IT INFRASTRUCTURE

IT personnel competenc

y

Enterprise model

definition

Data administra

tion definition

Compatibility

Connectivity

Level of planning

Clarity of responsibil

ity

Scalability

0,386

0,247

0,349

0,316

0,277

0,187

0,2610,243

0,273

0,454

0,480

0,287R2 = 0,33

R2 = 0,26

R2 = 0,46

R2 = 0,35

R2 = 0,29

R2 = 0,29

Documents

IT Investments and Productivity