Last Updated 23 Sep 2020

Information Technology

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It is definitely true that an IT strategy focused on maintaining a cutting-edge technology position is the most effective way to support any kind of overall business strategy. Studies proved that there is a “statistically significant correlation between the intensity of IT used in a company (IT capital per worker) and that company’s overall productivity. (Brynjolfssor, E. , 2003). And “however IT contribution could be indirect to the overall performance of a company or economy.

But IT is a promising source of productivity when it’s combined with complementary investments in work practices, human capital, and organizational restructuring”. (Brynjolfssor, E. , 2003) Brynjolfsson, E. & Hitt, L. M. (2000) found evidence on the link between investments in IT and higher productivity and organizational transformation and other measures of economic performance (p. 4). Mitra, S. (2005) also provided empirical evidence of the role of information technology (IT) as an enabler of growth in firms. Bardhan, I. & Krishnan, V. & Lin, S. (2004) found that “ITenabled dynamic capabilities have a significant impact on improvement in four project-level outcomes (cycle time, cost, quality, and on-time completion rate)” (p. 2). Results indicated that “quality of firms outputs (effectiveness) may be even more important in terms of its impact compared to the quantity of outputs (efficiency) (p. 25). Zhu, K. (2004) showed a “strong positive interaction effect between IT infrastructure and e-commerce capability suggesting that their complementarity contributes to firm performance in terms of sale per employee, inventory turnover, and cost reduction.

With this combination between front-end e-commerce capability and back-end IT infrastructure could be more effective in producing business value” (p. 167). After all these evidences Brynjolfssor (2003) opinion really worth to be mentioned. According to him, “IT managers today shouldn’t ask “Does IT pay off? ” but rather, “How can we best use IT/computers? ”. ” Business Practices to Maximize and Measure IT Value A closer examination revealed that “the biggest benefit accrue to companies that adopt an identifiable cluster of business practices. ” (Brynjolfssor, 2003).

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These practices found to be related to the implementation of technology itself, or involving change in the organization of information work (decision making rights, incentive systems, hiring, and training). (Brynjolfssor, 2003) First step to start with, all organizations “must first understand who their customers are, what they value, how the organization plans to create profits by providing this value and how to deliver that value in a way that the competition cannot mimic”. (Burg, W. D. & Singleton, T. W. , 2005, p. 5), According to Burg, W. D. & Singleton, T. W. (2005), “most organizations use one of three approaches to measure IT value such as traditional financial measurements (return of investment (ROI), total cost of ownership (TCO)), qualitative method (information economics (IE)) or even arguing that IT benefits are intangible (no way to attach a monetary value to them), none of them of which are working. ” (p. 3) After being ready to choose from methodologies to measure the business value of IT, organizations should take in their minds that financial methodologies are not enough to measure the special nature of IT value which could be hidden, intangible or hard to be measure.

Many measurement methodologies were developed in the past few years for measuring the business value of IT such as: business value index (BVI), total economic impact (TEI), Val IT, and Applied information economics (AEI) (Symons, C. , 2006, p. 4). Implementing a value methodology is a vital component of a portfolio management process. (Symons, 2006, p. 16) However, according to Burg, W. D. & Singleton, T. W. (2005), “the best methodology for measuring IT value “should start with defining the value chain in order to identify the intangible benefits of IT project” (p. 5).

There “is no right or wrong methodology (Symons, C. , 2006). Because “what works for one organization may not work for other organizations”. (De Haes, S. and Grembergen, W. V. , 2004) Choosing between methodologies depends on number of factors. He showed that BVI is the simplest, while TEI values flexibility, Val IT takes a governance approach, and AIE offers the greatest rigor with its high degree of confidence. He recommended that firms should pick one methodology, institutionalize it as part of an overall governance framework, and embed it in IT portfolio management”. Symons, C. (2006) In order to succeed measuring the business value of IT, Organizations should take advantages of the best business practices. So, first of all, According to Burg, W. D. & Singleton, T. W. (2005), “without a framework for evaluating increases in business functionality enabled by IT, measuring the value of IT initiatives to the organization becomes impossible” (p. 5). Symons, C. (2006) also, noticed that successful organizations observe some best practices such as: having an active IT steering committee, implementing portfolio management, and using a standard IT value methodology (p. 2).

Tallon, P. P. & Kraemer, K. L. & Gurbaxani, V. (2001) also concluded that “management practices play a central role in creating IT business value, helping to turn strategic intent for IT into position payoffs for the business” (p. 25). These management practices as “strategic alignment and IT investment evaluation contribute to higher perceived levels of IT business value”.

According to Suagatuck (2007), “effective IT governance is the single most important predictor of value an organization generates from IT. ” Symons, C. (2005) showed that “organizations that employ portfolio optimization demonstrate significant increased returns and greater business value from IT investments” (p. 1). According to him, ITPM “provides an effective process for aligning the strategic goals of the business with the appropriate IT strategy for maximum benefit. ”(p. 3). however, Symons explains that ITPM is not a silver bullet; it only provides tools and data for people to make the decisions. But, it is a critical part of an overall disciplined approach to IT governance. Symons, C.

(2005) added the optimization to the equation after he saw that “the maximum benefit is derived when the IT portfol is optimized and this optimization should be based on a set of constraints” (p. 8) in another word, requires techniques for investment, resource planning, decision making, and measurement and communication (p. 8). There are some critical success factors for measuring the business value of IT such as: “consistency of the chosen methodology, credibility of the chosen methodology, joint business and IT accountability, constantly revisiting IT investments, and that value methodology encompasses the entire life cycle”.

Symons (2006, p. 16) Finally, should organizations adopt a methodology to measure IT value? The answer is “yes” and this methodology should start with defining the value chain in and should not depend only on the traditional financial methodologies. Choosing from methodologies depends on the nature of the organization itself. But the real challenge is not to measure but to maximize business value of IT because findings already proved there is a real value or a positive relation between IT and business. So, the real need is to maximize this value.

References

  1. Brynjolfsson, E. & Hitt, L. M. (2000). Beyond Computation: Information technology, organizational transformation and business performance. MIT.
  2. Retrieved March 27, 2008 from http://digital. mit. edu/erik/JEP%20Beyond%20Computation%20BrynjolfssonHitt%207-121. pdf
  3. Bardhan, I. & Krishnan, V. & Lin, S. (2004). A Model to Measure the Business Value of Information Technology: The case of project and information work. Retrieved April 27, 2008 from http://rady. ucsd. edu/faculty/directory/krishnan/docs/valueIT. pdf
  4. Brynjolfssor, E. (2003). The IT Productivity GAP. MIT. Retrieved April 27, 2008 from http://digital. mit. edu/erik/Optimize/pr_roi. html
  5. Burg, W. D. & Singleton, T. W. (2005). Assessing the Value of IT: Understanding and measuring the link between IT and strategy. Information Systems Control Journal, Information Systems Audit and Control Association. , vol. 3, 2004. Retrieved April 27, 2008 from http://www. isaca. org/Template. cfm? Section=Home&Template=/ContentManagement/ContentDisplay. cfm&ContentID=25092
  6. De Haes, S & Grembergen, W. V. (2004), IT Governance and Its Mechanisms, Information Systems Control Journal, Information Systems Audit and Control Association. , vol. 1, 2004. Retrieved April 27, 2008 from http://www. isaca. org/Template. cfm? Section=Home&Template=/ContentManagement/ContentDisplay. cfm&ContentID=16771
  7. Mitra, S. (2005). Information Technology as an Enabler of Growth in Firms: An empirical assessment. Journal of Management Information Systems, 22(2). Retrieved April 27, 2008 from http://portal. acm. org/citation. cfm? id=1277994. 1278007&coll=Portal&dl=GUIDE& CFID=61943483&CFTOKEN=43295729
  8. Symons, C. (2006). Measuring the Business Value of IT. Forrester. 25 September 2006. Retrieved April 27, 2008 from http://viewer. media. bitpipe. com/1070398394_846/1201804423_89/SAP_AMerica_47_MeasuringtheBusinessValueofIT. pdf
  9. Saugatuck (2007), SOA Governance: Necessary Protection for a Strategic Business Investment, IBM. Retrieved April 27, 2008 from http://www-935. ibm. com/services/us/cio/flexible/saugatuck_ibm_soa_governance_jun07. pdf
  10. Tallon, P. P. & Kraemer, K. L. & Gurbaxani, V. (2001). Executives’ Perceptions of the Business Value of Information Technology: A process-oriented approach.
  11. Journal of Management Information Systems, 16(4), 145-174. Retrieved April 27, 2008 from http://repositories. cdlib. org/cgi/viewcontent. cgi? article=1057&context=crito
  12. Zhu, K. (2004). The Complementarity of Information Technology Infrastructure and E-Commerce Capability: A resource-based assessment of their business value. Journal of Information Systems, 21(1), 167-202. Retrieved April 27, 2008 from http://portal. acm. org/citation. cfm? id=1277682. 1277690&coll=Portal&dl=GUIDE&CFID=61943483&CFTOKEN=43295729

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