Elsevier

Information & Management

Volume 44, Issue 6, September 2007, Pages 568-582
Information & Management

Assessing the strategic value of Information Technology: An analysis on the insurance sector

https://doi.org/10.1016/j.im.2007.05.005Get rights and content

Abstract

Even though companies today are well aware of the pitfalls in making IT investments and that many IT applications have become commodities, IT projects still fail. Obviously IT has a strategic value to firms but they have not determined how IT management capabilities and IT governance schemes explain commonalities and differences in their use of IT.

We analyzed the insurance industry in the US and Europe through case studies and an analysis of 30 Italian firms. Twenty case studies carried out between 1998 and 2003 led us to conclude that technological and business path dependencies, along with time compression diseconomies, resulted in diversities in IT adoption dynamics due to their differences in IT governance and management practice. Our analysis showed that most of the firms in the Italian insurance sector increased their productivity through IT regardless of their IT management capabilities. It also showed that competitive advantages were not correlated with IT spending levels nor with the kind of IT investments that made general productivity growth in the industry possible.

Introduction

The capabilities required for managing investments in IT have become complex and now include a greater variety of competencies. This increased complexity is primarily due to the pervasiveness of IT in the organization, its rapid evolution, and the multiplicity of fields now under the control of IT managers. In this context, appropriate governance and management approaches have a primary importance for the success of IT projects [5], [7], [15], [29].

The management systems – determining the way decision rights and accountability are distributed among line, senior, and IT managers [41] – define a “track” that drives the planning for and implementation of IT. With IT spending decisions made throughout the enterprise and new opportunities arising from emerging technologies and competition, local executives must make funding decisions more frequently.

However, even though the importance of appropriate IT management systems is known to executives, many companies fail in implementing their IT projects [16], [26]; this means that a more in-depth analysis of the actual strategic value of IT is required. Should companies really cut IT investments and carefully manage the risks stemming from failure? Is IT a resource that can bring about growth in productivity if combined with organizational change, but one that cannot provide any firm with a lasting competitive advantage?

We found that little attention had been given to analyzing the effect of IT management capabilities on firms’ IT resources accumulation processes over a long-time horizon, and to considering the implications of this process on competitiveness. Therefore, we focused our attention on such issues while trying to understand how to recognize competitive advantage in the use of IT.

Our emphasis was thus on identifying similarities and differences in the firms’ changes driven by IT. More specifically, we focused on the effect that IT spending, IT management systems and the quality of the decisions had on the firm's accumulation of IT resources. To do so, we analyzed the insurance industry by using a sequential approach [18] based on combining a qualitative analysis of 20 case studies of American and European insurance firms and a panel study on a sample of 30 insurance enterprises doing business in Italy. Data on Italian companies were focused on the relationships between investments in IT, the organizational changes driven by IT and performance. The results were obtained through a sequential triangulation [13]; this made it easier to understand how the differences among companies in terms of their IT management explained their productivity and competitiveness.

We chose to analyze this topic on a single industry for two reasons. First, this allowed us to control the differences in the competitive environment and the business processes in which IT applications were adopted. Second, the insurance industry was particularly suitable, given its information-intensive nature and the significant changes that have occurred in the competitive environment in the 1990s as the result of deregulation. Along with an evolution in customer demand, these changes have led insurance firms in both the United States and Europe to redesign their business and organizational models.

Section snippets

The antecedents of successful IT investments

In order to use IT effectively, companies must establish a priori the role that it has in their business, the way the IT architecture is managed (i.e. what IT applications must be standardized to support data integration and favor IT efficiency) and the way IT activities must be organized within the company (i.e. which services should be outsourced, which ones should be implemented enterprise-wide, and what service level requirements should be defined). Large companies must maintain control

The research methodology

The current state of the art suggests that IT management capabilities play a significant role in explaining both the differences in the composition of a company's IT portfolio and the rapidity with which a firm reacts to the availability of a new technology for changing the organization of business processes.

In order to understand whether this effect has a strategic value and can explain competitive differentials in an industry, the case studies used an inductive approach for analyzing the

Appraising the value of IT: commonalities and differences in IT adoption dynamics

In investigating our case studies, the strategic value of IT was assessed by analyzing the IT management model and the IT projects realized in each of the firms between 1998 and 2003. The goal was to identify similarities and differences in the change processes driven by IT investments.

Research hypotheses

The case studies allowed us to generate an in depth conceptualization of the way that IT management shapes the patterns of IT adoption through inductive reasoning. However, some findings needed further quantitative validation. For example, the possibility to improve productivity through the reorganization of the coordination between the technical core and the agencies had to be tested on a quantitative base in order to be accepted as an aspect occurred in all competitors in the industry. We

Conclusions, managerial implications and limitations

This article showed that the major differences among firms in their use of IT for developing new business capabilities can be traced back to the way that IT projects were managed and to the governance systems used to allocate decisions and responsibilities for IT investment. In our study, companies where IT produced visible returns had better IT management practices that allowed them to adapt their organizational routines and IT portfolio rapidly to meet business needs. We can conclude from

Acknowledgements

Case studies in the United States were carried out with the collaboration of the Anderson School of Management at the UCLA. For this we owe a special thanks to Uday Karmarkar, LA Times Professor of Technology and Strategy.

Paolo Neirotti is assistant professor at the Politecnico di Torino Technical University. He holds a Ph.D. in “Economics and Management” from the Politecnico di Milano. His teaching and research interests include management of information systems, strategy and technology management.

References (43)

  • T. Bresnahn et al.

    Information technology, work organization and the demand for skilled labour

    Quarterly Journal of Economics

    (2002)
  • F. Caldwell

    Sarbanes-Oxley Compliance Hits 15 Percent of the 2006 IT Budget

    (2005)
  • N.G. Carr

    IT doesn’t matter

    Harvard Business Review

    (2003)
  • N.G. Carr

    The end of corporate computing

    Sloan Management Review

    (2005)
  • J. Collins

    Good to Great: Why Some Companies Make the Lead and Others Don’t

    (2006)
  • J.H. Creswell

    Research Design: Qualitative and Quantitative Approaches

    (1994)
  • D.F. Feeny et al.

    Core IS capabilities for exploiting information technology

    Sloan Management Review

    (1998)
  • C.S. Feld et al.

    Getting IT right

    Harvard Business Review

    (2004)
  • C. Francalanci et al.

    Information technology and worker composition: determinants of productivity in the life insurance industry

    MIS Quarterly

    (1998)
  • J.C. Greene et al.

    Toward a conceptual framework for mixed-method evaluation designs

    Educational Evaluation and Policy Analysis

    (1989)
  • S.Y. Harris et al.

    Firm size and the information technology investment intensity of life insurers

    MIS Quarterly

    (1991)
  • Cited by (65)

    • Examining the transition to agile practices with information technology projects: Agile teams and their experience of accountability

      2022, International Journal of Project Management
      Citation Excerpt :

      The financial services industry is characterized by an organizational structure that is hierarchical and driven by top-down accountability (Neirotti and Paolucci, 2007). The implementation of IT projects brings IT management challenges that Neirotti and Paolucci (2007) relate to the centralization of IT governance among these firms. Agile practices, by their very nature, are decentralized in their decision-making and governance rather than strategic.

    • Investments in IS/IT projects: The healthcare sector

      2023, Effective AI, Blockchain, and E-Governance Applications for Knowledge Discovery and Management
    View all citing articles on Scopus

    Paolo Neirotti is assistant professor at the Politecnico di Torino Technical University. He holds a Ph.D. in “Economics and Management” from the Politecnico di Milano. His teaching and research interests include management of information systems, strategy and technology management.

    Emilio Paolucci is full professor at the Politecnico di Torino Technical University, where he teaches organizational behaviour and management of information systems. He has around 60 journal publications that spans information systems, organizational change, knowledge and technology management. He is responsible of international programs at the Politecnico di Torino.

    View full text