Assessing the strategic value of Information Technology: An analysis on the insurance sector
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)
- et al.
Strategy, IT applications for planning and control, and firm performance: the impact of impediments to IT implementation
Information & Management
(2006) Factors facilitating the use of information technology for competitive advantage: an exploratory study
Information & Management
(1988)- et al.
The effectiveness of strategic information systems planning under environmental uncertainty
Information & Management
(2006) - et al.
Which came first, IT or productivity? The virtuous cycle of investment and use in enterprise systems
- et al.
Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations
Review of Economic Studies
(1991) Econometric Analysis of Panel Data
(1995)Firm Resources and Sustained Competitive Advantage
Journal of Management
(1991)- et al.
A framework for managing IT-enabled change
Sloan Management Review
(1993) A resource-based perspective on information technology capability and firm performance: an empirical investigation
MIS Quarterly
(2000)- et al.
IT capabilities: theoretical perspectives and empirical operationalization
Information technology, work organization and the demand for skilled labour
Quarterly Journal of Economics
Sarbanes-Oxley Compliance Hits 15 Percent of the 2006 IT Budget
IT doesn’t matter
Harvard Business Review
The end of corporate computing
Sloan Management Review
Good to Great: Why Some Companies Make the Lead and Others Don’t
Research Design: Qualitative and Quantitative Approaches
Core IS capabilities for exploiting information technology
Sloan Management Review
Getting IT right
Harvard Business Review
Information technology and worker composition: determinants of productivity in the life insurance industry
MIS Quarterly
Toward a conceptual framework for mixed-method evaluation designs
Educational Evaluation and Policy Analysis
Firm size and the information technology investment intensity of life insurers
MIS Quarterly
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 ManagementCitation 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.
Impact of COVID-19 pandemic on information management research and practice: Transforming education, work and life
2020, International Journal of Information ManagementCreativity and artificial intelligence: A multilevel perspective
2024, Creativity and Innovation ManagementFactors Influencing the Readiness for Artificial Intelligence Adoption in Indian Insurance Organizations
2024, IFIP Advances in Information and Communication TechnologyInvestments in IS/IT projects: The healthcare sector
2023, Effective AI, Blockchain, and E-Governance Applications for Knowledge Discovery and Management
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.