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Modeling the IT value paradox

Published: 01 August 2007 Publication History

Abstract

Assessing the value of IT investments has stumped managers and academics for years. If viewed as a commodity input, however, IT should be measured in the context in which the investment takes place.

References

[1]
Carr, N. IT doesn't matter. Harvard Business Review 81, 5 (May 2003), 41--49.
[2]
Carr, N. Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. Harvard Business School Publishing Corporation, Boston, MA, 2004.
[3]
Clemons, E. Strategic necessities. ComputerWorld 22, 8 (1988). IDG, Framingham, MA, 79--80.
[4]
Landers, P. Drug industry's big push into technology falls short. Wall Street Journal (Feb. 24, 2004), A1.
[5]
Thatcher, M. and Oliver, J. The impact of technology investments on a firm's production efficiency, product quality, and productivity. Journal of Management Information Systems 18, 2 (Fall 2001), 17--43.
[6]
Thatcher, M. and Pingry, D. An economic model of product quality and IT value. Information Systems Research 15, 3 (Sept. 2004), 268--286.
[7]
Thatcher, M. and Pingry, D. Understanding the business value of IT investments: Theoretical evidence from alternative market and cost structures. Journal of Management Information Systems 21, 2 (Fall 2004), 61--85.
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Travis, P. Combining 29 networks into one lets airport give passengers new perks. InformationWeek (Apr. 4, 2005).

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  • (2021)The Usefulness of the Two-Step Normality Transformation in Retesting Existing TheoriesACM SIGMIS Database: the DATABASE for Advances in Information Systems10.1145/3447934.344793952:1(53-64)Online publication date: 22-Jan-2021
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Lili Saghafi

When a company buys a new truck, it can predict with some accuracy how much more revenue this will generate by delivering more of their product faster to more customers. That can make it easier to justify the investment. It is hard to produce similar numbers for information technology (IT) investments. Thatcher and Pingry present "analytical models that address the logically prior theoretical question: How does IT matter when it is a commodity input__?__" They demonstrate that companies shouldn't necessarily expect that IT investments create better value; technology investments are often more expensive than they first appear, and the value they deliver is more difficult to measure. "The directional impact of IT investments on business value depends critically on three factors: the type of product development the IT supports, the market structure in which the firm competes, and the type of IT in which the firm invests." Even though many may think that the process of IT value measurement is too complicated to bother with, Thatcher and Pingry demonstrate that it is not. Their findings demonstrate that "an IT investment may either have a positive impact, a negative impact, or an impact that depends on the model parameterization." The authors conclude that their work "adopts the view of IT as a commodity input where investment in IT does not, in and of itself, create a market advantage for any one firm." In general, this work has some convincing points. It is a worthwhile read for the IT community.

Lili Saghafi

When a company buys a new truck, it can predict with some accuracy how much more revenue this will generate by delivering more of their product faster to more customers. That can make it easier to justify the investment. It is hard to produce similar numbers for information technology (IT) investments. Thatcher and Pingry present "analytical models that address the logically prior theoretical question: How does IT matter when it is a commodity input__?__" They demonstrate that companies shouldn't necessarily expect that IT investments create better value; technology investments are often more expensive than they first appear, and the value they deliver is more difficult to measure. "The directional impact of IT investments on business value depends critically on three factors: the type of product development the IT supports, the market structure in which the firm competes, and the type of IT in which the firm invests." Even though many may think that the process of IT value measurement is too complicated to bother with, Thatcher and Pingry demonstrate that it is not. Their findings demonstrate that "an IT investment may either have a positive impact, a negative impact, or an impact that depends on the model parameterization." The authors conclude that their work "adopts the view of IT as a commodity input where investment in IT does not, in and of itself, create a market advantage for any one firm." In general, this work has some convincing points. It is a worthwhile read for the IT community. Online Computing Reviews Service

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Published In

cover image Communications of the ACM
Communications of the ACM  Volume 50, Issue 8
August 2007
94 pages
ISSN:0001-0782
EISSN:1557-7317
DOI:10.1145/1278201
Issue’s Table of Contents
Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for components of this work owned by others than ACM must be honored. Abstracting with credit is permitted. To copy otherwise, or republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. Request permissions from [email protected]

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Association for Computing Machinery

New York, NY, United States

Publication History

Published: 01 August 2007
Published in CACM Volume 50, Issue 8

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Cited By

View all
  • (2021)Toward the Theory of Using Information for Actions in Systems: Prospects for Research and Reviews2021 30th Conference of Open Innovations Association FRUCT10.23919/FRUCT53335.2021.9599969(52-63)Online publication date: 27-Oct-2021
  • (2021)The Usefulness of the Two-Step Normality Transformation in Retesting Existing TheoriesACM SIGMIS Database: the DATABASE for Advances in Information Systems10.1145/3447934.344793952:1(53-64)Online publication date: 22-Jan-2021
  • (2018)Evolutionary paths and influencing factors towards digital maturity: An analysis of the status quo in Swiss hospitalsTechnological Forecasting and Social Change10.1016/j.techfore.2018.03.009133(104-117)Online publication date: Aug-2018
  • (2017)Revisiting IS business value research: what we already know, what we still need to know, and how we can get thereEuropean Journal of Information Systems10.1057/ejis.2012.4522:2(139-169)Online publication date: 19-Dec-2017
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  • (2014)Evaluating the business value of information technology: Case study on game management system2014 IEEE 22nd International Requirements Engineering Conference (RE)10.1109/RE.2014.6912270(283-292)Online publication date: Aug-2014
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