The Value and Impact of Information Technology Investments - Thesis Example

IT INVESTMENT] By Kaveh Farahmand Bhaskar ISDS 577 2/14 Table of Contents 3 Introduction 4 Theoretical Framework 5 Use of IT Investments In Developing Countries 8 In developing countries IT investments are encouraged to progress for the overall economy with the probability of success in business. The growth resultant increased the trend of IT investments in several countries and businesses in developing and developed countries. The status of IT investment returns is described well in the developed countries and less in developing countries. There are fewer studies arranged for the determination of factors that are contributing and accelerating IT investments in developing countries. 8 Studies that are promoting IT investments in developing countries are highlighting global and local businesses links with the emphasis on intermediary parties that are required to link these local and global businesses. The institutional settings and communication systems in any business are major affecting factors in the success of any business (Lubbe, 2007). These factors are linked to a local business going global or planning to expand in future. For the success of IT investments following factors are necessary: 8 · Standard procedures and effective telecommunication infrastructure are required 8 · Network of non human resources like technology and its parts 8 · Skilled team of human resource with proper training 8 · Cross cultural settings presence during plans to expand globally 8 · Rectification of errors in non face to face communication 8 · Getting recognition with IT investments properly in local market before expanding 9 Impacts of IT investments are more likely to be considered in developed countries and less attention is paid in developing countries. But most of studies identify that the success of information technology investments are not completely used by all organizations and they found that the reason behind the lack of initiative is large amounts of budget being required for implementing IT properly. 9 Similarly the development of human resources can be another factor in getting advanced technology in any firm because up to date knowledge is required for maintaining IT systems in order to run these systems effectively. Mostly advanced countries are still striving more to be developed for attaining more attention towards IT investments. The combination of IT with the internet, human resources, technology management helps a lot in a return on investment. The perfect combination and alliance of technology and its users in the proper way can result in more profits, business value, competitive advantage and richer insights with brighter future prospects (Kambil, Henderson, & Mohsenzadeh, 1991). 9 Literature Review 9 Methods 12 Managing Investment In IT 14 Purposes of IT Investment 15 Strategic Objectives 16 Transformation 16 Renewal 17 Process Improvements 17 Experiment 18 Objectives 18 Advantages 19 Impacts of IT Investments on Organization 20 Conclusion 21 References 22 Abstract This thesis is prepared keeping in view the issues which are related to the organizational investment plans. The first section focuses on the importance of IT investment especially in developing countries. These plans could be strategic or planning for the objective achievement. The second part starts with a theoretical framework which includes social theories devised by Gidden and Orlikowski. Moreover it also includes microeconomics and industrial organization theories. The third part of this research discusses about managing investment in Information technology. The researchers have found that the use of IT in any organization contributes in making its operations more efficient and effective. It has been concluded after performing this research that the technological resources are allocated by investing in the field of the information technology. Different firms which are existing and running business want to improve their operations and working systems of the business. Hence the impacts which are measured after the implementation of these technological advancements are known as the intangible benefits. These initiatives are increasing more in the developing countries which is discussed in detail in the report. This factor contributes in the overall economical performance of the organization as well as to the country. Moreover it is beneficial for the competition also. There are several reasons which are present in the thesis for which organization wants to improve the overall operations or few departments with the help of information technology investment. The value that is achieved by the use of IT is also described in paper for having a clear idea about the advantages and uses of these types of investments. The paper concludes with in-depth analysis of the framework discussed and provides some options which can be implemented in organizations looking for IT advancement. Introduction Technological advancements in every field are necessary and should be used by organizations striving for their development. Every organization whether big or small needs to be updated and want to invest more in the field of information technology. Every organization works specifically on improving their operations and processes with the help of latest information technology techniques and processes. Large companies focus more on these types of investments in order to get the maximum output from its operations and to earn more revenues. Organizational goals and objectives can be efficiently and effectively achieved with the help of information technology. This can only be achievied if employees and higher management are properly trained before utilizing these technological innovations in office routine. (Schniederjans, Hamaker, & Schniederjans, 2010). However the decision regarding IT investment depends upon some important factors which include: Strategic performance and decisions Competitive tactics Economic conditions Budget allocation Every business can attain benefits of this advancement with the right size of budget and adequate knowledge of their field. Researchers have found that organizations that opt for IT investments are growing with fast pace and attaining a greater return on investments. The increasing level and trust on these investments are derived fromthe success stories of those large organizations that chose IT as their first priority to attain the competitive advantage and other benefits. IT investments are similar to other capital expenditures of a business that result in higher returns. In this scenario, fixed, variable and expected returns need to be considered when encountered with such types of capital expenditures. IT investment projects are considered in the investment portfolio as a balancing factor of risk and rate of return for these organizations. The decision making authorities must focus on the analysis of the entire IT package that is going to be implicated in different operations and processes. Understanding and analyzing IT systems is important before taking investment decisions because this investment is as significant as other major investments. If this resource is managed wisely with critical skills and intelligence then it can make other processes effective for the organization (Tam, 1998). Theoretical Framework Philosophers of social sciences incorporate the phenomena of IT investment as a subjective and objective theory. There are lots of theories that are proposed by various theorists such asa theory in 1976-84 by Gidden which is called the “Structuration Theory”. According to the Structuration theory, it helps the researchers to know in depth aspect of both the subjective and objective implications of these investments in any particular organization. The Structuration theory emphasizes on organizational processes in which information systems are used or going to be used (DeSanctis & Poole, 1994). This theory presents the interaction and relation of human resources and the structural processes in an organization. The study describes human actions are essential in running of technological structures and that it depends upon not only the current performance of human resources available but also on previous performances of skilled people and as a whole it counts in the outcome of such processes in any particular organization related to any industry. The role of human actions is exhibited and demonstrated in the theory as a featured element of the structural properties. The study affirms the use of information technology in any organization to: · Get business values from the processes improved in direct result of IT investment · Creating new technological prospects through innovations · Changing technology and getting customized benefits from its usage · Accomplishing business goals, objectives and certain actions The Orlikowski proposes in 1992 re-moderation, as the quality of the technology that is being recurred in any organization which requires an overhaul. It also depicts that technology is physically forged by human resources acting through different means in which they are attached to run that technology. In order to understand the entire scope of the value derived from the use of technology, the necessary element of human actors is to be apprehended. Actions and management done by human resources is very important to understand because it is directly related to the functioning of a technological structure in any organization. The basic theme is about the interactive relationship or synergy of both human resources and technology structures. Technological resources and the users of those resources both are important in analyzing one’s position (Powner, 2011). There are different theories which are associated with IT investments like: Microeconomic theory: Microeconomic theory is a well defined model and mathematical way of assessing the value of IT in a firm’s life. This theory of production has been particularly specified by the process of production and it also provides all those empirical methods for the estimation of the impact of IT on an economy. This theory was proposed by Brynjolfsson and Hitt 1995 (Nicholson & Snyder, 2011). Industrial organization theory: IT value researchers have analyzed that a firm or any particular organization that interact in taking IT investment decisions to understand the outcomes or the resultants of IT structures adoption. Game theory is used for the analysis of strategic interaction of an organizations competitors and the business value achieved by IT structures. This theory was presented by Belleflamme in 2001 (Waldman & Jensen, 2012). There are lots of other studies which are conducted for the same purpose of getting an exact idea about the usage of IT infrastructure wholly or partially in any particular organization that is for the strategic plans of an organization in order to improve its performance and value in a market. This idea is also in progress for researching and analyzing the knowledge present for new and upcoming business researchers. This will help them in getting new horizons for investment opportunities internationally and locally. Similar methods are conducted within developed and underdeveloped countries to get a differentiation of the beneficial aspect of IT investments because in developed countries, chances are that they are more likely to be linked with the use of IT structures. Use of IT Investments In Developing Countries In developing countries IT investments are encouraged to progress for the overall economy with the probability of success in business. The growth resultant increased the trend of IT investments in several countries and businesses in developing and developed countries. The status of IT investment returns is described well in the developed countries and less in developing countries. There are fewer studies arranged for the determination of factors that are contributing and accelerating IT investments in developing countries. Studies that are promoting IT investments in developing countries are highlighting global and local businesses links with the emphasis on intermediary parties that are required to link these local and global businesses. The institutional settings and communication systems in any business are major affecting factors in the success of any business (Lubbe, 2007). These factors are linked to a local business going global or planning to expand in future. For the success of IT investments following factors are necessary: · Standard procedures and effective telecommunication infrastructure are required · Network of non human resources like technology and its parts · Skilled team of human resource with proper training · Cross cultural settings presence during plans to expand globally · Rectification of errors in non face to face communication · Getting recognition with IT investments properly in local market before expanding Impacts of IT investments are more likely to be considered in developed countries and less attention is paid in developing countries. But most of studies identify that the success of information technology investments are not completely used by all organizations and they found that the reason behind the lack of initiative is large amounts of budget being required for implementing IT properly. Similarly the development of human resources can be another factor in getting advanced technology in any firm because up to date knowledge is required for maintaining IT systems in order to run these systems effectively. Mostly advanced countries are still striving more to be developed for attaining more attention towards IT investments. The combination of IT with the internet, human resources, technology management helps a lot in a return on investment. The perfect combination and alliance of technology and its users in the proper way can result in more profits, business value, competitive advantage and richer insights with brighter future prospects (Kambil, Henderson, & Mohsenzadeh, 1991). Literature Review Literature review of studies which are conducted for the purpose of getting a basic idea about the realization of organizational value achieved by IT investment opportunities have revealed that these factors are divergent. Organizational performance is however conceptualized by these factors like an investment opportunity with proper planning and research with the help of skilled and trained staff. Researchers have developed a model of IT business value to see the whole organization as a single framework. An integrative model is used to synthesize benefits and impacts of IT investment initiative of a particular organization to make guidelines for their future growth of specific organizations. Proper propositions are developed and suggested as a research agenda to find that the use of IT is valuable for a company and it can have positive returns with the help of the use of information technology systems into other processes or departments separately (Hochstrasser, 1990). Other purposes of these researches are to find out the outcomes of organizations especially those which are using information technology systems already and are experiencing improved versions and benefits of some efficient and effective operations. These organizations provide an idea about how many issues the organization has faced while implementing IT resources including trained human resources. Studies have found the relevance between dimensions and another important aspect that these dimensions are dependent upon internal factors including external factors that are related to the internal environment and external environment of many firms. Complementary organizational resources, supply chain, trading partners, micro environment and macro environment including competitive environments are factors upon which organizational decision for adopting new technology and growth prospects are linked. Guidelines for organizations which are planning to improve or experiment through IT investment initiative is provided with the help of studies which are conducted based on the characteristics and objectives of firms which are going to change and reconstruct its processes. Knowledge about the accumulation and creation related to organizational performance and IT impacts is facilitated by researches and studies conducted through organization’s executives and their customers who are getting the benefits of enhanced customer care services with efficient and effective delivery of the products. According to the studies based on networking solutions for organizations the altering ways are considered by organizations to acquire desired inputs, efficient production and distribution ineffective way for their customers. This theory is proposed by Hammer, Straub and Watson in 2001. After that a new question was taken into consideration that IT could transform organizational performance in a positive way. Prior research by scholars exemplifies the electronic connection trade for improving a firm’s ability to modify the existing strategies and to reconstruct plans for adoption of a more automated and upgraded system in their business through investing in information technology (Peppard, Ward, John, Daniel, & Elizabeth, 2007). This adds value to the business in several ways like improving efficiency of production, efficiency in other operations, competitive advantage or reducing cost of production. This factor also establishes the sense that competition is one of the basic factors that is a driving force behind reshaping the whole business systems with the use of information technology. The emerging and vast scope of studies and researches are examining various impacts of IT in an organization’s performance. Basic knowledge about these factors is still insufficient. However, under-developed and unsystematic researches have widened the scope of research by raising the relative questions regarding the impacts of IT usage on an organization. This theory is presented by Chatfield and Yetton in 2000 which was further elaborated by Mukhopadhyay and Kekre in 2002. The reason of the review is to add knowledge and to create some academic disciplines of IT investments creating value for organizational performance. Enhancement of certain areas regarding any study widens the scope of thinking and creativity for new and improved ideas and also to know about changes in a new era of technology especially by this paper. Specific tasks for researchers were to establish a sense of risk asking for new improvements and further by providing theory for the development of IT business model as an example for a new investor to check the standing of these organizations, measuring the value of an organization investing in IT, testing a model to check values, guiding the future research analysts to bring forth new and improved ways of research (Tam, 1998). This study also relates to researches that are conducted for IT business value and for impacts of external and macro environment on basic business transformation. Differentiation is used while conducting studies linked to IT investments like the span is broadened by using data from international organizations and theoretical paradigm is increased with improved research models because of the importance of IT investment in overall economic contribution. Methods The methodology involved in the technological processes and investments regarding such processes are based on explanation of the social events occurring in a particular organization. The basic studies are based on a few of the sectors of businesses that are using IT investments for the betterment of their processes and operations like: Banking and insurance Tourism Telecommunication Government organizations These studies are based on the facts and figures provided by the executive members, middle management, supervisors and the finance personnel. The researches say that nature of advantages which are related to IT investments at the level where operations are performed. There are several issues that are related also to the investments: Relationships between supply chain, customers, etc. Quality of service provided Business image and goodwill effects Adaptation of the new technology The accounting controls There are several intangible benefits which are associated with the use of information technology investments in the organizations where the service driven economy is present. The data analysis of any organization tells about the perceptions of the intangible benefits from the information technology investments. Every organization has its own way of perceiving the intangible benefits to the organization attained by the information technology investments. Further operations are improved such as the goodwill which can be enhancedby customer care through interactive sessions and feedback that will surely allow the organization to interact with the customers and suppliers to retain them for longer and using them for the interest of the business (Davern & Kauffman, 2000). If the decision makers such as the researchers, policy makers, business owners, executives or managers are all experienced and like to experiment new opportunities and can take risk of investing in new experimental technology then this can also be termed as the parallel phenomena for the success of information technology investment. There is a clear association present between IT and organizational performance based on the methods adopted for the improvements. All these improvements are based on the methods and how these methods are executed and maintained by the human staff and decision makers. The studies regarding the IT investments have revealed that the model of IT business valued more than the other organizations not selecting the improvement plans. The resource based view of the organization is integrated to the various factors of research into a single study. So the result was that the good quality methods are also dependent upon the experienced, skilled, and trained human resources that are accountable for the acts after the execution of the methods for the information technology investments and structures and also for the maintenance of the systems (Nicholson & Snyder, 2011). Managing Investment In IT The business invests a significant amount into the information technology implementation. There are lots of factors involved in making these investments productive and worthwhile for the organization. The process of recognizing the need of the IT investment is the most important factor. The timely investment decision will give the business a competitive edge over others and also if it is followed with the innovation it will be conducive. Before taking the investment into consideration the plan for these is the essential element: Analyzing the need Investment level Budget allocation Trained staff Training investments Monitoring the implication Controlling the risks The utilization of these IT resources should be dealt by responsible members of the organization as this decision requires the whole re-engineering of the business. These decisions could be: The defined base should be allocated to the plan of IT implementation The timely tracking of the process with the adoption of representation of IT structure in the organization Focusing on the different types of the investments and emphasizing on them according to the nature and purport of these investments and then measuring the performance according to the significance of each of them to support IT investment Considering the need of other organizational factors like the management, skills and experiences as the basic related factors in the IT structure (Peppard, Ward, John, Daniel, & Elizabeth, 2007) Directors have found the IT investment very beneficial for the businesses and take these investments as the competitive models. The innovative part gets the business highlighted in the cut-throat competition and the continuous and frequent management will refurbish the overall techniques of conducting these operations. These investments are taken as the blind faith of getting the increase and acceleration in the outcomes. Purposes of IT Investment There are different purposes for which businessmen or the investors opt for technological advancements through the large or small scale investments in such kind of structures. This figure shows the relationship of different causes of the technological advancements and investment level required for those advancements with the prospects of growth. Strategic Objectives The above mentioned diagram is depicting the trends of the business by applying and implementing new and improved processes and operations. This all is possible with the implementation of technology and that could be attained with the assistance of trained and skilled staff. The rationale and cause behind every type of the re-engineering could be different and there are some systems which require improvement according to the need of organization. Transformation The investment type of the transformation is a requirement which is derived from core infrastructure which further depicts the inadequate trend regarding the business model. The reconstruction of such business model seems to be crucial for the business at a particular time. The executives of the organization decide and allocate budget for the information technology investment. The owners of such investment could be the whole company or the departments that require investment only because they are affected by the lack of technological advancements and needs the new and improved processes. The example of such type of investment initiative could be the transformation of the network within an organization with the help of data warehouse to manage the web environment of interlinking the departments (Benjamin & Levinson, 1993). Renewal Behind the renewal policy of any particular organization the basic aim is to find out opportunity for reducing the production cost and increasing the quality of operations and services. This can be attained with the help of improvements in existing organization especially focusing on information technology. Further it is also required to allocate adequate budget for achieving the goal. The CIO decides the annual allocation of the budget regarding investments on the renewal packages. The probable owner can be the technology owner or service providers if the information technology is installed with shared components. The example for this type of investment is the acquiring the additional capacity and enabling the purchase discounts for the IT structure. The upgrading of the systems allows the organization to get access to existing data and retiring the outdated technology and systems from the operations. Process Improvements This investment provides the opportunity to improve operational processes to get the maximum output with efficient and effective production and other functioning of the business. This type of investment is dealt as the business case. The owners of these advancements are SBUs the strategic business units where the functional areas are present to realize the benefits. As a result the company will get advantage of low cost customer service. The HR services are enhanced and the cost of printing is decreased with the advantage of getting new data automatically. The cycle processes are streamlined (Hochstrasser, 1990). Experiment In experimenting investments driving force could be the new technologies new ideas, new processes and new business model or in short words the entire reconstruction takes place within particular organization that opts for such information technology investments. The budgets are allocated by business owners or executive members of the organization. The owners could be the functional areas using technology or the SBUs of business that are reconstructed with the help of IT. The testing of new products and their launce is an example of the experimenting investments. Other examples can be testing of the new pricing strategy, customer self caring, cannibalization of the channels, assessing customer interest in the channel and assessing the customer interest in new technology etc. Objectives These are the few basic objectives of the businesses to reconstruct or to improve the operations of the information technology systems. These objectives are based on the organizational goals and the need for the increase in the revenues and other needs like competitive advantage and efficiency. These objectives are: To improve the effectiveness of the advertising The improvements in the promotional campaigns To increase sales volume from the improvements in the customer care and additional benefits The supply chain management with the help of technology Interconnection of several departments through the ERP systems and networking through intranets and extranets Cutting the cost of production Decreasing the human aspect of the operations of automation of several processes Efficiency in the working Accurate working and record keeping Expanding business in the new regions or globally after local experience like in the form of strategic business units Database functions Account management processes introduction Advantages There are several advantages of the information technology investments like other investments in the assets or hiring of human resources these are the following prospects that are beneficial for the business if used in the proper way. The trained staff is required for the job of operating new systems of the information technology. Once the business decides to invest in reconstruction through technology also have to plan for training and hiring of new and skilled staff and also with training of the existing staff which is necessary to get the best advantage.This process is called the appraisal of the organization’s existing staff (DeSanctis & Poole, 1994). The basic advantages associated with the usage of information technology systems could be: Reducing the cost of the production Reducing the cost of the extra labor required for the complex operation Reducing the time of the processes involved in production or other functioning of business systems Accuracy of the working and data base recordings Improvements in overall processes of business Competitive advantage through increased efficiency and customer services The increased sales volume Eliminating the demand supply gap by producing the adequate products to fulfill the demand of the market Efficient and interactive customer dealing Increased conversion rates in the ordering Marketing campaigns effectively operated and monitored online with the help of online resources and multiple media coverage for promotions and advertisements The pricing strategies should be dealt with the proper research analysis through the IT investments Comparing efficiently the previous facts and figures of the company to get analysis and trends for future prospects Impacts of IT Investments on Organization The relationship between the business investments concerning information technology and organizational performance is the controversial issue. This is because the implementation effects are required to be faced by the company which could either be negative or positive. It depends upon proper research and planned implementation of information technology systems within the particular organization. It is a fact that the information technology investments are encouraged and are adopted by many organizations but the implementation processes are as difficult as the determination of the effects of such investments. Some studies which are perfomed on the relationship between investment and organizational performance have depicted the positive effects of such implications. Further proper research must be perfomed on different organizations which are involved in using the information technology investment opportunities which can help any upcoming business in their technology implementation. The investment level, usage, perception and decision making program are directly related to the firm’s performance technological orientation and future orientation. However there are some debatable concepts which are also related to the firms performance because these factors helps the organizational decision makers to plan for the future. The aligned and contributing strategies can be made with help of analyzing the future prospects of any of these factors that are involved in the firm’s overall performance. The level of investment is important to judge and allocate the budget required for this purpose. The IT usage and decision making are done by the executive members is based on the proper research and analysis of the data and the trends of the technological advancement in the particular industry (Lubbe, 2007). The market trends are important in considering any type of improvement plans and the implementation of such plans. The innovations are however encouraged but these improvements must have some positive return making prospects for any particular organization. Conclusion The above discussion shows the nature of information technology investments with in depth analysis of a theoretical framework that is involved in information technology adopted by any organization. These types of investments have different types based on the reasons for the adoption of such systems. There are several studies and researches that are conducted especially to know about the contribution of the information technology investments in any particular organization that are aimed at describing the role of such investments and the impacts of such investments on the organizations. These studies have proved it as an intangible benefit that is going to be like the goodwill of the firm. The developing countries are also taking these types of initiatives at a very fast pace. The business value is basically strengthened by a strong information technology system. This concept of investment regarding information technology is a geographical phenomenon currently. Every single organization tries to get the competitive advantage with accelerated performance techniques to get the position and the cut throat competition of market trends. The ease of automation and data processing comes with the additional benefit of networking that allows every organization to run the operation systematically through efficient and less time consuming methods. The organizations face several issues while choosing the IT investment decision as strategy to expand and improve. But these issues are less important because the results of IT investment are always worthwhile. The positive graph of IT investment organizations forces the other small businesses to opt for such IT investments no matter how hard they struggle for that purpose. The training of the existing staff and the new recruitments are required to run these systems and these are followed by the increase in the expenses. The advantages associated with IT investment are more likely to be considered by the organizations. References Benjamin, R. I., & Levinson, E. (1993). A Framework for Managing IT-Enabled Change. Sloan Management Review , 23-33. Davern, M. J., & Kauffman, R. J. (2000). Discovering Potential and Realizing Value from Information Technology Investments. Journal of Management Information Systems , 121-143. DeSanctis, G., & Poole, M. S. (1994). Capturing the Complexity in Advanced Technology Use: Adaptive Structuration Theory. Organization Science , 121-147. Hochstrasser, B. (1990). Evaluating IT investments – matching techniques to projects. Imperial College , 215-221. Kambil, A., Henderson, J. C., & Mohsenzadeh, H. (1991). Strategic management of information technology investments : an options perspective. 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