Why invest in Information Technology and Systems

Managing the deployment of Information Technology and Systems (ITS) is a challenging and taxing task. On the one side, the media discuss the positive impact that ITS can have on an organizations operations, and on the other side, there is no real tangible evidence that investment in ITS is associated with a measurable improvement in the financial performance of the organization.

In the mid 1980s, research showed (#1) that the use of ITS can add to an organizations competitive advantage because of its effects on the organizational operational environment and practices. Also this research showed that organizations which did invest performed better. Nevertheless, Later research in the early 1990s (#2) found that although there was a relationship between organizational performance and the amount of investment in ITS for business processes, however this was not true for strategic investment. Both of these pieces of research where written over 15 years ago and most medium to large organizations have become a lot more mature in their approach to investing in ITS.

My experience is that in some circumstances systems for business processes can provide a strategic impact on the cost of doing business, and on the products and services with which the organization is involved. We are still facing some difficulties in coming to terms with specifying strategic systems. The lack of a demonstrated association between ITS investment and organizational performance has been called the ‘productivity paradox’. The reasons for a lack of empirical evidence include:

  • Lack of an adequate model for the timing of any benefits flowing from investment in ITS, benefits would undoubtedly lag investment, but how long those lags are remains moot.
  • Investment might possibly give rise to improved performance in some projects but these benefits are squandered on unsuccessful systems the possibility that no benefits are actually realized.
  • Problems with the research, such as difficulty of measuring improved performance and linking ITS to financial performance.

The rule of thumb is that roughly eighty per cent of ITS projects fail for one reason or another. That fact alone makes it difficult to see how investment in ITS can be justified. This provides a constant cause of friction between IT managers and financial controllers.  It gets even worse, the productivity paradox is accentuated by a corresponding paradox.  If the investment in ITS is at best an uncertain pursuit and at worst completely ineffective, why do experienced and successful managers continue to invest in ITS? You would ask either these managers must be mad or there are apparent benefits to be gained from investing in ITS that are not being identified by the empirical research. In my opinion, it is a mix of both.

Due to some research in 2000 (#3) three views concerning the productivity paradox are put forward. The first is that simply investment in ITS is such a small part of the overall investment in an organization that the effect of this investment is difficult to perceive.  The second theme is that the research suffered from mis-measurement problems and that when this was taken into account, the literature did reveal a significant relationship between investment in ITS and organizational output.  Finally, that the view is that the paradox is a result of mismanagement.  In this analysis, the researches did not address the effect of the organizations competitors’ actions. Therefore, any attempt to identify the outcome of investment in ITS will always be threatened by an inability to hold other influences static. They were able to demonstrate that there was a positive correlation between investment in ITS and organizational performance for those organizations that are recognized for good management of their IS. This provides a rational base for the importance with which managers view ITS, and a pressing justification for studying and improving ITS Management.

In conclusion, a key business value of IT is to improve process integration and flexibility, reducing defects, compressing process-cycle-times, reducing costs and buffers at interfaces, decreasing operational exceptions that climb through the management hierarchy, and freeing up management time for decision making. If a organization  develops a superior strategic capability for identifying the key processes where cost and value drivers lie, and deploy the right IT system to those processes, it will improve efficiency and effectiveness. This does not mean any IT investment aimed to improved process integration will create economic value. Sound IT management directs such investment to those initiatives with a positive business case. A good starting point is to create a process architecture for the business, and identify critical processes, those with the greatest sensitivity to financial and strategic goals. These are the leverage points for investments, where small improvements in process integration create greater value for fundamental stakeholders.


#1 Porter ME & Millar VE, 1985, ‘How information gives you competitive advantage’, Harvard Business Review, vol. 63, no. 4, pp. 149-160.

#2 Weill P, 1992, ‘The relationship between investment in information technology and firm performance: A study of the valve manufacturing sector’, Information Systems Research, vol. 3, no. 4, pp. 307-333.

#3 Stratopoulos T & Dehning B, 2000, ‘Does successful investment in information technology solve the productivity paradox?’, Information & Management, no. 38, pp. 103-117


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