Information technology (IT) value remains a serious concern of management today, especially how it should be measured and how it is created. Although we have made significant progress at the firm and aggregate levels of analysis, process-level analysis is still in its infancy, and there is a need for a systematic basis for identifying IT effects. We provide such an approach by developing two models: a process performance model of how system characteristics enhance process output and quality and an economic performance model linking process performance to the economic performance of the firm. We apply these models to global trade services in international banking. We obtained estimates for key variables in both models and general support for the approach. We interpret our results and discuss the merits of the process-level approach for the assessment of IT-reliant work systems.
In this paper we address the problem of increasing software maintenance costs in a custom software development environment, and develop a stochastic decision model for the maintenance of information systems. Based on this modeling framework, we derive an optimal decision rule for software systems maintenance, and present sensitivity analysis of the optimal policy. We illustrate an application of this model to a large telecommunications switching software system, and present sensitivity analysis of the optimal state for major upgrade derived from our model. Our modeling framework also allows for computing the expected time to perform major upgrade to software systems.
We examine the intrafirm resource allocation problem with the following characteristics. The resource exhibits negative externalities, and the benefit of using the resource is known only to the user department and not to top management or other user departments. In addition, the consumption of the resource depends upon the choice of the mechanism for allocating the resource. For this problem, we derive a two-stage mechanism, and show that this proposed mechanism leads to optimal allocation.
An important management question today is whether the anticipated economic benefits of information Technology (IT) are being realized. In this paper, we consider this problem to be measurement related, and propose and test a new process-oriented methodology for ex post measurement to audit IT impacts on a strategic business unit (SBU) or profit center's performance. The IT impacts on a given SBU are measured relative to a group of SBUs in the industry. The methodology involves a two-stage analysis of intermediate and higher level output variables that also accounts for industry and economy wide exogenous variables for tracing and measuring IT contributions. The data for testing the proposed model were obtained from SBUs in the manufacturing sector. Our results show significant positive impacts of IT at the intermediate level. The theoretical contribution of the study is a methodology that attempts to circumvent some of the measurement problems in this domain. It also provides a practical management tool to address the question of why (or why not) certain IT impacts occur. Additionally, through its process orientation, the suggested approach highlights key variables that may require managerial attention and subsequent action.
The information systems literature is replete with conceptual frameworks for analyzing strategic applications of information technology (IT). In this article, the strategic impacts of IT investment are studied through the development of a formal economic model. In particular, it focuses on IT-related quality competition in a duopoly, where the services may not be priced initially (e.g., in the financial services sector), and where the benefits may come indirectly (e.g., in the form of interest earned on consumer deposits or float on checking accounts). A firm may have to invest in IT, regardless of its underlying cost structure, as a response to its competitor's investment level. (We analyze the division of technology benefits between the firms and the consumers and study welfare implications for simultaneous and sequential investments.) Both firms prefer sequential over simultaneous investments, even when both have the required technology. While the IT-inefficient firm (one with higher IT cost for a given service quality) has followership incentives, the leadership incentives for the IT-efficient firm depend on the difference in IT cost structures and on the degree of substitutability between the services of the two firms. A preliminary treatment of pricing issues is provided in conjunction with consumer switching cost, which not only has a negative impact on consumer welfare but may also reduce total industry profits. For dynamic markets with new consumers, the negative effect of switching cost on the welfare of existing consumers is reduced when the IT-efficient firm moves first.
This paper presents results obtained from a survey of major business firms in a large metropolitan area done as part of a telecommunications systems research project. The goal of this study involved determining the telecommunication technologies and services currently used by business firms. The results show that firms are using intelligent terminals, satellites, microwave, local area networks, etc., and they are using these technologies for electronic mail, decision support system activities, and limited use of video teleconferencing. Information resource management in most of these firms is centralized. Hands-on use of terminals by managers and professionals does not appear as widespread as commonly publicized to date.