Refocusing
Where and How IT Value is Realized: An Empirical Investigation
Rai, Arun
arunrai@gsu.edu
Patnayakuni, Ravi r.patnayakuni@uah.edu
Patnayakuni, Nainika naina.seth@uah.edu
Omega; 1996, Volume 24, Issue 4, p399-412
Abstract
This study examines the direct and
interaction effects of IT investments and IS department efficiency on different
facets of firm performance. Specifically, measures for financial, sales, and
intermediate firm performance are considered. IS budget is used as a measure of
IT investment; asset turnover and labor productivity are used as intermediate
performance measures; and sales per IS employee and income per IS employee are
used as measures of IS department efficiency. Secondary sources were used to
construct a database of 210 firms, which was used for statistical analysis. Our
results suggest that; (i) IS budget is not related to
financial firm performance, but is positively related to sales performance;
(ii) The results for intermediate performance were mixed; (iii) IS efficiency
had no impact on the relationship between IS budget and firm performance
measures, except market share. Analysis of the results
suggest that the effect of IT investments should be assessed
simultaneously on both aggregate and intermediate performance. Furthermore, IS
departments with ‘high’ efficiency may be unable to better leverage each
additional dollar spent on IT. This has significant implications for
organizations considering radical downsizing and elimination of their IS
departments, as in the process they could reduce their conversion
effectiveness.