ICT Investment Evaluation Practices in Large Organizations

ICT Investment Evaluation Practices in Large Organizations

Chad Lin (Curtin University of Technology, Australia) and Yu-An Huang (National Chi Nan University, Taiwan)
Copyright: © 2009 |Pages: 7
DOI: 10.4018/978-1-59904-845-1.ch049
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Abstract

Business-to-business electronic commerce (B2BEC) represents the largest growth sector, that is, 80% of revenues—in e-commerce (Pires & Aisbett, 2003). IDC predicts that Australian B2BEC spending will grow at 70% annually and is likely to reach $166.25 billion by 2006 (Pearce, 2002). ICT investments in B2BEC are used to assist in the interorganization acquisition of goods into the value chain and to provide interfaces between customers, vendors, suppliers, and sellers (Barua, Konana, & Whinston, 2004). Although B2BEC provides organizations a wealth of new opportunities and ways of doing business, it is extremely difficult to evaluate and therefore, have yet to prove enduring sources of profit (Laudon & Laudon, 2004). Research studies and practitioner surveys report contradictory findings on the effect of the ICT expenditures on organizational productivity (Thatcher & Pingry, 2004). In particular, measurement of the business value of ICT investment has been the subject of considerable debate among academics and practitioners (Brynjolfsson & Hitt, 2003; Sugumaran & Arogyaswamy, 2004). Although some ICT productivity studies have produced inconclusive and negative results (Zhu, 2004), other research indicated that spending in ICT is directly related to organizational performance (e.g., Hu & Quan, 2005). Some researchers (e.g., Brynjolfsson & Hitt, 2003; Zhu, 2004) suggested that the confusion over ICT productivity is due to, among other things, the lack or inappropriate use of ICT evaluation and benefits realization methodologies or processes.
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Background

There appears to be no consistent evaluation and measurement of ICT investment by most organizations (Kim & Umanath, 2005; Lin, Lin, & Tsao, 2005a). Since the evaluation of these ICT investments is a complex tangle of financial, organizational, social, procedural and technical threads, many of which are currently either avoided or dealt with ineffectively (Torkzadeh & Dhillon, 2002). However, according to the 2003 SIM survey, measuring the value of ICT investment remains as one of the top five concerns for senior managers (Luftman & McLean, 2004).

Despite the fact that evaluation of ICT infrastructure in electronic commerce initiatives such as B2BEC has been shown to be critical to successful implementation, the major benefits organizations can gain from ICT investments are inherently qualitative and cannot be easily assessed beforehand and calculated in monetary terms (Lewis & Byrd, 2003). The problem becomes more evident as ICT is used to link the supply chain or to change the structure of industries, and costs and benefits have to be tracked across functional and organizational boundaries (McKay & Marshall, 2004). This is because that the nature of electronic commerce technology makes it harder for organizations to allocate and assign costs and benefits to ICT projects, further blurring the lines of capital investment and return from ICT spending in the B2B channel (Kleist, 2003; Subramani, 2004; Tsao, Lin, & Lin, 2004). The less precisely bounded environment of B2B electronic commerce technology adds more complexity to the ICT measurement problem as this type of investment is physically distributed between suppliers and customers (Torkzadeh & Dhillon, 2002).

Key Terms in this Chapter

Benefits Realization: It is a managed and controlled process of making sure that desired business changes and benefits have been clearly defined, are measurable, and ultimately to ensure that the changes and benefits are actually realized and delivered.

Investment Evaluation: This is the weighing up process to rationally assess the value of any acquisition of software or hardware which is expected to improve business value of an organization’s information communication systems.

ICT Benefits Realization Processes: Approaches that are used to ensure that benefits expected in the ICT investments by organizations are achieved.

B2BEC: Business-to-business electronic commerce. Business conducted through the Internet between companies.

Electronic Commerce: The paperless exchange of business information using the Web and related technologies in business.

ICT Productivity Paradox: Despite large investments in ICT over many years, there have been conflicting studies as to whether or not the ICT benefits have actually occurred.

ICT Investment Evaluation Methodologies: Approaches that are used to evaluate organizations’ ICT investments.

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