A Conceptual Model for Aligning IT Valuation Methods

A Conceptual Model for Aligning IT Valuation Methods

J. Gilbert Silvius (Utrecht University of Applied Sciences, The Netherlands)
Copyright: © 2010 |Pages: 19
DOI: 10.4018/jitbag.2010070103
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Abstract

The relationship between IT and value is complex and often disputed. Researchers and practitioners have created numerous models and valuation methods to capture this value. Although payoffs from IT investment are a function of strategic alignment, most of these models do not address the alignment of business and IT as a factor that influences or creates value. This paper explores the role of business and IT alignment in the valuation methods of IT assets and investments. It focuses on the impacts resulting from the use of IT assets, considering the function and nature of the impacts. It also explores the alignment of IT valuation and business strategy. The paper is concluded with the construction of a comprehensive selection model that provides guidance for aligning the IT valuation method with the specific characteristics, impacts and organizational context of an IT asset or investment.
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The It Productivity Paradox

The relationship between IT investments and value in terms of enhanced organizational performance has been well studied in the last decades. The empirical studies in this field produced mixed results (Soh & Markus, 1995). Several studies showed that the relationship between IT investments and organizational performance could not be proven (Loveman, 1988; Kauffman & Weill, 1989; Salmela, 1997). This result became known as the ‘IT productivity paradox’ (Brynjolfsson, 1993). Probably the best known statement about this paradox was done by Robert Solow when he stated: ‘You can see the computer age everywhere but in the productivity statistics’ (Watherbe et al., 2007). Notorious as this ‘IT productivity paradox’ may be, it does not turn up in all studies about IT returns. Table 1 provides an overview of selected firm-level studies.

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