IT Pay-Off: Tracing the Antecedents

Introduction

In-spite of intense research, the link between IT investment and IT pay-off in firms is still not well understood. Differences in ontological assumptions and inconsistent measures of IT pay-off are observed in prior research, leading to fragmented and inconclusive findings. For example, Farhoomand & Huang (2007) take a deterministic view in their study of IT investment impact on a bank and attribute increased customer numbers and sales growth to the impact of new technologies introduced in the bank. The same deterministic view is observed in the work of Rajan & Tamimi (2003), who compared the impact of IT investment on stock-price performance of ISO 9000 firms and those indexed in S&P Index and found that IT investment in ISO firms resulted in higher stock price compared to those listed in S&P indexed firms. However, in another similar research, Dobija et al (2012) observed that though IT investment decisions had some positive influence on stock price movement, the influence was more pronounced when procurement of IT was from global brand leaders, and the firms acquiring IT had good prior record of IT management. This suggests that IT investment impact is contingent on quality of services of IT providers and the firm’s ability to govern and use IT effectively in their decision to purchase stocks of a firm, which hinges on the social-constructionist view of IT and its effects (Markus & Robey, 1988; Soh & Markus, 1995).

There is also an argument made by some researchers that it is not IT investment per se, but IT capability that drives financial firm performance. For example, IT capability is assumed to influence financial measures such as return on sales, return on assets, operating income to sales, operating income to assets, operating income to employees, cost of goods sold to sales, and selling and general administration expense to sales (Stoela & Wuhannab, 2009) and subsets of these measures (Nevo et al, 2007). However, these financial measures of performance may not be attributed to IT capability alone, since other organisational factors such as marketing and advertising capability, financial capability to leverage debt and equity etc. also influence these measures. We discuss this in detail in the literature review section of this paper. Others argue that it is not IT capability per se but IT-business alignment (achieved by knowledge sharing between business and IT managers and governance mechanisms) that determines IT pay-off. (Henderson & Venkatraman, 1993; Coleman & Papp, 2006; Masa’deh et al, 2008; Jia & Reich, 2013; Masa’deh et al, 2008; Akdere 2011; Ollila 2012).

In addition to inconsistent determinants and measures of IT pay-off used in prior research, lack of attention to factors such as time lag between IT investment decision and actual acquisition of IT assets, and between acquisition of IT assets and availability of appropriate IT systems and IT supported business processes also confound findings in IT pay-off studies. Recent research findings provide evidence to this effect. For example Dobija et al (2012) found that investors reacted more favorably to actual acquisition of IT assets compared to mere announcement of a firm’s decision to invest in IT. Banerjee et al (2011) show that some features of a technology may remain untried and unassimilated initially but may be used at later stages, indicating a time lag effect between availability of an IT system and its full usage to supported business processes. To account for time lag effects, researchers argue that the process of conversion of IT expenditure into appropriate stages and measures appropriate to the stages must be considered in IT pay-off studies (for example Mooney et al,1996; Soh & Markus, 1995; Kohli and Devraj, 2003). It is evident therefore that a good model of IT pay-off must address the divergent views and confounding effects, and provide a common ground for holistic understanding of IT pay-off. This research attempts to fill this gap.