Strategic IT Investment Decisions

Strategic IT Investment Decisions

Tzu-Chuan Chou (University of Bath, UK), Robert G. Dyson (University of Bath, UK) and Philip L. Powell (University of Bath, UK)
DOI: 10.4018/978-1-60566-026-4.ch572
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Abstract

As many as half the decisions taken in organizations result in failure (Nutt, 1999). As information technology (IT) assumes a greater prominence in firms’ strategic portfolios, managers need to pay more attention to managing the technology. However, while IT can have a significant impact on organizational performance, it can also be a major inhibitor of change and can be a resource-hungry investment that often disappoints. Organizations can best influence the success of IT projects at the decision stage by rejecting poor ones and accepting beneficial ones. This may enable better implementation, as Nutt (1999) suggests most decision failures are due to implementation failure that tends to be under managers’ control. However, little is known about IT decision processes. Research demonstrates the importance of managing strategic IT investment decisions (SITIDs) effectively. SITIDs form part of the wider range of corporate strategic investment decisions (SIDs) that cover all aspects in which the organization might wish to invest. Strategic investment decisions will have different degrees of IT intensity that may impact outcome. IT investment intensity is the degree to which IT is present in an investment decision. That is, some decisions will be wholly about IT investments while others will have little or no IT—most, though, will be blended programs of IT and non-IT elements. Here, IT investment intensity is defined as the ratio of IT spending to total investment. The higher the IT investment intensity, the more important IT is to the whole investment. For example, Chou, Dyson, and Powell (1997) find IT investment intensity to be negatively associated with SID effectiveness. The concept of IT intensity is similar to, but also somewhat different from, the concept of information intensity. Information intensity is the degree to which information is present in the product or service (Porter & Millar, 1985). Management may use different processes in order to make different types of decisions (Dean & Sharfman, 1996). The link between decision process and outcome is so intimate that “the process is itself an outcome” (Mohr, 1982, p. 34). This may imply that the link between IT investment intensity and SID effectiveness is not direct but that the impact of IT investment intensity may be through the decision process. If different IT intensity in projects leads to different decision processes, leading to different outcomes, then it is important to know what factors act in this, in evaluating and managing SITIDs. This chapter presents an integrative framework for exploring the IT investment intensity-SID effectiveness relationship.
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Background

Studying decisions involves “contextualism” (Pettigrew, McKee, & Ferlie, 1988), which integrates process, content, and context, as all decisions need to be studied in context. Content refers to the decision itself, here exploring the nature and scope of SIDs. Process refers to actions, reactions, and interactions as managers allocate resources for the decision. The context includes the outer context of economic, political, and social actions, while the inner context involves ongoing strategy, structure, culture, management, and political processes.

Many researchers have investigated how strategic decisions are made, though most focus on the decision process rather than the implementation and the outcome. However, Hickson, Miller, and Wilson (2003) identify eight independent variables in decision implementation—familiarity, assessibility, specificity, resourcing, acceptability, structural facilitation, and priority—and uncover two distinct approaches—experience-based and readiness-based. The experience-based approach leads to acceptance of what is being done, while the readiness-based approach leads to implementation being given clear priority. Both approaches may be employed together. Hsu (2001) on the other hand introduces promethean rationality—the stealing back of order amid disorder. Sauer-Leroy (2004) argues that decision reality is much more complex than can ever be captured by financial analysis and that projects often introduce inertia to the organization, as they are often irreversible. He stresses the role of subjective factors in strategic decisions.

Key Terms in this Chapter

Decision Process: The actions, reactions, and interactions of the various interested parties as they seek to make a commitment to allocate corporate resources. Process incorporates both the formulation and evaluation processes.

Decision Context: The context includes the outer context, which refers to the national economic, political, and social context for an organization, and the inner context, which is the ongoing strategy, structure, culture, management, and political process of the organization. Context helps to shape the process of decision-making.

Moderators and Mediators: In the social sciences, moderators and mediators have been identified as two functions of third variables. These are subgroups of independent variables that affect given dependent variables via a mediator function.

Strategic IT Investment Decisions: Significant, long-term decisions to invest in projects that have substantial information systems or information technology components. They form part of corporate strategic investment decisions.

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