The contemporary competitive business environment has led to the adoption of modern technologies for enhancing the productivity level of the organization’s resources (Dedrick et al. 2003). The organizational productivity is one of significant factors used to determine the economic growth at both the organizational and industry levels. Tabatabae (2000) highlights that the growth of productivity enables organizations to enlarge their market share. It is worth noting that productivity is often assessed basing on economics of the organization, and is calculated as the ratio of the output to input. Therefore, enhancing productivity is crucial when it comes to the continued existence of organizations in the modern competitive market (Devaraj and Kohli, 2003). On the other hand, the research on the business vale of information technology concentrates on the organizational performance effects of information technology, which is indeed one of the significant issues for the resource managers and researchers, as well as for the other stakeholders. Information technology business value entails the enhancement of productivity, improvement of profitability, competitive advantage, efficient utilization of the organization’s resources, and enhanced work relations (Hitt and Brynjolfsson, 1996; Devaraj and Kohli, 2003). Regardless of the fact that there is some consensus that information technology plays a significant role in enhancing the business value, there is uncertainty with regard to how information technology generates business value (Dedrick et al. 2003).
Apparently, more and more organizations have made substantial investments into the acquirement of information technology resources, but little attention has been given to the understanding of how business value is created from the adoption of information technology (Roachi 1991). However, productivity is often applied as a significant economic measure of the contribution that information technology has generated for the organization. Despite the fact that there have been reported success stories about some organizations that have managed to adopt information technology effectively, impressive failures also exist (Dedrick et al. 2003). Nonetheless, the lack of effective quantitative measures for the value and output generated by information technology has made it challenging for organizations to justify investing in such technologies. This has also been challenging for the academics as they have often encountered problems when it comes to assessing the impacts of information technology, which has often been interpreted as a negative indicator of its value to the organization (Dedrick et al. 2003).
However, during the 1980s, information technology was basically considered as one of the critical factors that could help an organization to attain a competitive advantage. According to Porter (1985), information technology influences competition through transforming the structure and competition within the industry, supports the establishment of newer businesses, and the organizations applying information technology surpass their competition. Even though information technology is considered as a significant factor when it comes to the attainment of a competitive advantage, some studies indicate that most organizations are today adopting information technology to enhance survival and profitability. According to Mukhopadhyay et al. (1997), this has generated some dilemma considering the fact that on one hand, it is claimed that increased investment in information technology has the potential of enhancing the organization’s competitive ability, while on the other hand, the amount of the information technology investment provides an increasing pressure for managers to evaluate on its business value. Furthermore, much discussion has been surrounding the issue of whether information technology was resulting in higher productivity (Dedrick et al. 2003). Some of the studies conducted in the 1980s indicated that there is no positive relation between productivity and investment in information technology, and as Dedrick et al. (2003) highlight, this condition is known as the productivity paradox.
However, some of the recent research studies have consistently proved that the effect of information technology investment on the organization’s productivity, together with the economic growth is, indeed, positive. Therefore, in light of the contemporary economic pressures and extreme competition, most of the organizations are transforming their basic unit of analysis to the business processes, from the business function. Apparently, investments in information technology may have little direct effect on the general organizational performance, until when this is joined with other complimentary investments in human capital, business activities and redesigning (Dedrick et al. 2003). This implies that it is necessary for organizations to invest in both information technology and the reengineering of processes, in order to enhance productivity. However, the objective of this study is to provide an understanding of the economic and organizational analysis of the productivity and business value impacts of information technology. The study will analyze some of the organizations that have adopted information technology in the United Kingdom.
Information technology is the field that is basically concerned with the acquirement, processing, distribution, and storage of pictorial, numerical, textual, and vocal information, through the combination of telecommunications and computing based on the microelectronics (Dedrick et al. 2003).
Business productivity is defined as the measure of how a capital and labour can be effectively transformed into goods and services (Horzella 2005). This is often measured as the total output of an organization per hour. In other words, productivity is measured as the efficiency of production.
Business value, basing on the management field, is considered as a term that incorporates all forms of value, defining the well being and health of the organization in the long run (Chatfield and Yetton 2000). When talking of business value, it is worth noting that this does not only look at the organization’s economic value, but extends to incorporate other forms of value, for instance, customer value, managerial value, supplier value, employee value, societal value and alliance partner value, as well as the channel partner value. However, it is worth noting that most of these forms of value are not directly calculated in terms of monetary terms.
There has been a recent shift towards globalization taking into account the fact that more and more countries are today considering networking and working together with other countries (Roach 1991). With this move, information technology has gained an increased adoption, considering the fact that this is one of the most significant factors when it comes to the attainment of organizational success, as well as enhancing quality of products and services. In addition, the adoption of information technology within the organization has been highly associated with the provision of faster and better customer services, and is also helpful in identifying newer markets. Most of the recent research studies have indeed brought into light the role information technology plays when coming to the economic growth, work organization, productivity, and competitiveness, as well as on employment. Dedrick et al. (2003) highlight that productivity, basically at the level of the organization, is usually influenced by the competition level, hence making the other organizations intensify their productivity development. However, it is worth noting that increased productivity is not necessarily associated to increased profitability, considering the fact that competition within the industry may lead to lower prices, as a result eroding the enhancement of the margins.
According to Dedrick, et al. (2003), the beneficiaries in such a scenario will be the consumers, as they are the ones who will be attaining more value added compared to the price paid. This is often referred to as consumer surplus using the economic terms (Porter 1985). In addition, it is worth noting that information technology has made it possible for the organizations to become rationalized by reducing human involvement. Increased productivity arises from the establishment of the methods of work that are based on the new production methods and technology. As a result, when the current technology of information technology was being initiated into the working life, it was expected that productivity would increase (Roach 1991). However, considering the fact that some earlier technologies, such as computers, were previously adopted in situations where the growth of productivity was low, as well as widespread unemployment, it proved challenging to note why it was necessary to invest in information technology, since there were no positive effects (Harker 2000). According to Horzella (2005), such a situation is known as the productivity paradox. However, some of the recent studies that have been conducted in both service and manufacturing sectors have indicated that there are various significant benefits generated to the organization through investing in information technology relating to productivity (Harker 2000). In addition, it is worth noting that one of the most crucial issues, especially for the economists of the past decade was the slowdown in productivity that particularly started in the 1970s. Despite the fact that some factors such as the shocks in oil prices had been identified to have contributed to the slowdown, most of the researchers agreed that indeed a sharp decline in productivity has been experienced compared to that of the previous decades.
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Coincidentally, this slowdown came at a time when information technology was gaining an increased usage. However, despite the fact that the recent levels of productivity have somewhat increased with the increased usage of information technology, the general negative perception of the link between productivity and the adoption of earlier technologies is the basis of the arguments that information technology has not helped to enhance productivity in the United Kingdom. A research conducted by Roach (1991) helped to support this claim, as it specifically focused on information workers, not considering the industry. The office work was previously considered not to be more capital intensive, but lately the level of information technology capital per professional information worker has started approaching the level of production capital per blue-collar worker (Roach 1991). Furthermore, there has been an increase in the ranks of the information workers, while, on the other hand, there has been a decrease in the production workers ranks. This research, indeed, supports the existing studies indicating low office productivity (Chatfield and Yetton 2000).
It is also worth noting that the electronic linkages are proliferating within and among organizations in the contemporary network era, hence altering the approaches through which organizations acquire factor inputs, transform these inputs into products or services, as well as distributing whatever is attained as the final result to the customers (Straub and Watson 2001). This has therefore generated some curiosity on the business vale of information technology, or in other words, the value the organization attains by investing in information technology. Although the upcoming studies have begun to analyze the network era information technology business value dilemma, this knowledge remains unsystematic and underdeveloped (Mukhopadhyay and Kekre 2002; Chatfield and Yetton 2000). This research study will evaluate the economic as well as the organizational importance of the adoption of information technology in the business value and productivity aspects of business.
The main aim of this study is to evaluate the economic as well as the organizational importance of the adoption of information technology in the business value and productivity aspects of business. Various objectives have been formulated to help in attaining this goal. The objectives of the study, therefore, include;
- To examine and analyze the benefits that companies have attained by investing in information technology
- To determine the productivity levels of the organizations before and after implementing information technology
- To compare the economic and organizational performance of the organizations before and after implementing information technology
The research questions for the study include;
- What is the relationship between the company’s productivity levels and the implementation of information technology?
- Has the adoption of IT led to economic gain in the productivity and business value aspects of the participating companies?
- Has the implementation of IT policies led to any organizational changes in the participant companies?
The rest of the paper will be organized as follows. The next chapter, which is chapter two, also known as literature review, entails the analysis and evaluation of the already documented literature regarding the topic under study. It is clear that other numerous studies have been conducted regarding the same topic that is being studied here, however, in different organizational contexts and the findings established and stored in books, journals, and articles, which will then be reviewed to analyze what the other authors have said about the topic under the study. Basically, this chapter is all about identifying the views of other authors.
Chapter three, also known as methodology, gives a description of the methodology applied in collecting data and analyzing the collected data. It describes the instruments, along with the procedure that will be applied in collecting data. However, it is worth noting that the type of instrument and procedure that will be applied will always depend on the type of information that is required. For instance, this is a quantitative study and thus questionnaires will be appropriate in collecting the required information. In addition, this chapter will also provide the sample size of the population that will be used as respondents, describing the procedure through which the sample size was arrived at. The method that will be sued for data analysis will also be described in this chapter.
Chapter four carries the findings of the study. Basically, after data has been collected, it has to be analyzed and the findings will then be presented in this chapter. The findings are primarily based on the views of the respondents regarding the research questions. The purpose of this chapter is to highlight the results of the study, describing the respondents’ views.
Chapter five provides the conclusion of the study, which highlights whether the research questions have been adequately answered or not. This chapter will also highlight gaps and recommend aspects or issues that should be researched in the future.
The last few decades have witnessed making huge investments in information technology. However when it comes to productivity and the general business values, the implications of such investments has been a subject of discussion for both the academic and business communities. In addition, looking at the impact of information technology in enhancing the business processes, studies highlight that business process reengineering is significant as it helps in increasing the effects of information technology with regard to the general performance of the organization. This chapter will structure the study basing on the theoretical contexts, and present an outline of the relevant literature, which relates the concepts of organizational productivity and the business value impacts of information technology to the direct theoretical contexts towards answering the research questions as outlined in the study. However, considering the fact that this study focuses on the companies operating within the United Kingdom, an outline of the information technology sector of the United Kingdom will first be analyzed.
Apparently, information and communication technologies enhance the economic variables. Qabadi (2006) highlights that such influences are more significant within the developed and developing nations. Developing the mobile communication, digital networks, television and even the computers have generated a unique ability to develop the knowledge within the information and communication technology area. Research indicates that in the millennium, the time, when the adoption of information and communication technologies were gaining great momentum, approximately 80 percent of the information and communication technologies market was basically covered by the world’s top ten countries (Dedrick et al. (2003). On the other hand, at the bottom ten, the underdeveloped countries covered only one percent of the market. However, it is worth noting that there exists a significant difference between the countries employing the use of information and communication technologies with those that have not adopted the use of such technologies (Dedrick et al. 2003). This difference is referred to as the digital divide, as it explains the differences between the underdeveloped and developed countries, with regard to the use of information and communication technologies aimed at enhancing efficiencies of the processes and productivity.
It is also important to bear in mind that information and communication technologies help in coming up with the suitable infrastructure for developing the knowledge of information and communication technology as well as consuming the digital products and services. However, some countries have tried to fill the digital divide by transforming their traditional economies through the adoption of the modern technologies. Nonetheless, most of the countries have today recognized both the developmental challenges as well as opportunities that come along with the emerging information era, which is basically characterized by the information and communication technologies. These technologies have indeed helped in boosting the national development efforts globally, and this is the reason as to why most of the countries are exploring approaches that would help facilitate their processes of development through the adoption, use and exploitation of information and communication technologies within their societies, as well as economies.
Information technology is a term that incorporates all kinds of technologies that are applied in creating, storing and disseminating information through various forms, for instance, multimedia presentations, business data, motion pictures, and still images, as well as voice conversations. With the increased presence of information technology, companies within the United Kingdom, the information and technology sector is probably the most dynamic and exciting industries operating in this country today. The United Kingdom’s information technology industry is characterized with over a hundred thousand professionals, huge ongoing information technology projects that have been funded by the private sector, as well as the government, outstanding software product and service firms and companies, which in essence, depict the vitality of the information technology service sector in the United Kingdom.
However, it is worth noting that the United Kingdom’s information technology industry is rated as the largest in Europe, and this sector is expected to generate more than £29 billion at the end of 2012 financial year. It is a home to more than 100, 000 information software specialist houses, and is also considered as the leading internet gateway in the world, considering the fact that approximately 36 percent of the global internet traffic is routed through the United Kingdom’s servers (Dedrick et al. (2003). However, reports highlight that the information and communication technologies have speeded up during the past two decades. Reports highlight that the developments within this sector have opened up opportunities for the government to acquire improved efficiencies. This has also helped in boosting the country’s economic growth. The information and communication sector within the United Kingdom is considered as one of the most significant areas when it comes to the government expenditure. Previously, commentators have been focusing on the failure of the government to implement timely information and communication technology projects. This indicates the significant role that the government plays in facilitating the adoption and use of information technology. However, it is worth noting that areas of the opportunity still exist within this sector. As reports indicate, a sharp decline in the PC market was experienced in 2011, as a result of the slowdown that had been experienced in the last quarter of the 2010 financial year. This slowdown did not only affect the business segment, but also affected the consumer segment, thus generating uncertainty with regard to the United Kingdom’s economy.
Nonetheless, the coalition government has come up with a movement that is aimed at attaining some considerable savings when it comes to spending on the information and communication projects. Besides, the widespread recognition of the benefits that come along with the adoption of information and communication technologies have accelerated the adoption of such technologies among the companies and organizations. Reports also indicate that the performance of the United Kingdom’s information and technology sector is largely attributed to the adoption of telecom, considering the fact that this presents a considerable input to the computer equipment and services production. Furthermore, this has also been considered as a prerequisite for the usage development of computers, as it offers quality as well as good internet connections, which is significant when it comes to attracting and encouraging people to use information technology. Indeed, information technology has nearly been mainstreamed in all aspects of the economic and industrial activities within the United Kingdom.
Dedrick et al. (2003) highlight, that the growth in an organization’s productivity level is considered as a significant element when it comes to economic prosperity. This is also identified as a key requirement for the country’s development, and a significant determinant of the organization’s competitiveness. Calculating the country’s productivity, therefore, helps in shaping the political decisions that are made by the national governments, as well as the management decisions that are made within organizations. However, it is worth noting that the term productivity was first mentioned in 1766 in an article that had been written by Quensay. Various definitions of productivity have been brought forward. According Mukhopadhyay et al. (1995), productivity is basically the quotient that is attained after the output has been divided by one of the organizational factors of production. Dedrick et al. (2003) has highlighted that productivity is the ratio of the organization’s tangible output to its tangible inputs. Most of the traditional productivity research studies have laid greater emphasis on the capital and labour, for instance, equipment and plants. However, in order to determine capital, it is important that all the component categories are taken into careful consideration, in addition to labour. It is important to note that increasing the growth of productivity results in decreased inflation, and an increase in the buying power, as well as improved quality of life. Several authors have offered a distinction between efficiency and productivity. It is claimed that while productivity concerns the processing of inputs into outputs, efficiency illustrates the relation between the outputs and the inputs basing on the monetary terms. However, it is worth noting that no distinctions between productivity and efficiency have been made in this study.
This study will basically analyze two types of productivity.
This is calculated as the ratio of the organization’s total output to a consumed resource. This means that capital productivity can be determined as the ratio of the organization’s output to the organization’s capital input (Mukhopadhyay et al. 1995). Looking at labour productivity, it can be said that this is determined by the output generated for each unit of labour. This approach makes it easy to come up with productivity indices and is also easy when it comes to its understanding. However, as studies highlight, basing solely on such an approach can be misleading and can end up generating costly errors. Furthermore, this approach has no capacity to provide an explanation of the general increases in cost.
This is calculated as the ratio of the pure output (net output) to the amount of the capital and labour inputs that have been employed. Pure output in this case refers to the total outputs, excluding the intermediary products and services that have been purchased. Looking at this in theoretical terms, it can be said that total factor productivity is an appropriate determinant of the technological change, considering the fact that it can be used to determine the actual growth in the production that cannot be explicated by the input changes in intermediate input, capital and labour (Zhi et al. 2001). Moreover, the total factor productivity plays a significant role when it comes to the process of determining the economic growth (Hitt and Brynjolfsson 1996). This is because the total factor productivity actually calculates the efficiency and synergy of the use of both human and capital resources. This is why, it is often considered as a measure of the level of technological advancement relating to economic growth. Therefore, as highlighted by Dedrick et al. (2003), higher total factor productivity implies efficient management and utilization of inputs, materials and resources required in generating goods and services. Total factor productivity could also refer to the extra output produced through the improvements in efficiency as a result of the advancements in employee skills and expertise, education, know-how and the attainment of appropriate management techniques, benefits from specialization, organizational improvements, upgrading of the existing or the introduction of new innovations and technologies, together with the move towards advanced added value business processes (Cororaton 2002).
It is important for the organization to determine its productivity, in order to find out the productivity level in which they are currently operating. This is also important for the industry as it is able to determine its productivity levels. Basically, the measurement of productivity contains significant benefits for the organization. For instance, the organizations will be able to identify the conversion efficiency of all the resources they posses. Therefore, more products, together with the services will be generated when compared to the amount of spent resources. However, this can also be of great benefit when it comes to resource planning. Furthermore, the organization can be able to reorganize its objectives, basing on its productivity measurement levels. It is also worth noting that determining the level of the organization’s productivity can help in generating a competitive environment among organizations or companies operating within the same industry. According to Dedrick et al. (2003), the strategies that would be applied to enhance productivity can be grounded on the identified gap between the measured and the planned level of the organization’s productivity.
Various approaches can be used to interpret the economic performance, basing on different levels of analysis. Looking at the country level, for instance, the economic performance is often used to denote consumer welfare, and growth in labour productivity, as well as the economic growth. Labour productivity growth refers to the measure of the appropriate utilization of the human resources to generate value. The economic growth refers to the Gross Domestic Product and is often determined at the national levels. This enables the economy to offer low-priced products and services, basing on the earnings of the country’s domestic consumers, which will also enable the organizations to try to win the customers within the global markets (Dedrick et al. 2003). Apparently, the growth in labour productivity is a significant indicator of the organization’s economic performance. For instance, an organization that is more productive than the others will basically benefit from higher profitability, which is considered to be a significant determinant of the organization’s economic performance (Dedrick et al. 2003). In this case, it can be said that a more productive organization is the one that will either produce the same amount of output using lesser inputs, resulting in a cost advantage for the organization, or produce outputs of higher quality using the same amount of inputs, thus facilitating a price premium for the organization. Maintaining higher profits by enhancing productivity necessitates that the organization maintains higher productivity levels compared to its competitors. According to Gurbaxani et al. (2003), this might lead to a situation where the profits become competed away, hence benefiting the consumers.
Most of the previous studies have stated the challenges as well as the opportunities that information technology has generated to the global economy. Hitt and Brynjolfsson (1996) looked at the implications of information technology on productivity. Other studies, carried out by Pohjola (2001) and Stiroh (2001), examined its implications on the growth and development. However, it is worth noting that one of the major concerns within the information science is the issue surrounding the business value of information technology when it comes to organizational productivity. This has been a matter of controversy, considering the fact that organizations have been raising much concern with regard to whether or not to invest in information technology. In addition, there have been concerns with regard to whether or not investing in information technology will facilitate increased productivity together with business efficiency. Despite the fact that there has been an increase in organizational investment in information technology over the recent past in an aim to enhance the performance of the organization, the findings from some of the previous studies on information technology productivity were found to be rather inconclusive. Although, some studies have indeed indicated that there exists a positive relationship between the performances of the organization with information technology investments (Hitt and Brynjolfsson 1996).
For quite sometime, the policy makers and scholars lacked the appropriate evidence to confirm the claim that investing in information technology would help to enhance the organization’s productivity levels, generating the information technology productivity paradox. However, according to the study conducted by Morrison and Berndt (1990), it was found out that additional investment in information technology impacted on productivity negatively, highlighting that the anticipated marginal benefits generated to the organization by investing in information technology are lesser compared to the anticipated marginal costs. Barua et al. (1991) and Loveman (1994) also confirmed that there was no significant evidence to counter the claim that organizational investment in information technology is inconsequential with regard to productivity. Lately, studies that have been conducted at the organizational levels have indicated that there are significant benefits generated to the organization, relating to productivity through investing in information technology (Brynjolfsson and Hitt 1996). However, it is worth noting that most of these organizational studies were basically limited to the manufacturing industry, considering the fact that there was no significant data within the service industry. A study conducted by Kamil (2003) stated that the application of information technology within the organization helps to enhance productivity through three different approaches. The first one is the capital deepening, which refers to the increase in the volume of capital applied by each worker, rapid growth of the total factor productivity within the sectors dealing in the production of information technology, and lastly the rapid increase of growth of the total factor productivity within the sectors utilizing the information technologies. Kamil (2003) also highlights that increasing the use of information technology within the organization translates to an increased labour productivity. Among the existing studies relating to the organizational productivity and information technology, for appropriate measuring, these studies highlight that it is necessary the capital to be disaggregated into information technology investment component groups. However, it is important to note that when talking of investing in the information technology, this incorporates investing in both telecommunications and computers, as well as in related software, hardware, along with the services (Dedrick et al. 2003).
Organizational investment in information technology has indeed increased over the recent past. The significance of such investments to the organization has been one of the subjects that have been widely discussed within the academic and business communities. Solow, an American economist as highlighted by Horzella (2005), first brought this into light. Productivity growth is a key determinant of both the organizational and national success, and as studies highlight, this is very significant when it comes to the economic decision making. This is basically attributed by the fact that whatever amount a country produces is closely related to the amount it consumes. Correspondingly, the organization’s performance depends on its capacity to generate more value for its customers using the same resources. The incapacity to reveal a positive relationship between enhanced productivity and the investments in information technology, regardless of the increased investments in information technology among organizations was therefore considered as the productivity paradox. According to Harker (2000), this became the baseline of discussions and research for the following years.
However, it is worth noting that despite the fact that numerous studies have been conducted, so far with regard to this issue, the results that have been obtained have always been conflicting (Harker 2000). Most of the studies conducted during the 1980s indicated that there was relationship between organizational investment in information technology and the growth of productivity; while on the other hand, research based on the succeeding data along with the new assumptions highlighted a significant and positive impact on economic growth and productivity (Dedrick et al. 2003). However, the concerns regarding the measurements made it more challenging to come up with discrete conclusions basing on the comprehensive industry or national data. Therefore, the researchers had to focus on the comprehensive organizational data in order to come up with the appropriate explanations regarding the productivity paradox. This implies that the benefits accruing to the organization by investing in information technology are basically dependent on the specific condition of the organization. However, the idiosyncratic conditions like the cost structures and market conditions, as well as complimentary investments in organizational strategy and development, and the management practices are vital when it comes to the attainment of the planned efforts. A study conducted by Horzella (2005) confirmed that a correlation exists between the productivity growth from investing in information technology and the level of employee education.
The productivity paradox is also explained in the light of information technology as a General Purpose Technology that provides room for additional development and presents a wide variety of potential applications. However, research indicates that the applications of other General Purpose Technologies like the steam engine, the electrical dynamo consumes a lot of time for the full benefits of these technologies to be seen, and the improvements attained (Hitt and Brynjolfsson 1996). This therefore implies that there is need for the development of the information structures, along with the operating modes, and the adjustment of the organizations in order to allow the impacts of the modern technologies to be recognized. It is also worth noting that various experts stated that the inconsistency presented in the findings from the studies relating to information technology productivity came as a result of the interchanging terms between the financial performance and productivity. This was also attributed to inadequate data. However, the latest studies claim that the information technology paradox does no longer exist, considering the fact that there is a positive relationship between economic growth and the appropriate application of information technology (Horzella 2005). Nonetheless, despite the fact that there have been numerous studies conducted with regard to productivity and information technology, these studies have actually failed to establish a philosophical standpoint that will facilitate a richer and deeper understanding of this observable fact.
To generate more elaborate understanding of the controversies regarding information technology and productivity, it is important to take a careful consideration of the production process. Apparently, the organizational production process is looked at as a process through which the organization’s inputs are converted into outputs. However, it is also important to consider a specific function that the information technology plays within the organizational production process, considering the fact that information technology is often viewed as one of the factors of production. However, as research highlights, one of the most fundamental approaches applied in examining the output of any economic system is through the production economics (Horzella 2005). Apparently, this approach applies the specific practical forms, often regarded as the production forms, in order to come up with the organizational production process. Basing on this approach, the econometric techniques are applied to relate the organization’s outputs to its inputs, however, considering the estimation models drawn from the organization’s production function. As Brynjolfsson et al. (2000) highlight, it is important to bear in mind that the inputs accounted within this approach are capital and labour, but incorporating both the information technology and non-information technology capital.
The concept of information technology business value is often used to denote the impacts of information technology on the organizational performance, including profitability enhancement, inventory reduction, cost reduction, the enhancement of productivity, and competitive advantage, along with other measures (Hitt and Brynjolfsson 1996; Devaraj and Kohli 2003). According to Mukhopadhyay et al. (1995), business value of information technology refers to the effect of information technology on the performance of the organization. Furthermore, researchers have used performance to highlight both the organizational measures, and the intermediary process-level measures. Basically, there are two different kinds of performance, effectiveness and efficiency. While effectiveness refers to the attainment of the organization’s objectives with regard to its external surrounding, efficiency, on the other hand, lays greater emphasis on the internal perceptions, taking up such metrics as productivity improvement and cost reduction, when assessing a business process (Drucker 1964).
It is worth noting that the application of information technology within the organization is often conducted with the notion that it may reduce, enhance or contain no significant impact on the performance of the organization. The common theory base is the organization’s resource-base view, which integrates the economic rational with the managerial perspective. There have been significant changes within the information technology over the past 20 years. Most people are today working through the high-powered workstations that have the internet connectivity, notebook computers that have integrated wireless, and pagers, along with other numerous smart devices. In addition, the ever-increasing improvements in software and hardware are in turn transforming the form and speed in which business is being conducted. However, despite the fact that there is a general hypothesis that investment in information technology enhances business productivity, it is worth noting that most organizations are demanding the investments in information technology to reveal the measureable outcome (Drucker 1964). This issue has been a major subject of debate within the academic community for several years, with regard to whether or not information technology generates business value, and how these results can be measured. According to the study conducted with regard to the executive perspectives, it was revealed that the extent of alignment between the organization’s business strategy and the information technology strategy was indeed significant, and investment was not only sufficient (Mukhopadhyay et al. 1995). Some consensus was beginning to develop among various economists with regard to the positive contribution of information technology into the organization, but the article published by Carr (2003) derailed these efforts. In this article, Carr argued that, apparently, information technology was like a usual commodity, an input that could not anymore allow organizations to attain a strategic advantage, and that continual information technology was a poor strategy for the organization (Carr 2000). This resulted into numerous counter-arguments from the information technology professionals.
However, it is worth noting that the apparent disparity between the information technology professionals and the arguments brought forward by Carr are largely based on the differing perspectives. On one hand, the economic research presents the evidence that information technology generates business value when analyzing data across various organizations or within the entire economy, while on the other hand, Carr is interested in examining the capacity of the information technology to facilitate a sustainable competitive advantage for the organization. In addition, it is claimed that information technology alone cannot generate business value. It is argued that, apart from just investing in information technology, the organization should also manage the information technology ecosystem, as well as the business process. A research conducted by Brynjolfsson, Hitt and Yang (2002) found out that organizations investing in information technology perform worse compared to those that stand pat. This was backed up by Mukhopadhyay et al. (1995), considering the fact that they argued that investing in information technology alone does not matter, but rather what matters is the business processes. Various approaches have been brought forward that could be used in quantifying the information technology payoffs, varying from the subjective forms to those that are considered to be purely scientific (Mukhopadhyay et al. 1995). However, basing solely on the traditional methods of valuation that relies on costs together with the tangible benefits can be considered to be actually incomplete at the organizational level. What is important to note, therefore, is the fact that measuring the business value of the individual worker performance improvements can actually help in enhancing the alignment between the business objectives and information technology initiatives.
Previous studies highlight that information technology is usually considered as a cost center, which leads to a continuous consideration of the total cost of ownership. However, despite the fact that this is often viewed to be a necessary and significant move when it comes to the management of information technology, it actually does nothing to show the impacts information technology containing profitability of the organization it supports. For instance, when a certain department within the organization has been considered as a cost centre, the budgets have to be squeezed over the years, while the market competition continues to erode the budgetary resources. This, therefore, makes it difficult for the information technology organizations to sustain the prolonged competitive advantage that is demanded by the senior management. Apparently, organizations operate in an environment that is characterized by a complex jumble of markets that is being transformed at a rising speed. This, therefore, demands the organization to keep pace with the ongoing changes in order to remain competitive and dominate the market. However, it is worth noting that the users of information technology have never been so demanding or sophisticated with regard to the information technology services they demand in the current highly competitive business environment.
In addition, it is very significant that the manner in which organizations view information technology is transformed from just the cost center to the view of it being a strategic partner that could be applied to facilitate the attainment of the organizational objectives, along with providing a competitive advantage. This, therefore, requires the information technology organizations to be transformed from being viewed as techno-centric to user-centric. As research studies highlight, the user-centric design combines the organizational objectives, requirements of the user, along with the information technology capabilities, which will then enable the information technology organization to leverage three outlined inputs into a considerable amount of business value. Furthermore, the information technology organizations have put in place appropriate strategies that are aimed at bridging the disparities which exist between the organizational objectives, and the end-users will, in the end, establish a competitive advantage with the investments in information technology affecting the organization’s bottom line.
2.3.3 Theoretical Paradigms Applied In the Research on Information Technology Business Value
It is important to note that the researchers in examining and analyzing the research on information technology business value have employed several paradigms. These include the microeconomic theory, the industrial organization theory, as well as the sociology and the socio-political theories.
This theory presents a rich combination of correctly defined constructs that are interrelated through the mathematical specifications and theoretical models. The theory of production is considered to be useful when it comes to understanding the production process, as well as presenting the empirical specifications that facilitate the determination of the economic impact of information technology (Litchenberg 1995; Brynjolfson and Hitt 1995). In addition, researchers have employed the option pricing models to the context of information technology, in order to account for uncertainty and the inherent risk (Lee and Barua 1999; Hitt and Brynjolfsson 1996). Benaroch and Kauffman (1999) have carried out a real-options examination of the point-of-sale debit services through the electronic banking network, and expressed the logic of option pricing, like how it can manage attaining the timing correct, abandonment or scaling up, while the organization finds out more about its business surrounding. Despite the fact that the hypothesis generated by the microeconomic theory needs to be examined carefully with regard to the specific research framework, it is worth noting that its application within the information technology business value research, indeed, helps in improving the conceptualization of the phenomena variety.
The researchers on information technology business value have analyzed the existing literature on industrial organization with the purpose of finding out the manner in which organizations interact jointly when it comes to information technology investment resolutions, as well as understanding how the forecasted benefits will be shared. To analyze the impact of strategic interaction within the various competitors in the information technology business value capture and generation, the game theory is often applied. A researcher, Belleflamme (2001), came up with a two-stage game of information technology production and investment choice, basing on the oligopolistic competition. The literature from the agency theory has also been used to explain the information technology business value. In addition, the transaction theory has also been used to provide an understanding of the function of information technology when it comes to reduction of the transaction costs (Gurbaxani and Wang 1991).
Despite the fact that the system rationalism perception, which refers to the maximization of the organizational effectiveness and efficiency through the implementation of information technology which is considered as a common objective for all the organizational stakeholders, is the most well-known within the information technology business value literature. It is important to note that other perspective as well contain informed understanding of the same topic (Kling 1980). As Granovetter (1985) highlights, most of the economic activity is highly embedded within the social networks. Embeddedness is defined as logic of exchange, which encourages integrative agreements, complex adaptation, and Pareto improvements when it comes to allocative efficiency, as well as the economies of time (Uzzi 1997). Some of the information technology researchers have used the theory of embeddedness to provide an understanding of how the relationships between organizations affect the information technology business value (Chatfield and Yetton 2000). Hoogeveen and Oppelland (2002) highlight that the socio-political view can also be applied in examining the relationship that exists between the organizational performance and investment in information technology.
However according to Kumar et al. (1998), there should be some rationality within the information technology systems that will help in laying more emphasis on the relationships, along with the trusts across and within organizations. They also insist that this could be applied to provide the explanations regarding the failure of the inter-organizational information technology systems (Kumar et al. 1998). Basically, it is apparent that the complex challenge of relating information technology with the business value it generates has been explained by various theoretical paradigms. However, as Uzzi (1997) highlights, the lack of common theoretical framework has led to some controversial perspectives that are characterized by numerous simultaneous and non-overlapping conversations. This, therefore, implies that there is a need to come up with a conceptual model that is not only grounded on some theoretical perspective, but rather should be based on the literature that is appropriate for examining the complexity that surrounds the whole concept of information technology and the business value. Apparently, a clear consensus has not been attained with regard to the information technology business value, considering the fact that researchers have come up with conflicting views and perspectives about this topic.
Basically, the resource-based view of the organization lays greater emphasis on the heterogeneous organization resources, as its basis for attaining a competitive advantage. According to Chamberlin (1933), this view is based on the influential work of the economists who are mostly concerned with imperfect competition, as well as organizational heterogeneity. It is apparent that these theorists were concerned with establishing the importance of organizational heterogeneity with regard to the market structure. Penrose (1959) came up with the theory of organizational growth, and highlights that an organization is a collection of resources that are found within an administrative framework. Wemerfelt (1984) made a significant contribution to the resource-based theory, when he introduced the concept of resources position barriers, for instance, the barriers to imitation, and related resource attributes to the organizational profitability. The succeeding studies examined the manner in which the resource attributes can be applied to generate a competitive advantage for the organization (Peteraf 1993; Amit and Shoemaker 1993). It is worth noting that this was also extended to provide an explanation of the resources, basing on the perspective of the organizations that are interconnected (Dovev 2002). However, on the contrary to undifferentiated factor inputs considered to have clear property rights, research highlights that the organizational resources are organizational-specific, hard to imitate, and are in most cases considered to be valuable, considering the fact that these are the inputs that are aimed at enhancing the organization’s efficiency (Teece et al. 1997).
However, according to Braney (1991), there are various conditions that are necessary for the resource to generate a competitive advantage. For instance, when a resource is considered to be both rare and valuable, it is apparent that a few organizations will be able to access it, which, therefore, implies that this will generate a temporary competitive advantage. In the same way, if a certain resource is considered to be imperfectly imitable in such a way that the competitors have no understanding of the factors that could result into its success, and thus cannot imitate, which implies that the resource has no readily available substitutes, hence generating a sustained competitive advantage for the organization. This means, therefore, that the organization is applying its resources to establish a value creating strategy that is not applied by any of its current or even the potential competitors, considering the fact that the competitors have no ability to imitate or duplicate such resources (Braney 1991). To sum up, it can be highlighted that the main conditions that are considered to be significant for a resource to generate a sustained competitive advantage include non-substantiality, rareness, inimitability, and value. Apparently, these formulations could be adopted to help analyze the most essential questions surrounding the issue of information technology business value.
Research highlights that the resource-based view is used in analyzing the competitive advantage and efficiency implications of the specific organization, for instance, the organizational routines as well as entrepreneurship (Nelson and Winter 1982). This is also significant within the information technology context, considering the fact that it can be applied in establishing a strong framework that could be used in analyzing the manner in which the information technology could be linked to the competitive advantage. Apparently, the strategy researchers and theorists have used the resourced-based view to theoretically examine the competitive advantage impacts of the organization information technology, and analyze the complementarities between the organizational resources and information technology (Mata et al. 1995). The information systems researchers have also started implementing the resource-based perspective to deepen and expand on the understanding of the information technology business value (Caldeira and Ward 2003; Santhanam and Hartono 2003; Bharadwaj 2000). This is because the resource-based view integrates the economics perspectives along with the management perspective (Peteraf and Barney 2003). However, limitation of the resource-based view regards the fact that it presupposes the organizational resources are often applied by the organization to their best use, without revealing how this happens. Therefore, the resource-based view offers the various factors that are considered necessary when it comes to the achievement of a sustained competitive advantage, basing on the organizational resources, although it does not highlight the principal mechanisms through which such a claim is attained. The secondary theory bases have to be therefore relied on the microeconomics theory, along with the existing literature on information technology business value, in order to present an appropriate understanding of how the information technology resource is incorporated into the business processes so as to enhance the organizational performance.
Apparently, research indicates that characteristics of the industry determine the extent to which the organization can obtain information technology and implement it successfully. Looking at the apparel industry, for instance, it is apparent that the organizations have to move with the changing consumer preferences in terms of styles, considering the fact that this is an industry that is highly driven by design (Ghemawat and Nueno 2003). This, therefore, implies that such an industry highlights the kind of information technology that is required, the approach that could be adopted to ensure that such a technology is applied successfully, the dimensions as well as the extent of the value that may be generated after the implementation of the information technology. However, according to Datta and Narayanan (1977), the technological changes within the factor and product markets, regulation, minimum efficient scale, workforce composition and competitiveness, have indeed been highlighted to contain significant impacts when it comes to the organizational performance. Some of the research studies on information technology business value incorporate variables that would help in managing the industrial impacts, whether an industry structure measures such as competitiveness, or the dummy variable (Lichtenberg 1995). However, it is worth noting that incorporating such variables allows the researchers to pick on the accurate impacts that play a significant role when it comes to information technology, as well as those that are related to the industrial factors. On the other hand, it can be highlighted that the incorporation of the industry controls says nothing on the aspect of how the industrial characteristics promote or rather constrain the efforts of the competing organizations to apply information technology with the aim of the business value generating.
Nonetheless, according to the available literature, it can be highlighted that a small effort has been put to directly look at the degree of difference in information technology business value across the industries. In addition, it is also clear that fewer efforts have been employed in attempting to generate a theoretically defined case regarding the identified disparities. However, it was researched that there were significant differences within the multi-factor productivity when looking at the computer using and the computer-producing sectors (Stiroh 1998). Apparently, the producers and high-information technology using industries, possess larger productivity acceleration when compared to other sectors (Stiroh 2001). Morison (1997) examined the net marginal gains of investing in information technology and highlighted that the benefit-cost ratio of information technology increased with time, although this was not distributed uniformly across the industries. However, what these researchers claim is that competitiveness of a certain product in the market contains significant impacts on the extent to which the organization may consider the benefits it offers through the implementation of information technology (Hitt and Brynjolfsson 1996).
This chapter focuses on the actual data collection tools, and then proceeds to organize and analyze the data, and prepare for the next chapters that will interpret the findings. As stated earlier, the primary data collection tools were mainly the questionnaire, telephone calls, and e-mails. Due to its flexible nature, the questionnaire will be given more focus and importance than the other two (Creswell 2003). Firstly, the questionnaire gives the respondent more time than a call, and offers better confidentiality because no details about the respondent are necessarily revealed. In this case, 1000 copies of the attached questionnaire were printed and presented to operators of various businesses and companies throughout the U.K.
The data for the study was collected in February and March 2012. In order to achieve a balanced perspective of the study, the questionnaire was presented to various industry players in different sectors. The main representatives, identified for the study, included the education sector, the Telecommunications sector, transportation and related sector, medicine and pharmaceuticals, Internet Service Providers (ISP), retail and consumer businesses, marketing and advertising firms, credit card service providers, financial markets and the media industry. The necessary incentives were undertaken to obtain consent of the respondent firms or businesses after which copies of the questionnaire were sent to the respondents either through e-mail as attachments, or hard copies through the postal mail services. Some respondents requested to have it faxed to them. In total, 2000 questionnaires were printed and successfully presented to 875 respondents. Out of the number presented, 573 questionnaires were filled and collected, representing a 62.57 response rate (Schwalbe, 2010). Out of the 515 responses, 30 were found to have had errors, with 18 being erroneous to the extent of being unusable for any further analytical treatment.
The education category included public and private universities in different members of the U.K, as well as several private colleges, public high schools and elementary schools. Care was taken to capture as wide a geographical, cultural and economic diversity in choosing respondents as possible (Creswell 2003). Medicine category included private and public hospitals; university based referral centers, community initiative health centers, medical research facilities as well as pharmaceutical companies dispersed in various areas in the United Kingdom. Retail and consumer categories included discount stores, supermarkets and hypermarkets, distribution centers, medium a