Impact of IT practices and business value of IT measurement

Purpose The purpose of this paper is to measure the business value of IT (BVIT) and illustrate the relationship between IT practices and BVIT. Design/methodology/approach The paper uses a case study approach to collect the subject firm data over a period of one year. The data are about various IT systems used in the firm and their associated capital and operational cost components. The derived data are then compared with industry benchmarks. Findings The IT practices employed by the firm enable it to achieve a BVIT which is higher than the industry norm, from both strategic and operational perspectives. Research limitations/implications In this study, a year’s worth of data from a single firm is considered. The temporal frame of the research data limits the generalization of the results. To improve the generalizability, data from many years and across many firms may be used. Practical implications The paper provides insights to managers to identify the measures of BVIT. Further, managers can make necessary interventions based on IT practices to derive IT capabilities which, in turn, impact the firm’s performance. Originality/value The contribution of the work is manifold: illustration of the relationship between IT practices and BVIT; illustration of a methodology to evaluate firm-level BVIT; and an approach to collect IT expenses – both capital and operational level.

Reliability and validity issues in analysis of IT spending using IT managerial control ratios

Purpose The purpose of this paper is to critically evaluate the practice of IT cost benchmarking using IT managerial control ratios. First, numerous reliability and validity issues that this practice is plagued by are discussed. Second, recommendations on addressing some of these reliability and validity issues are also proposed. Design/methodology/approach This is a conceptual paper that draws on literature utilizing IT managerial control ratios to discuss various reliability problems associated with these measures and also makes use of IT strategy theory to challenge the validity of common interpretations of IT managerial control ratios. Findings This study explains that IT managerial control ratios are subject to numerous reliability and validity issues. The reliability issues arise from the inherent volatility of some of the variables used in these ratios and difficulties that executives have in providing a reliable estimate of those variables when they are approached by market research firms. The validity issues arise from the fact that high and low values of these ratios are subject to different and, at times, somewhat orthogonal theoretical interpretations. Practical implications IT managerial control ratios are often at the heart of important capital allocation decisions as well as studies which form important stakeholders’ perceptions regarding the business value of IT. These important uses of IT managerial control ratios should not be carried out without understanding the reliability and validity issues discussed in this paper. Originality/value While IT managerial control ratios are used extensively in benchmarking and research, very few researchers and practitioners possess a full understanding of the reliability and validity issues associated with these measures. This can potentially lead to sub-optimal capital allocation decisions and erroneous findings in studies. This paper provides a comprehensive overview of these issues and recommends possible remedies.

Using a Two-Step Transformation to Address Non-Normality from a Business Value of Information Technology Perspective

ABSTRACT Accounting information systems (AIS) research data may suffer from severe non-normality, which, if not handled properly, may lead to incorrect statistical inferences. To address this problem, we empirically evaluate the relative merits of a Two-Step normality transformation proposed by Templeton (2011) compared to four alternative distributions available to researchers (random-normal, original, natural log transformed, and winsorization transformed). Using 45 corporate financial performance ratios (CFP), we investigated three perspectives on measurement validity: construct validity, reliability, and difference testing. We then examined the efficacy of the Two-Step method in the context of business value of IT research—we regressed four IT investment and three control variables on 31 of theoretically relevant CFP indicators. The preponderance of our evidence shows that the Two-Step method consistently outperforms the prominently used alternatives in achieving statistical normality, retaining original series means and standard deviations, exhibiting validity and reliability, and theory testing. Our findings strongly suggest that AIS researchers consider adopting the Two-Step normality transformation when utilizing non-normally distributed data to obtain a more accurate understanding and interpretation of results.