9780130650740

Does technology really add value? If so, when? What's the best way to quantify and maximize technology ROI?The IT Payoffgives you powerful new tools for answering critical technology investment questions. Discover where technology can add the greatest value; when to adopt new technologies; how to coordinate process and technology change, and more. Includes new metrics, hands-on templates, and a complete action plan for making smarter funding decisions! One of the 5 Best Technology Books as cited by About.com

SARV DEVARAJ is a faculty of the Management Department at the Mendoza College of Business, Notre Dame, specializing in technology management, quality and productivity management, and manufacturing strategy. He consults widely in the areas of technology management, performance evaluation, just-in-time manufacturing, work teams, and optimizing manufacturing. He is also a Fellow of India-based software companies. Devaraj speaks frequently at conferences, including the Annual Conference for the Decision Sciences Institute. His work has won several international awards.

RAJIV KOHLI is a faculty in the College of Business and Economics at Lehigh University, specializing in strategic information systems, enhanced decision support systems, process innovation, and the role of information technologies in enabling competitive advantage. Recently, he was an internal Consultant in the Decision Support Services at the corporate office of Trinity Health in South Bend, Indiana. He has worked and consulted with organizations in manufacturing, telecommunications, and healthcare.

Devaraj and Kohli's recent joint publications include "Information Technology Payoff in the Health-Care Industry: A Longitudinal Study," published in the Journal of Management Information Systems and (with Ming Fan) "E-Loyalty: Elusive Ideal or Competitive Edge," published in Communications of the ACM. They are currently jointly researching new methods for analyzing e-commerce customer satisfaction and loyalty.

Foreword

xiii

Introduction to Information Technology Payoff

1

(10)

It Payoff: A Dialog

1

(3)

Reasons for IT Payoff Measurement

4

(2)

Competing Investments

4

(1)

Duration of Payoff

5

(1)

Overall Economic Picture

5

(1)

How Has Investment in IT Been Measured Thus Far?

6

(2)

Profitability

6

(1)

Productivity

7

(1)

Customer Value

8

(1)

IT Payoff: A Case for Continued Investment?

8

(3)

The IT Payoff Paradox

11

(8)

Factors Contributing to the IT Productivity Paradox

12

(5)

Anecdotal Evidence

12

(1)

A Snapshot View

13

(1)

Isolating the Effect of IT

14

(1)

Levels of Analysis

15

(1)

Aggregated Analysis

16

(1)

Complementary Factors

16

(1)

Does the Paradox Still Exist?

17

(1)

Moving Beyond the Paradox?

17

(2)

The Strategic Role of Technologies

19

(12)

Why is Strategy in IT Planning Important?

19

(2)

What is Strategy?

21

(1)

Developing a Strategy

22

(1)

Looking Outward

22

(3)

Looking Inward

25

(4)

What To Look For

29

(1)

Connecting the Dots

30

(1)

Failure Analyses

31

(10)

Timing is Everything

32

(1)

Unrealistic Expectations

32

(1)

Management Support

33

(1)

Explicit Payoff Metrics

34

(1)

Infrastructure

35

(1)

Are You Ready for Integration?

36

(2)

Training

38

(3)

A Process Perspective

41

(10)

Let's Talk Theory

42

(1)

Advantages of Variance and Process Approaches

43

(1)

Process Approach: A Discussion

44

(2)

Process Approach: An Application

46

(1)

Combining Process and Variance Approaches

47

(2)

Summary

49

(2)

Technology Payoff Metrics-Balanced Multiple Objectives

51

(14)

Immediate Versus Lagged Metrics

53

(1)

Productivity, Profitability, and Customer Value

54

(1)

A Balanced and Inclusive Approach

55

(5)

Customer Perspective

57

(1)

Internal Business Perspective

57

(1)

Innovation and Learning Perspective

58

(1)

Financial Perspective

59

(1)

Final Thoughts on the Balanced Scorecard

59

(1)

Recommendations

60

(5)

The Technology Curve

65

(14)

Is There Evidence for the Existence of Technology Curves?

67

(1)

Drawing an S-Curve (adapted from foster)

68

(1)

Implications

69

(4)

Payoff Depends on the Position on the Technology Curve

69

(1)

Pay Attention to S-Curves of New Technologies

70

(1)

Become Comfortable with Rendering Your Product Obsolete

71

(1)

Recognize Competitors in Related Fields

72

(1)

Reduce Market Acceptance Time

72

(1)

Technology Trend Curves

73

(2)

Disruptive Technologies

75

(3)

Technologies of the Future

78

(1)

Technology Justification Models

79

(16)

The Real Options Approach

86

(2)

Economic Value Added

88

(1)

Statistical Approaches

88

(7)

Implementing IT Payoff Initiatives: A Framework

95

(18)

Phase I: Exploration

97

(2)

Phase II: Involvement

99

(2)

Phase III: Analysis

101

(2)

Phase IV: Communication

103

(10)

Electronic Commerce: Challenges and Opportunities in Assessing IT Payoff

113

(16)

Data, Information, and Knowledge

114

(2)

E-Loyalty: Your Payoff in Online Commerce

116

(2)

A Model for E-Loyalty

117

(1)

E-commerce Payoff

118

(8)

Looking to the Future: Challenges in IT Payoff Assessment

126

(3)

Assessing IT Payoff: A Case Study

129

(16)

Phase I: Exploration

130

(3)

Step 1: Identifying the Investment Stage

131

(1)

Step 2: Match Approach and Techniques

132

(1)

Phase II: Involvement

133

(1)

Step 3: Identify Tangible and Intangible Metrics

133

(1)

Steps 4 and 5: Make Business Case for IT Payoff Measurement and Ensure Customer Involvement

133

(1)

Phase III: Analysis

134

(4)

Step 6: Conduct Analysis

134

(3)

Step 7: Interpret Data for Constituents

137

(1)

Phase IV: Communication

138

(1)

Step 8: Provide Feedback and Actionable Steps

138

(1)

Step 9: Institutionalize Bias for IT Payoff Measurement

139

(1)

An Update

139

(1)

Conclusion

140

(5)

Succeeding at IT Payoff Measurement: An Action Plan

145

(16)

Recap

146

(3)

An Action Plan

149

(3)

How to Implement s Measurement System

152

(5)

Securing Organizational and Management Commitment

152

(1)

Building Data Partnerships with Constituencies Inside and Outside the Organization

153

(2)

Gathering Data

155

(2)

Analyzing Data

157

(1)

Capitalizing on the Cascading Effects of IT Payoff

157

(1)

Building an Infrastructure for Ongoing IT Payoff Analysis

158

(1)

Integrating IT Payoff Results in Managerial and Strategic Planning and Decision Making

159

(2)

Index

161

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Foreword The IT Payoffis all about being a professional. It's amanagementbook that addresses the single most important issue for the future of the information services (IS) field and one that will become more and more central to general managers and functional managers: the need for a compelling, convincing, disciplined and well-communicated financial model for IT investments. The IS field has largely lacked all four of the adjectives that precede "financial model" in my previous sentence. Indeed, many executives would argue that it's lacked any sense of financial realism and hasn't had any model. Historically, to be an IT "professional" meant having training and experience in systems development and project management. Development was the core of any information services organization and technology skills the necessary base for its success. There was very little attention paid to what should have been a priority:the financial responsibility of true professionalsto ensure effective use of the firm's capital investment in IT. This just wasn't on the agenda. In the close to thirty years that I've taught at major business schools, I can't recall a single course devoted to the topicsThe IT Payoffso lucidly and comprehensively addresses. In the 1980s, the focus of IT education did shift from development to IT-and-competitive-advantage (an almost breathless single word), but the focus was on market share, growth and new product, and service development. Here again, the financial responsibility was ignored. The implicit assumption was that growth would generate return and that competitive advantage ends up on the bottom line. I recall my own bookCompeting in Time, published in 1986; it did not contain a single page on managing the costs and benefits of the investment. In 1988, I sponsored and published a book,Getting Business Value from IT; it sank with little trace. The flood of books aboutNet Somethingwere largely naive or even irresponsible about the financial side of the dotcom era. Of course, there has for a long time been plenty of discussion of the issues of IT payoff. Much of this has basically been ideological in nature and highly repetitive, centered around the Productivity Paradox, a term coined by an economist skeptic about IT that set the agenda for much of the academic research on IT payoff. (Most economists have been skeptics in this regard.) Little of this work has had any real management relevance. It ignores what I believe is the strength ofThe IT Payoff: attention to theprocessof financial analysis, justification, and communication. The data the academic work has used has also largely been very dubious; it uses macro level figures that are incomplete and do not reflect the multiplicity of cost elements. IT costs are scattered across many budgets and in my own experience only 20% of them are visible; the rest is what I call the cost iceberg. In addition, the fundamental problem in assessing IT payoff has always been how to attribute value to infrastructures that enable specific applications. At the level of the individual project it's possible to measure return on investment (ROI) in many instances, though even here, it's very difficult to quantify all the "soft" benefits such as "better" service, "improved" communication, and the like. All this is well-known but until the problem of the search for payoff is handled in managerial rather than conceptual terms we will see no more progress in the next ten years than we have in the past ten. Business executives have long been frustrated by the IT payoff problem. The last 3-5 years have seen several shifts in their view of IT that in my own opinion demand that IS make the financial side of IT its professional core. The earliest shift came from the accelerated move of technology from the periphery of business to its mainstream, first through the massi

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The IT Payoff Measuring the Business Value of Information Technology Investments

The IT Payoff Measuring the Business Value of Information Technology Investments

0130650749

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