Factors Affecting Investment in It: A Critical Review

ABSTRACT In this paper, we present a review of analytical and empirical research studies that analyze the factors impacting the organizational IT investment. We briefly review research studies conducted in the problem areas of justification of IT investments and contribution of IT to organizational performance. Then we develop a framework that enables us to classify the relevant research and understand the different approaches taken on the subject. Finally, we identify possible future research directions that will be of interest to researchers working in the IS field focusing on IT investment related issues. INTRODUCTION Motivation Information technology (IT) attracts wide spread attention from both managers and researchers as it holds its importance as a critical enabler of competitive advantage for organizations. IT provides firms with competitive edge through improved processes (Prahalad and Hamel 1990) that lead to a decline in operating costs and an increase in quality of products and services. Yet, many firms remain slow in investing in IT. It has been invested at different pace in different firms, different industries and different countries depending on factors including operational and market characteristics and government regulations (Carr 2004). It is not surprising, therefore, that a growing body of research studies deal with these factors that determine IT investment decisions. Firms invest in IT to improve their business, however not all IT projects are successful despite heavy spending. The debate over the value of IT investment has been going on for many years. Researchers have sought variety of performance measures including market measures (event studies, Tobin's q, market value) and accounting measures (ROA, ROE, ROS, market share) to evaluate the value of IT projects (Denning and Richardson 2002). These research studies, however, have shown mixed results, giving life to the term "Productivity Paradox" (Brynjolfsson 1993). Determining the contribution of IT to organizational performance still remains a major problem for the IS researchers and practitioners, which is even more evident with the collapse of Internet companies and the economic slowdown in the early 2000s. The primary motivation of this paper is to objectively evaluate the relevant research studies on IT investment factors, justification of IT investment and the value of IT. We also identify the future research opportunities to stimulate further discussions on the subject and guide the researchers who are interested in studying these problems. Scope We reviewed 46 studies that focused on IT investment problems. The review evaluates the studies that have appeared in scholarly journals, and conference proceedings such as Communications of the ACM, Information Systems Research, Journal of Management Information Systems, Management Science, MIS Quarterly, Information Systems Management, Journal of Information Systems, Proceedings of International Conference in Information Systems and Proceedings of Informs Conference on Information Systems and Technology. There has been enormous interest on evaluation and organization of the studies that focus on IT contribution to organizational performance and productivity, but there have been few surveys that organize and evaluate the studies that focus on the factors that distinguish firms in terms of their IT investment strategies. Therefore, we briefly review the IS literature on justification of investment decisions and IT value, and mainly focus on papers studying the factors impacting the IT investment decisions. The remainder of this paper is organized as follows. In the next section we propose a conceptual framework. In the subsequent three sections, we investigate the literature and identify the future research directions within the context of IT investment at three different levels of analysis: 1) factors that impact IT investment decisions, 2) justification of IT investment and 3) impact of IT on organizational performance. …