Executives' Perspectives on IT: Unraveling the Link between Business Strategy, Management Practices and IT Business Value

Executives’ Perspectives on IT: Unraveling the Link between Business Strategy, Management Practices and IT Business Value 1 Paul P. Tallon (ptallon@uci.edu) Kenneth L. Kraemer (kkraemer@uci.edu) Center for Research on Information Technology and Organizations, Graduate School of Management, University of California, Irvine, CA 92697–4650 Abstract Executives’ perspectives on realized IT payoffs are clearly important in IT investment decisions. In this paper, we investigate the link between business strategy, management practices and IT business value. Our results indicate that corporations with more focused goals for IT achieve higher payoffs from IT throughout the value chain. We also find that management practices contribute to IT payoffs and that a corporation’s use of management practices relates to their strategic intent or goals for IT. impact of IT on different aspects of firm performance. By considering the goals behind a firm’s IT investments, we can provide a more meaningful assessment of IT payoffs. For example, we can evaluate payoffs in specific areas such as sales and marketing or customer relations, areas that have traditionally eluded objective measures of IT payoffs. Finally, evaluating IT payoffs against a set of underlying goals for IT can generate insights into whether a firm’s IT investments are providing direct support for the business strategy. Introduction Although previous research suggests that investments in information technology (IT) have a positive impact on firm performance, many business executives remain skeptical about the payoffs from IT. Already frustrated by an inability to quantify certain intangible benefits from IT, executives cite frequent delays and budget overruns to support their claim that IT is not delivering on its promise. As decentralization continues to place business executives in a position of authority and control over IT, these sentiments will have an impact on the scale and direction of future IT investment decisions. As a consequence, executives’ perspectives are clearly relevant to the debate on IT payoffs and beyond that, to a broader discussion of how IT can support the business strategy. In this paper, we present findings from a global survey of business executives in “Fortune 1000” firms. Faced with conflicting views of IT payoffs, we asked business executives to reveal their strategic intent or corporate goals for IT, and to then assess (in perceptual terms) the A Process Model of IT Business Value Insights into IT payoffs at the firm-level can be gleaned from research on the “productivity paradox” (Brynjolfsson and Hitt 1996; Dewan and Min 1997; Lichtenberg 1995). However, as the primary focus of these studies has been on the productivity impacts of IT, a wide variety of impacts in areas such as improved inventory management, greater product variety and enhanced customer service, have been excluded from a broader analysis of IT payoffs. Therefore, in response to calls for a more inclusive and comprehensive assessment of IT payoffs, we introduce a process-oriented model of IT business value (Figure 1). While there are many ways of depicting the processes within a corporation, the value chain is perhaps the most widely used (Porter 1985). A process-oriented model also provides a mechanism for representing goals for IT in the sense that different business strategies emphasize different parts of the value chain. Therefore, by using the value chain to identify key business processes, we can construct a framework within which to evaluate IT payoffs. Management Practices Realized IT Value Strategic Intent for IT Focused Goals Value Chain Unfocused Figure 1. Conceptual Model of IT Business Value Firm Performance