How IT Creates Business Value: A Process Theory Synthesis

Mixedempiricalresults about the valueof IT inves nts arean invitation to seekbetter theory. Recently, a number ofresearchers have proposed theoretical models that trace the path IT investment inputs take on the way to creating business value. Despite substantive differences, the theoretical models share some common elements n particular, all of them contain a cause-effect argument of the "necessary, but not sufficient" form that characterizes process theories. In this paper, we attempt our own process theory synthesis of these models, resolving some of their apparent contradictions, to serve as a platform for future research. One important implication of our process model is to highlight IT use and knowhow as intermediate outcomes requiring much further research. 1. INTROI)UCTION "IT conversion effectiveness" to account for the failure of some of IT investments to reach the firm's bottom line. Since then, When, several years ago, economists pointed out an apparent many researchers have proposed theoretical models that trace the "productivity paradox" with respect to investments in information path investment inputs take on the way to becoming the outputs technology (IT), information systems (IS) professionals and of *1:,roductivity increases," "realized business value," "organizaacademics had a rude awakening. The "fact" that organizations tional performance improvements," and the like. Among those were spending more and more on information technology with who have proposed such models are Lucas (1993), Grabowski little to show for it in the output statistics forced practitioners to and Lee (1993), Markus and Soh (1993), Sambamurthy and redouble their efforts to justify investments in technology. Zmud (1994), and Beath, Goodhue, and Ross (1994). Empirical studies undertaken by IS researchers have yielded mixed results. Kauffman and Weill (1989), among others, have Despite substantive differences, the theoretical models listed failed to find a convincing body of evidence that IT investment above share some common elements. In particular, all of them is always associated with superior performance. Ihe most recent contain, either explicitly or implicitly, a cause-effect argument of evidence is that IT is associated with increased output (thus the "necessary, but not suticient" form that characterizes process refuting the productivity paradox), but not with business value theories and differentiates them from variance theories (Markus as measured by return on asset and return on equity (Hitt and and Robey 1988; Mohr 1982). While variance theories excel at Brynjolffson 1994). explaining variations in the magnitude of a certain outcome, they tend not to do well in situations where the outcome is uncertain Mixed empirical results are always an invitation to seek better sometimes occurring, sometiirles not a strong indicator that theory. We believe that a productive approach is to move from the necessaryconditions are not sufficient to produce the outcome. the question of whether IT creates value to how, when and why By contrast process theories can provide powerful explanations benefits occur or fail to do so. One of the first researchers to fill even when causal agents cannot be demonstrated to be sufficient this theory gap was Weill (1992), who introduced the concept of for the outcome to occur. In cases of outcome uncertainty, as is