Matakuliah
Tahun
: A0814/Investment Analysis
: 2009
THE IT PAYOFF PARADOX
Pertemuan 3-4
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
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Anecdote Evidence
A Snapshot View
Isolating the Effect of IT
Levels of Analysis
Aggregated Analysis
Complementary Factors
Bina Nusantara University
3
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
• Anecdote Evidence
– Hersey’s – initial implementation of a $ 112 million ERP project
casued widespread disarray, including shipment delays and
incomplete orders.
– IBM – reduced its time to ship a replacement part from 22 days
to 3 days is no guarantee that other ERP implementations might
yeild similar benefits.
Bina Nusantara University
4
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
• A Snapshot View
– Many studies that were conducted to evaluate whether or not
there was a payoff from IT, one common characteristic that many
of these studies share is that they examine the payoff question at
a certain point in time.
– IT implementation take time to realize thier full potential
Bina Nusantara University
5
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
• Isolating the Effect of IT
– Knowledge management is the concept by which an
organization gathers, organized, and shares its knowledge in
terms of resources, documents, and people skills.
– Can attribute hte performance improvement (or decline) to the IT
implementation?
– Can we say with a ceratin degree of confidence that what we
observed is due to the IT implementation?
Bina Nusantara University
6
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
• Levels of Analysis
– Economy
• To capture the aggregate IT impact for the whole economy, not
separating out the high-tech versus the low-tech companies
– Industry
• To estimate industry trends in the conversion of IT into businsess
value
– Firm
• Advantage of observing the impact of IT while also disentangling it
from other factors.
Bina Nusantara University
7
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
• Levels of Analysis
– However, the economic leel is also one in which it is difficult to separate
the high performers and the low performers. Details about issues such
as the companies that faced intense competition, the companies hat
invested in IT aimed at improving product quality, and a host of other
issues are impossible to disentangle at the economy level.
– at he industry level, the results are more mixed, with certain studies
documenting a positive impact of technological investments, while other
studies detect no significant advantage to IT investments.
– At he more detailed level of the firm, the results indicate a positive
relationship between technology and performance. The trend that
emerges from these studies seems to suggest tht hte more detailed the
level of analysis, the better the chance to detect the impact, if any, of a
given technology.
Bina Nusantara University
8
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
• Aggregated Analysis
– Technology is implemented at a process level and the
oprganizational level
– Missmatch between the level at which the investment occurs and
the level at which are measuring payoff makes it difficult to
isolate the impact of any individual technology
– The process view process view proposes that IT expenditures
have to be converted into appropriate IT assets. The appropriate
use of IT assets leads to IT impacts, and IT impacts, when
positioned competitively, lead to impacts on organizational
performance.
Bina Nusantara University
9
FACTORS CONTRIBUTING TO THE IT
PRODUCTIVITY PARADOX
• Complementary Factors
– Activity are complements if anyone of them increases the returns
to the others.
– Realize maximum benfits from IT, there needs to be not only an
investment in IT, but also an “IT-driven” reengineering of the
existing process of achieving a task(s).
Bina Nusantara University
10
DOES THE PARADOX STILL EXIST?
• The IT paradox is still relevant?
• Productivity growth related with the economic factors?
Bina Nusantara University
11
Moving Beyond the Paradox?
• Conceptual
• Methodology
• Implementation issues
Bina Nusantara University
12
Moving Beyond the Paradox?
• If the paradox has been resolved and the connection
between IT and payoff been established, then are
managers investing more in IT?
• Why a connection between IT investment and
performance was not observed?
• Solid foundation to starts technology strategy.
Bina Nusantara University
13