Charles H. Kriebel

Information Technologies and Business Value: An Analytic and Empirical Investigation

An important management question today is whether the anticipated economic benefits of Information Technology IT are being realized. In this paper, we consider this problem to be measurement related, and propose and test a new process-oriented methodology for ex post measurement to audit IT impacts on a strategic business unit SBU or profit centers performance. The IT impacts on a given SBU are measured relative to a group of SBUs in the industry. The methodology involves a two-stage analysis of intermediate and higher level output variables that also accounts for industry and economy wide exogenous variables for tracing and measuring IT contributions. The data for testing the proposed model were obtained from SBUs in the manufacturing sector. Our results show significant positive impacts of IT at the intermediate level. The theoretical contribution of the study is a methodology that attempts to circumvent some of the measurement problems in this domain. It also provides a practical management tool to address the question of why or why not certain IT impacts occur. Additionally, through its process orientation, the suggested approach highlights key variables that may require managerial attention and subsequent action.

An economic analysis of strategic information technology investments

The information systems literature is replete with conceptual frameworks for analyzing strategic applications of information technology (IT). In this article, the strategic impacts of IT investment are studied through the development of a formal economic model. In particular, it focuses on IT-related quality competition in a duopoly, where the services may not be priced initially (e.g., in the financial services sector), and where the benefits may come indirectly (e.g., in the form of interest earned on consumer deposits or float on checking accounts). A firm may have to invest in IT, regardless of its underlying cost structure, as a response to its competitors investment level. (We analyze the division of technology benefits between the firms and the consumers and study welfare implications for simultaneous and sequential investments.) Both firms prefer sequential over simultaneous investments, even when both have the required technology. While the IT-inefficient firm (one with higher IT cost for a given service quality) has followership incentives, the leadership incentives for the IT-efficient firm depend on the difference in IT cost structures and the degree of substitutability between the services of the two firms. A preliminary treatment of pricing issues is provided in conjunction with consumer switching cost, which not only has a negative impact on consumer welfare but may also reduce total industry profits. For dynamic markets with new consumers, the negative effect of switching cost on th welfare of existing consumers is reduced when the IT-efficient firm moves first.

Systems Design, Process Performance, and Economic Outcomes in International Banking

Information technology (IT) value remains a serious concern of management today, especially how it should be measured and how it is created. Although we have made significant progress at the firm and aggregate levels of analysis, process-level analysis is still in its infancy, and there is a need for a systematic basis for identifying IT effects. We provide such an approach by developing two models: a process performance model of how system characteristics enhance process output and quality and an economic performance model linking process performance to the economic performance of the firm. We apply these models to global trade services in international banking. We obtained estimates for key variables in both models and general support for the approach. We interpret our results and discuss the merits of the process-level approach for the assessment of IT-reliant work systems.

Economics and management information systems

Without exaggeration, the basic challenge of management is economics: how to choose to employ scarce productive resources to accomplish limited objectives effectively. It is well recognized today, and increasingly so in post-industrial societies, that information, broadly defined, is a strategic economic resource that must be managed if it is to be productive. A comprehensive literature has developed in the discipline of economics which concerns information, information systems, and information-related phenomena of import to management and the development of management information systems (MIS). Although this literature is vast, this overview attempts to relate some of this work to MIS and MIS research.We highlight results in three general areas: (1) those which concern the effect of information upon economic markets external to the firm, (2) those which concern issues of information and its relation to decision making and the internal organization of the firm, and (3) those which concern questions of allocation and control of information resources within the firm. In particular, attention will be directed to interpretation of the major results related to the effect of information upon markets and upon individual decision making, team theory, agency theory, decomposition theory, resource allocation and pricing, incentives, and information evaluation.

THE STRATEGIC DIMENSION OF COMPUTER SYSTEMS PLANNING

Abstract : The computer, formerly a determinant of the efficiency of internal corporate systems, is fast becoming a key to corporate effectiveness in the total business environment -- a major factor influencing corporate performance viz-a-viz competition. To effectively capitalize on the true potential of corporate computer systems today, all levels of management must contribute and participate in their development. Too often the orphan of company computer system planning has been corporate top management, and the chief executive officer in particular. A fundamental requirement for the computer systems success is direction from the top. The form of this direction should be a company computer strategy: an explicit statement by top management of the computers role in attaining the strategic objectives of the corporation.

A survey of the MIS and telecommunications activities of major business firms

This paper presents results obtained from a survey of major business firms in a la rge metropolitan area done as part of a telecommunications systems research project. The goal of this study involved determining the telecommunication technologies and services currently used by business firms. The results show that firms are using intelligent terminals, satellites, microwave, local area networks, etc., and they are using these technologies for electronic mail, decision support system activities, and limited use of video teleconferencing. Information resource management in most of these firms is centralized. Hands-on use of terminals by managers and professional does not appear as widespread as commonly publicized to date.

Risk aversion and the value of information

Abstract Determining,the value of information is a fundamental research problem for information system scientists. Unfortunately, very little research exists that examines the relationship between risk aversion and the value of information. This is surprising because empirical studies show that most managers are risk averse rather than risk neutral. Moreover, the small literature that exists appears to be in conflict. We have developed a framework to examine the relationship between the value of information and risk aversion. We show that the method of payment for information must be considered in determining this relationship. We have used the Arrow-Pratt measure of risk aversion to derive explicit conditions under which the value of information increases (decreases) with risk aversion. From our analysis it is clear that earlier work has depicted a limited view of the relationship between risk aversion and value of information. Our analysis is applicable to the ex-post evaluation of transaction processing systems and a subset of decision and expert support systems.

Optimal policies for subsidizing supplier interorganizational system adoption

We develop a static two‐stage model of network externalities where the buyer has adequate information about the suppliers’ costs to join the network such that it is able to make differential subsidy payments. If the expected network size is small, suppliers encounter negative externalities as the buyer rewards the suppliers joining the system, but at a decreasing rate. On the other hand, if the expected network size is large, the buyer can exert increasing pressure on the few remaining suppliers to join the network, thus forcing positive externalities on these suppliers. We show that if the buyer can make differential subsidy payments, it may need to subsidize only a fraction of the nonjoiners up to a “spontaneous expansion point,”; after which the positive externalities force the remaining suppliers to join the network. We also examine a dynamic model where the suppliers’ costs to join the network decrease over time. We show that in this case, the buyer should incorporate a “bang‐bang”; strategy, such th...

A Decision Model for Software Maintenance

In this paper we address the problem of increasing software maintenance costs in a custom software development environment, and develop a stochastic decision model for the maintenance of information systems. Based on this modeling framework, we derive an optimal decision rule for software systems maintenance, and present sensitivity analysis of the optimal policy. We illustrate an application of this model to a large telecommunications switching software system, and present sensitivity analysis of the optimal state for major upgrade derived from our model. Our modeling framework also allows for computing the expected time to perform major upgrade to software systems.

Assessing the Business Value of Information Technology in Global Wholesale Banking: The Case of Trade Services

The investment in information technologies (IT) in the financial services sector has proliferated in the last decade. Yet there is very little research examining the impact of IT in the financial services sector. In this article, we focus on the trade services application in global wholesale banking. We use the production function approach to estimate the impact of IT in this application. Our estimate of the output elasticity of IT is positive and statistically significant. In addition, we find that the return on investment of IT (increase in dollar revenue per dollar spent in IT) is about 100% per year, holding labor input constant. Our study provides one instance of direct evidence that IT has a favorable impact on productivity in the financial services sector.