We are now living in the new millennium, an era marked by fast paced lifestyle, wireless communication, faceless transactions, and remote business dealings. It is a time where sweeping transformations are caused by the advancement of information and communication technologies frequently referred to as the ICT revolution (Sanditov 2004). A revolution almost willingly participated in by everyone, especially those in the business world, where the advantage lies on automated processes fueled by ICT tools and not on traditional manual competence and machinery.
Looking back from history, other revolutions, like the Agrarian Revolution or the Industrial Revolution, were not acknowledged as they unfolded. These revolutions were only distinguished after the fact. On the other hand, the ICT revolution is well-known worldwide as its progress and its influence has reached not only developed nations but burgeoning African, South American and Asian countries (National Intelligence Council 2004). Advancement in technologies has greatly changed not only the business landscape but how we live our daily lives.
It was pointed out by Bellini et al (2004) that ICT started with the introduction of the transistor back in the 1940s – it has speeded the coding, processing, keeping, and interchange of voluminous data and information. Conventional equipment like the typewriter, filing cabinets, ledgers, and the classic paper and pen simply could not keep up with the demand. From that point onwards, supercomputers were built from thousands of transistors which can perform hundreds of tasks in a single minute. Bellini et al (2004) adds that enterprises are able to create and keep big, centralized databases and use these for interfacing with their satellite offices or plants. Workers can even do their work away form the confines of the office. Previously, resources of companies are poured in laborers and bulky machinery. In contrast, nowadays it is invested in a skilled and educated workforce, coupled with ICT technologies like facsimile and telephony technologies, the Internet, satellite communication, computer hardware and software. The latter encompasses word and table processors, e-mail, search engines, and databases, as well as wireless and mobile technologies.
These technologies will continue to shape societies as well as worldwide economies, as studies have shown that there is a strong relationship between economic development and the amount of ICT infrastructures (NexComm Systems 2006). Infrastructures like Broadband Internet, quality mobile service, sound government policies and a steady pool of skilled professionals are essential in the implementation of ICT. Business embraces it since ICT has the potential to effectually reduce cost, enhance productivity and add economic value (Organization for Economic Co-Operation and Development 2004). It enables new and improved business processes to deliver products and services with greater effectiveness and efficiency. With the rapid rise in globalization, labor-intensive and low-value operations will continue to go to countries that offer low cost but unskilled or semi-skilled workers while the high-value and high-paying jobs will logically go to countries that have the professional and management talent, excellent ICT infrastructure, and encouraging environment for business (Khosrow-Pour 2000).
Characteristics of ICT Investments
Every business investment will have accompanying risks, risks that need to be taken in order to be ahead of the competition. ICT investments are not an exception and understanding the unique characteristics of this investment before implementing it could save management from detrimental risks. Primarily, the inherent property of ICT investment of being prone to rapid change is what sets it apart from other investments. Remenyi (1999) argues that this could be both a disadvantageous and challenging opportunity for the management. This is more apparent in IT investments. Remenyi (1999) further asserts that IT investment opportunities or challenges frequently evolve, not only over a long period of time, but during the relatively short periods while the information system is actually being developed. Due to the possibility of transformation in technology, the objectives of the development team could also change. The product of the whole endeavor could be different from what was originally conceptualized. As foreseen by Moore’s Law, technologies will evolve in a fast-paced rate even as short as 18 months (Parthasarathy & Thompson 2006). Therefore businesses formulating a strategy involving information systems should anticipate such changes and be open to modifications in the whole systems design process. In doing so, the completed information system will be at par with the industry standards and the organization could reap the benefits. On the other hand, shortsightedness in system analysis and design will come with a heavy price (Parthasarathy & Thompson 2006).
Another unique characteristic of ICT is that it is subject to network externalities. Network externalities is a term used by economists to describe the phenomena happening in a network where the worth of the network rises in direct proportion with the square of the number of users (Shapiro & Varian 1999). In other words, once a certain critical mass of users of an application or a technology is reached, the network will experience exponential growth in users, usage and hence value. Management will then need to carefully plan the ICT network they plan to build. The organization should be well equipped to create, manage, make necessary architectural improvements, and influence the network. As Shapiro & Varian (1999) explains that building a network involves more than just building a product: finding partners, building strategic alliances, and knowing how to get the bandwagon rolling can be every bit as important as engineering skills. Successful implementation of an ICT investment then would mean a hundredfold return to a business.
Aside from this, disintermediation becomes possible through ICT. It is where mediators of products and services or middle men are reduced as consumers go straight to the producers of the goods and services (Lesjak & Vehovar 2007). It can be deemed as an opportunity for the business to have a more personal relationship with consumers, as ICT facilitates personalization of service. In contrast, Brindley & Ritchie (2000) sees that the supply chain relationships and the processes of intermediation are under threat from these developments. This is because ICT can disturb the already ongoing working relationship of the business with its suppliers, distributors and traders. However, there is a compromise that Brindley (2004) also sees in this threat. On the other hand, the changes in technologies will enable the organization to source alternative support parties in the market. This means that having a single middleman is a thing of the past as the options of the business grow. Organizations now may look for other alternatives; thus letting the business maintain different middleman relationships at the same time. It can foster healthy competition and minimize reliance on only one supplier. Thus, instead of completely cutting off the middleman, organizations have the option of creating new relationships that can be beneficial to both parties. Disintermediation not only affects the suppliers but the middle management that interact with them as well; thus resistance from them should be expected and handled accordingly by the organization upon implementation of ICT initiatives.
In addition, other evident characteristics are the fact that ICT is multifunctional and adaptable, allowing for personalized solutions to meet diverse needs. It can be used in almost all facets of our lives, be it in the home, at work and even during leisure. Not only business but also governments, are tapping ICT to make processes efficient. Moreover, through ICT, dissemination of information and knowledge without regard to geographical location is possible. Thus ICT can be used in globalization; it rises above culture, language and nationality. ICT also shapes the current policies and regulation of government about business within its scope and with other countries as well (Lesjak & Vehovar 2007).
ICT can be an efficacious enabler of development goals because its unique traits dramatically enhance communication and the exchange of data and information to solidify novel economic and social relationships. To be an enabler of development, ICT should be conceived as way, but not as an end goal per se. It is not the final solution to achieve the business objective but instead is only part and parcel of that solution. Taking the above characteristics and dynamics into consideration, these imply that planning for ICT means having to deal with speed, inter-operability standards, uncertainty and risks. The strategy for ICT therefore, needs to be opportunistic by being open to unexpected successes and failures, and by incorporating plan for learning and discovery.
Complexities of ICT Decision Making
Like any other investment, ICT investment will need meticulous planning and careful evaluation of options. Often than not the decision-making process indeed very grueling as various problems arise. It could come from numerous sources including complexity in estimating the cost of the project, a penchant to follow a particular methodology regardless if it fits the current ICT investment and exceedingly unrealistic expectations about its benefits. The result will be ICT projects that are over budget, not meeting business objectives, and missing the deadline. Decision-makers in the organization will need to keep in mind the characteristics discussed above while contemplating about the right approach for an ICT project.
The reputation of ICT investments as having great potential but ending up a disappointment stems from the lack of appreciation of key decision makers to the necessary understanding of ICT itself (EDUCAUSE Center for Applied Research, 2004). Dehlin & Olofsson (2008) echoed this concern stating that many times, decision makers have little or no knowledge of the overall consequence of the investment. These decision makers are usually the IT managers and senior management members of the organization. IT managers are the specialists when it comes to ICT systems and trends, and technology standards that are prevalent in the market. However, they only have meager understanding of the overall business strategy. Alternatively, the senior managers are the specialists on business goals and objectives, but lack the wisdom of IT managers when it comes to up to date technologies. These two personalities are the key to the decision making process, but they seldom work collaboratively (Dehlin & Olofsson, 2008). Because of this, there is scarcity of correct information that could help each decision maker in making a judgment about the investment. IT managers could select an ICT system that will not align with the business goals while senior managers could choose the ICT system that might become out of date earlier than expected, thus causing the ICT system to be ineffective. To avert this predicament, ICT investment analysis should not be an individual task but instead a collaboration among key players of the decision process.
As seen, it is essential for ICT investment to work that vital resource like information and workforce to work hand in hand. The Review of ICT Governance in the Queensland Government Report (2006) stated that to obtain maximum value, ICT like other corporate resources must be used in concert with its particular organizational environment. In any organization, there will always be a requisite of breaking down and putting together resources into bite size proportions. The challenge is in developing processes is to ensure that the pieces go together and fit as effectively as possible. Ideally, a department’s business strategy pushes its ICT strategy; and ICT and business alignment are gauged not only by the degree to which ICT supports the business, but also by the degree to which business strategy is able to leverage on ICT capability. Moreover, if the ICT initiative is competing with other business investments, the EDUCAUSE Center for Applied Research (2004) study supports that same value: alignment with strategic priorities is the criterion that shall tip the scale, for an IT project to yield financial support.
Various methods are available for assessing an ICT investment. There are experimental survey methods, case studies, and quantitative approaches. However, most of these scales of measurements only gauge the financial and technological issues (Schniederjans & Hamaker 2003). Conventional methods are: Cost and Benefit Analysis/CBA – which produce non-discounted assessment of possible benefits and cost of a particular project, both Discounted Cash Flow/DCF and Net Present Value/NPV – generates the net cost of the investment in monetary terms, and Return On Investment/ROI – a method use to calculate whether the investment will turn into profits (Dehlin & Olofsson 2008). Given that these methods are already established, decision makers often utilize them since they can be easily understood as well as put together. Information extracted from these reports are also greatly appreciated especially by the senior management, since these speak in a language they can easily understand. This is the language of money.
Schniederjans & Hamaker (2003) wrote that books written about this subject focus on broad aspects of capital budgeting, financial processing ratios, and net present values of techniques. While journal research on the other hand has focused on traditional single objective financial considerations of the IT investment decision. Others treated the subject of IT investments like financial portfolio problems and also focused on financial value assessments. It was further explained by Dehlin & Olofsson (2008) that traditional methods are difficult to apply in estimations of ICT investment probably due to an insufficient identification and evaluation process of benefits and costs. Other criticisms against these methods are that they fail to grasp the impact on the organization and fail to capture hidden costs, intangible benefits and risks. Moreover, Schniederjans & Hamaker (2003) say that researchers have recognized that IT investment decisions using traditional investment methodologies do not measure its true value to the organization. Thus, many decision makers now feel that the IT investment decision is best achieved when a unique combination of factors such as the organization’s strategies and priorities and other intangibles, are considered all together. IT investment research now focuses on broad-ranging , organizational-wide criteria recognizing that decisions are clearly multi-criteria decisions.
Assessing ICT Investments
There is a continuous rise in companies investing substantial amount of capital in ICT investments. It has been determined that about one third of the total expenses of an organization is dedicated to ICT (Anandarajan & Wen 1999). Inspite of this, Anandarajan & Wen (1999) say that literature indicates that more than two-thirds of Fortune 100 companies’ chief executive officers believe that their firms are not getting the most from their IT investments. Senior management also indicates that assessing the worth of their ICT investments is one of the major concerns among top management. In relation to these findings Joshi ; Pant (2008) pointed out a more recent survey of 213 CEOs, where it was reported that IT-related issues top the CEO’s priority list, ahead of issues such as the quality of products, staff competence, and customer centricity.
To mitigate unwarranted expense, an evaluation method is needed. Williams ; Williams (2007) state that given the high levels of expenditure associated with ICT and the fact that ICT projects often compete with other projects for funding, the capacity to assess investments in an effectual manner is now more relevant than ever. The problem with this though is that traditional methods in measuring ICT investment do not generate the right reports that reflect the true value of the investment. Joshi ; Pant (2008) add that organizations that use an appropriate framework of analysis to evaluate IT investments should be able to make better IT investment decisions. This is critical since wrong information could lead to either under or over investing on an ICT system that might not be right system for the organization needs. Effectiveness of the ICT system lies on sound planning and alignment of the organizations goals and objectives.
Yet another critical point is the lack of existing evaluation methods to assess intangible benefits from ICT systems like better customer service, faster delivery of information, better dissemination of information, among others. Although such benefits are mentioned in conventional reports, these are typically left out of the decision process simply because senior management cannot see their monetary value (Joshi ; Pant, 2008). Therefore Anandarajan ; Wen (1999) propose another approach that will incorporate hidden cost, quantify intangible benefits and also include risk assessment. Anandarajan ; Wen (1999) explain that the framework they developed can help management ascertain hidden costs in all the stages of the ICT system product lifecycle. The framework incorporates all the ideas of key personnel engaged in the creation of the system, including even the actual users of the system. What could be the most important aspect of this framework is that it can show management how to measure the intangible benefits of the ICT investment in a clear and quantifiable manner. It uses the probability theory in conjunction with the concepts of opportunity cost and expected value. And by using sensitivity analysis, their framework was able to integrate a risk model. The steps in using their framework is as follows: determining both tangible and intangible benefits; ascertaining the cost of different technologies; and identifying the net present values and risk assessment.
Another method is presented by Stewart (2007) who proposes that the effective management of IT needs to be viewed as a structured iterative business process, which offers organizational learning from each phase of the IT project life cycle. Undoubtedly, such an IT project life cycle framework should comprise three essential phases or modules: (1) IT project selection; (2) strategic IT deployment and tracking; and (3) IT performance assessment. However, each phase should not be taken on as a separate step. Instead, each is carried out as part of an ongoing, interdependent management initiative. Information gained from one phase is utilized to support activities in each of the other two phases. The Stewart model seems to be the modern approach that incorporates everything that is in the Anandarajan ; Wen (1999) model with an additional feature of ranking the IT proposals. There is no single and standard evaluation method in ICT investments but the two presented approaches encompass critical factors that need to be considered by decision makers in any ICT investment.
Business Value of ICT Investments
According to Prasad (2008), the business value of ICT includes productivity enhancement, profitability improvement, improved work relations, competitive advantage, and efficient use of resources at both intermediate process and organizational levels. It is generally accepted that IT does provide business value; however how exactly it does this is still ambivalent. The value created by ICT investments, according to Loukis ; Sapounas (2008) is affected to a large extent by a number of internet factors. These internal factors are associated with the internet processes of the business like process re-engineering, acquisition of new skills, development of IS infrastructure, improvement of current work practices, among others.
Broadbent ; Kitzis (2005) assert that the connection between IT investments and business value is typically hard to make. To illustrate, if the business value ranking is from one to five with one being the lowest, IT investments value can be easily seen in rank one and two; these are usually the IT infrastructure and the IT application. Value from the infrastructure like fast LAN lines and clear telephone lines can be gauged right away while the worth of IT applications like the ordering system, tracking system, and accounting system can also be appreciated immediately. However, the most important business values are the ones ranked from three to five. These are business process, operational, and financial values (Broadbent ; Kitzis, 2005). Broadbent ; Kitzis (2005) further note that successful IT investments will improve business value measures at all five levels over time. Less successful investments may show positive impact at the two lower levels, but are not strong enough to reach the higher levels.
Since the value that ICT brings into the organization is difficult to measure, Zee (2002) affirmed that many attempts have been made to measure the value of IT according to a variety of criteria.
However, what researchers found out from studies is what is termed as productivity paradox. It is a term coined to represent the phenomenon where productivity measures do not seem to show any impact from new computer and information technologies. Zee (2002) also noted that the lack of evidence of IT productivity can be due to the relative lack of reliability of data sources, mismanagement and a lack of explicit measures of the value of IT. Conventional tools to measure benefits from ICT fail to consider the intangible value of IT, such as better quality, wider range of selection and personalization of goods, more superior customer service, and quicker response to needs of customers. In addition, with the Internet, the business could take advantage of a completely new marketplace. Even though some benefits of ICT are hard to measure, it is recognized by organizations that overall firm value comes from collaborative work of employees towards reaching a common goal.
McTaggart (2006) elaborates that corporate entities are realizing that in creating overall firm value, all divisions must be working together in attaining defined objectives. ICT investment desires must also operate firmly under this directive in obtaining useful advances in technology. Therefore, closer alignment of ICT investments should improve the relationship with business, leading to more effective, holistic systems and procedures. Soliciting the input of decision makers on technology investments allow improved collaboration, and a shared appreciation of strategic initiatives. This understanding and adoption of the common direction is one critical aspect in working towards a goal. Thus, the value possible from ICT investment is realized through alignment of corporate strategy together with human resources.
Improving ROI from ICT
ICT can be used in a mirage of ways in almost all sectors of society. The business sector most probably is the one reaping the most benefits from advancement in ICT systems. ICT systems are commonly used in communication between departments, individuals, customers and suppliers as well. All businesses need to be able to communicate with their suppliers and customers. An organization must have good internal communications, so that each department is kept up to date on everything that is transpiring within the organization. Many organizations use ICT to make internal communications more efficient and effective (Bryson 2006).
An example will be an Electronic Data Interchange or EDI, a cohesive means of systematizing one’s sales and production – it likewise is able to monitor both the manufacture and the sales of products. Other systems will be the use of e-mail for internal and external communications and websites to serve as a portal for customers. They may opt to visit the site to get to know the company more or it could also be used to accept transactions from customers through product ordering. Through this, the company could enter new business ventures through e-commerce, doing business online. There have been several online businesses that have been successful in using e-commerce. That is why even companies that have physical stores are going online or making their business available in the Internet because of a viable pool of potential customers. As mentioned, as the number of users in the network increases, the value of that particular network increases as well. As Internet technology moves from dial-up to broadband, users now are surfing faster and longer than ever; thus, increasing the network of online users that business could tap as potential customers (Bryson 2006).
Another area where ICT systems are implemented is in production processes. Systems available for this area include CAD which stands for Computer Aided Design and CAM stands for Computer Aided Manufacture. The design of a product is done using the CAD software, which can then be used to program the CAM system to make the product. CAD designs are vector graphics (Tan 2002). Production processes and machines could be used in concert to be able to have control over the manufacturing floor. Full automation of the production process is known as Computer Integrated Systems or CIS. This is where the machines that make products are not the only ones used in a manufacturing process. There are also machines that move the raw materials to where they are needed for each stage of production, and machines that move the finished parts around, so that they can be assembled (Bryson 2006). Using such ICT systems not only makes the production process is efficient, but allows it to be more easily tracked and be increasingly reliable. Fully automated production will usually have a system that tracks raw materials so that there will be no shortage of supplies during critical production time. With this, the company can meet deadlines and voluminous orders. In addition, the intangible benefit from this system is a satisfied customer. A satisfied customer can be turned to a loyal one; thus creating a lasting relationship between the two parties (Bryson 2006).
Other areas will be marketing, finance, human resources and customer service. ICT is very much utilized by business to be able to build relationships with their customers by using toll-free numbers for after sales support. Customers will have the option to reach the company in a variety of ways compared to traditional snail mail which was the sole option available in the past. There is the e-mail, websites, mobile number and toll-free number. Through these, an organization can manage its customers, creating a bond that could last years. It is always good business to manage existing customers since it is easier and less expensive to maintain a current customer rather than trying to attract a new one (Bryson 2006).
It is critical for a business to use ICT since most businesses nowadays are already using systems driven by it. This is not a tool exclusively used by business, but it is likewise extensively utilized by other sectors like government, educational institutions and even ordinary households. However, care should be taken in planning ICT initiatives since these will come with risks that could leave a business in ruin. It was proven throughout the paper that the main reason behind success stories of ICT implementation is the ability of the management to align ICT investments with the overall business strategy. A common pitfall of businesses is to assume that upon using an ICT system, all issues in the organization processes could be solved. Sadly, this is not the case. ICT is merely a tool or enabler that a business can use to be able to achieve its strategic goals. It is not the final and ultimate solution to all problems. ICT should be implemented together with a change in business strategy that is fully supported by senior management. There is no one best solution in approaching an ICT investment but a management team that knows its goals and objectives, and stays true to these in deployment. With ICT as a strategic tool on hand, the team has nil likelihood of failing, if this is at all possible.
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