Information Technology and Organisational Performance: Reviewing the Business Value of IT Literature

Part of the Integrated Series in Information Systems book series (ISIS, volume 28)


Managing Information Technology (IT) investments continues to be a challenge for firms due to the difficulty associated with demonstrating IT ­contributions to organisational performance. Many IT contributions are not accounted for because they cannot be easily quantified. Linking IT to organisational performance is a complex problem that is informed by insights from ­multiple theoretical paradigms. The aim of this chapter is to comprehensively review work done by both academic and practitioners, and to explore why new approaches to managing IT investments are needed. To achieve this aim, we will start by defining IT assets and business value and exploring the different dimensions used to measure the business value of IT. Then, we will look at the early research on IT business value and the emergence of the Productivity Paradox. After that, we will delve into the three current theoretical paradigms: economics, management and sociology. The theoretical lenses and models used in these paradigms will also be discussed. Finally, future research directions are suggested.


Business value Information technology IT business value Performance 



Business value index


Control objectives for information and related technology


Electronic data interchange


Internal rate of return


Information systems audit and control association


Information technology


IT Governance Institute


Net present value


Option pricing models


Return on investment


Total economic impact


  1. Alshawi, S., Irani, Z., & Baldwin, L. (2003). Editorial: Benchmarking: Information and communication technologies. Benchmarking: An International Journal, 10(4), 312–324.CrossRefGoogle Scholar
  2. Amran, M., & Kulatilaka, N. (1999). Real options: Managing strategic investment in an uncertain world. Boston, MA: Harvard Business School Press.Google Scholar
  3. Aral, S., & Weill, P. (2007). IT assets, organisational capabilities, and firm performance: How resource allocations and organisational differences explain performance variation. Organisation Science, 18(5), 763–780.CrossRefGoogle Scholar
  4. Bakos, J. Y., & Brynjolfsson, E. (1993). From vendors to partners: Information technology and incomplete constructs in buyer-supplier relationships. Journal of Organisational Computing, 3(3), 301–308.CrossRefGoogle Scholar
  5. Bakos, J. Y., & Nault, B. R. (1997). Ownership and investment in electronic networks. Information Systems Research, 8(4), 321.CrossRefGoogle Scholar
  6. Balasubramanian, P., Kulatilaka, N., & Storck, J. (2000). Managing information technology investments using a real-options approach. Journal of Strategic Information Systems, 9(1), 39–62.Google Scholar
  7. Baldwin, E., & Curley, M. (2007). Managing IT innvoation for business value: Practical strategies for IT and business managers. China: Richard Bowles.Google Scholar
  8. Bardhan, I., Whitaker, J., & Mithas, S. (2006). Information technology, production process outsourcing, and manufacturing plant performance. Journal of Management Information Systems, 23(2), 13–40.CrossRefGoogle Scholar
  9. Barua, A., Kriebel, C. H., & Mukhopadhyay, T. (1995). Information technologies and business value: An analytic and empirical investigation. Information Systems Research, 6(1), 3–23.CrossRefGoogle Scholar
  10. Beath, C., Goodhue, D. L., & Ross, J. R. (1994). Partnering for business value: The shared ­management of the IS infrastructure. In J. I., Degross, S. L., Huff, & M. C. Munro (Eds.), Proceedings of the fifteenth international conference on information systems (pp. 459–460), Vancouver, British Columbia.Google Scholar
  11. Belleflamme, P. (2001). Oligopolistic competition, IT use for product differentiation and the ­productivity paradox. International Journal of Industrial Organisation, 19(1–2), 227–248.CrossRefGoogle Scholar
  12. Benaroch, M., & Kauffman, R. J. (1999). A case for using real options pricing analysis to evaluate information technology project investments. Information Systems Research, 10(1), 70–86.CrossRefGoogle Scholar
  13. Benaroch, M., & Kauffman, R. J. (2000). Justifying electronic banking network expansion using real options analysis. Management Information Systems Quarterly, 24(2), 197–225.CrossRefGoogle Scholar
  14. Bharadwaj, A. S. (2000). A resource-based perspective on information technology capability and firm performance: An empirical investigation. Management Information Systems Quarterly, 24(1), 169–196.CrossRefGoogle Scholar
  15. Bharadwaj, A. S., Bharadwaj, S. G., & Konsynski, B. (1999a). Information technology effects on firm performance as measured by Tobin’s Q. Management Science, 45(7), 1008–1024.CrossRefGoogle Scholar
  16. Bon, J. V., & Verheijen, T. (2006). Frameworks for IT management: An introduction. Amersfoort: Van Haren Publishing.Google Scholar
  17. Broadbent, M., & Weill, P. (1997). Management by maxim: How business and IT managers can create IT infrastructures. Sloan Management Review, 38(3), 77–92.Google Scholar
  18. Brynjolfsson, E. (1993). The productivity paradox of information technology. Communications of the ACM, 36(12), 67–77.CrossRefGoogle Scholar
  19. Brynjolfsson, E. (1996). The Contribution of information technology to consumer welfare. Information Systems Research, 7(3), 281–300.CrossRefGoogle Scholar
  20. Brynjolfsson, E., & Hitt, L. M. (1995). Information technology as a factor of production: The role of differences among firms. Economics of Innovation and New Technology, 3(4), 183–199.CrossRefGoogle Scholar
  21. Brynjolfsson, E., & Hitt, L. M. (1996). Paradox lost? Firm-level evidence on the returns to ­information systems spending. Management Science, 42(4), 541–558.CrossRefGoogle Scholar
  22. Brynjolfsson, E., & Hitt, L. M. (1998). Beyond the productivity pardox. Communications of the ACM, 41(8), 49–55.CrossRefGoogle Scholar
  23. Byrd, T. A., & Turner, D. E. (2000). Measuring the flexibility of information technology infrastructure: Exploratory analysis of a construct. Journal of Management Information Systems, 17(1), 167–208.Google Scholar
  24. Carr, N. G. (2003). IT doesn’t matter. Harvard Business Review, 81(5), 41–49.Google Scholar
  25. Chanopas, A., Krairit, D., & Khang, D. B. (2006). Managing information technology infras­tructure: A new flexibility framework. Management Research News, 29(10), 632–651.CrossRefGoogle Scholar
  26. Chatfield, A. T., & Yetton, P. (2000). Strategic payoff from EDI as a function of EDI embeddedness. Journal of Management Information Systems, 16(4), 195–224.Google Scholar
  27. Chircu, A. M., & Kauffman, R. J. (2000). Limits to value in electronic commerce-related IT ­investments. Journal of Management Information Systems, 17(2), 59–80.Google Scholar
  28. Clemons, E. K. (1991). Evaluation of strategic investments in information technology. Communications of the ACM, 34(1), 22–36.CrossRefGoogle Scholar
  29. Clemons, E. K., & Kleindorfer, P. R. (1992). An economic analysis of interorganisational information technology. Decision Support Systems, 8(5), 431–446.CrossRefGoogle Scholar
  30. Clemons, E. K., & Row, M. C. (1991). Sustaining IT advantage: The role of structural differences. Management Information Systems Quarterly, 15(3), 275–292.CrossRefGoogle Scholar
  31. Cline, M. K., & Guynes, C. S. (2001). The impact of information technology investment on enterprise performance: A case study. Information Systems Management, 18(4), 70.CrossRefGoogle Scholar
  32. Dai, Q., Kauffman, R. J., & Marc, S. T. (1999). In S. Sarker & S. Narasimhan (Eds.), Analyzing investments in object-oriented middleware: An options perspective (pp. 45–50). Charlotte, NC: WITS.Google Scholar
  33. Davern, M. J., & Kauffman, R. J. (2000). Discovering potential and realizing value from information technology investments. Journal of Management Information Systems, 16(4), 121–143.Google Scholar
  34. Dehning, B., & Richardson, V. J. (2002). Returns on investments in information technology: A research synthesis. Journal of Information Systems, 16(1), 7–30.CrossRefGoogle Scholar
  35. Devaraj, S., & Kohli, R. (2003). Performance impacts of information technology: Is actual usage the missing link? Management Science, 49(3), 273–289.CrossRefGoogle Scholar
  36. Dewan, S., & Min, C. (1997). The Substitution of information technology for other factors of production: A firm level analysis. Management Science, 43(12), 1660–1675.CrossRefGoogle Scholar
  37. Diewert, W. E., & Smith, A. M. (1994). Productivity measurement for a distribution firm. National Bureau of Economic Research. Working paper no. 4812.Google Scholar
  38. Duncan, N. B. (1995). Capturing flexibility of information technology infrastructure: A study of resource characteristics and their measure. Journal of Management Information Systems, 12(2), 37–57.Google Scholar
  39. Dutta, S. (2007). Recognising the true value of software assets. Insead & Mirco Focus Ltd.
  40. Eastwood, G. (2008). The technology investment and outsourcing outlook: Spend forecasts by vertical market.
  41. Emigh, J. (1999). Net present value. Computerworld, 33, 52–53.Google Scholar
  42. Fan, M., Stallaert, J., & Whinston, A. B. (2000). The adoption and design methodologies of ­component-based enterprise systems. European Journal of Information Systems, 9(1), 25–35.CrossRefGoogle Scholar
  43. Farbey, B., Land, F., & Targett, D. (1992). Evaluating investments in IT. Journal of Information Technology, 7(2), 109.CrossRefGoogle Scholar
  44. Farbey, B., Land, F., & Targett, D. (1993). It investments: A study of methods and practice. Oxford: Butterworth-Heinemann.Google Scholar
  45. Fichman, R. G., Keil, M., & Tiwana, A. (2005). Beyond valuation: “options thinking” in IT project management. California Management Review, 47(2), 74–96.Google Scholar
  46. Francalanci, C., & Galal, H. (1998). Information technology and worker composition: Determinants of productivity in the life insurance industry. Management Information Systems Quarterly, 22(2), 227–241.CrossRefGoogle Scholar
  47. Grabowski, M., & Lee, S. (1993). Linking information systems application portfolios and organisational strategy. In R. D. Banker, R. J. Kauffman, & M. A. Mahmood (Eds.), Strategic information technology management: Prespectives on organisational growth and competitive advantage (pp. 33–54). Harrisburg, PA: Idea Group Publishing.Google Scholar
  48. Gurbaxani, V., & Whang, S. (1991). The impact of information systems on organisations and ­markets. Communications of the ACM, 34(1), 59–73.CrossRefGoogle Scholar
  49. Hares, J., & Royle, D. (1994). Measuring the value of information technology. Chichester: Wiley.Google Scholar
  50. Harris, M. D. S. (1996). Human communication and information systems. Oxford: NCC Blackwell.Google Scholar
  51. Harris, M. D. S., Herron, D., & Iwanicki, S. (2008). The business value of IT: Managing risks, optimizing performance, and measuring results. New York: CRC Press, Auerbach Publi­cations, Taylor and Francis Group.CrossRefGoogle Scholar
  52. Hayes, D. C., Hunton, J. E., & Reck, J. L. (2001). Market reaction to ERP implementation announcements. Journal of Information Systems, 15(1), 3–18.CrossRefGoogle Scholar
  53. Henderson, J., & Venkatraman, N. (1994). Strategic alignment: A model for organisational ­transformation via information technology. In T. J. Allen & M. S. Scott Morton (Eds.), Information technology and the corporation of the 1990s (pp. 202–220). Oxford: Oxford University Press.Google Scholar
  54. Hitt, L. M., & Brynjolfsson, E. (1996). Productivity, business profitability, and consumer surplus: Three different measures of information technology value. Management Information Systems Quarterly, 20(2), 121–142.CrossRefGoogle Scholar
  55. Hoogeveen, D., & Oppelland, H. (2002). A socio-political model of the relationship between IT investments and business performance. Hawaii International Conference on System Sciences, 8(8), 259b.Google Scholar
  56. Huang, S.-M., Ou, C.-S., Chen, C.-M., & Lin, B. (2006). An empirical study of relationship between IT investment and firm performance: A resource-based perspective. European Journal of Operational Research, 173(3), 984–999.CrossRefGoogle Scholar
  57. Irani, Z., & Love, P. E. D. (2000). The propagation of technology management taxonomies for evaluating investments in information systems. Journal of Management Information Systems, 17(3), 161–177.Google Scholar
  58. ISACA (2008). COBIT 4.1. Information Systems Audit and Control Association.
  59. ITGI (2008). Enterprise value: Governance of IT investments – The Val IT framework 2.0 extract. IT Governance Institute.
  60. Kapinski, R. (1999). IBM touts e-biz application framework. New York: Internetweek.Google Scholar
  61. Kaplan, R. S., & Norton, D. P. (1992). The balanced scorecard – measures that drive performance. Harvard Business Review, 70(1), 71–79.Google Scholar
  62. Kohli, R., & Devaraj, S. (2003). Measuring information technology payoff: A meta-analysis of structural variables in firm-level empirical research. Information Systems Research, 14(2), 127–145.CrossRefGoogle Scholar
  63. Kohli, R., & Grover, V. (2008). Business value of IT: An essay on expanding research directions to keep up with the times. Journal of the Association for Information Systems, 9(1), 23–39.Google Scholar
  64. Kumar, K., Van Dissel, H. G., & Bielli, P. (1998). The merchant of prato–revisited: Toward a third rationality of information systems. Management Information Systems Quarterly, 22(2), 199–226.CrossRefGoogle Scholar
  65. Kumar, R. L. (1999). Understanding DSS value: An options perspective. Omega, 27(3), 295–304.Google Scholar
  66. Kumar, R. L. (2004). A framework for assessing the business value of information technology infrastructures. Journal of Management Information Systems, 21(2), 11–32.Google Scholar
  67. Lee, B., & Barua, A. (1999). An integrated assessment of productivity and efficiency impacts of information technology investments: Old data, new analysis and evidence. Journal of Productivity Analysis, 12(1), 21–43.CrossRefGoogle Scholar
  68. Lichtenberg, F. R. (1995). The output contributions of computer equipment and personnel: A firm-level analysis. Economics of Innovation and New Technology, 3(3), 201–218.CrossRefGoogle Scholar
  69. Loveman, G. W. (1994). An assessment of the productivity impact of information technologies. In T. J. Allen & M. S. Scott Morton (Eds.), Information technology and the corporation of the 1990s: Research studies. Cambridge, MA: MIT Press.Google Scholar
  70. Lucas, H. C. (1993). The business value of information technology: A historical perspective and thoughts for future research. In R. D. Banker, R. J. Kauffman, & M. A. Mahmood (Eds.), Strategic information technology management: Prespectives on organisational growth and competitive advantage (pp. 359–374). Harrisburg, PA: Idea Group Publishing.Google Scholar
  71. Lucas, H. C. (1999). Information technology and the productivity paradox: Assessing the value of investing in IT. New York: Oxford University Press.Google Scholar
  72. Lucas, H. C. J., Brendt, D. J., & Truman, G. (1993). A reengineering framework for evaluating a financial imaging system. Communications of the ACM, 39(5), 86–96.CrossRefGoogle Scholar
  73. Markus, M. L., & Soh, C. (1993). Banking on information technology: Converting IT spending to firm performance. In R. D. Banker, R. J. Kauffman, & M. A. Mahmood (Eds.), Strategic information technology management: Prespectives on organisational growth and competitive advantage (pp. 375–404). Harrisburg, PA: Idea Group Publishing.Google Scholar
  74. Melville, N., Kraemer, K., & Gurbaxani, V. (2004). Review: Information technology and organisational performance: an integrative model of IT business value. Management Information Systems Quarterly, 28(2), 283–322.Google Scholar
  75. Menon, N. M., Lee, B., & Eldenburg, L. (2000). Productivity of information systems in the healthcare industry. Information Systems Research, 11(1), 83.CrossRefGoogle Scholar
  76. Mukhopadhyay, T., Kekre, S., & Kalathur, S. (1995). Business value of information technology: A study of electronic data interchange. Management Information Systems Quarterly, 19(2), 137–156.CrossRefGoogle Scholar
  77. Mukhopadhyay, T., Rajiv, S., & Srinivasan, K. (1997). Information technology impact on process output and quality. Management Science, 43(12), 1645.CrossRefGoogle Scholar
  78. Murphy, K. E., & Simon, S. J. (2002). Intangible benefits valuation in ERP projects. Information Systems Journal, 12(4), 301–320.CrossRefGoogle Scholar
  79. Panayi, S., & Trigeorgis, L. (1998). Multi-stage real options: The cases of information technology infrastructure and international bank expansion. The Quarterly Review of Economics and Finance, 38(4), 675–692.CrossRefGoogle Scholar
  80. Peppard, J., Ward, J., & Daniel, E. (2007). Managing the realization of business benefits from IT investments. MIS Quarterly Executive, 6(1), 1–11.Google Scholar
  81. Rai, A., Patnayakuni, R., & Patnayakuni, N. (1997). Technology investment and business ­performance. Communications of the ACM, 40(7), 89–97.CrossRefGoogle Scholar
  82. Ross, J. W., Beath, C. M., & Goodhue, D. L. (1996). Develop long-term competitiveness through IT assets. Sloan Management Review, 38(1), 31–42.Google Scholar
  83. Sambamurthy, V., & Zmud, R. W. (1994). IT management competency assessment: A tool for creating business value through IT. Working paper. Financial Executives Research Foundation.Google Scholar
  84. Santhanam, R., & Hartono, E. (2003). Issues in linking information technology capability to firm performance. Management Information Systems Quarterly, 27(1), 125–165.Google Scholar
  85. Shin, N. (1997). The impact of information technology on coordination costs: Implications for firm productivity. Atlanta, GA: Association for Information Systems.Google Scholar
  86. Sircar, S., Turnbow, J. L., & Bordoloi, B. (2000). A framework for assessing the relationship between information technology investments and firm performance. Journal of Management Information Systems, 16(4), 69–97.Google Scholar
  87. Soh, C., & Markus, M. L. (1995). How IT creates business value: A process theory synthesis. In J. Degross, G. Ariav, C. Beath, R. Hoyer, & C. Kemerer (Eds.), Proceedings of the sixteenth international conference of information systems (pp. 9–41), Amsterdam.Google Scholar
  88. Srinivasan, K., Kekre, S., & Mukhopadhyay, T. (1994). Impact of electronic data interchange technology on JIT shipments. Management Science, 40(10), 1291.CrossRefGoogle Scholar
  89. Strassman, P. (1990). The business value of computers. New Haven, CT: Information Economics Press.Google Scholar
  90. Strassman, P. (1997). Will big spending on computers guarantee profitability? Datamation, 43(2), 75–82.Google Scholar
  91. Stratopolous, T. C., & Dehning, B. (2000). Does successful investment in information technology solve the productivity paradox? Information Management, 38(2), 103–117.CrossRefGoogle Scholar
  92. Subramani, M., & Walden, E. (2001). The impact of e-commerce announcements on the market value of firms. Information Systems Research, 12(2), 135–154.CrossRefGoogle Scholar
  93. Symons, C. (2006). Measuring the business value of IT. Cambridge: Forrester.Google Scholar
  94. Tallon, P. P., Kraemer, K. L., & Gurbaxani, V. (2000). Executives’ perceptions of the business value of information technology: A process-oriented approach. Journal of Management Information Systems, 16(4), 145–173.Google Scholar
  95. Taudes, A. (1998). Software growth options. Journal of Management Information Systems, 15(1), 165–185.Google Scholar
  96. Taudes, A., Feurstein, M., & Mild, A. (2000). Options analysis of software platform decisions: A case study. Management Information Systems Quarterly, 24(2), 227–243.CrossRefGoogle Scholar
  97. Thatcher, M. E., & Oliver, J. R. (2001). The impact of technology investments on a firm’s production efficiency, product quality, and productivity. Journal of Management Information Systems, 18(2), 17–45.Google Scholar
  98. Trigeorgis, L. (1996). Real options. Cambridge, MA: MIT Press.Google Scholar
  99. Uzzi, B. (1997). Social structure and competition in interfirm networks: The paradox of embeddedness. Administrative Science Quarterly, 42(1), 35–67.Google Scholar
  100. Wagner, M. (1998). E-commerce traffic management requires flexibility. New York: Internetweek.Google Scholar
  101. Waterhouse, P. (2008). The business contribution of IT: Metrics that matter. CA Inc. White Paper: Strategies to improve IT performance.
  102. Weill, P., & Broadbent, M. (1998). Leveraging the new infrastructure: How market leaders capitalize on information technology. Boston: Harvard Business School (HBS) Press.Google Scholar
  103. Weill, P., & Ross, J. W. (2004). IT governance: How top performers manage IT decision rights for superior results. Boston: Harvard Business Press.Google Scholar
  104. Weill, P., Subramani, M., & Broadbent, M. (2002). Building IT infrastructure for strategic agility. MIT Sloan Management Review, 44(1), 57–65.Google Scholar
  105. Willcocks, L., & Lester, S. (1994). Evaluating the feasibility of information systems investments: Recent UK evidence and new approaches. In L. Willcocks (Ed.), Information management: The evaluation of information systems investments. London: Chapman & Hall.Google Scholar
  106. Williamson, O. E. (2005). Transaction cost economics. In C. Menard & M. M. Shirley (Eds.), Handbook of New Institutional Economics pp. 41–65. Netherlands, Springer.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Department of Strategy & Operations Management, Bristol Business SchoolUniversity of the West of EnglandBristolUK

Personalised recommendations