Introduction
As many as half the decisions taken in organizations result in failure (Nutt, 1999). As information technology (IT) assumes a greater prominence in firms’ strategic portfolios, managers need to pay more attention to managing the technology. However, while IT can have a significant impact on organizational performance, it can also be a major inhibitor of change and can be a resource-hungry investment that often disappoints. Organizations can best influence the success of IT projects at the decision stage by rejecting poor ones and accepting beneficial ones. This may enable better implementation, as Nutt (1999) suggests most decision failures are due to implementation failure that tends to be under managers’ control.
However, little is known about IT decision processes. Research demonstrates the importance of managing strategic IT investment decisions (SITIDs) effectively. SITIDs form part of the wider range of corporate strategic investment decisions (SIDs) that cover all aspects in which the organization might wish to invest. Strategic investment decisions will have different degrees of IT intensity that may impact outcome. IT investment intensity is the degree to which IT is present in an investment decision. That is, some decisions will be wholly about IT investments while others will have little or no IT—most, though, will be blended programs of IT and non-IT elements. Here, IT investment intensity is defined as the ratio of IT spending to total investment. The higher the IT investment intensity, the more important IT is to the whole investment. For example, Chou, Dyson, and Powell (1997) find IT investment intensity to be negatively associated with SID effectiveness. The concept of IT intensity is similar to, but also somewhat different from, the concept of information intensity. Information intensity is the degree to which information is present in the product or service (Porter & Millar, 1985).
Management may use different processes in order to make different types of decisions (Dean & Sharfman, 1996). The link between decision process and outcome is so intimate that “the process is itself an outcome” (Mohr, 1982, p. 34). This may imply that the link between IT investment intensity and SID effectiveness is not direct but that the impact of IT investment intensity may be through the decision process. If different IT intensity in projects leads to different decision processes, leading to different outcomes, then it is important to know what factors act in this, in evaluating and managing SITIDs. This chapter presents an integrative framework for exploring the IT investment intensity-SID effectiveness relationship.
background
Studying decisions involves “contextualism” (Pettigrew, McKee, & Ferlie, 1988), which integrates process, content, and context, as all decisions need to be studied in context. Content refers to the decision itself, here exploring the nature and scope of SIDs. Process refers to actions, reactions, and interactions as managers allocate resources for the decision. The context includes the outer context of economic, political, and social actions, while the inner context involves ongoing strategy, structure, culture, management, and political processes.
Many researchers have investigated how strategic decisions are made, though most focus on the decision process rather than the implementation and the outcome. However, Hickson, Miller, and Wilson (2003) identify eight independent variables in decision implementation—familiarity, assessibility, specificity, resourcing, acceptability, structural facilitation, and priority—and uncover two distinct approaches—experience-based and readiness-based. The experience-based approach leads to acceptance of what is being done, while the readiness-based approach leads to implementation being given clear priority. Both approaches may be employed together. Hsu (2001) on the other hand introduces promethean rationality—the stealing back of order amid disorder. Sauer-Leroy (2004) argues that decision reality is much more complex than can ever be captured by financial analysis and that projects often introduce inertia to the organization, as they are often irreversible. He stresses the role of subjective factors in strategic decisions.
Figure 1. The theoretical model
In the IT investment intensity-SID effectiveness link, the roles of process, content, and context are unclear. Though unclear, it is likely that the links between variables are not direct; rather they are mediated or moderated by other variables or processes. Moderators and mediators are functions of third variables. A moderator “partitions a focal independent variable into subgroups that establish its domains of maximal effectiveness in regard to given dependent variables,” while a mediator function “represents the generative mechanism through which the focal independent variable is able to influence the dependent variable of interest” (Baron & Kenny, 1986, p. 1174). Sambamurthy, Bharadwaj, and Grover (2003) employ the moderator concept in their work on reshaping agility through digital options. They, for example, see IT competence as an antecedent of firms’ competitive actions, but the relationship is mediated by dynamic capabilities. Sambamurthy et al. (2003) demonstrate theoretically the IT investments and capabilities influence firm performance through organizational capabilities—agility, digital options, and entrepreneurial alertness, and through strategic processes involving capability building, entrepreneurial action, and co-evolutionary adaptation. This, they claim, is valid at the enterprise level, for business units and for processes. They finally call for empirical research that might validate their theoretical developments. This article takes a slightly different route as it focuses on IT at the project or at the decision level, and it is based on data that back up the model development.
Here, the proposal is that the impact of IT investment intensity on SID effectiveness is through decision processes. Accordingly, decision process constructs should have a mediating effect. Greater IT intensity in projects leads, inter alia, to a more technically orientated project that impacts SID effectiveness. The decision content has a mediating effect on the IT involvement-SID effectiveness link. The investment context impacts the outcome. Therefore, context constructs should act as covariances that impact SID effectiveness. Decision context, content, and process will involve many individual constructs, some unrelated to IT investment intensity. Two criteria can be employed in order to select the constructs of interest here. First, the decision construct is expected to vary with IT investment intensity. Second, it must impact at the decision level. Figure 1 outlines the basic model.
A hypothesized negative impact of IT investment intensity on several constructs suggests projects with high IT investment intensity are more challenging than those with low IT content. Effectiveness compares actual performance against planned target, outcomes, and policy objectives, measured by project success, correct choice, unexpected negative outcomes, learning, and satisfactory process (Butler, Davies, Pike, & Sharp, 1991).
Decision context
The context of any investment is affected by many things, such as the firm’s financial health, its market position, industry pressures, culture, and business strategy. SIDs often involve major change to the organization and environment. This suits managers with an innovative risk attitude. From a style perspective, decision quality is dependent on resources the leader is able to utilize. Consensus-driven management seems able to acquire more information than directive management, and leads to more effective decisions. Management’s attitude to risk and decision style are predicted to relate to SID effectiveness, since other factors impact at an organizational level.
Decision Process
Strategic decision processes involve comprehensiveness, rational activity, participation, duration, and conflicts (Ra-jagopalan, Rasheed, & Datta, 1993). Comprehensiveness measures rationality and is the extent to which the organization attempts to be exhaustive in making and integrating strategic decisions. This includes formal meetings, assignment of primary responsibility, information-seeking and analytical activities, the systematic use of external sources, stakeholder involvement, use of consultants, reviews of historical data, functional expertise (Papadakis, 1995), and informal interaction. Hickson, Butler, Cray, Mallory, and Wilson (1986) define “politicality” as the degree to which influence is exerted on the outcome through a decision process. Strategic decision-making is not a matter of explicating alternatives and choosing on the basis of readily available criteria all participants perceive as appropriate (Fahey, 1981). It might be expected that interaction and involvement are related to IT investment intensity.
Interactions are contacts between people. Higher IT intensity reduces interaction and SID effectiveness. Decision-makers’ IT knowledge, experience, and education are associated with alienated attitudes toward IT. Higher IT investment intensity leads to more technically oriented proj ects. Without IT knowledge, managers cannot discuss the project knowledgeably. It, therefore, reduces interaction and impacts decision quality. This article suggests that higher IT intensity reduces involvement, reducing SID effectiveness. Less involvement leads to less collective information and reduce decision effectiveness. This suggests that IT investment intensity reduces interaction and adversely impacts decision effectiveness and that IT investment intensity reduces involvement and adversely impacts decision effectiveness.
The evaluation process is important for investment decisions. An IT investment decision is problematic because the cost and benefits are hard to identify and quantify. Therefore, uncertainty of information used in evaluating IT investment is greater. The higher the information uncertainty, the lower the information accuracy. This article expects that lower accuracy of information reduces decision effectiveness, that is, IT investment intensity reduces information accuracy and adversely impacts decision effectiveness.
It can be argued that the IT evaluation problem is one of alignment. This article expects that management may fail to link IT’s strategic purpose with organizational strategy, reducing decision effectiveness. This suggests that IT investment intensity reduces strategic considerations and adversely impact decision effectiveness.
Decision content
A strategic decision is characterized by its novelty and complexity. Complexity relates to the number and variety of factors in the environment that impinge on decision-making behavior. SIDs evolve from the organizational context and have their own characteristics. Constructs that contribute to decision complexity include rarity and importance. Uncertainty is due to rarity. Rarity assesses the novelty of the decision to the firm. If a firm repeatedly makes similar decisions, then it will gain experience; conversely, a rare decision is likely to be more problematic. Importance is common to all SIDs irrespective of IT investment intensity, as they are all strategic. New technologies often require investments of a different nature because of high uncertainty, widespread organizational impact, and greater strategic importance. Even compared with other new technologies, the IT life cycle is short so that the IT component of projects is constantly changing, increasing rarity. Rarity inhibits effective feedback and learning. This article expects that the higher IT investment intensity, the higher decision rarity, reducing decision effectiveness; IT investment intensity heightens decision rarity and adversely impacts decision effectiveness.
In order to investigate these proposals, empirical work investigated a single strategic investment project in each if 80 Taiwanese manufacturers. IT investment intensity is measured by the ratio of IT spending to total investment in the project, while the measure of decision effectiveness is subjective. In order to capture the whole process from decision to outcome, only projects that were complete were researched. Thus each project had a decision process and an outcome to allow assessment of success.
discussion
A principal components factor analysis highlights five important factors in these decisions—information accuracy, strategic consideration, interaction, involvement, and rarity. However, only three proposed mediators, interaction, information accuracy, and strategic consideration are significant in predicting mediators.
The model as a whole is significant in predicting SID effectiveness. When contextual variables are added, IT investment intensity is still significant in predicting SID effectiveness. Interaction, information accuracy, and strategic consideration have a negative correlation with IT investment intensity, but a positive correlation with SID effectiveness. Hence, the impact of IT investment intensity is transmitted to interaction, information accuracy, and strategic considerations and, through that, adversely impacts decision effectiveness. This suggests that IT investment intensity does reduce interaction and adversely impacts decision effectiveness. It is also the case that IT investment intensity reduces information accuracy and adversely impacts decision effectiveness, and that IT investment intensity reduces strategic considerations and adversely impacts decision effectiveness. However IT investment intensity is not found to reduce involvement and adversely impacts decision effectiveness, nor does IT investment intensity heighten decision rarity and adversely impacts decision effectiveness.
Three process-related constructs, interaction, strategic considerations, and information accuracy act as mediating factors in linking IT investment intensity and SID effectiveness, as they reduce the effects of IT investment intensity. Content-related constructs do not act as mediators. Although decision rarity is negatively associated with SID effectiveness, it is unrelated to IT intensity.
Interaction in the formulating process has a mediating effect on the linkage. Interaction is important in developing group behavior. IT investment intensity lowers interaction, reducing SID effectiveness.
Strategic considerations act as a mediating variable. The higher the IT intensity, the lower the strategic considerations, leading to reduced SID effectiveness. This demonstrates that the IT evaluation problem is really one of alignment.
Information accuracy acts as a mediating variable. The higher the IT investment intensity, the lower the information accuracy, reducing SID effectiveness. This supports Freeman and Hobbs (1991), who find managers ignoring reject signals given by capital budgeting techniques, and identify senior management’s preference for qualitative information and IT investment as an “act of faith” (Powell, 1993). This suggests that high information uncertainty leads to a limited use of capital budgeting techniques.
IT investment intensity is still significant when interaction is tested as a mediator. This indirect transmission of influence from IT investment intensity to SID effectiveness via interaction shows that the effect of IT investment intensity on effectiveness is only partially mediated by interaction. The effect of IT investment intensity on SID effectiveness is completely mediated by strategic consideration and information accuracy—two evaluation-related constructs. This implies that, in seeking a better outcome of SITIDs, research that focuses on evaluation factors may be insufficient to capture the complexity of SITIDs.
future trends
As demonstrated, the two evaluation-related constructs are highly correlated. From an IT investment perspective, alignment of IT and business strategy is problematic if there is a lack of accurate information for evaluation. However, evaluation of IT investments is problematic if there is a lack of alignment of IT and business strategy. To improve the effectiveness of IT investment, management needs to increase alignment of IT and business strategy and information accuracy for evaluation techniques simultaneously. This points to the issues to which management needs to attend in the future.
conclusion
Much work on SITIDs ignores the continuous nature of decisions and the relationships between SITIDS and non-IT SIDs. This article proposed a model that explores mediators in the link between IT investment intensity and SID effectiveness. Survey data show that interaction, information accuracy, and strategic considerations are important factors that mediated the impact of IT investment intensity. Will-cocks (1992) emphasizes that management faces a Catch-22 situation with IT investment. They know how important IT is, but they do not know how to evaluate IT projects. The implication is that managers need to pay special attention to the problematic nature of IT investment intensity in SIDs. They should focus on facilitating interaction, ensuring integration of IT strategy with corporate strategy, and improving information accuracy.
KEY TERMS
Contextualism: Integrates process, content, and context to study organizational decision-making.
Decision Content: Content refers to the particular decision under study. Content explores the basic nature and scope of decisions.
Decision Context: The context includes the outer context, which refers to the national economic, political, and social context for an organization, and the inner context, which is the ongoing strategy, structure, culture, management, and political process of the organization. Context helps to shape the process of decision-making.
Decision Process: The actions, reactions, and interactions of the various interested parties as they seek to make a commitment to allocate corporate resources. Process incorporates both the formulation and evaluation processes.
IT Investment Intensity: A concept similar to, but also somewhat different from, the concept of information intensity. Information intensity is the degree to which information is present in the product/service of a business. The degree to which IT is present in an investment decision reflects the IT level of intensity of that decision. Here, IT investment intensity is defined as the ratio of spending on IT to total investment.
Moderators and Mediators: In the social sciences, moderators and mediators have been identified as two functions of third variables. These are subgroups of independent variables that affect given dependent variables via a mediator function.
Strategic IT Investment Decisions: Significant, long- term decisions to invest in proj ects that have substantial information systems or information technology components. They form part of corporate strategic investment decisions.
