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Modeling the IT value paradox
Thatcher M., Pingry D. Communications of the ACM50 (8):41-45,2007.Type:Article
Date Reviewed: Oct 15 2007

When a company buys a new truck, it can predict with some accuracy how much more revenue this will generate by delivering more of their product faster to more customers. That can make it easier to justify the investment. It is hard to produce similar numbers for information technology (IT) investments.

Thatcher and Pingry present “analytical models that address the logically prior theoretical question: How does IT matter when it is a commodity input?” They demonstrate that companies shouldn’t necessarily expect that IT investments create better value; technology investments are often more expensive than they first appear, and the value they deliver is more difficult to measure. “The directional impact of IT investments on business value depends critically on three factors: the type of product development the IT supports, the market structure in which the firm competes, and the type of IT in which the firm invests.”

Even though many may think that the process of IT value measurement is too complicated to bother with, Thatcher and Pingry demonstrate that it is not. Their findings demonstrate that “an IT investment may either have a positive impact, a negative impact, or an impact that depends on the model parameterization.”

The authors conclude that their work “adopts the view of IT as a commodity input where investment in IT does not, in and of itself, create a market advantage for any one firm.” In general, this work has some convincing points. It is a worthwhile read for the IT community.

Reviewer:  Lili Saghafi Review #: CR134836 (0809-0917)
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