Introduction to the Special Issue: Measuring the Business Value of Information Technology in e-Business Environments

M. Adam Mahmood, Rajiv Kohli, and Sarv Devaraj, Guest Editors
International Journal of Electronic Commerce,
Volume 9, Number 1, Fall 2004, pp. 5.

There has been a significant investment in e-business initiatives in recent years. Leveraging the growth of the Internet, worldwide commerce on the Internet topped $1.3 trillion in 2003. According to Nielsen/NetRatings, on-line spending was 35 percent higher during the 2003 holiday season than in 2002 [5]. Senior managers concerned about falling behind the technology curve are interested in investing in information technology (IT) infrastructures to make their organizations e-business enabled. E-business initiatives, however, must compete with other business projects for funding. It is incumbent on the research community to provide the business community with objective evidence that a well-planned and well-executed e-business initiative will provide benefits to a business entity. Demonstrating the benefits of dynamic and unpredictable e-business technology is, however, a challenging proposition.

Research on the business value of IT investment has provided significant insights in the context of the traditional brick-and-mortar economy [1, 2, 3, 4, 6, 7], but the e-business investment and performance area is still nascent, and more progress is needed, especially with regard to tools, techniques, and approaches for evaluating e-business initiatives.

This Special Issue of IJEC, consisting of seven papers, taken together with the Special Section of the Journal of Management Information Systems (JMIS, 21, 1 [summer 2004]), consisting of four papers, makes a significant contribution to the ongoing debate about the value of e-business investment by shedding new light on business experience with e-business initiatives. The research studies presented in these publications offer new insights that move this important research area to a new level of inquiry. They focus on critical dimensions of the e-business-investment payoff question. Selected from many manuscripts submitted by authors within and without the United States, these 11 papers collectively exemplify the study of this critical question. We believe that they will ignite further research in the area. We introduce below the research papers included in this Special Issue. Please also see the JMIS Special Section.

Leading off the Special Issue is a paper by Mahmood, Bagchi, and Ford. As they observe, e-commerce is a worldwide phenomenon, but it is usually studied at the national level. Their research, they claim, is one of the first studies based on international data. Using data from 26 nations, they test the ways that on-line shopping behavior is affected by on-line shoppers’ trust, technological savvy, demographics, and lifestyle characteristics. The paper identifies the factors that predict global on-line shopping behavior. A structural equation model is used to analyze the interrelationship of constructs. The study finds that trust, economic conditions, and practical technological understanding of on-line shoppers significantly and positively contribute to their on-line shopping behavior, whereas educational level is not a significant predictor. The study provides empirical guidelines that managers can use in selecting macro-level predictors for explaining on-line shopping behavior.

The paper by DeLone and McLean shows how their well-known information systems (IS) success model can be adapted to measure e-commerce success. Drawing on the IS and marketing literature of recent years, they present six dimensions of the updated DeLone & McLean IS Success Model and show how it can be used as a parsimonious framework to organize the e-commerce success metrics identified in the literature. Two case examples demonstrate how the model can guide the identification and specification of e-commerce success metrics. The authors also provide thoughtful recommendations for researchers and practitioners.

Dutta and Roy argue that IT projects in the e-business world can be linked to business benefits by capturing interactions in the business process within which the projects are embedded. This process, they maintain, involves physical and information flows. They represent these flows with a system dynamics approach that makes it possible to estimate, ex ante, the expected benefits of a proposed IT project. A call center application demonstrates how the approach can link an IT project to its business benefits. The proposed approach can also offer insights into the timing of anticipated benefits.

Cavusoglu, Mishra, and Raghunathan contend that assessing the business value of IT security to firms is challenging because of the difficulty of measuring the costs associated with security breaches. They conduct an event-study of 66 Internet security breaches from 1996 to 2001 to assess their impact on the market value of breached firms. The results show that the breached firms lost an average of 2.1 percent of their market value within two days of the announcement. This translates into an average loss in market capitalization of $1.65 billion per breach. Interestingly, the study also found that the market value of the security developers in the sample was affected by about $1.06 billion in the same two-day period. Firm type, firm size, and the year when the breach occurred were important factors in the cross-sectional variations in abnormal returns produced by security breaches.

Oetzel claims that there is still a great deal of uncertainty about how to create differentiation advantages in electronic markets. She uses the resource-based view to analyze 69 on-line brokerage firms to identify firm-specific resources and specific on-line brokerage services associated with the differentiation advantages achieved by these firms. Her findings suggest that ownership of process patents for on-line brokerage activities is positively correlated with differentiation advantages. Direct access to the trading floor, unlimited free real-time quotes, and 24/7 live customer service are other on-line brokerage services that appear to be correlated with differentiation advantages.

Ranganathan, Dhaliwal, and Teo suggest that Web technologies and enhanced capabilities have made supply-chain coordination a viable managerial and strategic option. Using 179 firms that have deployed Web technologies in supplier-related activities, they investigate the performance impact of the assimilation of Web technology systems into internal supply-chain functions and their external diffusion into interorganizational supply-chain networks. The results suggest that internal assimilation and external diffusion of Web technologies for supply-chain management (SCM) both have a significant impact on the benefits realized. Supplier interdependence and IT intensity were found to be significant environmental factors affecting the external diffusion. Organizational factors, such as centralization and formalization in the IT unit structure and high levels of managerial IT knowledge, were also significant drivers of Web technology assimilation in the SCM function.

Koo, Koh, and Nam use Porter’s framework of four competitive strategies to compare two groups of on-line firms: 68 pure-play firms, and 55 click-and-mortar companies. The results suggest that Porter’s competitive strategies are associated with business performance in electronic markets. Pure-play firms tend to rely on differentiation strategies based on creative marketing and innovation, whereas click-and-mortar firms tend to adopt strategies based on market focus. The most intriguing finding is that the competitive strategies the firms rely on and use to allocate their resources do not match the strategies more closely associated with business performance. The authors conclude that firms competing in an electronic market need to reassess their competitive strategies and reallocate their resources to maximize the return on their investment.

We believe that the manuscripts published in this Special Issue make a significant contribution to the fundamental question of whether IT investment pays off in the e-business environment. We also believe that they will facilitate further research in the area.

REFERENCES

  1. Bailey, J.P., and Bakos, Y. An exploratory study of the emerging role of electronic intermediaries. International Journal of Electronic Commerce, 1, 3 (spring 1997), 7-20.
  2. Barua, A.; Whinston, A.B.; and Yin, F. Value and productivity in the Internet economy. IEEE Computer, 33, 5 (2000), 102-105.
  3. Brynjolfsson, E. The contribution of information technology to consumer welfare. Information Systems Research, 7, 3 (1996), 281-300.
  4. Devaraj, S., and Kohli, R. Information technology payoff in the health-care industry: A longitudinal study. Journal of Management Information Systems, 16, 4 (2000), 41-67.
  5. Goldman Sachs, Harris and Nielsen/NetRatings. E-spending report, December 2003. Available at www.nielsen-netratings.com/pr/pr_040105_us.pdf.
  6. Hu, Q., and Plant, R. An empirical study of the causal relationship between IT investment and firm performance. Information Resources Management Journal, 14, 3 (2001), 15-26.
  7. Mahmood, M.A., and Mann, G.J. Measuring the organizational impact of information technology investment: An exploratory study. Journal of Management Information Systems, 10, 1 (1993), 97-122.

M. ADAM MAHMOOD (mmahmood@utep.edu) is a professor of computer information systems in the Department of Information and Decision Sciences at the University of Texas at El Paso and also holds the Ellis and Susan Mayfield Professorship in the College of Business Administration. He was a visiting faculty member at the Helsinki School of Economics and Business Administration in Finland and a visiting Erskine Scholar at the University of Canterbury in New Zealand. He received his Ph.D. in management information systems at Texas Tech University. Dr. Mahmood’s research interest centers on economics of information systems, electronic commerce, strategic and competitive information systems, group decision support systems, and organizational and end-user computing. He has published more than 85 technical research papers in the Journal of Management Information Systems, MIS Quarterly, Decision Sciences, European Journal of Information Systems, INFOR-Canadian Journal of Operation Research and Information Processing, Information and Management, Journal of Organizational and End User Computing, Data Base, and other journals, and has presented papers at a number of regional, national, and international conferences. Dr. Mahmood is the editor of the Journal of Organizational and End User Computing. As a governor’s appointee, he also serves as a member of the board of directors of the Texas Department of Information Resources. He has been a guest editor of the Journal of Management Information Systems and the International Journal of Electronic Commerce. He has also served as president of the Information Resources Management Association.

RAJIV KOHLI (rkohli@nd.edu) is an assistant professor of management at the University of Notre Dame. He received his Ph.D. from the University of Maryland, Baltimore County campus, and has consulted with IBM Global Services, SAS Corporation, UPS, MCI Telecommunications, and several health-care organizations. Before entering academia in 2001, he worked for Trinity Health, where he led the strategic planning for e-business initiatives. Dr. Kohli’s research has been published in Management Science, Information Systems Research, Journal of Management Information Systems, Communications of the ACM, and Decision Support Systems, and he is a coauthor of IT Payoff: Measuring Business Value of Information Technology Investment (Financial Times/Prentice Hall).

SARV DEVARAJ (sdevaraj@nd.edu) is an associate professor of management at the University of Notre Dame. He received his Ph.D. from the University of Minnesota and has consulted with several companies, including Honeywell, Trinity Health, and Infosys Technologies. His research areas include information technology payoff, technology acceptance, electronic commerce, service quality, and productivity management. His research has been published in Management Science, Information Systems Research, Journal of Management Information Systems, Decision Support Systems, Decision Sciences, Communications of the ACM, IEEE Transactions, Journal of Operations Management, and other journals. He is a coauthor of IT Payoff: Measuring Business Value of Information Technology Investment (Financial Times/Prentice Hall). His research work has won “Best Paper” awards at several international conferences.