A Categorization of Benefits From IS/IT Investments

Magnus Gammelgrd, Mathias Ekstedt, Pia Gustafsson Department of Industrial information and control systems, Royal Institute of Technology (KTH), Stockholm Sweden magnus@ics.kth.se mek101@ics.kth.se pia@ics.kth.se
Abstract: Information systems are used in many parts of modern organizations and large amounts of money are spent on these systems with expectations of enhanced value. From the business management point of view, investments in IS/IT are expected to bring benefits in the same dimensions as other investments, e.g. higher margins, improved customer satisfaction, improved efficiency, etc. From the technical point of view, the quality of information systems are rarely evaluated with respect to such business dimensions, but rather in terms of functionality and technical quality such as availability, performance, and security. One reason for this duality is that the dimensions of business benefits of IS/IT investments are highly diverse and heterogeneous; it is simply too difficult for IT decision-makers to know how to express business values of IS/IT. In this paper, a categorization of IS/IT-investments benefits is presented that is based on a literature review covering 80 references. After a thorough analysis, a total of 25 categories organized in three major groups were identified. Among those we find benefits relating to e.g.: the output of the business, such as enhanced products and/or services; the structure of the organization, such as increased flexibility; the resources used within the organization, such as increased information availability. This categorization serves the purpose of trying to increase the understanding between IT organization and business. With the categorization as an interface, IT organization can illustrate in what dimension IS/IT generate benefits while business can prioritize the importance of the benefits. This has been tested in practice at a large energy company and a train manufactory. In the first case, senior business management was asked to prioritize the benefits and in the second case the IT department and system users were asked to identify benefits that were supported by a specific information system. The two investigations were combined to assess the business value of the system. Keywords: Benefits, business value, IT/IS investment

1. Introduction
This paper presents results from an ongoing research project focusing on the evaluation of business value of IS/IT investment scenarios. Please note that the terms benefit and (business) value are used interchangeably in the paper. The project is part of a comprehensive research program, the Enterprise Architecture Research Program, EARP, at KTH - the Royal Institute of Technology in Sweden. EARP exploits the discipline of Enterprise Architecture as an approach for managing an organizations total information system portfolio. The overall goal of the research program is to provide top IT management with architecture-based tools and methods for planning and decision making with regard to enterprise-wide information systems. The background of the research project is that we today experience a lack of support for estimating the business value of different future scenarios for IS/IT and its usage in organisations. On the one hand there are numerous assessment methods that measure the technical qualities of systems, e.g. data quality (Redman 2001), and information security (ISO 2000). Their focus is on either functional or non-functional aspects rather than considering the complete spectrum of support from IT systems in terms of process efficiency, organizational flexibility, and product quality, etc. On the other hand there are plenty of methods such as Return on Management Berghout and Renkema in (van Gremberger 2001), Information Economics (Parker et. al. 1988), McFarlan Matrix (McFarlan 1984) that consider the business related aspects of investments but fall short on concretely explain how the systems should be designed to achieve the business values described. For instance is an IT system with good security and poor modifiability preferred over an IT system with the opposite characteristics? In other words, today there is a gap in many methods between business and IT stakeholders. The purpose of this research project is to develop a method that indicatively assesses IT investments in terms of their business value. This is partly related to the purpose of

IT/Business alignment such as (Henderson and Venkatraman 1993) and (Luftmann 1996). However, the focus of this research is to develop a method to explicitly relate the characteristics of the IT systems to the types (dimensions) of business value that the characteristics generate.

1.1 Scope of the paper

As a part of the overall goal of explicitly relate and express the business value of IT systems, this paper presents a categorization of different kinds of business values that can be achieved by the employment of IS/IT. It has been found difficult to relate high-level business drivers such as return on investment and competitive advantage to IT system qualities such as performance, modifiability, and usability, and consequently there is a need for a taxonomy to serve as a common vocabulary in the communication between IT and business staff. A requirement for the categorization is thus that it must be easy to map concepts from both these worlds to it. These relations are however not symmetric since the purpose of the categorization is to express the business value of IT systems, the strive has been to populate the categorization with business values that can be directly caused by IS/IT. It is for instance possible to identify that some specific IT system directly increases the efficiency of a business process, but not the competitive advantage of an organization. The competitive advantage however may increase, but this is rather due to for instance the increased efficiency.

1.2 Outline
The next chapter describes how the business value categories were developed. The following chapter presents the actual business value taxonomy which constitutes the main contribution of this paper. Before the paper is concluded a chapter is included that illustrates how the taxonomy has been used in the industry.

2. Developing a framework for business value categorization

This chapter describes the process used for developing the business value categories. The process consisted of three main steps: i) an extensive literature search where articles, primarily, and books were screened for documented benefits of IS/IT, ii) individual benefits were extracted from the reviewed articles and iii) these individual benefits were then grouped and clustered in order to form the business value categories. Each of the three steps is described below.

2.1 Literature search

There is a large body of literature related to business value of IS/IT. For example, (Bannister and Remenyi 2000) claim that more than 1000 journal articles, conference papers, books, and technical notes have been written in some relation to the benefits of IS/IT. This amount of literature illustrates how wide and complex the area is, and it also indicates how difficult it is to fully grasp. The purpose of the literature search was to systematically collect documented benefits of IS/IT. However, in comparison to the figures mentioned by (Bannister and Remenyi 2000) only a sample has been reviewed in this study. In this study the following well-known databases were used to screen for articles: ACM digital library, the ELSEVIER digital libraries (sciencedirect.com), IEEE Xplore, the INSPEC database, and Springer Publishers digital libraries (SpringerLink/Klwer Online). These databases contain relevant papers on the subject from international well-cited journals and conferences. The years selected was between 1980 and 2005. The databases were searched with a broad range of keywords, among others all permutations of the words Benefits, Organizational impact or Value combined with Information Technology, Information systems, IT, or IS. The database search was also complemented with a smaller search of books on the same keywords. The book search was made in the same databases, when applicable, as well as the Swedish National Library online libraries which contain books from all Swedish libraries. However, the extent of the book search was much more limited. Altogether from this initial database search over 500 papers and 20 books were found.

2.2 Extracting benefits from literature

After the initial search the references were examined closer. The paper abstracts were first screened with the purpose to immediately sort out papers that obviously was not related to the subject. The criteria for sorting out papers was that it should be absolutely clear from the abstract that the paper did not discuss any evidence of benefits or value from IS/IT. This screening process reduced the number of articles by half. The results of the book search were screened in a similar fashion, but on titles since this was the only way to limit the amounts without having physical access to all the books which in turn was not practically possible. In the second screening stage the whole of the remaining papers were screened for evidence of benefits or value from IS/IT using the same criteria as above. In this process the number of papers was reduced to 112. No books were eliminated in this stage. In the final screening stage all the articles and books identified above was thoroughly read and individual benefits from IS/IT were identified. Formulations were sought that indicates definitions, correlation, and causality between business value and IS/IT, such as provides, delivers, generates, produce, cause. This process resulted in 625 individual benefits from 80 sources and these where then used in the categorization described below. Some of the sources are: (Bacon and Fitzgerald 2001), (Er 1989), (Farbey et. al. 1993), (Francalanci and Maggiolini 1994), (Gunasekaran et. al. 2001) (Irani 1999), (Kearns and Lederer 2001), (Kearns and Lederer 2004), (Love et. al. 2004), (Martinsons et. al. 1999), (Massey et. al. 2001), (Mirani and Lederer 1994), Molnar and Sharda in (Mahmood and Szewczak 1999), (Parker et. al. 1988), (Poston and Grabski 2000), (Remenyie et. al. 1997). Due to the limited space available here not nearly all 80 sources are presented. They can all be found in (Gammelgrd 2006)

2.3 Grouping and clustering of benefits

The list of identified business values at this point was very heterogeneous; some were abstract and some specific, some were speaking of similar values in different vocabulary, and some were speaking of different values in similar vocabulary. All the identified business values thus needed to be organized into a more manageable taxonomy with different domains. In this work of developing different business value categories the following set of principles were used: Syntactic similarity. As a first simple sorting mechanism, business values that were expressed in the same or similar words were grouped together. E.g., values like increased production and higher productivity as well as somewhat contradicting values like centralize decisions and decentralize decisions, were brought together. Semantic similarity. A more advanced sorting was performed by grouping values with the same meaning. This grouping were performed so that the more similar the closer the grouping. This step rendered in a set of clusters with very similar concepts and provided a holistic view of all the business values. E.g., shared learning and knowledge management were very closely grouped as were reduced cycle time and increased throughput. Quite, but not as, close to the former pair were values such as improved information and real-time information placed. Balanced category size. The final (semantically coherent) categories were made as balanced as possible. If too many business values were grouped together, then the groups were split into sub groups, if possible. The rationale behind this principle is that it is reasonable to have nuanced taxonomy for business values that the literature speaks nuanced about. At the same time, the level of detail of the groups has to be traded against a reasonably equivalent level abstraction for all groups. E.g. in the final categorization, presented in chapter 3, the output has a number of explicit sub categories of business values, whereas the input is less detailed. Moreover, the category strategy formulation and planning is from the taxonomy as a whole a specific kind of activity in the organization, and since no other activities are mentioned by kind, it would be reasonable not to have strategy formulation and planning as its own category. However, a large number of business values is explicitly related to this activity, thus it is kept as a separate category.

Completeness. To be complete in the sense that the taxonomy should be able to express all kinds of business values originating from IT systems is fundamentally met by including an extensive literature base. In addition, no business value identified was excluded for the reason of not being enough frequently mentioned. Common perceptions. The taxonomy should come as no surprise to professionals in the area of business and IT. The ambition has been to develop a taxonomy consisting of business value categories that are easily understood and recognized. Having a high level categorization of business values acquainted to the organizations external interfaces, its resources (human and non-human), and the internal structure of processes and departments/units is in line with several references on organisation theory and management e.g. (Daft 2001), (Morabito 1999) and (Hatch 1997).

3. Categories of benefits from IS/IT

By applying the process described in the previous chapter, 25 different categories of benefits form IS/IT where identified. The 625 individual benefits identified from the literature are found within these categories. The categorization is based upon different views on the business. First, the business is looked upon as a black box and this group includes benefits related to the input and output of the business. The second group includes benefits connected to the resources of the business needed to transform inputs into outputs. The third and final group of categories views the business as a group of interrelated components or activities. These categories of benefits are related to this structure. The viewpoints are illustrated in Figure 1: below. With the term business we here refer to the particular part of the business under investigation. This could be the whole company, one or several departments or divisions, or business processes. However, it is important that all parties involved in the assessment keep in mind what part of the business one is discussing.

Figure 1: Illustration of the viewpoints used to group the benefits categories.

3.1 The Business as a Black Box

When looking at the business as a black box, there are products and services from suppliers that goes in to the business and the output are products or services to customers. The products/services could be defined by their quality and diversity. Finally are there external relations to third parties that are related both to inputs and outputs of the organisation but not exclusively to either side. Hence they form a separate type of category.

3.1.1 Input
Inbound logistics. Improvements related to the products/services that the company purchases from suppliers e.g. increased ability to control the quality of products and services from suppliers, reduced delivery times and less uncertainty in delivery times from suppliers. Supplier relations. Improved relations with suppliers, e.g. new forms of co-operation, simplified ways of doing business, increased bargaining power towards suppliers etc.

3.1.2 Output
Customer relations. Improved relations with customers, e.g. being able to offer better support/service on sold products/services, faster and more accurate information to customers and increased bargaining power towards customers etc. Lock-in effect/switching costs. Improved ability to prevent customers from choosing competing products or to make it more costly to switch to competing products, e.g. license agreements, loyalty programs etc. Competitor relations. Improved relations with competitors e.g. increased co-operation and increased bargaining power towards competitors etc. New products/services. New products that can be offered to customers which the company does not offer today, e.g. product innovations, added services etc. Differentiations in products/services. Improved ability to change/differentiate products/services that are offered, e.g. adaptations of existing products to other parts of the market, ability to tailor products to customer needs etc. Quality of products/services. Improved quality of the products and/or services offered, e.g. less errors in products/services, increased reliability of products/services etc. Deliveries. Improved delivery of products and/or services to customers, e.g. new ways to distribute products, reduced delivery times and less uncertainty in delivery times to customers etc.

3.1.3 Third party relations

Third party relations. Improved relations with external parties that are neither customers, competitors nor suppliers, e.g. various organizations, authorities, society etc.

3.2 Resources of the Business

The benefits categories related to the resources of a business are divided into two general types of categories, human related resources and non-human resources. The human resources are categories by benefits related to decision-making, learning and knowledge, and organisational culture. While the two first categories relate to individuals in the organisation the latter concerns benefits associated with the fundaments of how humans act in business. In the non-human categories the benefits categories separated between benefits associated to information and benefits related to other technology and tools in the organisation.

3.2.1 Human resources

Decision making. Better decision support, more well-informed decisions, decisions taken closer to operations, shorter time to decisions, increased reliability in decisions, less uncertainty and complexity in decision making etc. Learning and knowledge. Improved learning and/or increased knowledge of persons in the organization, e.g. promotion of competence development, retention of knowledge etc.

Organizational culture. Improved organizational culture, e.g. increased involvement/interest from management, higher job satisfaction, stress reduction etc.

3.2.2 Non-human resources

Information. Improved information and information support, e.g. more information is collected; the information is more available, more detailed, more accurate, more objective, easier to interpret etc. Technology/tools. Improved non-IT tools and machinery used to produce products and/or services, e.g. improvements in production technology, new/improved maintenance methods etc.

3.3 Structure of the Business Organisation

Opening up the black box, the business is viewed as consisting of a number of interrelated components (or activities) that are organised into a certain structure. The components represent organisational units such as divisions, departments, units, roles etc, and different types of processes, .e.g. procurement, asset management, production, etc. What the specific components are of course depends on the situation at hand, e.g. what we mean by the business when using the categories. However the components have general attributes, e.g. a production process can improve its productivity by employing an IT system. Hence are there a number of categories related to attributes on components such as efficiency, productivity, and cost reductions. The components are interrelated in a number of ways where IS/IT provides benefits, i.e. there are connections between the components. They communicate, there can be a flow of products/services between e.g. departments or processes, and there are ways to control and follow up. Finally, when considering the structure of interconnected components there are categories related to the (change) management of the structure, the integration and coordination of the components in the structure and to the flexibility of the structure.

3.3.1 Components of the business and their attributes

Strategy formulation and planning. Improved ability to develop long-term business strategies and also to plan activities. This is a special case in this type of categories since it is actually a specific type of component (activity). There are no other specific components that are benefit categories since the components are dependent on the type of business. However, in the literature, the benefits of IS/IT related to the strategy formulation are so specifically stated that it is the only particular component that be identified as a benefit category. Efficiency. "Doing as much as before with less resources", e.g. shortening of manufacturing times/lead times/cycle times/work times, simplified/reduced paperwork and administrative tasks, automation of work tasks, staff reductions etc. Productivity. "Doing more than before with the same amount of resources", e.g. to produce more units with the same machinery or personnel etc. Cost reductions. Reduced costs related to both the organization as a whole, but also departments, product lines, processes, administrative expenses, material usage, stock keeping, travelling costs etc.

3.3.2 Connections between components

Communication. Improved/increased communication within/between processes or departments in the organization, e.g. more types of communication channels, more open dialogue etc. Flow of products/services. Improved flow of products/services within/between processes or departments in the organization, e.g. improved flow within the distribution department or between the production department and the distribution department etc. Control and follow up. Improved ability to control and follow up e.g. improved reporting possibilities, which also leads to increased abilities to evaluate options etc.

3.3.3 Transforming and making changes to the structure

Change management. Improved ability to deliberately make changes in the organization, e.g. to replace people or roles, to restructure, to add/remove departments or processes etc. Integration and coordination. Improved ability to coordinate and integrate different parts of the organization, e.g. coordination of the production and the distribution department, of the sales and production planning departments etc. Flexibility. Improved organizational ability to adapt to changes in market conditions/requirements, e.g. changed demand, political and economical factors etc.

4. Applications of the categories

One of the main objectives for the development of the categorization is to improve the communication about IS/IT within the organization. Both between the IS/IT organization and the business side of the organization as well as within those two groups respectively. In this section, two concrete cases are presented where the categories have been applied for these purposes. In this section, some examples of how the business value categorization has been applied practically are briefly outlined.

4.1 Case A Prioritization according to business strategy

In this first case the 25 categories were presented to 15 senior business managers at a large European electric utility. The managers constituted the top management of the utilitys electricity distribution business and hydropower production units respectively. The respondents were asked to prioritize the categories with a tool based on Analytical Hierarchy Process (AHP) (Saaty 1980) (Telelogic 2006). Presented with the categories and descriptions from chapter 3, the respondents were asked to grade the relative importance of the benefits for the business units long-term success. The prioritization was made on scale ranging from equal importance to increasing importance in four levels in both directions. In order to achieve a result with 95% confidentiality the respondents had to make 53 comparisons. All the prioritizations were performed by the respondents without additional explanations. The results of the rankings are shown in Figure 2.
Electricity distribution
Change management Communication Competitor relations Control and follow up Cost reductions Customer relations Decision making Deliveries Differentitations in products/services Efficiency Flexibility Flow of products/services Inbound logistic s Information Integration and coordination Learning and knowledge Lock-in effect/switching costs New products/services Organizational culture Produc tivity Quality of products/services Strategy formulation and planning Supplier relations Technology/tools Third party relations
0% 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 %

Hydropower production

Figure 2. The relative importance of the business value categories according senior business managers at the electricity distribution unit (grey bars) and hydropower production unit (black bars) respectively.

As seen in Figure 2, the prioritisations differ between the business units and are in line with their different types of business. For instance, in the electricity distribution unit there is a closer and more direct relation to customers than in the hydropower production unit, and the category customer relations is also prioritised lower in the latter unit. In Figure 3 an example is shown of how the prioritisations differ between different managers within the electricity distribution unit. In the analyses it was found that the managers prioritised differently and in accordance to their main responsibilities. For instance, the customer relation manager prioritised the categories Customer relations, Quality of product/services and Deliveries as important but e.g. supplier relations, Inbound logistics and Change management as less important. The manager responsible for asset development and strategy ranked the categories Strategy formulation and planning, and Efficiency as the most important types of benefits.
Asset development manager
Change management Communication Competitor relations Control and follow up Cost reductions Customer relations Decision making Deliveries Differentitations in products/services Efficiency Flexibility Flow of products/services Inbound logistics Information Integration and coordination Learning and knowledge Lock-in effect/switching costs New products/services Organizational culture Productivity Quality of products/services Strategy formulation and planning Supplier relations Technology/tools Third party relations
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Customer relations manager

Figure 3. The differences in prioritisation of business benefits by different respondents. In summary, all the prioritizations made were done according what could have been expected from the respective respondents without any additional explanations. This, and succeeding interviews in which the respondents themselves expressed that the benefits were both understandable and valuable in establishing structured discussions, indicates that the categorization is industrially useful.

4.2 Case B Expressing the business value of an IS/IT system

As stated above, the categories are developed with background to demonstrate how IS/IT generate business value. However, in order to do so the causality between the systems functions and nonfunctional qualities on one side and the business value categories on the other side need to be explicitly identified. A case performed at a large multinational train manufacturers Swedish branch demonstrates one way to achieve this. More information about this case can be found in (Sundstrm 2006). Except for performing a prioritisation in the same way as presented in case A, the experienced business value of a train diagnostic system was identified. Here the users of the system, both direct hands on users as well as indirect users depending on system, such as division managers, were simply asked to state how much benefit they experienced on a scale from 0 to 5 for each business value category. The results from this case are found in Figure 4. It shows the average values of how much value (on the scale of 1-5) is generated in each category. Note that out of the 25

categories value from the system is only experienced in 15. Results are shown for both nonweighted and weighted business value, where the latter include the weights derived from prioritising the benefits categories.

5,00 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00

Unweighted values Weighted values

Business Value

Figure 4. Experienced business value per category from a train diagnostic system. Black bars represent the non-weighted business value and white bars the weighted business value. In summary, the case shows that it is possible to express the effects of an IT system in the benefit categories. By using the categories as a roadmap of potential benefits from IT systems and then narrowing down to in what categories the specific system generates value, at least two things are achieved. First, since the purpose of the categorization is to cover a large (the whole) span of potential benefits, one can be more certain that important types of benefits are not forgotten, compared to start from scratch without a map. Second, by using the categories it makes it easier to compare systems alternatives since the business value of each system are expressed in a uniformed way, i.e. through the ranking or similar of the categories. Both these things were pointed out by the respondents in the case.

5. Conclusions
The topic of business value or business benefits generated by IS/IT is a wide-ranging and complex one. This paper proposes a consistent categorization of 25 different types of business benefits based on a literature review identifying over 500 academic articles and books. The categorization have been used successfully in industry to provide a common language for discussing and prioritizing business values, as well as mapping IT-systems impact on the business. In this role the categorization can serve a key element in aligning business and IT.

6. Acknowledgements
The authors would like to thank Dr Pontus Johnson and Mr Andreas Andersson for providing valuable input into the work.

In fo r Pr ma t D ec odu ion is io ctiv n i m ty ak in C g om m Inp un D u iff ica t er tio en n tia Q ua tio Cu lit n s s t Ef in om ficie y pr er od re ncy uc lat Le i ts / s on s ar er ni vi ng c an Fle es xib d kn il C ow ity os t r ledg ed e O uc rg an De tio iz liv n Su atio eri pp n c es lie ul r r tur el e at io ns
Business Value Category
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