While some of the recent publications on information technology question the value creating role of IT in today's business environments (Carr, 2003 and 2004), others assert that with the economic recovery in many parts of the world, innovation—especially in information technology—is becoming even more critical to growth and high performance.

With respect to the first, doubts about the potential payoffs of IT investments can be traced to numerous IT projects made without the rigor of measurement of either the benefits or costs of such investments. Decisions were made based on compelling arguments and keeping up with competitors resulting in billions of dollars of wasted corporate assets. France Telecom, for example, announced that they spent 700 million euros on external IT services in 2003 which is after slashing 138 million euros from the IT spending of the prior year (838 million). Almost every organization has stories about unfulfilled promises about the benefits of new ERP or IT systems. In the United States alone, annual expenditure on IT now runs into trillions of dollars, and approaches 50 percent of new capital investment for most organizations with little evidence to suggest that this expenditure has generated a satisfactory return (Murphy, 2002, Davenport and Prusak, 1997). Typically, the costs of the technology are much higher than anticipated, the cost of the conversion is also higher, whereas the benefits are far lower and harder to achieve than expected. In addition, this ignores the very significant costs related to the internal employee time wasted and the disruption to personnel, operations, and the revenue stream of the organization. While the claim that some organizations collapsed because of ineffective IT policies may be an exaggeration, many CEOs and business unit leaders view IT as a value destroyer or a cost rather than a value creator implying its corroding impact on the organization’s competitive advantage.

On the other hand, the advocates of the bold and comprehensive new vision of how organizations can use information technology to create value believe IT matters more than ever, yet in a different way. By moving from an era of technology to an era of technology capability, the focus has shifted from individual technologies to the benefits that can be created with them. Because of this focus on technology capabilities, innovation is emerging not just from technologists, but from the users of the technology components who understand how to use IT to deliver higher levels of organizational performance. By filling the gap between the rate of technology innovation and people's understanding and ability to use and implement the technology, organizations can use these innovations to lead to substantial improvements in their performance. Even for organizations that were actually quietly making a big difference in their markets by leveraging IT, it was still often difficult for these CIOs to quantify those results, and prove the benefits. Then, when earnings declined, IT was an easy target for cost cutting.

A primary reason for doubts about the potential value organizations can derive from existing and future investments in IT is related to the absence of a proper methodology to evaluate the payoffs of IT investments. So far, there has been little guidance of how to design or implement an appropriate IT performance evaluation system, i.e. how to identify and document the contribution of information technology to high-performance organizations. Historically, organizations were driven by enthusiastic managers who were over relying on technology and did not demand development of the needed skills and the measures to complete these analyses. Today, the financial managers and other decision-makers want the IT requests to be framed in a ROI or shareholder value format so that they can be effectively compared with alternative potential company investments. According to the Forrester Report, 90 percent of executives make the IT funding decisions based on the financial impact of IT initiatives, however, the top challenge in selecting which IT project to fund is the lack of objective data (Cameron et al., 2000). Senior IT managers are convinced that they do create value and believe that if measured properly and with adequate support, they would be significant profit centers for their organizations. But without adequate performance evaluation systems they have difficulties proving the value adding role of IT and find themselves continually fighting for and justifying the resources that are needed. CEOs and CFOs lack information to make well informed decisions on the payoffs of these investments and as a consequence, corporate goals seem to focus on reduction of the costs of IT rather than maximizing the IT value creation activities.

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Objectives and Target Audience

As IT managers must show the payoffs of IT investment to convince key executives that they should be strong supporters of IT efforts, a framework for evaluation of IT performance is a significant need. Few things are more convincing to top executives than measurable results. When a new project is proposed, additional funding is typically based solely on the results anticipated from the project. Currently, IT executives do not have proper tools to measure the payoffs of IT. Even financial managers that have expertise in management control and performance measurement, have not focused on the benefits of IT and have not developed the appropriate measures. Consequently, the payoffs of IT are not measured, ROI is not calculated, and IT investments are not evaluated with the same rigor as other corporate investments. The purpose of this guideline is to provide a model and a selection of measures for evaluating performance in information technology in both for-profit and nonprofit organizations to help CIOs better justify and evaluate their initiatives and aid CEOs and CFOs in making better resource allocation decisions.

The guideline's objectives are as follows:

·         To develop a general model of key factors for organizational success in IT integration (IT Contribution Model) that includes four dimensions: the critical inputs and processes that lead to success in IT outputs and ultimately to overall organizational success (outcome).

·         To articulate each of the key factors (antecedents and consequences of IT success) as objectives to facilitate further operationalization of the model.

·         To outline the specific drivers of IT success based on the objectives related to inputs, processes, outputs, and outcomes, and identify the causal relationships between the drivers.

·         To provide the specific measures of IT performance. Following the cause-and-effect relationships between the drivers of IT success, measures are developed to track performance of IT initiatives along the four dimensions. The metrics can be used for both IT project justification prior to its start (planning) as well as for evaluation after completion (performance measurement).

·         To provide examples of how to assign monetary values to non-financial IT outputs (benefits). Although some benefits do not always easily translate into short term profits, they should ultimately lead to either cost savings or increased revenues.

·         To provide an example of how to calculate the IT payoffs. Here, the guideline specifically recognizes the importance of measuring both the total costs of an IT initiative—including a range of different disruption costs—as well as the benefits, and additionally considers the risks associated with IT investments.

·         To show how the IT Contribution Model is consistent with other measurement frameworks such as the balanced scorecard and the shareholder value analysis.

The target audience of the guideline is the accounting and finance professionals that deal with the challenges of performance measurement and control in IT. Presented in a systematic format, the guideline is also intended to help CIOs, CTOs, and senior IT managers better understand how information technology contributes to higher levels of corporate performance, more easily evaluate the profitability of IT investments, and make better resource allocation decisions. In addition, it is also helpful for the CEOs, CFOs, and other decision-makers that struggle to identify, document, measure, and communicate the short-term results and long-term impacts of IT investments. This includes both cost savings and value creation, and thus provides arguments for additional IT resources when appropriate.