Maximizing IT Investment Returns: Strategic Alignment of Information Technology towards Corporate Performances

Mohammad Alryalat, Richmond Adebiaye , Haroun Alryalat

American Journal of Applied Mathematics and Statistics. 2017, 5(2), 72-79. DOI: 10.12691/ajams-5-2-5 Published online: July 21, 2017

Information technology (IT) investment and aligning methodologies require thorough understanding of analyses on different parallel present values and strong internal rates of return. E-commerce has given a new dimension to IT investing that elevates the role of strong IT performance as a driver of corporate strategy. Stakeholders concerned with maximizing IT return on investment (ROI) recognize the importance of central, comprehensive information resources to effective strategic business planning. Alignment of corporate and IT strategies is now a vital element of business success. To empirically support this conclusion, this study measures the relationship between strategic alignment of IT investment returns and corporate performance. A Descriptive research design using survey methodology was employed. The study included analyses of variable values involving stakeholders in banks, such as new customers and employees. A Simple Percentage Method, chi-square tests, Tables and weighted average were used to analyze data of at least five (5) banks in Ajman Emirates of UAE to determine the degree of alignment and its impact on the two strategic dimensions. A binary logistic regression analysis using Chan’s STROIS model incorporated with Venkatraman’s STROBE model was proposed to collect survey data and determine the extent of the strategic alignment. The research results provide empirical evidence that supports the hypothesis that closer alignment between corporate and IT strategies leads to increased IT ROI and improved corporate performance. This relationship holds true for all firms regardless of strategic intent for IT. The study also shows a positive correlation between early adoption of newly emergent technologies and business competitive advantage which leads to positive conclusions that strategic competition is imperative towards corporate performances.

Information Technology (IT) in the banking sector is now a norm rather than an exception, understandably increasing the focus on maximizing return on investments (ROI) in IT. Risks and uncertainties associated with IT can cause risk-averse managers to demand assurances of high rates of returns before they approve investments in IT systems (Ross & Breath, 2002). Decision-making on IT investing, like other ventures, has been traditionally characterized by assessing ROI purely on the basis of financial calculations such as the Internal Rate of Return, the Present Value and Net Present Value 9. Recently, however, organizations increasingly broaden the scope of analyses to include non-financial considerations when deciding whether to invest in IT. The need to include non-financial factors in a case for IT investment arises from the inherent limitations of sole reliance on financial calculations of ROI. Researchers have found that exclusive use of financial metrics to make such decisions is not only insufficient, it is also a source of quantification difficulty at the implementation stage 1. In practice, many organizations do go beyond ROI calculations and consider important non-financial indicators when prioritizing projects. For example, Ross and Breath 11 found that 27 of 30 Senior Managers (SM) allocated funds for IT projects perceived to be strategic, and 16 SM’s funded projects when they perceived investment in the proposed IT infrastructure to be integrally necessary for the company to meet evolving customer demands, as well as open new businesses. Literature supports the notion that strategic alignment, corporate performance and competitive advantage are important adjuncts to financial aspects of ROI in IT. A more reliable approach to the question of maximizing returns on IT investments would be to integrate financial and non-financial analyses of ROI 12. To this end, this study establishes the relationship between alignment of corporate strategies with IT investments and the ROI of such investments.

Studies on business-IT alignment (BITA) in the banking sector reveal that banks whose IT strategies and business strategies are aligned are more likely to retain and attract customers and remain competitive 4. Ever-increasing marketplace banking IT solutions has increased competition among financial institutions, demanding mandatory justification for heavy investments in IT. To maintain a competitve edge, banks are constantly improving existing business processes and innovating new processes. Those that target IT investments to improve competitiveness must ensure alignment of business and IT planning at the strategic, tactical and operational levels. Singh and Desai 13 suggest four parameters for evaluating BITA: addition of value to services and products, enhancement of competitive positioning, reduction of costs and improvement of administrative efficiency, and improvement of managerial effectiveness. In the banking sector, an IT strategy should take into account the bank’s business objectives and competitiveness, costs, benefits and risks of the current and future IT processes. Furthermore, it should analyze the IT venture’s ability to adapt to current and future banking needs, whether the operation costs of the IT program provide sufficient business value, and ensure compliance with regulatory requirements 13. Study of BITA in the banking sector is multidirectional. One study examined the relationship between strategic alignment, business strategy and ROI. Another study measured returns for IT investment and corporate performance to provide evidence for aligning business strategy and IT strategy 10. Evidence from this study remains anecdotal since the demarcation between business strategy, IT strategy, and strategic alignment is unclear. Though there is paucity of theoretical frameworks for studying the nexus between strategic alignment and ROI on IT investment, the theory of dynamic capabilities has been used to establish the relationship between strategic alignment, IT flexibility and IT effectiveness 14. While Ness 9 found that IT flexibility greatly influences IT effectiveness more than strategic alignment in larger organizations, other studies have found that strategic alignment has a greater effect than other factors irrespective of organization size 9, 10. Most inconsistencies in study results are partially attributable to inconsistent strategy alignment and benefit valuation methodology. Shi and Silvius 12 noted that over 50 models exist for calculating IT benefits. Although some of these models view benefits from IT investment as a function of strategic alignment, a majority of the models fail to address alignment of IT and business strategies as a factor that creates or influences value. This study analyzes the benefits of such alignment for five banks in Ajman Emirates, United Arab Emirates (UAE). To avoid previous empirical inconsistencies found in similar studies, our study employs a more robust integrated model for measuring alignment and its effect on corporate performance.

This study is an empirical assessment of the relationship between strategic alignment of IT ROI and corporate performance by analyzing data of five commercial banks in Ajman Emirate, UAE. The study aims to provide both a conceptual understanding of the strategic alignment on IT investments returns and an empirical definition for commercial bank corporate performance. An overall objective was formulated with respect to the specific research objectives, research questions and research hypotheses. The section also presents the research design and study variables.

This study focuses on the relationship between strategic alignment of IT investment returns and corporate performance, and seeks supporting empirical evidence. Following are the study’s specific research objectives:

i. To establish whether closer alignment between business and IT strategies lead to increased returns on IT investments.

ii. To determine whether closer alignment between business and IT strategies lead to improved corporate performance.

iii. To determine the relationship between early adoption of new and emerging technology and business competitive advantage.

i. Does closer alignment between business and IT strategies significantly lead to increased returns on IT investments.

ii. Does closer alignment between business and IT strategies significantly lead to improved corporate performance.

iii. Is there any significant relationship between early adoption of new and emerging technology and business competitive advantage.

H10: Closer alignment between business and IT strategies does not lead to increased returns on IT investments. Against;

H11: Closer alignment between business and IT strategies leads to increased returns on IT investments.

H20: Closer alignment between business and IT strategies does not lead to improved corporate performance. Against;

H21: Closer alignment between business and IT strategies will lead to improved corporate performance

H30: There is no relationship between early adoption of new and emerging technology and business competitiveness. Against;

H31: There is a relationship between early adoption of new and emerging technology and business competitiveness.

Aggressiveness refers to the rate of adoption by a business in striving for resources to improve its market performance relatively faster than their competitors in the market.

Analysis refers to the expertise of problem solving by having a tendency to search deeper root cause of problems and to come up with best possible solution alternatives.

Defensiveness refers to defensive behavior in terms of emphasizing on cost reduction and consideration of business efficiency.

Futurity refers to reflection of temporal considerations in strategic decision making in terms of the relative emphasis of effectiveness considerations versus efficiency considerations.

Proactiveness refers to activeness behavior in participation in emerging industries and continuous search for market opportunities with regard to changing market trends.

Riskiness refers to the extent of riskiness reflected in various resource allocation decisions as well as choice of products and markets.

The research will adopt the descriptive research design using survey methodology for an empirical assessment of the relationship between strategic alignment on IT investment returns and corporate performance. Krueger & Casey 6 say the descriptive research design best enables collection of numerical data related to views, attitudes, perceptions and opinions from study respondents. The obtained data will be analyzed objectively to address the above stated research questions by asserting generalizations that can be drawn into conclusions.

The study is structured to have three sets of variables: dependent variable, independent variables and intervening variables. The dependent variable is the rating of returns on IT investments (Business returns).

The independent variables include STROBE dimensions including business alignment rating in: aggressiveness, analysis, defensiveness, futurity, proactiveness and riskiness. The other business alignment ratings investigated are: IT expertise level, satisfaction of IT values, IT system quality, new IT emerging innovations, and IT adoption.

Intervening variables include socio-demographic factors of IT and business stakeholders, including age, education level, gender, duration of IT usage and socio-economic status of IT professionals and IT managers.

The sample units in this study include: IT and Business Stakeholders, management & directors in banks, new customers and bank employees. Due to the largeconcentration of banking services in the Ajman, UAE and due to the lack of sufficient time and resources, a sample size of 150 individuals was deemed adequate for conducting this research. Mugenda (2003) suggested that a sample size of about 150-200 participants is suitable for an empirical descriptive research design. The sample size of 150 is mainly persons working in banks, bank customers and bank management teams.

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