Information Technology Investment and Firm
Performance in Developing Economies: A Study of
Perceived Impacts of IT on Firms in Namibia
David Phiri
Polytechnic of Namibia, 13 Storch Street, Windoek, Namibia
Beihang University, 37 Xueyuan Road, Haidian District, Beijing, China
Abstract. Investing in information technology is widely regarded as having
enormous potential for increasing firm performance. In Namibia most
businesses recognise the diversified value creating potential of IT investments
which explains the increase of IT investments. Despite these assumptions
however, no validations have been done in the context of the country due to
limited local research on this topic. This study, tries to investigate the
perception of the intangible intermediate benefits accrued from IT resources
with the view that understanding the interaction between IT resources and the
users may provide better insights in to how IT is impacting firm performance.
The initial results indicate that firms in Namibia perceives their IT investments
as a strategic necessity and that IT contributes to business value by providing a
variety of benefits, especially at the process level and boosting of growth
potential.
1 Introduction
The essential role of information technology (IT) in strategies and operations of
information-age organizations has led to significant increases in IT investments over
the last two decades worldwide. An attempt to measure the value creation capabilities
and mechanism of IT investments in Namibia is a timely initiative in view of the
increasing IT investments and increasing importance of the role of IT in most
business processes. This is an ongoing study which seeks to establish whether IT
investments are generating any business value in Namibia, if so how and to what
extent. Further, the study also seeks to establish the best practices of IT investment
suitable to Namibia and how to best harness the potential conferred by IT
investments. The study will focus at the impact of IT on the intangible intermediate
benefits at operational level of firms which leads to increased performance.
The organisation of this paper is as follows. The next section elaborates the
theoretical framework, and discussion on the research methods followed by
presentation of preliminary results and a discussion of the results. Finally the
conclusion provides suggestions for further research.
Phiri D. (2011).
Information Technology Investment and Firm Performance in Developing Economies: A Study of Perceived Impacts of IT on Firms in Namibia.
In Proceedings of the International Joint Workshop on Information Value Management, Future Trends of Model-Driven Development, Recent Trends in
SOA Based Information Systems and Modelling and Simulation, Verification and Validation, pages 3-9
DOI: 10.5220/0003583700030009
Copyright
c
 SciTePress

2 Theoretical Framework
2.1 IT Business Value Creation
A review of the literature shows that at least four prevailing thoughts on where, how,
and why IT creates business value to firms. The microeconomics-based view uses
principles of Microeconomics to explain how IT generates value by suggesting that IT
investments as a capital investment create excess return in production
processes of
firms [4, 5, 16, 8]. The Process-Oriented view believes that IT investments create
competitive advantages by improving operational efficiency of intermediary business
processes which in turn, under the appropriate condition (e.g. supportive
management, good macro-environment, trained manpower, flexible organisational
culture etc ), lead to better firm-level performance [1, 22, 10].The resource-based
view believes that IT investments improve firm performance by creating sustainable
competitive advantage via unique, and path strategic resources and capabilities [13, 3,
15]. Finally the digital option view argues that IT investments create value by
creating options and flexibility for firms in the increasingly competitive and uncertain
market environments [2, 15].
2.2 The Structuration Theory
There has been some attempt by various theorists to link structuration theory to
systems theory or the complexity theory of organizational structure (which
emphasizes the adaptability that simple structures provide).The theory of
structuration, proposed by Anthony Giddens, is an attempt to reconcile theoretical
dichotomies of social systems such as agency/structure, subjective/objective, and
micro/macro perspectives [6].
The theory has been adapted and augmented by researchers interested in the
relationship between technology and social structures, such as information technology
in organizations. Orlikowski [11] borrows Giddens' structuration theory and applies
her critique of the duality of structure to technology. In the context of the use of
information technology in organisations to derive business value, from structuration
lens, human actions create and change technology, yet humans also use it to
accomplish some action. This recursive notion of technology is what Orlikowski [11]
calls duality of technology.
Orlikowski sees technology as the product of human action (what they would like
to achieve), while it also assumes structural properties. The practice lens permits one
to examine how people, as they interact with a technology in their ongoing practices,
enact structures which shape their emergent and situated use of that technology.
While Orlikowski's work has been focused on multinationals and corporate, it is
equally applicable to the technology cultures which have emerged in smaller
organizations, and can be further adapted with sensitivity to differences in approaches
to the governance of technology in these organisations [18].
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2.3 Research Conceptual Model
Due to the complex linkage between IT resources utilisation and the impact on
organisational performance, this study will use multiple theoretical perspectives.
Firstly since technology is physically constructed by actors working in a given social
context, and technology is socially constructed by actors through the different
meanings they attach to it and the various features they emphasize and use [11].
Understanding the extent to which this technology creates value for organisations
depends upon one’s ability to understand the meaning the actors (management and
employees) attach to technology and how they use it. Respectively, one may not
understand how IT contributes to business value by ignoring this notion of
interactivity between technology and actors. The research will thus use perceptions of
user (management and employees) of IT to gain insights into how IT creates value.
Secondly since the focus of this study is IT Value creation, the microeconomic
and process views provide a more salient theoretical foundation for investigating how
IT augments firm’s business value creation mechanisms. The fundamental argument
of the economic view of IT value is that IT can be treated as an input in the
production function of a firm and there is a substituting effect between IT and other
production factors [14] Thus, IT creates value for a firm when IT capital or IT labour
produces higher return than ordinary capital and labour [4, 7].
The microeconomic view of IT value by itself fails to explain where and why such
impact occurs [17, 10]. Nevertheless, the process view supplements the
microeconomic view, by suggesting that if the right IT is applied within the right
business process, improved processes and organizational performance result,
conditional upon appropriate complimentary investments in workplace practices and
organizational structure and shaped up by the competitive environment [9].
3 Hypothesis and Research Methodology
There are synergies between the resources and the users of the resources therefore
understanding the interaction between the technology and the users’ of the technology
could provide richer insights into how organisations derive business value from IT.
Further the intermediate output of IT adoption can easily be observed by the users.
Therefore in this research the impacts of IT will be gauged from the perception point
of view of users of IT.
I developed the research model based on the microeconomic and process views of
IT value creation and stracturation theory will guide how the impacts are interpreted.
Meanings and values that users and management attach to IT will be used to find out
whether IT is impacting any intermediate process as a required in the process view or
whether IT investments are having any high returns as the microeconomic view
posits.
There have been many scholars who have concluded that IT creates positive business
value [4, 5, 1, 17], the first hypothesis will investigate this issue using Namibian data.
Hypothesis 1: There is a positive relation between IT investment and firm
performance.
- H1: a – There is positive relationship between IT investments and increased
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productivity, effectiveness and enhanced firm’s cost efficiency.
- H1: b - Investment in IT leads positively impact business process leading to
improved process performance and organisational growth by facilitating improved
customer satisfaction, increased sales, and other factors that affect firms’ growth.
- H1: c IT investments positively impact internal controls and resource management.
- H1: d - Investment in IT is strategically essential and enhances the potential for
future growth, survival and competitive advantage of a firm.
Furthermore, I adopt postulations that the concept of information intensity of value
chain and products proposed by Porter and Millar [12] can be used to complement the
process view of IT value for a better understanding of IT impact on firm performance,
which leads to my second hypothesis.
Hypothesis 2: Information-intensive industries (e.g.
finance or service companies) derive
more positive returns from to IT investment than non information-intensive industries
(e.g. manufacturing).
Finally IT capabilities which supports organizational objectives and are well
aligned with organizational strategies to achieve objectives tend have the most
returns.
Hypothesis 3: Nature of IT investment affects the value creating capabilities of IT.
- H3: a - IT investments that positively affect the efficiencies of the business
processes of a firm, have more payoffs.
- H3: b – IT investments which are well aligned with strategies to attain
organizational objectives will have more impact on the growth of a firm.
3.1 Methodology and Data Collection
The approach of the research is to conduct a survey investigating the nature and
extent of benefits achieved from IT investments at the operational and Business
process level. In the first phase 50 firms that had invested in IT capabilities in the
recent past were targeted. Out of these firms only up to five personnel per firm at
different levels in hierarchy and from different functional units were asked to
participate in the survey. Guided by the process and microeconomic oriented value
creation mechanism views, the respondents are being asked to rate how IT in their
own perception has positively affected or improved business intermediate processes
and also how IT investment may have affected the production factors (e.g. increasing
labour output). The impacts being investigated include impact on functional
operations and business processes, Strategic importance, effect on relationships
(employee to employee, employee to client), impact on quality and efficiency of
service delivery, impacts on business image, impact on accounting and other resource
controls and other intermediate processes. Similarly actual use of IT capabilities is
being investigated to substantiate the impacts.
Furthermore only respondents who witnessed the IT investments in their firms are
being considered. The assumption is that, they have a better understanding of how IT
has changed things around compared to personnel that might have joined the firm
after IT was already adopted. In the survey, respondents are being asked to rate their
perception of the extent of these intangible benefits realized by their businesses on the
specified issues on a 5-point likert scale, with 1 indicating no benefits, and 5
indicating excellent benefits.
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3.2 Preliminary Results
Preliminary findings indicate that most firms in Namibia regard IT as strategically
essential for organisational survival and recognise the diversified value creating
potential of IT. Firms invest in IT for a number of reasons including immediate
functional business processes support and/or improvement requirements (most
dominant) and strategic reason like to gain competitive advantage. A few larger firms
and government departments are also investing in firm level systems (e.g. ERP
systems). Nonetheless, results also reveal that in many organisations there is no
payoff analysis performed for IT investments and that political reasons often
overshadow the technical and economic considerations. Findings also showed when
adopted functional business supporting systems have higher level of usage compared
to ERPs.
Respondents also indicated a number of other issues they consider to be directly
impacted by IT capabilities which include
- Initial investments in IT have provide insights into capabilities of IT and Most
firms indicated that they invested either in further enhancements of initial
capabilities or different other systems after realising what IT can do.
- Most respondents acknowledged that IT investment in systems supporting
internal operations contributed a lot to improvement of the controls of resources
usage e.g. Vehicle Fleet Management systems controls mileage and Fuel usage.
- IT contributes to the improvement in the quality and efficiency of service
delivery (e.g. process applications quickly, generate Bills quickly, reduce on
errors, etc).
- Most acknowledged the need to invest in IT despite lack of immediate financial
returns, and recognise benefits besides tangible financial returns.
4 Discussion and Implications
This study will contribute to IT business value literature in the following ways: firstly
it is one of the first studies to assess the impact of IT on firm level performance in
Namibia using perceptions of the users of IT in firms. It is interesting to note that
there seems to be positive impacts from IT investments being realised in a developing
country despite the differing macro-characteristics such as labour costs, IT resources,
level of IT adoption and education compared to developed countries. The findings
will add to the evidence that IT business value creation is not idiosyncratic of
developed countries only but also applicable to developing countries. Secondly this
study reveals other issues that are motivating IT investments in developing countries
and what meanings personnel attach to IT.
Based on the preliminary results, IT investments in Namibia are viewed as
having diverse ways of adding value to firms. However prudent management of IT
needs to improve as most firms do not to have a consolidated information technology
implementation strategies leading to different functional units implementing
functional specific information systems often motivated only by functional
operational requirements or strategies and not necessarily unified objectives.
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5 Conclusions
The research is ongoing, and hopefully more patterns of how IT is creating business
value will be discovered. The Namibian economy like for many other developing
countries is going through a lot of transformations and it is the aspirations of
government and the people that they realise maximum economic growth potential on
a sustainable. Therefore the trend of considerable growth in adoption and usage of IT
is expected to continue. Therefore the besides just establishing how IT is creating
value studies are expected to extended to how best to harness the potential of IT to
improve the performance of organisations in Namibia and other developing countries
with similar conditions. This research is limited to how IT creates value in one
developing country, future research could consider more developing countries from
various geographical locations to provide an all-embracing picture of the nature of
benefits of IT investments and also consider how to harness the potential of IT.
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