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322 Part 2 Strategy and applications

2 Strategic value investment. Strategic investments will enhance the performance of a busi-
ness and should help in developing revenue. A customer relationship management system
would be a strategic investment. This will be intended to increase customer loyalty,
resulting in additional sales from existing customers.
3 Threshold investment. These are investments in BIS that a company must make to operate
within a business. Investments may have a negative return on investment but are needed
for competitive survival.
4 Infrastructure investment. These can be substantial investments which result in gain in the
medium-to-long term. Typically this includes investment in internal networks, electronic
links with suppliers, customers and partners and investment in new hardware such as
client PCs and servers.

As part of developing e-business strategies, companies can prioritize potential information
systems investments in the above categories according to their impact on the business. A
similar approach is to specify the applications portfolio described in the section on situation
analysis. It is evident that priority should be given to applications that fall into the strategic
and high-potential categories in Figure 5.7. Now complete Activity 5.4.

Activity 5.4 E-business investment types

Purpose
To gain an appreciation of how to prioritize IS investments.

Questions
1 Referring to the four investment categories of Robson (1997), discuss in groups
which category the following investments would fit into:
(a) E-procurement system
(b) Transactional e-commerce web site
(c) Contract with ISP to host web server and provide Internet connectivity for staff
(d) Workflow system to manage complex customer orders (e.g. processing orders)
(e) Upgrading a company network.
2 Assume you only had sufficient funds to invest in two of these options. Which two
would you choose?
Answers to activities can be found at www.pearsoned.co.uk/chaffey

The productivity paradox

All discussion of investment appraisals in information systems should acknowledge the exis-
Productivity paradox tence of the productivity paradox. Studies in the late 1980s and 1990s summarized by
Research results Brynjolfsson (1993) and Strassman (1997) suggested that there is little or no correlation
indicating a poor
correlation between between a company’s investment in information systems and its business performance
organizational investment measured in terms of profitability or stock returns. Strassman’s work, based on a study of
in information systems 468 major North American and European firms, showed a random relationship between IT
and organizational
performance measured spending per employee and return on equity.
by return on equity. To the present day, there has been much dispute about the reality of the productivity
paradox. Carr (2003) suggested that information technology has become commoditized to
such an extent that it no longer delivers a competitive advantage. Carr says:
What makes a resource truly strategic – what gives it the capacity to be the basis for a
sustained competitive advantage is not ubiquity, but scarcity. You only gain an edge over
rivals by having something that they can’t have or can’t do. By now the core functions of