Information Technology Investment and Price Recovery Effects in International Banking
29 Pages Posted: 15 Oct 2008
Date Written: July 1996
Finns invest in information technology (IT) to create various kinds of leverage on firm profitability and performance.However, IT researchers have concentrated their efforts on the productivity impacts of technology, at the employee, process,firm, industry, and economy levels of analysis, to the exclusion of other business value impacts. Not captured byproductivity metrics are the significant benefits that may accrue to the firm as product quality improves, managerialassessment of risk is enhanced, time to market and other cycle time reductions are made, and new ways to control firminput and output prices become available to management. These kinds of impacts reflect price recovery improvements -the ratio of the prices of a firm's outputs (of goods and services) to the prices of the inputs it consumes in production - andthey are rarely measured or understood in a systematic way. In this paper, we argue that it is appropriate to reconsider thecurrent measurement and research agenda that aims to discover and document the payoffs that accrue from corporateinvestments in IT. We illustrate the extent to which IT investment may be motivated by management's understanding ofthe potential price recovery payoffs (even if they fail to carefully measure or report them) in the context of trading andtreasury operations in international banking. We find that price recovery captures a previously unmeasured dimension of thebusiness value of IT.
Keywords: Business value of IT, financial services, IT investment, international banking, productivity, price recovery, risk management
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