A framework for measuring the efficiency of organizational investments in information technology using data envelopment analysis

Abstract

Over the last few decades, organizations have been increasingly investing in information technology (IT). However, despite these substantial investments in IT, empirical studies have not persuasively established corresponding improvements in organazational performance. In fact, to the contrary, many studies investigating investments in IT have found no significant relationship between firm performance and investments in IT. Brynjolfsson and Kaufman and Weill identify shortcomings in past studies. These shortcomings include measurement errors, lags between investments and benefits, redistribution of profits, and mismanagement of IT resources. This paper proposes a framework for measuring the efficiency of investments in IT that addresses these shortcomings. In particular, we demonstrate how a mathematical programming technique called Data Envelopment Analysis (DEA) can be used to evaluate the efficiency of IT investments. Our framework is illustrated using data compiled for over 200 large organizations. The paper illustrates how the shortcomings listed above can be addressed.