Beyond the Business Case: New Approaches to IT Investment

New research from MIT’s Center for Information Systems Research and others reveals that successful companies are revolutionizing the way IT investments get decided. Investments are no longer justified merely on the basis of making a functional silo more profitable. Today the strategic needs of the whole company come first.

In the last 15 years, write professors Jeanne Ross of MIT’s Sloan School of Management and Cynthia Beath of the University of Texas, a tidal wave of IT-enabled initiatives has elevated the importance of investing strategically. The Internet alone has created numerous opportunities: to reengineer processes, introduce online products and services, approach new customer segments and redo business models. The opportunities seem limitless, but the resources required — capital, IT expertise, management focus and capacity for change — are not. How to choose?

Traditionally, companies justified a given project by presenting a strong business case. But with IT’s growing strategic importance, companies must now weigh individual ROIs against demands for organizationwide capabilities — and must assess opportunities to leverage and improve existing systems and infrastructures, create new capabilities and test new business models.

The authors recommend a new investment approach based on a framework they developed after studying the e-business initiatives and supporting IT investments of 30 enterprises. The framework encourages simultaneous investment in four kinds of IT initiative.

Transformation investments are necessary if a company’s core infrastructure limits its ability to develop applications critical to long-term success. Renewal investments maintain the infrastructure’s functionality and cost-effectiveness. Process improvements allow business applications to leverage infrastructure by delivering short-term profitability. Experiments enable learning about opportunities and testing the capabilities of new technologies. The new tools are helping managers grapple with an increasingly complex world.