Introduction

Business Value Creation with IT (BVC)

Andy Weeger

Neu-Ulm University of Applied Sciences

March 4, 2025

Introduction

Necessity of definitions

Figure 1: He should have defined what “fastest growing” (not) means …

To gain mutual understanding, core terms need to be defined. For this lecture, we need to—at least—figure out what IT and business value means.

Definition

Let’s define some core terms.

IT and digital

IT x

IT resources are the foundational technological components that organizations leverage.
These include:

• IT assets are tangible or intangible technological components that can be bought or built (e.g., hardware, software, data repos) (Melville, Kraemer, and Gurbaxani 2004)
• IT capabilities refers to the ability to mobilize and deploy IT assets in combination with other resources (e.g., IT skills or IT management abilities) (Wade and Hulland 2004)
• IT-enabled resources are organizational resources that are enhanced or created through the application of IT (e.g, IT-enhanced business processes) (Wade and Hulland 2004)

To create IT-enabled resources organizations need to integrate IT assets, IT capabilities and complementary organizational resources in a way that they create synergies.

Discussion

Now what’s the difference between IT asset and a digital asset?

From IT to digital resources

IT resources, IT-enabled resources, and digital resources (Piccoli, Rodriguez, and Grover 2022, 2296)

 

 

Digital resources represent a conceptual evolution of IS resources that focuses on the strategic value created through digital technology. Digital resources are (1) are modular, (2) encapsulate objects of value, assets, and/or capabilities, (3) and are accessible by way of a programmatic interface (Piccoli, Rodriguez, and Grover 2022).

Modularity

Digital resources are like LEGO blocks designed to snap together. They work independently but are specifically designed to be combined with other digital components to create larger, more complex systems. Example: A payment processing API is a self-contained module that can be plugged into various e-commerce platforms, mobile apps, or websites.

Encapsulated value

Digital resources have no inherent value on their own – they only become valuable when someone wants to use what’s inside them. Their value comes from the assets or capabilities they contain and the demand for those capabilities. Example: A machine learning algorithm for predicting customer churn has value only because companies need this prediction capability. Without this demand, the algorithm itself would have no inherent value.

Programmatic interface

Digital resources are accessed through code rather than physical means. They have a software “wrapper” with specific rules about how to interact with them. This wrapper controls access through predefined commands and responses.  Example: Instead of physically handling a document, you access a cloud storage service through its API, using specific commands to upload, download, or modify files.

Figure 2: IT resources, IT-enabled resources, and digital resources (Piccoli, Rodriguez, and Grover 2022, 2296)

Digital resources encompass all digitally-enabled components that can create value for an organization. This includes:

• Digital assets are digital components that have value-creating properties and are governed by well-defined property rights. These are the foundational building blocks that enable digital initiatives.
• Digital capabilities refers to the ability to mobilize and deploy digital assets in combination with other resources. These represent an organization’s capacity to conceptualize and execute digital initiatives.

Dynamic capabilities

The resource-based view supports that firms may achieve a competitive advantage based on their bundles of resources and capabilities (Peteraf, Di Stefano, and Verona 2013; Wade and Hulland 2004).

The dynamic capabilities (DC) view argues that firms have to evolve their resource and capability base in order to ensure a sustained competitive advantage (Peteraf, Di Stefano, and Verona 2013) — two types of resources:

• ordinary or operational capabilities, which allow firms to survive in the present by supporting existing operations
• dynamic capabilities, which are directed towards strategic change of ordinary capabilities and resources

DCs represent an organization’s ability to purposefully create, extend, or modify its resource base to address rapidly changing environments (Teece 2014).

IS and dynamic capabilities

Nomological net of DC in IS research based on Steininger et al. (2022, 454)

 

 

 

 

The multifaceted relationship between IT and dynamic capabilities highlights the complex role that information technology plays in organizational adaptation and renewal in the digital era. IT is not merely a tool but can simultaneously be an enabler, an embedded element, and an outcome of an organization’s dynamic capabilities.

Figure 3: Nomological net of DC in IS research based on Steininger et al. (2022, 454)

Value

Dicussion

How can value created with IT (including AI) be defined?

IS business value

Value created by IT is—in a business context—usually referred to as IT/IS business value.

IS business value is the impact of investments in particular IS assets on the multidimensional performance and capabilities of economic entities at various levels, complemented by the ultimate meaning of performance in the economic environment. Schryen (2013, 141)

The ultimate meaning of performance refers to what is subsequently derived if the outcome is exploited, e.g.

• impact on performance of a workflow management system: faster business processes
• the ultimate meaning: is dependent on the use of gained time and the extent to which competitors have speeded up their processes

Taxonomy of IS business value

Taxonomy of IS business value types and examples according to Schryen (2013)

 

 

 

Schryen (2013) presents a conceptual framework that organizes IS business value along two key dimensions, creating a four-field matrix. This matrix provides a comprehensive way to understand the multifaceted nature of value created by information systems.

Figure 4: Taxonomy of IS business value types and examples according to Schryen (2013)

The matrix is organized along two dimensions:

1. Value form: tangible vs. intangible
2. Value location: internal vs. external

This creates four distinct quadrants of IS business value.

Usage as the missing link

The process model of IS value creation (Soh and Markus 1995, 37)

 

 

 

Soh and Markus (1995) proposed a process model that explains how IT investments are transformed into business value. Their model is particularly significant because it identifies the critical processes and necessary conditions that must occur for IT to generate organizational benefits. The model consists of three linked processes, each with its own cause-effect relationship:

• The IT conversion process: from IT expenditure to IT assets
• The IT use process: from IT assets to IT impacts
• The competitive process: from IT impacts to organizational performance

Figure 5: The process model of IS value creation (Soh and Markus 1995, 37)

The central and most critical insight of Soh and Markus’s model is their identification of IT use as the essential missing link in the IT value creation chain. Prior to their work, many researchers focused primarily on the relationship between IT investments and organizational performance, often finding inconsistent results (the “productivity paradox”).

Their model highlights that:

1. The critical path requires actual usage of the technology (IT assets → IT use → IT impacts)
2. Not just any use, but effective and appropriate use is required
3. Usage is necessary but alone does not guarantee value

Adoption and use

Figure 6: Unified Theory of Acceptance and Use of Technology (UTAUT) (Venkatesh et al. 2003)

The Unified Theory of Acceptance and Use of Technology (UTAUT) suggests that the actual use of technology is determined by behavioural intention. The perceived likelihood of adopting the technology is dependent on the direct effect of four key constructs, namely performance expectancy, effort expectancy, social influence, and facilitating conditions. The effect of predictors is moderated by age, gender, experience and voluntariness of use

Efective use

Figure 7: A model for effective use and its effect on performance according to Burton-Jones and Grange (2013)

Key for Figure 7: Solid arrows reflect primary paths; dashed arrows reflect secondary paths; boxed arrows reflect necessary causality (i.e., x enables but does not determine y ). Bolding on “user,” “system” and “task” reflect the relative emphasis on each element of use (bold reflects more emphasis).

The Theory of Effective Use defines effective use as “using a system in a way that helps attain the goals of using the system” (Burton-Jones and Grange 2013, 636) and conceptualizes it to consist of three dimensions: transparent interaction, representational fidelity, and informed action.

• Transparent interaction is the extent to which a user is accessing the system’s representations unimpeded by its surface and physical structures.
• Representational fidelity is the extent to which a user is obtaining representations from the system that faithfully reflect the domain being represented.
• Informed action is the extent to which a user acts upon the faithful representations he or she obtains from the system to improve his or her state.

Q&A

Literature

Burton-Jones, Andrew, and Camille Grange. 2013. “From Use to Effective Use: A Representation Theory Perspective.” Information Systems Research 24 (3): 632–58.

Melville, Nigel, Kenneth Kraemer, and Vijay Gurbaxani. 2004. “Information Technology and Organizational Performance: An Integrative Model of IT Business Value.” MIS Quarterly, 283–322.

Peteraf, Margaret, Giada Di Stefano, and Gianmario Verona. 2013. “The Elephant in the Room of Dynamic Capabilities: Bringing Two Diverging Conversations Together.” Strategic Management Journal 34 (12): 1389–1410.

Piccoli, Gabriele, Joaquin Rodriguez, and Varun Grover. 2022. “Digital Strategic Initiatives and Digital Resources: Construct Definition and Future Research Directions.” Management Information Systems Quarterly 46 (4): 2289–2316.

Schryen, Guido. 2013. “Revisiting IS Business Value Research: What We Already Know, What We Still Need to Know, and How We Can Get There.” European Journal of Information Systems 22 (2): 139–69.

Soh, Christina, and M Lynne Markus. 1995. “How IT Creates Business Value: A Process Theory Synthesis.” ICIS 1995 Proceedings, 4.

Steininger, Dennis M, Patrick Mikalef, Adamantia Pateli, and Ana Ortiz-de-Guinea. 2022. “Dynamic Capabilities in Information Systems Research: A Critical Review, Synthesis of Current Knowledge, and Recommendations for Future Research.” Journal of the Association for Information Systems 23 (2): 447–90.

Teece, David J. 2014. “A Dynamic Capabilities-Based Entrepreneurial Theory of the Multinational Enterprise.” Journal of International Business Studies 45 (1): 8–37.

Venkatesh, Viswanath, Michael G Morris, Gordon B Davis, and Fred D Davis. 2003. “User Acceptance of Information Technology: Toward a Unified View.” MIS Quarterly, 425–78.

Wade, Michael, and John Hulland. 2004. “The Resource-Based View and Information Systems Research: Review, Extension, and Suggestions for Future Research.” MIS Quarterly, 107–42.