1. The Generic IS/IT Business Value Category: Cases in Indonesia
Ir. Benny Ranti, MSc.
Graduate Program in Information Technology
University of Indonesia
ranti@infosolusi.co.id
Abstract
For years, many researchers and practitioners have been debating about the worth or business value of IS/IT investment. By
taking into account the positive impact of IS/IT investment, a research has been done to explore the identification of IS/IT
business values resulting from the implementation of various IS/IT projects in various industries in Indonesia by using a
collection of documents as the key data source. Each document contains valuation report of IS/IT project investments in
organizations collected using Information Economics methodology. The focus of this study is in identifying the IS/IT business
values with hermeneutics as the method to interpret the meaning of the document. In the identification process, IS/IT is seen
from the tool and ensemble views, i.e., how people develop and use IS/IT as a tool to generate value to increase organizational
performance. This paper discusses the research result called the Generic IS/IT Business Value Category which consists of 13
categories and 74 sub-categories. They have been compared against 190 sub-categories from the 4 previous studies built
based on the developed countries case to find out values which might be unique to the Indonesian case.
Keywords: IS/IT investment, organizational performance, IS/IT business value, Information Economics, hermeneutics, tool
view, and ensemble view
1. INTRODUCTION business values properly, the CIO in particular not only can
miss the potential values but also misjudge the total
Information systems/information technology (IS/IT) economic value of the IS/IT investment. This less accurate
business value can be commonly defined as the IS/IT judgement might lower down the feasibility level of the
contributions to improve business performance of the IS/IT project or initiative which might cause the initiative to
organization. Topics related to IS/IT business value be turned down or delayed. Consequently, the company
measurement or IS/IT investment management have been might loss the opportunity to increase business performance
among the key issues in IT Governance and gained through the implementation of the IS/IT initiative.
Management/CIO Forum discussions in the last decade. Thus, identifying IS/IT business values becomes the basic
Luftman, based on his research published in MIS Quaterly necessity to increase the success rate of IS/IT
Executive 2006 (Luftman 2006), found that “Measuring the implementation.
Value of IT Investments” and “True Return on IT
Investments” were in the Top 10 Management Concerns in 2. RESEARCH FOCUS AND SCOPE
2005. The IT Governance Framework produced by MIT
Sloan School of Management’s Center for Information The focus of the research is in identifying IS/IT business
Systems Research (CISR) put “IT Investment and values resulting from the implementation of various IS/IT
Prioritization” as one of the 5 domains or pillars of IT projects in various organizations in Indonesia with
Governance (Weill 2002). Peterson also put “IT hermeneutics as the method to interpret the meaning of the
Propositions and IT Investments” as one of the key data sources in the form of text/document. In the
dimensions in his IT Governance Model (Peterson 2004). identification process, IS/IT is seen from the tool and
ensemble views, i.e., how people develop and use IS/IT as a
According to survey done by IDC, the worldwide IS/IT tool to generate value to increase organizational
spending covering hardware, software, and services, reached performance.
nearly USD 1 trillion in 2004 and is on the way to reach
USD 1.2 trillion by 2008. It is no surprise that an The research was conducted using data sources (in the form
investment of that magnitude will attract the attention of top of research reports using Information Economics method to
executives everywhere. Without analyzing the IS/IT measure IS/IT project) from 60 cases of various IS/IT
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2. project implementations in various organizations in 2. Increasing Productivity caused by (restructuring job
Indonesia with the following spread of data: function, accelerating mastering product knowledge,
ease of analysis, increasing employee satisfaction).
1. The projects or cases vary including Management 3. Accelerating Process of (production process, stock
Information Systems (20 cases), Enterprise Resource procurement process, report making process, data
Planning (10), Banking System (7), Customer preparation process, order checking process, debt
Relationship Management (5), Data Warehouse (3), payment process, transaction process, decision making
Electronic Procurement (3), Intranet (3), Electronic process).
Learning (3), Billing System (2), Executive Information 4. Reducing Risk of (price miscalculation, unrecoverable
Systems (2), and Human Resources Management claim, inventory lost, rejected goods, data lost, incorrect
System (2). data, penalty, losing potential employee, forgery,
2. The organizations vary representing Services (12 administration fraud, incorrect payment, asset
institutions), Banking (7), Manufacturers (7), mismanagement).
Government (7), Telecommunications (6), Insurance 5. Increasing Revenue caused by (increasing business
(5), Distributors (3), Oil and Gas (3), Contractors (2), capacity, increasing report quality, increasing customer
Universities (2), and Airlines (2). Each company can be trust, widening market segment, increasing other
counted more than one as long as the projects are incomes).
distinct. 6. Increasing Accuracy of (billing, analysis, data,
planning, decision).
The choice of the variety of IS/IT projects as well as 7. Accelerating Cash-in caused by (accelerating billing
organizations where the projects were implemented is by dispatching).
purpose (purposive sampling). Purposefully picking a wide 8. Increasing External Services of (reducing order
range of variation on dimensions of interest or maximum cancellation, knowing customer’s problems, adding
variation sample to identify important common patterns that point of services, personalized services, customer
cut across variations was used by the research. The research satisfaction).
follows the understanding that the implementation of IS/IT 9. Increasing Image caused by (increasing service
brings in values or benefits to any type of organization. The quality, offering substantial discounts, complying with
premise is that any organization or firm has the same regulations, using branded systems).
opportunity to use IS/IT optimally in order to get the most 10. Increasing Quality of (better supplier/vendor
values out of it. It is strengthened by the findings of (Shang management, work result, services, products).
2002) that include there are no apparent differences in types 11. Increasing Internal Services of (shared services,
of benefits across industries and benefits gained by large matching employee’s right and responsibility, employee
and small organizations seemed to be similar. services, proper schedule and training material).
12. Increasing Competitive Advantage caused by
3. THE GENERIC IS/IT BUSINESS VALUE (forming business alliances, accelerating the execution
CATEGORY of new business opportunities, increasing switching
cost).
Based on the findings, as a tool (tool view), in general IS/IT 13. Avoiding Cost (ACO) of (reserved fund, maintenance
provides 3 functions to generate values, i.e., online or cost, lost and delay cost).
remote connection, process automation, and process and
data integration. These functions help people (ensemble The above sub-categories are then compared against 190
view) generate IS/IT business values that can increase sub-categories from the 4 previous studies (Parker 1988,
organizational performance. The research result called the Remenyi 1995, Tallon 2000, Shang 2002) built based on the
Generic IS/IT Business Value Category consists of 13 developed countries cases. Based on the comparison, there
categories (and 74 sub-categories) is as follows: are 4 IS/IT business values unique to the Indonesian case,
i.e., “reducing application development cost”, “reducing
1. Reducing Cost of (travelling cost, subscription cost”, “increasing image caused by complying
staff/operator/employee cost, meeting cost, service with regulations”, and “increasing image caused by using
failure cost, application development cost, delivery branded systems”.
cost, training cost per employee, returning cost for
incorrect delivery, cost of money, office supplies and 4. THE INDONESIAN CASE
printing cost, subscription cost of certain reading
materials or subscription cost per employee, space 4.1. Reducing Application Development Cost
rental cost, device rental cost, inventory cost, research
failure cost). The implementation of medium to large scale or enterprise
wide systems such as Core Banking, Customer Relationship
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3. Management, Supply Chain Management, and in particular 4.3. Increasing Image caused by Complying with
Enterprise Resource Planning (ERP), has 2 approaches, i.e., Regulations
a “big bang” or all modules and a phased module by module.
Common ERP modules mimic major functional areas of an A Core Banking System for example is a system equipped
organization including production planning, parts and with facilities to support policies regulated by the Central
material purchasing, inventory control, finance, cost Bank including the application of accrual basis, “know your
accounting, marketing, sales and distribution, and human customer” system, and money laundering protection. By
resources. In general, the reasons for choosing a phased supporting these Central Bank’s regulations, the system can
approached are cost, risk, and in particular company’s increase the company’s compliance level so reducing
unwillingness to adopt the whole best practice business unnecessary penalties. Increasing company’s compliance
processes built in the package mostly based on the level will eventually increase company image. In general, at
American and Western European cases. The latter reason least there are 4 achievement criteria to measure company’s
can be said as unique to Indonesia. It is because most of the performance, i.e., financial, operational, good corporate
organizations/employees here are reluctant to change their governance (GCG), and corporate social responsibility
“working philosophy and procedures” which has gone on (CSR). In this research IS/IT is seen from the angle to
for years. support GCG.
It is predicted that only around 40-60% of the best practice IS/IT is part of the initiatives used to enforce company to
business processes will be adopted, the remaining will be comply with certain regulations issued by the regulatory
customized to follow the old (existing) business processes of agency. In our case example, the Core Banking System is
the company. Customization will take longer time, so it is such an enforcement tool that increases company’s
unlikely that a company will implement all ERP using a big compliance level. Increasing compliance level will increase
bang approach. Knowing this client’s behavior and to lock GCG and definitely increase company image. This sub-
in the client, ERP vendors keep selling all ERP modules; category is not the concern of the previous studies probably
modules which will not be customized and implemented in because it is only relevant for the developing countries like
the first phase will be put as ready-to-use modules. These Indonesia where compliance publicity is still one of the
ready-to-use modules are normally inactive or active but most effective marketing weapons. In Indonesia, the success
with single license only. Whenever needed, these modules of an organization to get certified by the International
can be activated, customized, and implemented as usual so Standards Organization (ISO) is widely publicized for
reducing application development cost. increasing image in particular. The certification ceremony is
valid and probably a common practice everywhere including
4.2. Reducing Subscription Cost in the developed countries. However, whether or not the
international compliance standards are implemented by the
The availability of online newspaper and business and organization properly is another side of the coin as long as
technical journals might reduce the paper-based reading the certification has already increased the organization
material subscription cost. By using electronic means the image in the first place.
reading materials can also be accessed by more people so
reducing the subscription cost per employee. This sub- It is believed that in the developed countries like the USA
category is not the concern of the previous studies probably compliance is already built in both people and
because the subscription cost is affordable by organizations organization’s way of life. It is mandatory and
in the developed countries. In Indonesia, because the disobediences will be punished severely. A well-known
majority of business and technical journals, reports, example is the Enron case in 2001 affecting the dismissal of
magazines, etc., still come from abroad, the cost becomes one of the big international consulting firms. Quickly in
substantial especially because of the currency exchange. response to the need for stronger compliance regulations for
publicly listed companies, the Sarbanse-Oxley Act was
For example, IDC charges USD 1,500 (~ Rp. 14,000,000) issued in 2002 which shows how importance this way of life
for a 38-page report on ASEAN Online Gaming 2006-2010 for the USA.
Forecast and Analysis and charges USD 3,500 (~ Rp.
32,000,000) “just” for a 2-page report on Asia/Pacific 4.4. Increasing Image caused by Using Branded
Enterprise Mobility Technology Spending 2006-2010 Systems
(http://www.idc.com/). With that scale amount of money, it
is believed that only upper middle and large companies The brand value of already proven system and used by well-
especially multinational companies in Indonesia which can known corporations can be used to increase company image
afford to pay for it. and it is a common practice everywhere and this is a case
especially happened in immature and inefficient market like
Indonesia where unbranded systems are available in the
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4. market and a brand is still a strong marketing hype. Branded [5].Parker, M.M., Benson, R.J., and Trainor, H.E.
system might increase company image although it might not Information Economics - Linking Business Performance
be the correct solution. The latter case is common in to Information Technology Prentice-Hall, 1988.
Indonesia. [6].Remenyi, D. The Effective Measurement and
Management of IT Costs and Benefits Butterworth-
It is possible that the costs of failures due to incorrect Heinemann, 1995.
solution is offset by the benefits or values gained due to [7].Tallon, P.P., Kraemer, K.L., and Gurbaxani, V.
increased image. So leveraging the brand value of the "Executive's Perceptions of the Business Value of
system, regardless of whether the system gives correct Information Technology: A Process-Oriented
solutions or not, is a strategic step to increase company Approach," Journal of Management Information Systems
image which in return might increase revenue. This sub- (16:4) 2000, pp 145-173.
category probably is not relevant for mature markets found
in the developed countries. ABOUT THE AUTHOR
5. CLOSING REMARKS Benny holds Bachelor Degree in Electrical Engineering
from the University of Indonesia and Master of Science
The construction of the Generic IS/IT Business Value Degree in Computer Science from Michigan State
Category has shown the role of IS/IT as a tool whose University, USA. He is a doctoral candidate of Faculty of
intended purpose is to generate values especially for the Computer Science, University of Indonesia, with research
customers, employees, and organization including area in IT investment valuation, especially in identifying IT
stakeholders. All the identified IS/IT business values from business values resulting from various IT implementations
as simple as reducing meeting cost and increasing in various institutions in Indonesia.
productivity, to more complex ones such as increasing
image and increasing quality of products, have contributed Benny is Vice Chairman of Permanent Committee of IT –
to the increasing level of organizational performance. the Indonesian Chamber of Commerce and Industry
(KADIN) Indonesia, Director/Founder of PT. Inforindo
The presence of IS/IT is not meant to substitute the people’s Intersolusi – IS/IT Consulting Firm, President
role in managing and running the organization. In reality, Director/Founder of PT. Ayola Cybernet – Online Game
the fundamental management functions such as planning, Center, and Lecturer/Thesis Advisor at the Graduate
organizing, executing, and controlling, are still under the Program in IT, University of Indonesia.
people’s command. The role of IS/IT is to help people do
their functions more efficiently and effectively.
The Generic IS/IT Business Value Category has enriched
the classification/categorization of IS/IT business values of
well-known IS/IT valuation methods including Information
Economics, Economic Value Added, and Real Options,
which might be very helpful in the process of measuring
IS/IT business values especially for the Indonesian cases.
6. REFERENCES
[1].Luftman, J., Kempaiah, R., and Nash, E. "Key Issues for
IT Executives 2005," MIS Quarterly Executive (5:2),
June 2006, pp 27-46.
[2].Weill, P., and Woodham, R. "Don't Just Lead, Govern:
Implementing Effective IT Governance," in: Center for
Information Systems Reseach Working Paper No. 326,
MIT Sloan School of Management, 2002.
[3].Peterson, R. "Crafting Information Technology
Governance," Information Systems Management (21:4)
2004, pp 7-22.
[4].Shang, S., and Seddon, P.B. "Assessing and Managing
the Benefits of Enterprise Systems: the Business
Manager's Perspective," Information Systems Journal
(12:4), November 2002, pp 271-299.
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5. e-Indonesia Initiative 2008 (eII2008) 5
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