Beyond the Business Case:
New Approaches to IT Investment
As IT becomes more closely tied to business objectives, successful investment must consider two dimensions: technology scope and strategic objectives.
Jeanne W. Ross and Cynthia M. Beath
When senior managers at United Parcel Service (UPS) first decided more
than 15 years ago that package tracking had become a competitive necessity in the package-delivery industry, they discovered that developing the capability was not as simple as writing or buying a package-tracking application. The company needed to develop networks, databases and processing capacity before it could even begin to offer tracking services.1 At about the ...view middle of the document...
3 But although the opportunities seem limitless, the resources required (capital, IT expertise, management focus and capacity for change) are not. Traditional approaches to IT investment attempt to identify projects with the best profit potential. Proponents of the invest-
ment must “make the business case” to senior management. The heightened strategic importance of IT, however, has forced companies to think differently. They now must weigh the returns on individual investments against demands for organizationwide capabilities. They also must assess opportunities to leverage and improve existing systems and infrastructures in light of opportunities to create new capabilities and test new business models. The complex trade-offs are leading to new IT-investment patterns.
IT Funding Practices at 30 Companies
The objective of our study was to describe the processes by which companies were incorporating e-business into their business models. We collected data between October 1999 and March 2000 in hourlong telephone interviews. At 18 companies, we interviewed both a business executive and an IT executive who had responsibility for e-business. At 12 companies, we talked with either the head of e-commerce or the IT executive responsible for e-commerce. In total we conducted 48 interviews. A major question was how companies justified investments in their e-business systems and infrastructures. Of 30 companies, 25 said they traditionally relied on making a business case to justify IT-investment funding. All but three, however, funded at least one e-business initiative without a business case. Senior managers simply allocated funding for initiatives perceived as strategic. At 16 companies, executives made a lump-sum allocation for companywide infrastructure. Typically, they were responding to the perception that the company could not meet changing customer demands or pursue new business opportunities with the existing infrastructure. One bank, for example, invested heavily in networking capabilities in anticipation of rapid growth in electronic banking services. At 12 companies, senior managers created a separate budget for e-business experiments. As an example, Manheim Auctions, which sells to used-car dealers, established a separate unit to develop the capability to sell cars and related services online.* Doing so allowed faster, more focused development of new business models. The limitations of using business cases for e-business initiatives were highlighted by one enterprise’s initial foray into e-business. A marketing project was justified on the basis of the return on investment expected from the $1 million it required. But successful implementation depended upon an additional investment of $5 million for networking and Web-services technologies, as the IT unit was quick to point out. The business had no mechanism for justifying companywide infrastructure investments, so the project sponsor agreed to absorb the extra cost, arguing that...