ICT Investment Effectiveness in the South African Post Office
Seabelo Mathswenyego 1, Rembrandt Klopper 2 and Sam Lubbe 3 1 Jhb Metropole, South Africa
2 UKZN, South Africa 3 NWU, South Africa
rklopper @ gmail. com sam. lubbe @ nwu. ac. za
Abstract: Considerable resources have been, and continue to be invested in Information and Communication Technology( ICT) in South Africa, as well as globally. Much of this investment is made on the basis of guarantee that an expected return will occur. This paper presents the results of an empirical study of the impact of ICT investment on IT efficiency at the South African Post office( the SAPO). Six years of historic data for the period 2005 to 2010, including appropriate IT data and financial data from the organisation’ s financial statements and balance sheets, were collected from the Chief Information Officer( CIO). ICT investments were tested against financial performance indicators such as return on ICT investment, operating leverage, turnover growth, net profit, organisational risk, IT cost efficiency ratio and IT efficiency ratio. Within the study period, it was observed that ICT investments at the SAPO were negatively correlated with most of the financial indicators such as return on ICT investment, operating leverage, turnover growth, net profit, organisational risk and IT efficiency ratio. ICT investment correlated positively with IT cost efficiency ratio and operating expense ratio. This study therefore suggests that ICT investment at the SAPO for the mentioned period did not have the desirable impact on financial performance of the organisation. In order to realise tangible financial benefits of the ICT investments at the SAPO, the authors suggest that a longer period needs to be considered. Non‐technological determinants such as competence and experience levels of IT personnel, alignment of IT strategy with the business strategy and business process re‐engineering to suit new systems needs to be considered too prior to making any investments in ICT.
Keywords: e‐government, ICT, ICT investment, ROI, CIO
1. Orientation
For most organisations, ICT expenditure continues to be a major, if not the single largest, component of capital investment. Tangible benefits have, however, remained elusive for many organisations. A number of pertinent issues and questions have been raised as to why organisations have failed to reap the benefits of huge ICT investments( Hamidi et al., 2011). This study conducted an empirical investigation into ICT investment effectiveness in the South African Post Office( SAPO). Business leaders and ICT practitioners may also benefit from this study.
1.1 Problem statement
SAPO has invested financial resources in ICT technologies. However, no tangible returns had been realised yet from these investments during the period from 2005 to 2010. According to Shu and Strassmann( 2006), there is no evidence of a relationship between ICT expenditure and the financial performance of an organisation. Kim and Lim( 2011) indicated that a lagged effect exists between ICT investment and the financial performance of an organisation. The reasons for the mixed results were contributed to data reliability, methods of analysis and the lack of appropriate ways to measure the effects of ICT investment.
The SAPO, as with other organisations, also considers the return on its investments. With its 2010 mission( SAPO, 2010), which seeks to enable the nation to connect effectively with the world by distributing information, goods, financial and government services, leveraging its broad reach and embracing change, technology and innovation, SAPO is faced with the need to measure the value of its ICT expenditure.
1.2 Brief history of the organisation
The Postal Services Act( Act 124 of 1998) designates the SAPO as the universal postal services operator in the Republic of South Africa. The Act obliges SAPO to provide a defined range of postal services, namely delivering a basic letter of less than 1kg throughout the country and providing addresses to all citizens at an affordable price( SAPO, 2010). A license agreement governs the performance required from SAPO in discharging its universal services obligations. The license agreement sets rules for a user‐orientated, high‐quality, country‐
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