Seabelo Mathswenyego, Rembrandt Klopper and Sam Lubbe The expected return on assets model that was selected to measure investment was the following: r A = Expected operating income + the market value of all securities.
Harris and Katz( 1991) note that technology is altering the way in which companies compete. Therefore, there is, they maintain, increased incentive to closely examine the link between the business and IT strategies of the organisation. Systems technology sophistication is assessed using a table of the type of data processing installations. These complications, used by Harris and Katz( 1991), were formulated by an industry panel of senior information system executives.
Table 1: Levels of systems technology sophistications( Harris and Katz, 1991)
Hardware |
Multiple processors / |
Multiple locations directly connected or via switched networks |
Operational |
Database management system, TSO, CICS, remote and local batch |
Systems Software |
Multiple CPU’ s / multiple program execution, multiple operational environments |
Application Software |
Modular programs / structured techniques, high‐level language |
Management |
Multiple locations / dissimilar operations, remote control |
The organisation with the largest CI was assumed to be the most computerised. According to Harris and Katz( 1991), this enables the comparison of a business with similar lines of business. The conclusion they drew is that any organisation with expenses per monetary income that are higher than the competition is at a competitive disadvantage. Another ratio, known as the IT expense ratio( ITEX), is the ratio of IT expenses to non‐interest operating expenses. The last ratio is the IT cost efficiency ratio( ITCE), which is the ratio of the cost of information processing to sales revenue. They note that every situation should be evaluated on its own merits.
2.7 IT Efficiency ratio( ITEX)
This is the ratio of IT expense to total operating expense as one measure of the degree of operational dependence on information technology
( Harris and Katz, 1991). It can be expressed as follows:
IT Efficiency Ratio = Information Technology Expenses Total Operating Expenses
2.8 IT Cost efficiency ratio( ITCE)
The IT cost efficiency ratio is a single‐factor expense measure of the cost of IT. In this study, three sources of information technology‐based cost economies are relevant. These are scale economies, scope economies and economies due to learning effects( Harris and Katz, 1991). This can be expressed as follows:
IT Cost Efficiency Ratio = Information Technology Expense Total Turnover
2.9 Operating cost efficiency ratio( OPEX)
This is the ratio of non‐interest operating expense to income( Harris and Katz, 1991). It can be expressed as follows:
2.10 Research questions
Operating Cost Expense Ratio = Non‐interest Operating Expenses Income
The following research questions were explored in this study:
• What is the impact of ICT investment on IT cost‐efficiency and IT efficiency ratios?
• Will the initial ICT investment target be changed if managers can identify changes in the organisational risk?
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