Seabelo Mathswenyego, Rembrandt Klopper and Sam Lubbe
positively correlated with operating income, with a correlation coefficient of + 0.88. Kwong and Mohammed( 1985) observe that the organisation’ s performance showed an improvement here, with an increase in the level of computerisation.
Table 2: Correlation analysis among profitability indicators
CI 1 Return on IT assets ‐0.31 1
CI Return on IT assets Operating leverage
Operating leverage ‐0.13 0.30 1
Operating expense ratio
Operating expense ratio 0.81 ‐0.41 ‐0.35 1
% Turnover growth
% Turnover growth ‐0.70 0.66 0.36 ‐0.68 1 Operating leverage ‐0.13 0.30 1 ‐0.35 0.36
Operating expenses showed a similar increase during the 5 year period under review. Consequently, the computerisation index was also positively correlated with operating expenses, with a correlation coefficient of + 0.93, and costs also increased in tandem. On the contrary, the SAPO’ s net profit decreased significantly during the 5 year review period, and was negatively correlated with the computerisation index, with a correlation coefficient of minus 0.67.
Figure 3: Relationship between CI and profitability performance indicators
The results obtained in this study also contradict Hu and Quan’ s( 2005) theory, which states that ICT provides competitive advantages to firms by adding value across all aspects of the value chain, including improving operational performance, reducing costs and improving returns. As expected, the computerisation index was negatively correlated with organisational risk, with a correlation of minus 0.94.
Despite all the profitability negatives observed above, the profitability index, calculated as the sum of the present value of cash flow after tax divided by the initial investment, was + 4.2. This indicates that SAPO’ s investment in ICT assets over the 5 year period has been a worthwhile venture( Hu and Quan, 2005).
5.1 Relationship between ICT investment and IT‐related ratios
Figure 4 below illustrates the performance of IT‐related ratios over the 5 year period under review. The operating expense ratio showed an increase, together with the CI, but decreased slightly in the final year. As a result, the CI correlated positively with the operating expense ratio, with a correlation coefficient of + 0.81. This means that by increasing ICT investment assets between 2005 and 2010, the SAPO did not produce the desired positive result of reducing its total operational costs. Harris and Katz( 1991) report that the most profitable organisations or top performers are more likely to spend a significantly higher proportion of their operating expense on IT.
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