The Influence of IT Investment on Business Performance: A Comparative Study of Regression Analysis and Artificial Neural Networks

Shin-Yuan Hung, Ya-Han Hu, Chin-S Ou, Kuanchin Chen, Chun-Chuan Lu

Abstract


Due to the considerable advances and tangible benefits of information technology (IT), almost alltop-tier firms invest heavily in IT applications. However, the phenomenon of the “IT productivityparadox” prevents firms from investing in IT freely. Despite the number of studies exploring therelationship between IT investment and business performance, the value of IT investmentremains difficult to justify. Specifically, evidence of a payoff from massive IT investments is stillvery limited. Added to the complexity is a wide range of key performance indicators that targetdifferent aspects of business performance. According to previous studies, the reasons behindthe IT productivity paradox may be a shortage of accurate and timely data, a failure ofconsidering the time-lag effect, and the application of inappropriate data analysis techniques. Toaddress the aforementioned symptoms, this study developed a system to examine the influenceof IT investment on two categories of performance indicators, namely cost efficiency and profiteffectiveness. Specifically, we collected actual enterprise operating data, applied two differentdata analysis techniques (i.e., regression analysis and artificial neural networks), and conductedanalysis using data collected over a period of four years. The results indicate that: (1) the higherthe ratio of maintenance costs, the poorer business performance will be; (2) the higher the ratioof IT investment, the better the business performance and the lower the operating cost will be; (3)we also found that the time lag effects of IT investment on business performance for a period oftwo to three years; (4) regarding the estimation of the influence of IT investment on businessperformance, artificial neural networks are superior to regression analysis for their explanatorypower.

Keywords


IT Investment; Business Performance; Artificial Neural Networks; Regression Analysis

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Hung, S. Y., Hu, Y. H., Ou, C. S., Chen, K., Lu, C. C. (2013). " The Influence of IT Investment on Business Performance: A Comparative Study of Regression Analysis and Artificial Neural Networks "Pacific Asia Journal of the Association for Information Systems, 5(4), pp.27-59.