As companies seek to improve productivity, serve their customers better, and increase market share, they often turn to technology. But technology investments are costly. According to research by Lewis F. Davidson, professor of accounting in the College of Business Administration at Florida International University, taking a “balanced scorecard” (BSC) approach can help ensure that IT expenditures pay off.
“Businesses need to look at IT as an integral part of every aspect of their operations,” Davidson said. “They can’t just buy equipment or enhance their technology environment and assume these improvements will result in greater profitability. The BSC approach gives decision makers a roadmap by which they can integrate an IT strategy throughout their organizations.”
Though the approach enables people to look at broad strategic objectives, its application doesn’t stop there.
“BSC looks at specific performance measurements across multiple areas,” Davidson said. “A company can measure any variable—such as number of calls a salesperson makes or average size of order by customer, for example—to help establish the kinds of actions needed to further their objectives. This makes BSC valuable in laying out both the strategy and concrete steps for achieving it.”
In an article titled “The Effects of IT Expenditures on Banks’ Business Performance: Using a Balanced Scorecard Approach,” Davidson and Chang-Soo Kim (MACC ’88; Ph.D ’93), an FIU research fellow at the time of the study, analyzed data from all the commercial banks in Korea during the period 1990-1998. They found that the relationship between money spent on IT and business performance differed significantly depending upon the IT level of the bank.
“We discovered that in banks that maintained a high IT level, the IT expenditures appeared to have increased labor productivity, decreased payroll expenses, increased operating and total administrative expenses, increased market share, and increased revenue and profit,” Davidson said.
According to him, the evidence from the research has two important practical implications.
“First, if banks use their IT strategy effectively to improve their competitive advantage, they are likely to reduce payroll expenses and increase both market share and profitability,” he said. “Second, it’s possible for bank managers to use a BSC approach to measure the business performance of both IT and management strategies.”
Davidson and Kim published their findings in the prestigious journal Managerial Finance.
