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Banking on the Impact of IT

The tools that Zhu has developed to enable businesses to evaluate the effectiveness of their investments in information technology include an add-in for Microsoft Excel based on a methodology called data envelopment analysis. This tool includes a variety of benchmarking functions that help managers evaluate the tradeoffs and relationships among various performance measures. For example, the software can help managers search for IT investment strategies that produce the best tradeoffs between IT budgets and number of staff (S1, S2 and S3 in the graph), and also correct inefficient strategies (S4).

Information technology has been used extensively in nearly every industry to improve performance and productivity. But despite its widespread use, there are still relatively few ways to precisely quantify the benefits of computer technology versus the cost of installing and regularly upgrading it.

Joe Zhu, assistant professor of management, is developing new tools for this important task. Typically, management researchers use benchmarks to measure the impact of technology on performance, but benchmarks are limited since they can characterize just one performance measure--such as profits--at a time. In reality, performance is multifaceted, involving multiple factors that interact in complicated ways, Zhu notes.

To address this need, Zhu is developing a new multidimensional benchmarking methodology that takes a variety of performance measures into consideration.

The methodology can help organizations better understand the real impact of their IT investments. Zhu is using the methodology to help banks determine how their investments in IT affect productivity and profitability. Several years ago, with funding from the Natural Sciences and Engineering Research Council of Canada, he worked with the Canadian Imperial Bank of Commerce to compare the efficiency of branches that had received no technological upgrades with those that were being reengineered with new technologies for automating business transactions and work flow.

Using a set of custom-designed benchmarking tools, he examined the impacts of such innovations as ATMs and Internet and telephone banking services, and evaluated the overall impact of e-business on produc-tivity at the branches. The tools were able to simultaneously consider multiple quantitative measures (including number of tellers and ATM transactions at each branch) and qualitative measures (such as teller productivity) and analyze the tradeoffs of each factor against the others. This benchmarking study gave the bank a more comprehensive, global understanding of the real impact on productivity of e-business technology versus traditional branch services.

With his benchmarking technique, Zhu is studying a number of other areas of technology management, including the performance of supply chains. While supply-chain management has been proven effective in providing prompt and reliable delivery of high-quality products and services at the lowest possible cost, there is currently no sophisticated performance measurement tool that looks at the entire supply chain or "buyer-seller" network.

Zhu, whose book on quantitative models for the evaluation of business operations was recently published by Kluwer Academic Publishers, is developing models that will measure the performance from one end of the supply chain to the other by taking into consideration the collaborations and conflicts that naturally occur as each member of the chain attempts to make the highest profit possible.

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Last modified: Jul 07, 2010, 08:18 EDT
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