Information Technology (IT) expenditure represents a significant level of corporate investment. Despite the growing number of IT investments, there is a lack of attention in the literature on how to govern IT investments effectively. Few prior studies have comprehensively investigated factors affecting the establishment and implementation of effective IT investment governance (ITIG). Prior IT investment studies largely focused on the link between the amounts of money spent on IT and corporate performance, rather than on how IT generates business value for organisations.
Focusing on the concerns relative to IT investment (i.e., how to address potential conflicts of interest, which IT investments should an organisation make, and to which level should organisation invest in IT?) proposed by Weill and Ross (2004), this thesis examines potential factors that may impact the effectiveness of IT investment governance. Those factors are corporate governance, absorptive capacity of IT governance knowledge of top management team members, and IT investment goals. Consistent with the theoretical argument provided, this thesis proposes that three theoretical bases help explain effective IT investment governance. First, the level of overall corporate governance is investigated via agency theory; second, the level of IT corporate governance knowledge of the top management team members is examined using absorptive capacity theory. Third, the firm’s goals relative to IT investments is examined using contingency theory. Prior to the potential factors’ examination, this thesis defines and identifies dimensions of the IT investment governance construct. Thus, the general research question that this thesis seeks to address is: What factors are required to achieve effective IT investment governance?
This thesis used results from an online survey of 231 respondents from senior-level management within Australian organisations to uncover the dimensions of the IT investment governance construct, and to examine hypothesized relationships among the following constructs: corporate governance, absorptive capacity of IT governance knowledge, IT investment goals, IT investment governance, IT business value, and corporate performance. An exploratory factor analysis (EFA) was performed to reveal the dimensions of the IT investment governance construct. Based on the results of the EFA (i.e., the ITIG construct), a structural equation model (SEM) was developed using SmartPLS to assess the relative effects of, and inter-relationships among, these constructs (i.e., corporate governance, absorptive capacity of IT governance knowledge, IT investment goals, IT investment governance, IT business value, and corporate performance). Furthermore, a one-way ANOVA was used to examine the impact of IT investment goals’ focus on the level of IT investment governance.
Based on a domain definition grounded in the literature, this thesis developed a four-factor, 16-item instrument for assessing the ITIG construct. The factors are IT investment value governance, IT investment value monitoring, IT investment appraisals, and IT investment project management. The SEM analysis indicated that corporate governance, absorptive capacity of IT governance knowledge, and IT investment goals positively and significantly influenced the levels of IT investment governance. The results are consistent with the agency theory, absorptive capacity, and contingency theory explanations. Furthermore, consistent with the contingency theory explanation, the results of a one-way ANOVA revealed that organisations with more focused IT goals showed the greatest level of IT investment governance. The analysis also indicated that higher levels of ITIG positively influenced IT business value, and, accordingly, positively influenced higher levels of corporate performance. Implications and contributions of the results are discussed in the thesis.