Original Research

The profit impact of IT investment

Sam Lubbe, Gary Parker, Andrew Hoard
South African Journal of Business Management | Vol 25, No 2 | a845 | DOI: https://doi.org/10.4102/sajbm.v25i2.845 | © 2018 Sam Lubbe, Gary Parker, Andrew Hoard | This work is licensed under CC Attribution 4.0
Submitted: 16 October 2018 | Published: 30 June 1994

About the author(s)

Sam Lubbe, Department of Information Systems, Rhodes University, South Africa
Gary Parker, Department of Information Systems, Rhodes University, South Africa
Andrew Hoard, Department of Information Systems, Rhodes University, South Africa

Full Text:

PDF (500KB)

Share this article

Bookmark and Share

Abstract

Two models were used to study the relationships between profitability and the level of information technology (IT) sophistication among long-term life insurance companies in South Africa. The first model was submitted by Kwong et al. in a study of six petroleum producing companies in Malaysia. They proposed a computerization index (CI) which incorporated factors that affect the level of computerization in a company and compared the CI with profitability ratios such as profit/total assets, profit/turnover, turnover/total assets, gross margin/turnover, profit growth rate and sales growth rate. The second model was proposed by Harris et al. in a study among forty long-term life insurance companies in America. They used the ratio of non-interest operating expense to premium income (operating expense ratio) to measure profitability, and the ratio of IT expense to non-interest operating expense (IT expense ratio) to measure the level of IT capital intensity. The results of the study showed a positive correlation between the Cl and the financial ratios, indicating that as the level of computerization increases, profitability also increases. The results also showed that the most profitable firms are more likely to spend a significantly higher proportion of their non-interest operating expenses on IT, and that the least profitable firms are likely to spend a significantly lower proportion of their non-interest operating expenses on IT. The study concludes by accepting the two studies as valid among the long-term life insurance industry in South Africa.

Keywords

No related keywords in the metadata.

Metrics

Total abstract views: 1010
Total article views: 450


Crossref Citations

No related citations found.