Over budgeting for IT was prevalent in many Nigerian banks over a period of four years between 2005 and 2009, suggesting management eagerness to approve IT budgets irrespective of their merits. Bank management and IT practitioners engaged in power budgeting that relies on the influence of powerful executives and IT managers to approve IT budgets rather than on higher IT resource utilization and efficiency, which base IT budget approval on data generated. This is the thrust of the findings of a research by Dr. Godfrey Ekata, a United States-based adjunct professor of information technology, who investigated IT Productivity Paradox: Evidence from the Nigerian Banking Industry. The study published recently in the Electronics Journal on Information Systems for Developing Countries (EJISDC), sought to determine whether or not a relationship exists between IT expenditure and the financial performance of the Nigerian banks during the period. Ekata said that deploying ICT infrastructure in Nigeria is capital-intensive such that the banks’ annual IT spending was increasing dramatically, supposedly to enable them stay competitive and profitable in a modern economy. However, the study revealed that there is little or no evidence that increased IT investment or spending results in increased financial performance or productivity gain. According to Dr. Ekata, “analysis of IT expenditure and financial performance data of the banks showed no relationship between IT investment spending and net profit, suggesting the existence of IT productivity paradox in the Nigerian banking industry.” As he put it, the annual IT spending in Nigerian banks which stood at $150,000 in 2003 rose to approximately $117million in 2009. Ekata said that the interest in knowing what relationship exists between increased IT investment and financial performance of the Nigerian banking industry was motivated by continued increase in IT spending by Nigerian banks over the period and by a dearth of research on the subject in sub-Sahara Africa. He explained that IT budgeting should be a means of planning, monitoring, and control of future operations and results with due regard to the preceding fiscal year; stressing that the degree of success of IT depends on contextual factors that include IT strategies, management, and capability. Research findings he stated have shown that IT, on average, has a less than significant impact on organizations’ performance. Dr. Ekata observed that IT executives in the Nigerian banking industry need to adopt IT strategies that emphasize efficient IT management and utilization, warning that until Nigerian banks optimize the capacity of their IT investments the full benefits of the technology may continue to elude them, and further ICT deployment will not matter. The research finding showed that besides low utilization, failure of banks to translate increased IT spending into corresponding profits could also be the result of other factors such as negative network effects, misalignment between business objectives and IT strategies, and technical inefficiency. He advised Bank leadership in Nigeria to promote full utilization of IT by staff and customers to avoid negative network effects because ICT infrastructure can exhibit decreased value from low utilization. To ensure full realization of the benefits of IT investments, the study called on Nigeria bank executives and practitioners to tailor their IT investment strategies to align with their business objectives. The strategies could include IT cost reduction plans that challenge IT managers to: (a) commit to delivering measurable value for IT projects before granting budget approval; (b) offset the added cost of new IT project investments with reasonable reductions in maintenance cost; (c) examine the costs and benefits of new projects, delaying upgrades, and discontinuing maintenance agreements; and (d) implement only the essential features of IT solution. The results from Dr. Ekata’s study should help Nigerian bank executives in evaluating their IT investment policies, rationalizing IT spending, and allocating technology resources to achieve optimum results. He noted that IT adoption involves leadership challenges at various levels including information systems management, budgeting, outsourcing, offshoring, partnerships, and competitiveness. The challenges require leadership decisions that are consistent with efficient management and high IT utilization. It concluded that where organizational leadership fails to align IT strategy with organisation’s objectives and guide against IT project failures, ICT will truly not matter.
Study Shows How Banks Engage in Arbitrary IT Budgeting
