Operationalizing Economic Theory for Use in IT Evaluation: A Principal-Agent Based Framework for Assessing Collective IT Investments

Frameworks for IT evaluation have been extensively discussed in the past. Until recently, research had concentrated on advancing classic approaches such as monetary cost/benefit considerations or strategic management matrices, but that constriction to known methods has considerably softened. More researchers now use economic models in IT evaluation. Their contributions open exciting new perspectives but unfortunately the models put forward cannot reach wide in practice as they are highly formalized. Addressing the use of economic theory in IS research, this paper attempts to fully operationalize an economic theory into a framework apt for management. Exemplarily, in a “research method case study”, we operationalize Principal-Agent theory for a specific organizational setting. The particular situation we develop the framework for is collective investment into Information Technology (such as collaborative Supply Chain Management systems or collective reservation systems for airline networks). The four steps we conduct in our operationalization are translation, scenario building, structured qualitative analysis and aggregation. Along with presenting the complete operationalization process, the final framework demonstrates that a complex Principal-Agent problem can be transcribed into an easy to use IS management framework.