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Information Technology Value Engineering Model and Cost Efficiency in IT-

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IEEE SYSTEMS JOURNAL
Information Technology Value Engineering Model
and Cost Efficiency in IT-Based Firms
Lukman Abdurrahman, Member, IEEE, Armein Z. R. Langi, Member, IEEE, Suhardi, and Togar M. Simatupang
Abstract—This paper aims to explore the improved business per-
formance established on optimum costs. This structure rests on a
proposed information technology (IT) value engineering model,
which is an engineering process associated with IT inclusion in
a business organization. Therefore, the methodology approach
utilizes systems engineering to develop an engineering scheme
procedure by stating the problem, creating alternate resolutions,
deciding a resolution, specifying the scheme, and confirming the
model. Additionally, this methodology works in cooperation with
the resource-based view (RBV) and the partial adjustment valua-
tion (PAV) theories. The RBV recommends that a firm worthy per-
formance can rely on its own resources, whereas PAV reconstructs
the input–output relationship of the system. The input consists of
K = the regular capital, L = the labor expense, and I = the IT
capital, whereas the output is y as the real output of a production
process unit. Furthermore, three Indonesian Telco’s firms (Telkom,
Indosat, and XL) provided the model with data to experiment it.
Furthermore, the results disclose the IT value engineering model
has worked, and where the model has provided the firms with the
improved performance at lower costs. In other words, this model
has been effective numerically as well as logically.
Index Terms—Business performance, information technology
value engineering (ITVE), model, optimum cost, parallel, serial,
systems engineering.
I. INTRODUCTION
HE information technology (IT) in firms should get man-
T agement improvements, not only as business enablers [11]
but also as business transformers [7] to develop the innovative
and disruptive business. This is significant to control valuable
performance to energize the business with inventive conducts
to renovate the IT productivity paradox [14]. Meanwhile, the
valuable performance causes the sustainability of competitive
advantages that rest on cost efficiency, differentiated services,
focus services, execution manner, knowledge advantages, and
maneuverability advantages. Accordingly, the competitive ad-
vantage can work by relying on one or more of the advantages,
and if it has endured for a long time, it can become sustainable
instead of a temporary competitive advantage [27].
Manuscript received October 26, 2016; revised December 26, 2016; accepted
January 28, 2017.
L. Abdurrahman is with the Department of Electrical Engineering and In-
formatics, Institut Teknologi Bandung, Bandung 40132, Indonesia (e-mail:
abdural09@gmail.com).
A. Z. R. Langi and Suhardi are with the Sekolah Teknik Elektro dan Infor-
matika, Institut Teknologi Bandung, Bandung 40132, Indonesia (e-mail: azr-
langi@gmail.com; mrsuhardi@gmail.com).
T. M. Simatupang is with the School of Business and Management Bandung
Institute of Technology, Bandung, 40132, Indonesia (e-mail: togar@sbm-itb.
ac.id).
Digital Object Identifier 10.1109/JSYST.2017.2663418
1937-9234 © 2017 IEEE. Personal use is permitted, but republication/redistribution requires IEEE permission.
See http://www.ieee.org/publications standards/publications/rights/index.html for more information.
1
This study aims to research the sustainable competitive advan-
tage in terms of IT inclusion through the IT value engineering
model (ITVEM) using the systems engineering approach. On
one hand, the IT value is beneficial in processes since it promotes
effectiveness, efficiency, and innovation in organizational oper-
ations. On the other hand, engineering is the inventive develop-
ment of power, resources, and data in systematized organizations
of humankind, instrument, and ecosystems, which are beneficial
concerning the up-to-date human being principles [10].
In essence, this study relates to the results of previous stud-
ies on the correlation between ITRs and firm performance (FP)
using resource-based view (RBV) theory as completed by [11],
[16], [19], and [30], etc. However, this study did not explore
the relationship from the resource to the performance, but on
the contrary, i.e., from the performance to the resource [1], [2],
[3]. Thus, there will be a process of systems decomposition
and composition based on the RBV perspective, also stimulated
by systems engineering (SE). Furthermore, to build a correla-
tion of systems or subsystems input and output, the study also
utilizes the partial adjustment valuation (PAV) theory that sev-
eral its studies have been found in [14], [23], [24], [25], and
[26] for the country level, hence, there are also different from
[14] and [23] because this study exploits the PAV for the firm
level.
Therefore, the ITVE is an organized learning of IT meanings
to deliver an excellent organization performance by stating the
problem, creating alternative solutions, assessing to decide on
a solution, itemizing the scheme as a model, guarding it, and
validating it [10]. Furthermore, the study results disclose that
the SE method authorizes the ITVEM works.
Furthermore, the principal contributions of this study are sub-
sequent.
1) This study resulted in the ITVEM, which is not only to
remodel the patterns of relationships between the ITR and
the FP in a different way but also to result in the concrete
computation of the IT spending and the FP in units of
currency. This is in contrast to the study in [16], which
outlined how the testing ITRs and capabilities affect FP.
Similarly, in a study of [11], which put more emphasis
on testing whether IT and organizational resources have a
significant effect on FP.
2) This study proposes a reverse engineering process in the
value of IT research, which originated from requesting
measures of FP, then ended in ITR determination, in
contrast with the previous IT value studies that performed
a forward engineering [11], [14], [16].
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2 IEEE SYSTEMS JOURNAL
3) This research observes the relationship between ITRs to
FP using three approaches at once, namely RBV, PAV,
and SE. Previously, the studies have simply applied RBV
and the structural equation modeling pertaining to the
IT and business performance, such as [11], [16], [19],
[43], and [45]. Likewise, the studies of IT spending and
FP using PAV have been on [14], [23], and [24].
4) In the previous studies, the relationship among subsystems
is in a serial relation such as [16] that connotes multiplying
the quantity of each of these subsystems. In this case, the
subsystems consist of the FP, the firm competence, the
FC, and the ITR as analysis results of RBV. However, this
study offers a parallel relationship, which is based on the
idea that the firm total investment should be allocated in
accordance with centers of responsibility to increase the
FP. If this relationship is illustrated in a diagram, it appears
in a parallel configuration, which is also in the form of
additional operations in mathematics, besides adopting
the advantages of parallel computing.
5) The term of the ITVE in this study is a new term in the
engineering subjects, thus far, the term that has been gen-
erally recognized is value engineering [38] without IT
designation. Hence, the ITVE study hopes to motivate
researchers to establish the IT existence to contribute sig-
nificantly to the business performance from the standpoint
of science, apart from an empirical standpoint.
Therefore, the rest of the paper presents the topics as fol-
lows. Section II addresses problem statement, then Section III
discusses the literature reviews describing RBV, SE, and PAV.
Section IV explains a research methodology, while Section V
is the model and the outcome validation of the SE model re-
sulted from the selected methodology. Furthermore, Section VI
contains conversations on the model from the various points of
views. The last is Section VII, which concludes all.
II. PROBLEM STATEMENT
A. Problem Formulation
The problem formulation of this study is in doing a business,
several firms start from preparing resources, including ITRs,
afterward, they organize those resources to achieve a superior
performance. Nevertheless, to do the business, a firm can also
begin from determining required performance in terms of plan-
ning the resources with the intention of accomplishing a cost
advantage, which is one of the categories of competitive advan-
tages [27].
However, the firms occasionally have not paid attention to
the cost efficiency resulting in a waste of resources. In other
words, the value engineering process, namely the acquisition of
a qualified value with cost reduction [32], does not occur. By
wasting resources, in turn, the organization’s operations gener-
ate a lack of competition, and by contributing to a wastefulness,
the organization is creating an unfavorable brand image. Thus
far, available methodologies have not considered a causal rela-
tionship between the two sides, that is the excellent performance
and lower cost, even still hard on the matter of whether there is
a relationship between IT spending and FP [28], although there
were also studies which concluded that the relationship is posi-
tive, but not to emphasize on achieving superior performance in
the ITR in an optimal position [11], [16], [19], [30].
For that reason, the above conditions need for a settlement by
the ITVE concept to deliver worthy organization performance
at the optimum costs through engineering IT and business pa-
rameters. Also, this concept stands to benefit substantially in
cost reduction from the capital allocation, especially the IT cap-
ital inclusion. Furthermore, the optimization of cost efficiencies
with superior performance is crucial for the continued compet-
itiveness of the firm.
B. Scope of the Study
This paper is to analyze a variety of components that construct
the IT role in delivering value to the business organizations.
The analysis focused on inside components of organizations,
namely ITRs that communicate the capabilities to develop or-
ganizational competencies in relations to the firm’s competitive
advantage [27]. Additionally, the scope of study comprises this
approach.
1) The IT-based firms are firms that massively exploit ITRs
consisting of IT infrastructures, human ITRs, and IT en-
ables intangibles [4] for running the business such as Telco
and Banking industries.
2) According to point 1), this study had simply performed the
experiments in Indonesian Telco’s industries, namely PT.
Telekomunikasi Indonesia, Tbk. (Telkom), PT. Indosat,
Tbk. (Indosat), and PT. XL Axiata, Tbk. (XL). Those firms
have been selected because they have fairly representative
symbolized the IT-based business organizations and have
gone public. Additionally, the total market share of the
Telco industry has exceeded 97.5% in Indonesia [46].
3) The data stem from the audited financial statements and
the published annual reports of each firm from 2004 to
2015.
4) Therefore, the fundamental study dips in capital spending
preparations, particularly IT spending to give a benefi-
cial performance at optimal costs. In this study, the IT
spending relates to IT capital expenditures.
5) Because the mathematical nature of the PAV is a non-
linear regression equation, which requires the estimates
should also be nonlinear, thus, in this study, the nonlinear
regression estimation has used IBM SPSS version 22. Fur-
thermore, the estimation method is Levenberg–Marquardt
Method or Damped Least Squares method that can esti-
mate more robust estimations and suitable for solving the
nonlinear least squares problems.
III. LITERATURE REVIEW
A. RBV
This study is based on the RBV to decompose subsystems that
correlate the FP and the ITR since the RBV emphasizes on the
resources a firm owns to elevate its performance [11], [16]. In
addition, this study also considers that the correlation between
IT spending and the performance issued types of conclusions,
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ABDURRAHMAN et al.: INFORMATION TECHNOLOGY VALUE ENGINEERING MODEL AND COST EFFICIENCY IN IT-BASED FIRMS
namely positive [11], [16], negative [33], and even neutral [19].
Definitely, this study holds that this relationship is positive,
thus, it is interesting to regenerate. In this case, Ravichandran
et al. had decomposed systems into four subsystems, namely
ITRs, IS capabilities, IT support for core competencies, and
FP. Each subsystem relates to each other in a series by the
structural equation modeling [16]. In the meantime, Liang et
al. provided the study model with a quasi-parallel relationship
among the subsystems, in which the resource serially connected
to the FP, also the resource connected to the capability then to
the performance so that seems as a parallel relation [11].
Moreover, Barney classified resources as the material invest-
ment, the human investment, and the administrative investment
[4]. Additionally, he characterized resources to be strategically
essential to chase firm’s competitive advantage with the provi-
sion of VRIN, viz “valuable,” “rare,” “inimitable,” and “non-
substitutable” [11], in which valuable denotes that the resource
allows the firm to create and apply strategies to raise productiv-
ity and usefulness; rare is that large number of competitors are
not simultaneously implementing the resource, accordingly its
usage could guide the organization to retain an excessive diverse
improvement; inimitable indicates that the source is exclusive,
thus, rivals cannot find it since they could be improperly inim-
itable; and nonsubstitutable is that the resource can enable the
firm to exploit it efficiently or effectively, consequently no other
assets enable to substitute the original one.
B. SE and PAV
This study applies SE to reorganize the four subsystems,
namely FP, firm core competence (FCC), FC, and ITR as issued
by [11], [16], and [19] to accomplish the ITVEM by considering
the nature of VRIN ITRs. In essence, the ITVEM involves var-
ious engineering disciplines such as electrical, computer, value
engineerings, etc. [9]. Accordingly, the interdisciplinary area oc-
curs between the patterns of thought of RBV and SE, whereas
the four subsystems need to transform into a system. In addi-
tion, to relate among the subsystems, it is necessary to provide
quantity relationships that might utilize several mathematical
theories since the failure of the study of the correlation between
IT spending and the output performance at the firm level is
caused by the difficulty of quantifying measurement between
these quantities [28]. For that reason, this study also employs
the PAV theory to correlate the system concurrently [13].
Furthermore, each subsystem needs to identify its measures,
which facilitate to determine the characteristics of the subsys-
tem to build relationships with other subsystems or between the
subsystem input and output [13]. Therefore, the FP typically
addresses financial and efficiency performance, which manifest
in, such as time-to-market and mass customization [30], prof-
itability containing return on investment, return on asset, return
on equity [31], [45]. While the FCC emphasizes to a firm’s core
competence as the ability of the learning process to manage
various resources and technology within the firm [34], consist-
ing of three components: IT knowledge, IT operations, and IT
objects. IT knowledge is the extent to which a firm possesses a
3
body of technical knowledge about objects such as computer-
based systems, while IT operations are the extent to which a
firm utilizes IT to manage market and customer information.
IT objects represent computer-based hardware, software, and
support personnel [35].
Moreover, the FC focuses on the capability of assembling and
installing IT-based resources to work together with the other
resources of the firm [19], which utilize IT infrastructures, man-
aged IT skills, and collaboration between IT and business [36].
The combination of the three measures can result in the FC,
hence, it can create the VRIN ITR, which also consist of IT
infrastructure as tangible resources, human ITRs representing
technical and managerial IT skills, and intangible IT-enabled
resources such as knowledge assets, customer orientation, and
synergy [19].
Preferably, to construct an IT spending model system, each
measure or component of the subsystems relates one to another
is not only qualitatively rational, but also quantitatively plausi-
ble as issued by [28]. However, to quantitatively plausible, the
subsystems should also have complete measures that manifest
in a mathematical model. As proposed above, the mathematical
formula to construct the relationship in this study is the PAV
[14], which involves Cobb–Douglas (CD) production transfor-
mation as the input function. In addition, this function includes
three input variables, i.e. K, L, and I for the IT business value
[23] as follows:
f (Xt ; β) = αKtβ 1 Lβt 2 Itβ 3 ev t , t = 1, 2, ..., s (1)
Equation (1) presents the CD function with Xt consisting of
production factors Kt , Lt , and It , whereas Kt is the regular
capital, Lt is the regular labor expense, and It is IT capital over
time. Meanwhile, α, β1 , β2 , and β3 are the unknown parameters
and vt ∼ |N (0, σv2 )|. It clears, on one hand, the production
factors do not separate the capital into other components, but
simply involve K, L, and I. However, on the other hand, the
components of the above subsystems (FP, FCC, FC, and ITR)
do not also address directly to the production factors. Therefore,
simplification must be taken by way of all the equity capitals
of each subsystem (FP, FCC, FC, and ITR) are classified as
the equity or as a production factor K. Likewise, all the labor
expenses of each subsystem are grouped as a factor L while
all capital expenditures are classified as a factor I. Thus, the
estimation process can run using PAV theory with the subsequent
formula
yt − yt−1 = St (f (Xt ; β) − y t−1 ) + ∈t ,
or yt = St f (Xt ; β) + (1 − St )y t−1 + ∈t , (2)
t = 1, 2, ..., s.
Whereas yt is the real output (revenues) of a production pro-
cess unit, for example, a firm, in time t, as for yt−1 is the real
output of the equivalent production process unit at time t–1.
While f (Xt , β) = yt∗ is the alternate function of the desired
output (yt∗ ), which can also manifest in the form of a produc-
tion function, β is the output elasticity, and St is the coefficient
depicting a static speed of adjustment [14]. In an estimation
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4 IEEE SYSTEMS JOURNAL

process, an old-shaped random error symbolized by t needs to

consider completing the formula.

IV. RESEARCH METHODOLOGY

In essence, the adopted research methodology respects with
the exposure of SE processes offered by [10] and [13] as depicted
below.

A. Stating the Problem

As mentioned above, the major problem of the study is how
to achieve the valuable performance need in an IT-based firm to
maintain competitive advantages in optimum costs. This prob- Fig. 1. Four subsystems of the ITVEM in a parallel relationship [3].
lem involves a variety of factors such as RBV practical subsys-
tems point of views, monetary systems, competitive energies,
V. MODEL AND VALIDATION RESULTS
business performance, risk and resource management, etc.
A. Parallel Configuration Model
B. Creating, Reviewing, and Deciding Alternate Resolutions This configuration explicates that the principal subsystems of
In order to solve the problem, various alternate resolutions the model contain FP, FCC, FC, and ITR, which each subsystem
have to appear to find an answer. For that reason, examples conjoins in a lateral configuration. The subsystems are as the
of the alternatives are with intensifying the FP, whereas the IT Ravichandran’s model [16] while the system composition re-
investment is regular, expanding the firm’s IT proficiency and sembles the Liang’s research model [11], although not entirely
ability, and optimizing cost by promoting invention, reorganiz- because the Liang’s model is not purely parallel, whereas this
ing costs, saving IT costs, and valuable IT purchasing. Indeed, model composition is fully parallel.
each alternative has benefits and weaknesses; therefore, the pre- In addition, in a mathematical relationship, the parallel con-
ferred solution is a combination of all options to be compiled in struction manifests an adding operation [3] (see Fig. 1). It
a SE process. The selection of the preferred solution is based on implies that the input (yt∗ ) is separated into four subinputs,
∗ ∗ ∗ ∗
“minimize information content, maintain the independence of namely y1t , y2t , y3t , and y4t or yt∗ = y1t
∗ ∗
+ y2t + y3t∗
+ y4t∗
,
functional requirements, ease of manufacture, robustness, and see (2). Every subsystem has a static speed of adjustment
design for adjustability” [10]. (Sit , i = 1, 2, 3, 4 and t = time) [14], i.e., FP has S1t , FCC
has S2t , FC has S3t , and ITR has S4t . Similarly, the output con-
sists of four suboutputs, i.e., y1t , y2t , y3t , and y4t , so it can also
C. Specifying Scheme appear as yt = y1t + y2t + y3t + y4t [3].
According to [9] and [10], the SE lifespan phases and methods By the PAV approach [14], all subsystems show mathematical
are merged, which denotes that for each phase of the lifecycle models in this way (also comprehend Fig. 1):
will be explored using the engineering methods. This step per- FP
forms for developing concepts and engineering improvement  
phases, involving the phases of each block [9]. However, the y1 t − y1 t −1 = S1 t y1∗t − y1 t −1 (3)
working papers regarding the detailed design are not attached y1 t = S1 t y1∗t + (1 − S1 t )y1 t −1 . (4)
in this study due to the space saving.
FCC
D. Building and Confirming the Model
y2 t − y2 t −1 = S2 t (y2∗t − y2 t −1 ) (5)
Furthermore, according to the method step in section C,
the SE of the ITVEM appears as a model in the subsequent y2 t = S2 t y2∗t + (1 − S2 t )y2 t −1 . (6)
section. Likewise, the model is numerically validated through
PAV approach by the real data of the testing firms, i.e. Telkom, FC
Indosat, and XL. The three firms are the leading information and
communication technology providers in Indonesia with their y3 t − y3 t −1 = S3 t (y3∗t − y3 t −1 ) (7)
market shares of each are 52.1%, 23.3%, and 22.1%, respec- y3 t = S3 t y3∗t + (1 − S3 t )y3 t −1 . (8)
tively, or 97.5% totally, particularly in the Indonesian’s mobile
cellular market [46]. In addition, all of these firms went public ITR
for several years ago on the Indonesia Stock Exchange, and par-
ticularly Telkom and Indosat have also listed in the New York y4 t − y4 t −1 = S4 t (y4∗t − y4 t −1 ) (9)
Stock Exchange. Furthermore, in this study, the used data have
been covering the period from 2004 to 2015. y4 t = S4 t y4∗t + (1 − S4 t )y4 t −1 . (10)
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ABDURRAHMAN et al.: INFORMATION TECHNOLOGY VALUE ENGINEERING MODEL AND COST EFFICIENCY IN IT-BASED FIRMS 5

TABLE I
ESTIMATE GRADES OF SERIAL AND PARALLEL CORRELATIONS
OF TELKOM’S ITVEM (TRILLION RUPIAH)

Year Telkom Serial Parallel Serial Parallel

revenue estimation estimation difference difference
1 2 3 4 5 6

2004 33.95 7.60 34.73 −26.39 0.78

2005 41.81 9.48 43.98 −32.33 2.17
2006 51.29 11.67 54.10 −39.62 2.80
2007 59.44 14.16 61.11 −45.28 1.67
2008 60.69 16.29 67.08 −44.40 6.39
Fig. 2. Four subsystems of the ITVEM in a serial relationship. 2009 64.60 16.61 67.79 −47.98 3.20
2010 68.63 17.59 69.01 −51.04 0.39
2011 71.25 18.84 78.22 −52.42 6.96
If (4), (6), (8), and (10) are added concurrently could cause 2012 77.14 19.65 84.14 −57.50 7.00
2013 82.97 21.22 89.59 −61.74 6.63
(11) as follows: 2014 89.70 22.76 94.20 −66.94 4.51
2015 102.47 24.71 105.33 −77.76 2.86
yt = S1 t y1∗t + (1 − S1 t )y1 t −1 + S2 t y2∗t + (1 − S2 t )y2 t −1
+ S3 t y3∗t + (1 − S3 t )y3 t −1 + S4 t y4∗t + (1 − S4 t )y4 t −1 .
(11) C. Other Configuration Model
Whereas yt = the actual output of time t, y1t = the actual
output of FP at time t, y1t ∗
= the preferred output (input) of Indeed, there may still be other configurations such as a hybrid
FP, y1t−1 = the actual output of the preceding time (t−1), and between parallel and serial configurations, etc., however, the
S1t = the static speed of adjustment of FP at time t. Likewise, possibility is beyond the scope of this study. Therefore, this study
y2t = the actual output of FCC at time t, y2t ∗
= the preferred only proposed two configurations above to test their validity and
output (input) of FCC at time t, y2t−1 = the actual output of the appropriateness. Furthermore, the validation results will be the
preceding time (t−1), and S2t = the static speed of adjustment basis of the core configuration used for the ITVEM.
of FCC at time t. Afterward, y3t = the actual output of FC at
∗
time t, y3t = the preferred output (input) of FC at time t, y3t−1 D. Numerical Validation
= the actual output of the preceding time (t−1), and S3t = To quantitatively validate the model, the subsequent testing
the static speed of adjustment of FC at time t. Lastly, y4t = performs the numerical validation using the data of Telkom, In-
∗
the actual output of ITR at time t, y4t = the preferred output dosat, and XL. Based on data from the three firms during 2004
(input) of ITR time t, y4t−1 = the actual output of the previous and 2015 carried out a sequence of the partial adjustment esti-
time (t−1), and S4t = the static speed of adjustment of ITR at mation using (3) to (10). Because the equations are nonlinear,
time t. the estimate also applies a nonlinear least square application by
IBM SPSS 22. In addition, the estimate shows that for both par-
allel and serial configurations of Telkom’s data have generated
B. Serial Configuration Model
the massive static speed of adjustment (Sit , i = 1, 2, 3, 4 rep-
Moreover, the following model performs in a series, which, resenting the four subsystems and t = period) = 0.443 and other
among the subsystems (FP, FCC, FC, and ITR) join sequentially parameter magnitudes, but due to space limitations, the num-
beginning from the FP, followed by the FCC, followed by the FC, bers are not publicized in this paper. Furthermore, Indosat’s
and ending in the ITR as the Ravichandran’s model, albeit with a data estimate shows the massive static speed of adjustment
different final settlement, e.g., [16] applied the structural models (Sit , i = 1, 2, 3, 4 and t = period) = 0.191, whereas XL’s data
while this study exploits PAV theory. Indeed, both configurations estimate results in the static speed of adjustment (Sit ) = 0.286.
ultimately utilize the statistical settlement as well as to facilitate Also, it is an assumption that the capital allocations of parallel
the quantification of the relationship between subsystems [28]. and serial configurations are as follows: 30% for FP, 10% for
In order to describe the serial configuration mathematically, FCC, 25% for FC, and 35% for ITR. As for the capitals consist
suppose (4), (6), (8), and (10) operate in a serial relationship of regular capital (K), labor expense (L), and IT capital (I).
as seen in Fig. 2, with an assumption that each output of a Consequently, the assumption is subject to change according to
subsystem fully becomes the following subsystem input, thus, the needs.
the end result is as follows: Moreover, the estimation results are in Tables I, II, and III
performed by (11) and (12) for Telkom, Indosat, and XL con-
yt = S4 t S3 t S2 t S1 t yt∗ + S4 t S3 t S2 t (1 − S1 t )y1 t −1 secutively. It appears that the results of the parallel estimation
+ S4 t S3 t (1−S2 t )y2 t −1 +S4 t (1−S3 t )y3 t −1 +(1 − S4 t )yt−1 . are closer to the actual data of Telkom, Indosat, and XL revenues
(12) than the serial estimation as compared with parallel and serial
difference figures (see Tables I–III). In other words, the parallel
The explanation of the variable terms of (12) is analogous to configuration seems proper and acceptable in developing the
(11) above. model.
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6 IEEE SYSTEMS JOURNAL

TABLE II In addition to the numerical validation results, there are some

ESTIMATE GRADES OF SERIAL AND PARALLEL CORRELATION
OF INDOSAT’S ITVEM (TRILLION RUPIAH)
other justifications why the parallel configuration to be elected,
as follows. First, from a definite point of views, the serial con-
figuration connotes to run firmly sequential processing so that
Year Indosat Serial Parallel Serial Parallel
revenue estimation estimation difference difference it is no intersection of the consecutive process times on indi-
1 2 3 4 5 6 vidual subsystems. In other words, each subsystem seizes the
2004 10.43 2.70 9.98 −7.73 −0.45
similar average amount of time to handle and the subsequent
2005 11.59 3.42 12.13 −8.17 0.54 subsystem initiates processing simply if the previous subsys-
2006 12.50 3.80 13.33 −8.70 0.84 tem is terminated. On the other hand, the parallel configuration
2007 16.87 4.10 15.31 −12.78 −1.56
2008 19.21 5.53 19.33 −13.68 0.12
suggests a concurrent processing on several subsystems at the
2009 18.82 6.29 20.41 −12.53 1.59 very similar time, even though the processing perhaps ends on
2010 19.80 6.16 19.23 −13.64 −0.56 diverse subsystems at diverse times [39]. Second, the model
2011 20.53 6.48 21.88 −14.05 1.36
2012 22.42 6.72 21.07 −15.70 −1.35
really addresses the capital allocation, which lets the model dis-
2013 23.86 7.34 23.81 −16.52 −0.04 tribute the capital to the central responsibility of the investment,
2014 24.09 7.81 24.54 −16.28 0.46 which is in this model consisting of FP, FCC, FC, and ITR. As
2015 26.77 7.89 25.53 −18.88 −1.24
comprehended from a numerical operation, the capital alloca-
tion is analogous to the adding operation that ultimately leads
TABLE III to the cost accumulation, which is translated in a diagrammatic
ESTIMATE GRADES OF SERIAL AND PARALLEL CORRELATIONS
OF XL’S ITVEM (TRILLION RUPIAH) relationship as a parallel correlation [40]. In contrast, the serial
distribution, which is identical to the multiplication [40] is not
suitable because the total result must be a multiple of the subto-
Year XL Serial Parallel Serial Parallel
revenue estimation estimation difference difference tal of each subsystem, which its result could have far deviated
1 2 3 4 5 6 from the original data.
2004 3.32 0.85 3.31 −2.47 −0.02
Moreover, third, the approach to the Solow model [29], which
2005 4.30 1.05 4.71 −3.25 0.41 the model issues two mechanisms, namely production and capi-
2006 6.47 1.37 6.45 −5.10 −0.02 tal accumulation. The production defines a value creation within
2007 8.37 2.05 8.93 −6.32 0.57
2008 12.16 2.65 11.60 −9.51 −0.56
a certain time, in which the value is obtained by maximizing
2009 13.88 3.83 13.84 −10.05 −0.04 gain through optimum resource allocations. As for the capi-
2010 17.64 4.37 15.58 −13.27 −2.06 tal accumulation demonstrates that the created value should be
2011 18.47 5.55 19.92 −12.91 1.45
2012 21.28 5.82 20.77 −15.46 −0.51
managed. Therefore, the parallel configuration is appropriate to
2013 21.35 6.69 22.05 −14.66 0.70 be an optimum resource allocation instead of the serial due to
2014 23.57 6.71 22.67 −16.86 −0.90 their capacity in terms of processing time [39].
2015 22.96 7.40 22.93 −15.56 −0.03
Fourth, from the engineering point of view, the parallel con-
figuration is also identical to a parallel computing, whereas a
To comprehend these tables, see Table I, for example, the cluster of processors works collectively to compute usually a lot
Telkom’s revenue in 2004 is Rp 33.948 trillion (column 2); of complicated problems. This computing scheme is to dimin-
however, if it is counted by the serial model estimate, it results ish the operation time and to consume extra resources such as
in Rp 7.559 trillion (column 3), which remains a deviation of Rp memories and storages. Furthermore, the parallel computing is
−26.389 trillion (column 5). Conversely, if it is counted by the to essentially allocate and segregate the computational function
parallel model estimate, it results in Rp 34.726 trillion (column within the comprised computers [41], [42]. On the other hand,
4), which remains a deviation in between of Rp 0.778 trillion the serial configuration is analogous to the serial programming
(column 6). It appears that the deviation in the serial model that comprises a successive and structured execution of proce-
(column 5) is too far from the real Telkom’s revenue (column dures one after another; however, the serial computing has sev-
2), in contrast with the parallel model that its deviation (column eral limitations such as transmission speeds because this speed
6) is extraordinarily insignificant and tolerable. Likewise, the is straight reliant on how fast data can transport across hardware.
following period from 2005 to 2015 provides the analogous Additionally, the serial computing has a limit to miniaturization
estimates. Thus, the parallel model is more acceptable than the so that it also limits economically, which is costly to construct
serial model. Similarly, if using the Indosat’s and XL’s data (see a single processor faster [42]. According to the computation
Tables II and III), it results in the equivalent conclusion, that the process, the central ITVEM is in the parallel configuration.
parallel model is valid numerically although their magnitudes In addition, the fifth originates from the RBV theory, in which
are different from Telkom’s. most studies regarding ITRs and business performance were in
serial configurations such as [43], [45], [16], etc. They had con-
VI. DISCUSSION figured the relationship by the structural equation modeling,
whereas the structural or path model describes the relationship
A. ITVEM of Choice between latent variables as unobservable variables in serial con-
Based on the numerical validation above, the applied cen- figuration while the measurement model defines relations be-
tral ITVEM is the parallel instead of the serial configuration. tween the unobservable and observable variables (indicators or
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ABDURRAHMAN et al.: INFORMATION TECHNOLOGY VALUE ENGINEERING MODEL AND COST EFFICIENCY IN IT-BASED FIRMS
Fig. 3. ITVEM system model.
manifest variables) [44]. Meanwhile, the quasi-parallel forma-
tion as a study came from Liang et al., in which they expressed
an indirect effect model stating that a firm’s resources influence
its performance by means of improving organizational capabil-
ities [11].
Sixth, from SE standpoints, both serial and parallel configu-
rations share the underlying concepts of the systems approach
such as holism, synthesis, and the interrelationships [17] to ratify
the effective design and elaboration of an incorporated solution.
Meanwhile, the current SE process is an iterative, classified, top–
down breakdown of system requests, which the iterative process
begins with a system-level breakdown while the classified break-
down contains practical analysis, allocation, and synthesis and
at that time proceeds through the practical subsystem level, all
the way to the assembly and program level [37]. Accordingly,
this effort is undertaken by the pre-emptive and organized ac-
complishment of precise actions and the usage of management
tools to achieve the goals effectively [12], [37].
Ultimately, the seventh arises from the PAV estimate, pre-
cisely that the PAV estimate of the parallel configuration is
closer to the actual data of the testing firms than the serial con-
figuration (see numerical validation), which indicates that the
parallel configuration is numerically acceptable as a configura-
tion of the central framework of the ITVEM.
7
B. Comprehensive ITVE Model
Furthermore, the SE process ultimately resulted in the com-
prehensive ITVEM model as figure out in Fig. 3. This system
model is to solve the problem above, which facilitates the per-
formance improvement at lower costs. Accordingly, this system
model meets three model criteria [17], namely the model reflects
an original target, does not map all target properties into the
model, and should be meaningful to represent the actual target.
Moreover, the system model input is the preferred output,
in this case: the preferred revenue (yt∗ ) at period t. This input
(yt∗ ) consists of four inputs of the subsystem, viz. the FP, the
FCC, the FC, and the ITR. Each subsystem owns indicators,
linking each subsystem to another. For example, FP has indica-
tors profitability, effectiveness, and total-amount value created,
and so do the other subsystems. Rationally, these indicators can
relate each other in cause-and-effect relationships to form one
system. This relation depicts the figure as the parallel configu-
ration, namely the relationship of the subsystem is an addition
operation mathematically as stated above.
The system aims to respond the IT-demand-based system
that can present a competitive performance at lower IT costs.
Additionally, the system model is seen in Fig. 3 shows the
ITVE model in a complicated systems environment, in which
the system model considers environmental forces due to the
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8 IEEE SYSTEMS JOURNAL

competitive era, feedback systems played by the entire firm, expense (L), and the IT capital (I)]
risk assessments, a physical model illustrating numerous appli-
cations controlling the system model, and the conceptual model ∂yt
= St αβ1 p1 K β 1 −1 p2 Lβ 2 p3 I β 3 (16)
represented by the parallel configuration as a central system ∂K
model. ∂yt
Therefore, the environmental forces insist the system model = St αβ2 p1 K β 1 p2 Lβ 2 −1 p3 I β 3 (17)
∂L
works effectually and economically since they are encourage-
∂yt
ments to organize a business to facilitate the firm to meet attrac- = St αβ3 p1 K β 1 p2 Lβ 2 p3 I β 3 −1 . (18)
tiveness and business confusions. Likewise, the system model ∂I
runs feedback systems to control the system model and improve Using (15) conditions, hence (16) = (17) = (18), further
the performance so that the cost leads to the optimum as well. equations appear as follows:
In this case, the feedback actors, as seen in Fig. 3, are the entire
firm as the benefit beneficiaries of each subsystem, e.g., the firm p3 β1 p1 β2 p2 β3
strategic levels are those senior managers who concern with the K= I L= K I= L. (19)
p1 β3 p2 β1 p3 β2
overall performance of the firm while the firm tactical levels are
those who manage the core competence of the firm. If (14) is substituted by (19) so that the new equation appears
Meanwhile, the system model should also concern with risks: in the regular capital (K) variable, the equation is viewed as (20)
business, interface, data, technological risks, etc. Assessing the and then simplified as (21)
risks should be a consideration of prudence in running the busi-
ness so that the system goals can arrive easily.  β 2  β 3
p1 β2 p1 β3
Likewise, from the physical model point of views, the systems yt = St αK β 1 K K + (1 − St )yt−1 (20)
also consist of various applications (see Fig. 3) such as customer p2 β1 p3 β1
relationship management, enterprise resource planning, IT bal- yt = St α β1−β 2 −β 3 β2β 2 β3β 3 pβ1 2 +β 3 p−β
2
2
p−β
3
3
K β 1 +β 2 +β 3
anced scorecard, activity-based costing, etc. Each application
may translate the conceptual model represented by the paral- + (1 − St )yt−1 . (21)
lel configuration above, thus, one application may translate FP
logics or other subsystems of the conceptual model, depend- Furthermore, (21) will be as K variable as in (22) and then
ing on the relationship of both the conceptual and the physical simplified as in (23) as follows:
models. In order to construct persuasive interfaces among the
applications, they should incorporate into the service-oriented K β 1 +β 2 +β 3 = St−1 α−1 β1β 2 +β 3 β2−β 2 β3−β 3 p−β
1
2 −β 3 β 2 β 3
p2 p3
architecture [22].
[yt − (1 − St )yt−1 ] (22)
−1 β2+β3
C. Cost Optimization of the ITVEM −1
K = St( β 1 + β 2 + β 3 ) α ( β 1 + β 2 + β 3 ) β1( β 1 + β 2 + β 3 )
In addition, to obtain the optimum costs at superior business −β 2 −β 3 −β 2 −β 3
performance, it should develop several assumptions [39] regard- β2( β 1 + β 2 + β 3 ) β3( β 1 + β 2 + β 3 ) p1( β 1 + β 2 + β 3 )
ing the optimization. For instance, the first assumption is that the β2 β3
1
CD function [14] replaces each of the subsystem preferred out- p2( β 1 + β 2 + β 3 ) p3( β 1 + β 2 + β 3 ) [yt − (1 − St )yt−1 ] ( β 1 + β 2 + β 3 ) .
put (the starred yit∗ , i = 1, 2, 3, 4). Its function is as follows, (23)
also see (1)
yt∗ = αKtβ 1 Lβt 2 Itβ 3 , t = 1, 2, ..., s (13) Using the equivalent manner, the variable L and I will be
viewed as follows:
where yt∗ = the preferred output, Kt = the usual investment,
Lt = the labor payment, It = the IT spending, α = overall factor −1 −1
−β 1

L = St( β 1 + β 2 + β 3 ) α ( β 1 + β 2 + β 3 ) β1( β 1 + β 2 + β 3 )
production, and β1 , β2 , β3 = the output elasticity of Kt , Lt , and
It individually. Therefore, each subsystem partial adjustment is β1+ β3 −β 3 β1

as follows, also see (2) β2( β 1 + β 2 + β 3 ) β3( β 1 + β 2 + β 3 ) p1( β 1 + β 2 + β 3 )

−β 1 −β 3 β3
yt = St yt∗ +(1−St )yt−1 = St αKt β 1 Lt β 2 It β 3 +(1 − St )yt−1 . 1
p2( β 1 + β 2 + β 3 ) p3( β 1 + β 2 + β 3 ) [yt − (1 − St )yt−1 ] ( β 1 + β 2 + β 3 )
(14) (24)
Additionally, for the cost minimization, the partial derivatives −β 1
−1 −1
of (14) should meet these prerequisites [8], [5] I = St( β 1 + β 2 + β 3 ) α ( β 1 + β 2 + β 3 ) β1( β 1 + β 2 + β 3 )
∂yt ∂yt ∂yt −β 2 β1+β2 β1
=0 =0 = 0. (15)
∂Kt ∂Lt ∂It β2( β 1 + β 2 + β 3 ) β3( β 1 + β 2 + β 3 ) p1( β 1 + β 2 + β 3 )
β2 −β 1 −β 2
If (14) is derived to K, L, and I, it respectively results in 1

the following equations [whereas p1 , p2 , and p3 are added to p2( β 1 + β 2 + β 3 ) p3( β 1 + β 2 + β 3 ) [yt − (1 − St )yt−1 ] ( β 1 + β 2 + β 3 ) .
the function as unit prices of the regular capital (K), the labor (25)
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ABDURRAHMAN et al.: INFORMATION TECHNOLOGY VALUE ENGINEERING MODEL AND COST EFFICIENCY IN IT-BASED FIRMS 9

If K, L, and I are multiplied by p1 , p2 , and p3 as unit prices TABLE IV

TELKOM’S CAPITAL COST REDUCTION
respectively, it appears as follows:
−1 β2+β3
−1
Year Telkom’s data Capital estimate by (29) and Cost reduction
p1 K = St( β 1 + β 2 + β 3 ) α ( β 1 + β 2 + β 3 ) β1( β 1 + β 2 + β 3 ) (Trillion Rp) (30) (Trillion Rp)
−β 2 −β 3 β1
Revenue Invested FP FCC FC ITR Total (Trillion %
β2( β 1 + β 2 + β 3 ) β3( β 1 + β 2 + β 3 ) p1( β 1 + β 2 + β 3 ) Capital Rp)
β2 β3 1 2 3 4 5 6 7 8 9 10
1
p2( β 1 + β 2 + β 3 ) p3( β 1 + β 2 + β 3 ) [yt −(1−St )yt−1 ] ( β 1 + β 2 + β 3 ) 2004 33.95 34.74 5.40 1.57 3.88 4.64 15.51 19.24 55.4
(26) 2005 41.81 37.03 6.74 1.96 4.84 5.78 19.31 17.71 47.8
2006 51.30 43.68 8.45 2.46 6.07 7.26 24.24 19.44 44.5
−1 −β 1
−1 2007 59.44 49.80 9.43 2.75 6.77 8.10 27.05 22.75 45.7
p2 L = St( β 1 + β 2 + β 3 ) α ( β 1 + β 2 + β 3 ) β1( β 1 + β 2 + β 3 ) 2008 60.69 54.66 8.31 2.42 5.96 7.13 23.82 30.83 56.4
β1+ β3 −β 3 β1 2009 64.60 61.23 9.41 2.74 6.75 8.08 26.97 34.26 56.0
β2( β 1 + β 2 + β 3 ) β3( β 1 + β 2 + β 3 ) p1( β 1 + β 2 + β 3 ) 2010
2011
68.63
71.25
66.43
65.38
10.05
10.18
2.92
2.96
7.21
7.31
8.63
8.74
28.81
29.20
37.62
36.19
56.6
55.4
β2 β3 2012 77.14 70.83 11.73 3.41 8.42 10.07 33.64 37.18 52.5
1
p2( β 1 + β 2 + β 3 ) p3( β 1 + β 2 + β 3 ) [yt −(1−St )yt−1 ] ( β 1 + β 2 + β 3 ) 2013 82.97 80.80 12.63 3.68 9.07 10.85 36.22 44.58 55.2
2014 89.70 91.26 13.88 4.04 9.96 11.92 39.80 51.46 56.4
(27) 2015 102.47 109.75 17.17 4.99 12.32 14.74 49.23 60.52 55.1
−1 −β 1
−1
p3 I = St( β 1 + β 2 + β 3 ) α ( β 1 + β 2 + β 3 ) β1( β 1 + β 2 + β 3 )
TABLE V
−β 2 β1+β2 β1
INDOSAT’S CAPITAL COST REDUCTION
β2( β 1 + β 2 + β 3 ) β3( β 1 + β 2 + β 3 ) p1( β 1 + β 2 + β 3 )
β2 β3
1 Year Indosat’s data Capital estimate by (29) and Cost reduction
p2( β 1 + β 2 + β 3 ) p3( β 1 + β 2 + β 3 ) [yt −(1−St )yt−1 ] ( β 1 + β 2 + β 3 ) . (Trillion Rp) (30) (Trillion Rp)
(28)
Revenue Invested FP FCC FC ITR Total (Trillion %
Capital Rp)
Moreover (26), (27), and (28) substituted into (29), which 1 2 3 4 5 6 7 88 9 10
is the overall cost of yielding y units in the low-cost likely
procedure, will be as 2004 10.43 19.10 1.00 0.33 0.74 1.036 3.12 15.99 83.7
2005 11.59 21.61 0.89 0.29 0.65 0.913 2.74 18.87 87.3
C(p1 , p2 , p3 , yt ) = p1 K + p2 L + p3 I 2006 12.50 22.12 0.88 0.29 0.65 0.906 2.72 19.40 87.7
β1 β2 β3 2007 16.87 26.27 1.51 0.49 1.11 1.554 4.66 21.61 82.3
= Bp1( β 1 + β 2 + β 3 ) p2( β 1 + β 2 + β 3 ) p3( β 1 + β 2 + β 3 ) 2008 19.21 29.75 1.32 0.43 0.97 1.353 4.06 25.69 86.3
1 2009 18.82 29.54 0. 91 0.30 0.67 0.934 2.81 26.73 90.5
[yt − (1 − St )yt−1 ] ( β 1 + β 2 + β 3 ) 2010 19.78 23.37 1.15 0.37 0.84 1.178 3.54 19.82 84.8
(29) 2011 20.53 25.03 1.14 0.37 0.84 1.168 3.51 21.52 86.0
2012 22.42 27.26 1.36 0.44 1.00 1.394 4.19 23.07 84.6
where B 2013 23.86 25.29 1.34 0.44 0.99 1.377 4.14 21.15 83.6

−1 −1
  (β β2   (β β3 2014 24.09 20.55 1.18 0.39 0.87 1.215 3.65 16.90 82.2
(β 1 + β 2 + β 3 ) β1 1+β2+β3) β1 1+β2+β3)
B = St α (β 1 + β 2 + β 3 )
β2 β3
2015 26.77 23.32 1.59 0.52 1.17 1.630 4.90 18.42 79.0

  ( β + ββ 1 + β )   ( β + ββ 3 + β )
+ ββ 21 1 2 3 β2
β3
1 2 3

all factor productivity coefficient is different, i.e., αFP = 0.658,

  ( β + ββ 1 + β )   ( β + ββ 2 + β )
+ ββ 31 1 2 3 β3
β2
(30)
where p1 , p2 , and p3 are item rates of the usual capital (K), the
labor payment (L), and the IT spending (I) individually, yt is the
actual output of time t, yt−1 is the actual output of preceding
time t−1, and C is the overall cost.
The additional assumption is, as mentioned above, the in-
vestment and income distributions are in this way: FP = 30%,
FCC = 10%, FC = 25%, and ITR = 35%. The investment
and income allocations are only for the sake of parameter esti-
mates. Furthermore, the estimate results are as follows, Telkom’s
output elasticity coefficients is equal for all subsystems, i.e.,
β1 = 0.334, β2 = 0.547, and β3 = 0.006. The overall fac-
tor productivity coefficient is different, i.e., αFP = 13.528,
αFCC = 11.554, αFC = 12.966, and αITR = 13.273. While
the Indosat’s output elasticity coefficients is equal for all subsys-
tems, i.e., β1 = 0.06, β2 = 1.215, and β3 = 0.169. The over-
1 2 3 αFCC = 1.071, αFC = 0.77, and αITR = 0.662. Likewise,
the XL’s output elasticity coefficients is equal for all subsys-
tems, i.e., β1 = 0.159, β2 = 0.498, and β3 = 0.31. The over-
all factor production coefficient is different, i.e., αFP = 10.618,
αFCC = 10.333, αFC = 10.432, and αITR = 10.667. For the
parameter estimates, IBM SPSS 22 is the tools to do so accom-
modating the nonlinear least square estimation.
In addition, the rate of p1 , p2 , and p3 is equal, viz 1 point,
which is the third assumption. Hence, by applying (29) and (30)
in estimates, Tables IV–VI present the estimation results and the
cost reduction of Telkom, Indosat, and XL consecutively during
2004 and 2015.
It looks that Table IV discloses estimated capitals for all
subsystems (FP, FCC, FC, and ITR from columns 4–7) estimated
by (29) and (30). The capital estimate intends to pursue the
optimum cost to produce the actual gross revenue (column 2)
of Table IV. While the invested capital is the realized capital
(column 3), then if it is contrasted to the total estimated capital
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10 IEEE SYSTEMS JOURNAL

TABLE VI how well the internal factors were managed within the busi-
XL’S CAPITAL COST REDUCTION
ness environment. Subsequently, if the internal factors properly
align with the business, the resulted value may be extraordi-
Year XL’s data Capital estimate by (29) and Cost reduction
(Trillion Rp) (30) (Trillion Rp)
nary due to the incorporation of both factors. In contrast, if the
alignment of IT and the business is deficient, the whole values
Revenue Invested FP FCC FC ITR Total (Trillion % will be deficient too. For example, among those factors are en-
Capital Rp)
1 2 3 4 5 6 7 8 9 10 vironment forces and risk assessments, which the forces may
include the five forces of Porter’s concepts consisting of the
2004 3.32 2.88 0.45 0.17 0.38 0.53 1.51 1.37 47.5
following:
2005 4.30 6.99 0.62 0.23 0.52 0.73 2.11 4.89 69.9
2006 6.47 8.31 1.12 0.43 0.94 1.31 3.79 4.52 54.4 1) Bargaining dominance of suppliers;
2007 8.37 11.33 1.24 0.47 1.04 1.45 4.20 7.13 62.9 2) Bargaining dominance of consumers;
2008 12.16 15.69 2.07 0.81 1.74 2.44 7.06 8.63 55.0
3) Threat of new competitors into the business;
2009 13.88 14.09 1.73 0.67 1.46 2.04 5.90 8.19 58.1
2010 17.64 16.56 2.61 1.02 2.19 3.07 8.90 7.67 46.3 4) Threat of alternative products or services;
2011 18.47 20.22 1.97 0.76 1.65 2.31 6.69 13.52 66.9 5) Standing of interindustry challengers [20].
2012 21.28 25.55 2.74 1.07 2.30 3.22 9.33 16.22 63.5
However, in turn, the five forces confront the IT presence to
2013 21.35 22.69 2.07 0.81 1.73 2.43 7.02 15.67 69.1
2014 23.57 21.06 2.82 1.11 2.37 3.32 9.61 11.53 54.6 help enhance the power of the business. Similarly with the risk
2015 22.96 18.24 2.06 0.80 1.72 2.42 6.99 11.25 61.7 assessment, one of the external factors that let the business is to
be careful in completing the organization. In this case, IT can
take action to supply information for the business and to use
(column 8), the difference appears as displayed in column 9 that information to improve its existence.
and 10 of Table IV, which reflects that the system model is In order to execute the ITVEM in practical operations, it is
able to optimize the cost for the superior performance due to necessary to apply not only the technical concepts above but also
53.08% as cost reduction in average. However, to achieve this the managerial concepts simultaneously. From the managerial
condition, managerial treatments are necessary to take actions aspect perspectives, the ITVEM must be a part of the business
such as considering and controlling risk factors and anticipating organization and perform practically by the following methods
business environments. [21], [20].
The similar interpreting also applies to Tables V and VI as 1) In dealing with IT procurements, it should achieve the
well as understanding the previous Table IV. It appears that best pricing and conditions for IT consumptions, which
the capital spent is smaller than that have been issued, thus, intend to consider the needs selectively. For this reason,
far by Indosat and XL (compare column 3 and column 8 of numerous activities can perform, such as deferring pro-
Tables V and VI). The average capital saving of Indosat and XL curements, renegotiating infrastructure maintenance, sell-
are sequential as follows 84.84% and 59.14%. In other words, ing and or leasing back equipment, and building the com-
the ITVEM offers value engineering concepts involving IT to petencies.
improve the FP at lower costs. 2) Inventing opportunities to save IT costs by means such as
managing the processes to off-peak hours to reduce the
capacity and avoid processor-related cost surges, freezing
D. Managerial and Technical Impacts of ITVEM
IT spending on upgrading or new resources provisionally,
The results above disclose that the IT inclusion in business or- outsourcing cyclical software testing, reducing IT office
ganizations contributes significant improvements through value space, and so forth. Also, it strategically realizes over-
creations by considering the other factors. Cao et al. mentioned arching cost leadership in the industry by reducing the
that IT does not create business value in an isolated environ- business’s costs, supplier’s costs, consumer’s cost, and so
ment, but needs to combine with other internal organizational forth.
factors [18]. Additionally, this study presents a model that the 3) Applying techniques to help cost saving associated with
ITVEM can dematerialize the IT productivity paradox [14] dis- the business such as necessitating the endorsement levels
order as opposed to those who argued that there was no obvious regarding development appeals to certify that each has a
relationship between IT spending and any measures of organi- connection to the business, prioritizing projects to focus
zation’s profitability [19]. Therefore, the resulted model should on achieving the organizational objectives, consolidating
accommodate both internal and external factors of IT business nonstandard platforms, and so forth.
environment where the IT infrastructures operate. In this case, 4) Facilitating innovation to create products or business pro-
the internal factors are those that composes the model from cesses that urge an essential transformation in which the
the IT value point of views, i.e., the FP, FCC, the FC, and the organization operates. Furthermore, this change should
ITR as depicted in Fig. 3. Those subsystems work to manifest occur consistently to control costs, achieve improvements,
the IT presence within the business organization, in which at help reinforce incorporated processes.
that moment is articulated by the PAV and the CD production
function.
Meanwhile, the external factors are also accommodated as VII. CONCLUSION
explicated on the ITVEM model completely in Fig. 3 as busi- This study offers an alternative model of IT to add value
ness factors. In essence, those factors are a consequence of to the firms, where the IT spending continuously grows
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ABDURRAHMAN et al.: INFORMATION TECHNOLOGY VALUE ENGINEERING MODEL AND COST EFFICIENCY IN IT-BASED FIRMS
periodically. Thus, the major problem of this study is how to
study the optimum resources, which meet the criteria of VRIN
(valuable, rare, inimitable, and non-substitutable), e.g., IT re-
source costs, for required business performance. This problem
uses the SE approach so that the solution results in the ITVEM.
In essence, the research methodology conceptually initiates with
creating IT value model using RBV theory. In order to complete
the model, PAV theory becomes a reference in assembling log-
ical relationship between inputs and outputs of the model.
Furthermore, using the analysis results, a synthesis effort per-
forms to compose a block diagram, which depicts a model in
terms of the SE of the ITVEM. Hence, it results in two types of
the ITVEM models: serial and parallel configurations. Likewise,
by benefiting the CD production function involved within PAV,
the optimum cost of the firm is estimable. For that reason, it
is an experiment as a simulation concerning work mechanisms
of the model. Consequently, the simulation has examined the
model with Telkom, Indosat, and XL data from 2004 to 2015, in
which the results demonstrated two significant conclusions: the
ITVEM is more acceptable by the parallel configuration than
the serial one in connecting its subsystems, that’s also based on
several reasonable justifications. While the second conclusion
is that the model could facilitate cost optimizations of the firm.
To sum up, the ITVEM is accepted as a framework techni-
cally, however, in practice, this model causes managerial im-
plications to make the match between techniques and practices.
Nevertheless, this model is not yet a finished work, it still needs
future works to test the model stability and to improve various
features such as the use of other theories, instead of PAV, CD
production function, profit or revenue maximization, and the
like.
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12 IEEE SYSTEMS JOURNAL

[35] M. J. Tippins and R. S. Sohi, “IT competency and firm performance: IS Armein Z. R. Langi (S’90–M’91) received the bach-
organizational learning a missing link?,” Strategic Manage. J., vol. 24, elor degree in electrical engineering from the Ban-
pp. 745–761, 2003. dung Institute of Technology (ITB), Bandung, In-
[36] G. Yin and B. Yang, “The construction of firm’s IT capability and its donesia, and the M.Sc. and Ph.D. degrees in electrical
impact on IT assimilation: An empirical investigation in china,” Service engineering from the University of Manitoba, Win-
Sci., vol. 2, no. 2, pp. 11–20, 2011. nipeg, MB, Canada.
[37] T. Z. Ahram, W. Karwowski, and B. Amaba, “User-centered systems He is currently a Professor with the School of Elec-
engineering approach to design and modeling of smarter products,” in trical Engineering and Informatics, ITB. His research
Proc. 5th Int. Conf. Syst. Syst. Eng., 2010, pp. 1–6. interests include digital signal processing, multime-
[38] H. Tohidi, “Review the benefits of using value engineering in informa- dia compression, multimedia communication sys-
tion technology project management,” Procedia Comput. Sci., vol. 3, tems, and DSP systems engineering.
pp. 917–924, 2011.
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[40] A. Tustin, “A method of analysing the behaviour of linear systems in Suhardi received the bachelor degree in electrical
terms of time series,” J. Inst. Electr. Eng., IIA, Automat. Regulators Servo engineering from the Bandung Institute of Technol-
Mechanisms, vol. 94, no. 1, pp. 130–142, 1947. ogy (ITB), Bandung, Indonesia, in 1988, the mas-
[41] X. Cai1, E. Acklam, H. P. Langtangen, and A. Tveito, “Parallel com- ter degree in management from Parahyangan Cha-
puting,” Dec. 9, 2015. [Online]. Available: http://www.diffpack.com/ tolic University, Bandung, Indonesia, in 2012, and
res/doc/Diffpack/Reports/pdp-chap.pdf the Doctor of Engineering degree in telecommuni-
[42] A. B. Rathod, R. Khadse, and M. F. Bagwan, “SERIAL computing vs. cation engineering from the Technical University of
parallel computing: A comparative study using MATLAB,” Int. J. Comput. Berlin, Berlin, Germany, in 1997.
Sci. Mobile Comput., vol. 3, no. 5, pp. 815–820, 2014. He is currently an Associate Professor with the
[43] T. A. Byrd, J. P. Pitts, A. M. Adrian, and N. W. Davidson, “Examination School of Electrical Engineering and Informatics
of a path model relating information technology infrastructure with firm (SEEI), ITB. He is the Head of Information Net-
performance,” J. Business Logist., vol. 29, no. 2, pp. 161–187, 2008. work and Systems Research Group (INSRG), SEEI, ITB. His research interests
[44] K. Laite, “Firm core business processes and the effect on perfor- include IT value and risk, service systems engineering, information and social
mance,” Master’s thesis, Dept. Marketing Manage., Aalto Univ., Espoo, networks, information governance and management, and Internet society and
Finland, 2010. law.
[45] B. W. Lin, “Information technology capability and value creation: Evi-
dence from the US banking industry,” Technol. Soc., vol. 29, pp. 93–106,
2007.
[46] Telkom, “Sustainable competitive growth through digital business,” 2014 Togar M. Simatupang received the Ph.D. degree
Annu. Rep., 2014. from Massey University, Palmerston North, New
Zealand.
He is currentlya Professor of operations and sup-
Lukman Abdurrahman (GS’13–M’16) received ply chain management with the School of Business
the bachelor degree in engineering physics from the and Management, Bandung Institute of Technology
Institute of Technology Bandung (ITB), Bandung, In- (ITB), Bandung, Indonesia. With the School of Busi-
donesia, in 1988, and the master degree in informa- ness and Management, ITB, he teaches technology
tion systems Claremont Graduate University, Clare- and operations management, supply chain manage-
mont, CA, USA, in 1999. He is currently working ment, operations management, and the creative econ-
toward the doctorate degree at the School of Electri- omy. He is well known as an expert in supply chain
cal Engineering and Informatics, ITB. management and creative industry development. His research interests include
He was with PT. Telekomunikasi Indonesia, Tbk., supply chain collaboration, inventory models, operations management, service
which has been seconded as a Lecturer at Telkom science, and creative economy.
University since the end of 2012.
Dr. Abdurrahman received Qualified Internal Auditor of YPIA Indonesia
and Certification in Risk Management Assurance of The Institute of Internal
Auditors (IIA). He was a student member of the IIA.

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