Is it possible to calculate the return on investment on information technology? Perhaps more importantly, should companies even try?
If we were to give out Oscars for IT economists, the person(s) who figures out how to measure IT performance more accurately would be a sure winner. It is a tough role and no one really knows what the "new economy" is currently doing to companies' competitiveness.
When considering IT's productivity-enhancing power, most people's first thoughts are about how technology has cut legions of clerks, warehousemen, middle managers and other workers over the past decade or so. But many now argue that a new stage is opening up in which business enhancements come not from using technology to cut costs, but rather to provide tools for the core of the workforce in the new economy, and for the army of higher-paid technical, professional and managerial employees where productivity computerisation so far has been scarcely touched.
During a recent Rust Roundtable session the debate ranged from how to measure computer productivity gains, to ROI, to IT scrutiny, to RIP.
On the surface the issues seem inarguably simple: if technology doesn't spur productivity and/or competitiveness, companies that don't use technologies should do as well as or better than those that do. Consequently, all we have to do is compare the performance of non-computerised banks, airlines, retailers and others to that of their digitally-invested competitors.
There's only one catch with this, the former no longer exists. Thus the evidence seems overwhelming; productivity is a minor issue, computerisation is definitely a matter of survival.
With competitiveness also being the order of the day these days, company after company is telling the same story of technological change combining with organisational changes to attempt to yield higher productivity.
A medical supply company employee who chooses to remain nameless, as do all attendees to the roundtable, commented that "inert, innovative technologies always remain static until organisational change breathes life into them".
In the face of the transformation that is taking place in the new economy, many managers have had a way of fighting hard to hold onto the information in which their power rested, in many cases restraining the businesses productivity rather than liberating it.
As we make this transition to the new digital economy, the efforts eventually will be felt economy wide.
Rapidity in motion
It wasn't until the early 1990s that microprocessors were fast and cheap enough to work well in a wide range of applications. The Internet didn't become a mass-medium until 1994. Emerging technologies such as smart cards, voice-based computing, video telephony "expert systems" software and the next generation Internet are all in various stages of arrival.
When these and others are widely used, and when the majority of the economy and society are linked through high speed networks, it will be impossible then to speak of a "nearly" complete digitisation of the economy.
If we think about everything that has happened over the past 20 years or so, to create where we are today, we see that technology itself has really only had a trivial impact, but coupled with the cultural change that accompanied it, the impact has been truly transformational.
Just take any executive (please): in the past typing was beneath them and PC's were useless on executives desks because executives looked at them and freaked out. Today an executive not using a PC or a laptop is generally too inept or lazy to learn the basic tools of the trade. And now these attitudes are very much reflected in real behaviour, including who gets hired and promoted, how business gets conducted and what we all expect of each other.
Business people today also use IT return on investment (ROI) to resolve particular situations, not just to justify the overall impact of IT.
The effective use of technology today is both a competitive requirement and one of the few sources of sustainable advantage. But trying to measure IT's overall ROI is like trying to measure the value of telephones or electricity. Why bother?
Many business today are already playing "catch up" with e-business and as a result, they often jump into it without carefully considering the ROI or strategic implications of the move forward.
Of the e-business projects represented around the table I'd say two-thirds are done simply out of a sense of business urgency. CEOs are saying, as they did with ERP systems: "I don't know what it is, but I know we have to do it". Many suffered ERP regrets later.
CIOs around the table and many of their peers are now between the proverbial rock and a hard place. The rock: the CEO, whose job entails taking risks and not getting too hung up on numbers. The hard place: how to attach numbers to the benefit of what an IT investment eventually might yield. A false step in either direction can leave the CIO with a bad case of heartburn.
So let's not kid ourselves: In IT, with the exception of major and well defined projects, ROI is probably not a tangible or practical issue -- the alternative? To just keep on doing as we have done, relying on our expert judgement. That is assuming the alligators can be subdued long enough to let us think.