Measuring Information Technology Payoffs
November 13, 2009
A reader wrote me twice about “Why IT Can’t Seem to Deliver Measurable Productivity”. Since I don’t have “customers,” I don’t fool around with customer service. But I have two or three readers, so I have now heard from 33 percent of my readership twice. Let me comment about this article.
The author is Joe McKendrick. He writes for the ZDNet combine. This essay or opinion piece tackles a question that I thought was dead and buried long ago. He asks (maybe the editor who plugged in the subhead asks), “Are your investments in IT bearing measurable results?” In my experience, IT investments do not get measured accurately. Every bean counter I have met asserts that IT costs and payoffs are in the numbers. The reality is that IT costs are not carefully tracked and in some government entities, the costs are captured in such a way that even adding up the direct costs is next to impossible. The indirects? Forget that. Not many managers in my experience know what to do with the hockey stick expenditures that pepper the IT landscape. At one Fortune 500 firm, the president set a cap on IT expenditures. When the money was gone, IT had to make do. Period. Well, that’s one, if somewhat crazy, way to run a Fortune 500 company.
Mr. McKendrick writes:
Janne quotes MIT’s Erik Brynjolfsson, who in 1993 published a landmark paper on why the productivity impacts of IT is so hard to measure: 1) measurement error due to use of conventional productivity-measurement approaches; 2) time lags in IT payoffs; 3) localized optimization; and 4) lack of explicit measures of the value of information.
Okay, someone figured out 30 years after computers started making their way into organizations that cost tracking was tough. Payoff from those IT investments were even tougher to track. That is why I don’t pay much attention to write ups about IT costs whether in the wild and crazy world of the Harvard Business Review or the quilt-like landscape of ZDNet blogs.
Consider this comment by Mr. McKendrick:
The bottom line is that there has never been an expectation that IT would be solely responsible for a company’s rise or fall. Adroit management, supported by the right IT tools, makes the difference. A company that smartly and innovatively leverages its IT in new and creative ways will move to the head of the pack. And, thanks to IT, you don’t need a workforce of thousands to do so. And we need to measure these changes in more holistic ways.
Well, that’s a positive stroke for the IT crowd. In my opinion. No one wants to know what information technology * really * costs. The reason is that few understand why the numbers just get crazier and crazier and the systems continue to bedevil users. When I was younger, I used to track IT costs for clients. When I * did * get a handle on directs and indirects, tie the costs to a specific line of business, and crank out an ROI number, no one believed the data. Why? IT is expensive. Users are rarely happy. Costs cannot be controlled without Draconian measures. Vendors pitch fog and cotton candy.
As a result, I have learned my cost lessons. Obviously lots of folks haven’t and may never figure out that information technology is little more than a part of business overhead. Cost estimates just have to be close enough for horseshoes and modest enough to be hidden in some other budget pocket. Everyone involved pretends that the “costs” are accurate. Life goes on in finance land.
Stephen Arnold, November 13, 2009
This is an overhead article. No one pays me to spell out my view of the IT economic reality. Would you? If in doubt, alert the Marine Mammal Commission. Bean counters are mammals too, you know.
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