Being able to evaluate the benefits of IT expenditure
for business has been the Holy Grail of IT for decades. And with
global IT expenditure topping one trillion pounds a year,
discovering that Holy Grail is more important than ever. But is it
still just a dream?
“There are 30 years of question marks about what measurable
value we get from IT investment,” says Leslie Willcocks, professor
of technology, work and globalisation at the
London School of
Economics.
Willcocks believes that the first step to removing some of that
uncertainty is to challenge the long-established IT productivity
paradox. “It haunts our development and use of IT and
communications,” he says.
“The term was invented by macro- economist Steven Roach in the
mid-1980s to characterise his finding that despite massive IT
investment in the US services sector, for many years labour
productivity barely increased. And because the phrase resonates
with managers’ own experiences and puzzle¬ment over IT value, we
have lived with the notion of the IT productivity paradox ever
since.”
But Willcocks believes that the paradox is spurious and cites
three critical limitations of the study, claiming that Roach:
- Used flawed government data that only represented 40% of US
services
- Failed to explain factors besides IT that could inhibit
productivity (IT might have had positive effects in otherwise
negative contexts)
- Looked at correlations, not causalities, failing to explain why
in the same period US manufacturing was investing in IT and making
large productivity gains.
Willcocks says, “Subsequent studies at the organisational level,
notably by Bryonjolffson and Hitt, found strong evidence of a
positive impact of IT on business performance. My own study of
400-plus business units with Gus van Nievelt in 1998 found evidence
for significant, positive multi-faceted IT effect on productivity.
However, timing and placement of IT expenditure emerged as all
important.”
From Willcocks’s extensive studies of corporate IT in action in
real-world companies and organisations, he identifies five key
issues:
Wrong valuation of IT
“IT only has business value when related to a work process, has
people competent to use the IT, and a business-focused
informational purpose. We probably spend an awful lot of time
measuring the wrong things. We should be measuring the business
value of IT management, not IT itself,” says Willcocks.
Studies show that IT’s business value is always secondary. The
primary value comes from the process re-engineering that precedes
any IT implementation. “Re-engineering is a prerequisite for IT,
otherwise you only get a more efficient version of what you had
before. If that was poor, what you get is disaster faster,” he
warns.
Wrong measurements
IT’s contribution to business value must be measured in the
right way. “I have devoted five books and numerous articles to
showing that there are weaknesses in measurement
approaches, not just in macroeconomic studies but as adopted
by
organisations,” says Willcocks.
These weaknesses include:
- Not fully investigating cost and risk
- Not accounting for human, organisational and management
costs
- Budgeting methods hiding costs
- Not including intangible/indirect benefits
- Not assessing the opportunity cost to business of a lack of
IT
- Not aligning business with information and IT strategies
- Adopting poor anchor measures for tracking benefits.
“Moving to more balanced scorecard and dashboard-type holistic
measurements can be healthy, though they run the risk of developing
an internal evaluation bureaucracy and of losing credibility if not
kept up-to-date and focused on critical parameters,” he says.
Another danger is that companies tend to be initially rigorous
in their measurement of IT and business metrics, but then
lapse.
Even with good metrics and practice, accurately evaluating the
financial bottom-line is always a bedevilled task. “For example,
the Sydney Opera House is one of the three most recognisable
constructions in the world but how do you put a dollar sign against
that immense value to the Australian tourist industry?” says
Willcocks.
Sub-optimal use of IT
IT that is either unused or underused is a waste of money. It
takes people to extract value from IT investment. Willcocks says,
“Much of the disappointment with IT is to do with not allowing for
and funding the time lags needed for organisational learning and
adjustment that can translate into more optimal IT use.”
Firms are too often preoccupied with the operational complexity
of implementing IT rather than ensuring staff know how to get the
best from it.
Lack of portfolio approach
Not all IT is the same. Different types of IT cost different
amounts and return business value by different means. IT
infrastructure investment, for example, cannot be seen in the same
light as a point solution for a particular, self-contained business
process.
“There are problems with not seeing IT as a portfolio of
investments with different purposes, needing different measurement
regimes,” says Willcocks.
“One of the fundamental mistakes Nicholas ‘IT Doesn’t Matter’
Carr made was to characterise IT as a commoditised infrastructure.
If IT investment is a necessary evil, then be risk-averse, spend
less and use IT defensively. Focus on vulnerabilities not
opportunities.
“Was it just coincidence that this is just what corporate boards
wanted to hear in the 2001-2005 semi-recession? On the other hand,
Thomas Friedman in his book The World is Flat massively overdoses
on the inherently strategic and competitive advantages to be gained
from IT investment.
“Both views are ultimately misleading when it comes to
expectations about and measurement of IT’s business value.”
Non-uniform IT performance
Some IT systems deliver business value better than others.
“There are considerable organisational variations in IT
performance. Getting the right measurement regime embedded as a
routine part of management helps to establish where you are. And
getting this linked from the business, strategic to the IT
operational level, and across a system’s lifetime is an obvious, if
rarely enacted, recommendation.”
Willcocks outlines two possible causes of variability.
“We have always found a strong correlation between good
measurement and actual improvement in the business use of IT,” he
says.
Attitudes are also key. “Much comes from the orientation of
senior executives towards IT. In some organisations we see what I
call ‘fear metrics’. These are set up by executives who have no
faith in IT, whose existence has to be continually justified and
invariably judged on traditional measures used with other assets,
thus becoming a self-fulfilling prophecy of disappointment and
under-funding.
“However, other executives have a more ‘strategic asset’ view of
what IT can do for the organisation. They tend to get more business
value out of their IT, not least because they are clearer about
giving a business focus to their measurement systems and IT
investment in the first place. They are more confident about the
value they are getting from IT, and so they tend not to want
exhaustive, highly detailed measurement data, but focus on key
metrics and results.”
Good management practices are key to getting business value from
IT investment. “That is when competitive advantage can kick in. It
is a point Carr misses. He greatly underestimates how problematic
IT is and the difference management makes. We have spent years
studying these phenomena,” says Willcocks.
He says that effective users of IT share certain traits:
- They listen to the technology and are informed by global
dynamics of new trends such as offshoring
- IT is governed as a strategic, business-focused portfolio by
relevant stakeholders
- IT is led by a credible CIO, influential among senior business
executives
- Business executives manage IT as a strategic resource
- The organisation retains key IT capabilities and ensures key
supplier capabilities are in place within a disciplined strategy,
management and delivery regime
- There is good project management to draw upon for
re-engineering and IT implementation.
“In such organisations the notion of an IT productivity paradox
is too false to be good,” says Willcocks.
Leslie Willcocks was speaking at a Computer Weekly 500 Club
meeting
IT's productivity paradox
Attention was first drawn to the “IT productivity paradox” in
1987 by Morgan Stanley’s chief economist, Steven Roach, who
demonstrated that although the amount of computing power per
white-collar worker in the services sector had grown dramatically
during the 1970s and 1980s, measured productivity of the sector
remained flat.
The Productivity Paradox of IT
Invest in IT for productivity gains
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