Jul 6, 2006
Six rules for finding IT value
Paul Strassman has a relatively older article that has a rather frank discussion on finding value in IT projects. Given my interest in the enterprise application software, which could be classified as one gigantic IT project which has nothing much to do with IT, this article certainly had my antennae up.
Paul begins:
So far – to my best knowledge – nobody has been able to demonstrate that there is a positive correlation between money spent on IT and sustainable profits.
Alright, that’s one swing from the bat but let’s see if it is on target…
Sure there are articles about the positive contributions of IT. But the proof could be applied to justify greater IT spending as a sure cure for poor for poor financial numbers is still missing. The quest for demonstrating the directly measurable value of IT can be added to the list of fascinating but hitherto unfulfilled ambitions to attract academic fame or consulting contracts.
And quite importantly…
What is always missing is a repeatable technique for performing the calculations that would satisfy a firm’s methods for making investment decisions
Alright, Paul is not denying that IT investments contribute/create value for the firm but that a direct measurement of that value created/contributed is so far lacking and when provided is not repeatable in other contexts. I would hazard a guess that demanding controlled repeatability in the real world is an idealistic requirement which is more to be found in the scientific world than the business world.
He continues:
Nevertheless, there are ways of finding IT value – it’s just that they are all indirect.
He has outlined 6 key rules that might direct an investigator as to where to look for IT value:
Rule #1: Follow the money – The decisive contribution to an enterprise’s profitability is its capacity to manage purchases. Ergo, that is where the contribution of IT should be maximized as that is where the greatest opportunities are – primarily in improving the management of the firm’s purchases and in simplifying transaction costs. The relationship between purchasing, transaction costs and profits has not been adequately exploited.