Where’s the Productivity Gain?
October 25, 2012 Leave a comment
According to Forrester Research, global IT spend in 2011 was estimated to be $US1.7 trillion. Gartner, which also includes telecommunications spend in its estimates (ICT spend), put the figure at $3.6 trillion.
To put that in perspective, the Department of Economics at U.C. Berkeley estimated that Gross World Product (or global GDP) was around $70 trillion in 2011. So on those measures, ICT spend accounted for over 5% of global economic output in 2011 (or 2.4% for IT alone).
One would expect a substantial economic benefit from an investment of that proportion, and yet anecdotally at least, the report card doesn’t read well.
Business stakeholders are increasingly skeptical of the benefits promised in business cases for IT projects, and I would argue this is largely because of the system used to fund these investments.
The process typically relies too much on risk avoidance (i.e. build in every contingency possible), lots of process and paperwork (because that way we’re sure to get it right), and little in the way of benefit assessment once the project is complete (as everyone has moved on to the next big thing). The process takes far too long, is very inflexible and generally does not have the same type of scrutiny (vis-a-vis realised return on investment) as other large-scale investments.
A better way would be for businesses to fund smaller, experimental projects, with minimal capital at risk and a very short time to market, so that real data can be collected and interpreted about the actual business benefits derived. Indeed, there are many companies that are now taking this approach to IT investment with great success.
This approach not only ensures that benefits are actually compared against the project costs that were incurred (a rarity in enterprises these days, in my experience), but also allows a more robust business case to be developed for the large-scale implementation of the product/service/innovation.
This approach also makes it easier to kill an idea that, although it looked good on paper, turned out to be not so compelling a proposition in the real world. The stakes are dramatically reduced when the initial capital investment is minimised, and the learnings can also be used to move the business in a more promising direction.
Most important of all, this approach ensures that the vast majority of capital is directed to investments that deliver significant and quantifiable returns on investment, instead of being wasted on projects that have ‘deliverables’, but do not deliver any real value.
So, where’s the productivity gain? The inputs (in dollar terms) can remain the same, but the outputs increase substantially, delivering the productivity gains from IT investment that have long been promised, but rarely are delivered.