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All manner of experts claim to know better than people who do real work. Consultants such as myself have broader exposure to ideas and practices. Executives see the big picture more clearly. And accountants understand the financial realities far better than factory workers, who only know that without a new forklift work will stop when the old one breaks down.

Well, consultants really do have broader exposure, executives do see the big picture more clearly, and accounts do understand the numbers. And we all ask the people who do real work to respect our knowledge, expertise, and perspective.

So why do so few of us return the favor?

We’re going to spend one more week critiquing Paul Strassmann’s thesis that spending on IT hasn’t generated any economic returns. Strassmann, you’ll recall, has amassed a daunting array of financial statistics which he’s sliced and diced more ways than a Vegematic can handle potatoes, all without finding any correlation between financial improvement and IT spending.

I’ve been contending that he’s the kid looking for his lost quarter under the streetlight even though he lost it a block away, because “the light is better here”.

Here’s one place Strassmann hasn’t looked: He hasn’t talked to people who actually use computers to do their jobs. I wonder why not?

People who use computers to do their jobs aren’t misguided children or poor deluded fools. They’re smart people. If they tell you they do their jobs better with a particular technology than without it, they’re more likely to be right than a number-cruncher who’s never talked to them.

Here another problem with Strassmann’s analytical approach: He tries to correlate “IT spending” with various measures of financial return. “IT spending” is an undifferentiated blob. Let’s break it down into its components.

In typical organizations, 70% of IT spending goes to the data center and systems maintenance. These don’t deliver new value. They maintain value you’ve already gained. So by definition only 30% of IT spending has any chance of yielding further financial improvements.

It’s well-known that only 30% of all IS/IT projects are satisfactorily completed. That means while 30% of IT spending tries to create new value, only 9% has the chance. I wonder what conclusions Strassmann would reach if he re-analyzed his data using only the IT spending expected to deliver value.

Because so little spending delivers value in the end, Strassmann claims we’re aiming at the wrong targets, providing technology for technology’s sake. I’d contend the problem is with our technique, not our aim. It’s in the hard work of project management and system implementation that we goof up, not in our ability to link projects to business strategy.

Now here’s something remarkable. I re-analyzed some of Strassmann’s data, converting back to numbers as best I could a graph plotting IT spending per employee against return on equity (ROE) for 20 companies in “the food industry”. As expected, the regression analysis showed no correlation.

Then I tossed out four outliers — data points clearly outside the pack. The new regression showed a strong, statistically significant correlation between IT spending and ROE. For you statisticians, R Square equals .28 at a .033 level of significance. The slope (increase in ROE per $1,000 spent per employee) is about 1.5%.

This new analysis no more proves IT spending does provide value than Strassmann’s analysis disproves it. Since the original analysis lumps supermarkets, agribusiness conglomerates, pet food suppliers and a tobacco company together the whole analysis is just a tad dubious.

But when the inclusion or exclusion of just four companies makes the difference between no correlation and strong correlation, Strassmann’s conclusions must be taken with at least a grain of salt.

Or pepper, if you like spicier stories.

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|In: Industry Commentary|Last Updated:

Businesses have a lot in common with electric fish — a fact I can state with authority as the only person on earth who has studied them both.

One example: A deep knowledge of evolution helps to understand fish and business. IS Survivalist Thomas Munnecke recently shared an insight along these lines.

Tom differentiates performance from adaptation. IT contributes a lot of its value by improving adaptation. Since accounting systems measure only financial performance, they are blind to adaptation. Check out Tom’s paper at http://www.ncsa.uiuc.edu/SDG/IT94/Proceedings/Overviews/munnecke/www94.html if you like this thought.

A month ago, using similar arguments, I critiqued Paul Strassmann’s new book, The Squandered Computer, and his highly publicized conclusion that information technology hasn’t led to business benefits. Needless to say, Strassmann wasn’t happy with me.

After Strassmann accused me in a recent letter to InfoWorld of not reading his book he made this “point”: “Mr. Lewis’s attempt to prove that computers are essential, regardless of cost, because nobody ‘…types on Selectric typewriters or manages inventory on index cards…’ is without merit. There is no question that trucks are superior to horse-drawn carriages. However, if all firms use trucks, their freight-carrying productivity must be evaluated in terms of trucking, not in terms of horses. That’s exactly what I do. I compare the productivity of firms that use identical computer technologies.” (For the full letter, see To the Editor, Jan. 12, page 62.)

Strassmann is using a common polemicist’s trick — by speaking for me, he’s able to have me say something he can successfully refute. Regardless of cost? Puhlease!

Well, Paul, I did read your book … all 400 pages and $49 of it. It’s better than your “freight-carrying productivity” argument, at least. Seems to me if you’re trying to prove that investing in trucks hasn’t paid off, the best comparison is with other freight-carrying techniques.

Strassmann and I do agree on one basic point: that it’s important to align IT spending with business goals. It isn’t much of an insight, but it is valid.

But his daunting array of numbers cries out for statistical analysis instead of simplistic financial ratios. (I searched The Squandered Computer in vain for a multiple regression analysis, ANOVA, or even a simple paired T-test — probably the best test of Strassmann’s hypothesis.)

That’s one reason collecting facts and drawing proper inferences are two different matters. Inappropriate measures are another. Numbers folks don’t always accept that financial statements no more measure competitiveness than reproductive capacity measures biological adaptation. But they don’t.

Here’s another way of putting the situation into perspective: Imagine two Sumo wrestlers. We’ve all seen movies of these guys, pushing and struggling, expending all kinds of energy to move each other.

For a long time they don’t, though, and if you tried to measure the effectiveness of their energy expenditure by the amount one moved the other, you’d conclude they’re both wasting a lot of energy to no effect.

We know better: The moment one of them weakens, the other wins the match. The energy expenditure’s value is measured by lack of backward movement.

This isn’t just theory. A client I once worked with developed a financial outlook that was pretty grim. It showed profits plummeting to a fraction of current levels over a decade, due to fundamental competitive and marketplace changes. That client wisely decided to invest large sums of money into a business transformation, which requires significant IT spending.

Its forecast, with the investment, improves its profit picture from disaster to status quo. If all goes according to plan, profits will stay at current levels. Strassmann, seeing increased IT spending but flat profits, will conclude that this company wasted its investment.

Its executives, though, will compare their profits to the original financial outlook and be deservedly pleased.

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