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|In: Industry Commentary|Last Updated:

In all the world, there’s nothing more irritating than someone stating obvious, widely accepted, and often wrong or misunderstood conventional wisdom as something profound.

“People need to take personal responsibility for their actions!” I recently heard an acquaintance declaim to a group of us in terms that left no doubt this was a Highly Original Thought (HOT).

Other statements that are currently HOT:

“We should build this application using a thin-client architecture.” (Usually said by people who have no idea what a thin client really is.)

“The mainframe is just the biggest server on the network.” (No, that’s just one of its roles, unless you no longer run batch jobs on it.)

“Our technology investments will be driven by business needs … we’re not going to invest in technology for technology’s sake.” (Gee, do ya think?)

This last statement usually comes from technophobes who wouldn’t recognize the business benefits of technology if those benefits were listed as a line-item on the profit and loss statement, or by defensive technologists conditioned to cringe by years of dealing with the aforementioned technophobes.

And the fact is, it isn’t a very smart statement to make.

It isn’t that the statement is wrong, exactly. Often, inefficiencies or changes in strategy really do lead a businesses to recognize the need for new technology. On rare occasions, that need can drive vendor innovation, as opposed to simply causing IS to buy existing technologies. It can happen.

What this view ignores, however, is that usually new technologies create opportunities for process efficiencies, for improving customer relationships, or for defining whole new markets and marketplaces within which your company can do business, and these aren’t opportunities business executives foresee.

Let’s take a simple and obvious example. In the mid-1970s, world business didn’t approach any of the fledgling PC hobbyist groups saying, “You know, if one of you would just create an electronic spreadsheet program for us, we’d buy millions of personal computers just to run it.”

More recently, Tim Berners-Lee adapted SGML, sponsored by the Department of Defense to facilitate creation of electronic documentation, to the needs of the international physics community. By doing so he invented the World Wide Web and a new multibillion-dollar vehicle for commerce. Business executives didn’t drive the creation of the Web. Most have responded to it nervously, as something they don’t particularly like but probably can’t entirely avoid. Even now only a visionary few recognize it as a huge, still-to-be-defined opportunity.

Chances are high that the requests you get for new technologies and information systems from heads of departments or business units will lead to business improvement if you execute well. That’s important, and not to be taken lightly. It’s only part of the story, though — the part where your company follows others who are the industry leaders. In other words, investing in technology in answer to business requirements is a survival response, not a growth strategy.

A similar principle holds on a macroeconomic scale, by the way. For evidence I offer an extensive analysis in the September 28, 1996 issue of the Economist, which says, “… per-capita growth in output is doomed to be zero — unless the economy is making technological progress.” (Thanks to reader Linda Donaghue for directing me to this fascinating article.)

Business doesn’t drive technical innovation. It only pays for it. Business people usually can’t envision the value of something they’ve never encountered before. That’s why CIOs who wait for the rest of the company to ask for a new technology earn their reputation as sand in the gears of progress.

Yes, technical innovations must create business value. And no, not every technical innovation will create value for your business. You have to be able to recognize what’s really HOT.

That’s what makes the job interesting.

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|In: Industry Commentary|Last Updated:

When I was the PC czar for a previous employer, I’d annually have to explain our spending “all this money” on PCs when we’d just spent “all that money” on PCs the year before. I hauled out all the usual arguments, and some unconventional ones besides … all to no avail.

The CFO had prepared counters to the usual arguments, of course, and became irritated at the unconventional ones. Like most executives, he disliked surprises; like many, he found countervailing facts and logic irritating once he’d made a decision. Finally, he presented his clincher: “If PCs increase productivity so much, why hasn’t our headcount dropped?”

When I expressed doubt as to the validity of headcount reduction as a useful measure of productivity improvement, I was told we lacked a good measure of productivity, so he was using that until we got one.

Recognizing the futility of argument, I changed the subject (until now).

Computer backlash seems to be picking up steam again. You can find good examples of this gleeful technology bashing in the writings of Paul Strassmann, whose new book, The Squandered Computer: Evaluating the Business Alignment of Information Technologies, received a glowing send-up in the September/October issue of Harvard Business Review.

Strassmann’s arguments go something like this: Computers are supposed to make companies more productive. If companies are more productive, their sales, general, and administrative cost (SG&A), indexed by the cost of goods sold (COG) ought to have decreased over time. SG&A per COG dollar hasn’t decreased over time, so the benefits touted by IT advocates are, in the terms of Michael Schrage’s HBR review, “… the big lie of the Information Age.”

Every big lie requires a big liar, and since nobody else seems to be around, I guess I’ll have to assume the mantle of responsibility and do my best to perpetuate this big lie.

Strassmann’s argument contains a fatal flaw: There’s no reason to expect SG&A (accounting lingo for overhead) to decrease when you invest in IT. None. Why would it?

You see, capitalist societies include a complicating business factor called competition. It’s a complicated concept, but I’ll try to simplify it. Competitors, you see, are companies that want the same customers you do, and they’ll work hard to get them (unless the company is Novell or Apple, of course, in which case they’ll work hard to give Microsoft their customers … but that’s a different story).

Competition confounds simpleminded productivity measures. Product quality, for example, doesn’t remain constant over time in a competitive environment — it improves or the product fails. And around these quality improvements companies have wrapped extensive service offerings. Why? To stay in business, because their competitors were busy wrapping extensive service offerings around their higher-quality products.

As documented here earlier this year, service isn’t enough either. (See “What customers buy,” 8/11/1997.) Progressive businesses add entertainment dimensions to their products and services; transform sales and marketing into affinity enhancement programs to move from mass marketing to mass one-on-one marketing; and “molecularize” everything to transform manufacturing from mass production to mass customization.

None of this comes cheap. These programs require significant investments in IT. Companies that don’t invest fall by the wayside; those that do stay in business so they can play the game again next year.

So here’s my challenge to those who claim IT investments are worthless: Find one company — just one company — in a competitive industry that’s succeeding while keeping the books on ledger paper, typing correspondence on IBM Selectric typewriters, and managing inventory on index cards.

It’s the nature of competition that you have to keep running faster just to stay even. The measure of IT value, then, isn’t SG&A over COG. The proper measure of success is simply staying alive.

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