Visible results of spending money or energy

Visible results of spending money or energy

"It is one of the commonest of mistakes to consider that the limit of our power of perception is also the limit of all there is to perceive"CW Leadbeater, found in A Word a DayBusinesses 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.

Munnecke 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.

One month ago, using similar arguments, I critiqued Paul Strassmann's new book, The Squandered Computer, and his highly publicised conclusion that IT hasn't led to business benefits. Needless to say, Strassmann wasn't happy with me.

After Strassmann accused me in a recent letter of not reading his book, he made this "point": "Mr Lewis' attempt to prove that computers are essential, regardless of cost, because no one '. . . types on 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."

Strassmann is using a common polemicist's trick Ñ 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 $US49 of it. 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: 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. That's one reason collecting facts and drawing proper inferences are two different matters. Inappropriate measures are another.

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 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 well, profits will stay at current levels. Strassmann, seeing increased IT spending but flat profits, concludes that this company wasted its investment.

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

Bob Lewis is a Minneapolis consultant with Perot Systems. Send e-mail to robert.lewis@ps.netMain lesson to be learned from year 2000Some economist analysed all of the leveraged buyouts of the 1980s and made a startling discovery: in about 70 per cent of the cases, the companies, generally profitable when acquired, did not generate enough cash to pay off the debt taken on in financing the buyout.

Everyone involved in these transactions knew they would fail, but it didn't matter, because they all ended up wealthier than when they started.

Why do groups of people who are individually smart seem to act stupidly so often? A group is smart when its members' personal short-term interests coincide with the group's long-term interests. Otherwise the group will do stupid things.

That explains why we have a huge year 2000 problem.

The year 2000 is a crisis because until it reached crisis proportions, making this year's numbers was more important than investing in surviving past 1999. Understanding these dynamics should change how you set IT priorities.

What problems do you have with your systems architecture or applications portfolio that you could fix with little stress if you started right now? I'll bet you have at least one.

Use your year 2000 crisis as a lever to sell a long-term program of technology grooming so you never again have this kind of difficulty. I know right now, if you're a typical CIO or IT director, the year 2000 problem seems like your greatest challenge and these other projects seem distant at best.

The real impact of the year 2000 problem will be to reward far-sightedness: competitors that have already fixed the problem can now afford to invest in projects that yield a competitive advantage. -- by Bob Lewis

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