By 1994, IT spending in the U.S. nearly tripled that
of 'basic' industrial equipment
Money talks. And it talks more clearly about priorities than anything else. If you look at the statistics, information has become the most important way for companies to invest in their future.
Information technologies - computers, telephony, video, etc. - have become the preferred business tooling investment for U.S. corporations. And more corporate cash is spent on information management than on the annual costs of shareholder equity, according to my calculations.
The shift is so striking that one may rightfully designate the U.S. as having entered the Computer Age after 1982, in the same way that historians describe evolutionary progression in terms of the Stone, Iron or Automobile ages. After all, civilizations are defined by the tools they use. But this epoch making shift has other ramifications for chief information officers and how information systems payoffs should be measured.
The number of executives who say they will increase spending on computer hardware and software has more than doubled in the past five years. Computer purchase plans are funded better than expenditures for all other business tooling.
This shift in preferences is best illustrated by showing the relative shares of capital spending in recent history:
Percent shares of total business equipment spending
By 1994, IT spending in the U.S. nearly tripled that
of 'basic' industrial equipment
Basic industrial spending includes production, transportation and
process equipment as well as office fixtures.
Business equipment spending not reflected in this chart includes
airecraft, power plants, electrical equipment, and other heavy
equipment.
Skeptics may argue that a better measure of the priority given to information is how much of a company's revenue is invested in information technology. But that is a misleading indicator.
The costs of information technologies average only 2% of a firm's revenue, but they can have an enormous influence on a firm's operations. They have become the principal means of improving existing business processes. Just as in the human body, the relative weight of critical organs, such as the kidneys, isn't a good indicator of their importance.
Therefore, a better way to assess the relative importance of information is to calculate the ratio of the costs of information management - which I define as sales, general and administrative plus re search and development expense - to the costs of shareholder equity, which is the net value of all assets minus liabilities.
A firm's ratio of information management to shareholder equity is the most appropriate indicator of whether a company is information intensive or capital intensive. If a firm is overwhelmingly information intensive, the role of the CIO rises in importance for assuring the success of the enterprise. I have calculated this ratio for 2,186 major U.S. corporations. The results are best illustrated below:
Information management spending
surpasses shareholder equity (1994)
Company spending on information management for every dollar spent on
shareholder equity
Some 1,926 corporations spent more on information management than on shareholder equity in 1994.
Only 260 firms, or 11.9% of U.S. companies, were found to depend primarily on shareholder capital as the most important input resource. About 70 years ago, capital would have dwarfed information costs.
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