Harvard Business Review

The Squandered Computer:
Evaluating the Business Alignment of Information Technologies
Paul A. Strassmann
New Canaan, Connecticut
The Information Economics Press, 1997

Businesses worldwide—and particularly in the United States—have wasted billions of dollars believing the big lie of the Information Age. For almost two decades, that lie has encouraged a massive spending binge, absorbing over half of every dollar that U.S. business has invested in itself. And it has governed the ways in which both entrepreneurs and global juggernauts seek competitive advantage. The big lie is pervasive, and it offers a seductive logic that actually makes it believable.

The lie says that if organizations only had greater quantities of cheaper, faster, and more useful information, they could increase their profitability and enhance their competitive positions in the global marketplace. On the surface, that makes sense. If you offer employees greater quantities of better information more quickly and at a lower cost, you should reasonably expect their performance to improve as a result.

Although in many situations better performance will result, the sad reality is that even improved information often has little or no impact on people’s behavior. Who is unaware of the risks of smoking? Yet millions of people still pick up the habit. Yes, there should be strong links between information and behavior in the enterprise. But let’s be honest: the real problem most executives face isn’t inadequate information—it’s the organization’s unwillingness to change behavior in the face of good information.

This failure on the part of U.S. business to manage computers brings to mind the comment made by English biologist T.H. Huxley that there is no sadder sight than an ugly fact slaying a beautiful hypothesis. Paul Strassmann’s Squandered Computer urges executives and technologists to confront bracing economic calculations about enterprise computation to test the hypotheses that computers increase the productivity of organizations.

Grim Calculations

Strassmann, formerly the chief information officer at both Xerox and the Pentagon, presents his analysis with the zeal of a convert. He challenges the idea that U.S. corporate investment in computing has generated appropriate returns and flays “best-practice” information technology departments as shams. He tests the core of the arguments driving IT, only to hear the echoes of hollow claims.

When he scrapes away the muck from the accepted methodologies and trims some of the statistical assumptions, he finds that executives’ faith in information technology has cost U.S. business tens of billions of wasted dollars.

Not only does Strassmann find no demonstrable relationship between spending on computers and corporate profits, but he also rejects recent findings that computers have finally begun to boost the economy’s productivity. He argues that the recent rise in revenue per employee is more likely a reflection of outsourcing than of gains attributable to computerization.

Anyone who has gone through Economics 101 and a basic statistics course will find Strassmann’s math a provocative and welcome antidote to popular media coverage, which regularly attributes 1,000% returns to intranet investments. On a micro level - even on an industry wide level - it is inarguable that some companies get strong returns on their digital investments. What seems true, however, is that on a macro level more money has been wasted on computerization than has been created by it.

On a macro level more money has been wasted on computerization than has been created by it.

No one denies - including Strassmann - that computerization and creative networking can add enormous value. But when we look at the numbers, it is clear that companies are not basing their computer investments on careful calculations of returns or added value. Other factors such as culture, politics, fashion, and competition also come into play. Strassmann persuasively argues that best-practice methodologies often are irrelevant benchmarks for many companies investing tens or hundreds of millions of dollars in computers and networks.

As for the popular trend of IT outsourcing, Strassmann argues that it is more an instrument for downsizing than a process for adding value. He has found that companies with consistently large profits and rising employment have not outsourced most of their information technologies, despite the supposed benefits of synergy or the advantages of getting rid of commodity work. The only companies that have outsourced information technologies are those that are shrinking anyway.

For every success story - for every Federal Express and SABRE - just how many IT failures have arisen from popular delusions about computers? For every large-scale project that has been implemented successfully, how many have been canceled or have ended inconclusively? The answers are chilling, as Strassmann shows in his extrapolations from survey data about failed software projects.

Indeed, employees can misuse computers in a number of ways. How many times can people revise a word-processing document, manipulate a spreadsheet, or polish a presentation before they hit the point of diminishing returns on their time? Is productivity really increased in this context? When you multiply all those diminishing returns by the tens of thousands of personal computers in a large company, what is the real value-to-waste ratio?

Strassmann doesn’t treat these questions as hypothetical. Precisely because his perspective on the diffusion of technology is more statistical than anecdotal, his numbers have a credibility that the Information Age prophets frequently lack.

Moreover, it would be wrong to dismiss Strassmann as a cynic or a corporate neo-Luddite. On the contrary, he comes off as a wounded idealist. He appreciates the potential of information technology but simply refuses to ignore what happens when managers misuse that potential. Strassmann’s implicit message is that the profitable use of technology does not begin with a better understanding of digital media; it comes with a better understanding of the organizations that use them.