Investments in information technology have no discernible impact on financial performance, argues consultant, author and former information technology executive Paul Strassmann. And yet this disturbing reality has done little to curb I.T. spending, which has been comparable to anywhere from 40% to 75% of corporate economic value-added in recent years.IBD: Is there any evidence that investment in information technology produces superior financial returns?
Strassmann: There is no evidence that investment in information technology produces superior returns.... I've found that companies that spend more money on information technology-including a higher ratio of information technology (costs) to labor costs-don't necessarily have better financial performance.
IBD: Are corporations too eager to jump on each new generation of technology?
Strassmann: The bottom line of my book is that management has largely abdicated the technology acquisition decision to experts and consultants. They, of course, have a vested interest to jump into buying more and better and sooner. Consequently, the general tendency is to buy, and then when it doesn't work you just scrap it and go buy the next round. The build-and-scrap approach has been endemic for the last 40 years.
IBD: Should top management be directly involved in technology acquisition?
Strassmann: Absolutely. Management has to start treating information and databases and software as capital investments that have a long life. Right now they look at I.T. as an expense. If you started looking at it as a capital investment, you would look at life cycle costs, at residual value. You would do all the financial analysis you do when you buy a building or machine.
IBD: Could companies do more with less I.T. spending?
Strassmann: My position is without question whatsoever that companies could do much more with less spending.
IBD: It's estimated that it could cost $300 billion or more to correct the Year 2000 problem. Could this looming expense trigger a backlash against the spending spree on computers?
Strassmann: That's my prediction. The Year 2000 is one of the trigger events. The high cost of PC maintenance is another. Morgan Stanley has just predicted that profits in '98 are going to be down. The budget-makers are going to look for cuts. They'll say: "Well, who got the biggest increases in the last eight years? And who are these people who are causing all these excess costs?"
IBD: And yet corporations are spending big on new Windows NT/software and systems.
Strassmann: Windows NT is very expensive. So now you have this new network computer idea. The network computer is really the herald of [companies trying] to slim [I.T.] rations. Certainly, the current costs of PC ownership are just awful. That number can range anywhere from $9,000 to $11,000 per seat per year.
IBD: So has anybody actually begun to cut back on I.T.. spending?
Strassmann: Some people are already saying: "We will not increase your money for Year 2000 so you have to give us savings. It has to come out of your hide . . . because we are not going to give you money to fix something that shouldn't have happened to begin with."