While some of the recent publications on information technology question the value creating role of IT in today's business environments (Carr, 2003 and 2004), others assert that with the economic recovery in many parts of the world, innovation—especially in information technology—is becoming even more critical to growth and high performance.
With respect to the first, doubts about the potential payoffs of IT investments can be traced to numerous IT projects made without the rigor of measurement of either the benefits or costs of such investments. Decisions were made based on compelling arguments and keeping up with competitors resulting in billions of dollars of wasted corporate assets. France Telecom, for example, announced that they spent 700 million euros on external IT services in 2003 which is after slashing 138 million euros from the IT spending of the prior year (838 million). Almost every organization has stories about unfulfilled promises about the benefits of new ERP or IT systems. In the United States alone, annual expenditure on IT now runs into trillions of dollars, and approaches 50 percent of new capital investment for most organizations with little evidence to suggest that this expenditure has generated a satisfactory return (Murphy, 2002, Davenport and Prusak, 1997). Typically, the costs of the technology are much higher than anticipated, the cost of the conversion is also higher, whereas the benefits are far lower and harder to achieve than expected. In addition, this ignores the very significant costs related to the internal employee time wasted and the disruption to personnel, operations, and the revenue stream of the organization. While the claim that some organizations collapsed because of ineffective IT policies may be an exaggeration, many CEOs and business unit leaders view IT as a value destroyer or a cost rather than a value creator implying its corroding impact on the organization’s competitive advantage.
On the other hand, the advocates of the bold and comprehensive new vision of how organizations can use information technology to create value believe IT matters more than ever, yet in a different way. By moving from an era of technology to an era of technology capability, the focus has shifted from individual technologies to the benefits that can be created with them. Because of this focus on technology capabilities, innovation is emerging not just from technologists, but from the users of the technology components who understand how to use IT to deliver higher levels of organizational performance. By filling the gap between the rate of technology innovation and people's understanding and ability to use and implement the technology, organizations can use these innovations to lead to substantial improvements in their performance. Even for organizations that were actually quietly making a big difference in their markets by leveraging IT, it was still often difficult for these CIOs to quantify those results, and prove the benefits. Then, when earnings declined, IT was an easy target for cost cutting.
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