The use of information technology is such a no brainer today – but lets give it some second thought before proceeding further. Check this list of statements for true and false:
- Every Company of notable size, say above a Billion Euro Revenue, makes intensive use of IT systems these days – true or false?
- The world is getting more and more productive because the use of Information technology – true or false?
- Companies employing more IT than their peers deliver better results – true or false?
It is likely that you check all three questions and conclude the statements to be true. But is it?
to 1: Does every company of notable size use IT intensively? Objective data is hard to get, as IT budgets are neither easy to get nor comparable. Business consultants use benchmarks by sector as approximations. In the discount retail industry it is not uncommon that about just 1% of total revenue is spend in IT, as revenues of discount food retailers are massive and margins slim. But even in higher margin segments, such as mid fashion retail, IT expenses are commonly just 2,5% of revenue. Is that intense use of Information Technology?
But maybe the measurement isn’t good. Problem is, there is no better measurement for IT “intensity” like budget spend compared to total business size measured by revenue, total costs, market capitalization, etc.
Another way to measure IT “intensity” could be to assess functions or IT capabilities actually employed by a company and compare that to a full catalog of available functions/capabilities. This route hasn’t been tried at any relevant scale up to now. But results will likely be surprising: I have experienced companies in my consulting career, who did very little IT with fabulous results, e.g. a 2,3 MEuro pan-European retail business that was not even managing their article master in an ERP system – in 2015!
to 2: Is the world getting more productive by IT? No-one knows. In 1987 Nobel prize winner for economics Robert Solow said: “You can see the computer age everywhere but in the productivity statistics” – and is hasn’t changed tremendously since. So why do we still hype IT, even if macroeconomic data isn’t showing that its worth the effort?
First, macroeconomic data on Gross National Product Level (GNP) is still very hard to measure. There are so many statistical flaws in capturing the data as well as in the definitions used. Second, while macroeconomic data remains blurry, there is some light to be found by zooming one level down – to micro economics:
to 3: Do companies employing more IT than their peers deliver better results?
There is more and more evidence for a positive return in IT spend on micro-economic level in recent studies. Already in 1998 Rolf Kempis and Jürgen Ringbeck of McKinsey found in their book “Do IT smart” that IT “Champion” Companies where achieving higher profits and growth. The work of MIT’s Erik Brynjolfson – the main authority on IT productivity these days – strongly supports this view (check his latest excellent book Second Machine Age on this subject).
There are just two conditions to be fulfilled by IT in order to being able to turn a company into a champion, outclassing the competition:
- IT must be used intensively: But it’s not enough to just raise the IT expenditure and hope for the best. The increased use of IT must have a clear focus. To cite german general & tank theorist Heinz Guderian: “Do it massively, not in dribbles” – use massive force at the “Schwerpunkt”, the point of decision.
- IT must be used wisely: IT is an enabler of business change. If used in conjunction with other factors: It unfolds its full transformational power.
So the question is how the heck to use IT “wisely”? Want to find out? Well, this is what this blog is all about…