Thursday, January 14, 2010

'Wired for Innovation' and the Trouble with business value

I stopped reviewing books in this blog a while ago but, having said a few words about Domain Driven Design Using Naked Objects last time I want to say a few words about another book I’ve just finished reading: Wired for Innovation: How Information Technology Is Reshaping the Economy.

For anyone who is concerned with the future of IT, technology in general, and improving the state of the art this book is well worth reading. At a little over 100 pages and £10 it is worth the investment.

The book is written by two academics, and it is a bit academic in tone and approach but there are some gems in here. Not only have the authors studied how IT is used they have made serious attempt to measure it. In fact, if you have read anything by Brynjolfsson before there is a good chance it was his work on the “productivity paradox.”

The authors know about measuring IT and have some fascinating statistics. For example, did you know that in the last couple of decades “IT intensive” companies have grown much much faster than those which are not IT intensive?

I don’t want to review the book but I do want to highlight some of the points the authors make for the benefit of those who won’t read the book. In particular, there are some facts here which need to be considered by those who advocate a focus on “Business Value” when developing software (of which I include myself).

Firstly the book resolves the “productivity gap”. This was the observation in the late 1980’s that despite all the investment in productivity enhancing IT there was no resulting increase in productivity in the production and GDP statistics.

The explanation turns out to be: time. There is a time lag between investment in information technology and when the benefits are seen. This has closed somewhat in recent years, instead of decades it is down to years but it still exists.

So: problem number 1 for the business value crowd, How do you measure business value when the benefit will not be seen for two or three years? Or longer still? How do you create a feedback loop when your developers are working today and you can’t measure the value for two years?

The second issue we need to pay attention is “the complementary nature of IT.” It turns out, when you look at the numbers that IT by itself doesn’t delivery a whole load of benefit. To see real benefit you have to combine it with other practices. There are seven:
  • Move from analogue to digital processes
  • Open information access
  • Empower the employees
  • Use performance based incentives
  • Invest in corporate culture
  • Recruit the right people
  • Invest in human capital
If you want to increase “business value” then do all these things as well as your IT work. Trouble is, many of these things fall outside the bounds of your typical IT project. (And in part doing these is why there is a time lag.) If you don’t do these things then you will fall a long way short of maximising business value.

Put these together and you discover: a successful IT project requires organisations to change their processes. Which leads to another issue the book brings out: should business processes be counted as assets for a company?

After all, we count the hardware and software used for the process, why not the actual process? We invest in it, we spend money on it, why not count it?

This may sound irrelevant but it is important because: failure to count processes as assets means companies don’t invest in them. It processes were counted it would become easier to justify the seven things listed above. If processes were assets then money spent on them would come off one account and appear on another so it is easier to justify.

Where all this is leading is a stark reminder, next issue, that in many businesses, and among many managers, IT is considered intangible. The authors don’t challenge this assumption, to be honest, there is good reason why IT is seen as intangible. But it does mean that someone who talks about “Business Value” looks a bit out of place when “everyone knows” its intangible.

(Why IT is seen as intangible is probably another blog entry.)

Next, a lot of IT has delivered “value” it isn’t countered. Take for example a Google search. How much is a search worth to you? How much time and effort would you need if you had no Google?

But, while Google’s revenue is countered by the Government those searches aren’t. In fact, nobody, anywhere, attempts to put a value on Google searches.

Or take Wikipedia. How much is it worth? If I want to know how the steam engine works I can go out and buy a book. That will be counted. But if I read it on wikipedia it isn’t.

These are just examples of how IT systems change things and add value which isn’t countered. It is the kind of challenges we are up against when we try and measure “business value” in IT work.

And its why, for anyone who claims to know about measuring business value in IT, this book is worth reading.


  1. The "seven practices" slipped into the book are (it seems to me) commonplaces of organisational change (and content-free: like, who's going to try to "recruit the wrong people"?), and I find it disappointing that the authors are still (even if indirectly) peddling the "performance-based incentives" mantra that's now been effectively discredited. But the assertion that managers "know" that IT benefits are intangable has interesting consequences, and puts the measurement mania in perspective... Thanks for the review, Allan.

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  3. Multi-oligor security - I haven't a clue what you are talking about.
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