Still Too Many Dollars

Despite how powerful much of our information technology is, and in spite of bear market prices, we still spend too much money on business technology, argues columnist Steve Andriole, who offers ways to get more bang for the buck.
In spite of how far we've come and how elegant and powerful much of our information technology really is, and in spite of bear market prices, I must admit that we still spend too much money on business technology -- way too much. Let's look at what's going on -- and how we might get more bang for the buck.

Way Too Pricey

Let's start with some grim news. According to recent benchmarking research:

  • On average, U.S. companies spend more than $9,000 per year, per employee on computing and communications technology and support; on the high end there are companies that actually spend more than $22,000 per year, per employee on technology (1)
  • Between 1998 and 2000, companies overspent on high-end servers to the tune of $1 billion; the same study estimated that companies would waste another $2 billion from 2001 to 2003 (2)
  • CIO Magazine reported that companies waste $78 billion a year on failed software projects
  • PricewaterhouseCoopers reported that over the past 25 years the number of failed technology projects that resulted in litigation has grown dramatically, with 48% resulting from warranty breaches, 13% from fraud, 11% from breach of contract, 9% from negligence and 7% from misrepresentation, among other problems
  • The National Institute of Standards and Technology (NIST) found that software bugs cost the U.S. economy almost $60 billion a year
  • How the hell can we waste so much cash?

    Hype, Misalignment & Bad Biz/IT Management

    Unfortunately, hype still too often degrades to disenchantment. Let's look at a short list of over-hyped "killer apps": enterprise resource planning (ERP), network and systems management, eBusiness, sales force automation, and the most recent disappointment, customer relationship management (CRM).(3)

    Do you know what these applications cost -- and what impact they've had on your business? Questions about technology's contribution to business ride on answers to questions about business' clarity about technology's enabling role. While we've had problems, this stuff can work -- especially if it's matched with the right business requirements. But when the match is wrong, technology investments become insatiable sink holes.

    Most technology investment decisions are made with less than perfect information. More often than not, there are as many intangible variables as tangible ones. Keep in mind that the Gartner Group (and other research organizations) report that more than 75% of all major technology projects fail.

    The numbers are staggering. So how is it that we still invest more than a trillion dollars a year in technology products and services when so much of it doesn't work? One answer is that investment criteria were relaxed or non-existent during the mid- and late-1990s: How many companies really scrubbed their eBusiness investments? But as I've said repeatedly, even though lots of technology is mis-applied or out-and-out wasted, we're at a point where it's possible to not only avoid major mistakes but integrate technology and business in ways that were impossible five years ago.

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    Depending on your title, you see technology differently. Some see it as the aforementioned sink hole; others as a way to differentiate your company from its competitors, your edge. Some see it as a sand box. Others see it as a necessary evil. If you're a chief marketing officer you should probably understand how software vendors "manage" versions to optimize their revenue streams (just as you do with your products and services). But if you're a CFO you may not fully understand how middleware works or why it's so important to your company, or how consultants identify problems that only they can solve. Are you surprised when it takes several years to install an application? Or when you hear about outsourcing lawsuits? All of these alternative views of technology are expensive to maintain.

    I'd argue that our understanding of technology is unfinished. We've been conditioned to think about technology as a silo -- and we've managed it accordingly. Most companies still have "systems divisions" or "technology groups," when they should do whatever they can do tear the silos down and rebuild integrated business technology organizations and processes.

    We're evolving -- not revolutionizing -- the relationship between business and technology. We don't do nearly enough due diligence around technology investments, don't know how to measure ROI, and still make major technology decisions on the basis of incomplete and highly politicized information, and for some reason still resist the development of clear business models.

    One-Third Off?

    I sometimes tell my consulting clients that I can reduce their technology budgets by 33%. After they regain consciousness, I explain how it's possible. There's so much low-hanging fruit, I tell them; for example: you've got several -- or more -- database platforms (with too many platforms and data warehouses that you have to maintain), too many data centers (that can be consolidated), little or no standards (and therefore lots of expensive variation), poor human resource management (resulting in too many people doing the wrong things), sub-optimal vendor management (resulting in too many uncoordinated procurements) and incomplete metrics (making it difficult if not impossible to know where you are -- or where you're going). At this point, they usually nod. I tell them that they shouldn't feel too bad, that I can't even make a dent in the second 33%.

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    Notes

    1. See "The Book of Numbers," Hackett Benchmarking | Solutions, 2000 (www.answerthink.com/hackett for more details).

    2. See www.gartner.com for the report on server over-spending.

    3. There's a lot of "evidence" about these "disappointments." The Gartner Group publishes lots of total-cost-of-ownership (TCO) and return-on-investment (ROI) analyses, as does The Standish Group which both generally report that we often pay more than we should for hardware, software and services. The National Institute of Standards & Technology published a report that software bugs cost users and vendors almost $60B annually. The Nestle vs. SAP case is widely known (see Ben Worthen's Nestle's ERP Odyssey, CIO Magazine, May 15, 2002), as are other failed enterprise projects (see Kim Girard's report on the Department 56 vs. Arthur Andersen - "Blame Game," Baseline Magazine, March 2002). Litigation sometimes results from implementation problems. See PricewaterhouseCoopers' "Patterns in IT Litigation: Systems Failure (1976-2000)." Also see Meredith Levinson's, "Let's Stop Wasting $78 Billion a Year," CIO Magazine, Oct. 15, 2001, and Charles C. Mann's, "Why Software is So Bad," Technology Review, July/August 2002. Paul Strassmann's work is relevant here. See www.strassmann.com for tons of insight and data. While there are any number of horror stories out there, there are also some huge success stories, not to mention the everyday success of word processors, presentation packages, data bases and email. Finally, regarding CRM, see Michelle Schneider's, "CRM: What It's Worth," The Net Economy, Feb. 5, 2001, and Rich Cirillo and Dana Silverstein's, "Can CRM Be Saved?," VARBusiness, Feb. 4, 2002.

    Steve Andriole is the Thomas G. Labrecque Professor of Business at Villanova University where he conducts applied research in business/technology convergence. He is also the founder and CTO of TechVestCo, a new-economy consortium that focuses on optimizing investments in information technology. He can be reached at stephen.andriole@villanova.edu.






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