Wednesday, August 02, 2006

The Roi Hath No Clothes

Picking up from the Squandered Computer, I happened across several articles that suggest IT investments are overrated. The scatter plot at right shows spending per employee and return on equity for over 500 companies. See the trend there? Basically, no matter what you spend on IT, your company will probably only get around 20 percent return on investment.

When you talk about any sort of serious investment for a firm, the chatter almost immediately turns to ROI. People love ROI, ROI is the king in purple robes when it comes to any major business decision. In fact, Roi means 'King' in French. Those French, they really know how to put together a language.

Roi is king, except when it comes to IT spending. In IT, the Roi is running around bare-ass naked with fistfuls of dollars. Some soundbites from the Squandered Computer merely drive this home; 31 percent of all computer projects are cancelled, 58 percent go over budget. In 1995, US corporations spent 500 billion on computers, which exceeded their profits by 175 billion. Why is Roi so unfettered in IT? For starts, it's almost never done, as it is is often perceived as too complicated to do. When it is done, it is almost always done badly, either by lumping all IT spending into one category or by using the wrong metric (e.g percent of revenue) to evaluate the program.

What really needs to happen is that return on investment calculations need to be done on all forms of IT spending, and it needs to be done right. IT maintenance costs need to be fully accounted for (energy use, recycling fees, etc.), and they need to be separated from strategic and tactical initiatives. If this is not done, companies will simply give up on strategic and tactical spending. This would really be a tragedy, as there is still of lot of opportunties left in computing and only the corporations who start doing it right will be able to grab them. The rest will be saddled with 80 percent of their IT budget going towards maintenance of existing systems, lumping along towards doomday. Simply put, if you don't do the Roi, you won't have jack.

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