Strategy #4

The Productivity Paradox

• Productivity = Output/Input• How do you measure productivity?

– How should output be measured?– How should input be measured?

• What is the relationship between technology and productivity?

• How about information technology?

Does IT investment lead to increased productivity?

• Robert Solow – “You can see the computer age everywhere but in the productivity statistics.”– US annual rate of increase in output per

hour in the 1960s (2.6%)– 1973 – 1995 (1.5%), – 1995 – 2000 (2.5%), then dot.com bust, – 2002 to present (>5.3%)

How Does IT Investment Affect Productivity?

• Differences between national data, industry data, and firm level data

• High level of variation between firms• Long term benefits from 2 to 8 times

higher than short term benefits

Complementary Activities

• IT support is most likely to improve the productivity of knowledge workers, especially where they can take advantage of low cost communications and data analysis

• IT investment include a number of technologies in addition to computer hardware and software – e.g. BPR, work redesign, organizational change

• Factors associated with increased IT productivity: self-directed work teams, decentralized decision making, screening for education and training investment, systems that reward high team performance

IT-Business Strategic Alignment

• Ensuring that IT strategy is consistent with business strategy

• Importance– Size of investment coupled with uncertain

benefits– High cost of failure– Potential for IT to be transformative

Enablers and Inhibitors of Alignment

ENABLERS INHIBITORSSenior Exec support for IT IT/business lack a close

relationship

IT involved in strategy development

IT does not prioritize well

IT understands the business IT fails to meet commitments

Business – IT partnership IT does not understand the business

Well-prioritized IT projects Senior Execs do not support IT

IT demonstrates leadership IT management lacks leadership

Strategic Alignment Maturity

• Levels of maturity copied from Software Engineering Institute Capability Maturity Model

• What are the assumptions?– Highly aligned relationships are better

than those that are less aligned– A firm’s success is highly dependent on

IT capability

Alignment Criteria (Communication)

• IT understands business• Business understands IT• Knowledge sharing

Alignment Criteria (Measurement)

• IT metrics• Business metrics• Balanced metrics• Service level agreements• Benchmarking• Formal assessment• Continuous improvement

Alignment Criteria (Governance)

• Business strategic planning

• IT strategic planning

• Budgetary control

• IT investment management

• Prioritization

• Steering committees

Alignment Criteria (Partnership)

• Business perception of IT value

• Role of IT in strategic planning process

• Shared goals, risks, rewards/penalties

• Program management

• Relationship/trust style

• Business sponsor/champion

Alignment Criteria (Scope/Architecture)

• Flexible transparent architecture

• Emerging technology assessment

• Standards

• Ability to customize solutions

• Ability to support enterprise wide business processes

Alignment Criteria (Skills)

• Innovation entrepreneurship

• Management style

• Change readiness

• Career mobility

• Education and training

• Social political environment

Realizing the Business Value of IT Investments

• Importance– Amount at risk– Politically valuable

• Necessary feedback for improving future IS delivery processes

AIAC Framework

Alignment Phase

• Align Business-IT Strategy – Porter’s models, Resources – Competencies – Capabilities

• Invest in complementary assets• Choose IT investment type

Involvement

• Involve customers – internal and external

• Identify metrics for tangible and intangible costs and benefits

• Make the business case

Analysis

• Establish analytics• Validate results• Interpret results

Communication

• Make actionable steps• Communicate results• Institutionalize payoff analysis

Concluding Themes

• IT payoffs are the responsibility of the entire organization, not just the IT department

• Management of IT payoffs begins prior to investment and continues through post-implementation

• IT payoffs are contingent on creating and exploiting complementary assets