Operational vs. Management Productivity
Paul A. Strassman, CIO icon from the US, became famous for his research that showed that spending on IT systems does not automatically add value to a business, and can even lower overall productivity. (See: Paul A. Strassman. The Business Value of Computers, 1997).
One of the followers of his school of thought, Nick Carr, came to the same conclusion in 2003 from analysing the evolution of IT technologies, and their diminishing competitive advantage. The discussion of his equally provocative, as well as historical article, “IT Does not Matter” in HBR (Harvard Business Review) even continues today.
Steve Jobs later pointed out in a lecture at MIT Sloan school of business that, unfortunately, he got to know Strassman’s work too late and spent the first 10 years of his career working on the wrong kind of productivity tools: expensive computers. (His lecture is in the references of this article, and already a classic. Anyone who wants to experience Jobs live in front of students should watch this talk.)
Figure 1: Each point in the graph is the same as a study of a company that Strassman performed, evaluating the investments per employee. Some companies have apparently managed to generate nearly $150,000 in negative productivity with investments of nearly $100,000 per employee. (See: Paul A. Strassman, The Business Value of Computers, 1997).
Strassman’s work showed that, contrary to the assumption that higher spending on IT leads to better productivity and hence business success, companies are investing similar amounts in IT, roughly 2% of their annual turnover.
Nevertheless, there were successful companies with high productivity after investments and many companies with partly catastrophic productivity rates, after IT investments.
So high investments in IT can therefore have very high negative productivity effects. And even crash a company.
Strassman wondered, why is that?
His analysis showed that IT investments basically fund two different types of productivity: operational and management productivity.
The successful companies spent the largest share of the money on operational productivity, the less successful on management productivity.
Operational productivity results from the business purpose, for example at a niche network provider, the following investments make perfect sense: Backbone, network-level automation and orchestration tools that enable Network as a Service (NaaS) offerings (Cisco Prime, NSO, Netrounds, etc.), Application Monitoring (Riverbed Aternity), VM Server Infrastructure, Customer Portal via smartphone app, used by both, customers, as well as employees, from solution architects to 24x7 operators (so that all share the same view on the state of the network), etc.
Management productivity is characterized by investment in expensive PCs, laptops, tablets, iPhones, business intelligence reporting systems, ERP, CRM, etc.
As can be seen in the lecture by Jobs, but also in the book by Strassman, this is not a question of either or, but balanced investment in both segments. Whereby the operating productivity segment must always be preferred to the management segment.
No company can afford to just invest in operational productivity and let its employees run around with age-old smartphones, while claiming to be the spearhead of digital transformation. Just as little can one ignore the fact that in the meantime more people are accessing the Internet via smartphones and apps than PC users, so a customer portal also has to work on all popular smartphone browsers or in a dedicated app.
The trick is, to hit the sweet spot where spending on both OP (operational) and MP (management) productivity drives the business forward. Unfortunately, there is no magic formula for this, but the research shows that excessive investments in management productivity have not made any company the market leader of anything.
A nice example of how to apply these scientific insights is the former online bookseller Amazon, which has spent every dollar earned over the last 20 years on its own operational productivity to be able to create new business units like AWS (Amazon Web Services), so during August 2018, they raised its market value to $1 trillion, although Amazon does not even pay any dividends.
Thanks to Simon Wardley for his two OSCON talks 2009 and 2010 for introducing me to some of this.
References
Paul A. Strassman, The Business Value of Computers, 1997. http://www.infoeconomics.com/business-value.php
Steve Jobs explains Paul Strassmann. MIT Sloan School, Distinguished Speaker Series. May 1992 by Steve Jobs, President & CEO, NeXT Computer Corp. http://www.strassmann.com/pubs/mit/1992-steve-jobs.html
Nicolas Carr, IT Doesn’t Matter, HBR, 2003 https://hbr.org/2003/05/it-doesnt-matter
Nicolas Carr, Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. (Harvard Business School Press, 2004)
Simon Wardley, “Cloud computing-Why IT matters”, OSCON 2009. https://www.youtube.com/watch?v=okqLxzWS5R4
Simon Wardley, “Situation Normal, Everything must Change”, OSCON 2010. https://www.youtube.com/watch?v=5Oyf4vvJyy4&t=594s
