The Blind Following the Blind: The IT Investment Conundrum

Jan. 30, 2008

Many are familiar with the phrase "the blind leading the blind," and we all take steps to ensure that we don't fall into the situation where we're the blind leaders. I wonder how many ever have given thought as to whether they or their organizations are the blind followers. Better yet, have you taken any steps to ensure that when it comes to investing in IT you and your organization have not fallen victim to the "blind follower syndrome?"

The blind leader of the blind may not be such a bad position if you're the industry or market leader holding the competitive advantage. However, the same can't be said if you're the blind follower, especially when the stakes are returns on your organization's IT investments. Let's think about this for a minute. If everyone is following industry averages and benchmarks for investments in IT, what's going to give the blind follower the edge it needs to overtake the blind leader? At some point, someone must consider the role of IT in their own organizations.

Consider an example put forth by Jeanne Ross and Peter Weill of MIT's Center for Information Systems Research. They reported that package delivery arch rivals UPS and FedEx both report IT investments of approximately $1 billion each year, despite the fact that FedEx's annual revenues are two-thirds the size of those reported by UPS. The numbers could suggest that one company is over investing or under investing. The numbers could also suggest that IT is more important at FedEx than at UPS. The reality is that the numbers are what they are because each organization's strategy for IT is different. Both companies are successful with their respective level of IT investments because they align their IT investments to their business and IT strategies and not industry benchmarks, trends, or averages.

This sentiment is further supported by a survey of 140 CIOs and IT directors, in which the majority of these executives indicate that the major justification supporting their business case for IT investments pertains to their strategic goal of improving the quality of business operations. The second most important business case justification cited by these executives is the strategic goal of reducing the cost of business operations. The common, and well known, ROI business case justification of IT investments is third in a list of five. This is not to say that ROI isn't important, but it should not be the main focus, nor should it be the sole point, of making decisions about IT investments.

Another issue central to the IT investment conundrum is the percentage of the operating budget that should be allocated to IT. Most studies suggest the usual five to eight percent range, but this appears to be changing. The majority of the previously mentioned 140 CIOs report the percentage of their operating budgets allocated to IT to be two to three percent over a two-year period. Another interesting finding is that there seems to be very little difference between high-performing and low-performing organizations. Could this potentially suggest the notion of the blind following the blind has some credibility? To help organizations make better decisions concerning their IT investments, I've outlined 10 things that should be considered before deciding whether to invest in additional IT capabilities.

10 Things to Consider Before Making an IT Investment:

  1. What are your current IT capabilities?
  2. Are you getting the most out of your current IT capabilities?
  3. Do your current IT capabilities limit new business opportunities; your ability to pursue new business opportunities; and/or your ability to quickly respond to changes (expected and unexpected) in the marketplace, in a cost-effective manner?
  4. Are there other ways to leverage your current IT capabilities to accomplish your business objective(s), or is it absolutely necessary to have additional IT capabilities to accomplish your business objective(s)?
  5. How does the proposed IT investment enhance or impede your desired IT capabilities, and what's the likelihood of either of these happening?
  6. How will your intended/future IT capabilities create new business opportunities?
  7. What's the likelihood that even without funding the proposed IT investment new business opportunities will arise, you will improve your ability to pursue new business opportunities, and improve your ability to quickly respond to changes (expected and unexpected) in the marketplace, in a cost-effective manner? Note: Revisit points 2 and 3
  8. What's the likelihood that funding the proposed IT investment will create new business opportunities; improve your ability to pursue new business opportunities; and improve your ability to quickly respond to changes (expected and unexpected) in the marketplace in a cost-effective manner? Note: This assumes effective implementation and leveraging of the acquired technology and its associated capabilities
  9. What's the likelihood of getting an acceptable return on this investment?
  10. What's the expected and realistic rate of return on this investment, and is it acceptable?

Randy V. Bradley, Ph.D., is Assistant Professor of Information Systems, Department of Accounting and Information Management at The University of Tennessee.

For over 50 years, University of Tennessee (UT) faculty have played a major role in the supply chain/logistics arena -- conducting innovative research, publishing leading-edge findings, writing industry-standard textbooks, and creating benchmarks for successful corporate supply chain management. Programming is top-ranked in Supply Chain Management Review, U.S. News & World Report, and Journal of Business Logistics. Certification is available.

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