Really interesting article from Deloitte’s Lang Davison about the “problem” with traditional business metrics. Relates back to the Shift Index I spoke about earlier.
During a steep recession, managers obsess over short-term performance goals such as cost cutting, sales, and market share growth. Meanwhile, economists chart data like GDP growth, unemployment levels, and balance-of-trade shifts to gauge the health of the overall business environment. The problem is, focusing only on traditional metrics often masks long-term forces of change that undercut normal sources of economic value. “Normal” may in fact be a thing of the past: Even when the economy heats up again, companies’ returns will remain under pressure.
via Harvard Business Review
A recent post to the New York Times Bits blog has a very news-worthy byline. “A new economic index paints a disheartening picture for technophiles — at least the ones inside corporate America” it reads. The article continues to paint a bleak picture for firms that are investing hundred’s of millions of dollars into technology and enterprise systems with the hope that there will be huge returns on their investments.
The Shift Index, developed by the Silicon Valley research unit of the consulting firm Deloitte, tracks a wide range of measures of economic performance, going back to 1965. But two numbers really jump out. The return on assets for United States companies has dropped by 75 percent over that span, while labor productivity has more than doubled.
Return on Investment
I don’t necessarily agree with the assertions of this article. It is true that technology investment is one of the many investments firms can make that are extremely difficult to calculate returns for, but it is not impossible.
There are many reasons for these difficulties since these systems can increase revenue and decrease expenses in intangible ways… Some changes also take place over such large periods of time that they are difficult to track, and with poor data sets on previous systems it can make comparison difficult – or nearly impossible – between the two.
BUT–I would also add–that the main return that is (1) primarily realized, (2) not always calculated, and (3) present in the Shift Index is… the human element. Technology allows labor productivity to increase, allowing people to work smarter, faster, and more efficiently. It can be difficult to calculate a concrete figure on this efficiency bump, but it is clearly present.
Information is Key
The efficiency increase mainly involves the use of information and business intelligence, and this magnification effect allows employees of firms with large technological investments to make better decisions during their daily functions.
The good news, according to John Hagel, co-chairman of Deloitte’s Center for the Edge, is that companies typically have a solid technology foundation. But technology investment, he said, has been overly focused on an industrial-era model. “It’s been all about standardization and automation of business processes,” he said. “Until and unless companies learn how to harness knowledge flows, the impact of the technology will mainly be continuing competitive pressure.”
A part of the answer, Mr. Hagel added, is the smart use of social networks and other online collaboration tools. “There is a completely different set of values that information technology can drive, connecting and communicating with the outside world, both partners and customers, which can translate into competitive advantage,” he said.
Competitive advantage in today’s marketplace will come from information. Social networks, information sharing, analysis, and hyper segmentation will mean the difference between Fortune 500 and top-performing Fortune 100 firms.
Speaking of online collaboration tools, check out the Jam sessions at IBM – a leading competitor of Deloitte.
Opening Day: The iPhone 3G S – Hollywood has its red-carpet premieres. The NFL has the opening kickoff celebration. For technology fans, Apple’s rollout of its latest devices are as good as it gets.
Tech Recruiting Clashes With Immigration Rules – Half of the engineers working in Silicon Valley were born overseas.
Tech Payoff for Companies Remains Elusive, Study Finds – A new economic index paints a disheartening picture for technophiles — at least the ones inside corporate America.
More Families Pull The Plug On Their Home Phone – Government research shows more and more households are getting rid of their land lines. For the first time, cell-phone-only homes outnumber those with just land lines.
Obama’s Plan Falls Flat With Many Economists – Economists across the political spectrum say they’re disappointed with the president’s mixed-bag proposal to overhaul financial regulation. Some say it will stifle innovation; others, that it could create new accountability concerns.
Jobless Rolls Drop; Leading Indicators Rise – Two new reports Thursday pointed to signs that the economy may be regaining its footing. The total number of people on the unemployment insurance rolls dropped for the first time since early January, and the index of leading economic indicators rose for the second month in a row.
