"Half the money I spend on advertising is wasted; the trouble is I don't know which half.” - John Vansant Wanamaker (July 11, 1838 – December 12, 1922)
What Mr. Wanamaker was saying was, in effect, that he might as well flip a coin. His odds were rather different from those revealed in a recent study by the Genpact Research Institute. The study determined in IT, you’ll need a very different coin because your chances of coming up “heads” is just 30%. Yep, the study found that almost 70% of everything spent on IT doesn’t meet the functional goals of projects or deliver the expected return on investment. According to the study:
A rough estimate suggests that all current digital efforts worldwide cost about US$593 billion yearly.That means up to US$394 billion – a staggering number—is now being spent on efforts that deliver insufficient ROI. While this is an approximation, it is close enough to give CEOs pause—and the figure doesn’t even include the opportunity cost of business benefits that will not accrue to enterprises because of those less-than-effective efforts. These are unacceptable numbers.
The numbers are, indeed, unacceptable and it’s the big companies undertaking big projects that are the biggest victims of this wasteful spending. When a company invests heavily in IT by undertaking massive infrastructure projects (hardware or software) it’s not only enormously stressful because of the widespread disruption that results in operational waste and lost opportunity costs, it also creates systems “lock-in.” Lock-in is when, despite changing business circumstances, moving to improved IT technologies and products is unfeasible because the investment is expected to “life out” to produce the targeted ROI. Given the rate of technology evolution today, being locked into any significant infrastructure can have dire short- and long-term consequences because change will happen and its consequences will be unpredictable.
Is the answer to be more cautious about IT spending? Nope. In fact, it’s the opposite; corporations and government should be prepared to spend a lot more. This coming year Gartner expects global IT spending to decrease by around 5% which is (obviously) bad news for IT vendors. But I’d argue it’s even worse news for the cost-cutting corporations. Whether we like it or not, today’s markets are all driven by information technology and we’re either players or we out of the game.
For example, we’ve come to realize that most of what we were calling "Big Data" was there all along and we’re just starting to see the value of managing and using that data intelligently. The consequence of this has been the emergence of completely new IT operations and to be on the leading edge of this opportunity and to reap the benefits of being an early adopter, organizations had to spend lavishly. Already we’re starting to see that some of the spending was suboptimal but that raises the question of what do we do about it? Do we let these pricey resources languish or do we double down and ride the next wave of technology? The former course is what many organizations will do because it seems safe but by they’re going to lose out not just the investment but also on the internalized skills and resources they fostered and acquired. The latter course, doubling down, does just the opposite and keeps the momentum going, something that IT has to have to be effective.
So, when your organization starts getting nervous and talking about cutting back on IT and starts worrying about "wasted" IT investment it’s time to do whatever it takes to do the exact opposite; not in a thoughtless, reflexive way but rather in a strategic, measured, and goal and systems oriented manner.
You’ll still wind up wondering where 70% of your IT investment gets wasted but what you won’t be doing is falling behind in the competitive race.