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Evaluating Technology Investments

!  A: IT and productivity
Does IT investment deliver a clear productivity
CORP2503 return ?
!  B: Cloud computing
Technology & Innovation in Enterprise What is the business case for adoption ?
!  Conclusions
Topic 8: Technology Management – 3
IT Investment issues

John Powell

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A: IT and Productivity • 1 A: IT and Productivity • 2


!  Longstanding debate about impact of IT on productivity – McKinsey Survey (2008): IT’s unmet potential
the productivity paradox
!  How effective is IT in your organization ?
!  Solow (1987):
“we see the computer age everywhere except in the
productivity statistics.”
(see MacDonald et al, 2000; Oz, 2003)

!  McKinsey (2001) study:


!  Little correlation between IT spending and corporate

McKinsey (2008:4)
productivity improvement
–  53/59 industries did not improve productivity from increased
IT spend
–  6/59 showed modest productivity returns
(included: securities, semiconductors and computer
manufacturing, wholesale retail, telecoms)

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A: IT and Productivity • 3 A: IT and Productivity • 4
Pisello and Strassman (2003)
!  Compare return on equity (ie shareholder measure of
profitability) to IT spend per employee
!  Expect low IT spend to match low return on equity
and vice versa (ie upward sloping curve)
!  Looked at 4000 US firms (2002) but found no

Pisello and Strassman (2003)!


correlation

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A: IT and Productivity • 5 B: Cloud computing • 1


!  Pisello & Strassman (2003) = “both the applications delivered as services over the
internet and the hardware and systems software in the
data centers that provide those services …”
(Armbrust et al, 2009:4)
2. Investing !  In practice, it means accessing computing via the web…
1. Frugal Leaders Leaders data storage, processing, service provision
!  Spend less, get more !  Spend more, get
!  Low innovation more
!  High innovation !  “The rise of the cloud is more than just another platform
shift that gets geeks excited. It will undoubtedly transform
4. Frugal Follower the information technology industry, but it will also
!  Spend less profoundly change the way people work and companies
!  Technology laggard 3. Investing Follower operate” (Economist, 2008a)
!  Spend more, low return
!  Moving from consumer service to business…
Web 2.0 apps / services tend to be cloud-based
!  Key providers: Amazon and Google
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B: Cloud computing • 2 B: Cloud computing • 3
!  Amazon EC2 (Elastic Cloud Compute) A simple layers
Virtual servers that appear identical to physical model of the
hardware cloud
!  Very low cost and scalable (eg Animoto)
Utility computing

+ SaaS
See
Leadbetter (2010:31)
on:
open vs closed
public vs private
social vs commercial
(based on Naone, 2009a)"

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B: Cloud computing • 4 B: Cloud computing • 5


Business impact Carr, 2008" Business risks and barriers
!  On-demand ‘infinite’ computing resources !  Service availability and lock-in
!  No up-front commitment –  meta-cloud as a solution ?
–  “It turns capital expenditure into operational
expenditure” (Economist, 2008b) !  Still in early adopter phase
–  Efficiency gains: –  CIO Magazine survey cited by Economist (2010):
McKinsey survey – on average only 6% 60% of respondents thinking about it; only 8% committed
of server capacity is used –  McKinsey (2009) – implementing in cloud may cost big firms
(cited in Economist, 2008c)
!  Data confidentiality and auditability
!  Removes entry barriers for large-scale
computing tasks… start-up opportunities –  perception versus reality
–  Etro (2009) – cost reduction of such a ‘general purpose –  CIO Magazine survey:
technology’ likely to drive economic growth in EU concerns over security and loss of control over data
!  Rise of mobile cloud devices … !  Data transfer costs and bandwidth
!  Likely to increase business process outsourcing
!  ‘Reputation fate sharing’
!  Enterprise adoption of Web 2.0 technologies … IBM and Amazon
See Armbrust et al (2009:14-19), Economist (2008c and 2010)
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Conclusions
!  Case for IT and productivity gains is not clear cut
!  Difficulties in separating IT from rest of business to
assess investments
!  Significance of cloud computing and virtualization’s
impact on start-up and running costs
!  Developments in OS and software such as open
source

!  Pisello & Strassman (2003):


three challenges for CIOs
–  Prove and improve value of IT
–  Do more with less
–  Communicate more effectively

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