Do Enterprise IT Investments Produce Results?

By Gary Kim February 02, 2012

Perhaps the most significant conclusion one might draw from a survey of 508 European executives from across Europe, the Middle East and Africa conducted by the Economist Intelligence Unit in August-September 2011 is that expensive enterprise technology programs have produced highly mixed results.

One might argue that decades worth of information technology investment has had questionable returns. That might come as a shock, but observers had wondered why productivity gains were so hard to find all during the decade of the 1980s as well, a time when enterprises spent heavily on technology.

The latest study argues that the problem has not gone away. A decade ago, a period when businesses had been making enormous investments in information technology, returns were questionable, study authors says.

More strategic investments also proved challenging, whether on customer relationship management (CRM) software designed to track client interactions, or massive enterprise resource planning (ERP) systems to digitize the flows of goods and services through the supply chain. These often came at great expense and with significant business disruption.

In short, many enterprise systems were expensive, difficult to implement and often did not match up to their expectations. One report from Meta Group, a research firm, cited at the time suggested that the average ERP implementation took two months and led to a negative overall net present value.

Some would argue that it takes a decade or more for business processes to be realigned to take advantage of fundamentally new technology. If that is the case, we might be in for a decade or more of investment in cloud-based technology that does not seem to bear immediate fruit.

As often is the case, the immediate drivers will be cost savings of one sort or another, chiefly by substituting rented hardware and software for capital investment. But history suggests the deeper changes will take some time.  

To be sure, technology projects have long been given a bad press. As early as 1995, a widely cited report from the Standish Group argued that as few as 16 percent of IT projects were delivered successfully, on time and within budget.

In its annual reports published since then, this figure has crept up but still remains under 50 percent. A particularly high-profile failure in the United Kingdom is the £11.4 billion IT program for the National Health Service, which includes the roll out of digital patient records. In May 2011 the U.K. National Audit Office said that, in addition to huge cost overruns and delays, the “original vision for the national program for IT in the NHS will not be realized.”

Still, executives continue to believe that advanced IT can provide business advantage.  About eight percent of executives continue to believe that technology investments in their firms had succeeded as planned.

About 78 percent feel that investments aimed at cutting costs have succeeded. But those are subjective opinions, not necessarily quantifiable and measurable measures of actual business advantages.

But if time is a factor, then near-term results might be nearly impossible to predict or measure. Also, some firms likely are better at reaping the rewards than others. Though the opinions are just that, about a quarter of respondents reported that their projects exceeded expectations.

By way of comparison, executives at firms deemed to be less successful reported that just five percent of projects exceeded expectations.

Delivering on some expectations is clearly harder. A smaller number of respondents (albeit still over two-thirds) report project success in increasing agility or obtaining better-quality information about customers and/or markets.

Overall, though, 80 percent of respondents say that their most recent technology initiatives either met or exceeded expectations. In part, that might be the result of many small and focused projects, which are easier to implement and also address specific practical problems.

It might generally be the case that the complex, sweeping programs fail at a higher rate.

The HP-sponsored study does tend to reinforce notions that many enterprise IT programs, especially the large, complex programs, tend to fail more than succeed.

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Gary Kim is a contributing editor for TechZone360. To read more of Gary’s articles, please visit his columnist page.

Edited by Rich Steeves

Contributing Editor

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