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August 01, 2006

How do you measure the value of Instructional Technology, or any technology investment

People try to bean count while investing in "enabling technology".  They attempt to put into financial terms the value of a content management system, or adopting streaming video, or an intranet portal -- all the while looking for that bottom line to justify the cost.  Vendors publish whitepapers that try to put hard business-case numbers to convince IT shops to make an investment in a certain platform or technology.

"Switch to Flash video and you'll save $350k a year!"  It's possible.  Although when you look at the details, the ROI numbers seem more like estimates built on assumptions bolstered by guesses.  Perhaps, "Use Flash video and you'll build customer loyalty due to the excellent user experience (which can help lead to increased sales or market share)" is more realistic, if less quantified.  

This is the topic Harvard Business School professor Andy McAfee's latest blog post, The Case Against the Business Case.  Andy notes that using hard numbers to justify IT investment is natural -- numbers are the terms that business people traditionally use to measure cost and value.  But he points out that the chain between cause and effect of IT innovation can be long, complicated, and nearly impossible to quantify.

I’ve probably seen hundreds of business cases that identify the benefits of adopting one piece of IT or another, assign a dollar value to those benefits, then ascribe that entire amount to the technology alone when calculating its ROI.  The first two steps of this process are at best estimates, and at worst pure speculation.  The final step gives no credit and assigns no value to contemporaneous individual- and organization-level changes.

Some leaders instinctively have a sense of what kind of investment is going to lead to these intangible benefits.  They seem to naturally turn an organization towards the kinds of IT investments and organizational structure that's capable of capitalizing on IT innovation.  Yet, these leaders often have an uphill battle convincing the rest of their organization to follow when an investment does not have the hard numbers to provide assurance.  Andy notes:

One half of the ‘classic’ business case— the costs— can be assessed in advance with pretty high precision.  We know by now what the main elements of an ERP, BI,  Web enablement, systems integration, etc. effort are, and what their cost drivers are.  And we also know the capabilities that different types of IT deliver if they’re adopted successfully—if the human and organizational capital are well-aligned with the information capital.

It's this last part that interests me.  Certainly, the benefits of some IT innovations can be measured directly.  A recent Boston Consulting Group study on innovation reports that  corporate spending on "innovation" is up, even while companies are not satisfied with the results of prior innovation spending.  Among the companies studied, the most popular metrics for measuring innovation were time to market, new-product sales, and return on investment.  For product development organizations, these might be good measures.  

But what about service- or knowledge-based organizations?  How do justifyable decisions get made involving technology investments?  In my experience, the most sustainable technology innovation comes from organizations with visionary leadership and a culture that provided creative staff the freedom to explore, experiment, and sometimes fail.  As Andy alludes, it's about both the nature of the innovation, and the ability of the organization to capitalize on it.  But even with that, some paths lead to real business benefit and others do not.  Perhaps you can't measure which are which, but many feel that they can tell the difference when they see it.  How do you tell the difference?  

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