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Measuring Matters

By Edward H. Baker  |  Posted 01-07-2007 Print

Measuring Matters

Here's a scenario that demonstrates how the same IT investment can reap wildly different rewards. Two companies in the same industry invest in identical IT systems. The first company has both the innovative culture and the managerial wherewithal to rethink the processes affected by its new system, and revenue and earnings grow by 15 percent. The second company, with a different culture and managerial goals, concentrates on using its new system to cut staff; productivity grows by 3 percent and earnings grow by 5 percent, but revenues don't grow at all. The second company saw productivity gains from its IT investment, but the first company saw the greater benefit.

Given those two scenarios, the goal for CIOs now is to figure out how to measure the real benefit of successful innovation, and of IT's impact on the innovation process, not just the benefit of IT by itself. "In order to advance in a knowledge economy, you need to be innovating on a consistent basis," says IIIP's Lojeski. "Whether you have radical innovations, incremental innovations, process innovations, product innovations, technological innovations, administrative innovations, you need to be able to draw a straight line from the knowledge workers—and the inputs he or she makes use of, including IT—to the effectiveness of the innovation. So what we're trying to measure is the effectiveness of our output, especially when it comes to innovation and value creation. How effective are we as knowledge workers?"

If organizations could get a better handle on the true value of their knowledge-based outputs, Lojeski concludes, they would have a much better basis on which to make decisions about the inputs they use. "The overwhelming majority of executives are very frustrated with their innovation investments globally," she says. "They're reaching for all kinds of new innovation models—R&D, open innovation, outsourced innovation. But in order to face shareholders and say, 'We're providing shareholder value by investing in these kinds of things,' we have to be able to measure that value. If you can't measure what you're doing accurately, it's very difficult to value your investments accurately.

"We don't have the answers yet," Lojeski adds. "But we're thinking that, ultimately, effectiveness will replace productivity as the standard measure of growth for the knowledge economy."


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