Information Productivity
Assessing the Information Management Costs
of U.S. Industrial Corporations

by Paul A. Strassmann

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Information Productivity is the sequel to Paul Strassmann's 1997 book The Squandered Computer, which was ranked as #1 Best Seller in the Information Management category by Amazon.com. This work has already attracted attention that warranted a pre-publication presentation of its findings at a meeting of the Board of Governors of the Federal Reserve System, with Mr. Alan Greenspan presiding.

``Very readable, holds attention from front to back. Excellent content, thought provoking, clearly well researched and obviously considerable original intellectual input.

This is, however, a statisticians dream. This is like a highly refined diagnostic tool for a disease for which the cure appears elusive...

I believe this is a seminal work. It contains much research that will provide valuable input into corporate improvement.''

- russells@atio.co.za, July 15, 1999

An examination of how the costs of information management relate to all other costs of doing business offer valuable insights into the "information economy." During the last ten years, U.S. industrial corporations:

  • Lowered the costs of information management required to deliver goods and to customers;
  • Increased per employee information management costs faster than employee compensation;
  • Lowered information management costs in support of revenues;
  • Lowered the ratio of information management costs to operating profits;
  • Lowered the ratio of information management costs to net assets in place;
  • Improved Information Productivity since 1991, but only on account of more favorable interest rates and not from measurable gains that are attributable to information technology investments.

While these changes were taking place the U.S. industrial corporations also showed the following characteristics:

  • Ninety-two percent of firms incurred higher expenses for information management than for the costs of ownership of their net capital assets. This makes the utility of asset-based productivity ratios (such as ROA, ROI or ROE) questionable as a measure of performance;
  • Forty-two percent of firms delivered negative economic value-added (EVA). This makes accounting profits questionable as a measure of operating results.
  • There was no relationship between the costs of information management and profitability;
  • There was no relationship between the costs of information technology and profitability;
  • The costs of information management remained concentrated in a few large corporations;

Though U.S. industrial corporations have recently shown an improvement in the information management metrics, the record of actual accomplishment still falls far short of its potential. When one examines the enormous disparity between the top ranking U.S. industrial firms (in terms of Information Productivity) and the bottom laggards one finds that a large percentage of organizations are not productive. The bottom ranking firms spend huge sums on information management that does not deliver economic value-added. That acts as drag on further progress of the entire economy. The U.S. industrial corporations are not even close to achieving what is possible by getting information resources managed with greater effectiveness. It now becomes the task of information management to establish the further improvement in Information Productivity as one of the key goals of corporate executives.

The book includes the Information Productivity© rankings of 1,586 U.S. industrial corporations, including key productivity indicators that can be applied to benchmarking. Also included is a selected listing of the 400 top productivity ranking firms, arranged by industry.

  • Review by Sandy Reed, Editor-in-Chief, InfoWorld
  • Review by William Sheridan, Editor, InSite

  • Excerpt in Computerworld: "The Search for Productivity"
The book was authored by Paul A. Strassmann, former chief information technology executive for General Foods, Kraft, Xerox and the US Department of Defense.

Mr. Strassmann is the CEO and Chairman of the Software Testing Assurance Corporation and Chairman of the Board of The Information Economics Press and Method Software. He is adjunct Professor in the Systems Engineering Department at West Point. Strassmann is member of the Advisory Boards to Sun Microelectronics Laboratories and the Syracuse University and serves on the Board of Directors of McCabe Systems, Protegrity Systems and Meta Software corporations. Strassmann has authored over 200 articles and five books about the management of information technologies and holds Registered U.S. Trademarks for Return-on-Management®, Information Productivity® and Knowledge Capital®.

His consulting includes engagements for senior executives of AT&T, Citicorp, Digital Equipment, General Electric, General Motors, IBM, Shell Oil and Texas Instruments. Strassmann served on the Army Science Board and the Defense Science Board and is life member of the Data Processing Management Association, fellow of the British Computer Society, and senior member of the Institute of Electrical and Electronic Engineers. He authored the code of conduct for data processing professionals; was recipient of the 1992 Award for Achievement by the Association for Federal Information Resource Management; the 1992 International Industry Award for advancing the adoption of Open Systems; the 1996 Excellence Award for Business Engineering and the 1997 Recognition by the CIO Magazine as one of the twelve most influential Chief Information Officers of the last decade. He is recipient of the Defense Medal for Distinguished Public Service - Defense Department's highest civilian award.

Now Available!


Information Productivity
Library of Congress Catalog 99-094582
ISBN 0-9620413-8-6
1999. hardcover, 168 pages, 89 illustrations, and 37 tables.
Price: $19.95 + $5.50 for UPS shipping and handling (within continental US).
Also available from Amazon.com

Other books by Paul A. Strassmann:
The Squandered Computer
The Business Value of Computers
Information Payoff
The Politics of Information Management
An Irreverent Dictionary of Information Politics

Information Productivity® ranking, assessments and evaluations for individual corporations or for individual operating Divisions of major corporations are also available as a consulting service from Strassmann, Inc. For information inquire at info@strassmann.com.


Information Productivity

Table of Contents

Illustrations

Figure 1 - The U.S. Economy Remains Dominant in the World 13
Figure 2 - U.S. Corporations Account for Significant Profits of Largest Global Firms 14
Figure 3 - U.S. Corporations Account for Most of the Profits of the 13,241 Global Firms 15
Figure 4 - National Revenue Shares of Non-industrial Firms 16
Figure 5 - 55% of U.S. Workforce Employed in Information Occupations 17
Figure 6 - Information Occupations Show High Growth Rates 18
Figure 7 - Information Occupations Earn 64% of All Salaries & Wages 19
Figure 8 - Goods Producing Sectors Stagnated While Total Employment Grew 61% 20
Figure 9 - Goods Producing Sectors Account for Only 25% of Employment 20
Figure 10 - Industrial Corporations Offer Most Jobs 22
Figure 11 - Self-Employed Workers Are Mostly in Production and Services 22
Figure 12 - Proprietorships Earn an Exceptional Share of Total Business Profits 23
Figure 13 - Large Corporations Incur Most Information Management Costs 24
Figure 14 - 43% of Information Management Costs in 108 Corporations 24
Figure 15 - 46.3% of Employment in 125 Corporations 25
Figure 16 - Large and Medium Corporations Employ the Most Workers 25
Figure 17 - Revenue Growth Unrelated to Employment Growth 26
Figure 18 - Comparison of Revenues and Inflation-Adjusted Revenues 26
Figure 19 - Employee Compensation Grew Faster than Inflation 27
Figure 20 - Share of Revenues Spent on Payroll Declined since 1993 27
Figure 21 - Scope of Industrial Sectors 29
Figure 22 - Corporate Revenues Are Mostly Allocated for Purchases 30
Figure 23 - Rise in Taxation Offsets Reduced Costs of Debt 30
Figure 24 - Corporations Increased Vertical Integration by Reducing Purchasing Costs 31
Figure 25 - Information Management Can Be a Multiple of the Cost of Goods 33
Figure 26 - Information Management/Cost of Goods Ratio Improved 34
Figure 27 - GE's Ratios Have Improved Recently 35
Figure 28 - GE's Improvements Track Shareholder Value 36
Figure 29 - Information Management Costs can be a Multiple of Compensation 37
Figure 30 - Information Management Costs Show Large Increases 38
Figure 31 - Information Management Costs Increased Faster than Compensation 39
Figure 32 - Computer Spending Assumed to be More Valuable 40
Figure 33 - Information Management/Revenue Shows Importance of Overhead 40
Figure 34 - Information Management/Revenue Ratio Has Declined 41
Figure 35 - Wal-Mart Did Not Reduce its Information Management/Revenue Ratio 42
Figure 36 - Information Management is a Large Multiple of Corporate Profits 43
Figure 37 - Higher Spending on Information Management Unrelated to Profitability 44
Figure 38 - The Information Management/Profit Ratio Shows a Remarkable Decline 45
Figure 39 - The Information Management/Net Asset Ratio Can Be a High Multiple 47
Figure 40 - The Information Management/Net Asset Ratio Remains High 48
Figure 41 - Lower Interest Rates Make Asset Increases Attractive 49
Figure 42 - Coca-Cola Ratios Suggest Favorable Tradeoffs 50
Figure 43 - Information Technology Averages 11.5% of Information Management Costs 51
Figure 44 - Information Technology per Employee Reflect Information Intensity 51
Figure 45 - Information Technology and Profitability are Unrelated 52
Figure 46 - 40% of Industrial Firms Deliver Negative Economic Value-Added 59
Figure 47 - Economic Value-Added Is Less than Accounting Profits 60
Figure 48 - Information Management Costs are a Large Multiple of EVA 60
Figure 49 - Harnessing Information Productivity 62
Figure 50 - Productivity growth reported by U.S. Bureau of Labor Statistics 63
Figure 51 - Market Valuation Exceeds the Book Value 66
Figure 52 - Information Management Costs Exceed Cost of Capital Ownership 67
Figure 53 - Information Productivity Median Values Show Remarkable Recent Gains 72
Figure 54 - Lowest Cost, Asset and Revenue Ratios Yield High Information Productivity 73
Figure 55 - Information Productivity Patterns for 1,350 Corporations 74
Figure 56 - Information Productivity is More Sensitive than the ROE Performance Indicator 75
Figure 57 - Information Productivity is More Sensitive than the ROE Performance Indicator 76
Figure 58 - Information Productivity is More Sensitive than the Market/Book Indicator 76
Figure 59 - Information Productivity is More Sensitive than the Market/Book Indicator 77
Figure 60 - Most Productive Firms are Smaller and Spend Less on Information 78
Figure 61 - Eleven Look-alike Firms Show Superior Information Productivity 80
Figure 62 - Pharmaceutical X Indicators Suggest Low Information Effectiveness 80
Figure 63 - Low Assets and Substandard Growth Rate Explain Operating Results 81
Figure 64 - Trends in Critical Information Management Indicators 81
Figure 65 - Trends in Critical Financial Indicators 82
Figure 66 - Gap in Past Performance Makes Forecast Questionable 83
Figure 67 - The Proposed Plan Narrows the Difference in one of the Ratios 84
Figure 68 - Number of Male and Female Workers 85
Figure 69 - Occupational Growth for Male and Female Workers 86
Figure 70 - Comparison of Median Earnings for Male and Female Workers 86
Figure 71 - Dollar Weighted Share in Occupations for Male and Female Workers 87
Figure 72 - Males Dominate Information Technology Occupations 88
Figure 73 - The Female Share of I.T. Occupations Has Decreased since 1983 88

(c) Copyright 1999, Strassmann, Inc.

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