Information Productivity Assessing the Information Management Costs of U.S. Industrial Corporations by Paul A. Strassmann Search within entire book online using Google Print Out of stock 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!

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 3
• Table of Illustrations 6
• Introduction 9
• Summary of Findings 11
• 1. The Context 13
  • The Global Context 13
  • U.S. Corporations are the Primary Contributors to the U.S. Global Position 13
  • U.S. Corporations Have an Extraordinary Share of Global Corporate Wealth 14
  • There Will be Another Book on the Non-Industrial Firms 15
  • What is the "Information Economy"? 16
  • The U.S. Context 17
  • Employment Characteristics 17
  • Information-Related Occupations Dominate the U.S. Workforce 17
  • Growth Concentrated in the Information Occupations 18
  • Dollar-Weighted Share Shows Importance of Information Occupations 18
  • How Productive is an Economy Where Most Workers are Managers? 19
  • Sector Characteristics 19
  • The Corporate Context 21
  • Corporations Provide Most of U.S. Employment Opportunities 21
  • Self Employed Workers are in Production and Services 22
  • Partnerships and Proprietorships are More Profitable 23
  • A Few Corporations have Most of the Costs 23
  • Spending on Information Management is Concentrated 24
  • Employment Opportunities are in Large Corporations 25
  • Employment and Payroll Trends 26
  • Study of U.S. Industrial Firms 28
  • Defining the Scope of Industrial Firms 28
  • Vertical Integration of U.S. Industrial Firms 29
• 2. Information Management Indicators 32
  • Information Management and Cost of Goods 33
  • It Takes Less Information to Deliver Goods Now 33
  • General Electric - An Example of Contributions to Excellence 35
  • Information Management per Employee 36
  • Information Costs Rising Faster than Wages and Salaries 37
  • Effects of Information Technology on the Costs of Information Management 39
  • Information Management and Revenue 40
  • It Takes Less Information Management to Support Revenue 41
  • Wal-Mart - A Study of Presumed Excellence 42
  • Information Management and Profits 42
  • Losers Spend More Money on Information Management 43
  • Information Management Unrelated to Return-on-Shareholder Equity 43
  • It Takes Less Information Management to Deliver Profits 45
  • The Influence of Reduced Interest Rates 46
  • The Influence of Lowered Commodity Prices 46
  • Information Management and Net Assets 47
  • It Takes Less Information to Manage Assets 47
  • It Is Less Expensive Now to Own Assets 49
  • Coca-Cola Company - An Example of Contributions to Excellence 49
  • Information Management and Information Technology 50
  • Limitations of Information Management Indicators 53
• 3. Economic Value-Added 55
  • Finding a Firm's Economic Value-Added 55
  • Determining Net Output 55
  • Estimating Economic Value-Added 56
  • The Many Ways of Calculating EVA 57
  • EVA Ratios 58
  • Forty Percent of U.S. Industrial Firms Detract from Shareholder Wealth 58
  • Reported Profits Are Not Reliable Performance Indicators 59
  • Information Management Costs Vastly Exceed Economic Value-Added 60
• 4. Measuring Information Productivity 61
  • The Importance of Measuring Productivity 62
  • A Skeptic's View 63
  • Relevance of Productivity 64
  • In Search of Evidence 64
  • Evaluating Productivity Gains 64
  • Problems with Existing Measures of Corporate Productivity 65
  • Most Frequently Used Measures of Productivity Are Faulty and Obsolete 66
  • Information Management Costs Exceed Costs of Capital Ownership 67
  • Measuring Information Productivity 68
  • Determining Input 68
  • Estimating Inputs 69
  • Purpose of Information Productivity Analyses 69
• 5. Information Productivity Findings 71
  • Information Productivity has Improved 71
  • Ranking Firms by Information Productivity 72
  • Characteristics of the Information Management Ratios 73
  • Comparison of IP with ROE 75
  • Comparison of IP with Market-to-Book Valuations 76
  • Information Productivity and Company Size 77
• 6. Applying Information Productivity 79
  • Step #1: Rank Firms by Information Productivity 79
  • Step #2: Compare with Superior Performers 79
  • Step #3: Review Critical Indicator Trends 81
  • Step #4: Examine Proposed Plans for Consistency with Benchmark Trends 83
• 7. Women in Information Management 85
  • lead in Information Management 85
  • Males Continue to Dominate Information Technologies 87
• Concluding Observations 90
• Appendix A - Information Productivity Listing 91
• Appendix B - List of High Productivity Firms 123
• Appendix C - Definitions 133

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

The Information Economics Press home page
The Strassmann, Inc. home page