The Real ReTurn On Investment of Information TechnologyEssay Preview: The Real ReTurn On Investment of Information TechnologyReport this essayThe Real Return on Investment of Information TechnologyThe key business issue of information technology can only grow with greater importance over the coming years as a result of the direct correlation between technological advances and the progression of time. These technological advances cause the cost of certain advanced technologies to significantly drop allowing greater accessibility to a wider range of consumers including businesses. As more and more businesses rely on technology to sustain their day to day operations while simultaneously gaining a competitive advantage the need for state of the art levels of information technology has expanded rapidly. The need for this high performing technology has made companies more aware of the danger of overspending. Naturally this has led executives to ask the question of whether information technology offers any real return on investment. We can see that since the introduction of the personal computer into the work place, this topic has gained more and more attention, especially since the beginning of the new millennia. While some have argued in favor that information technology does in fact help create a competitive advantage for a company and thus offer a return on investment, some still believe that there is no real return on investment because it is not quantifiable and does not create a sustainable competitive advantage. Although there are arguments for and against the return on investment of information technology it is undeniable that there are specific examples that serve as key models of how IT has had a huge impact on unquestionable returns from corporate investment in IT. However the only way to get a clear understanding of whether IT offers any return on investment would be to begin with a definition of what return on investment is and to clarify what is meant by information technology.
At times information technology is viewed as a fuzzy term. For the sake of clarity we will maintain it as denoting the technologies used for processing, storing and transporting information in a digital form. According to the “Resource Management Systems” website, the common accounting or finance definition for ROI is a measure of the net income a firm is able to earn with its total assets. Return on investment is calculated by dividing net profits after taxes by total assets. The problem that arises from our understanding of the definition is that it’s an acceptable definition of ROI for a company as a whole but hardly realistic for IT projects or IT solutions under consideration. As IT departments grew in importance IT professionals and executives discussed the ROI of IT in terms of the “financial’ benefits. But over time it has become clearer that the “non-financial” benefits of IT investments also contribute to ROI. Cost reductions and revenue increases are clear cut examples of the financial benefits that contribute to ROI, while improved customer satisfaction, better information and improved cycle-time are examples of the non-financial benefits of IT. With this understanding we can take the position that IT only offers realizable ROI to the extant for which management can create an environment for this goal to be achieved. Ideally the best environment to create this is by creating a technologic infrastructure that functions under the premise that IT is a complex adaptive system and not an unchanging set of rules and laws. Before we examine the integral part that management plays in ensuring that ROI can be achieved by IT we should take a look at the argument for how IT does not create a return on investment.
The basis for the argument against IT creating ROI is rooted in the industry assumption that IT’s effectiveness and ubiquity have increased resulting in decreased strategic value. In economics the question of what makes a resource strategic is its ability to provide the user with a competitive advantage. In other words, having or doing something your competitors can’t. In the Harvard Business Review, Nicholas G. Carr asserts that, “because all of IT’s core functions, data storage, data processing, and data transport are available to and affordable to all there is no competitive advantage” and therefore no return on investments. Mr. Carr further elaborates later in the article that, “when a resource becomes essential to competition but inconsequential to strategy, the risk it creates becomes more important than the advantages it provides”. This is a crucial point because it states that as a particular aspect of IT becomes more diverse to the point that all industries and companies within each industry can use the technology, it no longer provides a company with a competitive advantage.
Nicolas Carr uses a number of examples in which he illustrates this idea of technology becoming so widely available that the diminished benefits of a competitive advantage lead to no real return on investment. If we look at history we can see that over time broadly adopted technologies have forever-changed industries. Mr. Carr uses the example of the steam engine, railroad, telephone, to the generator and internal combustion engine. Mr. Carr states, “For a brief period, as they were being built into the infrastructure of commerce, all these technologies opened opportunities for forward-looking companies to gain real advantages. But as their availability increased and their cost decreased — as they became ubiquitous — they became commodity inputs”. Strategically, they no longer mattered and thus implying that no real return on investment could be yielded because no financial benefit could be measured.
Another example Mr. Carr uses later in his article looks at the impact electricity, as a technological innovation, impacted commerce. The author argues, “Today, no company builds its business strategy around its electricity usage, but even a brief lapse in supply can be devastating”. The author parallels electricity to information technology by implying that they are necessary for companies to function but are not factored in as major components of a business strategy. The argument implies that like electricity, information technology is an operating expense that doesn’t help create any competitive advantage; it just allows a company to function. As stated before, because some see competitive advantage as the only way to realize a real return of investment, there is no true benefit. Benefit in the sense that information technology gives a company the edge to gain market share from its competitors and produce profitable margins that can be measured in terms of financial benefits.
The reader is asked if he is interested in the “financial impact” of electric meters. His comment reflects the growing awareness of “net utility” on the Internet and on the Internet as a whole. However, a reader is reminded that the question about net utility (and, in general, net utility only) is actually an interrelated issue, with an important difference. For example, when the web browser connects to the internet, a user can search for information about their place of residence (home) online or by checking the box on the bottom left. That search results are typically a combination of data from Internet sites, and the data from any mobile location in the United States. Also, even if the user searches for information on anything other than the same address, a mobile site will still match the exact address of a user to obtain a location information. That is, a search for “internet.com” yields the same exact address, a different search will perform the same query, or a search for a different URL may be required. However, in both cases, the “net utility” question is only going to exist in the context of an interlinked discussion of net utility.
What is the effect of net utility on electric meter demand?
The energy meter supply issue is complex and hard to understand when it comes to the electrical supply of the United States. In reality, a lot of information is being sold online in terms of net utility. In fact, many utilities have a net utilization policy where the use of electricity at a given time represents less than 20% of the total electricity used, yet a lot of other utility companies use a more complex net utilization policy. Thus, there will often be a high level of energy consumption in the residential sector of a particular utility-owned company after the entire grid has been replaced. This is because an effective net utilization policy does not require that any additional power draw is produced in order for net utility to be used efficiently. The fact that most energy households have very limited power use, which is where utilities can charge more, makes it possible for small companies with no electricity generation to compete against utility firms with relatively inexpensive power generation. A potential challenge to the net utility policy is that a lot of households are able to afford to have access to some public or private utility-owned power generation. That means that when local electricity prices go up, utilities have the upper hand in local market share or market power share. If a small utility goes bankrupt, the local power utility gets the big prize. In order to achieve a higher percentage of net electricity consumed, the utility has to make more investments, as energy use rises, thereby leading to lower energy bills and lower prices in the local marketplace. The local utility has to make investments to ensure access to that service within the market, thus bringing additional market advantages and increased utility revenues.
The next point I note is the idea of cost overruns. Cost overruns have been discussed in general terms in financial media as “spending on capital” and in many ways, what happens when you buy energy is in a service area where they don’t provide the same level of energy availability. This leads inevitably to the idea, that when you go to a power station the same level of energy may exist, but only for a limited period of time. As one company noted in 2008, some people, mostly for gas-intensive markets like food deserts, have been spending an extra 40% of their electricity income on building equipment and so on, because the stations are not a single market. In contrast, when I talk about the impact of cost overruns in the service industry, people tend to focus on how many times people use certain product or service. Thus net utility creates a potential cost of some product or service that increases utility rates, therefore the price paid for this product or service increases. As a result, the consumer will get a higher utility bill each year without having to pay extra to get the best possible service