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D11:   Defining and Measuring Information Productivity
    By Paul A. Strassmann
    73 Pages
    Date Published: 02/2004

    Online Price: $9.95

Summary

Defining and Measuring Information Productivity
Including 2002 Productivity Ranking of 1,319 International Firms

In their work the corporate Chief Information Officers (CIOs) are continually confronted with disagreements about the scope as well as the effectiveness of their work. Although many of such arguments are phrased as technological, organizational, governance, security and accountability matters they ultimately resolve into questions of economics. The application of information economics, especially as revealed in the form of corporate budgeting, has now become one of the principal means for defining the practice of corporate information management.

The report ranks corporations based on the Information Productivity (IP) index, a metric that I derived to measure the value added to a corporation’s profitability by information-centered tasks. In effect, the IPI recognizes the added value of information management.

The most important assets of a corporation are people. The management of information needed to support those people now greatly exceeds the costs of capital. If you consider a corporation’s sales, general administrative expenses to be the “cost of transactions, for getting products or services to customers” then those expenses exceeded the costs of capital in the U.S. in 2002 by a factor of more than three to one, according to published financial statements. Focus is placed on “transaction cost analysis” that has so far escaped attention from researchers because “information technology” has tended to be treated as synonymous with “information management”. Transaction cost analysis offers empirically verifiable answers to many of the questions that corporate executives are demanding when information professionals ask for money.

Table of Contents

Executive Summary6
 
Why Information Productivity?9
The Need for Information Productivity Metrics9
Illustrative Example10
Capital Measures Are Irrelevant for Benchmarking Information Technology11
The Importance of Multifactor Evaluations14
The Importance of Measuring Productivity15
Relevance of Productivity16
Purpose of Information Productivity Analyses17
 
Measuring Information Effectiveness19
Defining Terms19
Determining Input20
Identifying Transaction Costs21
Transaction Cost Indicators22
 
Information Value-Added25
Calculating Information Value-Added26
Calculating the Capital Asset Pricing Model, With Risk Premium28
Risk Free Rate29
Beta – A Measure of Risk30
Expected Return to Market31
Capital Asset Pricing Interest Rate31
 
Calculating Information Productivity33
Calculating Information Value-Added33
IVA Data35
Information Productivity Example37
 
Exploratory Studies38
Transaction Cost vs. Information Value-Added38
 
Global Information Productivity Rankings41
Aerospace and Defense Sector42
Agriculture Sector43
Conglomerate Sector44
Construction Sector - 145
Construction Sector - 246
Electronics and Appliances Sector - 147
Electronics and Appliances Sector - 248
Financial and Insurance Sector – 149
Financial and Insurance Sector - 250
HealthCare Sector51
High Tech and Telecommunications Sector - 152
High Tech and Telecommunications Sector – 253
Hospitality, Food & Beverages Sector - 154
Hospitality, Food & Beverages Sector – 255
Manufacturing Sector – 156
Manufacturing Sector – 257
Oil, Gas, Mining & Basic Materials Sector58
Pharmaceuticals & Chemicals Sector - 159
Pharmaceuticals & Chemicals Sector - 260
Professional Services Sector – 161
Professional Services Sector – 262
Publishing, Printing, Entertainment Sector63
Retail Sector - 164
Retail Sector - 265
Transportation & Automotive Sector - 166
Transportation & Automotive Sector – 267
Transportation & Automotive Sector – 368
Utilities Sector69
Wholesale Sector - 170
Wholesale Sector - 271
Author Biography73

List of Illustrations

Figure 1 – For Similar Revenues/Employee Performance Differs10
Figure 2 – Information Transactions Vastly Exceed Capital in Business12
Figure 3 – Declining Importance of the US Manufacturing Firms14
Figure 4 – Most U.S. Firms Deliver Negative Economic Value-Added25
Figure 5 – The Risk-Free Cost of Capital Shows Remarkable Reductions   29
Figure 6 – The Distribution of Beta – A Measure of Rising Capital Risk30
Figure 7 – The Distribution of Expected Shareholder Returns31
Figure 8 – Median Costs of Capital for Diverse Sectors32
Figure 9 - Most Firms Delivered Negative Information Value-Added35
Figure 10 – Distribution of Information Value-Added for 14,585 Firms36
Figure 11 – Information Productivity Reveals Wide Diversity37
Figure 12 – Information Management Costs are a Large Multiple of IVA38


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