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D11: | Defining and Measuring Information Productivity | ||
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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.
Executive Summary | 6 |
Why Information Productivity? | 9 |
The Need for Information Productivity Metrics | 9 |
Illustrative Example | 10 |
Capital Measures Are Irrelevant for Benchmarking Information Technology | 11 |
The Importance of Multifactor Evaluations | 14 |
The Importance of Measuring Productivity | 15 |
Relevance of Productivity | 16 |
Purpose of Information Productivity Analyses | 17 |
Measuring Information Effectiveness | 19 |
Defining Terms | 19 |
Determining Input | 20 |
Identifying Transaction Costs | 21 |
Transaction Cost Indicators | 22 |
Information Value-Added | 25 |
Calculating Information Value-Added | 26 |
Calculating the Capital Asset Pricing Model, With Risk Premium | 28 |
Risk Free Rate | 29 |
Beta – A Measure of Risk | 30 |
Expected Return to Market | 31 |
Capital Asset Pricing Interest Rate | 31 |
Calculating Information Productivity | 33 |
Calculating Information Value-Added | 33 |
IVA Data | 35 |
Information Productivity Example | 37 |
Exploratory Studies | 38 |
Transaction Cost vs. Information Value-Added | 38 |
Global Information Productivity Rankings | 41 |
Aerospace and Defense Sector | 42 |
Agriculture Sector | 43 |
Conglomerate Sector | 44 |
Construction Sector - 1 | 45 |
Construction Sector - 2 | 46 |
Electronics and Appliances Sector - 1 | 47 |
Electronics and Appliances Sector - 2 | 48 |
Financial and Insurance Sector – 1 | 49 |
Financial and Insurance Sector - 2 | 50 |
HealthCare Sector | 51 |
High Tech and Telecommunications Sector - 1 | 52 |
High Tech and Telecommunications Sector – 2 | 53 |
Hospitality, Food & Beverages Sector - 1 | 54 |
Hospitality, Food & Beverages Sector – 2 | 55 |
Manufacturing Sector – 1 | 56 |
Manufacturing Sector – 2 | 57 |
Oil, Gas, Mining & Basic Materials Sector | 58 |
Pharmaceuticals & Chemicals Sector - 1 | 59 |
Pharmaceuticals & Chemicals Sector - 2 | 60 |
Professional Services Sector – 1 | 61 |
Professional Services Sector – 2 | 62 |
Publishing, Printing, Entertainment Sector | 63 |
Retail Sector - 1 | 64 |
Retail Sector - 2 | 65 |
Transportation & Automotive Sector - 1 | 66 |
Transportation & Automotive Sector – 2 | 67 |
Transportation & Automotive Sector – 3 | 68 |
Utilities Sector | 69 |
Wholesale Sector - 1 | 70 |
Wholesale Sector - 2 | 71 |
Author Biography | 73 |
Figure 1 – For Similar Revenues/Employee Performance Differs | 10 |
Figure 2 – Information Transactions Vastly Exceed Capital in Business | 12 |
Figure 3 – Declining Importance of the US Manufacturing Firms | 14 |
Figure 4 – Most U.S. Firms Deliver Negative Economic Value-Added | 25 |
Figure 5 – The Risk-Free Cost of Capital Shows Remarkable Reductions | 29 |
Figure 6 – The Distribution of Beta – A Measure of Rising Capital Risk | 30 |
Figure 7 – The Distribution of Expected Shareholder Returns | 31 |
Figure 8 – Median Costs of Capital for Diverse Sectors | 32 |
Figure 9 - Most Firms Delivered Negative Information Value-Added | 35 |
Figure 10 – Distribution of Information Value-Added for 14,585 Firms | 36 |
Figure 11 – Information Productivity Reveals Wide Diversity | 37 |
Figure 12 – Information Management Costs are a Large Multiple of IVA | 38 |
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