The Squandered Computer
Evaluating the Business Alignment of Information Technologies

by Paul A. Strassmann

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"In the near future somebody will write a book about how executives in the 1990's spent too much money on information technology because they were afraid to manage it properly. They put their trust in technological experts to deliver business value from I.T. investments."

- Editorial, Wall Street Journal, 12/20/96

This is that book.

Despite much talk about the cyber economy, information age, or the knowledge-based enterprise, as yet there are no generally accepted economic or financial principles to guide executives in spending money on computers.

The Squandered Computer offers a new perspective from which to interpret the economics of computerization. It explains the difference between promises and facts. It shows how misperceptions and negligence diminish the worth of perhaps the most potent tool, since the invention of fire, ever placed in the service of humanity.

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"It would be difficult to find an author with better credentials to speak about the applications of information technology in the workplace: Strassmann has served as chief information officer at General Foods, Kraft and Xerox corporations and as a senior Defense Department official. Despite or, rather, because of this extensive background, he has withering comments to make about the waste of computer resources in most industries. But the book has much more, including a chilling discussion of international information crime, which he believes national police and military forces cannot adequately counter."

- Foreign Affairs, Volume 77, March/April 1998

The Squandered Computer
Library of Congress Catalog 96-095315
ISBN 0-9620413-1-9
1997. hardcover, 426 pages, 66 illustrations.
Price: $24.50 + $5.50 for UPS shipping and handling (within continental US).
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Other books by Paul A. Strassmann:
Information Productivity
The Business Value of Computers
Information Payoff
The Politics of Information Management
An Irreverent Dictionary of Information Politics

Executive Summary of "The Squandered Computer"

1995 worldwide corporate spending for computers is about one trillion dollars. It exceeds total profits of 13,400 largest global firms. 1995 U.S. corporate spending for computers is about $500 billion. This exceeds the sum of 1995 corporate profits by $175 billion. The U.S. with 4.6% of the world's population and 21.3% of the world's GNP operates about 50% of the world's computing power.
For 55% of U.S. firms the computer budget exceeds their economic value-added. The "computer paradox" has not been repealed, contrary to claims. There is no demonstrable relationship between computer spending and corporate profits. Despite a 67% growth in computer spending, overhead costs of U.S. firms grew faster than their growth in revenues or profits.
The "right" level of spending for computers reflects the bureaucratic characteristics of a firm, not revenue or profits. The insistence of computer magazines and academics to relate computer spending to corporate revenues or government agency budgets is misleading and encourages overspending. Claims that computers increased worker productivity are deceptive. The rise in revenue per employee is a reflection of increased outsourcing, not gains attributable to computerization.
There are no "best practices" prescriptions how to spend money on computerization. 31% of computer projects are canceled; 53% will over-run budget and schedules. The government's policy to shift regulatory compliance paperwork to corporations creates a computer workload that has no payoff. The most popular methods for justifying spending on computers propose unverifiable commitments.
Computer magazines have the tendency to popularize examples of excellence in computer usage that disregard financial results. Outsourcing of computer services is most often another form of drastic downsizing. The practice of outsourcing of computer services will increase as the costs of modernization of information technologies become prohibitive.
The inherent conflict of interest among parties to outsourcing contracts will give rise to independent technology assessment firms. The cyclical investment pattern for computers is as much a reflection of shifts in organizational power as the result of technological innovation. Each technology introduction cycle is characterized by increased spending and destruction of information assets.
The era of exuberant business spending for computers is coming to an end. Economics will prevail over electronics.

Selected Recommendations

The alignment of information technologies with business objectives must take place through changes in the financial planning and budgeting processes. The need to manage outsourced technologies requires shifting the focus from technology operations to the conservation of information assets.
The prospective enormous costs for abandoning the recent expenditures for distributed systems calls for the adoption of practices to preserve software and training investments. The need to protect information assets will mandate improved information security.

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