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IT INTANGIBLES CAN BE MEASURED

by Mary Adams ~ May 6, 2008.
Permalink | Filed under: Hybrid Vigor.

I recently read two different blog posts on measuring intangible benefits of IT (information technology) projects. The first by Paul Ritchie More On Intangible Benefits and the other by Tabrez Khan A Case for IT’ s Non-financial ROI.

Both bloggers make the case that intangibles are important but very difficult to measure. I agree that they are important but think it is unfortunate that they are seen as so hard to measure. The field of intangibles and intellectual capital provide a number of important ideas that can be applied in IT business cases. Here are a few.

IT is Intangible: To start with, it is important to recognize that IT is itself a (mostly) intangible investment. I say this because much of IT spending is not capitalized on the balance sheet but, rather, expensed on the income statement. Any analysis of the costs of a project ends up happening outside the accounting system because so much of the spending simply gets expensed.

The only reason for mentioning this is to remind those in IT that intangibles are not something to be ignored or dismissed. They are actually at the heart of almost every business today. Roughly 80% of the value of companies today is intangible, that is, not on the balance sheet. IT is a big part of that. So IT should embrace the study of intangibles.

Intangibles Gain Value From a System: Another important point is that intangibles do not have much stand-alone value. Their value comes as part of a system. Most IT implementations cannot be picked up and moved to another company without a lot of work. This is because they exist in a larger context of the work patterns and skill of the workers that use them.

Yet most examinations of IT spending tend to focus on a specific project. It is much more informative to understand IT in terms of its role as the platform for automation of underlying business processes, literally providing the machines a company uses to “manufacture” value for its customers. Taking this broader perspective leads you to focus on all of the three basic types of intangibles:

  • People (incl. competencies, experience, capabilities)
  • Structural knowledge (incl. processes, software, intellectual property)
  • Networks (incl. customers, partners, suppliers, brands)

An IT implementation needs all three kinds of IC to succeed. To evaluate IT, you need to understand the business process, the people who run it, the partners that contribute to it and then, yes, the IT itself. So measurement should not just look at one part of the system—an attempt should be made to understand how all the parts work together. I have a friend in charge of a $100 million implementation of a new governmental IT system. She tells me her greatest worry is whether the people that are supposed to use it will actually be willing to and capable of adapting to the new system. That is such a fundamental issue that she and others in her position ignore at their own peril. And one that requires looking beyond hardware and software for a resolution.

Intangibles Can Be Measured: How to measure this kind of implementation? Both Ritchie and Kahn suggest a preference for tangible measurements. I agree but it’s not enough. When dollars are invested in an intangible, the path from dollars spent to dollars earned or saved on the backend is usually intangible. If you insist on ignoring intangibles, you are basically consigned to measuring money going in a black box and hoping that money comes out the other side.

It’s much more powerful to ask the question, “when we invest in this system, what do we expect to happen?” and then try to create measurements around this.

A basic principle of measurement should be that you take a baseline measurement, identify the desired change and allow for a follow up measurement. This is no different for intangibles. But what often happens is that people identify the desired change and then try to measure it. Without a baseline, however, measuring the “change” is basically impossible and people conclude that “it’s all too soft to rely on.”

How to take a baseline measurement? If the intangible cannot be measured through dollars (such as the cost of an investment) or numbers (such as transaction throughput or a similar numerical measure), you will have to try some new approaches. One approach is an assessment. An assessment involves creating or using a standardized survey to analyze something. Assessments can be made by the project team but, ideally, they will include feedback from internal and external stakeholders. The tool we use asks stakeholders to rate the effectiveness of specific processes on a scale from 1-8. If you do this kind of assessment in a disciplined way, you get some pretty powerful information.

Asking stakeholders to assess the state of intangibles before beginning a project has the added benefit of identifying strengths upon which you can build and weaknesses that need to be addressed to ensure the success of the implementation. It will also make it easier to identify the right metrics to monitor as the implementation progresses.

2 Responses to IT INTANGIBLES CAN BE MEASURED

  1. Intangible Systems, Products, and Benefits « Crossderry Blog

    [...] Intangible Systems, Products, and Benefits Posted on May 15, 2008 by Paul Ritchie Carrying on a conversation that started earlier (here and here), Mary Adams delves more deeply into the intangible nature of IT (here).  I really liked this ‘graph: It’s much more powerful to ask the question, “when we invest in this system, what do we expect to happen?” and then try to create measurements around this. [...]

  2. IT Intangibles | IC Knowledge Center

    [...] An interesting conversation has arisen around a post by Mary Adams, a member of the IC Rating community, and thought leaders on information technology from SAP and Deloitte. The post made three key points: [...]

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