The IT Value Network - From IT Investment to Stakeholder Value Leseprobe

Chapter = c01 Date: July 16, 2009 Time: 12:14 pm CHAPTER 1 IT Investment AL Sticker Shock RI Walking through the virtual IT “car lot,” it is not hard to see why a CXO would challenge the Chief Information Officer (CIO) with respect to IT costs. Too TE often an IT Ferrari would be proposed when an IT Volvo could meet the required needs. The daunting task of justifying technology direction and MA spending variances, let alone the need for investment in the first place, is a challenge unto itself. IT investments are becoming more than just business enablers or assets on the books; they are indeed a capability that can drive the business. IT ED thought leadership should transition from a traditional technology invest- ment model to an information investment approach, getting a bigger bang for the buck from the “I” in IT and from the “I” in CIO. In today’s world, the HT business impact of effective IT investments is potentially exponential and needs to be governed accordingly, not just as cost savings enablers. IT costs typically constitute 2 percent of a company’s revenue, but they IG can be as large as 12 percent, perhaps the single most manageable cost after labor. According to Gartner, this culminates in a global 2008 IT investment R of some $2.6 to $3.0 trillion, with half spent on telecommunications and the rest on IT hardware, software, and services.1 Such annual spending is PY comparable to the gross national product (GNP) of the United Kingdom or France, or nearly thrice that of India. In other words, globally we spend on IT nearly three times what India’s 1,135 million people (20 percent of CO the world’s population) spend on consumption, gross investment, govern- ment expenditure, and exports less imports. But the value of information is invariably unknown. Globally, IT spending is nearly three times the gross national product of India, where, unlike the case of India, the value is undetermined. 3 Chapter = c01 Date: July 16, 2009 Time: 12:14 pm 4 Status Quo—Where’s the Value? This chapter focuses on IT investment growth and trends. Six decades of IT investment are considered, from early computing to the World Wide Web. IT investments are classified according to a four “S” category model, which will be useful for IT evaluation further on in the book. Finally, future IT investment considerations are explored, which sets the context for IT value network measurement and management. Six Decades of IT Investment IT investment has consistently grown from the modern computing era in the early 1940s to the present information age. Spending on IT has expanded from fundamental computing and telecommunications infras- tructure to enterprise application systems and to information and service management. Within just 60 years, IT investment went from a select few to the masses, from large organizational spending to individual spending. Sixty Years of Growth The modern computing era started more than 60 years ago with the advent of early digital technology. There is no one inventor who can lay claim to the first modern computer, as many contributed to today’s foundation of basic computing. In 1941, the German technologist Konrad Zuse developed the Z3, which become the first functional program-controlled, all-purpose, digital computer. Subsequently, the British Colossus was created in 1943; considered the first electronic computing device, it was used in decrypt- ing German World War II messages. A series of computing advancements then occurred in America, with the advent of the ABC, Harvard Mark I, and ENIAC I computers. The latter, designed by John Presper Eckert and John W. Mauchly, became the first all-purpose electronic computer in 1945. The design was based on John Von Neumann’s report on unified storage of data and programs. “It would appear that we have reached the limits of what it is possible to achieve with computer technology, although one should be careful with such statements, as they tend to sound pretty silly in 5 years.” John Von Neumann (ca. 1949)2 Arguably the first modern computer, evolved from the collective, was Federic Williams’s and Tom Kilburn’s Baby computer, built in Manchester, England. In 1948, 60 years ago, the components or characteristics of the Chapter = c01 Date: July 16, 2009 Time: 12:14 pm IT Investment 5 basic computer were complete, memory had been added, and programs could be stored. With a random access memory of 32 words (128 bytes) and a computer speed of just over one millisecond per instruction, it may not have been fast, but it could perform many applications. It was a far cry from today’s fastest supercomputer, IBM’s BlueGene/L, which can process 360 trillion transactions per second3 or a 1GB DRAM chip, which can store 8 billion bits. “Where a calculator on the ENIAC is equipped with 18,000 vacuum tubes and weighs 30 tons, computers in the future may have only 1,000 vacuum tubes and perhaps weigh 1.5 tons.” Popular Mechanics, 19494 The Baby or Manchester Mark I eventually became the first commercial general-purpose computer, named the Ferranti Mark I.5 In 1951, the UNI- VAC (Universal Automatic Computer), a derivative of the ENIAC 1, became the first mass-produced computer, providing a memory of 1,000 words for a sizable $1 million investment. IBM entered the arena in 1953 with the 701 Electronic Data Processing Machine (EDPM)—the first mainframe. Then IBM developed Fortran, the first high-level computer programming language. The first generation of computing started to gain momentum. IT invest- ment started to grow, moving from university and government institutions to commerce. But at $10,000 per megabyte for an IBM magnetic disk sys- tem (currently, one-fiftieth of a cent per megabyte), it was an expensive proposition. Many thought computing was for the limited few. “I think there is a world wide market for maybe five computers.” Thomas Watson, Chairman IBM, 19436 The second generation, triggered by transistors, started a wider com- mercial interest in more affordable computing. The vacuum tube was dead. Between 1960 and 1964, the IBM 1401 captured one-third of the world market, selling over 100,000 computers. The third generation, driven by integrated circuits or the “chip,” further transformed computing application. Jack Kilby and Robert Noyce independently created the microchip, in 1958. Into the mid- to late 1960s, IBM introduced the System/360 mainframe, and Data General started selling one of the first 16-bit minicomputers, the Nova, for $8,000. Chapter = c01 Date: July 16, 2009 Time: 12:14 pm 6 Status Quo—Where’s the Value? “Moore’s Law states that the number of transistors on a chip will double about every two years.” Intel co-founder Gordon Moore, 1965 Intel has kept that pace for nearly 40 years. The fourth generation exploded onto the market with the advent of the microprocessor, invented in 1971 by Ted Hoff, Federico Faggin, and Stanley Mazor at Intel. From the late 1960s, competition grew, with mainframe and minicomputer offerings from IBM, Data General, Hewlett-Packard, Sperry Univac, Olivetti, Burroughs Machines, and ICL. In the background, the ARPAnet and the original Internet were born in 1969. These were quickly followed by Robert Metcalfe’s and Xerox’s Ethernet computer networking in 1973. Packet switching and internetworking, using standard communication protocols, provided computing power across boundaries. “There is no reason why anyone would want a computer in their home.