Information Technology and the Productivity Paradox: Assessing the Value of Investing in IT [Hardcover]

Henry C. Lucas Jr. (Author)

Book Description

Publication Date: April 29, 1999

From networks to databases, email to voicemail, the amount of capital being invested in information technology each year is staggering. By 1996, U.S. firms were spending more than $500 billion annually on software, networks and staff. The recently merged Bank of America and NationsBank have an initial IT budget of 4 billion dollars. As firms like this push rapidly into the business world of the 21st century, the question has remained: how do firms measure returns from these substantial investments in information technology?
Henry C. Lucas, effectively answers this question by providing a creative and reliable framework for measuring the competitive advantages and profits gained through investments in state-of-the-art information systems. There is value in information technology, and it is possible to show returns, Lucas argues--unfortunately this value just doesn't always show up clearly on the bottom line of a ledger. In five expertly presented sections, he spells out exactly what businesses can expect from their information technology investments--some investments create a measurable value, some do not, but all are important nonetheless. Through a precise mix of frameworks and models, such as an Investment Opportunities Matrix, and punctuated with real examples from successful firms, this is the first book to allow executives to see exactly how their information technology investment can be expected to return value, thereby maximizing their advantages in an age of global competitiveness.
Indeed, firms who manage their information systems most efficiently are best suited to succeed in a rapidly evolving marketplace. With so much at stake, Information Technology is certain to be the essential guide for firms determined to compete and flourish in the highly competitive economy of the next century.

Editorial Reviews

Review

"This is an elegant, non-hype, practical and substantive book about one of the most complex and frustrating issues in modern business: proving and measuring the pay-off of investment in IT. It's among the very best ever on the topic. When 50% of incremental capital investment in this economy is in IT, it's essential reading-and a good read, too."--Peter Keen

"An important book which deals with the central investment dilemma of the Information Age. How and when does one invest in IT? What are the range of payoffs? The book contains a powerful set of ideas drawn from a rich collection of field cases to guide general managers in these investment decisions. A must book for general managers who need to deepen their thought processes in this arena."--Warren McFarlan

"The question of the returns from IT investments has long been a controversial issue. Lucas provides an interesting perspective, one that endeavors to recognize the complexity at the issue. The business reader will find numerous examples of the various types of returns one can obtain from IT. He...develops a framework that permits evaluation of new situations, a useful addition as more and more organizations find IT an integral part of competing in the 21st century."--Michael S. Scott Morton, Sloan School of Technology, MIT

About the Author

Henry C. Lucas is Professor of Information Systems, Stern School of Business, New York University.

Product Details

• Hardcover: 240 pages
• Publisher: Oxford University Press, USA (April 29, 1999)
• Language: English
• ISBN-10: 0195121597
• ISBN-13: 978-0195121599
• Product Dimensions: 9.4 x 6.3 x 0.9 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (4 customer reviews)
• Amazon Best Sellers Rank: #971,569 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

3 of 3 people found the following review helpful:

3.0 out of 5 stars review, May 2, 2007

By 

P. Mckinney - See all my reviews
(REAL NAME)   

This review is from: Information Technology and the Productivity Paradox: Assessing the Value of Investing in IT (Hardcover)

Because Information Technology and the Productivity Paradox: Assessing the Value of Investing in IT is a relatively dated book, one should consider it a primer to the current studies of IT governance and IT portfolio management rather than a useful tool to address existing investment dilemmas. In 1999, Lucas introduced the concept that IT investment valuation is derived from IT's alignment with corporate objectives along with a firm's ability to convert the IT into a useful application. While a powerful concept and one that remains relevant today, the impact of his message is somewhat lost in the historical context of the study. Businesses that Lucas examined had yet to fully embrace e-commerce and ATMs and intranets were the new innovations. With these innovations now a part of our everyday infrastructure, it is difficult to appreciate the book's offerings.

However, when one is able to step back and evaluate the book as a whole, it is striking to note that Lucas' contentions are the basis for today's IT governance and IT portfolio management. For example, Peter Weill and Jeanne Ross' 2004 book, IT Governance: How Top Performers Manage IT Decision Rights for Superior Results, asserts that firms who implement IT governance in their business practice show 20% higher profits than firms who lack governance2. Just as Lucas set forth in 1999, Weill and Ross equate IT valuation with the investment's alignment to company objectives and the company's ability to create functionality from the investment. The pair takes Lucas' idea a step further and offers a system of decisions that advise corporations on how to transform their IT investment from merely an expense to a profit. Had Lucas been able to offer such frameworks, his book would be a mainstay for business executives.

In Bryan Maizlish and Robert Handler's 2005 book, IT Portfolio Management: Unlocking the Business Value of Technology, the prevalent theme throughout the book is alignment of IT investments to business.3 Similar to Lucas' belief that identifying the nature of the IT investments and integrating the investment to business objectives begets value, Maizlish and Handler find that when alignment goes awry, a company is at risk for demise. It is interesting to note that six years after Lucas wrote his book, Maizlish and Handler experienced the same problem with respect to determining a company's true investment in IT. All three investigators observed that most companies do not track their IT investment. For Lucas, this substantiated his claim that ROI was impossible to calculate; for Maizlish and Handler it emphasized the reason why companies generate inferior returns.

After reading Information Technology and the Productivity Paradox and researching the topics raised in the book, it astonishes me that businesses continue to grapple with issues that Lucas raised over seven years ago. Information Technology continues to advance yet the business world remains baffled on how to assess the true value of the resource. With an average of 70% of capital spending going toward IT, why isn't business closing the spigot on spending it doesn't comprehend? In a time when companies compete in a global market and efficient operations are a key to success, it seems illogical for IT investment to continue to go unchecked. Imagine what would occur if a fraction of a firm's resources were devoted to Lucas' recommendations. Perhaps, IT spending would diminish and companies might find undiscovered value in their current systems. This predicament begs one to wonder, is Nicolas Carr right?

1 of 1 people found the following review helpful:

4.0 out of 5 stars Book Review, February 29, 2008

By 

K. Elzo (Stillwater, OK) - See all my reviews
(REAL NAME)   

This review is from: Information Technology and the Productivity Paradox: Assessing the Value of Investing in IT (Hardcover)

Information Technology and the Productivity Paradox was a book that I was required to read by my AIS professor. I would have never chosen to read it, but it actually turned out to be one of the better books she assigned to the class. Lucas makes some very good points throughout the entire book. I like how he used examples of different companies that had invested in the different types of information technology that he wrote about.
This book made me think outside of the box. I am an accounting graduate student and I knew that information technology investments was an issue that needed to be dealt with but I had no idea how badly behind we actually were. This book points out some very interesting ways of measuring information technology. I especially like the format in which he wrote the book. He basically points out to the reader what the entire book is going to be about in the first chapter. All of the chapters after the first one are an expansion of points he made in the first chapter. I think he gives the reader enough information in the first chapter for them to know if this book is going to give them the information they are looking for or if it is going to be a waste of their time. Also, in the first chapter he gives a chart called the Information Technology Investment Matrix. I found his chart very interesting. It gave the different types of information technology investments available as well as some comments provided by companies that have implemented those types of information technology investments into their business. I would not say it was the best book I have ever read, but defiantly one of the best that I have been assigned to read.

1 of 1 people found the following review helpful:

4.0 out of 5 stars Good material, but tries too hard., June 9, 2001

By 

M. Hyde (Marietta, Ga USA) - See all my reviews

This review is from: Information Technology and the Productivity Paradox: Assessing the Value of Investing in IT (Hardcover)

Lucas makes some excellent points regarding the benefits of investing in IT projects. The first part is written fairly well from a management perspective, but later rather than just presenting his ideas he spends a lot of time trying to come up with a contrived mathematical formula. It is obvious he spent a lot of time reviewing case studies to determine if any returns could be measured and does a good job of presenting the difficulties, but while this is difficult it is not impossible. He fails to show how real returns could realistically be estimated (vs. his model) and therefore showing the obvious academic nature of the book rather than presenting the material from a consulting or managerial point of view.