IT strategy - The value variable.

(From Financial Director)

Byline: Tom Berry, deputy editor of Financial Director.

When businesses spend millions of pounds hiring skilled staff, investing in research and development, or buying and selling companies, they do so to gain competitive advantage. But when businesses spend fortunes on IT systems, they are not doing so to gain market share or generate revenues. In fact, technology investment, in most cases, isn't about creating value at all, so measuring its impact on productivity and profitability is fruitless.

The subject of the value of technology is being debated furiously at the moment - especially since HM Treasury decided to sideline IT in a new consultation document on economic indicators. Its report, Productivity in the UK 5 (numbers 1-4 weren't that interesting either) has come up with five indicators of future economic productivity: investment, innovation, skills, enterprise and competition. In summary, the major economic indicators for the government going forward will be things like business investment as a percentage of GDP, skills and qualifications of the workforce, total number of roads built, etc.

But according to Intellect, the trade body for the UK technology industry, development and investment in technology is such a huge driver of productivity that it should be an economic indicator in itself. Intellect's argument is that while IT only represents about 3% of GDP, it has represented about one-fifth of GDP growth over the past few years.

The difference between the Treasury and Intellect's approach mirrors the two ways in which business investment in technology can be viewed. Technology is either a crucial investment in productivity and competitive advantage and should be measured as a value-generating part of the business, or it is merely an enabler that has to be invested in but adds no real long-term value.

Nicholas Carr at the Harvard Business Review famously championed this last argument in 2003. Carr said that if every company needs IT to operate, in the same way that every company needs photocopiers and telephones, then employing technology doesn't give competitive advantage, but not investing in IT will destroy shareholder value.