- By
- ANDREW MCAFEE And
- ERIK BRYNJOLFSSON
Organizations world-wide have placed a huge wager on information technology, spending an estimated $594 billion on computer hardware and software in 2010 alone. But what are the keys to making the most of this investment? What makes a company "good" at IT?
There's a great deal of advice on this topic, but relatively little rigorous research. So in collaboration with McKinsey & Co., our team at the MIT Center for Digital Business conducted a survey of some 330 U.S. public companies to investigate the issue.
And what did we find? First, the companies that had the data they needed and used it to make decisions (instead of relying more on intuition and expertise) had the highest productivity and profitability. Specifically, the most data-driven companies had 4% higher productivity and 6% higher profits than the average in our sample, all else being equal.
But isn't everyone data-driven these days? Haven't modern tools for analytics and business intelligence transformed how most companies make decisions?
In a word, no. Our data show that not all companies are ready, willing or able to become data-driven. Most companies rated themselves somewhere between 3 and 4 on our 5-point scale in this area, where 5 corresponds to "extremely data-driven," and 1 to "not at all data-driven." Many companies rated themselves below 3, or "somewhat data-driven."
We observed the same situation with other IT-related practices. For instance, our survey indicates it's beneficial to have consistent technology processes in areas like fulfillment, procurement and human resources across business units and geographies. Yet more than 15 years after powerful enterprise software became available, the great majority of our companies still say they are less than "very consistent."
Similarly, we found evidence that good technology governance improves performance. This means having clear methods to prioritize potential IT projects, involving business leaders in IT, and tracking the progress and benefits of projects selected. Yet here again, many companies are struggling; most of the companies we surveyed rated themselves as being less than "somewhat effective" in these areas.
The bad news here is that best technology practices are still not widely adopted even after all these years and money spent. The good news is that there is still substantial opportunity for most companies to improve how they manage and use technology, and substantial business benefit once they do.
Clearly, not all companies are going to be willing or able to do these things. One of the most consistent and striking conclusions from business research is that best practices are far from universal, even when they're widely acknowledged as "best." What's more, since technology practices are so unevenly adopted, and so closely linked to better performance, performance itself has been diverging.
Digitization, in short, is not a great equalizer that drives all companies toward similar processes and outcomes. Instead, it's driving the leaders and laggards further apart.
Dr. McAfee is a principal research scientist at the MIT Center for Digital Business. Dr. Brynjolfsson is the director of the center and a professor at the MIT Sloan School of Management. They can be reached atreports@wsj.com.