# Presentation: 327575

## Goddard Information Science and Technology Colloquium

***Measuring Information Productivity***

- Paul A. Strassmann, Acting NASA CIO, September 18, 2002

## What is Productivity?

- Productivity**  = **

_**Output**_**Input**

## Example of Productivity Gain Calculation – The CEO View

**$12,000,000**

**80**

**$150,000**

**$10,000,000**

**100**

**$100,000**

**+ 50%**

**Revenue**

**Employment***

**Productivity**

**(Revenue/Employee)**

**Period B**

**Period A**

**% Changes**

*** 20 employees outsourced**

**-  20%**

**+ 20%**

## Example of Productivity Gain Calculation – The CFO View

## A Theory of Information Productivity

- An Information Management View

## Cost Structure of a U.S. Manufacturing Corporation

**Purchases (57%)**

**(26%)**

**Direct Costs (17%)**

**Transaction**
**Costs**

## Transaction Costs

**Organization of Employees and Users**
**Information Processing**
**Coordination of Suppliers, Costs of Acquisition**
**Motivation of Customers**
**Managing Distributors**
**Compliance with Regulations**
**Satisfying Shareholders and Lenders**
**Fees, commissions, tolls and taxes**
**Research and development**

## Accounting Treatment of Transaction Costs

**Sales, General & Administrative Costs****	****Marketing****	****Sales people****	****Management****	****Advertising****	****Training****	****I.T. Costs**
**Research and Development Costs**
**Reported in audited financial statements**

## Illustrative Case: 1998 General Motors

- InformationTransaction
- Costs

- Transactions

## GM Cost of Goods Delivered per Transaction $’s Declined

## GM Market Share Declined

## Competition Among Firms with Different Transaction Costs

## Operating Results for Firms with Different Transaction Costs

- Bankruptcy

## Never Confuse Information Management vs. Info Technology

**Purchases (57%)**

**IT Budget (3%)**

**SG&A +**
**R&D (23%)**

**Direct Costs (17%)**

**Costs of Information**

## CIO Must Focus on Productivity of Information

**Information Productivity =**

_**Output**_
**Input**

**Info.**** Productivity ****=**

_**Information Value**_
**Costs of Information**

**SOURCE OF WEALTH**

-   Information Productivity is a Registered Trademark of Strassmann, Inc.

## Fundamental Measure in an Information-Based Economy

**Information Value = ****Economic Value-Added (EVA)**

## Key Equations for Calculating Information Productivity

- Economic Value-Added (EVA) =
-       Accounting Profit – _Cost of Shareholder Capital_

**Cost of Shareholder Capital**** = **
**	****	****	****	**_**Cost of Capital**_** * Shareholder Equity**
**Cost of Capital**** = Risk-Free Interest + Beta*Risk Premium**

## How to Increase Information Productivity

- Information Productivity®   =

- Information Value-Added Information Costs

**Decrease Costs of Information**

**Increase Value-Creation by Information**

## Productivity Assessment

**Productivity Case Study**

## Pick Look-Alike Firms for Making Productivity Comparisons

**57,100**

**51,656**

**54,500**

**97,800**

**62,300**

**51,000**

**26,500**

**Competitor A**

**Competitor B**

**Competitor C**

**Competitor D**

**Competitor E**

**Competitors F**

**Your Company**

**Number of Employees**

**- 1999**

**Company Name**

## Calculate Information Productivity

**$5,891**

**$2,446**

**$4,167**

**$2,110**

**$3,179**

**$4,167**

**$-1,227**

**8.536**

**8.08**

**8.044**

**8.842**

**8.284**

**8.338**

**7.492**

**$13,242**

**$7,428**

**$8,645**

**$5,165**

**$8,887**

**$16,213**

**$6,215**

**$7,268**

**$4,035**

**$8,830**

**$4,625**

**$9,127**

**$13,103**

**$6,780**

**65.5%**

**45.7%**

**39.3%**

**35.7%**

**26.8%**

**21.5%**

**-25.0%**

**A**

**B**

**C**

**D**

**F**

**Your Company**

**G**

**Net**

**Income**

**Cost of**

**Capital - %**

**Net Financial**

**Capital**

**Employed**

**Costs of**

**Information**

**Management**

**Information**

**Productivity**

**Company Name - All data in**

**1999 $Millions**

## Compare Historical Performance of Look-Alike Firms

**D**

**C**

**E**

**Your Company**

**G**

## Productivity Assessment

**Case Study – Public Sector**

## How to View Public Sector Costs

**Total**
**Agency**
**Budget**

**Agency**
**Value-Added**

**Service**
**Delivery**
**Costs**

**Fund**
**Transfers**

**Transaction**
**Costs**

## Calculating Agency Information Productivity

**Information Productivity of the New York City Board of Education:***

- * SOURCE: Strassmann, P.A., The Business Value of Computers, 1990, p.91. In annual Costs per pupil, 1988-1989.

***Actual Teaching Time**

## Compare Costs and Productivity Trends in Public Sector

## Productivity Assessment

**Case Study – Value-Chain Productivity**

## The Real Problem: Transaction Costs in the Value Chain

**Supply Chain**

**  ****Distribution Chain**

**Consumer**

## Costs in a Supply Chain

**All Other Suppliers**

**Secondary Suppliers**

**Prime Suppliers**

**Manufacturer**

**0%**

**10%**

**20%**

**30%**

**40%**

**50%**

**60%**

**70%**

**80%**

**90%**

**100%**

**4.7%**

**15%**

**5.8%**

**33%**

**8.1%**

**56%**

**15.9%**

**100%**

**Profit**

**Transaction Costs**

**All Other Costs**

**Purchases**

## Costs in a Supply Chain

**All Other Suppliers**

**Secondary Suppliers**

**Prime Suppliers**

**Manufacturer**

**0%**

**10%**

**20%**

**30%**

**40%**

**50%**

**60%**

**70%**

**80%**

**90%**

**100%**

**4.7%**

**15%**

**5.8%**

**33%**

**8.1%**

**56%**

**15.9%**

**100%**

**Profit**

**Transaction Costs**

**All Other Costs**

## Potential Supply Chain Gains   

**Current Value Chain**

**New Value Chain**

**0%**

**10%**

**20%**

**30%**

**40%**

**50%**

**60%**

**70%**

**80%**

**90%**

**100%**

**34%**

** ****34% **

**16%**

**5%**

**10%**

**28%**

** ****24% **

**12%**

**7%**

**13%**

**Labor**

**Transactions**

**Capital **

**Taxes**

**Profits **

**84%**

## The Total Value Chain  

**Manufacturers**

**Wholesalers**

**Retailers**

**0%**

**20%**

**40%**

**60%**

**80%**

**100%**

**120%**

**140%**

**160%**

** ****34% **

**100%**

** ****23.5% **

**127%**

** ****24% **

**158%**

**Profits**

**Transactions**

**Other Costs  **

## Potential Total Gains

**Current Value Chain**

**New Total Value Chain**

**0%**

**20%**

**40%**

**60%**

**80%**

**100%**

**120%**

**140%**

**160%**

**64%**

** ****81% **

**13%**

**60%**

** ****55% **

**15%**

**All Other **

**Transactions**

**Profits**

**      ****130%**

**   ****158%**

## Total Transaction Productivity for the Value Chain

## Information Technology Did not Cut Transaction Costs - USA

- Source: S&P Compustat, 2,730 US firms

## Findings

- Accounting of total transaction costs is necessary for NASA to assess Agency productivity performance.
- Major gains in productivity possible primarily through re-structuring and disintermediation.

## Summary of the “Information Productivity Assessment”

- New metrics needed to assess information
- Information Productivity can be quantified
- Public sector Information Productivity measurements are feasible

## Goddard Information Science and Technology Colloquium

***Addendum***

- Paul A. Strassmann, Alinean Corporation

## ValueIT Software Based on “The Business Value of Computers” and      “Information Productivity”  by P.A. Strassmann

## ValueIT Includes Information Productivity Benchmarking

## Peer Group Selection Criteria for Benchmarking

## Information Productivity Assessments Calculated

## A Wide Range of Peer Comparisons Feasible