IT Innovation

By Baselinemag  |  Posted 2002-02-04 Email Print this article Print
 
 
 
 
 
 
 

The claim that information technology's benefits are real but not measurable is faint and, in this economic climate, dangerous praise. Luckily, it's also no longer the case: Corporations, analysts and academics are relying on tangible, new IT metrics to



IT Innovation

Metric: IT-Based Product Launch Ratio
Definition: The percentage of product or service launches planned for the upcoming 24 months in which IT is a key component of the offering. (The personalization software in a new targeted marketing campaign on the Web site, for example.)
Example: # of IT-based product launches x 100
Total # of product launches

Significance: Shows the focus of the IT department on ensuring near-term success of the company in the marketplace.

Metric: R&D Investment Ratio
Definition: The impact of R&D investments on the worth of a company. Calculate the percent change in your company's market-to-book ratio for each year for the past five years. Divide by the percent change in dollars invested in R&D efforts.
Example:      A. Calculate Market-to-book ratio for each year
                      stock price                       = Mx (x=year)
      stockholders' net worth (book equity)      
# of shares outstanding
B. Calculate percent change and divide by percent change in R&D dollars
        (M1-M2)/M1        
(R&D1-R&D2) / R&D1

Significance: A 34-year study led by MIT Sloan School of Management professor S.P. Kothari found that market-to-book ratios rose 4.3% with each 1% increase in R&D investment-predicated on sound investments, of course. Compare this number with the ratio of R&D costs to IT's R&D support costs to further manage spending.



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