For Great IT, Focus on the Information, Not the Technology

By Larry Dignan Print this article Print

If you're trying to turbo-charge your business, how well you manage technology matters less than how you manage information. Here are some of the 500 ways the Baseline stars did it.

The Baseline 500 quantifies not how well information systems work, but how well corporations manage information. The companies that thrive in the information age keep costs low, focus on the business first and motivate their teams.

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It's not easy to stay in or at the top of the Baseline 500, the annual ranking of the 500 publicly traded companies that manage information best.

Just ask the 159 companies that dropped off the list from 2004 to 2005, or the six companies that were in last year's top 10 but didn't repeat this year, because their effectiveness wasn't what it used to be. Only four companies—Chesapeake Energy Corp. (No. 1), Apache Corp. (No. 4),

Eagle Materials (No. 6) and Valero LP (No. 8)—managed to again place among the list's leaders.

Bottom line: Maintaining high Information Productivity isn't easy, and it's very difficult to stay exceptional for a long time. Average is the norm.

"It's the law known as regression to the mean," says Paul Strassmann, a former technology executive at Xerox and Kraft Foods, who has created and trademarked the Information Value-Added and Information Productivity metrics. "Very few can sustain these elevated levels of Information Productivity. There's always churning."

The Baseline 500 sets out to quantify not how well information systems work, but how well corporations manage information. The actual system can be pen and paper, word of mouth traveling down a hallway or a fancy enterprise planning setup. Why? Managing information includes far more than technology. It includes brainpower, good processes, insight and the ability to manage teams well. For instance, Berkshire Hathaway (No. 420) doesn't have a chief information officer, and chief executive Warren Buffett prefers scratch pads and pencils to databases and keyboards.

Strassmann believes information is the glue that holds together all the components of profit. So, the goal of the Baseline 500 is to measure the effectiveness of a company in the information age, as opposed to a manufacturing or agricultural age.

The rankings, culled from a database of 2,324 public companies, are based on two benchmarks: one that measures the value added to a company's economic performance by good information management, called Information Value-Added; and one that incorporates the costs involved with producing value-added, called Information Productivity.

Information Value-Added is profit minus the cost of capital invested by shareholders. Think about a few of the components of profit—labor, inventory and customers. Without critical information about those components, it's unlikely you'll have a profit. Given that fact, Information Value-Added derives from profits after taxes, tossing out preferred dividends, one-time charges and other adjustments. Then, profit is lowered to account for the returns owners expect on the invested net assets. When that expectation is exceeded, you get value-added.

Information Productivity takes the Information Value-Added figure and divides it by the costs of information transactions. These are the company's selling, administrative and general expenses, of which information-technology spending accounts for 10% to 35%. Information Productivity is the gauge Baseline 500 uses to rank the top 500 companies. The message: Managing information is your edge.

What you get after the number-crunching is the 500 most productive users of information among U.S. publicly traded firms (see "Do It Yourself," p. 60).

Next page: Markers for Success

This article was originally published on 2005-10-19
Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.
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