IT Innovation

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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
(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.

This article was originally published on 2002-02-04
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