You can take some solace in knowing that it isn’t easy to earn a top score in the Baseline
500. In fact, barely half of the public companies in the U.S. manage information well. Of the 4,952 public companies, 2,499 failed to generate a positive score when the numbers were crunched for this year’s Information Productivity ranking, which is the basis for the Baseline 500.
Of course, that isn’t what you really want to know. You want the inside scoop on how to make it on the Baseline 500 and beat your competitors in the rankings.
Paul Strassmann, the creator of the Information Productivity metric, has put forth a number of recommendations aimed at making your company a lean enterprise. Here are his key points, along with a few pieces of advice.
1 – Make the tough decisions. Since costs are a key factor in Information Productivity, companies need to know how to cut their losses on projects that aren’t delivering. If management spends too much time trying to fix a project, the time and costs involved will quickly add up and eat the savings the project was expected to generate.
The solution is to either eliminate the project or scale it down to something manageable and less expensive. Either solution will save money.
“Cutting your losses is the quickest way to improve Information Productivity,” Strassmann says. “That rule accounts for everything.”
2 – Cut the fat. Information Productivity is calculated by taking a company’s Information Value-Added—the value added to a company’s economic performance by good information management; it equals profit minus the cost of capital invested by shareholders—and dividing it by sales, general and administrative (SG&A) costs, or the expenses related to managing information. So if your costs are out of line, your Information Productivity will be, too.
Strassmann recommends looking at your company’s expenses to find out what’s weighing it down.
Benchmark those expenses—looking out for pricey plants and factories, excess inventory and bloated SG&A costs—against those of three competitors. That exercise will give you some clues about where the fat can be trimmed. Technology projects can then be aimed at inefficient areas, say, high inventory levels, through automation or the streamlining of processes such as shipping and receiving.
3 – Evaluate outsourcing. While your company’s revenues may be climbing, the value-added of your employees may be declining. You may be outsourcing (that is, purchasing) an increased share of your production costs to subcontractors.
When that happens, you may still be keeping the same overhead (SG&A) as before, while the base that requires administrative and general support starts to shrink. Revenue-based ratios (such as the ratio of SG&A to revenue) will be telling you that all is well, whereas value-added ratios (SG&A divided by costs minus purchases) will in fact suggest that you have too much management trying to supervise a smaller workforce. To keep Information Productivity growing, you will have to cut your overhead costs or increase the value-added.
The “shrinking corporation” is a widespread occurrence as companies make less while reporting rising revenue. This approach is particularly marked in information-technology companies that purchase most of their components from others and only assemble them for sale.
4 – Focus on people. Retaining quality managers is vital to improving Information Productivity. To Strassmann, technology has largely become a commodity that you can outsource to India, Bucharest or anyplace in between. But people with solid corporate knowledge—especially the ability to see where technology will help a company seize a new business opportunity—are priceless.
What’s the best way to keep your best people? Challenge them by giving them big goals and projects. Give them the opportunity to grow their knowledge and build their careers. If you don’t do these things, it’s highly likely they’ll leave for greener pastures.
And weed out people who have no interest in developing their careers. Why? Ultimately, these hangers-on will become obstacles for your company as pay rises and their technology skills don’t.
5 – Innovate. The way to go about innovating is to find a function or key business goal—such as faster checkout in a retail store, millisecond response time or near-100% system reliability—and then see how you can use technology to reach that goal.
“You need to look at the organization from the top down,” Strassmann says. “Then when you go into your financial review, instead of looking at the information-technology operating budget, you can look at the company overall.”
