Information Strategist Paul Strassmann

American executives spend too much money on computer systems that allow them to do the wrong things faster

 

They are called management information systems (MIS) -- computers and software that are supposed to tell managers what is going on in their companies and help them coordinate activities. All of it is expensive, and according to a man who has bought and sold millions of dollars' worth of the stuff, much of it is wasted.

The man is Paul Strassmann, and the scope of his warning about the misuse of computers goes well beyond technology to rather fundamental questions about how companies are organized and what businesses they are really in. His critique of American management extends to its accounting conventions, its love of meetings, and its bloated overhead. Technology, he says, can help deal with these problems but as often as not is used to proliferate them.

Strassmann is a man accustomed to being listened to. From 1960 to 1977, he managed the computerized information systems for General Foods, Kraft, and Xerox. Then in 1977, Xerox tapped him to help redirect its troubled systems businesses division, naming him vice-president of strategic planning. Since retiring in 1985, he has become something of a high priest of MIS, as a lecturer, professor, and consultant to corporations and governments, and as the author of Information Payoff. In 1982, he was a key player at the While House Conference on Productivity. His next book, Computer Payoff, will be published in the fall.

INC. senior writer Tom Richman spoke with Strassmann at his home office in New Canaan, Conn.

INC.: The line coming out of the computer industry is that the computer has helped make companies more productive, and that the future possibilities are almost limitless: if you buy more of this technology, you can achieve even higher levels of efficiency and control. Should we believe it?

STRASSMANN: Let me answer that by giving you a piece of information. In the United States, of all the money that we have available for producers' durables -- everything from forklifts to telecommunications systems -- we invest more than one-third in computers. And yet it is money that is essentially spent on faith. Why do I say that? Because there is really no credible way to justify it. There are a number of studies out now -- Touche Ross did one for the banking industry, Booz, Allen & Hamilton did another, even IBM did one -- and they all say the same thing: hardly anyone even tries to justify these expenditures with the same hard, analytic scrutiny that you would bring to any other item. And what is happening is that people are beginning to have doubts about whether they are getting their money's worth.

INC.: But surely all those computers that now print invoices and keep track of inventory and help typeset stories at magazines like INC. have been of enormous benefit.

STRASSMANN: Yes, they have, and that is the source of the problem, because the era of those kinds of efficiencies is largely behind us now. It wasn't until the mid-1970s that we were really able to perfect those important advances -- to get the invoices out on time, keep track of the inventory, consolidate the payroll functions, that sort of thing. Essentially, that was using the computer as a machine tool to automate structured office work, which accounts for somewhere between 10% to 30% of the expense of handling information.

What I'm talking about goes beyond that, to the kind of information technology that goes to unstructured office work -- marketing, sales, and management users rather than production users. And we've found that there is no correlation between productivity and even heavy investment in information technology.

INC.: So how does a manager think about all this technology? Let's say I run a company. It is getting big, and people are calling me up all the time trying to sell me all sorts of computers that look as if they have very interesting management capabilities. What should I do?

STRASSMANN: You shouldn't do a damn thing until you can put on a piece of paper how you want to organize your company over the next couple of years. What kinds of relationships do you want to have with customers? With suppliers? What kinds of cost structures are required to be competitive? Where is the competition coming from, and how do you want to meet it to establish an advantage? What kinds of issues will be presented at the next stage of growth of your enterprise -- are they primarily marketing or distribution or production issues? These are some key questions, and you have to talk about them and answer them before you buy any piece of machinery. Because if you don't know where you're going, you certainly can't figure out which piece of equipment is the best one to help you get there. In fact, in almost every consulting job I've done in the past two years, my initial recommendation was that the company should not buy equipment.

INC.: Can you give us a for instance?

STRASSMANN: There is this guy, Frank Casey, who repairs wooden boats in Norwalk, Conn. A friend referred him to me, and Frank came by with his wife. He wanted to know if he should buy an Apple or an IBM. And I said, "Before you buy either, let's talk about your business." As it turns out, things in his business were in pretty bad shape -- I mean grim. He couldn't collect on his billings, he was behind in cash, and he had endless disputes with his clients.

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