RETURN ON TECHNOLOGY: Forget the notion of technology as investment

I was scanning a 2004 report on corporate security the other day when the phrase “Less than half of all businesses ever evaluate their return on investment (ROI) on security spending” came scrolling down the page.

The sentence includes a presumption that is just dead wrong. No security software ever made its purchaser a dime. It can make the seller wealthy, but there is no way security software is an investment. It’s a cost, and always will be.

In point of fact, almost all technology is a cost. The cute phrase is that we “leverage” technology, but most companies don’t really do that. They periodically update phones, computers, printers, copiers and faxes, and those gadgets almost always come with new features nobody uses, and with headaches nobody wants. New copiers can scan, but few people ever use the scan function. New printers are often in color, and can print more pages more quickly, but the cost of color toner discourages their use.

When they first appeared, the TV ads showed how impressed clients would be with color proposals. Kinko’s shot back by promoting its own color printing capability, and for less money. Handhelds like the BlackBerry will do e-mail, if you can manipulate the tiny, unfamiliar keypad. Most BlackBerry owners answer e-mail with painful slowness, and wait to answer less-pressing ones until they’re in front of a real computer. For the vast majority of us, new and improved technology is a disappointingly short lever.

If an investment is the infusion of cash with the expectation that more cash will come back out, technology is a long way from being an investment, because it always depreciates in value. Diehard advocates maintain the “leverage” from technology makes up for its high cost, but somehow that’s never quantifiable. The truth is, we rarely buy technology to gain significant advantages. Most Web sites don’t make money. Wireless networks throughout our buildings make us happier, but they don’t directly make us richer. The whopping setup costs for mega-programs like J.D. Edwards and SAP often drag down their value for years.

We buy technology, not to gain massive leaps forward in productivity, but to keep even with all our competitors who have the stuff already. Most phone calls to field salespeople aren’t time-critical, and they know it, because they let most calls roll to voice mail. They return calls in the car between meetings (a bad idea, by the way-the evidence is mounting that attention blindness from cell calls is responsible for many accidents). What’s the difference between this scenario and just answering calls when they return to the office? Maybe half an hour. How many crises peak in half an hour?

If technology were really an investment, installing it would lead to a surge in productivity, profits or some other tangible measure. Vendors will certainly assert that connection, while they cross their fingers and hope you don’t ask for the numbers from their last installation.

And strictly speaking, they could be right. The first company to put in a new enabling technology will, indeed, have a jump over its competitors. Imagine being the only movie theater in town with airconditioning in July. But the second theater to install AC will make your “investment” half as valuable, and when everybody has it, you are in a grim upgrade race, and AC is now a cost, not an investment.

That’s the case with the security software I talked about at the beginning. It’s essential only because you now have vulnerable technology everybody else also has. Now you have to get the security software, too, just to keep your computers from crashing. Far from being investments, your computers can quickly become the open mouths of insatiable baby birds.

Even corporate accounting practice gets it wrong. IT’s budget is usually figured as a percentage of revenue, as if somehow technology could directly affect how much money comes in the door. CIOs are often bashful about owning up to being in charge of a huge cost center, and instead tout efficiency gains, which, even if they exist, given the costs of ongoing maintenance, aren’t ROI either past the first big improvement, because competitors can have them, too, with only the stroke of a pen.

ROI is often calculated simply by proving that you’ll see more benefit than initial and ongoing costs, but the numbers are almost always fuzzy and ignore the difference between simple internal ROI and competitive ROI.

So if technology isn’t generally a real investment, we can stop talking about its mythical ROI. It’s a cost and, in business, costs are always too high.