Prof. Strassmann, IEEE Lecture, March 20, 2007 1

Information Economics MetricsInformation Economics Metrics

Prof. Paul A. StrassmannGeorge Mason University, March 20, 2007

Prof. Strassmann, IEEE Lecture, March 20, 2007 2

Information Technology and Profits

Prof. Strassmann, IEEE Lecture, March 20, 2007 3

No Correlation Between I.T. and Profitability

Prof. Strassmann, IEEE Lecture, March 20, 2007 4

Information Technology and Profits in Banking

Prof. Strassmann, IEEE Lecture, March 20, 2007 5

I.T. and Salaries are Unrelated in Banking

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I.T. Accounts for a Large Share of Salaries in Banking

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Comparison of I.T. Ratios and Performance for Banks

Prof. Strassmann, IEEE Lecture, March 20, 2007 8

Information Technology Spending

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Wide Range of I.T. Spending

Prof. Strassmann, IEEE Lecture, March 20, 2007 10

Benchmarking I.T. Costs

Benchm a r k I .T . Spending = Con sta nt + Va ria b leA * SG&A +

+Va ri ab leB * Num ber o f P er sonal C om puters +

+Va ri ab l e C * Numb e r o f Profe ssiona l E m p loy e es +

+Va ri ab l eD * Num ber of Of fic e C leri c al Em ployees +

-Va ri a ble E * Num ber of E x ecutiv e a nd M anageri al Em ployees +

+Va ri ab l e F * Prof i t af ter T axes

Prof. Strassmann, IEEE Lecture, March 20, 2007 11

Calculating Over- and Under-Spending on I.T.

Prof. Strassmann, IEEE Lecture, March 20, 2007 12

Information Productivity ®

® Information Productivity is a Registered Trademark of Strassmann, Inc.

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Transaction Costs and Profits are Unrelated

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Distribution of Information Productivity is Symmetric

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Calculation of Information Productivity

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Outsourcing

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Distribution of Corporate Costs

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Purchases Is a Significant Cost Component

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Higher Compensation Does Not Call for More Outsourcing

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Cascading of Outsourcing Through the Value-Chain

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Significance of International Outsourcing

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Method for Calculating the Outsourcing Ratio

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Knowledge Capital ®

® Knowledge Capital is a Registered Trademark of Strassmann, Inc.

Prof. Strassmann, IEEE Lecture, March 20, 2007 24

Knowledge Valuation and Shareholder Equity for 5,913 Firms (2005)

Total Valuation $24.5 Trillion

$14.4 Trillion

$10.1 Trillion

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Knowledge Value per Employee

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Knowledge Value, Compensation and Net Worth of Employees

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Most of Profits Derived from Knowledge Assets

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Sector Distribution of Knowledge Capital/Employee

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Concept of Knowledge Conversion Efficiency - Abbott Laboratories

Prof. Strassmann, IEEE Lecture, March 20, 2007 30

Calculating the Worth of an Employee

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Social Issues

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Employment is Shifting to Females

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Increased Importance of Females in Information Occupations

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Summary

• Corporate information economics offers methodsfor assessing the contributions of I.T. and ofTransaction Costs.

• Corporate information economics offers anapproach to budgeting of I.T. and in the planningfor information resources.