Saturday, December 10, 2005


Two companies, in different industries, stand at the crossroads. Both have chosen to make a continual investment in IT in order to beat their competitors. Both believe strongly in their long term plan. I think one will succeed and one will fail. However, until now I didn't know why I thought that; it was just intuition. I don't mind basing a decision on intuition, but I want to explore the decision afterwards to find out what the answer should have been.

In the case of the two companies it was in the IT strategies themselves. One IT strategy requires the continual purchase of depreciating stock. The other IT strategy requires the continual creation of appreciating assets. Both require heavy, year over year investments. The first model, due to depreciation, is actually an anti-strategy. Since your assets are always depreciating, it becomes easy for your competitors to catch up and eventually pass you. However, the second model eliminates the ability for your competitors to catch up because your assets are always appreciating.

Therefore, when contemplating the effect of an IT investment in your company, do your best to ensure that the outcome of the investment will be an appreciating asset instead of a depreciating one.

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