How to Measure Anything: Finding the Value of Intangibles in Business, 3rd Edition

CHAPTER 14 A Universal Measurement Method: Applied Information Economics

In 1984, the consulting firm the Diebold Group assembled the chief executive officers (CEOs) and chief financial officers (CFOs) of 10 major companies in a room at the prestigious Chicago Club to give presentations to their peers in 30 of Chicago’s biggest firms. The companies, including IBM, Mobil Oil, AT&T, and Citibank, gave presentations on the process they used when making big investment decisions. The presentations were consistent and simple: If an investment was considered strategic, it received funding. No attempt at computing a return on investment (ROI) was made, much less any attempt at quantifying risk. This came as a surprise to some of the 30 Chicago companies represented in the room.

Ray Epich, a venerable sage of information technology (IT) wisdom, was present in the room. Ray graduated with the first-ever class of the Massachusetts Institute of Technology Sloan School of Business. He was a consultant at the Diebold Group and at my former employer, Riverpoint. In addition to being a very entertaining storyteller (he has regaled many with several entertaining stories of Alfred P. Sloan and John Diebold), Ray, like Paul Meehl and Emily Rosa, had a knack for being skeptical of common claims of experts. Ray didn’t believe the CEOs could make good decisions based only on how “strategic” they thought the investment seemed to be.

Ray had plenty of counterexamples for the “success rate” of this decision-making ...