New Maths: The Theory

Rubin's research reveals two key concepts that can enable CIOs to see whether their IT investments are returning real business value:

• Measuring IT spend against two factors - operating expense and net revenue - is a more accurate gauge of IT effectiveness than the traditional metric of measuring solely against net revenue.

• Enterprises that spend slightly more than their peers tend to have better business results. But after a certain point, that extra spending does no good. Rubin calls the sweet spot of extra but not exorbitant spending "optimal IT intensity". He calculates IT intensity by comparing the IT spend to both the operating expense and net revenue, and has developed IT intensity curves that help CIOs see if they are underinvesting, investing an optimal amount or overinvesting.

Although Rubin's research is based on more than two decades of work, his key conclusions have crystallized only in the last year. But he is now working with several CIOs to put his theory to the test. Intuitively, his findings make sense, they say.

"Now we can understand in an actionable way where we are underinvesting and [where we're] perhaps overinvesting," says Merrill Lynch's Noble.

"We realized we needed a better comparison to be able to evaluate [IT spending] on a more holistic basis," says John Comisky, vice president of services operations at Verizon.

"The discipline of going through something like this provides a great deal of credibility with the senior management and at the board level," notes Rob Leeming, chief administrative officer for IT infrastructure at financial services provider UBS.

These IT leaders note, however, that it will be a few years before they know how well Rubin's theories play out in practice. And the numbers don't provide insight on how to get the most bang for your IT buck, just that slightly higher spending correlates to better business results. "It's not clear if [IT intensity] is a cause or an effect," says Scott Abbey, CTO of UBS. There is, it seems, still an art to IT investment, not just maths.