Study Shows Government IT Investments Produce Returns
By Christine Kern, contributing writer
A study by University of Michigan professor M.S. Krishnan and two Ross Ph.D. alumni has found that government IT investments produce gains in productivity and efficiency. The study is set to appear in a future volume of Management Science.
In the study Do CIO IT Budgets Explain Bigger or Smaller Governments? Theory and Evidence from U.S. State Governments, an analysis of chief information officer IT budgets for all 50 states from 2001 to 2005 showed a noticeable payoff. For each $1 of increased IT spending by a state CIO, there was a corresponding $3.49 reduction in overall state expenditures.
The paper was written by Min-Seok Pang, assistant professor at the Fox School of Business, Temple University; Ali Tafti, an assistant professor at the College of Business Administration, University of Illinois at Chicago; and M.S. Krishnan, a professor at the Stephen Ross School of Business, University of Michigan.
The UofM study is one of the first to examine the impact of IT spending in the U.S. public sector, and the results will be beneficial in informing state governments, as they face an increasing burden to pay for services.
As Computer World reports, most state government CIOs would say that IT investments obviously bring financial gains, but such analysis is usually based on the impact of specific projects, such as a data center consolidation. Since state-level spending as a percentage of GDP has nearly doubled in the past 30 years, efficiency has become an ever more crucial element in the process.
“We're not finding the empire-building you sometimes get when an institution gets carried away with technology,” Krishnan says. “Overall, the IT investments pay off.”
According to Computer World, technology development has caused economic activities “to become more complex and sophisticated, requiring more government intervention,” the paper states. It points, for instance, to the establishment of the Office of Cybersecurity and Communications in 2006 and the Consumer Financial Protection Bureau in 2011, among others, as examples of this trend.
The data show states, in general, made good use of the efficiency from increased IT spending. Spending on education, police, and recreation increased while administrative spending in areas like finance, human resources, and facility management decreased.
Transparency also increased while monitoring costs went down. “IT investments tend to increase transparency because monitoring becomes easier and there's self-correction when everyone can easily see what you're doing,” Krishnan explains.