A recent e-newsletter from uber-consultancy McKinsey & Co. reported on a fascinating study connecting types of IT investments to business performance. Their introduction states:

Many companies design their approach to IT around what they do—not what they could be doing. McKinsey assessed the IT strategies of ten leading global corporations to understand how they invest in innovation while running their core IT operations efficiently. We found that they treat IT investments like financial ones—as low risk (“stay in the race” projects to improve basic services), medium risk (“win the race” efforts to raise the efficiency and cut the cost of current business activities), and high risk (“change the rules” innovations to enter new or transform existing markets).

Interesting point #1 is that IT investments do come in multiple flavors, and recognizing them as such helps you understand them in the right light. My suspicion is that too often IT is one big block of funds for management decision-making (or it is not coordinated at all, which creates different problems). Breaking out categories of spending and effort helps you better understand where you are making your bets in the first place.

The even more interesting point #2 is what McKinsey found in correlating types of investments with business performance. Among companies with lower aspirations for growth, the ones with the highest performance put 60% into medium risk "win the race" investments and 30% into low-risk "stay in the race" investments. Lower performing companies had the opposite ratio, favoring low-risk investments. Among companies that are trying to grow rapidly, there were also stark differences in IT investment selection. High performing companies devoted 40% of their IT investments to high-risk "change the rules" initiatives, 20% to medium risk "win the race" investments, and 40% to ow-risk "stay in the race" investments. Lower performing companies did put 30% of budget into high-risk investments, but still kept a full 60% in low-risk initiatives.

While this study focused on the corporate world, the core message applies to the policy- / cause-focused organizations as well. The highest performing organizations allocate a greater proportion of IT investment to higher-risk initiatives, seeking disproportionately to "win the race" or even "change the rules." What's more they manage the different types of investments differently, not holding the high-risk bets to the same standards - or even using the same metrics - as they do the lower-risk ones. Good wisdom here for those planning technology strategies.