How is it that companies full of intelligent people spend so much money on IT and not even know. Aside from that fact, they also didn’t even realize that the assets were not even being used. The question that I raise is how many companies are experiencing this “technological overspending aftershock?” Another fact that jumped out at me was based on the statistics from the Department of Commerce, corporations purchased more than 3 trillion dollars of IT-related capital equipment over the past decade. Is this possible? It seems to me that overspending in technology is the result of asymmetric information.
I don’t understand how a company can buy software without comparing it to needed level of use within its organization. The biggest issue is cost cutting by companies, but I don’t understand how they completely throw this issue out when evaluating investment in software. Based on the example in the book, the company could have saved 5 million dollars by cutting down the number of licenses purchased. I guess the question here is what is considered in the planning stage of this software purchase when determining the level of capabilities needed?
As if the spending of capital on too much software isn’t bad, the maintenance costs isn’t even included in that $5 million figure. Maintenance of these systems can sometimes be an additional 28% of the lists price. How much are companies really paying this “good” technology that’s not fully used? I feel that companies are extensively evaluating their projects, while paying close attention to their current technology assets. Companies are learning to now get the most out their assets because as seen by many other company, what you don’t know about your assets can end up costing you more than you ever bargained for.
I agree with the closing statement that stronger benefits of IT at lower costs along with simplicity and ease of operation is ahead as we approach the future.
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I agree. Management and IT users are present in the corporations almost every day so it’s strange that no one failed to realize assets left unused. I guess employees used the same lack of attention with monitoring their technologies that they had used when initially purchasing these redundant technologies. As the real world is dominated with asymmetric information, I agree this contributed to the overspending trend as IT vendors have more information about the technology than sellers do. I think if asymmetric information is not addressed, there will be serious problems of confidence and stability in the technology industry. In addition to asymmetric information, adverse selection is a problem in that buyers are unable to distinguish a good product from a bad one. Only sellers know which technological product is good and bad and could motivate the seller to sell the bad overpriced technology. Hopefully, this problem can be solved by increasing the information about technological products and firms. However, the longer a product has been around, the more information you can generally find, and since technological innovations are emerging at rapid rates, IT buyers have little background to rely on.
Do you think this could be the result of failing to inventory the company properly? I mean it shocks me that an auditor didnt get an estimate of the value of the assets and how are they reflected on the income statement. And you are right asymmetric information is a big problem in the business of buying and selling products.
The technology overspending aftershock is a very serious problem, especially for the computer related companies. For example, there are a lot of OEM and ODM in my country, Taiwan. These companies vary their IT-related capital equipment frequently. On the hardware part, they always have to update the new technology to increase their productivity; they don't have choice. On the software part, they also need to follow the current market. The technology overspending always directly influence their assets. However, it won't be a burden if they utilize their updated software and hardware well.
The concern now is with so many resources to obtain software at either an extremely low cost or free, how does the hardware and software providers encourage investments in their products? This is an issue that will eventually need to be addressed by these providers.
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