Measuring IT impact and innovation: Strukhoff’s Tau Index

Michael Alan Hamlin

Posted on January 19, 2011

It’s tempting to gauge the level of IT innovation and its economic impact by how much a country spends on IT or how much it spends per capita on IT. According to award-winning IT editor and writer Roger Strukhoff, neither measure provides much insight into IT innovation, or its benefits. Instead they primarily show how much wealthy countries must spend to maintain their IT capability and infrastructure.

To get a sense of the impact of IT spend on innovation and its relevant impact in turn on an economy, a different approach to measuring IT innovation is required. Strukhoff proposes what he calls the Tau Index for this purpose.

Strukhoff has written about technology for 25 years, developed conferences and consulting businesses, and had the opportunity to travel to many countries in all the world’s regions. Having worked for IDC’s parent company and advised Silicon Valley CEOs on their international growth strategies, he’s obtained a worldview that integrates statistical analysis with his experiences on the ground.

The Tau Index, Strukhoff says, is a product of that worldview. It balances the level of IT investment within a society with its overall wealth and relative income disparity. “It distinguishes countries that are on the most dynamic course with IT from those countries that are the most aggressive in deploying IT,” he told me recently. He explained that “Tau” is a relevant moniker because it is used by scientists and mathematicians to indicate concepts such as torque, stress, opacity, and congruence.

“The Greeks used it to indicate ‘life.’ For both these reasons, I found it appropriate for my index,” he explained.

Using statistics from the World Bank and United Nations, Strukhoff first looked at the countries that spend the most on IT. It’s not surprising to find that the United States leads this list, followed by Japan, China, Germany, and the UK. A better measure is to look at how much per person each nation spends on IT. Doing this shows the top countries in the world to be Switzerland, Norway, the US, Sweden, and the Netherlands.

However, “that still doesn’t tell us much,” Strukhoff explained. It’s not surprising that wealthy countries spend more per person on IT than poorer countries. “What if we looked at the percentage of a nation’s economy (i.e., a percentage of GDP) that’s spent on IT? Doing so shows a top five of Morocco, Malaysia, Senegal, South Africa, and Hong Kong. Quite a different picture.”

Strukhoff believes two other factors should be considered. The first is that the less income disparity in a society, the more effective IT will be. “On the other hand, an X-amount spent on IT in a wealthy country has less of an impact than the same amount spent in a developing country,” he mused.

Fortunately, two handy indicators for measuring these factors are readily available, the Gini number—which shows how well income is dispersed through a country—and purchasing power parity (PPP), which reflects the local cost of living.

“Use of the Gini number illustrates that X-mount spent on IT in Sweden, for example, will have a positive effect on a higher percentage of people than it would in India,” Strukhoff explained. “Use of PPP illustrates that this X-amount will have a higher overall impact in India than in Sweden.” Once he had balanced these two factors with the percentage of GDP spent on IT, the Tau Index emerged.

The top five countries in the Tau Index are Bangladesh, Ukraine, Morocco, Egypt, and Hungary. Rounding out the top 10 are Malaysia, Bulgaria, Senegal, the Czech Republic, and Vietnam. Although Strukhoff cautions that the Tau Index is a rough measure and “merely the starting point for conversations on how nations are buying IT and what they are doing with it,” the idea provides an interesting perspective on how income disparity works against innovation.

Where does the Philippines fare in the Tau Index? “Once you get through the Top 10, a second tier of countries emerges that are more aggressive than the world as a whole,” Strukhoff said. These countries are South Korea, Pakistan, Romania, Saudi Arabia, Poland, Thailand, India, Honduras, Slovakia, South Africa, Kenya, the Philippines, Tunisia, Iran, and Russia. “The good news for the Philippines is that it made the list, ranking 22nd,” Strukhoff suggested.

“My experience on the ground in many countries tells me that the Tau Index reflects the direction in which a country’s economy is moving,” Strukhoff argues.

Regions that do well in the Tau Index include most of Asia, Northern Africa, and Eastern Europe. Regions that don’t do well include North America, Western Europe, and Latin America. China doesn’t make the list due to its relatively low percentage IT spend and increasing income disparity.

That’s an interesting argument for equitable economic development.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on Twitter, Facebook and LinkedIn.). Copyright © 2010 Michael Alan Hamlin. All Rights Reserved.)

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