Demystifying Information Technology: What Is IT?

Information technology is considered anything that transports, processes, analyzes, and presents information to a user. In this book we are not necessarily interested in how the technology functions, but whether it can effectively enhance shareholder value and execute corporate strategy. You can think of IT in terms of three building blocks: infrastructure, data, and software (Exhibit 3-1). The technological infrastructure is the foundation upon which the technological pyramid is built. Like any building, without a strong foundation the structure will fall down. The infrastructure needs to support the weight of the data and software components of the pyramid. If your PC crashes because it does not have adequate memory to support the software application that you want to run, then the technical infrastructure of your computer is inadequate.

Exhibit 3-1: Components of information technology.

The infrastructure is made up of items like PC servers, mainframes, T-1 lines (an optical fiber phone line), and routers. The cost of the infrastructure is normally a small part of the total pyramid. When infrastructure investments are made in isolation, they are difficult to evaluate because the benefits are normally derived from the data and software layers. These types of investments also have the risk of being evaluated as sunk costs, or costs that should not be associated with other technology investments.

The data block of the pyramid is extremely valuable. It holds all the information about your company and customers. (The value of many companies is based solely on their customer base.) The data block also is the repository for your intellectual capital. This can include business rules, which are an automated version of your processes. The software block is responsible for leveraging the data and infrastructure to use information effectively. Types of software continue to proliferate. Systems are moving from automation of internal processes such as financial systems that perform accounting functions to external processes that link buyers and suppliers together. Software systems have become mission-critical to many businesses. If systems are not running, many businesses cannot operate. IT is now the backbone of the securities business, where trades are executed electronically and manual processes have become the exception, as opposed to business as usual.