The 2% Secret

In 1990, a man named Paul Strassmann published a book. He'd spent years at Xerox and the Pentagon studying thousands of companies, asking one question: does spending more on technology make you more successful?

The answer surprised everyone. No.

The struggling companies and the thriving companies spent roughly the same amount on technology. About 2% of revenue. He tested this across Xerox divisions selling identical products to identical competitors. Same technology budgets. Wildly different results.

So if the amount didn't matter, what did?

Where they spent it.

The unsuccessful companies spent most of their money on management software. Dashboards. Reports. Tools that told people what was happening. Software that watched. Very expensive binoculars.

The successful companies spent most of their money on operational software. Systems that did the work. Tools that moved inventory, processed orders, managed production lines, served customers. Software that acted.

One watches. The other works. Guess which one costs the same and makes you more money.

Two years later, Steve Jobs stood in front of MIT's Sloan School and said this:

"I think it's going to get to the point where this becomes fairly clear that this is the next big revolution in desktop computing. To attack the operational productivity."

Jobs had read Strassmann's book. He called it "rather thick and not good bedtime reading." But the idea changed how he thought about software forever.

And here's the thing. Strassmann wasn't some professor with a theory. He was the first Director of Defense Information at the Pentagon. The first person to ever hold that title. He managed one of the largest technology budgets on earth and designed a plan that saved billions.

The Pentagon's CIO figured out the difference between software that watches and software that works. In 1990.

Most businesses still haven't. They're still buying dashboards. Still generating reports that nobody reads. Still spending money on software that watches the business instead of running it. The Pentagon figured this out 36 years ago. Take your time.