In-Depth

Survey: Getting More for Your IT Dollar

It's not about how much IT spends. World-class companies know how to spend their IT budget wisely.

• By Stephen Swoyer
• 09/09/2003

Sound like a no-brainer, you say? Perhaps, but many of the conclusions that research firm The Hackett Group, an Answerthink Inc.-affiliated company, draws in its new IT Spending Research study are far from immediately obvious.

For example, Hackett says that world-class companies typically invest in automation technologies to a greater extent than also-rans. As a result, the researcher finds, they’re able to reduce the cost of routine processes and reallocate these savings. This makes it possible for them to spend up to 30 percent more than the also-rans on strategic decision-making systems.

This is important, the researcher finds, because, on average, world-class companies and also-rans spend about the same on IT. According to Hackett's "2003 Profile of World-Class Information Technology," world-class IT organizations spend $11,284 per end user each year—less than their also-ran peers, which typically spend $11,326 per end user each year.

While the amount IT spends varies little from world-class companies to also-rans, the former typically spend less—much less—than their also-ran peers on process costs, realizing savings of nearly $1,200 an employee each year.

According to Hackett, top companies accomplish this feat by relying on electronically-enabled transactions and procurement dramatically more often than their competition. The research firm found that in 10 areas—including time and expense reporting, purchase orders, and various procurement processes—world-class companies were from 71 to 578 percent more likely to use electronically-enabled transactions.

Automation of this kind confers other advantages on world-class companies, as well: Hackett says that leading companies spend 38 percent less than also-rans on finance transaction and process controls. In addition, Hackett researchers say that technology-driven self-service capabilities are helping top companies realize savings of up to 69 percent on health and welfare costs per employee.

Hackett Researchers acknowledge that companies have increasingly invested in CRM, supply-chain integration, forecasting, and other solutions with the expectation of ratcheting up automation and reducing costs. Because also-rans have based these automation solutions on a poor infrastructure, they typically end up devoting about 69 percent of their total IT budgets to basic infrastructure and operational support costs. World-class companies, on the other hand, devote only about 59 percent of their total IT budgets to such costs.

Hackett’s methodology differentiates average or also-ran companies from so-called “world-class” companies, as determined by the research firm’s Business Value Index (BVI). World-class companies were those that scored in the top 25 percent in both efficiency and effectiveness.