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Most Effective IT Organizations Spend 7% More, Says Report

Nov 29, 2006 (02:11 PM EST)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=196600355


Companies with the most effective and efficient IT organizations spend about 7% more on IT than median-performing companies, according to a new report from advisory and consulting firm Hackett Group.

Hackett's conclusions are based on analysis of performance metrics and benchmarking data from about 200 global companies Hackett studied this year.

Hackett defines "world class" based on a value grid that analyzes IT organizational efficiencies—including costs, number of full-time IT employees, and complexity—and effectiveness—including service level agreements, alignment with the business, and standards. "Any organization achieving in the top 25% in efficiencies and effectiveness is considered world class," says Scott Holland, a Hackett senior business advisor.

Top IT organizations spend $9,024 per end user versus $8,485 at median firms. And while top IT organizations are spending more, the additional spending is on the technology itself, rather than labor. When it comes to "technology-enabled" solutions, top tier IT organizations typically spend 17% more than median companies.

While the top IT organizations have 24% fewer full-time employees than median organizations, those smaller staffs are generally paid about 24% more than IT professionals at the other companies, says Holland. Top-performing IT organizations also tend to outsource more than their peers, especially technology infrastructure and applications management, including development and maintenance, he says.

Also, those companies with top-tier IT groups reap benefits in the efficiencies and effectiveness that tech-enabled automation and integration provide in other areas of the business. For instance, top-tier firms spend 45% less on their financial operations, 25% less on procurement processes, and 13% less on human resources than median companies, says Holland.

Hackett found no correlation between industries or size of companies and whether or not their IT organizations performed in the top 25%.

Not everyone is convinced that IT spending benchmarks are a solid indicator of whether an IT organization is best-in-class.

"It's possible to spend a little or a lot on IT and make HR, procurement, and other areas of a company more efficient," says Steve Deedy, co-lead of information technology transformation at AlixPartners, a consulting firm. "The goal for companies is not IT spending, it's business effectiveness, and if that leads back to [increased] IT spending, then it makes sense," he says.

The key goal for businesses shouldn't be whether IT only helps to make areas like procurement more efficient, but whether IT helps the business grow.

"You might make procurement better, but maybe that money [for IT in the procurement project] might've been better spent helping the company grow," says Deedy.