Should you spend more on IT?

Nicholas Carr made some salient points in his treatise IT Doesn’t Matter, but once again there is some new evidence to suggest that if not wholly wrong, he was at least exaggerating the point.

The Hackett Group, a research-based business advisory company, has just completed its annual study on Information Technology. It found that the best performing companies, which Hackett defines as ‘world-class companies’, spend 7% more on IT than their peers.

What’s more, it found that the more a company spends on IT, the less it spends in some other vital areas. For instance through improvements in the use of technology, ‘world-class companies’ in finance spend 45% less on their finance operations.

Hackett also found that achieving ‘world-class status’ in IT is a prerequisite to achieving best performance in other back-office activities: 86% of all companies that are ‘world-class’, are also ‘world-class’ when it comes to their IT.

The firm also noted that of all of the functional areas it analysed, IT proved to be the only business function that it found where the best-performing organisations spend more than typical ones – typically it is a ‘spend less metric’ that determines world-class. With the help of IT, the other functional areas it looked at (finance, procurement and HR) spend less as well, demonstrating a direct correlation between improved IT effectiveness and company efficiency.

Hackett’s research found that world-class IT organisations now spend £4,750 per end user while typical companies spend 7% less, or £4,471. “This is a continuation of a trend that was first identified in 2005 and makes IT the only area studied by Hackett where world-class performers outspend typical companies,” the research firm said. “World-class IT organisations are investing 17% more on technology-enabled solutions than typical companies.”

From the research: “In finance, Hackett’s research shows a direct correlation between IT effectiveness and improved access to finance information. ‘World-class’ finance organisations also deliver 57% more invoices to customers electronically and in part as a result reduce billing errors by half and significantly lower Days Sales Outstanding, thereby increasing cash flow.

In procurement, Hackett found a direct correlation between IT effectiveness and procurement efficiency. As a result of their technology usage, staff at world-class procurement organisations process 36% more purchase orders per staff member than typical companies, and cut the cost per purchase order by nearly half.

World-class HR organisations clearly benefit from their increased focus on technology, with 13% lower HR costs per employee and 15% fewer HR staff. They fill manager positions 10% faster, and are more than three times as likely as typical companies to offer employees online access to health and welfare systems.”

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