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Five Ways to Tie IT Spending to Business Growth

Currently, just 30 percent of IT spending is focused on improving the businesses.

There are indications that the economic malaise that has been hanging over Europe for the past six years is beginning to lift. CFOs across the continent are feeling more buoyant about growth prospects. They are also aware that information technology is essential to driving business transformation and bottom-line success.

Opinion_Bug7Unfortunately, an exceedingly large share of capital (70 percent) is spent on what we call “keep-it-running” projects, which are IT investments in transacting the business, such as ERP (enterprise resource planning) systems.  This leaves only 30 percent for growth-oriented, “improve-the-business” IT spending: IT investments that can boost a company’s financial performance. Most would like to see much greater stress on the latter and would prefer a 50/50 split.

Those findings stem from AlixPartners’  “IT Spending and Return: A Deeper Exploration study, which was conducted in partnership with Oxford Economics. In late 2013, Oxford Economics surveyed 50 senior finance executives — 23 percent of them CFOs, 26 percent controllers —across four European countries: France, Germany, Italy and the United Kingdom.  The respondents were from 14 industries, with the largest number coming from telecommunications (16 percent), wholesale/retail (14 percent), and healthcare (10 percent)

Among the respondents, 14 percent  said their company’s operating margins had remained roughly the same over the past three years, 24 percent said their margins had decreased, and 62 percent  said their margins had improved.  The survey also revealed that a full 50 percent of the executives don’t believe their companies are getting their money’s worth from what, for many of them, has been considerable IT investment over recent years. They are also frustrated with not getting the key insights from IT that enable maximizing business performance, given what they are spending.

These are common themes we hear from CFOs worldwide, along with the challenges of attracting talent from insufficient supply, of internal politics that often lead to the wrong actions and of generally getting IT properly connected with the business.

Most of the European finance executives have embraced IT as a potential driver of profits, according to the survey, and 30 percent see the primary function of IT as improving operating profits. The evidence suggests that they are correct.  In fact, an AlixPartners analysis included as part of the study demonstrates that 45 percent of the executives representing companies with rising margins over the past three years said that their access to management information matches or exceeds expectations, while only 21 percent from companies with flat or falling margins had that response.

2 thoughts on “Five Ways to Tie IT Spending to Business Growth

  1. Meade, excellent recommendations.

    “The survey also reveals that a full 50 percent of the executives don’t believe their companies are getting their money’s worth from what, for many of them, has been considerable IT investment over recent years. They are also frustrated with not getting the key insights from IT that enable maximizing business performance, given what they are spending.”

    In a recent survey of 172 companies by Panorama, only about half (49%) of respondents said their IT systems delivered less than half of the projected benefits, and more than 1 in 3 (34%) said costs exceeded budget by at least 26%.

    Many Organizations typically don’t review and modify business processes to best align with core system functionality. They end up putting good technology over bad process. Others engage in a process improvement initiatives without first looking at the interaction between people, process, systems and IT.

    “In order to improve IT investments, respondents agree, process problems have to be fixed. Such problems also seem to come from a lack of analytical skills, since 54 percent of respondents admit that their teams lack the specific competencies needed to help drive their businesses forward.”

    Within many organizations, human capital is woefully underutilized. By empowering and engaging employees effectively before an IT project is initiated, leadership can capitalize on more opportunities to innovate and drive performance improvements from their IT spend.

    The challenge for leadership is to design and implement a framework that effectively empowers and engages employees at every level of the organization to make event-based decisions in a timely manner. Such a framework might look like:

    1) Effective policy management (online policy library)
    2) Ongoing assessments (people, process, systems & technology)
    3) Performance Scorecards (hard & soft metrics)
    4) Event management and reporting (utilizing Failure Modes and Effects Analysis)
    5) Annual certifications to the Code of Conduct (reinforce core values)
    6) Enterprise data analytics (talent & workforce analytics, performance-based job descriptions)

  2. If its true that teams lack basic analytical skills, which I suspect is true basesd on my experience in banking, it will be a bonanza for consulting firms !

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