European business fails to get bang from the IT buck

US companies are getting better value for their IT dollar than their European counterparts, according to a new study.

Analytical tools company Alinean said public companies in Europe are spending almost twice the percentage of their revenue on IT than US companies - but that top companies don't necessarily spend more than their competitors.

According to the study, which looked at about 9,000 public companies in the US and Europe, the average company in the European Union spends about 7.3 per cent of its revenue on IT, compared with 3.7 per cent for US companies. The highest performers - in this case, measured by dividing the cost of doing business by IT investment and spending - spent even less of their revenue on IT. The top US companies spent just 0.8 per cent of their revenue on IT, compared with 2.1 per cent for European top performers.

The study said successful US companies are cutting IT costs through careful strategic planning and outsourcing while keeping critical R&D spending in-house.

"US companies have made a major shift that puts them far out head," Alinean chief executive Tom Pisello said in a statement, referring to the outsourcing trend. "At the same time, they're keeping crucial information management investments on knowledge capital growth and retention - focusing IT spending on the resources that matter."

The study's findings are similar to those of a Forrester Research report released last year, which said that companies can't beat competitors simply by outspending them on IT. That study ranked companies based on return on investment, revenue growth and cash flow growth over three years. It found that the highest performers carefully scrutinised their technology spending, shelling out just 3.3 per cent of revenue on IT, compared with 4.2 per cent and 4.5 per cent for middle performers. The lowest performer spent the least, forking over just 2.6 per cent of their budgets.

The study suggested companies invest in technologies that help them manage their supply chains and interact better with customers.

Alinean makes software that helps companies calculate the potential return on investment of their IT purchases. Its ValueIT software, which shipped late last year, lets chief information officers set benchmarks to evaluate pending projects. Several companies have jumped into the market for tools designed to make IT purchasing decisions easier as expenditures are more closely scrutinised in a down economy.

Lisa M Bowman writes for news.com