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Story URL: http://management.silicon.com/itdirector/0,39024673,11035889,00.htm

Fact: Heavy IT spend equals bigger profits
But it's best not to throw technology around willy-nilly

By Graham Hayday

Published: Wednesday 09 October 2002

Companies that spend above the average amount on IT can make up to 36 per cent more profit than their techno-phobic competitors, according to the latest research.

A study of almost 1,000 European companies conducted by Gartner and commissioned by BT Ignite has revealed what researchers call the "strongest evidence to date of a link between investment in information and communications technology (ICT) and profit".

Organisations that had large ICT budgets generated on average 2.4 per cent more profit than those that invested below the European average.

The average profit of organisations that spent heavily on ICT was 9.1 per cent, compared to 6.7 per cent for organisations that failed to make a significant financial commitment.

One quarter of organisations that invested major sums in ICT made a profit of between 10 and 20 per cent.

Although investment was the most influential factor in delivering improved financial performance, Gartner's analysts warn that IT spend must be balanced. Investing in a single area such as CRM, ecommerce, ERP, knowledge management or supply chain management did not generate significant benefits in terms of overall company performance, the research found.

Despite the impact on profitability revealed by the survey, reducing cost was still seen by the respondents as the most important criteria when it comes to justifying investment in IT.

The research also showed that although judicious IT spend can be a huge boost to a company's bottom line, 'softer' factors such as company culture and the alignment of employee reward structures to the achievement of customer satisfaction goals are much more significant in overall financial performance.

John Simcox, vice president of Gartner said: "We have identified that organisations that have taken specific positive action to ensure that their employees are fully aligned with their customer satisfaction goals are seeing business benefits through increased profitability. However the biggest drivers to improved corporate performance are down to the organisation having the right culture and a willingness to invest across all parts of the business."

During June and July 2002, Gartner interviewed 973 executives and senior managers across eight countries (Belgium, France, Germany, Ireland, Spain, Sweden, the Netherlands and the United Kingdom) working in a variety of vertical markets.