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Management Strategies

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IT Leaders Spend More, Study Says

After years of spending less on IT, world-class organizations earmark more dollars for technology to improve corporate efficiency, a new study reveals.

For years, the most technology-savvy companies spent less on IT than typical companies. That's no longer the case, according to the latest analysis of the impact of IT spending on corporate efficiency by the Hackett Group, a business-process advisory firm.

In its annual "Book of Numbers," to be released Sept. 27, Hackett says so-called world-class IT organizations spend 10% more on IT than typical companies, collectively known as the peer group.

World-class companies this year are spending $9,617 on IT per user, 10% more than the $8,715 being allotted by the peer group. Despite earmarking more for their IT organizations, world-class companies spend 42%, 25%, and 20% less for finance, human resources, and procurement, respectively.

Though companies over the years have invested heavily in enterprise IT systems, most haven't exploited all their capabilities. Now, world-class firms seek people to help them do just that, and they're willing to pay top dollar for that know-how, driving up IT costs. Median wage rates for IT pros at world-class companies reached $119,383 this year, 32% higher than the $90,766 peer organizations allocated.

Employee turnover also is higher among world-class over peer companies, by 84% for professionals and 150% for managers, reflecting the move to hire highly qualified experts. "Companies take advantage of their IT investments by hiring smarter people," says Scott Holland, Hackett's senior director of IT research. "They'll take someone who worked at P&G with huge knowledge of SAP and pay a premium to get that expertise."

Though they pay more in salary and benefits and have higher turnover, world-class organizations employ 28% fewer IT staffers, with fewer people assigned to collect data but more people charged to analyze it.

World-class companies also dedicate nearly half of their infrastructure management process costs--mostly their nonhardware, software, and licensing spending--on outsourcing, investing on average $924 per end user. That's nearly 70% more than peer companies allot, and 168% more than they earmarked for outsourcing three years ago. And these leading IT organizations make greater use of shared services than typical companies, with nearly 90% of their IT portfolio being shared.

The top companies also spend more on hardware and software, though not necessarily on the types of technology employed a few years ago. These companies spend on technologies that help distribute the information, such as wireless and voice-over-IP products. "In order to deploy more technology, these companies need to communicate through voice and data systems," Holland says. "They're riding the communications wave."

Other findings of Hackett's analysis of its "Book of Numbers":

--World-class companies dedicate more than 20% of their process costs to outsourcing application management, spending $450 per end user, 91% more than the peer group. Spending among leading companies to outsource app management has grown by 400% since 2002. Peer-group spending in this area has remained flat.

--Increased spending on an IT organization pays back in other areas of a company. World-class finance organizations spend 39% less than peers on technology. They make better use of IT and have cut back and optimized their infrastructure; world-class businesses depend on one enterprisewide finance platform while typical companies rely on two.

--In human resources, world-class companies function with 14% fewer transactional staff than peer-group firms.

--World-class enterprises, aided by IT, process four times more orders per procurement employee than peer companies at 61% lower costs per purchase order.

Hackett maintains an extensive database of best practices and process metrics in IT, finance, human relations, and procurement from 3.300 benchmark studies over 13 years at nearly 2,000 companies, including 93% of the companies making up the Dow Jones Industrials. Its "Book of Numbers" is based on an analysis of that database.

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