Results of the IT Effectiveness Survey, conducted by IT consulting firm InterUnity Group and management consulting firm Prtm, reveal that market leaders have superior IT portfolio management capabilities and obtain greater value from each IT dollar invested.
“Most companies apply an ‘arms-race’ mentality to IT investment, calibrating their total IT spend to industry benchmarks, while market leaders distinguish themselves by how they invest in IT,” says Richard Sneider, Managing Partner of InterUnity Group. “Survey results show that market leaders spend more strategically by focusing on a strategic group of short-term, high-return initiatives, which have an impact on business performance.”
“The link between corporate performance and effective IT management exists,” says Jeffrey Kaplan, a director of Prtm’s Strategic IT Management Practice. “Companies that are leaders in their markets use IT to enable business strategy. These market leaders deploy IT more strategically and maximize the impact IT has on corporate performance.”
The survey findings show that market leaders have an advantage over other companies in the key areas of strategy, governance, and implementation.
IT Strategy Aligns with Business Strategy
According to the survey, market leaders have identified the strategic importance of IT in each of their business units. They prioritize IT spending according to each function’s strategic imperatives, define their application strategy “top-down,” in support of business goals, and more effectively prioritize their portfolio of potential projects in accordance with business goals. As a result, they are able to achieve their strategic imperatives, making way for investment in secondary priorities, while other companies continue to struggle with achieving their strategic imperatives, and may even over-invest in them, without ROI.
Market leaders use technology that helps their organizations make better decisions. For instance, they spend as much as three times more than other companies on decision support. They also invest more heavily in tools that allow their customers to extract information without needing to talk to a customer service agent. Market leaders spent approximately 50% more than other companies on customer self-service applications, for example. Customer self-service is a growing focus within Customer Relationship Management (CRM), and market leaders appear to be ahead of the curve in recognizing its strategic value.
On average, companies in the survey spend 70% of their budgets on operating and maintaining existing IT systems, and 30% on implementing new systems. The market leaders are ahead of other companies in their deployment of applications, focusing on areas such as call-center automation, e-commerce/EDI, and marketing campaign management.
The leaders are more advanced in using IT support to drive supply chain management as well as CRM. The survey results indicate that while some companies invest more in trying to forecast customer demand, the leaders focus on becoming more agile in response to demand fluctuations. While IT investment in R&D is relatively low, it is a growing area of focus for market leaders. They have been quicker to implement resource management applications, and there are strong indications that they will pursue portfolio management applications in the next 18-24 months.
Business units participate in determining the IT budget at 83% of market leader companies, compared to only 58% at other companies. At market leader companies, senior IT executives devote 60% of their time to new implementations, while IT leadership at other companies devote only 38% of their time to new implementations. Additionally, despite their larger installed base, market leaders are better able to focus senior management attention on strategic issues.
Market leaders have lower operating costs relative to their installed base and spend proportionally less on IT hardware, telecommunications, enterprise computing, end-user support, and IT management. This allows them to invest more heavily in applications development, which drives enhanced business capabilities.
They also make better use of strategic sourcing to obtain greater value with less investment. They use outsourcing to support new development more than for ongoing operations. Other companies tend to have a reverse strategy, using outsourcers to manage more of their installed base. For market leaders, 56% of outsourcing is focused on new development, compared to only 32% for other companies.
“Market leaders have superior IT strategy practices. They select and execute higher-value projects and allocate IT funding according to business process maturity and economic conditions,” says Prtm’s Kaplan. “Leading companies invest where there is the greatest potential return, instead of following historical budgetary allocations.”
InterUnity’s Sneider concurs: “Leading companies execute better, and at a lower cost. They place greater emphasis on getting the best return on their IT investments by improving business value and reducing operating costs. The result is stronger bottom-line business performance and a competitive advantage.”
The InterUnity Group and Prtm, in conjunction with CIO magazine, conducted an online study to determine how companies in a wide range of industries use information technology to gain a competitive edge. Participants completed a detailed questionnaire with 250 data elements.
Companies recognized as leaders in their market or industry (“market leaders”) were selected based on their overall business performance (revenue growth and profitability), as well as their business performance within their respective industries (based on revenue, net income, gross margin, operating expenses, and market share). The sample of market leaders was compared against other companies to evaluate IT management practice differences.