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Commentary: Getting the most from IT

The time for "naked technology" expenditures has come and gone. Forrester says that that what companies spend doesn't matter, it's how they spend it.

Commentary: Getting the most from IT
By Forrester Research
Special to CNET
November 12, 2002, 10:15AM PT

By Tom Pohlmann, Senior Analyst

What you spend doesn?t matter--it's how you spend it.

Forrester compared the financial performance of 291 companies with their industry peers. No surprise--the poorest-performing companies spent the least on IT, or 2.6 percent of their revenue. But top performers spent 3.3 percent of their revenue on IT--the second-lowest amount. For years, companies have been enacting "naked technology"--investing in IT without making the commensurate investments in people and process changes. As a result, we're still working our way out of $62 billion in excess spending on IT from 2000.

So what does matter? The technologies that companies invest in. For instance:

• Early adopters of software for managing supply chains and of the XML (Extensible Markup Language) outperform their industry peers in return on assets. The flow of goods through today's supply chains is always at risk, thanks to static, batch-based planning that is often disconnected from a world of physical goods. Supply chains must evolve into adaptive supply networks, in which trading partners use IT to sense and respond to market changes in a coordinated manner. This is what smart companies like Procter & Gamble, Honda and Dell Computer are tackling now. Companies already active with software for supply chain planning and already using XML to exchange data with trading partners will likely be the earliest adopters of the adaptive supply network concept.

• First movers toward Organic IT demonstrate improved cash-flow growth. Organic IT is Forrester's name for the next computing revolution, an IT infrastructure that automatically shares and manages IT resources across applications, resulting in vastly simplified computing environments for the same investment. Those most frugal today in managing infrastructure will be the first to come on board. Why? The ability to do more with less is at the heart of Organic IT. And in fact, those companies with the healthiest IT budgets--those that will spend more on IT compared with last year, that will increase or hold onto existing budgets during the second half of this year, and that are not shifting additional budget dollars into infrastructure hardware--are 1.5 times more likely to have above-average cash-flow growth.

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• "Right-channeling" adopters have better revenue growth. Smart consumer companies will retool their CRM deployments from "stovepiped" projects (those limited to one business unit or channel) into strategies that use IT to migrate customers to the right channels for the right transactions and interactions. We profiled companies that in addition to having a CRM application are deploying integration, business intelligence, and content management technology. These right-channeling candidates score higher on cash-flow and revenue growth than peers within their industry.

The strongest link to company performance actually comes from the effectiveness of the corporate IT organization. Forrester views IT effectiveness as a combination of three variables: first, the basics of bringing IT projects in on time, under budget, and to business buyers' satisfaction; second, clearly defined relationships between corporate IT and its business unit counterparts, and third, a company's willingness to take risks on and to innovate with emerging technologies.

Companies meeting these criteria show better cash-flow and asset performance. As a result, CIOs must consider a new breed of benchmark data to collect besides simply dollars and cents.

© 2002, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.