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Report: Don't overspend on technology

Companies that spend the most on technology don't necessarily perform the best in their industries, according to new research.

A new research report suggests that companies can't outperform their competitors simply by outspending them on technology.

Companies that spent the most on technology during 2001 didn't necessarily perform the best in their industries, according to a survey conducted by Forrester Research. Instead, the best results went to those that more carefully considered their technology spending.

Forrester surveyed nearly 300 companies about their performance in terms of revenue growth, return on assets (otherwise known as return on investment) and cash-flow growth over a three-year period, ranking them with a rating system of one to four stars. The firm found that four-star companies spent only slightly more than one-star companies on technology, but outperformed their higher-spending competitors in all three areas.

Companies that performed the best, according to Forrester, spent 3.3 percent of revenue on technology during 2001, whereas one-star companies spent 2.6 percent. Two-star companies spent 4.2 percent, and three-star companies, which spent the most, put out 4.5 percent.

Companies that more carefully considered how much they spent and that more diligently managed IT projects fared better than others, the report said.

Forrester's advice? Companies should stop spending willy-nilly. They'll get the most bang for their buck, the research firm said, from investment in technologies that help them manage supply chains, allowing them to react more quickly to changing market conditions.

"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," wrote Tom Pohlmann, a Forrester analyst and the report's author.

Technology that helps companies interact with customers more easily also will help boost performance, the report said. This technology includes "right channeling," or the ability to shift customers toward the areas of a company they need to reach, rather than using a catch-all system.

In addition, Forrester said that investment in what it calls "organic IT"--technology that includes components that are cheap and redundant--will also aid customers. This might include hardware such as blade servers or Linux clusters.

Ultimately, the report said, the best returns will come to companies whose IT departments are disciplined but also willing to experiment with new technology, such as software or equipment developed by a start-up. Companies would also do well to have a chief information officer who knows how to get more out of less, the report said.