5 Ways To Maximize ITBy Doug Bartholomew | Posted 2007-06-01 Print
The best information technology organizations follow these key strategies, Hackett Group reports.
Yes, Nicholas, people are still refuting your claim that "IT doesn't matter." In a 2004 article in the Harvard Business Review, Nicholas Carr challenged conventional wisdom, claiming that information technology is a commodity and that the greatest risk companies face is overspending on IT.
The latest to discount that notion is The Hackett Group. On June 12 the strategic advisory firm, whose clients comprise all but one of the Dow Jones 30 Industrials, will release a new edition of its "Book of Numbers" entitled "Does IT Matter? Hackett Concludes the Answer is Yes." Hackett's analysis of benchmark data from more than 2,100 companies found that world-class IT organizations-those that achieve peak efficiency and effectiveness-spend 7 % more per end-user on IT operations than typical companies, but on average, earn that amount back fivefold in lower operational costs.
Hackett's research revealed that world-class companies are able to derive the maximum value from their IT investment by pursuing five key strategies:
- Standardize data and consolidate applications-Hackett data shows that companies with a single ERP system have significantly lower operational costs in finance and procurement than companies with more systems, and that costs rise as the number of systems goes up. Also, the use of common data definitions in a highly consolidated application environment enables companies to reduce finance process costs by almost one-third.
- Focus on high-return opportunities-World-class companies, Hackett's research shows, utilize a risk/reward analysis to identify process areas across the back office where technology investments can yield the greatest return. They also combine high technology use with a much broader set of best practices to outperform companies that only use technology.
- Don't single-mindedly minimize IT costs-Hackett's research shows that indiscriminately lowering IT costs has a negative impact on other functional areas, such as procurement, finance and human resources. In fact, world-class IT organizations tend to outspend typical companies by about 7 %, or roughly $29 million per year. Hackett's benchmark studies suggest that business value is best maximized by reallocating IT spend from technology infrastructure to applications, where more ROI is created.
- Maximize value of information assets-World-class companies are far better than their peers at providing executives and staff with timely and relevant information. Hackett's research shows a direct relationship between IT effectiveness and improved information access and enhanced value of analysis in finance. These leading users of IT are twice as likely as typical companies to have mature balanced scorecards in place, and more than twice as likely to utilize sophisticated business simulation tools to produce ad hoc reports.
- Outsource selectively, with a focus on effectiveness-Hackett's finding is no empirical evidence that IT outsourcing lowers IT process cost. Instead, world-class companies utilize outsourcing to improve effectiveness rather than efficiency. In fact, large companies are reconsidering their outsourcing relationships with a renewed focus on business value and alignment over cost.
"This Hackett research clearly demonstrates how technology investments can generate real ROI and maximize business value," the report states. "World-class companies' superior ability to achieve these objectives has been instrumental in their ability to achieve and maintain their performance edge over typical companies."
The report concludes with a prediction that there will be a further blurring of the lines separating technology and business in companies with the best IT organizations. "The continued integration of IT into core business processes will go hand in hand with the evolution of IT roles and skill sets, sourcing models, and governance processes, as well as the way IT performance is measured."
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