IT Really Does Drive Business Value

By Doug Bartholomew Print this article Print

Research from a new study shows that savvy IT companies turn in far better financial results.

Nicholas Carr, read the software code and weep.

Yet another nail in the coffin laying to rest the premise of Carr’s famous article in the Harvard Business Review asserting that IT is a commodity that doesn’t yield competitive advantage will be driven home Monday. That’s when a new research study from the Hackett Group will be released showing that companies that have mastered the use of information technology to provide maximum business value achieve significantly better financial results than their peers.

In fact, these IT-savvy leaders outperform their competition across a wide range of financial and profitability measures, according to Hackett report.

Companies that are best at managing IT business value deliver 49 percent higher net profitability, 39 percent greater return on assets, and 43 percent better return on equity, than their industry peers, Hackett reports, based on the strategic consulting firm’s study of 50 large companies conducted in late 2007.

These top “IT business value management” (BVM) performers generate $1.07 billion more operating profit annually and $645 million higher net profit when compared to peers in their industry among the Global 1000 companies. 

A key reason for this comparatively better financial performance, the Hackett findings indicate, is more effective management of the IT project portfolio. Top performers in IT BVM weed out the least promising initiatives early on, approving and funding only half as many project proposals (40 percent versus 88 percent for most companies). They also complete a much larger percentage of the IT projects they initiate. And they are nearly twice as likely to meet cost targets on IT projects as typical companies.

Companies that are leaders in IT management also spend a substantially smaller fraction of their capital expense on infrastructure and utilities, leaving more investment for improvement and innovation. While the largest part of the peer groups’ IT investment is earmarked for infrastructure refresh, the top group invests the majority of its capital on “innovation and improvement,” most often in the form of discretionary projects.

This article was originally published on 2008-04-04
Doug Bartholomew is a career journalist who has covered information technology for more than 15 years. A former senior editor at IndustryWeek and InformationWeek, his freelance features have appeared in New York magazine and the Los Angeles Times Magazine. He has a B.S. in Journalism from Northwestern University.
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