Information Technology makes a measurable, positive impact to bottom line profits, according to analysts with Compass, a leading European management consultancy.
Despite a 10% increase in IT spend over three years, up to 17% of corporate costs, 54% of the world?s major companies believe that IT systems have directly improved corporate profitability. In 1993, only 38% of companies made the same claim.
Compass says that finance and government profit most highly from IT investments, with government departments citing improved efficiency rather than profitability as the main benefit. Both sectors are very high spenders.
According to the 470 studies worldwide, conducted in association with Kit Grindley, Price Waterhouse Professor of Systems Automation at the London School of Economics, US organisations have a technology lead over Europe business, but the US is less enthused by IT?s bottom line effects.
Commenting on the results, Grindley said: ?All countries, led by the UK, are bullish about the return [on investment] from IT spend. The change is due to the increasing applications of IT to business improvement schemes. The most serious criticism of IT investment has been the difficulty of measuring investments.?
Compass specialises in measuring the costs and return on investment of IT, but Grindley says companies are becoming more realistic about costs and benefits. He explains: ?The figures suggest that this criticism can be expected to fade as companies stop looking unrealistically for sure-fire gains simply by applying IT to existing operations, and accept the customary business risk of using IT to enable new business strategies.?
The impact of IT on corporate strategy is noticeable, says Compass. 60% of all corporate operations depend, in varying degrees, on the use of IT. Worldwide, the overall claim is that 20% more of corporate strategy is IT-dependent, and 64% of US corporate organisations say their business is IT-based, with Germany coming in second at 49%. Compass identifies a similar growth pattern in the two countries over three years, and the industries most IT oriented in both countries are finance and retail/distribution.
Only the UK appears to have held IT spend steady over the period, still hovering around 7%, and Grindley identifies a strong pattern overall. He said: ?The average world IT spend has increased by three-and-a-half times over the 2% cost proportions commonly reported in the 1970s and 1980s. This belittles many downsizing claims, and one reason may be the backlash against the curbing of IT spend during the recession of the early 1990s.?
He added: ?The main cause, without doubt, is the increasing dependence of all companies on IT to enable the dispersal of activities geographically, and amongst alliances of contractors, partners and associates.?
Compass is often accused of grinding a mainframe axe, reflecting the concerns of its customer base, the majority of which are the blue-chip organisations that continue to operate high-end computing. In this instance, Compass says the US is leading a return to centralised control of IT, with an 8% swing away from departmental systems to centralised control.
Germany remains very decentralised, but the UK showed a 3% swing in favour of recentralisation. Retail and distribution, says Compass, runs about 88% of IT systems from head offices.
Another major change over the past few years is the acceptable face of outsourcing. Scandinavia and the UK showed swings of 19% and 11% respectively towards outsourcing some aspects of IT, and 25% of all UK IT operations are outsourced. Surprisingly, given the apparent willingness of US financial institutions to outsource IT, the US outsources only 16% in total, 4% below the world average. Grindley acknowledges there is a gap between perception and reality. He said : ?The US reputation for outsourcing may come from the publicity accorded to case studies drawn from engineering... which reports a high average of 24% of IT outsourced.?
Grindley believes there is a fundamental contradiction in the dual trends towards outsourcing and using IT as a fundamental support for corporate strategy.
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