It's not how much you spend on IT, but where you spend it.

Jon Surmacz for CIO

Leading companies spend roughly the same on IT as laggards, but they spend it differently, according to a recent study.

The Hackett Group, an Atlanta-based consultancy, analyzed data from its 2000 clients (81 of which are Fortune 100 companies) and found that, on a cost-per-end-user basis, most companies spend roughly $11,000 per end user. However, world-class companies (those which Hackett identifies in the top quartile of its measures for IT efficiency and effectiveness) spent 27 percent more than average companies on systems and 20 percent less than average companies on process costs. Typically, world-class companies spend 59 percent of their total IT budget on basic infrastructure and operational support costs. Average companies, meanwhile, spend about 69 percent of their budgets on basic infrastructure and support. 

Scott Holland, director of IT research for the Hackett Group, says world-class companies have automated several back office functions, allowing them to spend more money on strategic projects. "World-class companies really have the back office nailed down," Holland says. "It's providing them with a competitive advantage [over average companies]. The question for companies is, 'How can technology make each end user more supportive to the business function?" 

The difference between world-class and average companies starts at the top, according to the Hackett research. World-class IT organizations spend 50 percent of their time on strategic planning and decision making and only 25 percent of their time handling support duties. That is nearly the reverse for average IT organizations, which spend 46 percent of their time handling support duties and only 29 percent of their time making strategic decisions. 

Hackett research shows that with more time to spend on strategic planning and more back-office automation, world class companies are able to spend 38 percent less than average companies on finance transaction and process controls. They are able to save 69 percent more than average companies on health and welfare costs per employee because of the technology driven self-service capabilities they've added. 

Allan Frank, senior Hackett fellow, says another reason world-class companies have gained such an advantage is their strict adherence to application development and data standards. While 17 percent of average companies said they have a high degree of data standards, 50 percent of world-class companies said they maintain a high degree of data standards. Frank says standards will prove even more critical as regulations such as Sarbanes-Oxley take effect. 

"A year from now, it won't just be about cost and value," Frank says. "The CIO and CFO have to come to grips with the integrity of their applications and integrity of their data. Sarbanes-Oxley will have a serious impact on average companies." 

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