Cuts in Technology Infrastructure Spending Key to Achieving World-class IT Results

World-class companies spend 23 percent less on tech infrastructure and outsource more in this area than invest in application management and software

Atlanta — March 10, 2005 — World-class information technology (IT) executives achieve superior results in part by shifting their spending and staffing priorities away from technology infrastructure and toward application management, software, and other areas, according to "IT Book of Numbers" research from The Hackett Group, a business process advisory firm and an Answerthink company.

Overall, Hackett found that world-class IT executives spend 18 percent less than their typical peers and operate with 36 percent fewer staff, while bringing in projects on time and under budget more than 30 percent more often.

They are also able to deliver business benefits by increasing the automation of a wide array of routine business transactions, providing operational efficiency and freeing up staff time throughout the organization to focus on more value-added activities.

Reductions in technology infrastructure spending and staffing play a key role in helping world-class executives achieve these results. According to Hackett, world-class executives spend 23 percent less than typical companies on process costs in technology infrastructure and dedicate 58 percent fewer staff to it. These reductions, which are driven in part by increased use of outsourcing and an improved focus on standardization and complexity reduction, contribute to world-class executives' flexibility to focus resources in more strategic, value-added areas, including application management, where world-class organizations dedicate more than half their internal staff.

The Hackett Group uses empirically based analysis and advisory services to help executives achieve progress toward world-class performance through. Hackett's knowledge repository is derived from 3,300 empirical studies over 13 years with more than 1,865 of the world's leading companies, including 93 percent of the Dow Jones Industrials.

According to Hackett's "Book of Numbers" research, which is produced as part of its IT Executive Advisory Program, world-class IT executives spend $1,686 in total technology infrastructure process costs (labor and outsourcing) per end-user, 23 percent less than their peers, who spend $2,183/end user. The lion's share of the reduction in staffing that world-class organizations see is also concentrated in technology infrastructure, with only 9.2 full-time equivalent staff per 1000 end-users, compared to 21.7 for peer companies, a 58 percent difference.

World-class IT executives allocate staff very differently as a result, dedicating 53 percent of their internal staff to application management (compared to 38 percent for peers). Peer companies, on the other hand, dedicate nearly half their staff (49 percent) to technology infrastructure, an area where world-class companies dedicate only 33 percent of their staff.

In addition to technology infrastructure, two other leading areas where world-class IT executives spend differently are in software licenses, where they spend 20 percent more than their peers and voice and data, where they spend 31 percent less than their peers. Although world-class executives spend less overall on technology through greater standardization and better governance, they are able to spend substantially more on technology where it matters most — more software solutions for the business.

A key part of how world-class IT executives make this shift is through an increased focus on standardization and simplification, according to Hackett's research. They rely on 29 percent fewer applications per 1,000 end-users and 29 percent fewer data centers. They are more likely to use data standards to a high degree across all systems and significantly more likely to have implemented a high level of standards enforcement across hardware, networking and software applications.

The strategic benefits generated by world-class IT executives extend far beyond the IT department. By automating routine tasks, world-class IT executives free up staff time throughout the organization, which can then be focused on more value-added activities. For example, companies with world-class IT organizations are 102 percent more likely than their peers to receive customer orders electronically, 236 percent more likely to send customer billing invoices electronically and 220 percent more likely to accept expense submissions online.

"A key strategy for world-class executives is to drive costs out of commodity IT services like desktop management and network administration through a combination of greater process discipline, higher compliance levels and successful outsourcing relationships," said Beth Hayes, senior director, IT Transformation and Hackett Fellow. "This enables them to reinvest resources in higher-value application management and strategy and planning activities, and spend even more on software solutions to support key strategic business initiatives."

According to Hackett IT Practice Leader David Hebert, "When you look at peer companies, you see a tremendous contrast with world-class in key areas. Often they have highly-dispersed, poorly managed architectures that drive greater complexity and increased costs throughout the organization. Some of these companies are struggling just to keep up, and may find it difficult, if not impossible, to make IT investments that reduce their overall costs or improve effectiveness."

To achieve Hackett's world-class designation, an organization must score in the top 25 percent of Hackett's current database in both efficiency (cost and productivity) and effectiveness (quality and business value) output metrics in a given functional area. For comparison purposes, Hackett also calculates the median results for all non-world-class companies, which are identified as "typical" or "peers." In this way, Hackett defines "world-class" with empirical data, isolating the characteristics shared by today's world-class organizations.

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