The IT Spending Gap

Data show wide variances in spending across industries, business models; software provider argues for better benchmarking

Orlando, FL — May 15, 2003 — Spending on information technology averages more than $10,000 per employee, accounting for a total of nearly 4 percent of revenue, but IT expenditures vary widely between companies based on industry, business models and various other factors, according to benchmarking research from return on investment specialist Alinean.

Alinean offers software to demonstrate the ROI on IT investments, but the company has recently expanded the competitive metrics component of its ValueIT ROI and IT budget analysis tool kit to include benchmarking data from more than 20,000 public companies in 40 countries.

The provider said that version 2.5 of the software is intended to give IT leaders and business consultants a new tool for benchmarking IT spending and performance against a company's top competitors in 400 industries.

"One of the best ways to ensure best-in-class performance is to know how your top competitors are faring, how you compare and what it takes to become the leader," said Tom Pisello, Alinean's president and CEO. "You have to know where you stand before you can know what to invest in, and you need clear benchmarks on whether you're getting ahead — or falling behind."

Delving into its base of data from thousands of companies, Alinean found that average IT spending was $10,280 per employee, or a total of 3.7 percent of revenue. But within these averages, the provider found a broad range of spending based on industry, business model, company size, location and best practices.

Aerospace and defense, agriculture and automotive manufacturing ranked among the most "frugal" industries, along with construction, lumber and furniture manufacturing, mining, paper manufacturing, steel manufacturing and transportation.

Big spenders included high tech, medical and lab equipment manufacturing, and pharmaceuticals, along with publishing and printing, telecommunications and tobacco companies.

Large companies appeared to get some economy of scale benefits in their IT spending and could be more conservative with IT spending — when viewed as a percentage of revenue or per employee — than their mid-sized industry counterparts, mostly due to increased purchasing power.

In addition, geo-political influences appeared to drive comparison results. For example, European Union spending is higher on average than among U.S. companies but delivers less per-capita benefit due to lagging outsourcing strategies and labor laws.

Alinean makes the benchmarking data available to its customers through the peer comparison tool in its ValueIT 2.5 solution, licensing for which begins at $10,000, including access to a library of business case templates and ROI worksheet objects for various IT projects, as well as automated monthly updates to the peer comparison database.

The new metrics are intended to help enterprises analyze how much competitors are investing in IT and how these investments are driving corporate performance. The provider said that companies can also use the data to develop a detailed total cost of ownership (TCO) assessment of their IT assets to help reduce overall IT spending and improve performance.

The provider argues that benchmarking can position IT managers to help shape, and contribute to, key corporate goals. Benchmarking can assist all stakeholders — including IT managers, business unit managers, vendors, consultants, chief information officers and executives — in identifying the best investment plans based on clear performance indicators, Alinean asserted.

Benchmarking frequently has been seen as difficult and costly because it has often required outside consultants and lengthy internal reviews. Alinean believes it has cracked that nut by automating much of the process.

Moreover, company CEO Pisello argued that the level of detail in the new benchmarking data allow companies to track both overall industry trends and specific competitors. "Paying too much attention to broad industry averages could leave you at the back of the pack," Pisello concluded.