Perception of IT Critical to Performance

Top companies view management of technology infrastructure as CEO-level issue, study finds

Hudson, OH  February 28, 2002  Companies are increasingly viewing the management of information technology infrastructure as a CEO-level issue, according to a new best practices study out today.

The study, by Answerthink division Hackett Benchmarking, concludes that the 85 percent increase since 1998 in the number of chief information officers (CIOs) who report directly to the CEO indicates that the linkage between technology and business is growing tighter.

In fact, the study found that companies exhibiting a tight link between the overall business strategy and the companywide IT strategy actually spend 17 percent less per end-user than their average counterparts ($12,236 versus $10,111) while delivering projects to business specification 23 percent more often.

For the study, Hackett has been tracking the performance of nearly 2,000 complex, global organizations and identified key differentiators between world-class and average companies across a diverse set of industries over several years. Hackett evaluates the effectiveness (quality and value) and efficiency (cost and productivity) of the IT function across five performance dimensions: strategic alignment with the business; ability to partner with internal and external customers; use of technology; organization; and processes.

Among other findings, the 2002 edition of the benchmarking study revealed that while companies have embraced outsourcing as a way to keep IT costs in check, for most it has proved to be a break-even proposition at best. In highly standardized companies, process costs are virtually the same, regardless of whether functions are largely outsourced or completely "insourced." On the other hand, at companies with a very low level of standardization, outsourcing sharply increases process costs.

For example, the study found that application development costs at companies with low standardization levels rise by 300 percent when outsourced. Outsourcing adds value only when part of an overall IT strategy aimed at leveraging maximum efficiency and effectiveness from people, processes and technology, Hackett concludes.

In addition, according to the study, greater centralized control of IT operations delivers significant savings in operational support without necessarily sacrificing performance. Top-performing companies with centralized IT organizations have 24 percent lower operations costs while enjoying 21 percent fewer help-desk calls than their decentralized counterparts.

"Given that technology now permeates every aspect of business operations, management of the corporate IT infrastructure has evolved into a CEO-level issue," said Richard Roth, managing director at Hackett. "Therefore, while it is understandable that in today's economy companies want to cut or at least slow the rise of IT costs, it is alarming that most companies persist in viewing IT as a subsidiary support function rather than a key competitive lever."

Principal improvement strategies utilized by the best-managed companies include simplifying and automating processes from end to end and leveraging the maximum business value from technology investments and Web infrastructures.

Among the other findings in the study:

A comparison of staff at average and top-performing IT organizations indicates that 163 percent more professionals and 108 percent more managers in the latter group have advanced business degrees. Companies are increasingly relying on IT for advice on improving the business with technology, which requires that IT staff add an understanding of business issues to its traditional bundle of core competencies.

The consistent use of IT standards not only enables top-performing companies to trim IT development costs by 41 percent (from $661 to $391 annually per end-user) but also reduces end-user support and training operations costs by 17 percent (from $968 to $801 annually per end-user). As companies adopt new technologies, integrate acquisitions and operate in a more real-time global environment, the case for standardization becomes even stronger.

While 100 percent of organizations with top-performing IT process performance have disaster-recovery plans in place, only 77 percent of average companies maintain such a plan, suggesting the presence of a penny-wise, pound-foolish approach to risk management in the latter group, Hackett asserts.