Survey Reveals IT Spending 57 Percent Higher in Companies Where It's Considered an Enabler of Growth

Bain: While majority of executives agree that IT is relevant to growth, 60 percent complain it's inhibiting growth in key areas

Bain: While majority of executives agree that IT is relevant to growth, 60 percent complain it's inhibiting growth in key areas

New York — August 24, 2004 — It's no surprise that as the economy is looking up, 70 percent of senior executives agree that information technology (IT) is highly relevant to enabling their companies to grow. However, 60 percent complain that IT is inhibiting growth in key areas — and these attitudes affect IT spending.

These are two key findings of Bain & Co.'s new survey "Is IT a Bottleneck to Growth?," which polled executives from 359 companies, largely based in North America. The majority of participating executives serve in corporate-level finance, IT or general management positions.

"When 60 percent of business executives think IT choices have been obstacles to achieving growth, hopefully this survey will be a wake-up call for chief information officers," said David Shpilberg, who heads the Global IT Practice for Bain.

The survey results revealed that IT spending averages 7.4 percent of revenue in companies where executives view IT as a significant enabler of its growth strategy, but only 4.7 percent of revenue in companies where executives view IT as an inhibitor — more than a 36 percent decrease.

"The lack of measured results continues to keep a chokehold on IT spending in many companies," added Shpilberg. "IT organizations need to deliver a consistent stream of business value to win the confidence of senior executives and make the case for increased IT spending."

The survey also found that the impact IT has on growth correlates with whether or not companies choose to invest in IT that supports new capabilities and innovations. In companies where senior executives viewed IT as a significant growth enabler, 42 percent of IT spending went toward new systems and capabilities versus maintenance of existing IT platforms. In contrast, spending on new systems and capabilities dropped to 30 percent in companies where business executives viewed IT as an inhibitor.

Bottlenecks to Growth

Of the 203 respondents that viewed IT as a growth inhibitor, more than half felt the lack of information or transaction capabilities were causes for the bottlenecks to growth, while only 30 percent of the respondents said lack of infrastructure was a key underlying issue.

"Senior executives think they have enough IT spending, just not enough good results," said Steve Berez, co-founder of Bain's Global IT Practice and survey leader.

According to Bain, further analysis of the survey responses revealed four factors that largely contribute to the perception by executives that IT is a bottleneck to growth in their companies:

1. Poor business alignment — Two-thirds of senior business executives strongly agreed or agreed that IT didn't understand their business needs, or their companies failed to adequately coordinate business and IT changes;

2. Weak value delivery — Sixty-seven percent of respondents strongly agreed or agreed that existing IT was under-exploited, or systems didn't deliver promised capabilities;

3. Capability sourcing gaps — One-third of respondents strongly agreed or agreed that there was a lack of IT or vendor skills;

4. Ineffective complexity management — Nearly half of respondents strongly agreed or agreed that their complex legacy systems lacked the flexibility to stay current with business needs.

Stick To Your Knitting

When it comes to understanding the value of IT, Bain found that the distance from a company's core business plays a major role in shaping executive attitudes. Twice as many survey respondents viewed IT as enabler of growth rather than an inhibitor when IT was applied to their core business. Bain said core business growth initiatives include those that aim to retain customers, grow current customers or acquire new customers in the same line of business.

However, based on survey responses, overall IT effectiveness waned as it was applied to growth adjacencies that extended further and further from a company's core business. In order of increasing distance from the core, these growth adjacencies include new products or services, new types of customers, new channels, new geographies, and finally new steps in the business value chain.

And Bain said an even more dramatic reversal in attitudes occurred when senior executives were asked if IT enables or inhibits growth initiatives that are totally unrelated to a company's core business. The number of respondents that believed IT inhibits growth was 50 percent higher than those who believed IT enables growth when applied to new, non-adjacent initiatives.

Berez summarized, "There's no place like home when it comes to creating profitable growth. Bain's survey results show that IT is an important contributor to the increasing difficulties firms face when seeking growth farther from their core business."