Value of IT Investments Questioned

Half of companies disappointed with ROI on e-business spending, survey of aerospace and defense CEO shows

Half of companies disappointed with ROI on e-business spending, survey of aerospace and defense CEO shows

El Segundo, CA  September 15, 2003  Only half of companies in a new survey of aerospace and defense (A&D) industry enterprises believe they are getting the value they expected from their e-business investments, and enterprises in this sector are raising the bar on their expectations of tangible payback and returns for information technology (IT) spending.

The survey by Computer Sciences Corp. of some 200 CEOs at various A&D companies for its second annual aerospace and defense 2003 IT survey, entitled "A CEO Perspective on the Strategic Use of IT," also revealed that companies view business processes, and not technology, as the biggest challenge they face as they look for new and better ways of doing business.

"Respondents were split down the middle, exactly 50/50, when asked to answer whether they thought that e-business delivered the value they expected," CSC reported. The survey showed that this attitude prevailed even among those companies that consider themselves "leaders" in adopting new technologies and "quick adopters," with just 56 percent of such enterprises expressing satisfaction with the return on investment (ROI) they were getting from their IT investments.

At the same time, companies appear to be setting higher ROI goals for the IT expenditures this year compared to last. "Last year 75.0 percent of companies measuring ROI expected returns in excess of 10 percent," CSC reported. "This year 88.9 percent expect the same return of 10 percent or more."

In addition, 64 percent of respondents said that their IT budgets had increased this year over 2002. However, CSC noted that the highest percentage of companies increasing their IT budgets was among those enterprises with annual revenues less than $50 million, suggesting that aggregate IT spending would rise only slightly this year. Overall, CSC reported that the percentage of revenue spent on IT remained flat this year against 2002 at about 2.6 percent among the survey companies.

Among those companies increasing their IT spending, 46.5 percent tied the increase to strategic initiatives, versus just 15.5 percent that related the spending increase to initiatives to reduce operating costs.

Fully 76 percent of the respondents said that internal and external processes were the biggest challenge to implementing a collaborative environment in their supply chains. Just 19 percent cited technology as the biggest challenge.

"CSC's survey results support the conclusion that A&D companies lack the robust business processes to reap the gains of IT," said Todd Inskeep, a principal with CSC's national aerospace, defense and industrials practice. "So if IT only makes bad processes work faster, management will merely achieve poor results faster  not the desired result. Going forward, executives must no longer tolerate 'IT for the sake of IT.'"

Commenting on the survey results, Michael Burkett, an analyst with AMR Research, observed in a September 8 research alert: "CSC's survey reveals the challenges now facing the A&D Industry. While spending on IT has never been more focused on providing business benefit, it's critical for companies to realize the importance that business processes play in terms of differentiation. By aligning business needs with IT strategy and improving business processes enabled by IT, companies can realize significant cost savings, hedge against risk and position themselves for growth."

Tomorrow: Supply & Demand Chain Executive reports further results from CSC's survey, including companies' plans for introducing new supply chain functionality over the next two years, attitudes toward e-business exchanges and the role that e-business technologies play in lifecycle management strategies.