IT Does Matter

By Allen Bernard

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Not everyone may agree, but companies that consistently outperform their peers utilize IT more effectively, said Erik Dorr, a senior business advisor and one of the report's authors.

"This superior IT performance is actually only correlated with superior performance in other SG&A functions. So, for a lot of CIOs, they still are fighting this battle with their management. So this gives them some ammunition in hand to make the case that IT does matter."

In other words, you can field the best technology available, run your department mean and lean, hire the best and brightest, etc. but, if you don't have management's backing and user buy-in, much of what you do will never make your IT shop's performance "world-class," said Dorr.

For example, world-class companies spend more, an average of seven-percent more per end-user, and they tend to outsource with an eye towards increasing effectiveness and not cost-cutting. They also work from a portfolio or program management perspective; viewing IT as a whole system rather than a bunch of parts working together. In this way, they can identify areas where IT is just a commodity function with little competitive differentiation and areas where IT investments will have a real business return.

"One of the real arts these days is to decompose the services and the technology portfolio at the right level of granularity," said Dorr.

Hackett's new Book of Numbers edition, ROI in Technology: The Key to World-Class Performance, released on Tuesday finds that leading companies pursue five key strategies in order to drive the maximum value from IT:

Outsource Selectively - They outsource carefully, and use outsourcing as a tool to improve effectiveness rather than efficiency. In fact, Hackett's research shows that for many typical companies the lack of an effective strategy and insufficient consideration of process and infrastructure optimization prevents outsourcing from driving reductions in IT process costs.

This is one of the areas that surprised Dorr somewhat since outsourcing is typically viewed as a cost-cutting tool by the majority of companies. But, in world-class companies, outsourcing is used primarily to improve performance.

"I guess the net of that is companies that are more success. in outsourcing have not necessary driven out a lot of IT costs but they have in fact, if they've done it correctly, improved their effectiveness of their IT," said Dorr.

Standardize and Consolidate - They streamline and simplify, and to ensure maximum ROI they take the critical step of standardizing master data definitions as they reduce the number of ERP systems and other applications. By reducing spending through standardization and consolidation, world-class companies can increase their focused spending in areas which generate greater strategic return.

Focus on High-Return Opportunities - They take a differentiated approach to IT investment and do careful reward/risk analysis, to identify areas that can reap the greatest benefits.

Generally these are areas where the gap between world-class and typical companies is large in two key ways: overall performance and also how heavily technology is used. In most cases, including transactional automation, world-class performance and maximum value can only be achieved by implementing technology in conjunction with best practices and process redesign.

"It's a combination of the best-practices and the technology that delivers the optimum result," said Dorr. "And just throwing more technology at the problem has it's limitations."Don't Indiscriminately Minimize Cost - Rather than focusing on across-the-board cost cutting, these companies take a very different perspective and seek to maximize value at the lowest achievable cost, in part by reallocating spending from technology infrastructure to application management.

Hackett's research clearly shows that indiscriminate IT cost cutting has a negative impact on performance in other functional areas.

Maximize Value of Information Assets - World-class companies obtain the greatest possible return on their technology investment by maximizing the value of information assets to end-users through data standardization, rich metadata, online information access, analytical capabilities, and alignment of the information architecture with business initiatives such as enterprise performance management.

This is also an area where a investment can lead to significant ROI—provided you do it well, said Dorr.

"Really (it's) leveraging the wealth of data that typically already exists but focusing on the data management side of that. It's very complex but that also means there's a big opportunity. And if you are a little better at this than the next guy, then you have an opportunity to get a better return and that's what we see" in world class companies.