Selective Spending Key to World-Class Results

By Allen Bernard

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World-class IT executives achieve superior results in part by shifting their spending and staffing priorities away from technology infrastructure and towards application management, software, and other areas, according to new IT Book of Numbers research from The Hackett Group.

Overall, Hackett found that world-class IT executives spend 18% less than their peers and operate with 36% fewer staff, while bringing in projects on time and under budget more than 30% more often.

"These world-class organizations recognize that looking at the full compliment of services and processes that are require to deliver value to the business requires a level of rigor and process discipline and strategic management like never before," said Beth Hayes, a Hackett fellow and senior director of IT Transformation.

Automating and Outsourcing

The research, which will be publicly available on Tuesday, also showed businesses benefit by dramatically increasing the automation of a wide array of routine business transactions, providing operational efficiency and freeing up staff time throughout the organization to focus on more value-added activities.

Reductions in technology infrastructure spending and staffing play a key role in helping world-class executives achieve these results.

World-class executives spend 23% less than typical companies on process costs in technology infrastructure and dedicate 58% fewer staff to it.

These reductions, which are driven in part by increased use of outsourcing and an improved focus on standardization and complexity reduction, enable these executives to focus resources in more strategic, value-added areas, including application management, where world-class organizations dedicate more than half (53%) their internal staff.

"When these organizations are able to shift commodity processing and commodity IT activities to a third party and leverage that third party, it allows them to (focus) management attention, investment dollars, resources, onto some of the more strategic elements such as applications management," said Hayes.

World-class IT executives also spend $1,686 in total technology infrastructure process costs (labor and outsourcing) per end-user, 23% less than their peers, who spend $2,183 per end-user.

The lion's share of the reduction in staffing that these organizations see is also concentrated in technology infrastructure, with only 9.2 full-time equivalent (FTE) staff per 1000 end-users, compared to 21.7 staff for peer companies, a 58% difference.

World-class IT executives allocate staff very differently as a result, dedicating 53% of their internal staff to application management (compared to 38% for peers).

Peer companies, on the other hand, dedicate nearly half their staff (49%) to technology infrastructure, an area where world-class companies dedicate only 33% of their staff.

Applications over Infrastructure

Although world-class executives spend less overall on technology through greater standardization and better governance, they are able to spend substantially more on technology where it matters most -- software solutions for the business.

A key part of how world-class IT executives make this shift is through an increased focus on standardization and simplification. They rely on 29% fewer applications per 1000 end-users and 29% fewer data centers.

They are more likely to use data standards to a high degree across all systems and significantly more likely to have implemented a high level of standards enforcement across hardware, networking, and software applications.

By automating routine tasks, world-class IT executives free up staff time throughout the organization which can be focused on more value-added activities.

For example, companies with world-class IT organizations are 102% more likely than their peers to receive customer orders electronically, 236% more likely to send customer billing invoices electronically, and 220% more likely to accept expense submissions online.

"When you look at peer companies, you see a tremendous contrast with world-class in key areas," Hackett IT Practice Leader David Hebert. "Often they have highly-dispersed, poorly managed architectures that drive greater complexity and increased costs throughout the organization. Some of these companies are struggling just to keep up, and may find it difficult, if not impossible, to make IT investments that reduce their overall costs or improve effectiveness."

Research Methodology

The Hackett Group's research into world-class performance is compiled in its "Book of Numbers" series, which provides senior executives fact-based performance metrics and insights based on Hackett's extensive database of best practices and process metrics in IT, finance, HR, procurement, and other areas.

To achieve Hackett's world-class designation, an organization must score in the top 25% of Hackett's current database in both efficiency (cost and productivity) and effectiveness (quality and business value) output metrics in a given functional area.

For comparison purposes, Hackett also calculates the median results for all non-world-class companies, which are identified as "typical" or "peers." In this way, Hackett defines "world-class" with empirical data, isolating the characteristics shared by today's world-class organizations.