How to turn IT spending into business growth


New York, United States, february 17th, 2014.- Meade Monger, managing director and global leader of the Information Management Services group at AlixPartners, a business-consulting company, addresses the issues that the CFO’s find regarding the IT spending and business transformation, and provides 5 tips to achieve growth with IT.


AlixPartners’ “IT Spending and Return: A Deeper Exploration” study, which was conducted in partnership with Oxford Economics reveals that a full 50% of the executives don’t believe their companies are getting their money’s worth from what, for many of them, has been considerable IT investment over recent years. They are also frustrated with not getting the key insights from IT that enable maximizing business performance, given what they are spending.


“Keep-it-running” projects: IT investments in transacting the business, such as ERP (enterprise resource planning) systems.


One big reason companies are over-spending on IT or spending on it in the wrong places, reports the survey, has to do with governance and discipline around IT programs. For example, 72% said that factors other than a carefully considered business case (such as internal politics or personal persistence to be a “squeaky wheel”) influence the priority and funding of “improve-the-business” IT projects much more often than they should.


Meanwhile, when asked who in their company should have a greater voice in whether to fund IT projects, 45% said sponsors from business or functional units and 2% said the finance function. By contrast, when asked who today is primarily responsible for deciding funding, just 14% said business sponsors and only 7% said the finance function.


When it comes to “keep-it-running” IT spending, 62% of finance executives said that kind of spending is currently either kept at the corporate level (within the IT department) or only partially charged to business units, neither of which may help control such costs. Moreover, 66% said that keep-it-running and improve-the-business IT spending are budgeted together at their companies.


 “Improve-the-business” IT spending: IT investments that can boost a company’s financial performance.


Based the Alix Partners’ survey, Meade Monger recommends that companies implement the following five measures to improve their return on IT:


1. Separate “keep-it-running” from “improve-the-business” IT costs for budgeting, tracking, benchmarking and management purposes.


2. Aggressively drive “keep-it-running” IT costs down each year. The effort should include giving budget responsibilities to corporate IT, prohibiting cost increases that don’t drive business-volume increases, and allocating costs to business units and other functions based on such cost drivers as the number of internal email, application and desktop users.


3. Manage “improve-the-business” IT costs with the same rigor as you do non-IT expenditures for the same purpose. You should budget by the business unit; approach projects from a “portfolio management” point of view; set up a strong governance process that ensures results; and spend only on the strongest business cases.


4. Support IT in coming up with new ways to improve operating profit, including ideas to enable specific business processes to become more flexible, higher quality and lower cost.


5. Closely scrutinize the business cases of large IT projects and make sure that smaller, less-risky alternatives, including targeted “data cubes” and custom analytics, are considered.


Monger says that because both North American and European finance leaders are so focused on investments in “keep-it-running” IT, they may not have turned their attention to the need to make the best use of their “improve-the-business” project portfolios.


The Alix Partners’ expert adds that aggressively driving down the former types of IT costs, CFOs can create a bigger investment pot and apply rigorous portfolio-management techniques to get the most business benefit from growth-oriented IT.


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