Report: Top companies spend less on IT, more on outsourcing

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June 11, 2004 (Computerworld) -- The best-performing IT departments typically spend less on technology and personnel and take different approaches to outsourcing than do their peers, according to an examination of 200 customer benchmarks being released Monday by The Hackett Group.
Top-rated IT operations on average spend 18% less per end user on technology and operate with 36% fewer staffers than average companies, according to Hackett's benchmarking study. The information in the report is drawn from an analysis of customer benchmarking tests that The Hackett Group conducted over the past 18 months. The data for this study was gathered in March.
To qualify as a world-class IT organization, participants must score in the top 25% of Hackett's database in terms of both efficiency (costs and productivity) and their effectiveness (quality and value) in functional areas such as data center optimization.
Top-performing IT departments also tend to outsource much differently than most companies, said Allan Frank, a senior fellow at the Atlanta-based consulting firm. Best-in-class companies allot 23% more of their IT spending to outsourcing and spend 60% more than other companies to outsource IT infrastructure activities such as data center management, Frank said. But they spend 34% less to outsource application development and maintenance work, an area in which outsourcing "is a riskier strategy."
The outsourcing findings map with the approach taken by Getronics North America in Tewksbury, Mass. "We do not outsource application development or support because it is strategic to our service value chain," said Timothy Woisin, a regional information officer at Getronics North America, a division of Amsterdam-based IT consulting firm Getronics NV.
Instead, the U.S. unit in January shifted its application development and maintenance work to Getronics offices in Spain and Mexico. Woisin said the move has cut the cost of doing the work by 30%.
Benchmarking at Juniper Networks Inc. helps demonstrate the company's effectiveness at managing IT. The Sunnyvale, Calif.-based networking equipment vendor supports 23 end users per IT worker, or 50% to 100% more than industry averages, said CIO Kim Perdikou.
Juniper's IT group also works closely with business units to make sure that it's closely aligned with their business strategies, said Perdikou. "Having a team of IT professionals who support specific business functions and who understand the goals and issues associated with those functions makes IT more efficient and effective," she said.
In addition, Juniper only outsources "standardized" IT activities "that are clearly outlined and manageable," Perdikou said. Those functions include data center hosting, laptop replacements following acquisitions, and support for off-the-shelf ERP and human resources applications.
Mark Jeffery, assistant professor of technology at the Kellogg School of Management at Northwestern University in Evanston, Ill., said hewas surprised by The Hackett Group's findings. "It's not uncommon for large companies to spend less per end user on IT, not only if the IT department is well run, but also because of economies of scale" that larger companies can achieve compared with smaller firms, said Jeffery.

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