'Frugal' IT investors top best-performer list

Computerworld - Playing off the old axiom that "it's not how much you spend but how well you spend it," an IT consulting firm says an analysis of 7,500 companies shows that the ones with the best-performing IT investments are often those that are the most frugal spenders.
But some CIOs and analysts this week questioned the validity of trying to draw correlations between the success of IT investments and IT spending as a percentage of revenue, as the study by Orlando-based Alinean LLC does.
The yearlong study, which drew upon IT investment and corporate performance data gathered by Standard & Poor's, was released late last month by Alinean. The consulting firm used common financial calculations, such as economic value-added measurements, to determine the financial performance of the companies relative to their IT spending. Alinean followed that up with individual surveys of more than 200 companies.
According to Tom Pisello, Alinean's president and CEO, a company's competitiveness and the financial strength of the industry it's in are the biggest indicators of the kinds of returns its IT investments will generate. For example, technology, telecommunications and steel-making companies that have been hit hard by the sluggish economy are generally the lowest-performing companies in Alinean's index, partly because their revenues have sagged and spending on new IT initiatives has been curbed, Pisello said.
But there have been a few exceptions, he said, including well-managed companies such as Dell Computer Corp., which is "extremely frugal" in its IT spending as a percentage of revenue. Overall, Pisello said, while the average company spent 3.7% of its revenue on IT this past year, the top 25 performers analyzed by Alinean invested a scant 0.8% of revenue on technology.
In addition, the companies that spent the most on IT typically underperformed their best-in-class peers by up to 50%, according to Alinean's research. That maps, to some degree, with findings released last month by Cambridge, Mass.-based Forrester Research Inc. According to the Forrester study, the top-performing companies in terms of revenue, return on assets and cash-flow growth spend less on IT on average than other companies.
But Jon Carrow, director of global IT sourcing at Wyeth Pharmaceuticals in Wayne, Pa., said IT spending levels often are dependent on a company's business model and whether it's in growth mode or retrenching. "I don't think there is a 'right' number for that," Carrow said, referring to IT spending. "It's specific to each company."
"There are too many variables between companies to draw conclusions on IT spending," agreed Chip Gliedman, an analystat Giga Information Group Inc. in Cambridge. For example, one company could spend more on marketing one year and cut back on its technology investments, "while another might spend more on IT," he said.
Pisello admitted that IT spending and the results it generates aren't always black-and-white. For example, he noted that technology vendors such as Dell, IBM and Lexmark International Inc. all tend to be thrifty IT spenders. But Oracle Corp. spends considerably more on internal IT as a percentage of its revenue, Pisello said, "and that works better for its business model."

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