What a hi-tech waste

Two-thirds of chief executives were unable or had no desire toreports John Stokdyk. measure the contribution information technology made to their bottom line, according to the recent World IT Strategy Census report.

The survey of 500 CEOs, carried out by London School of Economics professor Kit Grindley for research consultancy Compass, asked executives to identify how much of their IT investment was dedicated to establishing competitive advantage, and how much was ‘defensive’.

Only 33% of the IT spend resulted in measured improvements in profit, according to the survey respondents. With the Gartner Group currently estimating annual UK expenditure on IT to be #41bn – projected to rise to #53bn by the year 2000 – huge sums were being wasted on projects that could only be classed as ‘speculative’, said Compass head of consulting Simon Scarrott.

UK executives equalled, and in some cases exceeded, the world average for their ability to measure the contribution IT makes to their business (38%) and the extent to which IT influences their strategic decisions (43%). In common with the rest of the world, senior UK executives estimated that over one quarter of their technology investment was driven by hardware, software and systems suppliers.

‘The results are not surprising,’ said Scarrott. ‘There has been insufficient emphasis put on measuring returns from IT investments. That creates a potential spiral driven through peer pressure and IT supplier influence.’

Scarrott said suppliers try to make the accountability of IT costs as difficult as possible. Unless potential buyers define the criteria of the benefits they expect from new IT systems, they run the risk of making high-cost investments that do not deliver adequate returns.

‘Indications from the data census are that IT investment will increase by 30% by the millennium. Many people will come out of their year 2000 compliance programmes and continue to invest for competitive advantage,’ said Scarrott. But it appeared some buyers were driven by the fear of falling behind rivals.

‘Typically between 7% and 10% of corporate expenditure goes on IT; rising to more than 20% in some financial corporations,’ said Scarrott. ‘If that dominates corporate strategy decisions, I’d try to get a better grip on it.’

Related reading