How much should we spend on IT?

Budget evolution
Budget evolution

Times are tough, as everyone playing in the consulting game would know. The March quarter Westpac pulse survey shows business is generally getting more optimistic, but this has not translated into increased sales and revenue. Organizations have streamlined and cut back on costs over the last 3 years and the IT department has participated generously in this (with another 10% cut in overall expenditure last year).

Is it still reasonable for executives to ask whether there are further cost savings available? The answer is of course yes and no. To illustrate I have taken a graph published by MIT’s CISR – a fantastic resource for IT research. The graph represents the IT spend graphed against technology maturity. In this case they measure maturity in the effectiveness of an enterprise architecture.

The baseline is 100% for an IT Department in an immature organization. This is typified by different services being offered to different parts of the business and dispersed infrastructure. If you are in this position you are definitely spending too much on IT.

A solid effort on standardizing hardware and software, consolidating infrastructure and improving procurement will deliver a 15% saving. The next 10% comes from standardizing and simplifying business processes onto core enterprise systems.

The surprising outcome is where businesses go next. Once the IT monster has been tamed inside the IT department and the business, organizations become more comfortable about investing in IT. They actually increase their IT spend as it delivers real business value and the IT budget ends up 20% higher than when they started.

So where do you think your organization is on the maturity curve?

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