Spending money to make money just ain't so

Spending money to make money just ain't so

Technology has been over-valued by companies who are engaging in an IT "arms race" of spending to outdo each other's capabilities.

Controversial research by Butler Group associate Paul Strassmann has found there is no correlation between IT spending and profits.

Strassmann said the overwhelming evidence reverses conventional assumptions that increased IT spend leads to increased profitability.

The research, Technology and the Bottom Line, shows only a random correlation between IT spending per employee and return on shareholder equity.

"Spending money on IT guarantees absolutely nothing; other influences such as strategic advantages, competitive positioning and leadership are more decisive than IT," Strassmann said.

"Up to three quarters of the decisive influences on profitability concern strategic choices that even very large investments in computing cannot address or solve; these include variables like market share, capital intensity and relative customer quality which all display a clear correspondence with profits."

The group's chairman Martin Butler said technology needs to be seen in a more realistic light.

Butler said companies need to look beyond the hype to see exactly where IT is impacting on the bottom line.

"This degree of close scrutiny seems to confirm the growing suspicion that IT's contribution is favourable only if a business is already well managed. IT makes well-managed companies better and poorly managed companies worse."

Compaq information officer Matt Gracey disagreed with the findings, pointing out that faulty IT architectures can create serious downtime problems.

However, in simple terms, he agreed management makes a company profitable, not its technology.

"However, if I'm dealing with a company that has cheap IT I might expect poor support and services; the bottom-line focus is the customer," Gracey said.

Greg Carvouni, NSW Roads and Traffic Authority CIO, said IT spending may not be effective if it is not supported by organisational changes.

"Sometimes you see a strong CIO who takes charge and runs [ahead] without the company following," Carvouni said.

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