NEW YORK (March 5, 2013) – At a time when Big Data and other cutting-edge information technology (IT) is being actively evaluated in boardrooms everywhere, 57% of senior finance executives at large and midsized North American companies say their companies are either “fair” or “poor” at ensuring that such “improve-the-business” IT projects are actually yielding expected financial returns. And almost none (3%) rate their companies as “excellent.” That’s according to a new survey of more than 150 senior finance executives by CFO Research in collaboration with AlixPartners, the global business-advisory firm.
The survey also finds that more than two-thirds of financial executives (66%) give their companies a “C” or “D” when it comes to measuring financial returns from discretionary IT projects, such as Big Data ones, designed to improve or add to a company’s business and profits. (Only 5% gave their companies an “A.”)
Meanwhile, at the other end of the IT spectrum, the survey reveals that “keep-it-running” IT costs – non-discretionary support and maintenance systems – are cannibalizing funds available for business-improving IT.A plurality of respondents (49%) estimates that, over the past two years, their company has maintained approximately a 70-30 ratio of keep-it-running to improve-the-business IT spending, and of that amount, a solid majority – 63% – believes that their company’s spending is weighted too heavily toward keep-it-running IT services, and that a greater share should be directed to improve-the-business IT projects.
The survey also shows that, despite massive IT investments in recent years, companies aren’t getting enough of the kind of information they need to successfully run and grow their businesses. In fact, no less than 71% of the executives polled say their companies should have access to more robust business information for the money spent on IT. In addition to desiring more robust information on product profitability (cited by 42%) and customer profitability (41%), there was also strong interest in having better access to information about customer acquisition (33%), revenue (32%), price elasticity (31%), customer attrition (29%) and promotions effectiveness (25%). “The message from CFOs and other senior finance executives is loud and clear – companies are spending too much on IT, and they’re not getting the business information that they truly need,” said Meade Monger, managing director at AlixPartners and co-lead of the firm’s Information Management Services unit. “This survey should be a sobering wake-up call for managements everywhere, especially those considering expensive IT projects of any kind. At the very least, they should be doing rigorous proof-of-concepts before implementing any new project, and perhaps looking at bridge solutions before diving head-first into a new project.”
One big reason companies are over-spending on IT or spending on it in the wrong places, reports the survey, has to do with governance and discipline around IT programs. For example, 72% of respondents said that factors other than a carefully considered business case (e.g., internal politics, personal persistence/willingness to be a “squeaky wheel”) influence the priority and funding of “improve-the-business” IT projects much more often than they should. Meanwhile, when asked who in their company should have a greater voice in whether to fund such projects, 45% said sponsors from business or functional units and 28% said the finance function. By contrast, when asked who today is primarily responsible for deciding funding, just 14% said business sponsors and only 7% said the finance function.
By the same token, when it comes to “keep-it-running” IT spending, 62% of finance executives say that kind of spending is currently either kept at the corporate level (within the IT department) or only partially charged to business units, neither of which is necessarily optimal for controlling such costs. Moreover, more than two-thirds of those surveyed (66%) say that keep-it-running and improve-the-business IT spending is budgeted together at their companies.
“IT that’s not helping grow the business should always be treated as a cost to be managed, and not directly allocating those costs to users makes it that much harder to manage them,” said Bruce Myers, managing director at AlixPartners and co-lead of the firm’s IT & Applied Analytics Practice within the firm’s Information Management Services unit. “By the same token, comingling budgets for both kinds of IT too often leads to the cannibalization of new, high-value-add IT spending for low-value-add, but entrenched, IT spending.”
A report also released today by CFO Research and AlixPartners, “Maximizing the Value of Information Technology: CFOs Dissect Their Companies’ Spending and Return on IT,” contains five specific actions companies can take to improve their return on IT. Those actions include:
- Separate “keep-it-running” from “improve-the-business” IT costs for budgeting, tracking, benchmarking, and management purposes.
- Aggressively manage “keep-it-running” IT costs down each year, including by giving budget responsibilities to the corporate IT organization, not allowing cost increases absent business-volume increases, allocating costs to business units and other functions based on cost drivers (e.g., number of email users, application users, desktop users).
- Manage “improve-the-business” IT costs with the same rigor as non-IT expenditures for that same purpose, including budgeting by the business unit, approaching projects from a “portfolio management” point of view, establishing a strong governance process that ensures results and spending only on the strongest business cases.
- IT, supported by the finance function, should be proactive in coming up with ideas for improving operating profit, including ideas to enable specific business processes to become more flexible, higher quality and lower cost.
- Companies should ensure that the business cases of large IT projects are closely scrutinized, and that smaller, less-risky alternatives are considered, including targeted “data cubes” and custom analytics.
The survey findings and report conclusions will be presented by Meade Monger and Bruce Myers of AlixPartners at 10:40 a.m. EST on Tuesday, March 5, at the “CFO Rising East” conference, sponsored by CFO magazine, in Orlando, Fla.
About the Survey
The Maximizing the Value of Information Technology survey was conducted in January 2013 by CFO Research in collaboration with AlixPartners. A total of 153 complete survey responses were gathered among senior finance executives at large and midsized North American companies from 16 broad industry sectors. The executives included chief financial officers, executive vice presidents of finance vice presidents of finance, controllers, treasurers and directors of finance, among others. The study sought to understand how finance teams gain insight into their companies’ spending on IT, measure the return on their IT investments and perceive the business benefits their IT systems provide.
About CFO Research
CFO Research is the sponsored research group of CFO Publishing LLC. CFO Publishing LLC, a portfolio company of Seguin Partners, is the leading business-to-business media brand focused on the information needs of senior finance executives. The business consists of CFO magazine, CFO.com, CFO Research, and CFO Conferences. CFO Publishing's award-winning editorial content and loyal, influential audience make it a valued resource for its readers as well as an effective marketing partner for a wide range of blue-chip companies. CFO Publishing has long-standing relationships with more than 500,000 finance executives.