InformationWeek

September 22, 1997

Waste Is Expensive

Study: Inefficiencies account for IT spending disparities

asteful practices are a major reason why some companies spend up to 10 times as much as others on IT per employee, according to a study being released this week by Deloitte & Touche Consulting Group.

For mainframes alone, Deloitte & Touche found that per-employee spending averaged $359 a year among the thriftiest 25% of companies surveyed. At the other end of the scale, the biggest-spending 25% paid $3,458 a year-or nearly 10 times as much-on average on mainframe technology per head.

Similar differences were found in other areas, including client-server and year 2000 projects. Yet a similar mix of mainframe and client-server systems was deployed at both high-spending and low-spending companies.

To a degree, big-spending companies can afford it-they have about 20% more revenue per employee than low spenders, according to Charles Nunamaker, a senior partner at Deloitte & Touche and author of the report. Also, high spending at banks and insurance companies reflects intense IT demands.

But Nunamaker attributes most of the difference between high- and low-spenders to inefficiencies, not intense IT needs. His study found four major patterns among high spenders: lack of centralized control, leading to duplication and complexity; weak business cases for custom development; failure to strategically manage IT deployment; and poor human resources management in terms of training, recruitment, and mitigating job-related stress.

Spending disparities may be "a function of control, budget management, and technology selectivity," says William Howard, VP of IT at Inland Steel Industries Inc. in Chicago. "It's the usual story of what's measured gets managed." Inland Steel closely monitors developers' productivity, for instance-and spends less than 1% of total revenue on IT, Howard adds.

According to the study, low spenders lag somewhat in some areas, such as Internet-based E-mail. But low spenders were more aggressive than high spenders in electronic data interchange (EDI), where Internet technologies can cut processing costs for high-volume transactions.

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