InformationWeek

December 8, 1997

European 100: Continental Drift

European companies, like their U.S. counterparts, are still figuring out the right mix of technology and business

By Angela Eager

hallenges come in all shapes and sizes. For many U.S. businesses, the biggest challenge is to keep ahead of the competition. That's equally true for European companies. Regardless of location, companies need to know what their competitors plan to do, when, and why. Most of all, they need a strategy so they can make decisions for the long term instead of panicking into short-sighted reactions.

One tool to help them chart their way through the business jungle is IT. When properly understood and implemented, technology can make the difference between mediocrity and leading the market. In Europe as in the United States, there's no question that IT has become an essential tool for business.

Each of the top 500 IT spenders across Europe spends, on average, the equivalent of $144 million a year on IT. Total annual IT spending for these 500 companies amounts to more than $73 billion. They employ 365,919 IT staffers and invest more than 2% of their annual revenue in IT staff, infrastructure, and projects. This giant IT industry is integral to nurturing the business and technology needs of organizations, staff, partners, and customers.

When you make a strategic assessment of your competition, you're really benchmarking your business. That's one reason behind this InformationWeek survey of the top European IT spenders.

This pan-European report encompasses data from 17 countries. It was carried out by InformationWeek's sister magazines in the United Kingdom, France, and Germany, and with research by Spikes Cavell and Co. in the U.K. They identified the top companies across Europe and ranked them according to their estimated annual IT spending.

To find out who the top European companies are, how much they spend on IT, and how much they spend on IT as a percentage of annual revenue, view the table of Europe's Biggest IT Spenders as a PDF file.

IT is crucial to the long-term business strategy of forward-thinking organizations. The market has matured to the extent that business managers admit IT underpins the business. The technology and products are available, and businesses grasp the strategic implications and understand they must buy and implement them for a specific purpose.

A 'Major Enabler'
As organizations take IT to the heart of their businesses, the experience of John Weston, one of two group managing directors at British Aerospace in Farnborough, England, is increasingly common. Of the development of BA's corporate IT strategy, he says, "We have moved from a cost-cutting mode into one where the business as a whole looks at IT as a major enabler and a strategic tool in our business-process improvement."

Similarly, Abbey National's financial and investment-services group turned to IT to replace a people-intensive system for processing customer mail with an automated workflow system. The business driver: the need to keep up with growth in its business. "Three years ago, the company decided that automating this process was the only way to cope with the rapid market expansion," says Heather Knight, a business consultant at Abbey National in London.

IT Backbone
Some companies could not exist without their IT backbone. Telephone banking, pioneered in the United Kingdom by First Direct, a subsidiary of Midland Bank and part of HSBC Holdings plc in London, would not have been possible without call-center technology. Today, British organizations such as First Direct, the Royal Bank of Scotland, and Barclays are going one step further with the introduction of PC banking.

The type of competition organizations face is another factor that has led to the turnabout in the way IT is perceived. Not long ago, competition was based largely on geographical location. Today, it's global. The Internet has played a major part in that change for l arge and small businesses alike. The Net has made international boundaries almost meaningless, and has made the pressures of competition more intense. The European Monetary Union and year 2000 compliance have also helped IT present a respectable face. Externally generated, these problems are forcing organizations to look at IT in a business context.

Whenever we talk to IT departments about their role, without fail they say that IT is a key business driver. They also add that IT departments have to proactively step out of their traditional niche to anticipate the needs of the businesses. Only in this way can they fulfill their role as IT providers within acceptable time and cost parameters.

Also, IT technologies and strategies constantly impinge on each other. This is another sign that IT is being used strategically, and not in isolation from the business.

Take Ken Jones, technical operations manager for broadcaster TV3, part of the Swedish Kinnevik group. He says the move to digital TV has presented plenty of opportunities. Predictably, it has also brought problems: More channels don't mean more viewers. To compete effectively in the digital TV melee, TV3 needs to offer more channels without increasing its costs. The company has opted for digital storage as a solution to the problem. As a direct result, it hopes to attract extra business while saving money.

The European 100 survey reveals some clear trends. Regardless of industry sector, the top companies invest broadly the same amount of money in their IT business. Clearly, being a player requires a minimum level of investment for the basic infrastructure and staff.

But beyond the top spenders, there are substantial differences among industrial sectors. If your business is money, then you need to invest heavily in IT to succeed. Industry sectors such as banking, finance, and insurance top the list when it comes to average IT spending per employee. These industries, on average, invest the equivalent of more than $9,100 per person on IT. That far o utstrips industries such as water, hotels and leisure, and building materials, which spend, on average, less than $1,400 per employee.

While IT use depends on the type of business activity, the trick is to use it effectively. As the rankings show, lower spending on IT isn't a guarantee of business failure. In fact, companies that spend a lot on IT but have a low level of IT spending per person probably make effective strategic use of their IT.

The number of IT staffers compared with general-purpose staff shows significant differences across industries. Here, engineering companies are far ahead of the field, with almost 7% of their total staff dedicated to IT. Textiles; oil, gas, and nuclear fuels; and banking follow closely, with nearly 5% of total staff dedicated to IT.

In general, European companies spend less on IT than U.S. companies do. The InformationWeek 500 report published in September showed that the top 500 U.S. companies invest an average of 2.9% of their revenue in IT. By comparison, the top European companies invest an average of just 2.1% of revenue in IT. Also, U.S. companies tend to have a higher ratio of IT to general staff: 3.5%, compared with just over 2% in Europe.

Still, there are similarities. In both Europe and the United States, banking and insurance are the top IT spenders. Similarly, the high-spending business sectors in Europe have about the same percentage of total staff working in IT as do American companies.

When comparing IT across countries, Germany, the United Kingdom, and France top the list of high spenders. But top honors, in terms of the highest-spending companies, go to Germany's Siemens AG, at the top of the 100 list, and the joint U.K.-Dutch operation Royal Dutch/Shell, No. 2 on the list. Our research indicates that both of these companies invested more than $1.4 billion in IT during the year. The U.K.'s Barclays comes in third overall at nearly $1.3 billion.

Looking ahead, where will organizations spend their money, time, and effort? We asked a cross sec tion of European companies to identify the IT areas they plan to invest in over the next three years. The winners: intranets and extranets, closely followed by year 2000 and EMU considerations. The reasons for continued investment in intranets and extranets is the need to improve internal efficiency, create more effective channels to market, and boost customer support, according to the companies we surveyed.

It was reassuring to discover that organizations can resist the lure of technology if the benefit can't be proved. Abbey National looked at its business processes, but didn't alter them to fit in a new technology because the company was unable to prove the benefits would outweigh the disruption.

It's often said that the IT industry has matured. But it would be more accurate to say that the business community has matured and now looks at IT with the proper mixture of cynicism and respect. Companies that have undergone that transformation can begin to take real advantage of IT, while at the same time curbing its excesses. Then IT can truly be put to work for the benefit of the business.

Angela Eager is the editor of InformationWeek 's sister publication in the United Kingdom.

Continue on to, " Best Of Times, Agreed. Worst, Too ?"

Or see related story, " Old Countries, New Technologies ."

View the table, " Europe's Biggest IT Spenders " as a PDF file.

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