Execs Really Want 40% Of Spend For IT Investments

Recession or not, executives want IT to improve competitiveness, not just cut costs, a McKinsey report reveals.
While nearly all companies these days are looking to cut costs, executives would ideally like to spend more on new IT investments, especially on innovations that help their companies improve their competitiveness, said a new report by consulting firm McKinsey.

Executives would like to allot up to 40% of their companies' IT spend on business initiatives that help match or surpass their competition, but typically today that allocation is just around 20%, according to the report.

In today's difficult economy, companies are trying to squeeze out costs related to "run and maintain" of IT, however many are also looking to shift those savings into new IT investments that improve the business, said Roger Roberts, a McKinsey partner and an author of the report, IT's Unmet Potential.

The study was based on McKinsey's latest annual IT strategy survey, which was conducted in October and polled 550 executives globally. About half of the respondents were IT executives such as CIOs, and the other half were non-IT leaders, including CEOs.

While companies are looking to reduce IT operating costs, or "keeping the lights on," McKinsey researchers were "surprised" that about four in 10 executives surveyed were hoping to increase new IT investments in the face of the downturn, said Roberts. That's down from 69% of executives that planned to increase new IT investments last year. Still, the emphasis on new IT investments by many companies reflects the realization of the critical role IT plays in business competitiveness.

Based on experiences from the dot-com bust in the early 2000s, many companies are less willing to undergo the "pain and disruption" of severe IT cutting, he said. Many companies realize that the cuts in IT spending in areas that could help businesses grow, become more productive, and more efficient aren't worth the savings, said Roberts.

For instance, the IT funding spent on a new pricing system that can more accurately calculate the best price and discounts for goods sold could have an impact at the business "five times" greater than the tech investment, he said.

In addition to new goods-pricing systems, McKinsey survey respondents are focusing new IT investments on systems to better capture revenue and software that improves back-office processes, Roberts said.

Still, executives say there's still an overall gap in what IT typically delivers and what they'd like IT leaders to contribute to their businesses. That includes "thought leadership" in how companies can enter new markets, as well as support in the creation of new products and services, said Roberts. Unfortunately, many IT leaders still get bogged down on costs, "keeping the lights on," and complying with regulatory mandates, he said. "When you're focused on cost and compliance, it's hard to look at the next horizon of investments."

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