Cutting IT cost will hamper productivity: Accenture

The quest to contain spending on information technology frequently backfires, forcing companies and governments to instead increase expenditures on IT maintenance, repairs and other unproductive practices, according to the results of a global study released today by Accenture.

Accenture's 'IT Investing for High Performance' study surveyed CIOs from more than 300 Fortune 1000 companies and similar-sized organisations.

The survey is part of Accenture's ongoing effort to identify the common underlying behaviors and characteristics of high performance businesses. Accenture defines high performance businesses as those that consistently outperform their peers in revenue, profit growth and total return to shareholders.

The study determined that the universal goal of using IT to achieve more with less remains elusive, as survey respondents cited an inability to close the gap between goals and results, despite average IT spending increases of 9 per cent last year.

This paradox stems from what Accenture calls an 'austerity trap,' which lures companies and governments into believing that they can freeze, or even cut, IT budgets while maintaining the same level of service.

The trap forces behaviors such as retaining outmoded legacy systems instead of deploying new technologies, leading to higher costs - both in maintenance and lost productivity - in the long-term. What's more, many companies launch labour-cutting initiatives that also contribute to lost productivity, while failing to achieve the intended savings.

A rise in costly government-mandated compliance requirements and, for some companies, increased expenses associated with the post-merger integration of IT systems has combined with the austerity trap to form a "perfect storm" that is diverting IT budgets, often leaving an inadequate amount of capital for investing in controllable earnings growth and productivity.

"Our study indicates that there is a significant difference in the level of investing versus maintaining between high and low-performing IT organisations," said Bob Suh, Accenture's chief technology strategist and the executive who headed up the study.

"Poor spending quality is characterised by a high per cent of time spent on maintaining and fixing systems versus investing in productivity-driving change."

For example, study respondents reported that 39 per cent of time is spent running and fixing applications, while only 14 per cent of time is spent building new applications.

"More than half of government respondents told us they're spending too much time on fixing their existing applications, and too little time on building new ones," said Marty Cole, Group Chief Executive, Government Operating Group.

"They want to do more. But they're being given about 30 per cent more work with only about 5 to 10 per cent more budget. Consequently, innovation is being curbed and productivity is being undermined."

High-performers don't necessarily spend more on IT. Instead, they better utilise existing systems for functions such as online interactions. For example, just 10 per cent of customer and supplier interactions are online, while only 20 per cent of employee interactions are online yet CIOs believe they can achieve three times this level, according to the study.

"With online interactions averaging one-tenth the cost of traditional processes, the forfeited productivity gains contained in these gaps are enormous," said Suh.

Accenture research results also challenged the widely-held perception that the services industry is more nimble and productive than the older manufacturing sector.

Razor thin margins and increasing labor costs, combined with vulnerability to global competition, have forced manufacturers to better harness IT to lift productivity.

In the absence of similar pressures, the services industry, despite its dramatic global growth, has lagged manufacturing in productivity growth, automation, strategic sourcing and metrics.

An analysis of study findings determined that this "productivity gap" could be closed if the services sector and internal IT functions "industrialized" by adopting practices used in manufacturing, including performance-based metrics, cooperative global sourcing, and investment in plant automation.

In fact, the study identified a correlation between metrics and high performance. While 46 per cent of high-performing IT organisations have access to critical IT performance metrics, only 3 percent of low-performing IT organizations reported having access to the same metrics.

Similarly, 72 per cent said they need metrics to measure "root causes of execution delays on projects" but only 39 per cent said they have access to these metrics.

Yet, when asked what they most wanted, 86 per cent of respondents cited access to performance-based metric tools.

Lead, don't follow

Majority of high-performing IT organisations, 77% , said they want to be early adopters

High-performing IT organisations have a higher technology adoption rate

Technology adoption appears strongest in compliance areas, while weakest in business improvement technologies