Annual growth in IT spending dropped to 5.4% in the last
quarter of 2006, compared with 6.1% in the previous quarter,
according to the latest research from Kew Associates, in
partnership with Computer Weekly.
But in the face of this decline in spending growth, CIOs and IT
chiefs have been told that the productivity benefits from IT
spending could help bolster the case for increasing IT spend,
rather than cutting back on investment.
The Kew research shows that IT managers feel IT investment helps
improve productivity more than any other business objective such as
improving quality, increasing market share or increasing profit
margin.
And the view is backed by academic research. John Van Reenen,
director of the London School of Economics' Centre for Economic
Performance, said, "There is a lot of evidence that IT spending
does increase productivity. But the main message is that it is not
just IT alone. It is about spending smarter and making changes to
the rest of the business."
Roger Ellis, chairman of the IT Directors' Network and a former
IT director, said productivity was the easiest business measure
when looking for the benefits of IT investment. "If you look at
headcount it is very straightforward. If you are getting though the
same work with fewer people, or if you measure the output per
individual, then IT investment can influence these things."
However, Ellis cautioned that measuring productivity outside of
manufacturing industries was far from straightforward, as quality
of output had to be considered alongside volume.
In the past five years, IT expenditure growth has lagged
productivity growth by one quarter. If a similar trend continues,
UK firms that have cut back on their IT investment might expect to
register a similar drop in productivity growth in the next couple
of months.
Although productivity, or output per worker, has improved in the
UK in recent years, there is still a 27% gap between the UK and the
US.
"To distinguish the effects of IT investment from factors such
as local culture and skills, the LSE has studied how US-owned firms
in the UK performed against their rivals," said Van Reenen. "Not
only did US-owned firms spend more on IT, they also got more
productivity gains per dollar spent on IT."
US-owned firms also changed the way they do business in order to
take advantage of IT investment more rapidly than European-owned
companies, he said.
The Kew research found that the only sectors of the British
economy with improving growth in IT spend are in the production
industries, including manufacturing. While growth in IT spending in
the public sector and the services sectors dipped, IT spending
growth in the production industries climbed to 6% in the last
quarter of 2006, compared with 4.7% in the previous quarter.
Read the LSE
research:
http://cep.lse.ac.uk/textonly/people/vanreenen/papers/ITaintwhatyoudo.pdf
Link to
Kew Associates
Tony Collins' IT projects blog
Against the
current: exploring the challenges of complex IT projects
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