IT: do businesses spend enough?

By ROB O'NEILL*

Browsing Gartner Group's website recently, one item that really caught my eye was a study claiming leading edge users of technology spend 11 per cent of revenue on IT.

Gartner's IT Spending and Staffing Survey has identified organisations worldwide considered to be "leading edge" adopters of technology, those considered mainstream and those considered conservative, and benchmarked their IT spending.

Gartner found the average enterprise will allocate 5.27 per cent of revenue for IT in 2001. The last time Gartner conducted this research was in 1998 when enterprises were spending a mere 2.9 per cent on IT.

How things have changed. IT has gone from being a tool for change and cost reduction to being a frontline competitive differentiator. You're either in the game or you are out of business.

Gartner predicts that by 2005 North American enterprises will spend, on average, 10 per cent of revenue on IT and Europeans, 7.5 per cent. Predictably, one of the big IT budget growth areas is e-business. The researcher says that in 2001 about 16 per cent of the average IT budget will be devoted to e-business, but this will grow to between 30 per cent and 50 per cent by 2005.

Locally, Strategic Research has data on 150 enterprises in the Australasian region, with both revenues and IT spending reported. According to this data, organisations here spend on average 3.2 per cent of revenue on IT, a result below Gartner's for 2001 but ahead of the 1998 study.

You could make a big deal about that 3.2 per cent: "Australasia falls behind in IT." However, overall that doesn't strike me as a particularly bad result.

IT spending to revenue is just one measure of technological capability - and quite a one-dimensional measure. From these figures we get no idea how well that money is being used. It also gives no indication of local cost structures.

More worrying is Gartner's prediction of continued rapid growth in IT spending. According to our local survey, IT budgets are static. There are signs of small amounts of budget growth in Australia, matched by a similarly small decline in New Zealand. There is no sign of the massive increase Gartner predicts for the US and Europe. The only region covered by MIS MarketTrends that displayed such a budget commitment was Southeast Asia.

What that means is if Gartner is right, Australian and New Zealand organisations may in the future find themselves at a technological disadvantage unless they commit more resources to IT development.

* Rob O'Neill, an analyst at Strategic Research, can be contacted at robo@strategicresearch.com