How often do you hear “Are we spending enough on IT?” OK, I admit, the question is actually “Aren’t we spending too much on IT?” When this question is raised, someone inevitably runs to the Internet to perform research on IT spending benchmarks to present to the business leaders that are questioning IT value. But does this exercise really educate us on the value of our IT department?
I have come to the conclusion that IT spending benchmarks, if not used properly, are worthless in most cases and downright dangerous in others. Especially if they are used as a replacement for actually thinking about the organizations needs and strategy.
One problem with IT benchmarks is that often they are not specific to the industry or the size of the organization being analyzed. Different sized companies have vastly different IT spending needs, and different industries have vastly different IT delivery needs. But more importantly, benchmarks are almost always too general in scope to be useful.
If you discover that your average IT spending is in line with “industry standards,” all you are saying is that you have not thought deeply about your expenses or your strategy, but that, if you are challenged, you can justify everything because you are spending about the same as everyone else.
An effective technology leader would not rely on these generalizations, and a smart CEO would never accept them. This would be like evaluating an investment portfolio solely on how much you are investing each month vs. what everyone else is spending.
As with an investment portfolio, a IT portfolio evaluation should include: alignment with stated goals, risk, historical returns, expected returns, diversification, and other goal related metrics.
If you start by examining your IT portfolio as a collection of smaller investments, you can start to ask more intelligent questions. For example:
- Are we spending an appropriate amount on IT to mitigate business risks?
- Is our spending appropriate to support the business’ innovation goals?
- Are our IT investments delivering the expected returns? Why not?
- Do our IT priorities reflect the priorities of the business?
- Is IT making the best use of resources to accomplish specific tasks?
- If we continue investing in IT infrastructure at current levels, can we continue to meet business expectations?
Those are good questions. They are not always easy to answer. Answering these questions will require collaboration between IT leaders and business and finance leaders in the organization. After you ask the right questions, if you find benchmarks to support your analysis, then you have found a useful place for benchmarks. This is the analysis that will expose opportunities for IT to deliver meaningful value to the business.
What questions do you ask when evaluating your IT portfolio? What benchmarks have you found to be useful? Where do you look for benchmarks?
Please share your thoughts, experiences, wins and losses when using IT benchmaks.
– Craig Adams, CIO