Tuesday, March 06, 2007

IT spending as percent of revenue

This is an interesting take on the question of proper IT spending levels. I think it is still important to understand the percentage, but his swapping of the dog and the tail make sense. The business are the dog and the percentage is the tail, not the other way around. Which should do the wagging?

Koch's IT Strategy - Home Page - Blog - CIO
The report identifies three broad ways to manage IT spending: resource management, work management and demand management. But those are basic principles of good governance in any IT organization--keep projects running well, keep infrastructure and people costs under control and have a good spending management process in place. They are necessary whether you are spending 25 percent of revenue on IT, as some financial services companies do, or less than two percent, as some retailers do.

What would really help is a better way of justifying the proper level of ambition of IT in the specific context of the company, its competition and its customers. For example, how information-intensive are the company’s products? How decentralized is the company? Are there obvious opportunities to create new products or business capabilities using IT that could justify being considered over and above the usual IT budget?

Starting with an average number and then trying to justify why internal spending should be higher or lower seems like a terrible way to determine your fate as an IT organization. How about starting with the business strategy of the company and proximity of customers to information products and services and working back to a number from there?

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