Hackett: World-Class IT Organizations Spend 10 Percent More Than Peers, Pay More for Talent, and Deliver Better Strategic Support
Leaders Have Also Dramatically Increased Focus On Shared Services and Outsourcing
September 27, 2005 - World-Class IT organizations now spend 10 percent more than typical companies, and have fully-loaded IT wage rates that are 32 percent higher than their peers, according to 2005 Book of Numbers(C) research from The Hackett Group, a business process advisory firm (NASDAQ:ANSR).
This is the first time in recent years that world-class IT organizations have spent more than typical companies. According to Hackett, the research data indicates that this increased spending is being driven by world-class IT organizations restructuring their workforces, enhancing the skill and experience level of their staff to improve their ability to deliver competitive advantage and provide strategic support. Typical companies have made only modest improvements in these areas.
The first look at Hackett's 2005 Book of Numbers analysis also finds that while typical companies have not significantly increased their use of shared services and outsourcing, world-class IT organizations have dramatically increased their focus in these areas. World-class IT organizations now report they have moved most of their technology portfolio to shared services, and spend significantly more than typical companies on outsourcing in key areas. World-class companies have seen a 168 percent increase in spending on outsourcing in infrastructure management and a more than 400 percent increase in spending on outsourcing in application management over the past three years.
The Hackett Group is a world leader in best practice research, benchmarking, and advisory services that empower executives to achieve world-class enterprise performance. Hackett offers analysis and insight backed by metrics derived from 3,300 benchmark studies over 13 years at nearly 2,000 of the world's leading companies, including 93 percent of the Dow Jones Industrials.
"More than any other support function, IT has the potential to drive competitive business advantage. But at typical companies, IT is too busy just 'keeping the lights on.' Most CIOs appear to be simply ignoring business challenges in terms of the way they run their IT operations," said Hackett IT Research Leader David Hebert.
According to Hackett Senior Director, IT Research, Scott Holland: "World-class IT executives are making major changes, building a smarter, more skilled workforce of managers and professionals that can deliver business value. They are finding ways to control and reduce spending on routine operations, in part by moving transactional activities to outsourcers, and freeing up budget to increase capabilities in areas such as customer service, supporting new business models, and enabling interoperation within different parts of the business with end-to-end processes. In addition, the success they've had at providing real strategic advantage has in some cases helped them convince management committees to increase IT spending. Taken together, this is why we're seeing a reversal, with world-class IT organizations now spending more than their peers."
According to Hackett's research, world-class IT organizations now spend 10 percent more than typical companies on IT ($9,617 versus $8,715 per end user). World-class IT organizations now rely on 28 percent fewer staff than typical companies (26.5 versus 36.8 IT staff/thousand end-users). However they show fully-loaded wage rates that are 32 percent higher ($119,383 versus $90,766/IT staffer). This wage rate gap has grown dramatically over the past two years. At the same time, world-class companies are seeing turnover rates for professionals and managers that are 84 percent and 150 percent higher than typical companies, respectively.
In conjunction with these staffing changes, world-class IT organizations are also showing much more strategic use of sourcing alternatives than typical companies. World-class companies now dedicate nearly half of their infrastructure management process costs to outsourcing. World-class IT organizations spend $924/end user in this area, 69 percent more than typical companies, and have increased their spending by 168 percent since 2002. In application management, world-class companies now dedicate more than 20 percent of their process costs to outsourcing. They spend $450/end-user in this area, 91 percent more than typical companies, and have increased their spending by over 400 percent since 2002. In contrast, the combined outsourcing spend of typical companies in these areas has remained flat over the past three years.
World-class companies are also now making much greater use of shared services than typical companies, having moved nearly 90 percent of their technology portfolio to a shared services environment.
Hackett's 2005 Book of Numbers research also clearly showed that companies that achieve world-class status in other key SG&A areas leverage technology more effectively than typical companies. For example, while world-class finance organizations spend 39 percent less than their peers on technology, they make better use of technology and have simplified and optimized their infrastructure, relying on just one enterprise-wide finance platform while typical companies rely on two. In HR, technology plays a key role in helping world-class companies operate with 14 percent fewer transactional staff than typical companies. World-class procurement organizations also turn to technology to reduce labor requirements, and streamline both low- and high-value processes. Procurement staffs at world-class organizations, aided by technology, are able to process over four times more orders per procurement employee annually than typical companies at 61 percent lower cost per purchase order.
The Hackett Group's research into world-class performance is compiled in its Book of Numbers series, which provides senior executives fact-based performance metrics and insights based on Hackett's extensive database of best practices and process metrics in IT, finance, HR, procurement, and other areas. Hackett Book of Numbers volumes are available to members of Hackett's World-Class Programs -- premium-value, membership-based programs providing a tailored mix of benchmarking services, confidential advisor inquiry, best practices research, and peer learning opportunities.
The Hackett Group's website is at .
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