Better Keep IT Simple

BY ELANA VARON, CIO MAGAZINE

Simplicity is the key to better IT, according to a recent study by The Hackett Group consultancy.

Even though world-class IT departments spend 7 percent more per end user on IT than their peers, they return more to the bottom line through reduced back-office costs, according to the study. These top-notch IT departments accomplish this in part by reducing architecture complexity.

That a streamlined architecture can improve IT operations isn't a new idea. But Scott Holland, senior director with Hackett, found that this practice, among others that promote good IT governance (such as the use of project management offices and service models such as the Information Technology Infrastructure Library, ITIL), contributes directly to financial performance. In companies with world-class IT departments, back-office functional groups such as finance, human resources and procurement were able to save between $2.1 million and $5.5 million for every $1 billion in revenue. Meanwhile, the cost of operating these functions, as a percent of revenue, is at least 13 percent and as much as 45 percent lower than at other companies.

One key factor: "World-class companies buy enterprise systems at the functional level," notes Holland. While Holland acknowledges that it could be a stretch for a mid-market company to invest in an ERP system, "there's a price to enter."

Hackett defines world-class companies as those that fall within the top quartile of the consultancy's benchmarks for efficiency (based on use of resources) and effectiveness (based on skills and processes).

In its analysis of data from about 200 companies, Hackett found that the best performing IT departments deployed 31 percent fewer applications for every 1,000 end users.

They were also much more likely to be operating a single ERP system, especially for financial management.

Simplification of the IT portfolio extends to the technology infrastructure. The top IT shops also use fewer development platforms, fewer databases and operate fewer data centers per 1,000 end users.