By Dexter Duncan
How much should you spend on IT? You have computers, servers, internet, document management, voice mail and other types of IT spend, but how do you tell if you are paying too little or too much? Whether you are a large enterprise or a small business, the cost of IT is either a necessary evil or a necessary advantage. IT spend is strategic when you have a unique advantage in delivering solutions through software or better KPI information through IT integration. Regardless of whether your IT spend is strategic or not, we recommend all business owners or GM’s to review their IT spend. Some of the more recent business automation tools such as SharePoint 2013 and CRM 2013 have made it easier to view IT as a strategic spend.
How do you know if you are paying too little or too much? One way is to compare your IT spend against similar organisations in your industry. The below is some indicative data from technology research firm, Gartner Group, which looks across a broad section of companies.
According to Gartner Group, IT spend is related to your business choices around products, processes, organization and service levels. There are multiple ways of looking at IT spend. Depending on changes in your business, growth, volume of work, repetition in tasks, competition, number of employees, regulation and legislation you could spend a heap more or a heap less than the folks with the same revenue and office size across the street.
The below figures are quoted from the 2014 report from Gartner on “IT key metrics data”. First we look at IT spend as a percent (%) of total revenue, then we’ll break down where the money is spent.
IT Spend as a % of Total Revenue
This is at best a rough gauge and does not account for the unique nature of your business. Big picture is that 3.3% of revenue (across industries) is spent on IT. This data is slightly skewed towards top 100 companies. As reported in previous blog on this subject, IT spend for small to medium businesses tends to be higher (between 6-7% of revenue). In general, Banking/Finance, Media/Entertainment, Education, Professional Services and Healthcare tend to spend more than cross-industry average. Conversely, Construction, Food/Beverage, Energy, Retail/Wholesale and Manufacturing tend to spend less than cross-industry average.
IT Spend Specifics
More specifically, the biggest overall IT spend areas tend to be on infrastructure and operations. The % spend varies according to market region, however global average is 56% of IT budgets are spent on infrastructure and operations, 34% is spent on applications and 10% on overhead (IT Mgmt, Finance and Admin).
Here is a breakdown of infrastructure and operations.
- Data Centre (22% to 25% of IT spend)
- End User Computing and IT Service Desk (15% to 19% of IT spend)
- Voice and Data network (14% to 17% of IT spend)
(The above variance is from different market regions. For example, North America spends 23% on data centre, EMEA spends 22%, Asia Pacific spends 24% and Latin America spends 25%.)
Before you congratulate yourself on how efficient you are as CFO or CIO, think about the competitive advantage you are missing by not investing in technology.
Perhaps a better measure of IT health (according to Gartner) is “IT headcount” to free cash-flow. Because “IT systems can integrate processes and information flows which improve end-to-end performance and cash flows”, you may not be spending enough in IT to guarantee the long-term success of your business. Give your local technology partner a call for more information.
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If you have any further questions about managing your IT spend, be sure to contact us.
About the author: Dexter Duncan provides marketing advice and is a Division Manager at Empower IT Solutions. Contact Dexter at dd@EmpowerIT.com.au
IT Key Metrics Data from Gartner Group.