6 March 2003 Public companies in Europe are spending almost twice as much on IT as their US counterparts for less return. That is the finding of a recent survey of nearly 9,000 public companies across the US and Europe carried out by Alinean, a return on investment (ROI) consulting and analytical tools company.
According to Alinean, the average company in Europe spends just over 7% of its revenue on IT, while the average US company spends less than 4%. Moreover, it says, US companies are delivering greater profitability gains and cost savings as a result of those investments.
“US companies have made a major shift that puts them far out ahead: They’re using US corporate culture and IT to enable strategic sourcing, cutting labour costs by more than 95% over the past decade to $1.50 an hour,” said Tom Pisello, Alinean’s president and CEO.
“At the same time, they’re keeping crucial R&D work in-house – concentrating the bulk of information management investments on knowledge capital growth and retention – focusing IT spending on the resources that matter.”
The survey also found that the more successful a company is, the lower its spending on IT as a proportion of revenue is likely to be.
According to Alinean, the best companies in terms of business performance, in both the US and Europe, spend considerably less on IT than their rivals. Europe’s best performers spend just over 2% of revenue on IT, while high-performing US companies spend less than 1%.
While the survey makes depressing reading for European heads of IT, Pisello says performance was not universally bad. “It’s clear that US companies are outperforming European firms in spending the same or less to achieve higher results in just about every industry, but averages can be devastatingly misleading – and many European companies are performing well, despite the averages and economic climate,” he said.
Europe’s two top-performing nations, said Alinean, are the UK and Belgium, both of which are heavy users of ‘strategic-sourcing’. In contrast, French and German companies are being held back because local labour laws mean they cannot ‘right-source’ operations to achieve global competitiveness.
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