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Technology: ROI from IT Investments Trump Those of R&D and Advertising
Companies that invest in IT are making a smart decision. A recent study by MIT found that companies found a high correlation between investment in information technology and company profitability. The authors of the MIT report wrote that “we found something very surprising: Investment in IT had a greater impact on a company’s profits than comparable spending on either advertising or R&D.”
The authors said that “Information technology can be used to increase efficiency and reduce costs, or it can be used to support sales growth through, say, customer satisfaction and customer retention strategies. We found that in general, IT investments were more effective in improving profitability by increasing revenue than by decreasing operating expenses. In fact, IT investments had a marked positive effect on revenue growth; for example, a $1 increase in IT expenditures per employee was associated in our study with a $12.22 increase in sales per employee.”
Joel Dobbs, President and CEO of Compass Talent Management Group, told Dana Gardner in an interview that “That’s what differentiates the leaders from the laggards — they’re approaching IT holistically as a core part of their business strategy, instead of seeing it as a support function or a back-office function.” Dobbs detailed three best practices to ensure that IT investments are successful. “One of them is really good governance around decision making. The second thing is ownership of IT by the entire executive team. And the third thing is that they’re measuring their return using business metrics on the investments that they make.”
Increasingly businesses are employing tools to measure and track their success. KPIs, or Key Performance Indicators, are used to evaluate the success of a specific aspect of a business. KPIs can help a business improve and grow by targeting and measuring goals which can be either strategic or operational. Dorr said that “Market-leading companies who outperform in revenue over their peers had more clarity within IT about which KPIs were important and had agreement on those KPIs. Everyone is marching and working toward the same goals.”
