Study: IT doesn’t boost bottom line

Technology has been over-valued by companies that are engaging in an IT ‘arms race’ of spending to outdo each other’s capabilities, an Australian researcher says.

Controversial research by Butler Group associate Paul Strassmann has found there is no correlation between IT spending and profits.

Strassmann said the overwhelming evidence reverses conventional assumptions that increased IT spending leads to increased profitability.

The research, Technology and the Bottom Line, shows only a random correlation between IT spending per employee and return on shareholder equity.

“Spending money on IT guarantees absolutely nothing; other influences such as strategic advantages, competitive positioning and leadership are more decisive than IT,” Strassmann said.

“Up to three-quarters of the decisive influences on profitability concern strategic choices that even very large investments in computing cannot address or solve; these include variables like market share, capital intensity and relative customer quality which all display a clear correspondence with profits.”

The group’s chairman, Martin Butler, said technology should be seen in a more realistic light.

Companies need to look beyond the hype to see exactly where IT is affecting the bottom line, Butler said.

“This degree of close scrutiny seems to confirm the growing suspicion that IT’s contribution is favorable only if a business is already well managed. IT makes well-managed companies better and poorly managed companies worse,” he said.

Compaq information officer Matt Gracey disagreed with the findings, pointing out that faulty IT architectures can create serious downtime problems.

However, in simple terms, he agreed that management makes a company profitable, not its technology.

“However, if I’m dealing with a company that has cheap IT, I might expect poor support and services; the bottom-line focus is the customer,” Gracey said.

Greg Carvouni, chief information officer of the New South Wales Roads and Traffic Authority, said IT spending might not be effective if it is not supported by organizational changes.

“Sometimes you see a strong CIO who takes charge and runs (ahead) without the company following,” Carvouni said.

“I’ve seen a lot of companies that have stalled after a major implementation because they didn’t do enough research, for example, the vendor is not up to speed and can’t provide the support, and I guess you would have to say that these are failed projects. It is important for companies to wait for vendors so that they are able to move forward with you.”

The Butler Group, in East Yorkshire, U.K., can be reached at