TotalCIO

Apr 28 2009   8:21PM GMT

IT investment in a recession doubles returns, expert says

Rachel Lebeaux Rachel Lebeaux Profile: Rachel Lebeaux

Here’s a take on IT spending that most IT executives will be happy to hear: Companies that make IT investments in a recession will see the financial dividends for years.

“It’s double coupon days for IT investment,” Howard Rubin, MIT CISR research associate and professor emeritus at Hunter College of The City University of New York, recently told IT and business professionals at the Society for Information Management monthly Boston meeting.

If a company invests $10 million now in IT, Rubin said, then another company that waits until better economic times to make that investment will likely spend twice as much to catch up with the business that made the initial investment in a timely manner.

“Competitors won’t be able to afford to catch up,” Rubin said.

The thrust of Rubin’s talk – that IT investment still matters, even in a recession – hinged on the notion that spending on IT vastly enhances a company’s business performance, and the gap between you and the competition goes straight to your financial bottom line.

Each dollar of new IT investment between 2003 and 2004 led to a gross profit increase of $1.47 in 2006, Rubin said, while a 26% increase in cumulative absolute technology spending in the U.S. in 2006 helped drive 114% in absolute gross profit. In other words, IT pays for itself and more.

Of course, in today’s recession, technology spending is colliding with economic conditions, Rubin said. The current high fixed cost of IT in most companies is preventing change, and conventional IT cost-cutting models – outsourcing, offshoring, laying off workers, squeezing vendors, reducing portfolios — have “hit the wall” under pressures to spend less.

“You can take advantage of this time by optimizing what you’re doing,” Rubin said.
This could involve tapping into technologies such as Gmail, or shifting more costs to vendors via new supply chain management models.

But time is of the essence, because your competitors will catch up if you give them the opening. If you can make external partners understand your new scale, he said, you should see rapid IT transformation that benefits the business’ bottom line. And isn’t creating dividends – both now and down the line — what we’re all looking to accomplish, especially in a recession?

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