In a study on company size and IT spending, ROI consultancy Alinean Inc. compared the IT spending and performance ratios of publicly traded U.S. companies. The study divided companies into large (those with revenue of greater than $2 billion), medium sized (those with revenue of between $50 million and $2 billion) and small (those with revenue of less than $50 million). Here are some of the findings:
- Small and medium-sized companies often outspend larger ones. The average small company spends 6.9% of revenue on IT. Midsized companies spend 4.1%. Larger companies spent a miserly 3.2% of revenue.
- Companies that invest the most in IT aren’t always the best performers. On average, the most successful small and medium-sized companies were more frugal than the average company when it came to spending as a percentage of revenue.
- The most successful companies, it turns out, are more effective with their investments. Most top performers are conservative in their approach to IT, avoiding large projects and demanding quick investment payback.
In comparison, the findings by Gartner, an IT consulting firm, in 2011. The average ratio for companies was 3.5% but for technology intensive industries such as financial services and software services, the ratio can range as high as 6%.
Gartner has also found variations in this ratio depending on geography. In EMEA (Europe, Middle East and Africa), IT spending as a percentage of revenue is 4.4%. In North America, the figure drops to 3.5% and in Asia, the ratio is the lowest in the world at 2.9%. In Gartner’s view, these regional variations can be explained in several ways. The lower ratio in Asia may be partially due to lower labor costs. However, long term economic growth in China, inflation and increased real wages may erode the price difference between Asia and other regions in the future.