Here’s some good news for IT managers trying to get new projects approved by the CFO: A study has found that IT investments can significantly boost a company’s profits. However, that’s only the case for some kinds of IT spending.
As IT managers know, tech departments often get passed over for budget increases in favor of other areas that are seen as more crucial for producing revenue.
However, investments companies make in IT have a bigger impact on profitability than comparable spending in advertising and research and development, according to a recent study published in MIS Quarterly. The study looked at information from more than 400 companies from 1998 to 2003.
Although IT investments can have a significant positive impact, the effects of IT spending on profits were also more varied than in other areas, researchers reported in MIT Sloan Management Review.
The biggest gains were seen when companies invested in IT projects designed to increase sales growth and revenue — for example, projects that support customer satisfaction and customer retention strategies. For the companies studied, a $1 increase in IT spending per employee for those projects led to a $12.22 increase in sales per employee, on average.
In comparison, researchers found that IT projects implemented to boost efficiency and cut costs had a much smaller effect on profitability.