Average company spends 3.4% of revenue on IT

$494 billion Global 500 and Fortune 1000 companies' IT  spending  in 2007, according to IDC. These companies together will have $2.6 trillion to spend on IT over the next five years.

Top-performing companies are consistently more frugal in their IT spending as a percentage of revenue, spending 2.8% while the average company spends 3.4% on IT, according to Alinean's  third annual ranking of the top 200 U.S. companies deriving the greatest value from IT investments (ROIT™) from more than 8,000 U.S. public companies studied. Due to rising energy prices and traditionally frugal IT investment, the energy industry shows up the strongest this year, owning 12 of the top 20 spots.

Top-performing SMBs are spending 2.8% percent of revenue on IT in contrast to the average SMB, which spends 4.8% of revenue on IT. However, on a per-employee basis, leading SMBs spend more than the average – $15,223 per employee, $1,251 more than the median. These leading SMBs utilize technology as a productivity enhancing and revenue generation tool to defer adding head count to meet business needs.  

These leaders have managed to reduce IT infrastructure Total Cost of Ownership (TCO) via consolidation, standardization, and best practices, while more carefully investing IT dollars in new projects that are likely to deliver a substantial return and competitive edge.

2003 leaders averaged a meager 0.8% of revenue spent on IT, while in 2004, spending jumped to 1.6% of revenue and in 2005, to 2.8% of revenue. Average performers and laggards maintained relatively consistent spending levels of 3.5% and 2.7% respectively over the same time frame. 

The SearchCIO 200 ranking gives IT stakeholders an actionable benchmark to compare their own IT performance against that of the most effective public U.S. companies with annual revenue over $1 billion and 1,000 employees or more. To determine ROIT, Alinean compares company performance, measured by Stern Stewart’s Economic Value Add (EVA = net profit – cost of capital * (assets – liabilities)) metric, versus IT spending. This ratio highlights companies that are spending less compared to the shareholder value they are creating.

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