IT spending does not equal profit

It appears as though technology has been over-valued by companies involved in the IT ‘arms race’ as a recent report from UK based analyst house, the Butler Group, reveals that IT spending has no direct relation to company profits.

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By  Matthew Southwell Published  July 9, 2001

It appears as though technology has been over-valued by companies involved in the IT ‘arms race’ as a recent report from UK based analyst house, the Butler Group, reveals that IT spending has no direct relation to company profits.

The research, carried out by Butler Group associate Paul Strassmann, shows only a random correlation between IT spending per employee and return on shareholder equity (ROE).

"Spending money on IT guarantees absolutely nothing. The absence of a demonstratable relationship between profitability and IT spending should be seen as evidence that other influences, such as strategic advantages, competitive positioning and leadership's effects are likely to be more decisive than information technologies,” says Strassmann.

According to the report, up to three quarters of the potential 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.

“IT makes well managed firms better and poorly managed firms worse," concludes Strassmann.

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