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PA Consulting Group’s international survey of senior IT executives - ‘Getting out of the cost box’ - shows that while 85% of CIOs agree that the perception of IT has improved across the business, their ability to realize long-term value from IT is weak.

CIOs may have improved their ability to manage IT costs over the last two years but they are struggling to manage new investments in IT. As many as 65% of respondents reported having successfully reduced or controlled IT costs, often by renegotiating suppliers’ contracts. But PA’s survey - published July 2004 - highlights the difficulties CIOs have in achieving value from future IT investments: 64% of respondents strongly agree that IT projects are linked to business need, but their ability to create business value from these IT projects is less convincing.

David Elton, senior IT strategist at PA Consulting Group, said:

“If CIOs are to live up to the higher level of confidence that they currently command, they need to do more than control their IT spend. If they don’t work out how to define and deliver on the business case for new IT - and our survey says they haven’t - they risk another cycle of business disaffection.”

PA’s findings point to five key weaknesses that CIOs need to address:

1) Confidence in business cases is low
64% of CIOs strongly agree that IT projects are linked to business need, but only 36% of respondents strongly agree that their organization produces clear business cases before embarking on any IT projects.

2) Risks are not understood
CIOs have low confidence in the ability of their organizations to manage the risks arising from business change, with only 21% strongly agreeing they manage risk well.

3) Technology-led projects deliver less value
Savings made through ‘pure’ IT or technology-led projects are significantly lower than through improved commercial management of IT supply. 73% reported savings from contract renegotiations but savings from replacing legacy systems and implementing best of breed packages were significantly lower at 47% and 28% respectively.

4) Sourcing strategies do not reflect market trends
In making procurement choices, organizations are not distinguishing between commodity and specialist requirements and in some areas their approach seems upside-down. For infrastructure purchases, the most favoured method (44%) is to use a preferred supplier, but commoditization of the market means that greater value for money could be sought. For business-specific applications, 92% of respondents agreed that ‘fit with specific business needs’ was ‘very important’, and yet, most respondents (52%) select suppliers via a tendering process.

5) Commonly used measures are not the best indicators of value
Almost all CIOs measure value, but correlation between measurement and perception of value delivered was not clear for all methods. Only 37% of those who used ‘reduced cost’ to measure value agreed that the perception of value from IT across the organization was improving; for those using ROI, agreement was 53%, whereas for those using shareholder value it rose to 93%.

No single response to any of these challenges will guarantee success. However, PA believes that mastering the challenges identified in our report will help the CIO in ‘getting out of the cost box’ and becoming a business leader who identifies and realizes value through technology.

For more information, please contact:

Kerry Harris
PA Consulting Group
123 Buckingham Palace Road
London
SW1W 9SR

Tel: +44 20 7333 5674
E-mail: kerry.harris@paconsulting.com
www.paconsulting.com/IT

Notes to editors

Press copies
Press copies of the report, ‘Getting out of the cost box’ are available from Kerry Harris on
+44 20 7333 5674.

About the research
The survey was carried out between November 2003 and March 2004, through completion of a structured questionnaire.

The survey covers a total of 175 organizations worldwide. All survey respondents were offered full anonymity and were qualified by the researchers as to appropriate positions and responsibilities.

PA: Delivering value

PA Consulting Group is a leading management, systems and technology consulting firm. Operating worldwide in more than 35 countries, PA draws on the knowledge and experience of 3,000 people, whose skills span the initial generation of ideas, insights and solutions all the way through to detailed implementation.

PA focuses on creating benefits for clients rather than merely proposing them. Our work is founded on powerful insights into our clients' issues, and in the private sector in particular, on the need to deliver superior shareholder returns. We help accelerate business growth by developing innovative products for our clients and by the application of emerging technology. We deliver major transformation programmes, mobilize human resources, and manage complex IT and technically-challenging programmes.

PA's results-focused approach is founded on a unique commitment to excellence, value and independence:

Excellence. We are committed to unremitting excellence and quality in every aspect of our work: in our relationships with our clients, in the client assignments we deliver, and in the people we recruit and develop, who enjoy exciting and rewarding careers at PA.

Value. PA's consultants bring an intense focus on delivering value through deep industry insight, the development and application of technology, and our culture of respect, collaboration and flexibility in working with clients.

Independence. PA is independent of outsourcing, software, hardware and audit providers. We are the pre-eminent client-side adviser on IT and outsourcing projects, and deliver, in partnership with our clients, business solutions tailored to our clients' needs, rather than solutions pre-determined by commercial alliances. As an employee-owned company, we are answerable to our clients and to ourselves only.

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