Good Versus Bad IT Spending

IT spending is frequently mischaracterized as an expense that should simply be minimized or avoided whenever possible, similar in view to that of office supplies or real estate square footage. In reality, IT spending is often one of the best areas of investment for an organization. Increased IT spending can, for example, significantly enhance employee productivity, provide a better experience for customers, help develop new products, or open new markets.

In many cases, organizations actually spend too little on IT relative to what they hope to accomplish, while simultaneously wasting too much. The dichotomy of needing to spend more while wasting too much is best explained by the concept of good versus bad IT spending. In reality, IT costs are driven by many factors. Most IT spending is desirable if it results in larger reductions in expenditures elsewhere or when it produces the desired level of returns or achievement of intended benefits (good spending).  Some IT cost factors are relational such as headcount and for all intents and purposes cannot be directly controlled (neutral spending). However, some IT spending is simply undesirable when the expense is avoidable or could be reduced through greater efficiencies or other change activities (bad spending).

  Figure 1:  Because IT spending drives value, different sources of IT costs can represent either good spending or, if avoidable, bad spending.

Figure 1: Because IT spending drives value, different sources of IT costs can represent either good spending or, if avoidable, bad spending.

Similar to the factors driving IT spending, activities associated with IT spending reduction may also be desirable or undesirable, depending on their effect on the nature and quality of IT service delivery.

Some cuts, for example, frequently result in little or no impact on technical capability or delivery quality. In other cases spending reductions may actually result in an equal or greater cost elsewhere.  For example, cutting help desk hours can generate more costs associated with lost productivity than it saves.

Organizations with a poor understanding of good versus bad IT spending, little visibility into their spending, or poor spending controls frequently utilize undesirable savings levers due to a perceived lack of options, further weakening the organization’s overall effectiveness.

  Figure 2:  When reducing IT spending, some cuts of savings may be desirable if they reduce waste while others may be undesirable if they reduce capability or service levels.

Figure 2: When reducing IT spending, some cuts of savings may be desirable if they reduce waste while others may be undesirable if they reduce capability or service levels.

The concept of good versus bad IT spending and good versus bad IT spending cuts is a foundational concept every individual undertaking IT efficiency initiatives needs to fully consider. Without awareness, the risk exists that reductions in IT spending will result in a reduction of capability and capacity when better opportunities to cut costs remain unrealized.