The results of a global technology survey of more than 500 chief information officers show stark differences in the stance executives are taking toward technology adoption in the United States, Europe and China.

 

Once early adopters in corporate computing and the Internet, U.S. companies are now falling behind global competitors in driving productivity and earnings growth from technology. This is because U.S. companies use most of their fresh capital to fortify older systems while more companies in Europe and Asia invest in newer systems from the ground up. Newer systems, during this second wave of Internet-based innovations, will simply outperform refurbished ones for two reasons: Technologies have improved substantially in five years, making them easier to implement, integrate and change; and, as a result, more business processes will be online, driving higher levels of productivity.

Though U.S. productivity has been strong, a closer examination reveals a disturbing trend. Employee growth outpaced both revenue and profit growth in the S&P 500 between 2001 and 2005. Average revenue per employee gains lagged total revenue growth by 58 percent. Similarly, profits per employee achieved only 75 percent of total profit growth. In contrast, the companies in the S&P European 350 have kept revenue and profit growth above employee growth. Average revenues per employee for the European S&P 350 grew at 117 percent – the rate of average revenue growth. Profits per employee similarly gained 118 percent of profit growth. In China, productivity growth is more than three times the rate of the United States and Europe.

The results of a global technology survey of more than 500 chief information officers show stark differences in the stance executives are taking toward technology adoption in the United States, Europe and China. When asked whether they want to be a leader in adopting technology or a late follower, only 6 percent of U.S. executives said they want to lead, compared to 15 percent in Europe and 19 percent in China. In contrast, 54 percent of U.S. companies said they would rather be a follower in adopting technology, vs. 44 percent in Europe and 27 percent in China.

Why have U.S. companies changed so dramatically from being adopters to followers? Some executives are still awaiting the returns promised from the first spending wave. Others remember the damage failed projects can have on a career. A project write-off is more likely to trigger a sacking than a steady erosion of profits per employee. Companies today are reluctant to build fresh new systems for the same reasons patients avoided heart surgery 30 years ago. Taking no action, with a 100 percent chance of gradual death, is far more palatable to undergoing a procedure that could deliver a 66 percent chance of sudden death. That is what CIOs face as they, on average, deliver only 34 percent of their projects without cost or time overruns.  Today, heart transplant procedures occur without complications 95 percent of the time, with bypass procedures achieving a 98 percent success rate. If systems projects were as predictable as heart surgery, far more capital would pour into technology.

While U.S. companies are licking their wounds, the Chinese are aggressively forward-investing. Chinese investment in Web services is a “leap-frogging” event similar to the Korean and Japanese adoption of mobile technologies. In Accenture’s research, 70 percent of Chinese companies are committing a major part of their business to Web services, compared to 48 percent for European companies and 42 percent for U.S. companies. As companies begin using these new standards for communicating with other systems, people and companies, they will not only decrease their manual business process costs to one-tenth of their current levels, they will also be able to change features and services in substantially less time and for substantially less money.

U.S. companies may be spending more, but they are not spending better. Spending on Sarbanes Oxley and M&A integration is consuming the lion’s share of discretionary capital. This has delayed crucial new projects and left aging systems to support aging processes, and the first processes are seldom the best.

The best and largest service sector productivity gains are ahead of the U.S. economy. They will, however, come when companies replace, rather than window-dress their current applications. As information technology has become the dominant form of capital expenditure in the United States, we fail to recognize one big difference between a computer system and a tractor. A tractor can, in fact, predictably age and depreciate over five years. By comparison, a computer system, which has no real moving parts, can become obsolete overnight with one download of a competitor’s latest feature. Executives should take a more aggressive approach toward upgrading their technology portfolios.

IT Budget Getting Squeezed?

Survey Findings Give CIOs Ammunition To Respond

For CIOs who are in the midst of negotiating their budgets, or are being squeezed by CEOs looking to cut IT costs, the data reported in Accenture's second global IT performance benchmark research may help them fight back. The survey provides CIOs with the following “snappy comebacks” they may want to use in going to war for the future of their IT budgets:

• “Our customers are last in any line extending out the IT door.” – Customer-facing systems were found, according to the Accenture research, to be among the lowest-scoring and the poorest-performing. In contrast, financial systems scored the highest. Those businesses defined as “high performers,” who allocate the same proportion to customer-facing applications, have invested in new technologies and in integrating customer applications that have met 90 percent of their business needs.

• “Cutting the fat from today's already lean IT budgets cannot be done easily.” – This is similar to dieting. The first 10 pounds are the easiest to lose, but the last 10 are the hardest. Companies have been pulling all the levers since 2001, like offshore, automation and metrics. Reductions today would be about making tradeoffs on who gets refreshed and who doesn't. The 2007 study showed that the overall allocation of discretionary and non-discretionary spending has barely budged compared to 2005. The study also shows that as an organization embarks on new technology investments, it should expect to spend more of its time in IT operations as their optimized IT environment has been disturbed. Although this may look like a step back to IT execution leaders, high performers view this as a necessary step toward business innovation.

• “Potential hires will laugh at our technology.” – A time warp presently exists between their use of technology at work and outside work. The study shows that, for the first time, enterprise technology has fallen behind consumer technology. Companies once led home technology in areas such as voicemail and e-mail. Now, the best technologies are used at home first and the company is struggling to keep up.

• “Consumers expect more and are savvier than ever before - if we don't provide it, someone else will and our customers will vote with their mouse clicks.” – Accenture data suggests that companies are less than halfway to where they think they could or should be in terms of leveraging online interactions with customers, employees and suppliers.
  

Bob Suh is Accenture’s chief technology strategist. He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it