I’ve been seeing a mushrooming of requests from Forrester’s CIO clients for IT spending benchmarks. These CIOs attempt to defend their budgets against repeated requests to cut, cut, cut. Their hope is that a spending benchmark will show that their budgets are reasonable given their size and industry – giving them ammo to fend off perceptions that “our IT spending must be too high.”
What I tell these CIOs is that spending benchmarks are only a first step in determining the appropriateness of IT budgets – and not a simple one at that. The reality is that a benchmark tells you only what you are spending in relation to the average of a group of ‘similar’ companies. (see Forrester’s “US IT Spending Benchmarks For 2008”). It really tells you nothing about whether it is the right or wrong amount, whether it’s being spent on the right things, or what benefits you are getting from this investment. And what constitutes a ‘similar’ company is not straight-forward: is it just same size/same industry? Same georgraphy? Same business operating model or strategy? Same prospects for growth or contraction? These are all business characteristics, but what about IT characteristics like the degree of automation, use of packaged versus custom software, outsourcing or history of past M&As?