What determines IT spending priorities?

Abstract

Introduction Global spending on Information Technology (IT) continues to grow and is expected to reach $1.66 trillion in 2009. In addition, IT represents a large (40--45%) and stable share (in nominal dollars) of firm spending on equipment and software. As CIOs and IT managers attempt to budget these large IT expenditures they must help the business align IT spending with business strategy and prioritize IT investments in conjunction with business goals. When prioritizing IT spending managers often compare their own IT spending priorities with those of other firms. That is, "Every year, CIOs and their finance people get prepared for the following question from their CEOs: "How does our IT spending compare with our competitors?" In an effort to help firms benchmark their IT spending priorities, we surveyed 1,495 business leaders in Alabama, Arizona, Colorado, and Texas during the 4 th Quarter of 2005 to examine the firms' IT spending priorities across business functions (such as, administration; production and distribution; customer relationship management; research and design; managerial decision-making; and security) and the impact of firm and industry characteristics on these priorities. While previous studies examine IT spending from different perspectives, we are not aware of any work that examines the factors that determine how firms allocate IT expenditures across business functions. Empirical analysis of this survey data shows that the highest IT spending priorities of the respondents are in the areas of administration and production and distribution while the lowest priorities are in the areas of research and development (R&D) and security. In addition, the analysis shows that factors such as industry type, firm size, and perceptions of the impact of past IT investments on product quality and revenue may differentially affect the allocation of IT expenditures across business function categories. For example, the results show that: • Service firms are more likely to rank IT spending in support of R&D and security as their highest priority. • Small firms are more likely to rank IT spending in support of security as their lowest priority. • Firms that have leveraged past IT expenditures to increase product/service quality are more likely to rank customer relationship management (CRM) as their highest IT priority. • Firms that have leveraged past IT expenditures to increase revenues are more likely to rank managerial decision-making as their highest IT priority.