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Organizations across EMEA agree on the need to refocus IT budgets toward IT innovation in order to improve business performance, productivity and profitability, according to a new study conducted by SAP AG (NYSE: SAP). The study looked into IT spend priorities of nearly 500 senior IT decision-makers in eight countries across EMEA, and concluded that a key issue was the division of IT spend among three areas: operations, maintenance and innovation.
A third of companies said that their current IT strategy is too focused on "simply keeping the lights on" in the day-to-day running of existing IT systems. Overall, an alarming 60 percent of companies said that this IT strategy has held them back from investing in innovation. Respondents indicated that they face a wide range of issues that currently prevent them from investing in IT innovation.
The most commonly cited reason was uncertainty about the economy, with 48 percent of respondents believing this was a barrier. In addition, 39 percent stated that too much money is spent on operations at the moment, therefore leaving a deficit in the budget that could otherwise be directed toward IT innovation. The detrimental effect was also viewed as impacting competitiveness, with 38 percent of respondents stating the current spend priorities harmed their competitive position.
Business Implications
Lack of spend on IT innovation is having a negative business impact, with 44 percent of respondents saying it has directly resulted in lack of productivity. Forty-three percent also claim to have lost potential cost savings because of the spend deficit. Additionally, over half of the companies surveyed believe that they would get greater business value if more was spent on IT innovation.
When asked how this lack of IT innovation investment would impact their company over the next three years, one-third of respondents claimed that this would result in lower revenue growth than their business needed, and 38 percent also said it would result in a failure to meet regulation and compliance demands.
"Our research has confirmed that companies continue to spend more of their IT budgets on operations than on IT innovation," said Chris McClain, senior vice president of EMEA and India, SAP Premier Customer Network. "SAP is working with many customers around the world to help them lower their TCO to apply resources toward the innovation that will give them the advantages to grow their businesses and achieve their strategic goals."
Companies Taking Control of Their IT
Many companies are addressing TCO to open the door for innovation, and the survey results are confirmed by businesses operating in every region. For Procter & Gamble Co., one of the world's most admired companies whose brands touch the lives of about 4.2 billion of the 6.5 billion people on the planet, reducing TCO and managing innovation is pivotal for the company and its customers. Having clarity with global processes and creating accelerators for a business with operations in more than 80 countries is essential for delivering on P&G's business strategy, and it pursues very aggressive TCO targets as part of its overall strategy. For example, P&G uses the SAP® Solution Manager application management solution to create a more controlled environment to manage multiple projects in parallel in different systems as part of an effort to reduce cost and risk while facilitating speed. With this approach, the company can translate business requirements into a technical solution, gaining better transparency in processes earlier.
"Today business is about speed and time to market, how to do things cheaper and more complete. Speed is a competitive advantage — IT needs to accelerate those aspects," said Thomas Seibert, P&G Applications Management associate director. "Streamlining business processes with IT and enabling them with accelerators is essential for us. Think of it: if you can bring things to market faster, that's when you're making a difference."
For the Charmer Sunbelt Group, a leading U.S. distributor of fine wines, spirits, beer and other beverages that operates local distributor and/or brokerage houses in 15 markets, IT plays an essential role to support its commitment to suppliers and customers. The company, with leadership that has always viewed IT as a critical competitive differentiator, began an effort to optimize its structure and operations while driving costs down in 2009.
"Fast forward to today, about a year later, and our entire IT structure has transformed," said Paul Flipps, CIO and corporate vice president of Business Services, Charmer Sunbelt. "Looking at our year-to-year operating expenses, we lowered it by nine percent, and are leveraging our talent better than we ever could before. As an example, reviewing our IT scorecard for our service desk clearly illustrates that we have had application delivery resource allocation improve from 38 percent to 70 percent operations to transforming projects in less than a year, demonstrating how well our new structure is working."
About the Survey
The survey was comprised of 487 interviews with senior IT decision-makers including CIOs, IT budget decision-makers, and IT budget holders, conducted across eight countries (UK, Russia, Germany, UAE, France, Saudi, Italy and Qatar).
About SAP
SAP is the world's leading provider of business software(*), offering applications and services that enable companies of all sizes and in more than 25 industries to become best-run businesses. With more than 105,000 customers in over 120 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE, under the symbol "SAP." For more information, visit www.sap.com.
(*) SAP defines business software as comprising enterprise resource planning, business intelligence, and related applications.
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