There is a fundamental question in business that is often asked but rarely answered to anyone’s satisfaction – why don’t we see more value from our investment in IT?

Organisations worldwide spent an estimated $3.1 trillion on IT during 2007, according to research group Gartner. And indeed, despite economic concerns, enterprise IT budget growth is still averaging 3.3% for this year, Gartner recently found when polling more than 1,000 CIOs. But the economics behind the business value generated by that spend requires a much closer analysis.

The evidence presented in this Information Age Research Report, conducted in partnership with professional services and consulting firm KPMG, suggests that there is a whole series of barriers that stand in the way of organisations reaping the full benefits of modern IT. Some are technical, but many of the most critical ones centre on business culture and the management of the IT function within the business.

Misaligned

One clear value choke-point is the lack of alignment between IT and the business. In many organisations, the IT function is still seen simply as a cost centre, an overhead. It supports the efficiency of core business processes through email, accounting, salesforce automation, call centres and so on, but it is largely separate from business development, let alone strategy.

What has become obvious in recent years is that unless organisations put in place structures to foster close co-operation, understanding and communication between the business and its objectives and the related IT capabilities needed to deliver those, many of these goals will never be achieved.

Where that has become accepted, organisations have tried to close the gap by establishing teams of business relationship managers that liaise between the two; in other cases, they have taken bolder steps and embedded parts of their IT function within relevant business units to establish deep understanding of the issues and challenges on both sides.

Of course, certain technologies are also seen as key. The application of agile and lean development techniques, for example, is ensuring that the applications delivered by IT fit closely with business requirements. And the adoption of service-oriented architecture is showing that those applications can be much more adaptable to changing business requirements.

In all cases, though, the aim is the same: to ensure that the investment in IT generates business value.

Business changing IT

Not all IT is created equal, however. On the one hand, there is the ‘run the business’ aspect to IT – the systems that power key business functions. These are typically stable, often legacy systems, but they constitute an infrastructure that soaks up 70% to 90% of many IT budgets.

In contrast to that is the IT that has the potential to change the business – to establish competitive edge, to generate huge efficiencies, to drive innovation.

In recent years, the goal of many CIOs and IT directors has been to shift that balance: to take the proportion of IT spent on ‘change-the-business’ IT closer to 50%. And this Research Report shows a wide consensus that organisations are spending too much time, money and effort on IT that simply keeps the business ticking over and not enough on exploiting the potential for IT to deliver much greater business value.

Again, certain technologies are changing the balance, but so is the ability of organisations to leverage the global sourcing of IT services.

However, efforts to tap into IT’s capability of delivering value in terms of new business initiatives can all be undermined by one simple factor: a lack of engagement by senior business management.

There are still many organisations where requirements for a new IT-enabled business function are set upfront by senior management and then ‘thrown over the wall’ to IT. In the absence of ongoing dialogue, and with the business constantly changing, the likelihood of the resulting application being what the business actually needs is slim.

Encouragingly, the results of this research show that attitudes are changing, and more business managers are engaging with IT because they see it as the basis for driving growth, profitability and market differentiation. And ultimately that will give a clearer – if still imprecise – answer to core questions about the value the business derives from IT.