McKinsey Quarterly

Getting IT spending right this time

| Article

Who can blame business technology executives if half a decade of overspending on IT now makes them somewhat obsessed by costs? Indeed, companies in much of the world are capping their IT expenditures. Some companies even peg the performance bonuses of chief information officers to how much money they cut from technology budgets.

Yet companies underinvest in technology at their peril—even in lean times. New technology, deployed intelligently, can help organizations make dramatic leaps in productivity and redefine competition within whole sectors, as Wal-Mart and Dell Computer, among others, have shown. The essence of smart deployment is knowing where and when to invest. Which technology expenditures will yield a sustainable, differentiable advantage? Will the bleeding edge of technology bolster a company’s bid to be a leader, or should executives wait until the risks and costs fall? These perennially difficult questions—which hinge on a complex array of industry-specific factors—become even thornier when earnings pressures are high.

Compounding the challenge is the tendency to view technology, first, as a panacea and, then, after the hype proves unrealistic, as anathema. The experience of the leaders shows that new technology alone won’t boost productivity. Productivity gains come from managerial innovation: fundamental changes in the way companies deliver products or services. Companies generate innovations, in fat years or lean, by deploying new technology along with improved processes and capabilities.