The IT Spending Ratio: What Does The Research Say?
Determining what this ratio should be for your company requires knowledge of your industry, the nature of your company's IT division and an understanding of the ratio itself. In news articles and coverage, IT spending is commonly used as a barometer to describe the state of corporate IT departments. To make use of this measure and benchmark your company's IT spending, you will need to consider a variety of surveys and sources to create a reasonable benchmark. Carefully read the examples presented in this article to understand this ratio better.
You may think that this IT ratio is easy to understand and measure, but there are competing ways to define it. For example, a survey conducted by Computer Economics found that "IT operational budgets fell to 1.6% of revenue in 2011 from 1.8% in 2010."
From a management perspective, increased capital spending can be a warning sign or simply indicate that the company is investing a great deal to build new systems (e.g. in the 2000s, Google invested a great deal in building data centers, servers and other infrastructure that form the backbone of the company's services).
In comparison, consider the findings by Gartner, an IT consulting firm, in 2011. The average ratio for companies was 3.5% but for technology intensive industries such as financial services and software services, the ratio can range as high as 6%. Gartner has also found variations in this ratio depending on geography. In EMEA (Europe, Middle East and Africa), IT spending as a percentage of revenue is 4.4%. In North America, the figure drops to 3.5% and in Asia, the ratio is the lowest in the world at 2.9%. In Gartner's view, these regional variations can be explained in several ways. The lower ratio in Asia may be partially due to lower labor costs. However, long term economic growth in China, inflation and increased real wages may erode the price difference between Asia and other regions in the future.