UK firms could improve productivity by 10 per cent through better investment in technology and greater IT innovation, according to research.

A survey by consultancy Capgemini suggests that companies that innovate through IT instead of seeing the department as a cost centre achieve higher margins.

Capgemini Consulting vice president Andrew Taylor says many firms risk falling behind those that use IT more innovatively.

‘There’s only so much cost you can squeeze out of an IT budget,’ he said. ‘Firms that spend those savings on IT innovation, near the strategic, planning and conceptualisation stage of how to align IT with business goals, have a proportionally higher value and can deliver revenue uplift and greater margins.’

Taylor says the UK is the best positioned country in Europe to take advantage of productivity gains from innovative reuse of IT spending because of greater use of offshore outsourcing.

The UK outsources eight per cent of IT operations overseas, compared with a European average of two per cent.

The survey suggests that this figure will grow to 24 per cent in the UK by 2008, compared with only five per cent in Europe.

The 161 European chief information officers (CIOs) surveyed said they spend 87 per cent of budgets on low-value, back-office tasks such as support.

Only five per cent of an average European company’s IT budget is spent on strategy and planning, while eight per cent goes on conceptualisation and design.

‘As the IT department releases cost from the business, it should be asking the business what it is going to do with it,’ said Taylor. ‘CIOs should push the business to let them invest to generate more savings or drive revenue.’