IT Spending Shifts – Good News, Bad News

Recent surveys by CIO Insight and Tatum LLC show economic conditions are slowing capital and IT expenditures but money remains available for IT projects and critical technologies. Additionally, the average IT spend for ongoing operations amongst those surveyed is in the 51 – 55 percent range, with the remaining funds going to projects.

Focal Points:

• The February Tatum Survey of Business Conditions suggests the economy has entered a period of negative growth that is projected to extend at least through the first quarter 2008. Key indicators such as capital availability and expenditures, employment and order backlogs are all down. According to Tatum, the most telling ratio in the survey compares the portion of respondents who rated overall business conditions as improved versus worsened in the past thirty days. This month the ratio descended to less than one for the first time in the survey's six year history. The survey of C-level executives looks at the indicators for the past 30 days and projected trends for the next 60 days.
• CIO Insight's 2008 IT Spending Survey showed overall IT spending growth is down. Contrary to common perceptions of monies allocated to operational spending, the survey found for companies of all sizes approximately one quarter of IT spending goes to completing current projects and roughly another quarter is allocated to launching new projects. The IT budgets for ongoing operations ranged in average from 51 to 55 percent, with billion-dollar-plus companies spending the least and firms earning less than $100 million spending the most as a percent of revenues. The top five technologies with the largest growth in IT spending in order of ranking are virtualization, customer self-service technologies and applications, open source applications and systems, collaborative software, and storage.
• Additionally, the CIO Insight survey finds 2008 IT budgets are 4.3 percent greater than the actual 2007 IT spending. Security remains a high priority but the commitment to security is not translating to increased spending in 2008, although added funds are going to network monitoring and security management services. Corporate IT budgets are including fewer networking equipment and PC purchases. The amount of data being stored is growing at 43 percent, according to survey respondents, and this is driving spending on storage equipment and storage virtualization. Mainframe expenditures are increasing by 10 percent, which is believed to be attributed to the push for consolidation. IT staffing represents approximately 30 percent of IT budgets for large enterprises and 35 percent for the under $100 million companies.

Experton Group believes companies of all sizes have made great strides in controlling IT spending and are prudently addressing ways to cut costs and fund projects that support key business initiatives. Where business executives are confident IT executive are managing their operations well, IT executives will be given more freedom on how to control their spending. IT spending still remains a concern at most enterprises and with a slowing U.S. economy IT executives will be under more pressure to contain costs. IT executives should examine ways to defer or reduce expenditures, especially in the first half of 2008, communicate to stakeholders and other key non-IT executives progress-to-date, and obtain buy-in for plans and strategies aimed at supporting near-term business needs.