Business Value, not Falling Prices, Key to Boosting Tech Spending

Ann All

Back in November, I wrote about the increasingly pessimistic outlooks on tech spending from industry analysts such as Gartner and Forrester Research. As the economy just kept getting worse, theyall scaled back on their earlier estimates. IDC, for example, predicted U.S. spending growth of just 0.6 percent in 2009, down from an earlier forecast of 4.2 percent. It was a bit more optimistic about global IT budgets, calling for growth of 2.6 percent, down from its earlier estimate of 5.9 percent.


But now a new CIO survey from Citi Investment Research indicates IT budgets may shrink in 2009. Writing about the survey, ZDNet's Larry Dignan notes that U.S. CIOs expect their budgets to drop 2.7 percent next year, while Europeans anticipate a reduction of 1.9 percent. While 38 percent of U.S. respondents and 35 percent of Europeans said they believed budgets would remain flat from 2008 to 2009, 32 percent in the United States and 44 percent in Europe foresee declines.


Which areas are most likely to see cuts? Outsourcing looks to be among the biggest losers, with Vista migration the only item respondents flagged as being a more likely candidate for spending deferral than various forms of outsourcing (IT, BPO, human resource accounting and moving work to lower-cost locations).


Not surprisingly, respondents say they are getting price concessions from tech vendors. Half of U.S. respondents mention seeing lower prices on PCs in the past three months. Other hardware following suit: servers, storage, networking gear and printers. Oddly, Europeans reported getting less favorable recent terms on several of the same items, including networking equipment and tape storage.


Forrester Research has a similar take on 2009 budgets. It predictsa decline of 3 percent in global IT spending in 2009, reports, quite a drop from the 8 percent growth in IT spending seen last year. That's in U.S. dollars. The picture changes for the better if spending predictions are calculated using local currencies, weighted for each area's share of the global IT market. Under this system, IT spending would grow 3 percent in 2009 and 6 percent in 2010. Forrester just last month was still calling for spending growth of 1.6 percent.


So, if price concessions aren't enough to get CIOs to open their checkbooks, what is? How about demonstrable business value? While it should always be a consideration in tech spending, a down economy really forces the issue, as I wrote last month. In fact, some CIOs are forgoing the usual tech replacement cycles for this kind of value as they revisit their budgets. As Tony Lucich, chief information security officer and enterprise architect for California's County of Orange, told me in a recent interview:

What was a very structured process is becoming a more flexible one. Before, if we could show a two-year ROI for something, it would have made it to the list. Now we're looking for ROI in months, not years. We're looking for clear business value and justification.

Lucich says his project list, once closely tied to a three-year strategic plan, is now based on a more immediate need to cut costs and avoid them. Some items considered a "nice-to-have" are moving into the "need-to-have" column and vice-versa. For instance, says Lucich, the county is rolling out videoconferencing to cut down on costly trips to the courthouse for prisoner arraignments. Without the videoconferencing, officials were faced with the prospect of adding more prisoner holding areas and deputies at the courthouse and more vehicles to get prisoners there.

Add Comment      Leave a comment on this blog post
Jan 21, 2009 1:55 AM Paul Burns, EMA Paul Burns, EMA  says:
This post nicely captures how economic forces (real or imagined) provide pressure to make better spending decisions. Not only did the quote from Mr. Lucich highlight the need for "clear business value," it hinted at the *attributes* of the value. The desire for faster ROI / faster time to value seems to be on par with the desire for business value itself. It seems many organizations currently prefer to spend on a faster payback / lower returning investment than a slower payback / higher returning investment. There are arguments for both approaches... and the 'right answer' may depend on each company's unique situation. Interesting topic. Reply

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