Forrester: Companies Cutting Spending, but Not on Services


Wow, am I ever starting to feel like the bearer of bad IT spending news. Hot on the heels of my post from last week about a CIO.com survey showing a growing number of tech executives planning to make spending cuts is a new spending report from Forrester Research that shows cuts are already under way.


According to Forrester, 43 percent of large companies have shrunk IT budgets this year in reaction to the economic slowdown, while 24 percent of companies have halted discretionary spending. North America is the region hardest hit by the economy, with 49 percent of North American companies cutting budgets vs. 31 percent of their European counterparts. (Since the survey was taken in 2008's second quarter, economic conditions there have deteriorated, notes Forrester, so that number has likely grown.)


Not surprisingly, given the credit crunch that has battered the U.S. economy, 49 percent of companies in the financial services sector have sliced their IT budgets, vs. 39 percent in the media, entertainment and leisure industries.


Interestingly, while the CIO.com survey and earlier ones from Goldman, Sachs & Co. and InformationWeek indicated that respondents saw outsourced services as an area in which to make cuts, Forrester finds that demand for services is growing. According to its survey, 45 percent of respondents plan to increase their use of applications outsourcing, while 43 percent will boost their use of infrastructure outsourcing. Forty-three percent of respondents intend to move more work offshore, something that providers in countries like India will be glad to hear.


But, reality check, outsourcing services may not deliver the budget relief that companies expect. Fifty-two percent of survey respondents say cost savings have not met their expectations.


Seventy percent of respondents say they will renegotiate contracts with services suppliers. Says Forrester analyst John C. McCarthy:

With regard to the services sector, the slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly.