Is IT Spending Slide Slowing?


At this point, IT budget increases seem out of the reach for most. But are the worst of budget cuts over?


A CIO.com economic impact survey administered in May shows sign of stabilization in IT spending. While 50 percent of respondents expect to see budget decreases, that number hasn't changed much from January, when 53 percent anticipated reductions. The numbers expecting budgets to remain flat jumped from 28 percent in January to 36 percent in May. Just 14 percent of respondents anticipate budget growth, down from 20 percent in January and 63 percent in March 2008.


In other good news, fewer respondents said funds allocated to new initiatives would shrink (43 percent in May vs. 49 percent in January), and 34 percent said new project spending would hold steady, up from 26 percent in January. Also, the numbers of tech execs planning to implement cost-cutting measures in the next 6 months dropped in all eight categories..


A recent Computer Economics survey found that 49 percent of IT managers say they expect to spend less than the amount allocated in their 2009/2010 IT spending plans. Just 9 percent anticipate being able to increase their IT budgets.


The Computer Economic survey does offer a few bright (or not grim, at least) spots. While both operational and capital spending are flat, the survey found, at least IT operational spending is declining in step with revenue. The typical company plans to spend 1.5 percent of revenue on IT at the median, the same result as last year. Even after budget reductions, 57 percent of IT managers say their IT budgets are at least adequate to support the business.


Capital spending has suffered more, said John Longwell, research director at Computer Economics, in a recent interview. He told me:

No one is spending money on new systems and upgrades, which is why the vendors are hurting. But everyone needs to maintain their existing systems and try to squeeze a little more productivity out of their operations.

Forty-five percent of companies surveyed by Computer Economics intend to increase operational spending over last year, a number that generally falls below 50 percent only during recessions. These projected spending levels are still ahead of post dot-com bust 2002, when just 36 percent of companies grew operational IT spending. While most sectors are cutting operational spending, notable exceptions include health care, utilities and banking/finance. Though the latter category is a surprise in light of last summer's market meltdowns and resulting cost cuts, banks in the midst of economy-driven acquisitions will need to merge systems, which will drive up IT costs.


IT hiring managers recently surveyed by Dice.com couldn't seem to decide whether more layoffs were coming. A similar uncertainty was seen in the CIO.com survey. While the number of respondents planning to reduce headcount in the next six months fell from 6 percent in January to 4 percent in May, the number who had "no plans at this time" for layoffs also fell, from 60 percent in January to 53 percent in May.


Among the cost-cutting measures already being used by more than 60 percent of CIO.com respondents: postponing discretionary projects (69 percent), renegotiating vendor contracts (66 percent), freezing IT hiring (64 percent) and restricting IT travel and reducing spending on IT contractors and consultants (62 percent each). Forty percent of CIOs are considering on-demand services as a way to reduce costs.


I found the latter figure interesting in light of Longwell's thought that this recession might result in some fundamental shifts in how companies spend their IT budgets. He said:

Recessions can force restructuring that sticks. Will IT organizations come ouf this recession leaner? Outsourcing, SaaS, cloud computing are all strategies that in some way push operational functions from IT shops to outside service providers. You wonder whether the recession will accelerate some of these trends and whether some of the layoffs we're seeing will become permanent. We don't have hard evidence of that yet, but it's a possibility.