SMBs Not as Likely as Big Companies to Scale Back IT Spending

Ann All

Though economic uncertainty has industry analysts like Forrester Research and IDC scaling back their tech spending projections for 2008, it appears that SMBs may be a bit freer with the funds than their larger counterparts.


As I blogged back in December, IDC predicted that SMB tech budgets would increase 8 percent to 10 percent in 2008, compared to spending growth of 3 percent to 4 percent for enterprises. Even with the now-shrinking expectations, most observers still expect SMBs to outspend big businesses.


In a December interview with IT Business Edge, Computer Economics President Frank Scavo says that SMBs surveyed by his company appeared more financially optimistic as they headed into 2008, expecting a 3 percent growth in their tech budgets vs. 2 percent for larger companies. Scavo said:

... smaller companies tend to be higher-growth companies to begin with, which might make them tend toward IT spending slightly more than larger companies, which are not as fast-growing. ... I know many smaller companies tend to be young, while larger companies might be more sensitive to the overall economic cycle. Overall, they're all being conservative. This 2.5 percent increase is the lowest number we've seen since 2004, when essentially IT budgets were flat from the previous year and that was at the tail end of the last recession.

A CIO Insight report detailing results of a reader survey echoes Scavo's contention about smaller companies (annual revenues of less than $500 million) being more growth-oriented and thus less likely to scale back their spending plans this year. Some of the more interesting trends highlighted in the survey:

  • Respondents had the lowest spending expectations for the hardware category (PC, servers, storage, audiovisual equipment and telecommunications gear) . Budgets will remain flat for storage and actually decline for servers, PCs and AV equipment, say the respondents. Telecom gear was the notable exception in this category, with a projected 10 percent spending increase over 2007.
  • Budget allocations look similar for SMBs and larger companies in 2008, although SMBs exhibit more of a do-it-yourself attitude. They expect to spend more on staff (34 percent) than enterprises (31 percent) do. SMBs also will not spend as much on consulting/outsourcing/training services (10 percent vs. 13 percent for larger companies) or on managed services (7 percent vs. 9 percent).
  • SMBs' relative aversion to outsourcing also shows up when they were asked which spending strategies would yield the greatest cost savings in 2008. Eight percent of SMBs planned to increase outsourcing, vs. 15 percent of larger companies. Fourteen percent of the enterprises also mentioned cutting staff, vs. 10 percent of SMBs.

In his IT Business Edge interview, Scavo also addressed the issue of why Computer Economics' spending numbers were lower than many other analyst firms. He said:

The other firms are forecasting IT spending on a macro-economic level. We take 125 companies and say, "Here's the median budget increase for next year." They're looking at the overall amount of IT spending in total, which includes changes in spending levels at existing companies as well as new spending in new companies. So their numbers may be a little bit higher because of that factor. They're looking at it from the overall economy; we're looking at it from the organizational side. I think what we're reporting is going to be more typical of what IT organizations are going to experience.

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