IT Budget, Capital Spending Growth Weakening

Jul 14, 2008

Allen Bernard

Even though, economically speaking, things are looking tougher by the day, in general, IT is fairing pretty well. Budget growth may not be what you would like it to be, but there is growth. Staffing levels are also, for the most part (depending what sector you're in), are holding steady with more companies looking to add people than cut them.


According to Computer Economics' (CE) 19th annual study on IT spending, staffing, and technology, the trends indicate that while enterprises are putting the brakes on capital spending this year, median IT operational budget growth is 4.0%.


The newly released study, which the research firm has conducted annually since 1990, found the growth rate of IT operational budgets is slowing this year, bringing to a halt a three-year upward trend. Capital spending plans, meanwhile, show no growth at all over 2007 levels.


"It's important to emphasis we're still not seeing widespread spending cuts. IT spending is still growing in the majority of organizations. There is a softening in the growth rate but the overall trend is positive," said Frank Scavo, president of CE.


While IT managers are generally demonstrating a cautious mood, not all sectors are equally impacted by the economic downturn. Energy/utility companies and high-tech organizations are continuing to increase their IT budgets by 8.0% and 7.0%, respectively. IT spending is slowing the most in the banking and finance, retail, and process manufacturing sectors, with growth rates of 2.5%, 2.0%, and 0%, respectively. In general, growth is also slowing more significantly in smaller companies than in larger organizations.

"IT spending, even in these relatively strong times in the past few years, has not gotten way out of line," noted Scavo. "IT managers have demonstrated strong fiscal discipline in good times and that's why you're not seeing strong cuts being made now—in contrast to Y2K and the ecommerce boom. A lot of IT managers learned their lesson."


The Computer Economics IT Spending, Staffing, and Technology Trends study also produced several other major findings:


       For the second year in a row, IT spending as percentage of revenue declined from the previous year. Median IT spending this year is 1.5% of revenue, down from 1.8% in 2007.


       IT organizations are prioritizing managing risk and improving service levels over developing new systems. The top three priorities for IT management this year are improving IT service levels, improving disaster recovery capabilities, and increasing IT security. Developing new systems—last year's highest priority—fell off the top-three list entirely this year.


       While IT managers are generally not cutting staff, they are holding the line on staff increases. Thirty-nine percent (39%) report plans to increase staff compared to 24% planning to reduce staff.


       Enterprises are continuing to report incremental growth in outsourcing across 11 categories tracked by the study. Application development continues to lead the way with 15% of organizations planning to increase outsourcing in that area compared to 11% planning to reduce application development outsourcing.

This is not the same as offshoring however, noted Scavo. Only 7.0% of all outsourcing is actually going overseas. Most of the work is being taken on by N. American firms based in the U.S. and Canada.





The annual study is based on an in-depth survey of more than 200 IT executives who provide detailed breakdowns of their budgets, staffing, and technology adoption plans for the 2008-2009 period. The survey sample includes a roughly equal number of small, medium, and large enterprises. The respondents are also stratified according to 11 industry sectors to provide a representative sample of IT organizations across all industries.


Tags: XML, security, Microsoft, IT, IT budgets,

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